THE PROBLEM OF NPA IN INDIAN BANKING SECTOR: IMPACT ON PUBLIC & PRIVATE BANKS: RASHI BHATIA
INTRODUCTION
The banking sector is a foundation of any financial system. The smooth
functioning of the banking sector should be ensured for the well condition of
the whole economy. Non- performing Assets are one of the foremost concerns for
banks in India. NPAs disclose the performance of banks and also affect the
profitability and liquidity of banks. The increasing in NPA is an existing problem
in the Indian banking sector. The serious problem of NPAs is not only affecting
the Banks but also the entire economy. But the Problem of NPAs is more in
Public sector banks when compared to private sector banks.
NPA is related to finance and banking term. When Bank or finance company
is incapable to recover its lent money from borrower in ninety days than that
amount which have not been recovered will be treated as NPA (Non –performing
Assets).
TYPES OF NON-PERFORMING ASSESTS
A.
Gross NPA- It is an advance
which is considered not recoverable, for which bank has made specific provision and which is still held in banks book
of account. It consists of
all
the non-standard assets like sub-standard, doubtful and loss assets.
It can be calculated with the help of following formulas[1]:
Gross NPA= Sub Standard Assets + Doubtful Assets + Loss Assets Gross
- Net NPA- It is obtained by
reducing items like interest due but irrecoverable, partial payment
received and kept in suspense amount from Gross NPA.
It can be calculated by following ways:
Net NPA= Gross NPAs – Provisions/Gross Advances- Provisions
CATERGORIES OF NON-PERFORMING ASSETS
In India, on the basis of the repayment status, asset of banks
classified into four categories:
- Standard Asset- The assets
which do not release any problem and do not take more than normal risk
attached to the business. This type of asset is not considered the part of
Non-performing assets.
- Sub-Standard Asset- These
are those asset which has remained NPA for a period less than or equal to
12 months.
- Doubtful Asset- These are
those asset which are remained in the sub-standard category for a period
more than 12 months.
- Loss
Asset- The asset which is an NPA for a period of 36 months is termed as
Loss Asset. They have been identified by the banks or external or internal
auditors or by RBI inspection, but the amount has been written off
completely. Basically, these are measured as uncollectible.
WHY THE NPA PROBLEM IS BIG PROBLEM IN BANKS, ESPECIALLY PSBs?
In March 2018, NPAs at commercial Banks amounted to Rs 10.3 trillion or
11.2% of advances. In PSBs accounted for Rs 8.9 trillion or 86% of total NPAs. The
ratio of gross NPA to advances in PSBs was 14.6%.For eg. In 2007-08 ,The total
NPAs is Rs 566 billion, or 2.26% of gross advances.[2]
The wholesale Privatization of Public sector banks thus do not answer to
such a complex dilemma; we need to take actions, some instant and others over
the medium-term and aimed at preventing the recurrence of such crisis.
IMPACT OF NPA ON BANKS
- It causes freezing of money
which the bank would have used for various banking functions. When we read
the provisions and norms of RBI it is quite proved that NPA not only
destroy present profit of the bank but it affects the future prospect of the
banks as far as future profits are concerned. The decreasing of profits
causes low Return on Investment which naturally sullies present earning of
the bank.[3]
- The purpose of banks is to
carry out them in banking operation and to earn profit with the use of its
contribution of management that it possesses. The entire effort of the
administration gets wasted as NPA do not acquiesce any profit and entire
effort and energy of the bank gets wasted which it would have used for
more productive purpose.
- With the freezing of liquid
money banks do not continue in position to give out adequate amount of
money and if they do so, they do for small period of time which also turns
into liquidity problem.
- It
causes huge dent on the concern and credit of the bank in the eyes of its
current and prospective creditors.
CONCLUSION
The issue of NPA has been discussed at an extent for financial system
all over the globe. The worrisome situation of the NPA is not only affecting
the banks but also the entire economy of the world. It can concluded from the
above discussion that the increasing NPA has had posed a great challenge on the
endurance of the banking Industry in India. The necessary steps should be taken
by the RBI and Government of India to reduce and recover these NPA in different
times. In recent times, Reserve Bank of India’s financial Stability Report 2017
approved that the risks to the Indian banking sector has been raising in
post-recession period, Specifically , the risk of accumulating NPAs.
Nicely explained!
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