Chief Economic Advisor Arvind Subramanian has termed the rising problem of non-performing assets (NPAs) as India’s number one macroeconomic challenge and has said that the twin balance sheet problem- over-leveraged companies and bad-loan-encumbered banks - is perhaps India’s top macroeconomic challenge at the moment and how much of haircut the banks will have to take is at the core of the problem. He added that in a view of urgency to tackle this issue, the government is also finding a solution and timing would be decided over the next few weeks.
Noting that the heart of the problem is the extent of the haircuts that the banks would need to take, Subramanian has said that in any democratic political system, it is difficult to write down debts of the private sector. Further, he noted that the situation in India has been aggravated by the involvement of few large private sector companies and tight monitoring by the judiciary and investigation agencies. However, regarding idea of bad bank creation advocated by him in the Economic Survey earlier this year, Subramanian said that at present, it is not a perfect solution as creating a new institution takes time and therefore the government has to work within this constraint.
Total stressed assets (gross non-performing assets or NPAs and restructured standard advances) of scheduled commercial banks were to the tune of Rs 9.64 lakh crore as of December 31, 2016. Gross non-performing assets (NPAs) of public sector banks increased to Rs 606,911 crore.