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Impact of Non-Performing Assets on Indian Economy

Author

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  • Preeti Rani Sen

    (Research Scholar, Faculty of Commerce and Business Administration, D. N. College, Meerut)

Abstract

Financial intermediation by banks is an engine of growth because they cause money to be circulated in the economy by seeking deposits from those who have surplus and lend for investment activity. It has a multiplier effect in the economy! Borrowing leads to creation of demand for productive resources and increases the income level of those who supply goods and services. Expenditure of one is income of the t other. This leads to higher GDP and faster productive growth. Contraction in lending has opposite effect and growth falters. One major reason for muted credit growth is fast accretion of Non Performing Assets (NPAs) on banks' balance sheets. Roughly 72 per cent of market share of outstanding credit of SCBs (Scheduled Commercial Banks) is of PSBs. The twin balance sheet problem is overleveraged and distress companies coupled with rising NPAs of PSBs is holding up investment in the economy. Gross Non-Performing Assets (ie. Bad Loans) of banks in India as on September 30, 2017 are Rs. 8.40 lakh crore showing a growth of 1.31 per cent from Rs. 8.29 lakh crore as on June 30, 2017. Meteoric rise of NPAs from Sept 15 had its genesis in rapid credit growth of banks during the preceding years say from 2008 onwards. During the period of 2008 to 2014 gross advances of public sector banks grew from Rs. 18 lakh crores to Rs. 54 lakh crores and by September 17 this figure was Rs. 55.01 lakh crores. No wonder that the share of sticky assets of government owned banks in this pile of bad loan is almost 90 per cent.

Suggested Citation

  • Preeti Rani Sen, 2019. "Impact of Non-Performing Assets on Indian Economy," Journal of Commerce and Trade, Society for Advanced Management Studies, vol. 14(1), pages 72-77, April.
    • Handle: RePEc:jct:journl:v:14:y:2019:i:1:p:72-77
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    File URL: https://www.jctindia.org/index.php/jct/article/view/a19-prs
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    References listed on IDEAS

    as
    1. B.Selvarajan & G.Vadivalagan, 2013. "A Study on Management of Non Performing Assets in Priority Sector reference to Indian Bank and Public Sector Banks (PSBs)," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 2(1), pages 31-42, January.
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    More about this item

    Keywords

    NPA; Indian Economy; GDP; PSBs; Banks.;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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