Monday, December 19, 2011

NPAs in the Indian Banking System

Business Line of 19th Dec 2011 (page 13 - Money and Banking) carried an article titled "Govt, RBI must find a lasting solution to tackle NPAs" by T V Gopalakrishnan.  Thanks to BL and the author, a very detailed table was given with data on Advances, Deposits, CD Ratio, Investments and NPA as percentage of Total Advances between the year 1993 and 2011.  It was compiled from RBI's annual document "Trend and Progress of Banking in India" spread over these eighteen years.  Such information is very useful to students, teachers and researchers in banking domain.

Economic and Financial Sector Reforms including banking sector reforms were introduced in the Indian economy in June 1991 for certain compelling political and economic reasons.  In the process, the ailing Public Sector Banking system was cleaned up resulting in productivity, profitability, asset/liability and risk management, and balance sheet transparency as also management of NPAs (defined in 1993 and revised three times later conforming to global standards).

The table clearly indicates that while the business of banking (deposits, advances and investments) were growing at a fast pace, the NPAs were brought under control from a staggering 23.2 per cent in 1993 to 2.2 per cent in 2011.  This is certainly a laudable achievement and not a cause of concern.  However, efforts have to be continuously made to maintain this low levels of NPAs using all the legal tools and expertise.

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