Non-Performing Assets - Content Analysis and Suggestions for Resolution

Abstract

Non-performing assets also known as Bad Loans have played havoc with financials of Scheduled Commercial Banks (SCBs) in India from 2015 to 2022. The NPAs started piling up after an abnormal growth in advances of these banks in the developmental phase unleashed by the Government of India after the 2008 Global crises. The period witnessed a rise in manufacturing and infrastructure project financing imbued with over optimism of promoters for success and profitabilty. Banks vied with one another to share a piece of pie for opportunities in sectors like Iron and Steel, Mining, Aviation and Road Construction. The spurt in advances of banks also witnessed a simultaneous rise in their bad loans. NPAs have impacted negatively the financial performance of various Indian banks over the years (Sharma & Dhiman 2023). Though Non-Performing Assets cannot be wiped off completely from the advances portfolio of the banks yet it is important to control this critical parameter of financial performance of the banking sector. Management of NPAs is significant for bank profitability and growth of the economy. Bad debts or NPAs are not always created due to the fault of a bank. Though managements of different banks try their best to reduce NPAs but due to various macroeconomic, borrower related and at times bank related specific factors it is not possible to eliminate these altogether from the banking book. However prudent board policies, proper pre-sanction appraisal of borrowers and post sanction forensic audit of disbursements to large borrowers by the banks can go a long way in curbing the menace of bad loans.