Kurzexposé zum Promotionsvorhaben von Jahnavi Rao
The Political Economy of Non-performing Assets in India
Non-performing assets (NPAs) are those assets that no longer generate income for their owners. The case of NPAs in the Indian banking sector is of particular interest, not only because of its increasing magnitude, but also because it is a relatively new problem. During India’s social banking period, bad debts and NPAs received little to no attention from banking authorities. Importance, instead, was laid on expanding banking and credit access to the un-banked rural populations and the so-called “priority sectors”. NPAs were not a performance indicator; profitability was subordinate to banking outreach and priority sector lending (PSL). Only with the liberalisation of the financial sector as part of the Liberalisation, Privatisation and Globalisation (LPG) reforms of the 1990s were NPAs recognised as a performance indicator since they affect the profitability of banks and also of the financial sector as a whole. In this sense, the liberalisation of the Indian financial sector created the problem of NPAs for the Indian economy. In recent decades, NPAs in the Indian banking sector have sustained a steady rise.
Non-performing assets are a critical parameter for the evaluation of the performance and financial stability of a bank. A high level of NPAs affects the profitability of a bank, both by increasing the probability of defaults as well as by necessitating elevated provisioning against profits. Given the interconnectedness and interdependency of the banking sector, the financial sector and the economy as a whole, a weakened banking sector portends economic difficulties for the national economy.
The issue of rising NPAs in India has garnered much state, public and media attention – in fact this discourse has outstripped academic interest. What research does exist fails to address the issues of the influence of state structures and a potential state-banking-corporate borrowers nexus on banking structures and outcomes. This thesis, therefore, seeks to fill the lacunae in existing research on NPAs from a Political Economy perspective. The question that is sought to be answered is: What are the political and structural frameworks that have enabled the sustained increase of non-performing assets in the Indian banking sector (2010-2018)?
Of specific focus is the relationship of the state to the Indian banking sector. In particular, the aim of this thesis is to examine the current NPA crisis in the Indian banking sector, with a focus on public sector banks and the investigation into the existence of a state-industry-banking nexus, from a systemic, institutional perspective. This will facilitate the identification of systemic and enabling structures wherein lie some answers about the origins of, and consequentially, the solutions to, the current NPA situation in India. The institutions that are the subject of this research are: the banking sector, the central bank, the corporate sector, and the banking and fiscal policymakers.