Businessmen were overcome with exuberance and they believed, as many others did, that India had entered an era of 9% growth.īut soon after, as the Economic Survey of 2016-17 notes, many things began to go wrong.
Most of the investment went into infrastructure and related areas - telecom, power, roads, aviation, steel. Indian firms borrowed furiously in order to avail of the growth opportunities they saw coming. It was a period in which the world economy as well as the Indian economy were booming. In that period, commercial credit (or what is called ‘non-food credit’) doubled. The answer lies partly in the credit boom of the years 2004-05 to 2008-09. The current trend is that the increase in NPAs since 2008 has been staggering. For example, in 2007-08, NPAs totalled only ₹566 billion (a little over half a trillion), or 2.26% of gross advances!. These are levels typically associated with a banking crisis. The ratio of gross NPA to advances in PSBs was 14.6%. Public sector banks (PSBs) accounted for ₹8.9 trillion, or 86%, of the total NPAs. In March 2018, non-performing assets (NPAs) at commercial banks amounted to ₹10.3 trillion, or 11.2% of advances. 
Here is why the NPA problem is such a big problem to Indian banks, especially PSBs. Also, we will need to discard simplistic and ideologically-driven solutions in favour of those that can be practical and effective. To resolve this problem we will need clarity on how the problem arose in the first place. India's banking sector is an unresolved problem. The article talks about how the India’s banking problems can be solved without privatising the PSBs. This editorial is based on the article “Resolving India’s banking crisis” which appeared in "The Hindu" on 11th May, 2019.
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