After struggling for the last few years, Indian banks have managed to bring non-performing assets (NPA) under control. From an all-time high of 11.5 per cent in 2018, NPAs are now expected to go below the five per cent mark in the current financial year and are further expected to go below the four per cent mark in the next fiscal. This development will definitely restore confidence in the country’s banking system. Financial organisations like Crisil along with other international firms are expecting NPAs in India to touch a decadal low soon. This is clearly a welcome departure from the nightmarish experiences of 2018. Since then the banks have embarked on a balance sheet clean up exercise which is currently bearing fruit. Clearly, it is time now for Indian banks to be optimistic about the future, simultaneously, it is essential to temper expectations given the global economic context.
While the reduction in NPA is encouraging, any hope of quick or huge profits may be unrealistic. The world economy is struggling to regain its health after being severely impacted hit by COVID-19 pandemic and the Russia Ukraine conflict. The repercussions of these events have been far reaching with major economies of the world struggling with issues like inflation and unemployment. To function in this uncertain scenario Indian banks will require patience. The fact that the Indian economy has made a recovery can be attributed to steps taken by the government including an increase in capital expenditure. As can be seen by recent developments the measures have succeeded in creating an atmosphere conducive to the revival of the Indian economy. Moreover, there are still some areas which need to be improved fast. According to results declared by the banks, although NPAs have gone down considerably, there is not much progress in loan write-offs and recoveries. Indian banks are still lacking in these aspects, which may hinder the recovery process. On their part, Indian banks should wait patiently for the MSME sector to recover as the sector was badly hit by the pandemic and is still struggling to cope with the present situation. In such a situation the banks may not be able to recover loans from this sector hurriedly. It is imperative that loans be restructured in a manner in which outstanding amounts can be refunded without much difficulty. The banks should aim at higher recoveries and lower write-offs.
