The Problem of Growing NPAs in Banks
<p style="text-align: center;"><em><strong>According to the Reserve Bank of India (RBI), banks will continue to grapple with their bad loans or non-performing assets (NPAs) this fiscal year due to the current economic conditions.</strong></em></p> <em><strong>Text: Sapna Srivastava</strong></em>
Published -
Jan 2, 2019 1:06 PM
According to the Reserve Bank of India (RBI), banks will continue to grapple with their bad loans or non-performing assets (NPAs) this fiscal year due to the current economic conditions. Gross NPAs in Rs Crores PSBs gross NPAs in Rs Crores Gross NPAs in Rs Crores Data source: CapitalinePlus Infograms: Karan Pradhan
Author: Raj Kumar Mittal Ph. D, M.B.A, M.A & M.Phil (Economics), Guru Gobind Singh Indraprastha University | GGSIPU · University School of Management Studies
Fund Crisis for Home buyers and Real-estate Developers
No doubt, a strong banking sector is important for a flourishing economy and the recent banking failures will have a cascading effect on all sectors including real estate. The higher risk provisioning assigned to real estate sector and dwindling profits in real estate have made banks reluctant to lend to the sector and even limits on credit lines have been lowered. On the other hand, with funds drying up, several smaller NBFCs are trying to liquidate their loan portfolios to raise funds. Also read http://realtyplusmag.com/manhattan-real-estate-slows-after-years-of-record-activity/
The liquidity crisis has also pushed up home loan interest rates by 50-75 basis points and due to the cautious approach of banks, the number of home loans being disbursed has come down. For developers the interests have gone up by 300 basis points, putting an immense pressure on completing their ongoing projects.
Causes accountable to banks
Causes accountable to borrower
Other causes
Poor credit appraisal mechanism
Longer gestation time
Fast changing technology
Wrong selection of borrowers
Mismanagement of funds
Political warfare
Lack of trained staff
Wrong selection of projects
Taxation laws
Inflexible attitude
Diversion of funds
Credit policies
No delegation of authority
Lack of quality control
Government policies
Lack of proper follow-up by the banks
Rising expenses
Increase in factor cost
Weakpost- credit appraisal system
Poor choice of location
Changes in consumer tastes and preferences
Inefficient management of lending facilities
Inadequate attention to research and development
Recession in the market
Indian banks' gross non-performing assets (NPAs) as on 31 March 2018 - Rs 10.25 lakh crore
NPAs rise in public sector banks by March 2018 – 21 banks with 15.4 percent rise
NPAs rise in private sector banks by March 2018 – 18 banks with 17.9 percent rise
Housing as an Asset Class Not Doing Well
The Reserve Bank of India (RBI) data released showed that for the April-June quarter (Q2 2018), the average pan-India housing price grew at 5.3% year-on-year (y-o-y), compared to 8.7% in the year-ago period, and 6.7% in Q1 2018.
Experts agree that the reasons for underperforming of housing asset class range from high interest rates to affordability concerns. From an average 18% annual rise between 2010 and 2015, the price rise in the first six months of the current year is down to 6% in housing asset class as per RBI. The trend has a strong correlation to the credit crunch in the economy and consecutive rise in interest rates that are impacting demand growth.
Tags : Latest News Real Estate Trends RBI NPA Private Equity Real Estate Developers NBFC crisis Home buyers non-performing assets Fund Crisis ROI economy banking sector Reserve Bank of India pension funds private equity funds growth of the economy