Dealing with NPAs

20 JUL,2020 | MEDC


 

The re-imposition of lockdown in various parts of India will affect the normalization of economic activity in the country. As a result, the ability of borrowers to repay debt will be affected. Thus, non-performing assets (NPAs) in the banking system are expected to rise in the coming quarters. Even though the situation in the banking sector has improved somewhat, there is still considerable stress in the public sector banks (PSBs). Gross NPAs in most of the PSBs are in double digits. As a result, PSBs continue to underperform and are losing share to their private-sector counterparts. However, the financial system is still dominated by the PSBs, whose lending strategies are regulated by the government. Stress in the PSB balance sheets will affect the flow of credit to the productive sectors of the economy, and impede a sustainable recovery from Covid-19. This is where policymakers should immediately intervene.

*Photo Credit: Google

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