Management of Non-Performing Assets (NPAs)

Abstract

Non-Performing Asset (NPA) is a financial asset of banks/ FIs which stops to earn or perform. It refers to loans granted that are in jeopardy of default. Management of NPAs has caught the attention because of NPAs reaching at alarming levels particularly in the case of public sector banks. The general downturn in economy is held responsible for rising NPAs. RBI has additionally identified delays in statutory approvals for projects, aggressive lending practices during upturn, laxity in credit risk appraisal and loan monitoring, acceptance of projects' inflated cost and wilful default, loan frauds and corruption as the reasons for high level of NPAs, however, there are structural issues in Indian economy like insufficient promoters' contribution/ equity, intervention by Government in pricing of certain commodities/products, insufficient long term funds with banks resulting into asset liability mismatch, dearth of specialists for credit risk appraisal and loan monitoring and target oriented approach leading to financing to weak projects which need to be addressed to get long term solution to the problem of NPAs.