Bad Loans in Good Banks: Recent Experiences in India

Introduction One of the strong pillars of the Indian economic system is a banking structure with stability, solidarity and diversity with which it could withstand many challenging circumstances including the worldwide recession of 2008. In spite of these virtues it is now facing a widespread criticism that it is vitiated by alarmingly a large percentage of non-performing assets (NPAs) to total advances. The gravity of the situation could be gauged by the fact that this intimidating problem is assuming political importance which does not augur well for the very future of the Indian banking industry. The opposition parties, particularly the NDA group, had derived pleasure by making a public statement that the UPA government itself has become an NPA! What causes surprise is the disturbing fact that the central government, especially the Union Ministry of Finance is taking its own children viz., public sector banks (PSBs) for not being able to tackle the problem of NPAs. Therefore, it is worthwhile to examine some of the recent events and experiences which go to show that public money in this country is like orphans suffering from both under nutrition and malnutrition. This article is intended in the main to examine trends, causes and consequences of bad loans clearly reflecting on the qualitative aspect of assets with the PSBs accounting for the largest chunk of business in the country.