VIKAS DHOOT
The story so far: After losses in two consecutive years,India's scheduled commercial banks turned profitable in 2019-20. State-run banks continued to bleed for the fifthyear in a row, but their losses were much more stifled.The Reserve Bank of India (RBI) reckons that the first halfof 2020-21 saw even greater improvements in banks' vitalstatistics, with non-performing assets (NPAs) falling to7.59% of outstanding loans by September 2020. The RBI
attributed this to the resolution of a few large accountsthrough the introduction of the Insolvency andBankruptcy Code (IBC) in 2016, and fresh slippages inloan accounts dipping to just 0.74%.When were NPAS at dangerously high levels?
Over the course of 2019-20, India's banks were on themend froma precarious position inMarch 2018, whenbad loans on their books peaked to over 10 lakh crorearound 11.5% of all loans. What former Chief Economic
Adviser Arvind Subramanian had called India's 'twinbalance sheet problem' in the Economic Survey for 2016-
17, had sent banks down a slippery slope, beset by
dangerously high levels of non-performing assets.
A large part of the problem started in the latter half of
2010s, as assumptions of persistently high economic
growth made severål large corporates overzealous in
their investment ambitions, thus over-leveraging
themselves in the process. And lenders, led by public
sector banks, fuelled these plans through easy money on
credit. The problem was particularly acute in the
infrastructure sector, where high-stakes bets on several
projects unravelled as growth (and demand) fizzled out
following the global financial crisis of 2008. The stress
from stretched corporate balance sheets infected banks'
own books and underwhelmed their capacity for fresh
lending. This vicious cycle was interrupted to an extent
by the IBC, which, along with tighter recognition norms
for bad loans, helped correct the course over time.
VIKAS DHOOT
The story so far: After losses in two consecutive years,
India's scheduled commercial banks turned profitable in
2019-20. State-run banks continued to bleed for the fifth
year in a row, but their losses were much more stifled.
The Reserve Bank of India (RBI) reckons that the first half
of 2020-21 saw even greater improvements in banks' vital
statistics, with non-performing assets (NPAs) falling to
7.59% of outstanding loans by September 2020. The RBI
attributed this to the resolution of a few large accounts
through the introduction of the Insolvency and
Bankruptcy Code (IBC) in 2016, and fresh slippages in
loan accounts dipping to just 0.74%.
When were NPAS at dangerously high levels?
Over the course of 2019-20, India's banks were on the
mend froma precarious position in March 2018, when
bad loans on their books peaked to over 10 lakh crore
around 11.5% of all loans. What former Chief Economic
Adviser Arvind Subramanian had called India's 'twin
balance sheet problem' in the Economic Survey for 2016-
17, had sent banks down a slippery slope, beset by
dangerously high levels of non-performing assets.
A large part of the problem started in the latter half of
2010s, as assumptions of persistently high economic
growth made severål large corporates overzealous in
their investment ambitions, thus over-leveraging
themselves in the process. And lenders, led by public
sector banks, fuelled these plans through easy money on
credit. The problem was particularly acute in the
infrastructure sector, where high-stakes bets on several
projects unravelled as growth (and demand) fizzled out
following the global financial crisis of 2008. The stress
from stretched corporate balance sheets infected banks'
own books and underwhelmed their capacity for fresh
lending. This vicious cycle was interrupted to an extent
by the IBC, which, along with tighter recognition norms
for bad loans, helped correct the course over time.
