Context
A parliamentary standing committee on finance has admonished the government against the early Euphoria over the recent reduction in bad loans in the banking system.
News Highlights
- The panel has cautioned the government about the impact of the covid pandemic that may push up the non-performing assets(NPAs).
- This observation of the panel came in response to the submission that the gross NPAs for public sector banks have eased from 9.11%as of march 31, 2021 to 7.9% at the end of December 2021.
- The panel suggested the continuation of the efforts taken by the government to ease the NPA level.
Bad loans and NPAs
- NPAs are those assets of the banks that are in default for a long time due to non-repayment of loans, broken loan agreements, etc. that created a financial burden on the balance sheet of the banks and are responsible for their poor performance.
- As per the RBI`s definition of NPAs, any debt is classified as NPAs when loan payments have not been made for a period of more than 90 days .
- NPAs are further classified as a substandard asset, doubtful assets, or loss assets, depending on the length of time overdue and probability of repayment.
Financial stability report
- This financial stability report was released bi-annually by the Reserve bank of India to detail the state of financial stability in the country.
- This report has projected the increase in gross NPA ratio from 6.9% in September 2021 to 8.1% by September 2022 under the baseline scenario.
Bad banks
- These are the banks that buy bad loans from the lenders and other financial institutions for helping them to clear their balance sheets. They are created as the Asset management company to release the burden of NPAs on banks so that their performance could be revived.
