It has been in the report that the covid pandemic has drained the world economy and India has witnessed its biggest fall on non-performing assets (NPAs) of the banking system. Whereas, the RBI has been strongly committed to preserving financial stability, tackling banking system NPAs as the biggest challenge so far.
Moreover, NPAs are expected to rise due to the covid crisis as the existing framework and could not handle high NPAs. Duvvuri Subbarao, Former RBI Governor stated that he was was against the idea of a bad bank, but could have changed the mind. It has been in the report that the NPA is going to witness a rise in the post covid.
Scheduled commercial banks (SCBs) Gross NPA ratio rejected from 9.1% at end-March 2019 to 8.2% at end-March 2020 and 7.5% at end-September 2020. It has been in the reports that due to the array of policy measures undertaken by the RBI include moratorium period and progress that was made under IBC. In fact, the RBI’s financial stability report has been revealed in July as it states that Gross NPAs of SCBs rise to 12.5% by March 2021 and escalate to 14.7% under a crucial scenario.
Subbarao believes that the infamous perception of NPAs has been on the peak due to the highest capitalism, a bad loan problem comes in with a combination of circumstances. Attributing the entire NPA problem is expected to mislead from a policy diagnosis perspective. High NPAs of the banking system have irrational exuberance in the high growth period.
One of the major elements has been the short tenure of the Public sector bank chiefs that led to kicking. Subbarao believes that the CEO tenure should neither be too long nor too short and the RBI should extend the recent CEO tenure norms for public sector banks.
