Banking Sector Reforms and NPAs

📖 From nationalisation to liberalisation

India nationalised 14 major banks in 1969 and 6 more in 1980, aiming for wider credit access ("social banking"). Post-1991 reforms (based on the Narasimham Committee reports, 1991 and 1998) introduced prudential norms, allowed new private banks, and pushed banks toward commercial viability.

⚠️ Non-Performing Assets (NPAs)

A loan becomes a Non-Performing Asset when interest or principal remains overdue for more than 90 days. A sharp rise in NPAs at Public Sector Banks (PSBs) through the mid-2010s — often called the "Twin Balance Sheet" problem (stressed banks and stressed corporates) — triggered a series of reforms.

💊 The policy response

• Asset Quality Review (AQR), 2015 — RBI-mandated exercise forcing banks to recognise hidden bad loans.
• Insolvency and Bankruptcy Code (IBC), 2016 — a time-bound (180+90 days) resolution process for corporate insolvency, replacing a patchwork of earlier laws (SICA, DRT, SARFAESI).
• PSU Bank recapitalisation — government infusion of capital (e.g., the ₹2.11 lakh crore package announced in 2017) to shore up bank balance sheets.
• Bank mergers (2019-20) — consolidating PSU banks into fewer, stronger entities (e.g., Bank of Baroda's merger with Dena Bank & Vijaya Bank).