1. What is the impact of Non Performing Assets (NPA) in the banking sector on the over all economy? What has union budget done to resolve this issue?
The NPA in the public sector banks is estimated to be at little over 6%. 11 public sector banks have declared losses after a long time due to NPAs. The problem has substantially increased in the post crisis period.
NPA impact on the overall economy will be as follows –
1. Restrictions on the investment
2. Growth recovery is obstructed
3. Loans to the agricultural sector will decrease
4. Repo rate reduction does not result in reviving the investment cycle
5. There will be high inflation and large fiscal deficits (IMF)
The measures under taken by the 2016 budget to handle this twin balance sheet problem are –
1. Allocation of 25,000 crore as part of the recapitalisation process , if needed more will be allocated. ( it is a direct measure)
2. introduction of a comprehensive code of resolution of financial firms
3. Amendments in SARFAESI (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest)Act 2002 to enable the sponsor of an ARC(Asset Reconstruction Company) to hold up to 100% stake in the ARC and permit non institutional investors to invest in securitization Receipts.
4. Amendment to the Debt Recovery Tribunal law and making them functioning online
5. Introduction of comprehensive central legislation to deal with the menace of illicit deposit taking schemes
6. Increasing members and benches of the securities appellate tribunal
7. Increasing the amount sanctioned under the Pradhan Mantri Mudra Yojana
These measures would help the credit flow and remove credit constraints for real sector. In addition, there is also a need for -
a. Implementing the PJ Nayak Committee recommendations on the Review of Governance of Boards of Banks in India.
b. Continuing the fiscal consolidation measures
c. Banks have to adjust the liquidity to their assets
The NPA in the public sector banks is estimated to be at little over 6%. 11 public sector banks have declared losses after a long time due to NPAs. The problem has substantially increased in the post crisis period.
NPA impact on the overall economy will be as follows –
1. Restrictions on the investment
2. Growth recovery is obstructed
3. Loans to the agricultural sector will decrease
4. Repo rate reduction does not result in reviving the investment cycle
5. There will be high inflation and large fiscal deficits (IMF)
The measures under taken by the 2016 budget to handle this twin balance sheet problem are –
1. Allocation of 25,000 crore as part of the recapitalisation process , if needed more will be allocated. ( it is a direct measure)
2. introduction of a comprehensive code of resolution of financial firms
3. Amendments in SARFAESI (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest)Act 2002 to enable the sponsor of an ARC(Asset Reconstruction Company) to hold up to 100% stake in the ARC and permit non institutional investors to invest in securitization Receipts.
4. Amendment to the Debt Recovery Tribunal law and making them functioning online
5. Introduction of comprehensive central legislation to deal with the menace of illicit deposit taking schemes
6. Increasing members and benches of the securities appellate tribunal
7. Increasing the amount sanctioned under the Pradhan Mantri Mudra Yojana
These measures would help the credit flow and remove credit constraints for real sector. In addition, there is also a need for -
a. Implementing the PJ Nayak Committee recommendations on the Review of Governance of Boards of Banks in India.
b. Continuing the fiscal consolidation measures
c. Banks have to adjust the liquidity to their assets
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