Critical Perspectives to Non-performing Assets of Indian Banks, Shrinking Balance Sheet, Challenges and Way Ahead

Abstract

Indian banking sector is facing the problem of rising bad loans as gross non-performing assets (GNPA) of Indian banks is on continuous rise. The present study is an attempt to analyse rising bad loans scenario of Indian banks, various factors that contributes to non-performing assets (NPA), along with the present state of Indian banks. This study found that poor recovery measures, lack of proper credit and risk management system at bank level, wilful default by borrowers, lack of stringent regulation, poor level of corporate governance and misuse of funds by borrowers are the key factors behind the rising level of bad loans of Indian banks. It was found that public sector banks (PSB) are suffering the most from rising level of NPA, high rate of NPA of banks have adverse impact on banks’ balance sheets, their assets quality, increased provisioning coverage ratio of banks and low return on assets. Although various concerned stakeholders have taken numerous measures to curb the situation, such as recapitalization of PSB, construction of assets reconstruction companies (ARC), Debt Recovery Tribunals for speedy recovery of bad loans and enactment of insolvency and bankruptcy code (IBC),still there is much more to do, and have a huge scope to bring reforms in banking sector, especially in PSB of India.