1.

Introduction / Background
1.A Brief Background and Problem statement

The development of a healthy financial and economic system relies heavily on a robust banking system. However,
the Indian banking system has been plagued by the issue of Non-Performing Assets (NPAs), which has garnered a
lot of attention and scrutiny in recent times.

This has had a detrimental impact on the ability of banks to lend, creating a significant obstacle in the smooth
functioning of the banking system. The presence of a high level of NPAs indicates a greater likelihood of credit
defaults, thereby decreasing the overall efficiency and efficacy of the lending system. The reduction in credit
availability not only affects the banks but also poses a problem for policymakers and hinders the economic growth
of the country.

In 2007-08, the Gross NPA (GNPA) of all Scheduled Commercial banks (SCBs) in India amounted to INR 40,452
crore, but by 31 March 2019, it had skyrocketed to INR 9,36,474 crores. According to the Centre for Financial
Accountability's analysis, between FY15 and FY19, if the opening NPAs were considered 100%, then real slippages
were added at 67% on average, recoveries with upgradation at 20%, while write-offs contributed above the recoveries
at 22%. As a result, cumulative NPAs increased by 25% (100+67-20-22=125) over the five-year period.

To address the problem of NPAs and enhance the efficiency of the Indian banking system, the Government of India
has taken several measures on various fronts.
“During a Parliament session in December 2022, Finance Minister Nirmala Sitharaman announced that banks had
written off non-performing loans amounting to ₹10,09,511 crore in the past five fiscal years. To address the issue of
stressed loans totalling approximately ₹2 lakh crore in a phased manner, the Union Budget for 2021-2022 proposed
the establishment of a National Asset Reconstruction Company Ltd. (NARCL)”.

This document presents a study on the recent loan delinquencies in Indian banks. The co-authors of this document
are students at the Indian Institute of Management, Kozhikode who have been assigned this case study as part of their
project work for Macro Economics. The case study leverages facts, views, analysis etc. that are publicly available in
documents, articles, videos and other sources.

1.B What are Loans ?