News/ Context: The RBI Governor Shaktikanta Das has asked banks to be ready for the investment with the pickup of the investment cycle which is likely to begin next fiscal as per RBI.
Many macroeconomic indicators are suggesting that economic recovery is now taking hold after the sluggish economy experienced during the pandemic. But for this economic recovery and growth to be consistent and sustainable and to reach its potential, private capital investment has a crucial role to play. The Governor has said in a meeting with the banks that the economy has potential to grow at a reasonably high rate in the post pandemic if the private capital investment resumes.
The central bank has kept its forecast of growth as 9% for the current fiscal year although many economists are revising down the growth forecast between 8.5 percent and 10%.
It is to be noted that private capital investment has been missing from the economy since 2013 or is not of the level as it was to be before 2013.
The RBI Governor has told the banks that their capital management process has to be improved. The RBI Governor lauded the Tech Entrepreneurs and said that the country has emerged as a top performer in the startup landscape and it is attracting billions of foreign capital.
The good thing in the economy with respect to banks is that the balance sheets of banks are fast improving. The gross bad loans of the banks have come down in the September quarter from the previous quarter.
In another development the centre has decided to remit ₹95,082 to states, double the amount due on centre from the schaible pool of taxes this month so as to make state enable to deploy more fund on capital expenditure. This decision was taken by Central Finance and Corporate Affairs minister Nirmala Sitharaman in a meeting with state chief ministers and governors ministers.
“The context of the meeting was that after the second wave, we are seeing a robust growth. However, it’s also a time where we are looking at ways in which we need to sustain the growth, take it as close as possible to a double-digit growth for which the Centre and States have to work together,” Ms. Sitharaman said.
She urged States to help India become the fastest growing economy in coming years, through facilitating investment attractiveness and expediting ease of doing business measures and undertake power sector reforms.
Several States requested the Centre for early release of funds to speed up capital spending just as it had front-loaded the remittance of their GST compensation dues for this year.
What are Bad Loans/ Stressed Assets/ NPAs :The Non Performing Assets is abbreviated as NPA, also said as Stressed Assets or Bad Loans. When the banks give money to borrowers as loans, the banks write these loans as assets in their balance sheets (The balance sheet shows the assets and liabilities of any company or bank). These loans will be said as performing if the borrower is repaying the loan amount back to the bank including interests as per the agreement. Now say if the borrower is unable to repay the loan amount or the interest, which will be generally in the form of EMI, then the loan (which is an asset of the bank) will be said as non-performing. And now Banks will not write these loans as assets in their balance sheet but as Non-Performing Assets (NPAs). In general these loans are also termed as Bad Loans or stressed Assets.
As per RBI rules, loans should be written as NPAs if the borrower is unable to pay the principal amount or interest for 90 days after borrowing or keep a 90 days gap in between. It means from the 91st day onward banks have to write loans as NPAs. Now if there is 90 days gap in repayment, there will be fear whether those loans will be returned back. The fear will increase with the increasing gap and accordingly these loans will be renamed as Substandard Assets (90 days + 1 year), Doubtful Assets (90days + 1 year + 1 year), Loss assets (Non collectible) etc. All these could be said as NPAs as all are having at least 90 days gap in repayment.