Banking Sector — Structure and NPA Crisis

4.1 India's Banking Structure

Bank Type	Number	Key Examples
Public Sector Banks (PSBs)	12	SBI, PNB, Bank of Baroda, Canara Bank, Union Bank
Private Sector Banks	21	HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra, IndusInd
Foreign Banks	45	Citibank, Standard Chartered, HSBC, DBS, Deutsche Bank
Small Finance Banks	12	AU, Equitas, Ujjivan, Jana, Suryoday
Payments Banks	6	India Post Payments Bank, Airtel Payments Bank, Fino, Jio
Regional Rural Banks	43	Sponsored by PSBs; rural focus; amalgamated from 196 (2004)
Urban Co-operative Banks	~1,500	Regulated jointly with state govts

SBI's Dominance: State Bank of India has total assets of Rs 61 lakh crore (2024) — the largest bank in India. SBI's network: 22,000+ branches, 65,000+ ATMs, 500+ million customer accounts.

4.2 NPA (Non-Performing Assets) Crisis — The Twin Balance Sheet Problem

What is NPA? A loan becomes a Non-Performing Asset (NPA) when principal or interest payments are overdue for more than 90 days. Under IRAC (Income Recognition and Asset Classification) norms, NPAs are classified as:

• Sub-standard: NPA for less than 12 months
• Doubtful: NPA for 12–36 months
• Loss: Unrecoverable NPA

Scale of the Crisis (2012–2018): India's gross NPA ratio rose from 3.4% (2012) to 11.5% (March 2018). The crisis was driven by:

• Aggressive lending during the 2006-2012 infrastructure boom (power, telecom, steel, roads)
• Restructuring used to hide bad loans — "extend and pretend"
• Wilful defaulters (Vijay Mallya, Nirav Modi) absconding
• Promoter cronyism — related-party lending

"Twin Balance Sheet Problem" (Economic Survey 2017): Both corporate balance sheets (over-leveraged firms) and bank balance sheets (high NPAs) were simultaneously stressed, creating a credit demand-supply problem.

4.3 NPA Resolution Mechanisms

Legal Framework:

• SARFAESI Act 2002 — Allows banks to auction secured assets without court involvement within 60 days of NPA classification. Significantly sped up asset recovery.
• Debt Recovery Tribunals (DRTs) — Established under the Recovery of Debts Due to Banks Act 1993; 33 DRTs across India for adjudicating bank recovery cases.
• Asset Reconstruction Companies (ARCs) — Buy NPAs at a discount from banks and attempt recovery. ARCIL (Asset Reconstruction Company India Ltd) is the largest.
• Insolvency and Bankruptcy Code (IBC) 2016 — Landmark reform. Time-bound (180 days, extendable to 270 days) corporate insolvency resolution process. NCLT is the adjudicating authority. Committee of Creditors (CoC) decides the resolution plan.

IBC Impact (2016–2024):

• Rs 3.3 lakh crore realised by creditors
• Recovery rate under IBC: ~31-32 cents per rupee (vs. 5-8% under old regime)
• Large cases: Essar Steel (Arcelor Mittal takeover, Rs 42,000 crore), Bhushan Steel (Tata Steel, Rs 35,000 crore)

Recapitalisation: Government injected Rs 3.12 lakh crore into PSBs (2015-2021) through budget allocations and recapitalisation bonds to restore capital adequacy.

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