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From Seema Sawlani
A REPORT ONNON-PERFORMING ASSETS-CHALLENGE TO THE PUBLIC SECTOR BANKS 1
INTRODUCTIONAfter liberalization the Indian banking sector developed very appreciate. The RBIalso nationalized good amount of commercial banks for proving socio economicservices to the people of the nation. The Public Sector Banks have shown very goodperformance as far as the financial operations are concerned. If we look to theglance of the financial operations, we may find that deposits of public to the PublicSector Banks have increased from 859,461.95crore to 1,079,393.81crore in 2003,the investments of the Public Sector Banks have increased from 349,107.81crore to545,509.00crore, and however the advances have also been increased to549,351.16crore from 414,989.36crore in 2003. The total income of the publicsector banks have also shown good performance since the last few years andcurrently it is 128,464.40crore. The Public Sector Banks have also showncomparatively good result. The gross profits of the Public Sector Banks currently29,715.26crore which has been doubled to the last to last year, and the net profit of the Public Sector Banks is 12,295,47crore. However, the only problem of the PublicSector Banks these days are the increasing level of the non performing assets. Thenon performing assets of the Public Sector Banks have been increasing regularlyyear by year. If we glance on the numbers of non performing assets we may cometo know that in the year 1997 the NPAs were 47,300crore and reached to80,246crore in 2002. The only problem that hampers the possible financialperformance of the Public Sector Banks is the increasing results of the nonperforming assets. The non performing assets impacts drastically to the working of the banks. The efficiency of a bank is not always reflected only by the size of its balance sheetbut by the level of return on its assets. NPAs do not generate interest income for thebanks, but at the same time banks are required to make provisions for such NPAsfrom their current profits.2
NPAs have a deleterious effect on the return on assets in several ways –• They erode current profits through provisioning requirements• They result in reduced interest income• They require higher provisioning requirements affecting profits and accretion tocapital funds and capacity to increase good quality risk assets in future, and• They limit recycling of funds, set in asset-liability mismatches, etc. The RBI hasalso tried to develop many schemes and tools to reduce the non performing assetsby introducing internal checks and control scheme, relationship managers as statedby RBI who have complete knowledge of the borrowers, credit rating system, andearly warning system and so on. The RBI has also tried to improve the securitizationAct and SRFAESI Act and other acts related to the pattern of the borrowings. ThoughRBI has taken number of measures to reduce the level of the non performing assetsthe results is not up to the expectations. To improve NPAs each bank should bemotivated to introduce their own precautionary steps. Before lending the banksmust evaluate the feasible financial and operational prospective results of theborrowing companies. They must evaluate the business of borrowing companies bykeeping in considerations the overall impacts of all the factors that influence thebusiness3
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Npa
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| Upload Date: | 03/02/2009 |
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