'NPA-laden nightmares': Nirmala Sitharaman says UPA's 'phone banking' led to bad loans, banks in record profit now
Sitharaman cited former RBI Governors Raghuram Rajan and Urjit Patel, who were also critical of the lending practice then.
PSBs have seen their net NPAs decline to 0.76% in March 2024 from a peak of 7.97% in March 2018.
Finance Minister Nirmala Sitharaman in a series of post in X said the banking sector, which recently recorded its highest-ever net profit of over ₹3 lakh crore, was once plagued by bad loans, corruption, and mismanagement under the previous government.

Sitharaman blamed 'phone banking' in the UPA era for loans being granted to undeserving businesses under political pressure. "Banks were forced to neglect proper due diligence and risk assessment before sanctioning loans," she wrote, pointing out that this led to a massive increase in non-performing assets (NPAs) and institutionalized graft.

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Sitharaman cited former RBI Governors Raghuram Rajan and Urjit Patel, who were also critical of the lending practice then. Rajan described the NPA crisis as a “historic phenomenon of irrational exuberance,” while Patel noted that the functioning of public sector banks under the UPA suffered from “bureaucratic inertia and political meddling.”

The minister emphasized that upon taking office, the Modi government implemented comprehensive reforms to address these issues. "We initiated the Asset Quality Review to disclose hidden NPAs and end the accounting tricks used to hide them," she said. Key reforms included the Insolvency & Bankruptcy Code (IBC) for faster recoveries, the Fugitive Economic Offenders Act of 2018 for seizing assets of defaulters, and the SARFAESI Act amendments to improve the recovery of bad loans.

"Through our 4R's strategy—Recognising NPAs, Resolution and Recovery, Recapitalising PSBs, and Reforms—we have significantly improved the health of the banking sector," Sitharaman added. Measures such as the creation of the Banks Board Bureau (BBB) for transparent selection of bank executives and Mission Indradhanush for recapitalization have been instrumental in this transformation.

Under the Modi government, PSBs have seen their net NPAs decline to 0.76% in March 2024 from a peak of 7.97% in March 2018. The gross NPA ratio has fallen to 3.47% from a peak of 14.58% in March 2018. "Our policies have turned banks from being NPA-laden nightmares into pillars of Jan Kalyan," Sitharaman remarked.

Additionally, the government has focused on financial inclusion and support for small businesses through schemes like PM Jan Dhan Yojana and PM MUDRA Yojana. "We have banked the unbanked and funded the unfunded, ensuring widespread access to banking services," she said