Associate professor-Finance, (St. Francis Institute of Mgmt and Research)
Online published on 27 February, 2017.
The problem of non-performing assets has affected the entire Indian banking sector adversely. NPAsaffects the profitability, capital adequacy ratio and credibility of banks. The problem of non-performing assets (NPAs) is one of the serious problems that have shaken the entire banking industry. A well-built banking sector is significant for a prosperous economy. The crash of the banking sector may have an unfavorable impact on other sectors. A banker shall be very cautious in lending, because banker is not lending money out of its own capital. A major portion of the money lent comes from the deposits received from the public and government share. At present NPA in the banking sector is a very debatable topic because NPA is increasing year by year particularly in nationalized banks. The problem of losses and lower profitability of Non-Performing Assets (NPAs) and liability mismatch in banks and financial sector depend on how various risks are managed in their business. Besides capital to risk weighted assets ratio of Public and Private sector banks, management of credit risk and measures to control the menace of NPAs are also discussed. An attempt is made in this paper to analyze the factors contributing to NPAs, the magnitude of NPAs, reasons for high NPAs and their impact on Indian banking operations, relationship between non-performing assets and business cycles, GDP, Interest rates etc. and to provide suitable suggestions to reduce NPAs in commercial banks. This paper also makes an attempt to study the most significant factors contributing towards the problem of Non-performing assets from the point of view of top bankers from public sector banks in India, some foreign banks and the measures required for the management of NPAs.
