NPA (Non Performing Asset) in Indian Banking Industry: The Disease & its Cure

The Indian banking industry has gone through a series of changes ever since the introduction of the LPG model in 1991. But one problem that has remained unchanged is related to the widening gap of NPAs. The Indian banks have been serving the society with their primary function of providing loans to the different industries whether small scale or large scale. This has resulted into the development and growth of different industries as well as the society. But at the same time due to the increased level of NPAs, the banks have become more cautious in extending loans. An increased level of NPA casts a direct negative impact over the profitability and net worth of the banks. This is due to the fact that the banks are regularly under pressure to maintain the Capital Adequacy norms. This in turn affects their working as well as financial health. The banks even face problems in fulfillment of these norms and are left with nothing but to compromise with their comfortable operating zone with respect to profitability. This increasing NPA has made a severe impact over the banks and the financial soundness of the economy. Therefore, a structured credit management along with sharp marksmanship over the level of NPAs is the need of the hour. This paper makes an attempt to enquire into the effects of NPA on the Indian Banking Industry, their causes and remedies to reduce them to an acceptable level.