In 2018, India's banking sector was on the verge of collapse. NPAs had hit 11.2% - the worst crisis since independence.
However, by 2024, NPAs had dropped to 2.6% - a 12-year low. Banks recorded a profit of ₹3.1 lakh crore.
🧵How did India pull off this remarkable turnaround?
(1/25)
However, by 2024, NPAs had dropped to 2.6% - a 12-year low. Banks recorded a profit of ₹3.1 lakh crore.
🧵How did India pull off this remarkable turnaround?
(1/25)
To understand this MASTERCLASS in crisis management, we need to go back to 1996.
This is a story of:
- 3 governments
- Multiple reforms
- Multiple RBI governors
- Painful transparency
- And the world's fastest banking sector recovery
Let's dive deep 👇
(2/25)
This is a story of:
- 3 governments
- Multiple reforms
- Multiple RBI governors
- Painful transparency
- And the world's fastest banking sector recovery
Let's dive deep 👇
(2/25)
CHAPTER 1: THE FOUNDATION (1996-2004)
The Problem in 1996-97:
Banks had NO idea how bad their loan books were!
Pre-1991, there were:
❌ No asset classification norms
❌ No provisioning standards
❌ No income recognition rules
Result? NPAs at 15.7-17.8%
(3/25)
The Problem in 1996-97:
Banks had NO idea how bad their loan books were!
Pre-1991, there were:
❌ No asset classification norms
❌ No provisioning standards
❌ No income recognition rules
Result? NPAs at 15.7-17.8%
(3/25)
Why was this happening?
Post-independence, banks were instruments of:
Directed lending (the government decides who gets loans)
Priority sector targets
Political interference
No accountability
By 1991, the system was broken.
(4/25)
Post-independence, banks were instruments of:
Directed lending (the government decides who gets loans)
Priority sector targets
Political interference
No accountability
By 1991, the system was broken.
(4/25)
The Narasimham Solution (1991)
Introduced basic banking hygiene:
- Capital adequacy ratios (8%)
- Asset classification (Standard/Substandard/Doubtful/Loss)
- Provisioning requirements
- Income recognition norms
Think of it as installing accounting software in a shop running on paper registers.
(5/25)
Introduced basic banking hygiene:
- Capital adequacy ratios (8%)
- Asset classification (Standard/Substandard/Doubtful/Loss)
- Provisioning requirements
- Income recognition norms
Think of it as installing accounting software in a shop running on paper registers.
(5/25)
The Vajpayee Era Reforms (1998-2004):
NPAs declined from 15.7% to 5.4%.
Three game-changers:
- SARFAESI Act 2002: Banks could seize collateral WITHOUT going to court
- Debt Recovery Tribunals: Fast-track resolution
- Asset Reconstruction Companies: Buy bad loans
(6/25)
NPAs declined from 15.7% to 5.4%.
Three game-changers:
- SARFAESI Act 2002: Banks could seize collateral WITHOUT going to court
- Debt Recovery Tribunals: Fast-track resolution
- Asset Reconstruction Companies: Buy bad loans
(6/25)
Results were SPECTACULAR!
Recovery jumped from:
2003-04: ₹4,039 crore
2004-05: ₹20,578 crore
5X increase in 1 year!
By 2004, Indian banking looked STRONG. But a storm was brewing...
This brings us to Chapter 2 👇
(7/25)
Recovery jumped from:
2003-04: ₹4,039 crore
2004-05: ₹20,578 crore
5X increase in 1 year!
By 2004, Indian banking looked STRONG. But a storm was brewing...
This brings us to Chapter 2 👇
(7/25)
CHAPTER 2: THE CREDIT BOOM (2003-2008)
India was booming:
- GDP growing 8-9%
- Infrastructure needs massive
- Global liquidity abundant
- Optimism at peak
Industrial credit rose 261% in 4 years
Banks were lending aggressively to power, steel, telecom, and infrastructure.
(8/25)
India was booming:
- GDP growing 8-9%
- Infrastructure needs massive
- Global liquidity abundant
- Optimism at peak
Industrial credit rose 261% in 4 years
Banks were lending aggressively to power, steel, telecom, and infrastructure.
(8/25)
But here's where things went WRONG
Former RBI Governor Raghuram Rajan revealed:
"One promoter told me banks pursued him, waving chequebooks, asking him to name the amount. Banks lent against very little collateral and minimal promoter equity."
This was "phone banking"
(9/25)
Former RBI Governor Raghuram Rajan revealed:
"One promoter told me banks pursued him, waving chequebooks, asking him to name the amount. Banks lent against very little collateral and minimal promoter equity."
This was "phone banking"
(9/25)
What is "Phone Banking"?
Imagine this scenario:
- Well-connected promoter wants ₹5,000 crore
- Makes a few phone calls to PMO/Finance Ministry
- Bank chairman gets "instructions"
- Loan approved without proper due diligence
- Project fails
- Nobody held accountable
(10/25)
Imagine this scenario:
- Well-connected promoter wants ₹5,000 crore
- Makes a few phone calls to PMO/Finance Ministry
- Bank chairman gets "instructions"
- Loan approved without proper due diligence
- Project fails
- Nobody held accountable
(10/25)
Then came the 2008 Global Financial Crisis:
- Commodity prices collapsed
- Infrastructure projects became unviable
- Chinese imports hurt domestic steel
- Environmental clearances delayed
- Policy paralysis set in
Companies couldn't repay. But official NPAs? Just 2.4%
How?
(11/25)
- Commodity prices collapsed
- Infrastructure projects became unviable
- Chinese imports hurt domestic steel
- Environmental clearances delayed
- Policy paralysis set in
Companies couldn't repay. But official NPAs? Just 2.4%
How?
(11/25)
CHAPTER 3: THE COVERUP (2009-2015)
Banks hid bad loans through:
- "Evergreening": Give fresh loans to pay old interest (kick the can down the road)
- Restructuring: Convert short-term to long-term loans (pretend everything's fine)
- Regulatory forbearance: RBI allowed flexibility
(12/25)
Banks hid bad loans through:
- "Evergreening": Give fresh loans to pay old interest (kick the can down the road)
- Restructuring: Convert short-term to long-term loans (pretend everything's fine)
- Regulatory forbearance: RBI allowed flexibility
(12/25)
By March 2015, the truth:
- Official NPAs: 5.0%
- Restructured advances: 7.0%
- Real stress: 12%+
Banks were sitting on a VOLCANO
But who would force transparency?
And then enter, PM Modi & RBI Governor Raghuram Rajan.
(13/25)
- Official NPAs: 5.0%
- Restructured advances: 7.0%
- Real stress: 12%+
Banks were sitting on a VOLCANO
But who would force transparency?
And then enter, PM Modi & RBI Governor Raghuram Rajan.
(13/25)
CHAPTER 4: THE REVELATION (2015-2018)
2015: RBI launches Asset Quality Review (AQR)
This was REVOLUTIONARY:
✅ Independent review of all large loans
✅ End to evergreening
✅ End to restructuring schemes
✅ Force banks to recognise reality
✅ No more hiding
(14/25)
2015: RBI launches Asset Quality Review (AQR)
This was REVOLUTIONARY:
✅ Independent review of all large loans
✅ End to evergreening
✅ End to restructuring schemes
✅ Force banks to recognise reality
✅ No more hiding
(14/25)
The results were SHOCKING!
NPAs exploded:
- March 2015: ₹3.23 lakh crore (5.0%)
- March 2018: ₹10.35 lakh crore (11.2%)
3.2X increase
This wasn't new bad loans - it was 6 years of hidden stress being exposed in 3 years!
The truth was out!
(15/25)
NPAs exploded:
- March 2015: ₹3.23 lakh crore (5.0%)
- March 2018: ₹10.35 lakh crore (11.2%)
3.2X increase
This wasn't new bad loans - it was 6 years of hidden stress being exposed in 3 years!
The truth was out!
(15/25)
The damage was CATASTROPHIC:
🔥 IDBI Bank: 28% NPAs
🔥 SB Mysore: 25.68% NPAs
🔥 11 banks under Prompt Corrective Action
🔥 Bank profitability collapsed
🔥 Credit growth frozen
🔥 Twin balance sheet crisis
India faced its worst banking crisis since independence.
(16/25)
🔥 IDBI Bank: 28% NPAs
🔥 SB Mysore: 25.68% NPAs
🔥 11 banks under Prompt Corrective Action
🔥 Bank profitability collapsed
🔥 Credit growth frozen
🔥 Twin balance sheet crisis
India faced its worst banking crisis since independence.
(16/25)
CHAPTER 5: THE SOLUTION (2016-2025)
Now comes the MASTERCLASS in crisis resolution.
The government adopted the "4R Strategy":
1️⃣ Recognition
2️⃣ Resolution
3️⃣ Recapitalization
4️⃣ Reforms
Let me break down each R 👇
(17/25)
Now comes the MASTERCLASS in crisis resolution.
The government adopted the "4R Strategy":
1️⃣ Recognition
2️⃣ Resolution
3️⃣ Recapitalization
4️⃣ Reforms
Let me break down each R 👇
(17/25)
R1: RECOGNITION (2015-2018)
✅ Asset Quality Review forced transparency
✅ All hidden NPAs brought to the books
✅ Evergreening stopped
✅ Restructuring schemes ended
Why this matters:
You can't solve a problem you refuse to acknowledge.
(18/25)
✅ Asset Quality Review forced transparency
✅ All hidden NPAs brought to the books
✅ Evergreening stopped
✅ Restructuring schemes ended
Why this matters:
You can't solve a problem you refuse to acknowledge.
(18/25)
R2: RESOLUTION (2016-2024)
Parliament passed the Insolvency & Bankruptcy Code (IBC) - May 28, 2016
This changed EVERYTHING:
- Time-bound resolution (270 days)
- Creditors control the process
- Market-driven competitive bidding
- Shifted power from defaulters to creditors
(19/25)
Parliament passed the Insolvency & Bankruptcy Code (IBC) - May 28, 2016
This changed EVERYTHING:
- Time-bound resolution (270 days)
- Creditors control the process
- Market-driven competitive bidding
- Shifted power from defaulters to creditors
(19/25)
IBC's Impact (till Sept 2024)
- ₹3.55 lakh crore recovered from 1,068 cases
- 162% of liquidation value (creditors got more than fire-sale prices)
- 48% of all bank recoveries now via IBC
Compare this to:
SARFAESI: 32%
DRTs: 17%
IBC became the weapon of choice!
(20/25)
- ₹3.55 lakh crore recovered from 1,068 cases
- 162% of liquidation value (creditors got more than fire-sale prices)
- 48% of all bank recoveries now via IBC
Compare this to:
SARFAESI: 32%
DRTs: 17%
IBC became the weapon of choice!
(20/25)
R3: RECAPITALIZATION (2016-2021)
Problem: Banks recognised NPAs but had no capital to absorb losses or lend.
Solution: ₹3.10 lakh crore government infusion
- ₹2.76 lakh crore via recap bonds
- ₹35,000 crore via budget
India's LARGEST banking recapitalisation ever.
(21/25)
Problem: Banks recognised NPAs but had no capital to absorb losses or lend.
Solution: ₹3.10 lakh crore government infusion
- ₹2.76 lakh crore via recap bonds
- ₹35,000 crore via budget
India's LARGEST banking recapitalisation ever.
(21/25)
R4: REFORMS (2017-2020)
Bank Consolidation: 27 PSBs → 12 PSBs
Created bigger, stronger banks:
- PNB absorbed Oriental & United Bank
- Canora absorbed Syndicate Bank
- BoB absorbed Vijaya & Dena Bank
Result: Globally competitive institutions with zero job losses.
(22/25)
Bank Consolidation: 27 PSBs → 12 PSBs
Created bigger, stronger banks:
- PNB absorbed Oriental & United Bank
- Canora absorbed Syndicate Bank
- BoB absorbed Vijaya & Dena Bank
Result: Globally competitive institutions with zero job losses.
(22/25)
Additional Reforms:
Fugitive Economic Offenders Act 2018 - Defaulters can't escape abroad
ED Crackdown:
- 1,105 fraud cases investigated
- ₹64,920 crore assets attached
- ₹15,183 crore returned to banks
Unlike previous eras, there was ACCOUNTABILITY.
(23/25)
Fugitive Economic Offenders Act 2018 - Defaulters can't escape abroad
ED Crackdown:
- 1,105 fraud cases investigated
- ₹64,920 crore assets attached
- ₹15,183 crore returned to banks
Unlike previous eras, there was ACCOUNTABILITY.
(23/25)
THE RESULTS
2018: 11.2% NPAs (Crisis)
↓
2021: 9.11%
2022: 7.28%
2023: 4.97%
2024: 3.47%
2024: 2.6% (12-year LOW)
Net NPA: 0.6% (All-time LOW)
FY24 Profits: ₹3.1 lakh crore (Record)
From crisis to world-class in 6 years!
(24/25)
2018: 11.2% NPAs (Crisis)
↓
2021: 9.11%
2022: 7.28%
2023: 4.97%
2024: 3.47%
2024: 2.6% (12-year LOW)
Net NPA: 0.6% (All-time LOW)
FY24 Profits: ₹3.1 lakh crore (Record)
From crisis to world-class in 6 years!
(24/25)
GOVERNANCE LESSONS
1️⃣ Transparency before recovery - AQR proved that truth comes first.
2️⃣ Laws before lending - IBC made accountability the norm.
3️⃣ Autonomy with audit - PSB boards now answer to systems, not ministers.
4️⃣ Institutions over individuals - Consistent 4R execution across regimes.
This is how you turn crisis into opportunity!
1️⃣ Transparency before recovery - AQR proved that truth comes first.
2️⃣ Laws before lending - IBC made accountability the norm.
3️⃣ Autonomy with audit - PSB boards now answer to systems, not ministers.
4️⃣ Institutions over individuals - Consistent 4R execution across regimes.
This is how you turn crisis into opportunity!
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