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THE IMPACT OF CORONA VIRUS ON NPA AND GDP OF INDIAN ECONOMY

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Alochana Chakra Journal ISSN NO:2231-3990

THE IMPACT OF CORONA VIRUS ON NPA AND GDP OF INDIAN ECONOMY

*S.PRASANTH**Dr. S.SUDHAMATHI
*PhD scholar, Alagappa Institute of Management, Alagappa University, Karaikudi,
Tamilnadu - 630002 (E-mail id: anbayprasanth @gmail.com )
**Assistant Professor, Alagappa Institute of Management, Alagappa University, Tamilnadu –
630002 ( E-Mail id:sudhamathiprem@gmail.com)
ABSTRACT
The eruption of the Covid-19 pandemic is an unprecedented blow to the Indian economy. The
economy was at that point in a parlous state before Covid-19 struck. With the delayed
countrywide lockdown, worldwide monetary downturn and related disturbance of interest and
supply chains, the economy is probably going to confront an extended time of slack. The size
of the monetary effect will rely on the continuation and seriousness of the wellbeing
emergency, the duration of the lockdown and the manner by which the circumstance unfurls
once the lockdown is lifted. In this paper we report the condition of the Indian financial
framework in the pre-Covid-19 period, the financial area should be the foundation of the
monetary arrangement of whatever state. It has a basic job in the advancement of whatever
country. The Indian financial part has been confronting major issues of raising non-
performing Asset (NPAs). It straightforwardly consequences for benefit of banks in our
country. Non execution or non-receipt of enthusiasm just as chief blocked banks cash to
stream the assets and isn't usable for additional work in the financial association and this
implies the net revenue of the banks gets diminished. We are presenting various standards of
computerized money related incorporation to make simple in doing exchanges, however at
that compartment is likewise sure hazard related with banks' advantage taking into account
this, the paper has been intended to analyze the issues of NPAs in the Indian financial
industry. NPA resembles crown which has been intriguing the entire country. That is the
reason there ought to be an appropriate model for estimating the future NPAs concerning the
Indian bank to beat the issue before it becomes NPAs. The method of the bank is estimated
along the premise of its NPAs. A significant level of NPAs proposes high benefit of most
extreme number of credit defaults that influence the gainfulness and total assets of the banks
and furthermore disintegrates the estimation of the advantage. Its includes the banks, yet
GDP of the entire country.
Key words: Covid-19, Indian Banking Sector, NPA, GDP
INTRODUCTION
We are in the core of a worldwide Covid-19 pandemic, which is delivering two sorts of stuns
on nations: a wellbeing stun and a monetary stun. Passed on the idea of the illness which is
exceptionally transmittable, the approaches to contain the spread incorporate arrangement
activities, for example, inconvenience of social separating, self-seclusion at home, conclusion
of organizations, and open offices, limitations on versatility and even lockdown of a whole
country. These exercises can conceivably go to horrible ramifications for financial
frameworks around the world. In other language, successful control of the infection includes
the economy of a nation to keep down its ordinary activity. This has started fears of a
secretive and extended worldwide downturn. On April 9, the head of the International
Monetary Fund, Kristalina Georgieva said that the year 2020 could observer the most
noticeably terrible worldwide financial aftermath since the Great Depression during the

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1930s, with more than 170 nations prone to encounter negative per capita GDP development
because of the seething coronavirus pandemic.34 The world has seen a few pestilences, for
example, the Spanish Flu of 1918, flare-up of HIV/AIDS, SARS (Severe Acute Respiratory
Syndrome), MERS (Middle East Respiratory Syndrome) and Ebola. Previously, India has
needed to manage sicknesses, for example, the smallpox, plague and polio. These people
have been truly serious scenes. Anyway the Covid-19 which started in China in December
2019 and over the accompanying scarcely any months quickly spread to practically all
provincial regions of the world can conceivably end up being the biggest wellbeing
emergency in our history. Numerous specialists have just anticipated this a Black Swan
occasion for the overall monetary framework. India recorded the primary occurrence of the
sickness on January 30, 2020. From that point forward the occurrences have expanded
consistently and essentially. At the hour of composing of this paper (April 4rd week, 2020), ,
India has recorded lower number of cases (23,140 complete affirmed cases and 723 passings)
contrasted with different nations, particularly those in the created world, which have been
gravely influenced, for example, the United States (8,89,999), Spain (2,13,024), Italy
(1,89,973), Germany (1,53,129), France (1,20,804), Iran (87,026) and the United Kingdom
(1,38,078) among others.5 However as per specialists, India seems, by all accounts, to be at
the beginning times of the episode and could very before long get overpowered with an
enormous number of cases. Universally there have been 1.4 million affirmed cases and near
85,000 passings (World Health Organization).
So as to check the spread of the infection, the administration of India declared a multi week
long across the country lockdown beginning March 25, 2020. All superfluous administrations
and organizations, including retail foundations, instructive establishments, spots of strict love,
open utilities and government workplaces the nation over will remain shut during this period
and all methods for movement have been halted. This is by a wide margin the most expansive
measure attempted by any administration in light of the pandemic. Given the examples of
transmission announced lately it looks likely that the lockdown may be stretched out past
April 14, in any event in certain states. It is hence not certain when the lockdown may be
lifted for the nation all in all, what may happen once the lockdown is loose even in a staged
way, and to what extent will it take for commonality to steadily reestablished. The lockdown
time frame purchases time to set up the wellbeing framework and to assemble an arrangement
of how to manage the flare-up once the case-load begins quickening. India's general
wellbeing framework is moderately more vulnerable than different nations. The legislature
spends just 1.5% of the complete GDP on general wellbeing because of which the framework
is terribly underprepared to manage a wellbeing emergency, for example, this.

ITS EFFECT ON NPA

During emergency times, one segment of the economy that is required to assume a pivotal job
as far as reducing the weights on the genuine economy is the budgetary area. The need of
great importance is to keep credit streaming to all classifications of financial specialists firms,
family units and so on., to assist them with holding over this emergency. In a bank ruled
economy, especially when the securities exchange is contacting new lows each day, the
budgetary middle people that most firms will go to are the banks. Activities taken by banks

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would be critical in tending to this monetary test. Banks likewise assume an indispensable job
as institutional members in the obligation advertise. In any case, the financial area in India is
seriously broken. Up until now, the issues in this division were antagonistically influencing
credit development. Presently this has started to hurt the obligation advertises too which
likewise assume a significant job with regards to money related intermediation. This could
quickly turn into a genuine stifle point as the Indian economy battles to grapple with this
remarkable stun
In the course of the most recent couple of years, India has been managing the Twin Balance
Sheet (TBS) worries in the banking and corporate divisions. This was a result of significant
levels of non-performing Assets (NPAs) in an insufficiently promoted financial framework,
joined with over-utilized and monetarily frail firms in the private corporate part (Sengupta
and Vardhan, 2017, 2019). The legislature and the financial controller (RBI) found a way to
address the emergency. These included putting the most vulnerable ten banks under a Prompt
Corrective Action structure which kept them from growing their books, starting examinations
by the Central Vigilance Commission (CVC), Central Bureau of Investigation (CBI) and so
forth against senior authorities of the banks, and guiding banks to trigger the Insolvency and
Bankruptcy Code (IBC, 2016) against defaulting firms and acknowledge huge hair styles in
any event, when cash-flow to accommodate the misfortunes was not adequate.
Sometimes senior authorities of banks were captured for supposedly false credit exchanges.
In February 2016, the Supreme Court gave a decision which held that representatives of all
financial organizations, remote just as residential, are "community workers" under India's
Prevention of Corruption Act, 1988 ("POCA"). This infers all bank workers currently face
the danger of examination and indictment under the POCA for issues identified with
debasement. Almost any choice about NPAs could go under the scanner. This single step is
probably going to dissuade bank officials from taking business choices. This is especially
troubling, given the sweeping portrayal of defilement under POCA and insignificant
limitations on examinations, as featured. by reporters at the time.10 These measures
apparently prompted an ascent in the hazard avoidance in the financial framework.
As the NPA emergency started leveling out, the budgetary framework confronted another
blow when an enormous non-banking money organization (NBFC), IL&FS (Infrastructure
Leasing and Financial Service) defaulted on its obligations in September, 2018. This sent
shockwaves through the financial framework just as the obligation showcases the two
greatest subsidizing hotspots for the NBFC division. The response of the security markets
was reflected in a sharp increment in credit spreads of all budgetary part security guarantors.
The absolute volume of bond issuances dropped fundamentally, for money related area firms
as well as for all borrowers. Banks kept loaning, principally energized by the RBI and the
administration, however this loaning was constrained to a bunch of profoundly appraised
NBFCs. The IL&FS scene further compounded the hazard hunger of the banks and activated
hazard avoidance in the obligation advertises too. Post the IL&FS emergency credit spreads
on corporate obligation protections stayed raised and generally bank loaning, after an
underlying spray in the last quarter of FY2019 (for the most part loaning to NBFCs),
decreased. Business credit saw a sharp decrease of practically 90% in the principal half of
FY2020. In the long stretches of February and March, 2020, the close downfall of Yes bank,
a huge private area bank, set off the danger of store press for private part banks which would

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additionally reduce acknowledge growth.11 subsequently, credit off-take during 2019-20 (up
to March 13, 2020) was quieted with non-nourishment credit development at 6.1% being not
exactly a large portion of the development of 14.4% in the relating time of the earlier year
ANALYSING BANKING REGULATION ANNOUNCEMENTS
Under the March 27 package, the RBI has given regulatory approval to banks and other
lending institutions to decide which of their customers needs a 90-day deferral. This decision,
to allow banks but not require them, to grant moratoria is a good one, as it allows banks to
distinguish amongst the three types of firms. Even so, the plan is not without drawbacks:
 No component was made to arrange the advances that have been rescheduled, so
straightforwardness has been lost. Speculators – effectively anxious as a result of
bookkeeping shocks at Yes Bank and other money related establishments – will
subsequently give capital just at a cost increased to mirror this data hazard premium.
What's more, this expansion in banks' costs will be given to the getting corporate
segment.

 There is by all accounts a lot of disarray about how EMIs on retail credits will be
dealt with. For instance, numerous borrowers may have missed one installment on
their credits in state February 2020. In the event that they get a ban on their EMI
installments for March, April and May it isn't evident whether their February EMI
will get 90dpd in May. On the off chance that that occurs, at that point their records
will become NPAs and the borrowers will get answered to the Credit Bureau
accordingly influencing their credithistories.

 It appears that the ban isn't pertinent to credits taken from banks by the NBFCs. This
is tricky. NBFCs have just been in a tough situation since 2018 and now they may
bring to the table the 3month ban to their clients. In any case, in the event that they
themselves can't profit by this deferral, at that point their budgetary pressure will get
considerably progressively exasperated. This is particularly valid for the MFIs. While
RBI has reported the T-LTRO component, most NBFCs don't give bonds and
consequently are probably not going to profit by this.

 Finally, and above all, there is no clearness on what happens once the ban time frame
is finished. By what means will banks tidy up the wreckage that will be made later,
the same number of the organizations which profited by the ban wind up defaulting?
There will be another influx of NPAs, which we know for a fact will be hard to
determine.

 There is likewise a hazard that now that a "transitory" ban has been presented, there
will be pressure for it to be broadened over and over. In the event that the RBI can't
avoid, we will rapidly wind up, thinking back to the 'broaden and imagine' period of
post-2008, where banks, financial specialists, the RBI, are altogether exploring in a
mist, since nobody will know, and henceforth, have the option to manage the genuine
size of the badloan issue.

POLICY CHALLENGES
While some strategy activities have just been declared by the legislature and the RBI, they are
for the most part interval gauges and won't be satisfactory to help the economy. Given the
current macroeconomic and money related condition in India, there are noteworthy

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difficulties in monetary, fiscal and budgetary arrangements which must be mulled over by the
policymakers. Significantly increasingly significant, there are some approach traps that must
be stayed away from so as to forestall a drawn out financial debacle. The target must be to
guarantee a V-formed financial recuperation once the wellbeing emergency lessens.
In the event of financial arrangement, in any event, expecting a preservationist situation
where the legislature doesn't bring about any extra costs due to Covid-19, the shortfall will be
more prominent than anticipated an incentive in the FY2021 spending plan. During the on-
going 3-week long lockdown, practically all financial exercises have been suspended and the
greater part of these are probably not going to continue in not so distant future given the idea
of the wellbeing stun. Therefore government incomes will fall definitely.
Given the discouraged value economic situation and worldwide financial vulnerability, the
disinvestment targets are probably not going to be met. Well beyond this, a great part of the
arrangement activities required to limit the financial aftermath of the stun will include
government spending. It is practically sure that the administration won't have the option to
stick to its monetary objective for 2020-21 and will in all likelihood penetrate it by a major
edge.
In India monetary shortfall is upheld by money related suppression wherein government gets
from a hostage market of banks and other institutional purchasers. In the pre-Covid-19
period, absolute government getting (focal and state) had just surpassed all out family unit
reserve funds. Further acquiring will hone the yields in the security market and group out
private capital when countless firms and families should get to remain above water. In
addition, net household sparing rate diminished to 30.1% of GDP in 2018-19 from 32.4%in
2017-18 (RBI, 2020). The sparing pace of the family part, which is a net provider of assets to
the economy, declined from 23.6% of GDP in 2011-12 to 18.2% in 2018-19. To the degree
that legislature depended vigorously on families for financing its shortfall, this decrease in
reserve funds doesn't look good. The huge scope salary misfortunes of numerous
organizations and family units that are unavoidable during this emergency infer that the
investment funds rate is probably going to fall much further. These components practically
rule out the administration to build its residential acquiring.

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There are presently calls from specific quarters for the RBI to print cash to fund the ascent in
monetary shortage, a training that was predominant in pre-advancement India yet from that
point forward has been stopped. Monetisation of monetary shortage will make inflationary
weights, lead to more noteworthy vulnerability about future swelling, increment long haul
financing costs and unfavorably sway development, in this manner overcoming the
exceptionally goal of supporting the economy. This move will hurt the validity of India's
expansion focusing on system and constrict the adequacy of future money related approach
activities.
In the event that at all monetisation of financial shortage should be turned to given the
uncommon conditions, extraordinary alert and thought must be dedicated to work out the
subtleties, an end date must be indicated by which time the procedure will be halted and there
must be finished straightforwardness about each progression of the procedure including the
aggregate sum of cash printed, and the particular employments of the subsidizing as chose by
the legislature. Above all there must be an all around arranged, very much characterized leave
system which is essential. The exit from such an arrangement is probably going to occur
when the economy is beginning to recoup and swelling is getting because of extension of
RBI's monetary record. The money related fixing that should be done at that stage may in
certainty wind up harming the recuperation. Along these lines, this is an extremely unsafe
instrument to send particularly for a nation like India where state limit is essentially more
vulnerable than created nations and institutional believability is delicate.

Given the decrease in stock costs, it will be hard for private banks to raise capital and the
stressed financial circumstance will make it hard for the administration to recapitalise the
open segment banks. Capital inadequacy despite rising NPAs, will prompt requests for
'patience' from the RBI. The net consequence of such administrative concessions would be
that the financial division will remain undercapitalised for quite a while and will shroud its
misfortunes. At the point when the Covid-19 stun hit India, the economy was all the while

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recuperating from the TBS issues, the seeds of which were planted in the long stretches of
administrative patience of the post-2008 period. Delay of NPA acknowledgment assists with
broadening 'and imagine'. Before long the issue turns out to be too enormous to handle and
the harm to the economy turns out to be durable. Whenever permitted now, this will prompt
framework wide emergency as it did in 2016-17 post the benefit quality survey by RBI.
Defaults by firms would trigger an influx of liquidations. The Insolvency and Bankruptcy
Code (IBC, 2016) has presented just because, a thorough and restrained procedure for
managing liquidations. There will be an interest currently to weaken the arrangements of
IBC. This could sabotage the most significant change of the most recent decade and render
the code incapable.
MONETARY POLICY:
The design of inflation targeting (IT) is well suited for such crisis times. IT anchors inflation
expectations, thereby giving monetary policy more room to manoeuvre during downturns.
Accordingly, efforts must be put into retaining and even enhancing the credibility of this
mechanism. What is required is accurate inflation forecast targeting. Monetary policy actions
should be couched in terms of this framework, as a way of assuring the public that the RBI is
keeping its eye on this critical objective, and that the mistakes of the past will not be
repeated. The MPC has to be careful about the delayed transmission of rate changes in India.
For example, monetary easing could take a year to have a significant effect, by which time
the problem might be over, and inflation might have re-emerged, at which point painful
measures would be required to bring it back down. This is not just a theoretical possibility: it
is precisely what happened in 2009-13.
FISCAL POLICY:
A large portion of the arrangement activities to help the economy during such extra-
conventional occasions will involve an ascent in financial shortage., the legislature as of now
has next to no financial space to suit a generous improvement. There is a great deal of weight
from various quarters to relinquish the financial combination rules, broaden the monetary
deficiency and let the obligation/GDP proportion go up. This might be unavoidable given the
conditions however ought to be done dependent upon satisfactory governing rules with the
goal that the drawn out outcomes of a monetary extension don't endanger the financial
recuperation.

CONCLUSION
Covid-19 has posed an unprecedented challenge for India. Given the large size of the
population, the precarious situation of the economy, especially of the financial sector in the
pre-Covid-19 period, and the economy‟s dependence on informal labour, lockdowns and
other social distancing measures would be hugely disruptive. The central and state
governments have recognized the challenge and have responded but this response should be
just the beginning. Policy makers need to be prepared to scale up the response as the events
unfold so as to minimise the impact of the shock on both the formal and informal sectors and
pave the way for a V-shaped recovery. At the same time they must ensure that the responses
remain enshrined in a rules-based framework and limit the exercise of discretion in order to
avoid long-term damage to the economy. It is not all possible to have zero NPAs, but
management should speed up recovery process to overcome existing problems. The

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government should also make more provisions for faster settlement of pending cases and it
should reduce the mandatory lending to priority sectors as this is the major problem creating
area. That‟s why it needs a lot of serious efforts otherwise NPAS will keep killing the
profitability of banks which is not good for growing Indian economy
ACKNOWLEDGEMENT
The author thank the RUSA Phase 2.0grant (No: F.24-51/2014-U.Policy (TN.Multi-Gen).
Dept of Edn. Govt. of Indiadated 09.10.2018) scheme of MHRD,Govt of India.
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coronavirus-could-mean-for-the-global-economy
2. Chaddha, N, A Das, S Gangopadhyay and N Mehta (2017), „Reassessing the Impact
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3. Duflo, Esther, Abhijit Banerjee (2020), “A prescription for action: Nine steps after the
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5. FAO (2020), “Covid-19 Pandemic: Impact on Food and Agriculture”, Food and
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