ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

NPAsSubscribe to NPAs

Procyclical Credit Growth and Bank NPAs in India

Despite recent monetary policy accommodation, bank credit growth continues to decelerate in India, partly due to huge non-performing asset overhangs in banks. This paper explores various issues related to surging NPAs in banks and observes that excessive credit growth in the past is a major reason that has led to current NPAs. Other factors such as contemporary economic conditions, capital adequacy and overall levels of efficiency of the banks have also affected the incidence of NPAs. For promoting financial stability and enhancing monetary policy effectiveness, it is suggested that macro-prudential aspects such as counter-cyclical capital buffer and dynamic provisioning need to be strengthened. There is also a need to explore if corporate governance concerns could be instrumental in adversely impacting the loan book of state-owned banks.

Low Public Investment Impacts on Capital Market

The persisting low economic growth is having an impact on the financial sector: apart from the recent disquieting developments, the setback to funds mobilisation through public issues which began in the mid 1990s is contributing to a depressing scenario in the capital market and the secondary segment is in a worse state. This has shifted the impetus to the growth of bank deposit with no improvement however in household savings. The severe liquidity strain in the industrial sector has prompted the postponement of investment decisions by entrepreneurs. This is likely to sharply expand the size of non-performing assets of banks and financial institutions .

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