Changing structure of non-performing loans: The case of Indian public banks

The author addresses the problem of Indian public banks with non-performing loans. In her historical account of non-performing loans on the books of banks, the early years after nationalization are characterized by neglect of the problem. Only after the liberalization of the banking sector did the banks start to take serious measures to reduce the amount of non-performing loans, whereby the public banks were as successful as their private counterparts. However, in the recent decade the problem resurfaced when the share of bad loans to large corporations increased. Based on field interviews, Rajeev identifies a number of reasons for non-payment, some of which pertain to the low collateral recovery rates in the courts and the loan waiver policy adopted by the states from time to time, and others to the inadequate risk assessment and monitoring of borrowers. In contrast, self-help group based lending enhances the loan recovery rate in the poorer sections of society through a self-monitoring mechanism and hence should be extensively developed for the poor to access credit.