Banking Issues and Financial Inclusion in India — NPAs, Regulation Basics, Inclusion Architecture

1) NPAs: meaning and significance (high-yield)

1.1 What is an NPA?

A loan/advance becomes Non-Performing Asset (NPA) when principal/interest remains overdue beyond a specified period (exam focus: concept).

1.2 Why NPAs matter

• reduce bank profitability (provisions),
• constrain new lending (credit slowdown),
• weaken monetary transmission,
• can create systemic financial stability concerns.

2) Causes of NPAs (standard CUET list)

1. credit appraisal weaknesses and poor risk management,
2. economic slowdown affecting repayment,
3. sectoral stress (infrastructure, power, etc. in some periods),
4. governance issues and willful default,
5. delays in projects, policy uncertainties,
6. concentration risk (large loans).

3) NPA resolution tools (conceptual awareness)

• restructuring (with caution),
• asset reconstruction companies (ARCs),
• insolvency/bankruptcy mechanisms (concept),
• recapitalization of banks (government infusion),
• better provisioning and recognition.

(For CUET: know broad toolkit and purpose: cleaning balance sheets.)

4) Bank regulation and capital adequacy (Basel basics)

4.1 Capital adequacy concept

Banks must hold sufficient capital to absorb losses.

• Higher capital → more resilience.

4.2 Basel norms (basic)

Basel framework sets:

• capital adequacy requirements,
• risk-weighted assets approach,
• supervisory and disclosure norms (broad idea).