Bad Loans, NPAs and the IBC
The Asset Quality Review of 2015
RBI Governor Raghuram Rajan pushed banks to recognise hidden bad loans in 2015, causing reported NPAs to jump.
Cleaning the books.
The review
The RBI examined banks’ loan books and made them reclassify stressed accounts.
Jump in NPAs
Gross NPAs rose from about 4 per cent to over 11 per cent of loans by 2018.
Pain
Profits collapsed and public sector banks made large losses.
Reason
Recognising the problem was the first step to fixing it.
A hidden problem
A loan that had been repeatedly rolled over finally showed up as an NPA.
Assuming rising NPAs meant new bad lending
Much was existing, unrecognised stress.
Key takeaways
- The RBI reviewed loan books in 2015.
- Gross NPAs peaked around 11%.
- Losses followed.
- Recognition began the cleanup.
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