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Unit 13: Non Performing Assets

It is also interesting to note the RBI study that Debt Recovery Tribunals (DRT) has not been Notes
effective. In fact, it has failed to achieve the declared objective of disposal of cases within six
months in speedy recovery of advances. As at the end June 1997, out of total number of 11,700
cases filed and transferred to DRTs involving ` 8866.67 crores, only 1,045 cases had been decided
and a meagre amount of ` 178.08 crores were pending before DRTs as on June 30, 1999.
In the present Indian work culture, finding rules, regulations and interpretation of rules to delay
action or deny sanction have become very common. There are a number of cases of wrong
claims of government agencies or references to courts by filing legal action with the objective of
getting direction of courts rather than making-decision. This has led to growth of NPAs in the
banks’ loan portfolio.
The long drawn legal process not only encourages the incidence of NPAs but also prolongs their
existence by placing a premium on default.
It is important to realize the havoc wrecked by the perennial and wilful defaulters on the
financial system. Their acts have raised the cost of credit made bankers more risk averse and
squeezed decent small and medium enterprise from accessing competitive credit. They have
debased the banking system and, in the process, penalized the good borrowers. They need to be
taken to task.
In view of its highly efficient legal system and regulatory framework, banks in Singapore have
been rated as having the lowest risk banks among banks of Asian countries.

13.5.4 Recent Trends

In recent years, particularly after economic reforms, there was decline in proportion of gross
NPAs to gross advances as also of net NPAs to net advances of all the Scheduled commercial
banks. Thus, it may be glanced from Table that although both gross NPAs and net NPAs in
absolute terms surged during 1997-2009, these increases have been at lower rate in correspondence
with gross and net advances leading to fall in their respective share from 15.7 percent to 2.3
percent and from 8.1 percent to 1.1 percent respectively showing remarkable improvement in
the asset quality of the banks. This seems to be the result of several policy measures taken by the
Reserve Bank in conjunction with the government to contain the NPAs of banks. In fact, the
enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest (SARFAESI) Act and other steps taken by the government and the RBI provided
a significant impetus to banks to ensure sustained recovery and a menu of options to reduce
level of NPAs. An improved industrial climate also contributed to this state-of-affairs.
Group-wise analysis of NPAs reveals that in case of public sector banks, NPAs as percentage of
gross advances declined significantly from 17.7 percent in 1997 to 2.0 percent in 2009. Likewise,
net NPAs to net advances decreased from 9.2 percent to 0.9 percent during the corresponding
years. This is due to persistent recovery set up coupled with close monitoring of the advances.
Perceptible decline in the ratio of gross NPAs and net NPAs measured as percentage to advances
was noticeable in case of the old private sector banks.
As regards the new private sector banks, it may be noted from the table that these banks had
relatively lower NPAs during the initial years of operations. But as the banks expanded their
operations, quality of their advances deteriorated. Thus, in 1997, gross NPAs of new private
banks to their advanced stood at 2.6 percent, the lowest among all categories of banks. However,
it tended to rise remarkably in the subsequent years to reach an all time high level of 8.9 percent
in 2002, reflecting increase in defaulters. Substantial progress was, however, witnessed during
the last three years, as is reflected in the steep fall in the ratio of NPAs to advances from 8.9
percent in 2002 to 1.4 percent during 2008, showing aggressive efforts made to monitor the
advances and recover the same.

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