IMPACT OF NON-PERFORMING ASSETS (NPAS) ON INDIAN BANKING SECTOR

Banks are the backbone of financial systems and play an important role in
economic development of the countries. Banks are the highest financial
intermediaries in our economy and therefore they always deserve careful study. However, of late in general the bank’s position has become precarious. This is  mainly due to the high volume of Non-Performing Assets accumulated over the years. Non-performing assets are those assets which are not able to service the account by timely paying the interest charged as well as the installments agreed upon to the bank and the assets condition is such that these do not cover the  outstanding balances in the account. This has a serious impact on the bank’s profitability as well as the capital of the financing bank gets eroded. So far as the public sector banks are concerned the government has to fund those banks in order to keep those banks functioning. The Government as well as the Reserve Bank of India has now been equipped to take stringent actions against those defaulting
borrowers and the steps are on. It is not an easy task as the securities charged to the banks do not have buyers because of the prevailing marketing conditions. The banks are expected to improve their pre sanction scrutiny of the credit proposal and should strengthen the post disbursement supervision and follow up to ensure that there is no addition to the NPAs.