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Role of Asset Reconstruction Companies (ARCs)
Stressed Accounts: Common Feature
NPA Accounts-Way Forward
Stressed Accounts- Settlement Process
Strategic Debt Restructuring (SDR) Scheme: Overview
CIBIL -Introduction and Importance
Strategic Debt Restructuring (SDR)- Post 2
Distressed Units- Some suggestions to Revive
Non Performing / Stressed Account: Role of Consultants
Stressed Accounts: Challenges in Restructuring/Revival
Stressed Accounts: Role of Promoters' Family
NPA Feature: Excess Non-Productive Investments
CDR Mechanism: Why Failed?
PSBs- Oxygen of Rs. 70 K Crores : Serious Flaw in Banking Structure
Mounting NPAs: What Went Wrong (WWW)?
Mounting NPAs: What Went Wrong (WWW)? Part-2: Development in Banking System
Mounting NPAs: What Went Wrong (WWW)? Part-3: Sudden Growth in Economy
Mounting NPAs: What Went Wrong (WWW)? Part-4: Political Compulsions & Corruption
Mounting NPAs: What Went Wrong (WWW)? Part-5: Overambitions/Greed of Entrepreneurs
Effect of Federal Rate, RBI Actions and Chinese Impact on NPA in India
NPA/Stress : Disease but Not the End
Revival of Stressed Account: Employee Participation
Challenges in Running a NPA unit
Upcoming NPA Scenario: Are Banks going to be Hit Harder again?
NPA: How to Turn Failure into Success
Handling of Defaulting / Stressed Accounts by Lenders: Serious Faults
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Upcoming NPA Scenario: Are Banks going to be Hit Harder again?

This is the question which banking / lenders segment asking itself. This is the question which has very simple answer but very few would admit in public. Bankers want to live in dream still and not accept the factual position.
Most of the loans getting NPA currently since last 4 years were advanced during the period from 2008 to 2011 to boost the economy or whatever other compulsions including corruption . These loans were defaulted during 2012-14 and then restructured under CDR mechanism. Most of the CDR cases have got failed due to various reasons discussed in my various posts.
Hence these advances are now going to be a fit case for second restructuring or settlement. Since April, 2015, CDR mechanism has been scrapped for the reasons better known to the bankers only. Infact, CDR mechanism was invented to facilitate smooth restructuring but probably the smoothness has cost them dearly or there is no consensus.Whatever be the reason, now there is no CDR mechanism and hence, bankers/lenders have to take the call jointly or severally.

So the cover under which the loans were reported as restructured or standard has torn off completely. As per rough estimates more than Rs. 6.00 lac crores worth loans are on the verge of getting NPA in the near term which will have no cover or excuse for reporting as standard. Bankers will have no choice but to make provision for them. 


90% CDR have failed due to wrong restructuring and hence now no one can stop them from reporting as NPA . This is the reason that NPA will increase substantially during the current year.


Further, due to long recession in the country, fund raising options through equity market may not be easy. Cost escalation due to over leverage of the Balance Sheet is further going to make life difficult. 

As per the latest data released by the Government agencies, NPA has gone down in first half but this is one of the cruel joke. NPA canít be reported properly every quarter, real provisioning is done only at the end of the year and hence this canít be the reality. The mindset of misreporting of NPA or showing the real facts has not yet developed in our country and hence the figures give misleading conclusions.
It is becoming very difficult for the bankers to avoid NPA reporting and poor economic situation of the country may make it more challenging. Dull equity market and weak rupee may stay for some more time causing further NPAs in the banking system.
C P Jain, FCA
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