Nidhi Baid, Indian Institute of Corporate Affairs
ABSTRACT
Economists have often held the belief that a well-developed financial system enables smooth flow of savings and investments and ultimately, supports economic growth. A healthy financial system helps in achieving efficient allocation of resources by reducing the inefficiencies that arise out of market frictions and other socio-economic factors. One if the most desirable characteristics of a well-functioning financial system is the presence of very few or near zero number of Non-Performing (NPA) accounts. Beyond a certain level, NPAs possess a huge concern to the economic growth and the smooth flow of credit.
The NPA crisis in India is a huge problem with India having one of the highest NPA to GDP rations amongst the developing and developed country. This is a huge impediment when it comes to India’s goal of achieving a $5 trillion economy and to be amongst the most powerful economies globally.
To this effect, the government of India has introduced various laws and schemes in consultation with the Reserve Bank of India to reduce the effect of these NPAs and to recover the amount.
