Worries Of Bad Loans: Concerns For Prompt Action Under Sarfaesi Act

The Banking sector mostly public sector Banks are being squeezed between rising bad loans and lower earnings on one side and shortage of capital and burden of obligations toward financial inclusion on the other.

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The context of growing non performing assets:

The overall slow down of the economy leads to rise of NPA level, the growing menace of NPAs threatens to destabilize the entire financial structure of the nation.

The accumulation of NPAs is bad for the growth of a stable financial system. If we analyze the performance of banks particularly PSU banks in the last quarter's we will find most of the banks have incurred losses and there is substantial increase in NPA portfolio of banks. Public Sector Banks have seen a surge in their bad loans following the Asset Quality Review and directions from the RBI to classify some large corporate accounts as bad debts. The mounting NPA has also become a matter of great concern for Reserve Bank of India and Ministry of Finance, Govt. of India. Most of the Banks have incurred losses during the last quarter.

The cumulative losses of 8 public sector banks that were in red for the quarter end December 2015 has crossed Rs 10,000 crore the highest ever in the absolute terms. The high losses are because the banks have made huge provisions towards bad loans in the third quarter and most of the banks have tried to clean up their balance sheets as per the requirement of RBI. The magnitude of the problem can be processed from the fact that just 60 big companies were the cause of over Rs 10,000 crore loss to 8 banks during the quarter end December 2015.

Let us have a glance at the NPAs and losses incurred in the third quarter by major public sector banks:-