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Growth of Non-performing Assets(NPAs) in India's Banking

System: Impact on Economy
Non-performing assets(NPA) is making the headlines these days, as most of
the Indian Banks have started to report declining profit or loss. Even though
the problem of NPA is grappling the banking sector since many years it took
a center stage now because of the Asset quality review conducted by RBI in
the financial year 2015-2016 on high value accounts. Subsequently RBI
recommended the banks to classify the eligible accounts as NPA. Banks had
the same problem in the early 2000s when the NPA levels climbed up to 12

What is NPA?
According to basel norms any loan which is 90 days past its due should be
classified as NPA. For example you have taken loan from a bank the
installment date is 29 june 2016 but you do not pay the loan 90 days past
29th june. On the 91st day it will be classified as NPA by the bank.
Why so much emphasis on NPA?
As you all know the main function of a bank is getting deposits from the
general public for a lower interest rate and lending it to the borrowers at a
higher rate. It makes a profit out of the net interest margin. Once the
borrower defaults, the Bank has to pay the interest to its depositors as it
cannot default and make provision for the principle amount which has been
lent, to safeguard the interests of the depositors. Most of the banks losses
around 70% for the provisions. Even though these provisions include for tax
and other expenses NPA provisions takes a huge chunk of it. Unlike other
sectors, the outcomes of the banking sector has huge impact on economic
system and the individuals in the system. We can consider the U S subprime
crisis and its impact on the world economy. Even though many firms have
failed in the past the failure of Lehman brothers has triggered the downfall of
not only U S economy but the whole economic system.
Impact on Economy:
As we all know India is a developing economy in order to achieve the status
of a developed economy India should have a healthy economic growth rate.
Countries like china are able to achieve high rates of economic growth by
increased capital investment.
Impact of NPA on credit expansion

The main engine for the economic growth is the banks. MSME industries and house hold Coursera monika(Bloomberg) Anusha agarwal —jp. da Akshay nimjhe-ncfm day0 . day1-stanc. They provide much needed credit for the