These days more than one bad news is coming for the Npa economy. A new crisis may also come for the Indian banking sector. Presently NPAs of Indian banks are running at their highest level. In the coming times, the NPA of the Indian banking system may increase even more. Right now the total NPAs of Indian banks are running around 9%. The same rating agency says that the total NPA of the Indian banking system can increase from 11 to 12% in the coming times. Which is a dangerous level.
NPAs have been seen as a major problem for the banking system. But the fundamental reason for NPAs in India is not only to repay the debt but also political reasons are clearly visible in it. Due to which the NPA of the Indian banking system keeps increasing continuously. Some of the recently announced schemes and laws are also one of the reasons for increasing NPAs in India.
NPA of India’s Banking Sector
If we talk about last year’s NPA, it was at 8.7% level. It is likely to reach above 11 to 12% in the coming years. Large scale industries have been closed due to the corona virus epidemic. And even those new industries have not been able to happen due to the start of business. Indian companies have faced huge losses due to this. This may lead to increase in NPAs. Rating agencies around the world are giving this information.
The NPA of State Bank of India, the largest public sector bank in India, currently stands at 4.8%. Which currently looks very positive. But it may increase in the coming time.
According to the data released in the recent quarter, the price profit of State Bank of India has increased to the level of Rs 6451 crore. Which is the highest profit in the history of SBI. But experts say that it will be difficult to say that this will continue in the coming time. Experts say that in the coming times, a large amount of NPAs can be declared in the Indian banking sector. Due to which the Indian banking sector can get caught in a new problem.
Recently, the Government of India gave a capital of Rs 25000 crores to the banks of India. So that they can continue their operation. This included banks such as IDBI Bank Bank of Maharashtra Oriental Commerce Bank. UCO Bank was also included in these banks. The Government of India had issued bonds to give 25,000 crores to all these banks. Which is an additional burden on the exchequer of India.
Why is profit increasing in India’s banking sector
Unlike NPAs, Indian banks are making record breaking profits at the time. The main reason behind this is being told to the corona virus epidemic. Recently the Supreme Court gave an order. As per this order the bank was asked not to declare NPA even after the expiry of the time period. Due to this, this NPA was not visible in the balance sheet of the banks. And the NPAs of Indian banks went down considerably. But as soon as this period is over. This will be clearly visible in the coming quarterly results and once again the NPAs of Indian banks can go up to 12% or even more.
During this period, the profit of India’s largest private bank HDFC rose to the highest level of Rs 8433.78 crore. This is an increase of 15.33% over the previous quarter. However, this has also become possible due to the low base effect. Similarly, the profit of India’s second private bank ICICI has also reached the level of Rs 4886.13 crore. All this has been possible due to the low base effect and the extended period of NPAs. But this will not happen in the coming quarters. And the NPA of India’s banking sector can reach its highest level. In the same manner, all other public and private banks have earned record breaking profits this time.
Why NPAs will increase in India’s banking system
Now the question arises here that why is the NPA going to increase in the banking sector? Recently, the Government of India had decided to distribute a loan of Rs 300,000 crore to deal with the impact of the corona virus epidemic. Due to this, there is a danger of increasing NPAs in the banking sector of India. The Government of India has decided to distribute most of the loans without any guarantee. Out of this, work of about Rs.269000 crores has been distributed so far.
Rating agencies are constantly warning the Government of India. That the disbursement of loans without guarantee will increase the additional burden on the Indian government’s exchequer and worsen the condition of the Indian banking system. Dealing with which is not going to be easy for the Government of India.
Apart from this, recently the Government of India has decided to distribute an additional loan of Rs 100000 crores for tourism and other sectors. All these loans will be disbursed without any guarantee. Experts say that at least 20% of these loans are not expected to return to the banking sector. If this happens, then the NPA of India’s banking sector can reach its highest level.
New bankruptcy law may become trouble for the Indian banking system
To make the Indian bankruptcy law more simple and unified, a new Bank Bankruptcy Code was introduced. The purpose of this law was to protect the interests of all the stakeholders. Companies which have had huge financial irregularities and have gone bankrupt. Reviving them was also the purpose of this not insolvency law. But now it seems that this bankruptcy law has deviated from its target. Due to this, the Indian banking sector can get into trouble.
A Low Tribunal was established as per the new insolvency law of India. Who looks after all such matters. It is being seen that all the bankruptcy cases are going to the Law Tribunal. They are being sold almost for free. Similar was the case of Jet Airways recently. Where Jet Airways was sold to one company at a lower price of about 95%. Similarly, Dewan Finance was also sold to the new company. It did not recover up to 90%. Similarly, if we look at DHFL and other companies, even about 95% of them could not be recovered.
This caused huge loss to the stakeholders. Simultaneously 90% of the debt of the Indian banking sector got sunk in such cases. Because of this, the new bankruptcy law has brought a new difficulty for the Indian banking sector.
However, this definitely reduces the NPAs of Indian banks. But due to this, everyone from the consumer to the government has to bear heavy losses. Company employees lose their jobs. And they almost have to lose their salary too.
Due to this new bankruptcy law, the financial burden on the Government of India is also increasing continuously. India’s banks are constantly facing financial losses. And due to this the Government of India has to invest additional capital in the banks. It is not only affecting employment. Rather, Indian banks are going into losses despite the reduction in NPAs. Experts are saying that the new bankruptcy law now needs to be reformed again. And for this an expert panel should be constituted.
Impact of NPAs on Indian Economy
Rising NPAs in the banking sector have a negative impact on the Indian economy. Because of this things become expensive. And there is an additional financial burden on the Government of India. Which is recovered directly from the public. The middle class usually falls in its grip.
Due to rising NPAs, the government has to make provision for additional capital in its budget. And this capital is recovered from the tax system. Due to which there is a huge increase in the prices of edible oils to petrol and diesel in India. This also increases the freight cost. The unemployment rate increases and we get to see other side effects too.
It is generally seen that the Government of India issues bonds to invest capital in the banks of India. This worsens the economic condition of the Indian government. And he has to take care of the financial position of Indian banks by taking additional loans. Due to which he has to make additional financial provisions in his budget.