Distressed Asset Resolution
The bad loan ratio of India is expected to rise by 10% by the end of March 2018. This is a total contrast to the situation of 2008 global economic meltdown, when India had become the subject of global envy due to its relatively unaffected financial status and economic pace. Today, distressed asset resolution has become a headache not only for the financial sector but for the Government as well. A deep analysis reveals some reasons behind this dismal state of affairs with regards to distressed assets. The number of banking frauds have increase in numbers as well as the amount. The accounting standards have improved and this has led to identification of NPAs more easily and quickly today
Even the regulators were relatively lenient then which allowed a lot of levy for the will-full defaulters but now they have become very stringent and watchful of banking activities. A major reason behind the emergence of such huge volumes of bad loans is the fact that the banks have not been keeping sustainable capital adequacy ratio. Capital Adequacy Ratio (CAR) is the amount that a bank has assigned to face high risk loans and significant losses. Over a period of times the quantity and volume of such NPAs has got out of hand and the banks are finding themselves in a very tight positions. Had the banks kept a provision for such risk weighted assets, then today the picture would have been very different. Reserve Bank of India has set the CAR ration at 9%.
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