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This Way Banking System Gets Affected Badly Because of NPAs

Posted on Posted in Stock Market

It has been observed in the past that NPAs in the banking system have overfed and have crossed 10 per cent of lending in many instances. In multiple places, it is also seen that the systems have broken down in and major scams have occurred. There are many examples, where the errors were committed by people who are not the ones facing the brunt just now. Hence, it would be not wrong to say that the risk aversion is running high.

Gone are the days, when joint lending forums took away the responsibility of an individual. It is not confirmed how would the scenario play out in the immediate future with such a high scrutiny on lending? People are asking whether the lenders will take risk and continue to lend as it used to happen till now. It is not just the PSUs, but even private sectors have suffered large NPAs.

Stepping ahead, lending would be focused on entities with unblemished track record of payments. The Banks would be chasing very few high quality entities. However, the private sector banks would get market access. In actual, the mutual funds depend a lot on rating agencies. This means that they can have only limited influence.

Corporate would need money, if India has to grow at the rate envisaged by the policy makers. Experts believe that the banks would not be able to support the growth rate. It means that equity would have to support. In the last fiscal year, the corporate of India raised over $30 billion. The experts are expecting the same or more amount to be raised in FY19.

However, it seems that in the fiscal year 2018, continuous flow of money into equity funds were given. But this year, there is a different story. This year, the imposition of LTCG, attractiveness of equities as an asset class has been impaired. Thus you can expect a slowdown in fund raising.

In the view of experts, the above scenario generally means that while corporate India can expand strongly for a year or two, till existing capacities are utilized, it would struggle just over the horizon. There is a need for incremental capex and hence loans is low.

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