FINANCIAL DISTRESS IN INDIAN BANKS: THE NPA CRISIS AND ITS ECONOMIC FALLOUT

Abstract

Non-Performing Assets (NPAs) have become a recurring problem in the Indian banking system, which has had a substantial impact on financial stability and economic growth. This paper examines the underlying causes of the buildup of NPAs in India, such as economic slowdowns, weak credit appraisal, willful defaults, and industry-specific stress, especially in infrastructure and power. It also discusses the wider economic effects of increasing NPAs, including lower bank profitability, investor pessimism, and constrained credit to productive sectors. The study also points out recent reforms and policy initiatives by the Reserve Bank of India (RBI) and the government, including the Insolvency and Bankruptcy Code (IBC), to contain the effect of NPAs. The essay concludes by recommending ways to enhance asset quality and improve the Indian banking sector's resilience.

Keywords: Non-Performing Assets, Indian Banking Sector, Credit Risk, Financial Stability, Insolvency and Bankruptcy Code, Economic Impact, Asset Quality, RBI Reforms, Loan Default, Banking Crisis