Management of non performing assets NPA a case study of Indian commercial banks in the post reform period

Abstract

The issue of NPA in the Indian banking system has been the major area of concern and matter of newlinescrutiny within the industry circles, financial experts and policy makers. The mounting amount newlineof NPA not only erodes the profitability of the Banks but also weakens their lending power. RBI newline(Reserve Bank of India) has been providing continuous guidelines to all the banks to control and newlinemanage the rising NPA problem. On the basis of the payment made by the loanee, the assets are newlinecategorized as: (i) a standard asset (a loan where the borrower is making regular repayments), or newline(ii) a non-performing asset. NPAs are loans and advances where the borrower has stopped newlinemaking interest or principal repayments for over 90 days. newlineAs per the report of the RBI, the total volume of gross NPAs in the economy as on 31.03.2018, newlinestood at Rs 10.35 lakh crore. About 85% of these NPAs are from loans and advances of public newlinesector banks. Though this amount has decreased to 9.26 lakks in the year 2019 still the relative newlineshare of the public sector banks is remaining same. If we look into the growth rate of the GNPA and NNPA of the banking sector is looked into, they are around 26% and 25% p.a. This newlineindicates the alarming rate of increase of the NPA burden on the banks. Under such a situation, newlinebanks are forced to maintain higher provision to meet the future possible losses caused due to newlineNPA. As a result, the profitability is decreasing and lending power of the banks is also reducing. newlineIn this whole process, we can find out three major parties involved such as (i) the banks, (ii) the newlinegovernment and its economic policies and (iii) the corporates or individuals who have borrowed newlineloan. All these three parties have their individual role in increasing the NPA burden on the banks. newlineThe role of the government and the borrowers is not the area of focus of this thesis. In this thesis newlinewe are concerned about the management practices adopted by the banks to manage the newlineincreasing NPAs and secondly, the impact of this NPA on the profitability of the banks.