30 November 2016 Current Affairs: The Union Government has announced that the gross non-performing assets (NPAs) of the Public sector banks (PSBs) have touched around 66 lakh 40 thousand in the three months period from July to September 2016.
As on September 30, 2016 gross NPAs of the PSBs in the country rose to Rs. 6,30,323 crore as against Rs. 5,50,346 crore by end of June 2016. It shows increase of Rs. 79,977 crore NPAs on quarter on quarter basis during this period.
The incidence of NPAs is high in sectors like infrastructure, power, road textiles, steel etc. So, the Union Government has taken sector specific measures to tackle the menace of NPAs. These measures aim at improving resolution or recovery of bank loans.
They are enactment of Insolvency and Bankruptcy code, 2016 followed by amendment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and Recovery of Debt due to Banks and Financial Institutions (RDDBFI), Act. In addition, six new Debt Recovery Tribunals (DRTs) have been established.
NPAs are loans made by a bank or finance company on which repayments or interest payments are not being made on time. Thus, NPAs are any asset of a bank which is not producing any income and are also called non-performing loans.
The loan is considered to be a NPA once the borrower fails to make interest or principal payments for 90 days. In case of Agriculture/Farm Loans, the NPA varies for of Short duration crop loan (interest not paid for 2 crop seasons), Long Duration Crops (interest not paid for 1 Crop season).
Large number of NPAs affects the profitability & liquidity of the banks. It adversely affects the value of bank in terms of market credit and widens assets and liability mismatch.
It results in inflating the cost of capital for economic activities and banks may charge higher interest rates on some products to compensate NPAs.