Bank Non-Performing Assets and Economic growth


I was recently engaged in a private conversation with a small scale real estate developer who had borrowed a sizable amount of money from one of the nationalized banks. He said to my astonishment that he has decided not to pay the loan and its installment as he is stuck with constructed apartments which he is not able to sell. If required he said that he would surrender the built apartments to the bank. I was wondering why this is taking place. I saw a press release from the Paris based think tank OECD with the following statement. I quote “The economic slowdown and higher interest rates are making it tougher for companies to repay loans, leading to a steady growth in non-performing assets especially among state run banks”.

As per the data available, stressed loans in India those that are categorized as bad and restructured total $ 100 billion or about 10% of all loans. Fitch Ratings expects the stressed assets to reach 14% of loans by March 15.

Indian economy is currently facing one of the worst slowdown since 1980’s. Investment growth has hit an 11 year low, making the economic growth rate to stay below 5 percent for years to come. The All India Banks Association released a report of 406 bad loan accounts totaling Rs 70300 crores as of March 2013. To name a few companies with bad loans

  • Sterling Biotech                    3672.6 crores
  • Winsome Diamonds            3156.62 crores
  • King Fisher Airlines             2693.24 crores
  • Orchid chemicals                  938.48 crores
  • Paramount Airways              304.02 crores

It is the responsibility of the new government to pull the country out of this stagnation. Policy Paralysis has completely destroyed the economic growth of our country. With scams billions of rupees are stolen, with NPA billions of rupees have disappeared. Trillions of rupees are used as subsidies and given to people for not working. We are on the one side dreaming of achieving economic growth but on the other side coping with situations which is dragging our economy into a hell hole. The new government cannot wait another day but should act quickly.

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