119
I. Non-Performing Assets
That the agricultural sector is replete with varied risks is widely known.
Fluctuations in business fortunes and market uncertainties are also found in
small-scale industries and all other informal enterprises. About 80% of GDP
and over 90% of the country’s employment come from these two sets of sectors,
which are predominantly informal in character. While risks associated with
agriculture and other informal sectors are encountered by banks in lending to
them, there is nevertheless a responsibility on the financial system to evolve
appropriate devices to come round the risks in lending, given their importance
in the national economy. Also, the non-performing assets (NPAs) of banks,
particularly from informal sectors, got magnified after the introduction of new
prudential norms under the financial sector reform agenda, essentially because
the reforms agenda has failed to build checks and balances to take account of
the special needs of agriculture and other informal sectors.
Be that as it may, the public sector banks were indeed facing high levels
of NPAs until the first half of the 1990s. They were ruling at peak levels of 15%
to 16% of total gross advances around 1996-97; they have steadily declined to
11.1% in 2000-01 and steeply thereafter to 3.7% in 2005-06 and to 2.0% in
2008-09. In fact, in the process of cleaning up the balance sheets, improved
loan recovery arrangements and enlargement of loan loss provisioning, net
NPAs as percentage of advances in respect of public sector banks have been
brought down to 1.30% in 2005-06 or 0.9% by the end of March 2009 – similar
to international standards or better than the performances of emerging market
economies [Rakesh Mohan (2005), p.1115]. Since then, there has been some
deterioration in the NPAs of public sector banks. Gross NPAs to gross advances
ratio rose to 2.2% in 2009-10, to 2.4% in 2010-11 and rather sharply to 3.3%
in 2011-12 – a period in which the overall economic growth has seen a down
turn.
It is not as though the NPAs of public sector banks as percentage of
sectoral advances have always been higher in agriculture than those in priority
sectors as a whole or than those in non-priority sectors. Rakesh Mohan (2004),
who has presented a three-year average data for 2001 to 2003, makes the
following judgement:
“It is found that the proportion of NPAs are indeed higher for
agriculture than they are for the non-priority sector. However, they are
not as high as those for small scale industries (SSI) and for other priority
sectors. In fact, it is likely that if public sector enterprises are excluded
from the data for the non-priority sector, the performance of NPAs in
