Banking reforms

Story hook

On a Friday afternoon in August 2017, a 36-page document landed in the inboxes of bankruptcy professionals across India. It was a list of 12 corporate accounts — the "Dirty Dozen" — that the Reserve Bank of India had ordered to be referred to the newly-minted Insolvency and Bankruptcy Code (IBC) for resolution. Among them: Essar Steel (₹49,000 crore exposure), Bhushan Steel (₹56,000 crore), Alok Industries (₹29,000 crore), Jaypee Infratech, Lanco Infratech, Era Infra, Jyoti Structures, Monnet Ispat, ABG Shipyard, Amtek Auto, Electrosteel Steels, and Bhushan Power & Steel.

Together, these 12 accounts held ₹2.4 lakh crore in bank loans — nearly 25% of India's total NPAs. Their resolution was to be the proof-of-concept for the new bankruptcy regime that Parliament had passed in May 2016. Eighteen months earlier, in April 2015, the RBI under Governor Raghuram Rajan had ordered an Asset Quality Review (AQR) that forced banks to recognise the true scale of bad loans hidden through evergreening and restructuring. Stripped of cosmetics, India's banking sector emerged with gross NPAs of ₹10.36 lakh crore by March 2018 — 11.2% of total advances, the highest in two decades.

Seven years later, gross NPAs are down to 2.5% (RBI Financial Stability Report, December 2024) — the lowest in twelve years. How did India dig out of one of the worst NPA crises in the developing world? What did the IBC actually achieve? And why does the National Asset Reconstruction Company (NARCL) — "the Bad Bank" — still divide opinion three years after its launch?

Why this matters for UPSC

Banking reforms and the NPA story is the most heavily tested current banking topic in UPSC Prelims (typically 1-2 MCQs annually on IBC, NARCL, PCA, SARFAESI) and Mains GS-III (questions on twin-balance-sheet problem, IBC outcomes, AQR, capital adequacy). Interview panels test the candidate's grasp of the NPA recovery toolkit — SARFAESI, DRT, Lok Adalats, OTS, IBC, NARCL — and the trade-offs in each. This topic also intersects with corporate governance, infrastructure financing, and the welfare-vs-efficiency debate.