Asset quality of Indian Banks in 2013–2014 -A big challenge

As per RBI norms, loans on advances given by the Banks become non-performing when interest and/on installment of principal remains unpaid on overdue for more than 90 days. Loans on advances which do not generate any income and which are doubtful of recovery badly affect the health of the Bank and also hampers the very vital function of Banks viz. mobilization of savings, deposits, bonds etc. and providing loans/facilities of Borrowers. No country in the world can have a healthy economy if the quality of Banking assets is weak and Bad. The asset quality the Banks become weak and Bad due to its non-performance and unable to generate income. Deterioration in asset quality continues to be the major factor impacting profitability of banks in the near future. It is estimated that the overall Gross NPA ratio for the banks under study would be around 4.5% by March 31, 2014 with higher proportion coming from PSBs whose Gross NPA ratio is estimated to rise to around 5%. Further, banks will have to provide more for restructured assets as per the RBI's guidelines. Indian banks would require capital infusion at regular intervals to maintain their credit growth as well to maintain adequate cushion to withstand asset quality pressures and comply with Basel III norms. This coupled with the sharp rise in NPAs necessitates the Government of India (GOI) to infuse capital in PSU banks. The continuing pressures on asset quality and profitability are the major challenges faced by the Indian banking sector.