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Context: Non-performing assets (NPAs) at commercial banks amounted to ?10.3 trillion, or 11.2% of advances, in March 2018. Public sector banks (PSBs) accounted for ?8.9 trillion, or 86%, of the total NPAs. The ratio of gross NPA to advances in PSBs was 14.6%. These are levels typically associated with a banking crisis.
What caused this?
Impact of higher NPAs:
Higher provisions on the part of banks. Provisions rose to a level where banks, especially PSBs, started making losses. Their capital got eroded as a result. Without adequate capital, bank credit cannot grow. Gross NPAs/advances rose sharply.
Why high NPAs in public sector banks?
PSBs had a higher exposure to the five most affected sectors — mining, iron and steel, textiles, infrastructure and aviation. These sectors accounted for 29% of advances and 53% of stressed advances at PSBs in December 2014.
What needs to be done?
By: Priyank Kishore ProfileResourcesReport error
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