INDIA’S STRESSED ASSETS CONUNDRUM – SUGGESTED WAY-OUT

Dawn of Twenty-First Century sighted the Stressed Assets {NPAs}, These banks and financial institutions came under tremendous pressure for financing the projects in the various sectors that perforce became necessary with the Economic Reforms in 1991 that enabled the private participation in a wider sense in the economic development process followed by the Financial Sector Reforms 1991-1992 onwards that blurred the functional lines hitherto existed between the commercial banks and
the DFIs.
Because of rising Non-Performance Assets (NPAs) of the major private participants from the later part of the first decade of the new century, the banks and financial institutions were not able to maintain their level of profitability in their operations which was further constrained due to enforcement of Prudential Norms by the RBI. The NPAs reached peak sometime in 2006-07 that led to increasing uneasiness in the Financial Sector.
This entailed the amendment of the Banking Regulations Act, 1949. Then came IBC which opened up a newer route to escape from honouring the NPAs resulting in the write off of large public money. This is going on; the catastrophic outcome of which is telling upon the economic slowdown. The Prudential Norms Circular of 12 February 2018 issued by the RBI was struck down by the Supreme Court. The PSBs having been working under invisible political interventions from the time they were nationalized way back in 1969 aided more in building up the NPAs. The PSBs having found themselves in a fixed situation due either because of policy or political considerations were unable to act according to the loan covenants for recovery of NPAs. IBC route had not been beneficial to the PSBs who ultimately had no option but to make provision for Bad Debts/Doubtful Debts and write them off in their books of accounts. This is the Work-in-Progress {WIP}