Gross Non-Performing Assets (NPAs) of private banks have jumped up by 450 percent over the last five years to Rs 1,09,076 crore at the end of the financial year 2017-2018 from Rs 19,800 crore at the end of the financial year 2013-2014. ICICI Bank, which is going through a tough phase following allegations on its MD and CEO Chanda Kochhar, saw the jump of 54,063 crore in NPAs from Rs 10,506 crore in 2014 to Rs 54,063 crore in 2018. Last year, Axis bank got penalised for under-reporting Rs 5,632 crore worth of bad loans. Following this, bad loans in Axis bank have jumped by 988 percent to Rs 34,249 crore at the end of 2017-18 from Rs 3,146 crore at the end of 2013-14.

The jump in bad assets has been seen following the RBI circular on February 12 in which regulator announced to withdraw all existing mechanisms of restructuring loans. RBI said in an official statement, “The extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long-Term Project Loans, SDR, change in ownership outside SDR, and S4A stand withdrawn with immediate effect. Accordingly, the JLF as an institutional mechanism for resolution of stressed accounts also stands discontinued. All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework.”

The central bank regulator also changed its stance towards divergence of loans as many banks were alleged to have underreported their bad loans. According to new rules, lenders must consider the default even if it is just by a day. Earlier the defaulter was given the period of 90 days before being classified as the bad loan. The company also has to submit a resolution plan in 180 days and any failure on that front would result in insolvency proceedings against the company.

The RBI circular stated, “All lenders must put in place board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution. As soon as there is a default in the borrower entity’s account with any lender, all lenders —singly or jointly — shall initiate steps to cure the default.”