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2) Discuss the steps taken by the RBI in recent years to clean up the balance sheets of commercial banks. (250 words)

TopicIndian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

2) Discuss the steps taken by the RBI in recent years to clean up the balance sheets of commercial banks. (250 words)

epw

economictimes

Economictimes

Why this question

India’s NPA problem is huge and has been gradually resolving but the pace has not been upto the mark. In this context RBI has been at the forefront and has taken several measures in recent years to resolve the problem of NPAs. Thus it is important to discuss these steps and inform ourselves about them.

Directive word

Discuss- This is an all-encompassing directive which mandates us to write in detail about the key demand of the question. We also have to discuss about the related and important aspects of the question in order to bring out a complete picture of the issue in hand.

Key demand of the question.

The question wants us to write in detail about all the measures taken by the RBI to resolve the problem of rising NPAs in Indian banking system.

Structure of the answer

Introduction– write a few lines about india’s NPA problem its status etc.

Body– Discuss the measures taken by the RBI in recent years. E.g insisting on a more vigorous asset quality review and providing a realistic picture of NPAs and provisioning ratios for the existing stock of restructured loans that are showing signs of stress. In order to prevent banks from liberally restructuring loans, the RBI cautioned that units not found viable would henceforth be treated as substandard assets for the purpose of provisioning;  scheme for sustainable structuring of stressed assets,” (S4A); Taking cognisance of the continuous increase in bad debts, the RBI further initiated stringent measures in February 2018, as per which the lenders should identify incipient stress in loan accounts and classify the stress accounts into three categories of special mention accounts (SMA), depending upon the default of payments and report the data to the RBI under CRILC. The resolution plan thereof would entail downgrading or upgrading of the loan accounts without loss of time. The loan classification and reclassification would be an ongoing exercise. according to which a portion of the stressed assets could be converted into equity of the company; scrapped numerous loan restructuring programmes prevalent among banks to restructure defaulted loans(CDR, SDR, S4A, JLF schemes) and made resolution of defaults time bound with the Insolvency and Bankruptcy Code becoming the main tool to deal with defaulters etc.

Conclusion- Based on your discussion, form a fair and a balanced conclusion on the given issue- e.g in view of the stringent measures imposed during the last two years and to maintain the stipulated CRAR norms, care should also be taken to ensure that there is no erosion of capital for any eventual decline in profits. If the repayments are not forthcoming as per the terms and conditions, and the assisted units are not found to be viable, steps need to be taken for fast recovery; need for a relook and review the database on NPAs of commercial banks etc.