Management of Banks

Non-performing assets (NPAs) of public sector banks fell by over Rs 1 lakh crore during the
first nine months of the current fiscal to Rs 5,77,137 crore from Rs 6,78,317 crore.

Compare the Government of India's statement in the Parliament & RBI's estimates of
NPAs in PSU Banks during 2021-22

Government of India’s statement of NPAs in PSUs:

The government said that the reduction was due to its strategy of “recognition, resolution,
recapitalization and reforms.

The government said that its policy of transparent recognition of NPAs resulted in bad loans
rising to a high of Rs 8,95,601 crore in FY18 from Rs 2,79,016 crore in FY15

RBI estimates of NPAs in PSUs:

On the projection in the Reserve Bank of India’s financial stability report that bank NPAs
could rise to 13.5% by September 2021, the finance ministry said that according to the central
bank, the numbers do not factor in the policy measures.

Analyse the reasons for reduction of NPA in PSU banks as stated by the Government
and according to you, how the NPAs in PSU banks will behave in 2021-22, based on RBI
report.

Reasons for reduction of NPA in PSUs banks as stated by government:

Strategy of,

 Recognition
 Resolution
 Recapitalization and
 Reforms.

Reasons for reduction of NPA in PSUs according to me:

 Loan repayment moratorium (The extension of the three-month EMI moratorium

on repayment of term loans means that borrowers will not have to pay their loan EMI
instalments during such period as prescribed by the RBI.)

 Loan restructuring (Reserve Bank of India allowed lenders to offer loan

restructuring options to their borrowers to help them repay their loans easily)
  Monetary easing (The policy in which a central bank lowers interest rates and
deposit ratios to make credit more easily available. This makes borrowing easier for
businesses, which stimulates investment and expansion of operations)

 Capital infusion into public sector banks (Through this method, the government
asks the banks to subscribe to government recapitalisation bonds for the exact amount
that is released to them as capital. So, banks will receive capital and the same
amount will be invested in government bonds also. Both assets and
liabilities will increase for the like amount. During 2019-20, the government proposed
to make Rs 70,000 crore capital infusion into the PSBs to boost credit for a strong
impetus to the economy)

Projections of NPAs in 2021-22 according to RBI estimates:

Banks’ gross non-performing assets may rise to 13.5 per cent by September 2021, from 7.5
per cent in September 2020 under the baseline scenario, according to Financial Stability
Report (FSR) released by the Reserve Bank of India.

If the macroeconomic environment worsens into a severe stress scenario, the GNPA ratio
may escalate to 14.8 per cent

Among the bank groups, public sector banks’ (PSBs) GNPA ratio of 9.7 per cent in
September 2020 may rise to 16.2 per cent by September 2021 under the baseline scenario,