NPA Crisis

RBI Financial Stability Report shows rising stress in agriculture and industry

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Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: RBI Financial Stability Report,  Special Mention Account (SMA), NPA

Mains level: NPA problem of banks

Stressed loans in agriculture increase

  1. RBI Financial Stability Report states that stressed loans to agriculture have risen since March 2017
  2. Stressed loans now account for almost a quarter of banks advances to industry

Situation of other sectors

  1. Stress has increased in infrastructure, engineering, food processing and construction sectors
  2. Stressed assets are coming down in the services sector

Bad loans

  1. The accretion of bad loans in September quarter was the slowest in almost 10 quarters for banks
  2. Many lenders also showed improvement in bad loan ratios

Does this mean bad loan crisis is over?

  1. Large borrowers are still unable to meet loan repayment commitments and banks are still deeply mired in the bad loan mess
  2. Stressed companies still aren’t able to generate enough revenue to honour loan payments

Special mention accounts

  1. Before a loan account turns into an NPA (Non-performing asset), banks are required to identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA) category
  2. Between March and September, SMA-2 loan accounts, cases where principal and interest payments are overdue for more than 60 days, surged by 56%
  3. There is a concurrent drop of 40% in SMA-1 accounts, where payment overdue is more than 30 days

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