The Banks in India Face the problems of swelling non-performing assets (NPAs) and the issue is becoming more and more unmanageable. The NPAs have direct impact on banks profitability, liquidity and equity. The NPAs of Indian Banks are relatively huge by international standard. Therefore the biggest ever challenge that the banking industry now faces is management of NPAs. It is true that banks have to restrict their lending operations to secured advances only with adequate collateral securities.
In this connection banks must aware of the problems and recovery legislations of NPAs Non performing assets means an advance where payment of interest or repayment of installments of principal or both remains for a period of more than 180 days.
The magnitude of NPAs have a direct impact on banks profitability as legally they are not allowed to book income on such accounts and at the same time banks are forced to make provision on such assets as per the RBI guidelines. The Indian Banking sector is facing a serious situation in view of the mounting NPAs which are the tune of Rs.56,000 crores in March 2002.NPAs is an important parameter in the analysis of financial performance of banks. The reduction of NPAs is necessary to improve profitability of the banks and comply with capital adequacy norms.
Therefore, to solve the problems of existing NPAs, quality of appraisal supervision and follow up should be improved. The NPAs can be avoided at the initial stage of credit consideration by putting rigorous and appropriate credit appraisal mechanism. This is in order to recover the NPA debt, the judicial systems should revamped and is essential to enforce the SARFAESI Act with more stringent provisions to realize the securities and personal assets of the defaulters.
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