More action is needed to address shortcomings in insolvency, collateral and taxation frameworks. Accounting standards are also important to address the issue. In the US, accounting standards require US banks to reduce, after six months, their NPEs to the market value of their collateral, if any. Balance sheets are therefore cleaned up of bad loans rather swiftly.
Bank credit to SMEs has declined over the last 4 years from Rs 437 billion in 2007 to Rs 248 billion on June, 2012. With this decline, the SMEs’ loan proportion to the total advances of banks has also decreased from 16 percent in 2007 to less than 8% percent in 2012.