For the past six years Indian banking has become almost synonymous with the word non-performing assets or NPA. These bad loans or loans that are not returned by borrowers were as low as 1-2 percent around 2008 when India’s growth stood at 8 percent. But by 2014-15 it had ballooned closed to 5 percent and then to over 11 percent by 2018.

Tamal Bandyopadhyay, one of India’s foremost business journalist, has recorded this fall of Indian banking in his recent book titled ‘Pandemonium: The Great Indian Banking Tragedy’.

To discuss more about the book and state of Indian banking over the last 2 decades and how it is today, CNBC-TV18’s Latha Venkatesh caught up with Tamal Bandyopadhyay and D Subbarao, Former Governor of RBI.

Subbarao said that the bad loan problem was coming under control because of the efforts of RBI and banks. However, the pandemic has set us back.

“Because of the lockdown and because of the expected contraction of the economy this, NPAs will certainly go up. By how much is uncertain, but the RBI’s financial stability report which came out in end of July talked about the ratio going up from about 8.5 percent to anything between 12.5 percent and 14.7 percent end of next fiscal i.e. end of March 2021. That is a significant deterioration,” he said.

He also said that much of the impact has been on the MSME sector. “The large corporates, the big industries have been able to withstand the shock and move on, but it is the MSMEs which have accessed the restructuring and moratorium offered by banks. Because RBI has given forbearance about recognition of bad loans, the current NPA picture might actually understate the true situation. When the forbearance is over, I expect the NPA situation to be worse and bank balancesheet to take some hit. So, the worst is still ahead of us.”

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(Edited by : Abhishek Jha)