NPA of commercial banks increased by around 4%: Government
The Union Government has announced that the Non-Performing Assets (NPA) of commercial banks have increased by around 4% in the last one year (March 2015 to March 2016).
It was announced by Union Minister of State for Finance (MoS) Santosh Gangwar in a written reply to the Rajya Sabha.
- The NPA of banks was 5.43 percent in March 2015 which has risen to 9.32 percent in March 2016.
- The high incidences of NPAs are mainly related to power, road, steel, textiles and other sectors.
- NPA amounts are related to 417 stalled infrastructure projects where public sector banks have invested is over 66478 crore rupees.
- Union Government has taken several steps to revive these stalled projects. Besides, the Reserve Bank of India (RBI) has also issued guidelines for restructuring of loans.
What are Non-Performing Assets (NPA’s)?
- NPAs (also called non-performing loans) are loans made by a bank or finance company on which repayments or interest payments are not being made on time.
- The loan is considered to be a NPA once the borrower fails to make interest or principal payments for 90 days.
- In case of Agriculture/Farm Loans, the NPA varies for of Short duration crop loan (interest not paid for 2 crop seasons), Long Duration Crops (interest not paid for 1 Crop season).
- Thus, NPA is any asset of a bank which is not producing any income. It affects the profitability & liquidity of the banks.
- It adversely affects the value of bank in terms of market credit and widens assets and liability mismatch.
- It results in inflating the cost of capital for economic activities and banks may charge higher interest rates on some products to compensate NPAs.