Three key factors could explain why the bad loans problem is likely to worsen
The ratio of Gross Non-Performing Assets (GNPA: loan accounts overdue for 90 days or more) in Indian banks decreased in FY20 and FY21 (upto September) despite the impact of COVID-19 and the economic downturn that preceded it.
This was mostly due to three factors: 1) Banks wroteoff relatively more NPAs in FY20 to clean their balance sheets; 2) Some large NPA accounts got resolved through debt-recovery channels; and 3) It is not known what share of loan accounts, which were under COVID-19-related moratorium, will turn into NPAs in the immediate future.