Indian Economy: Banking Structure & NPAs

The Indian banking system consists of Commercial Banks, Cooperative Banks, and Specialized banks. A major challenge facing this sector is the rise of Non-Performing Assets (NPAs).

Classification of Assets

• Standard Assets: Assets that do not disclose any problems and do not carry more than normal risk.
• NPA Definition: A loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
• Sub-standard Assets: Assets which have remained NPAs for a period less than or equal to 12 months.
• Doubtful Assets: Assets which have remained in the sub-standard category for a period of 12 months.

Recovery Mechanisms

• Insolvency and Bankruptcy Code (IBC): A time-bound process for resolving insolvency in companies and among individuals.
• SARFAESI Act (2002): Allows banks to auction residential or commercial properties to recover loans without court intervention.
• Bad Bank (NARCL): An entity formed to take over the “bad loans” or NPAs from commercial banks to clear their balance sheets.
• Mission Indradhanush: A 7-pronged plan to revamp the functioning of Public Sector Banks (PSBs).

Question for you: In the context of banking, what does “Capital Adequacy Ratio” (CAR) measure?

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