Toward Developing a Structured Approach to the Diagnosis and Resolution of Nonperforming Loans: The Case of China and India1

This article addresses the issue of nonperforming loans (NPLs) from a public policy perspective. The focus is on three aspects of NPLs that we consider essential for a proper analysis: the degree of the NPL problem, the causes of NPLs and the solutions adopted to address an identified NPL issue. This research analyses the diverse definitions and measurements of an NPL. Further, it introduces the distinction between systemic and situational causes of NPLs. Arguing that different causes require different cures, this study emphasizes a mix of short‐term and long‐term remedial measures as judicious in dealing with the NPL problem. This framework is then applied to two case studies: China and India. The conclusion identifies future directions of research, such as the study of a threshold level beyond which NPLs may pose a barrier to a country's growth and productivity.