Banking System, NPA & IBC
Economy Advanced · बैंकिंग प्रणाली, NPA और IBC
📋Quick Overview
India's banking system is dominated by Public Sector Banks (PSBs), with the State Bank of India (SBI) being the largest. The sector faced a major crisis of Non-Performing Assets (NPAs) in the 2010s. Key reforms include the SARFAESI Act 2002, Insolvency and Bankruptcy Code (IBC) 2016, and the mega bank merger of 2019. BASEL III norms govern capital adequacy requirements for Indian banks.
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IBC 2016 was India's most significant banking reform — it established a time-bound (270 days) insolvency resolution process under NCLT, replacing the earlier slow judicial process. NARCL (National ARC) was set up in 2021 as a 'bad bank' to take over stressed assets.
📖NPA Classification
| NPA Category | Duration | Treatment |
|---|---|---|
| Standard Asset | No overdue payment | Normal; no special provision needed |
| Sub-Standard Asset | NPA for ≤12 months | 15% provision required; risky |
| Doubtful Asset | NPA for 12-36 months | 25-100% provision; recovery doubtful |
| Loss Asset | NPA > 36 months / irrecoverable | 100% provision; written off from books |
- •NPA Definition: A loan where interest or principal repayment is overdue for 90 days or more. Banks must classify such loans as NPA and make provisions (set aside capital) against them.
📖Key Banking Laws & Reforms
| Reform/Law | Year | Key Provision |
|---|---|---|
| SARFAESI Act | 2002 | Banks can seize and sell assets of defaulters WITHOUT court order; speeds up NPA recovery |
| IBC (Insolvency and Bankruptcy Code) | 2016 | 180+90=270 days resolution; NCLT adjudicates; creditors in control (not debtors) |
| Bank Nationalization | 1969 + 1980 | 14 banks in 1969 + 6 more in 1980; PM Indira Gandhi; now 12 PSBs after mergers |
| SBI Consolidation | 2017 | SBI merged with 5 associate banks (SBH, SBBJ, SBM, SBT, SBP) + BMB |
| Mega Bank Merger | 2019-20 | 10 PSBs merged into 4: OBC+UBI→PNB; Syndicate→Canara; Andhra+Corporation→Union; Allahabad→Indian |
| NARCL (National ARC) | 2021 | 'Bad Bank'; takes over large NPAs from banks; govt-backed; Choudhuri ARC for resolution |