The Indian banking industry has been suffering from an extensive Non-Performing Assets (NPA) crisis.
The Public Sector Banks (PSBs) are hard hit but private banks are also not completely immune from it. It is claimed that the PSBs and private banks are not on the same plane. The PSBs are expected to perform many functions that are related to the development of the country. The private banks, on the other hand, are more profit-oriented. PSBs have been ahead of private banks in cases of financial inclusion, implementation of Jan Dhan Yojna, priority sector loans, and in many other cases.
Beginning of NPA
Infrastructure development is considered as a nation building programme. But in this area, the role of private banks has been restrictive. It is known that the biggest contributory factor of NPA has been related to the infrastructure loans of banks. In the first phase of the Manmohan Singh government, the Indian Ministry of Finance miscalculated the growth projection of GDP. It was thought that India will be able to experience double digit growth of GDP for many years and proper infrastructure was needed to achieve this. So, the government pressurised banks to make loans on infrastructure. Generally, banks lend on an operating basis and these loans are not long term loans.
A large number of high cost infrastructure projects got stalled during the late years of the Manmohan Singh government, which included road and power projects. The unavailability of required land due to various factors like environmental clearances or suitable compensation to evicted people was some of the responsible factors. Land acquisition has been a persistent problem of the Indian economy. Under the Indian Constitution, states were granted the powers to enact (and implement) land reforms in 1949. However, this autonomy also created significant variation across states in terms of the number and types of land reforms that have been enacted and
Are the PSBs short of quality man-power?
This story is from the July 16-31, 2019 edition of BUSINESS ECONOMICS.
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This story is from the July 16-31, 2019 edition of BUSINESS ECONOMICS.
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