NPAs limit lending capability, dampen growth
The increasing burden of non-performing assets on India's public sector banks is a matter of grave concern. It restricts their lending abilities and this, in turn, dampens economic activity. Recently, the International Monetary Fund also warned that about 37 per cent of Indian bank's total debt is at risk — the highest level among emerging economies. Already, about 300 projects, worth over Rs18 lakh crore, have been stalled because banks are unable to fund them. And this without even considering the new projects, say under the Make in India programme, that will not be able to break ground at all. One does not need to be an economist to gauge the adverse impact this is having on the country's economic outlook, its potential to create new jobs and spur growth.
At least 14 public sector banks, which make up the backbone of the Indian economy, have reported stressed assets, with at least Rs2,60,531 crore worth of NPAs, as of December 2014. In other words, about 13 per cent of the total loans given out by these banks have turned into bad debt, although the number is much higher is some cases. For example, the Central Bank of India, which tops the NPA burden list, has more than 21 per cent in bad loans. One of the biggest reasons for this rising pile of bad debt is a slow-moving economy — the result of a decade of policy paralysis, widespread corruption and overall bad governance. Simply put, the industry has been unable to make profits and has defaulted on its loan payments. But industry is not the only defaulter.
The Government, which took out crores of rupees in loans to fund mega projects, is also high up on the list. Notably, more than half of the bad debt held by public sector banks is stuck in five major sectors: Infrastructure, iron and steel, textiles, mining and aviation. Also, within the infrastructure sector, power, oil and gas projects make up for almost 60 per cent of the bad debt. The remaining is split between the telecommunication and transport sector. It is no coincidence that most of these sectors suffered major scams during the UPA years. The Government arbitrarily doled out natural resources, bleeding the national exchequer of crores of rupees. Eventually, the judiciary had to step in and reverse the orders or cancel the licenses. The increase in bad debt was an unavoidable side-effect of those corrective measures.
looking ahead, the Government needs to put in place a proper regulatory framework for the use of natural resources such as mines and minerals, forest lands etc. Sanctioning of projects on a case-by-case basis, without any overall plan or perspective, must end. Also, there needs to be more transparency and accountability in the process. These are long term measures that will take time to mature and show results. In the meantime, the situation can be improved by tightening the regulatory process and ensuring that banks comply with existing rules and guidelines when disbursing loans.