Current Affairs

NPA: Are We Staring at An Inevitable Credit Crisis?

NPA: Are we staring at an inevitable credit crisis?

Any loan which ceases giving a return to its lender for a specified period is known as a non-performing asset (NPA). Generally, that specified time is 90 days but may vary with countries and instruments. In the case of India also, NPAs are loans and advances where the borrower has stopped making interest or principal repayments for over 90 days.

According to projections by RBI, the gross NPA ratio for Indian commercial banks is likely to expand from 7.5 per cent in September 2020 to 13.5 per cent in September 2021. It seems to be a direct warning of a looming credit crisis.

Need to Revisit Disinvestment Strategy

Much of the support for privatization is based on the argument that public enterprises’ performance can be improved by exposing them to market forces. There is an underlying belief that private sector organizations are more efficient in comparison to public ones. In the last year, two private sector banks’ failure is a strong rebuttal to this widely held misplaced belief.

The zeal with which this year’s budget has taken a quantum leap by having a steep target of Rs 1.75 lakh crore during the year 2021-22 in revenue from disinvestment, privatisation, and asset monetisation seems highly inspiring. However, the timing of this aggressive leap of faith raises a lot of questions on the intentions of PSE reforms.

Is the timing having a lot to do with the burgeoning fiscal deficit necessitated on account of Covid-19? If yes, what’s the quantum of resource that would be put back into the PSE for further restructuring and strengthening?