The Increasing Incidence of Non-Performing Assets of Indian Banks

Non-Performing Assets (NPAs) constitute a major scary collection in the Banks portfolio and is increasingly becoming an inexorable burden on the banking industry in India. The impact of NPA is multi-pronged and phenomenal on various counts. An increasing incidence of NPAs may cause severe strain on bank finances, loss of confidence of depositors leading to a run on deposits and the consequent deleterious impact on the competitive powers of banks. Their continued augmentation in absolute terms proved the survival of Indian banks very difficult. The phenomenal increase in NPAs and willful defaults over the last few years raises serious concerns about the effectiveness of NPA management and its mechanisms. By improving credit risk management, conducting necessary sensitivity analysis and contingency planning in project appraisals, strengthening credit monitoring, enforcing accountability and creatively addressing corporate governance issues are some of the ways out to stand up to this menace.