The banking system in India is currently grappling with the problem of NPAs. NPAs of banks in India have reached above 9%. NPAs of some banks have reached above 16%. Which is also upside down like this. So will the Indian banking system sink in such a situation?
However, there is no possibility of the Indian banking system sinking in the future. Yes, but they can grow more in the coming years. So what are the ways to reduce the NPA? Today we will talk about it?
Recently there was news of another bank of India getting into trouble. Lakshmi Niwas Bank of India was sold to a private bank due to poor performance. The move was taken by the Reserve Bank of India to save the bank. Earlier, PMC Bank and Yes Bank of Maharashtra were also in the news due to this difficulty. The merger of Yes Bank was later done with SBI. While still no solution of PMC bank has been found out by RBI. And millions of customers’ money is stuck in PMC bank. All this was caused by the NPA problem.
What is NPA?
All banks lend their deposited money to the people. Banks get interest on this loan. And this benefits and disadvantages the banks. When people borrow money from banks and do not back it, they put such money in NPA account. NPA accounts are known as non-provisioning assets. When banks put a loan in the NPA, it means that there is no hope of getting this money back in future and this money is not going to benefit from the banks as the NPA of the banks increases. The bank’s credibility also deteriorates and the lending limit of banks is also affected. After a certain limit is exceeded, the bank is deemed to fail, in such a manner the Reserve Bank of India takes steps to protect the banks as Laxmi Niwas is done with the bank.
The problem of NPA is seen more with public sector banks in India. However, the number of private banks in India is high. But it is not that public sector banks perform better. The condition of banks is worse than private banks. But still a large number of private banks drown. Why is it like this?
Private bank sinks are more frequent than public sector banks.
Usually we see that government banks do not sink. While a large number of private banks are sinking in the country at this time. And the Reserve Bank has to come forward repeatedly to save these private banks. It is also not auspicious for the Indian economy. But why does it happen that government banks never sink? While private banks drown.
In fact, every year the government keeps adding money to public sector banks. As their losses increase. The government starts pouring more money into these public sector banks. In such a situation, government banks are never in trouble. Or whenever government banks are seen in crisis, the government saves these banks. Because of this, there is never any news about the sinking of public sector banks.
This is not the case with private banks. Private individuals pour money into private banks. And when they do not see any kind of profit in these private banks, then these banks come in the eyes of Reserve Bank of India. And to save these banks, Reserve Bank of India merges these banks with any government bank. Or sells it to a private bank or a company to these private banks. This is the reason why public sector banks are never caught in trouble. Whereas private banks seem to be stuck in difficulty.
We explain here by giving an example of private and public bank. If we talk about India’s largest bank SBI, its market capital is about 195000 thousand crores. Which is the largest bank in India. Whereas if we talk about Mahindra Kotak Bank, it is a small bank in the country. There is not much news about it either. But still the market capitalization of Mahindra Kotak Bank is about 342000 thousand crores. This shows us that it is not necessary that if there is a government bank, it will perform better.
The management of real public banks is in the hands of the government. Due to this, public sector banks are not able to perform well.
How to remove Indian banking system from npa difficulty?
It is generally seen that when a bank gets stuck in trouble then it comes forward to save the Reserve Bank. But what is the solution for NPAs in India?
Indian banking systems are constantly struggling with the problem of NPAs. The first solution to this is that people who have defaulted the loan of the bank. Their properties should be sold to another private company.
For example, if a company of Anil Ambani has defaulted, the banks can sell that company to another company. If banks sell a company to another company, they can get more money from another company. Banks are likely to get more money here. Because it makes direct bargaining. This reduces the NPAs of banks. However, you do not get the full amount. But up to 40% recovery can occur through this.
Auctions are another solution for Indian banks to reduce their NPAs. It is generally seen that whenever a company defaults in India, Indian banks auction that asset. However, a small amount of money goes to banks in the auction. However, this helps in reducing the NPAs of banks.
Assets restructuring may reduce banks’ NPAs
However, in this way, Indian banks rarely recover loans. But it may be a better option for banks to reduce their NPAs.
There are many private companies available to do asset restructuring. Which provides the facility of asset restructuring.
Let us explain you by an example here. What is asset restructuring? If a company defaults to a bank loan, then private banks can keep a firm on their own and sell that company through that firm. However the firm has to give a discount to the banks. And is sold to the defaulted company at a discount price.
The trend of asset restructuring has been seen much abroad. But if banks in India have to work through NPA, then the model of asset structuring in India will also have to be adopted.
Indian banking system is under pressure due to government schemes
Public seductive schemes are announced by the government due to vote bank politics. These announcements later make the Indian banking system in trouble. It is generally seen that at the time of elections by the political parties a large number of populist schemes are announced. Which can never be true for the Indian economy.
We give you an example of Mudra loan scheme here. The Narendra Modi government announced at the time of election that loans will be provided to people without any guarantee through Mudra Loan Scheme. The Mudra loan scheme later proved to be a nightmare for the Indian banking system system. The NPAs of Indian banks increased further due to the Mudra Loan Scheme. Due to all other government schemes of the same manner, the NPA of the Indian banking system is increasing.
Another major plan to increase NPAs on the Indian banking system is the loan waiver scheme. It is generally seen that whenever the elections come, the debt waiver is announced by political parties in India. Due to debt waiver, farmers get benefited. But this is never a good thing for the Indian economy. Very little money is invested by the government in debt waiver scheme. Whereas most of the money is waived by banks. Which later they have to put into the NPA account. Due to this, the losses of Indian banks continuously increase.
How to keep your money safe in banks?
The news of the sinking of Indian banks continues to make headlines in the media. In such a situation, Indian banking is getting mistrusted about the system. In such a situation, the question arises that how to keep your money safe in Indian banks?
It is generally seen that people keep their lifetime earnings in a single bank. Later the news comes that this bank has sunk or the Reserve Bank of India has imposed a withdrawal limit. In such a situation, if you want to keep your money safe, then you have to keep your account in three to four big banks. And some money has to be kept in all accounts.
This will keep your money safe. If you need money in a difficult time and if one bank is in trouble, then you will be able to withdraw money from your account of other banks. In this way your money can be safe in Indian banks. Also keep in mind that do not put your money in any unknown bank. Particularly take care of the performance of cooperative banks and do not keep much of your money in cooperative banks.
Keep an eye on banks’ NPAs
Even in this era of technology, people do not monitor the NPAs of banks. Which is not a good thing.
If you search about a bank on Google, then the complete information will be in front of you. And with one click you can get information about NPA of any bank. In such a situation, it is important that whenever you open an account in a bank and do not keep a large amount in any one bank account. You keep your money in the account of three to four different banks. This will not block your entire amount in one place.
The second easiest way for banks to know about NPAs is the economic results released by banks on a quarterly basis. Every bank releases data on its NPA and economic activity on a quarterly basis.
From these figures you can find out what is the financial condition of which bank? If the NPA of a bank has increased too much, then you should not deposit your money in that bank. And if your money is deposited in a money bank where NPA is very high, then immediately withdraw your money and deposit it in a safe bank. Remember that you have earned hard work. Do not lose it due to a little carelessness. Your little awareness can save you money.