Reality check: On bank NPA’s(Hindu summary-28th June 2018)

www.iasinsights.in ; www.iasgyaan.com posts Hindu  summary-28th June 2018 about Reality on NPA’s.

Reality check: On bank NPA’s

The Hindu

Context:

  • Reserve Bank of India has warned that the gross non-performing assets (GNPA’s) of scheduled commercial banks in the country could rise from 11.6% in March 2018 to 12.2% in March 2019.
  • Report highlights Public sector banks (PSB’s) are far more prone to fraud than their private sector counterparts. This is significant in light of the huge scam unearthed at a Punjab National Bank branch earlier this year.
  • The deteriorating health of banks is in contrast to the economy, which is on the path to recovery, clocking a healthy growth rate of 7.7% during the last quarter.

Affects:

  • RBI believes that this will increase the size of provisioning for losses and affect the capital position of banks.
  • The capital to risk-weighted assets ratio of the banking system as a whole is expected to drop from 13.5% in March 2018 to 12.8% in March 2019.
  • Rising external risks that pose a significant threat to the economy and to the banks
  • Tightening of monetary policy by the United States Federal Reserve and increased borrowing by the U.S. government have already caused credit to flow out of emerging markets such as India.
  • The increase in commodity prices is another risk on the horizon that could pose a significant threat to the rupee and the country’s fiscal and current account deficits.
  • Serious corporate governance issues faced by public sector banks, which to a large extent also contributed to the lax lending practices that are at the core of the NPA crisis.

What need to be done?

  • Governance reforms at PSB’s can help improve their financial performance and also reduce their operational risks.
  • RBI expects the government’s recapitalization plan for banks and the implementation of the Insolvency and Bankruptcy Code to improve the capital position of banks.

Conclusion:

Unless the government can gather the courage to make drastic changes to aspects of operational autonomy and the ownership of PSB’s, future crises will be hard to prevent.

 

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