Tackling non-performing assets will be a major challenge for the banking sector in the New Year as many companies, especially in the MSME sector, may not be able to withstand the heat of the coronavirus pandemic which led to a historic contraction of the economy in the first half of the current fiscal.

In addition, muted private investment impacting the corporate loan growth will be another challenge that banks will have to face in the coming months. Despite ample liquidity in the system, demand from the corporate sector is very low and bankers hope that faster than anticipated recovery could bring in the animal spirit as far as India Inc in concerned.

Although the Indian economy witnessed a sharp recovery from 23.9 percent contraction in first quarter to 7.5 percent contraction in the second quarter, it is yet to lift the sentiment of India Inc. For the past few years, private investment has been low while public spending has been doing the heavy lifting for the economy. The legacy of rising NPAs (non-performing assets) continued to mar the banking sector in 2020 and the first major shock came in March with the Reserve Bank of India (RBI) imposing moratorium on the then crisis-hit Yes Bank.

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