By Parvathy Menon
Non performing assets (NPA) have become a great threat to commercial banks in India. A non performing asset has been defined as a credit facility wherein interest or installment remains unpaid for a period exceeding three months.
The major reasons for the rising NPAs in the banking sector can be traced to the following factors:
- Diversion of funds
- Time or cost overrun during project implementation
- Internal factors like product or market failure, inefficient management, improper technology etc.
- Changes in macro environment such as inflation, price level variations etc.
- Delay in release of sanction limits of funds
Credit rating agency ICRA was of the opinion that Indias gross NPA statistics will have a steep rise from 3.3% in March 2013 to as high as 5.5-6.5% in June 2015. This is due to the structural changes driven in by the RBI.
In order to reduce the level of NPA, banks in India are following certain strategies which are listed below:
- Conducting massive recovery campaigns
- Efforts to recover the amount out of court settlement
- Branch wise and zone wise recovery targets are fixed
- The banks reschedule the payment structure in genuine cases.
The level of NPA in private sector banks is lower than their nationalized counterparts. This can be due to better credit standards maintained by these private players. However, the authorities should ensure that the interest of customers is protected by the banks and they are not exceeding the limits, so as to reduce the NPA levels. Recently, a few of the private sector banks have been accused of violating the norms to be followed while dealing with the defaulters. Such practices should be controlled by bringing in rigid rules and regulations.
MBA finance graduate from Cochin University of Science and Technology (CUSAT), Kerala. Also possess a diploma in Banking and Finance from Indian Institute of Banking and Finance, Mumbai. Freelance writer who is interested to work on Economics, Finance and developmental issues. Articles published in a number of Indian magazines. Regular writer at The Indian Fusion magazine. Particularly interested in the research and analytics field. Contact: vkparvathy1990@gmail.com