Ever since liberalisation opened up and deregulated the markets and institutions that constitute India’s financial system, the positive effect that has had on India’s banks has been a periodic refrain. One indicator regularly used to support that argument is the sharp fall in the share of non-performing loans to total, with the ratio of gross non-performing assets to gross advances falling from close to 16 per cent in the mid-1990s to as low as 2.5 per cent a decade later, where it has remained since (Chart 1).
However, the figures of loans on the books of the scheduled commercial banks that are non-performing seem to be gross underestimates. This is because the loans given to a number of large borrowers, who have been finding it difficult to meet the associated interest and amortisation commitments have been “restructured” in recent times. This allows troubled or even non-performing assets to be recorded as standard assets, concealing in the process the real state of affairs.
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