Posted by Admin | January 11, 2018
The banking sector has been facing the serious problems of the rising NPAs. In fact public sector banks are facing more problems than the private sector banks. The NPAs in public sector banks are growing due to external as well as internal factors. One of the main causes of NPAs in the banking sector is the Directed loans system under which commercial banks are required to supply 40% percentage of their credit to priority sectors (G.V. Bhavani Prasad & D. Veena, 2011). Most significant sources of NPAs are directed loans supplied to the “micro sector” are problematic of recoveries especially when some of its units become sick or weak. Public sector banks 7 percent of net advances were directed to these units (M. Karunakar et al,2008). Poverty elevation programs like IRDP, RREP, SUME, SEPUP,JRY, PMRY etc., failed on various grounds in meeting their objectives. The huge amount of loan granted under these schemes was totally unrecoverable by banks due to political manipulation, misuse of funds and non-reliability of target audience of these sections. Loans given by banks are their assets and as the repayments of several of the loans were poor, the quality of these assets was steadily deteriorating. In India the scope for branch expansion in rural and semi urban areas is vast and also necessary. Increasingly, NBFCs operating at such places are coming under regulatory pressure and are likely to abandon their intermediation role. These branches find priority sector financing as the main business available especially in rural/semi-urban centers. Operational restructuring of banks should ensure that NPAs in the priority sectors are reduced, but not priority sector lending. This will remain a priority for the survival of banks. Any decisions about insulating Indian banks from priority sector financing should not be reached until full-scale research is undertaken, taking into account several sources including records of credit guarantee schemes. 7. Impact of NPA on the operations of banks Profitability NPA means booking of money in terms of bad asset, which occurred due to wrong choice of client. Because of the money getting blocked the prodigality of bank decreases not only by the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in some return earning project/asset. So NPA does not affect current profit but also future stream of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in profitability is low ROI (return on investment), which adversely affect current earning of bank. International Journal of Marketing, Financial Services & Management Research____________________ ISSN 2277- 3622 Vol.2, No. 9, September (2013) Online available at www.indianresearchjournals.com 92 Liquidity Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to borrowing money for shortest period of time which lead to additional cost to the company. Difficulty in operating the functions of bank is another cause of NPA due to lack of money. Involvement of Management Time and efforts of management is another indirect cost which bank has to bear due to NPA. Time and efforts of management in handling and managing NPA would have diverted to some fruitful activities, which would have given good returns. Now days, banks have special employees to deal and handle NPAs, which is additional cost to the bank. Credit Loss If a bank is facing problem of NPA, then it adversely affects the value of bank in terms of market for credit. It will lose its goodwill and brand image and credit which have negative impact to the people who are putting in their money in the banks (C.S. Balasubramaniam, 2011). 8. Measures to Control NPAs In present scenario NPAs are at the core of financial problem of the banks. Concrete efforts have to be made to improve recovery performance. Measures required to be undertaken are mainly two fold. Banks should make efforts first to avoid fresh addition on NPAs by their effective presentation appraisal and secondly to recover the amount from accounts which have already turned bad. Preventive Measures: Most of the bankers feel that genuine viability problem of the borrowing units, weakness in credit appraisal system, absence of effective monitoring and supervision of loan account, absence of credit information sharing among the banks etc. are some of the significant causative factors of high level of NPAs internal to the banks. So for preventive the fresh inflow of funds into the non-performing category, banks should reformulate their credit appraisal techniques. Proper evaluation of the loan application may help in detecting the unviable projects at the first instance. Full information about unit, industry, its financial stake, management etc. should be collected. Industrial cell should be established at the bank level, which would have complete information about the industry and its prospects in future. Proper credit monitoring should be equally emphasized. There should be proper flow of information from the units regarding their financial area, annual accounts, stock reports etc., which would enable the banker to know the need based credit requirement of borrower and warning signals for taking quick remedial action. Banks should inspect the progress of the project or the business. Separate monitoring department should be established in large branches for periodical review of accounts, comparative risk analysis and compliance of terms and conditions of sanction. Equal emphasis should be given for monitoring of standard assets also. Banks should be equipped with latest credit risk management techniques to protect the bank funds and minimize insolvency risks. Banks should develop credit derivatives markets to avoid these risks. There should be regular outflow of senior bank officers from all public sector banks for specialized training in training institute to equip them with latest procedures and practices. International Journal of Marketing, Financial Services & Management Research____________________ ISSN 2277- 3622 Vol.2, No. 9, September (2013) Online available at www.indianresearchjournals.com 93 Curative Measures: Besides making efforts to stop the fresh additions of NPAs banks have to take steps to recover the amount from assets, which have already slipped into NPAs category. Significant causative factors highlighted were slow recovery of legal cases, wilful default induced by officially announced loan waiver schemes etc. the Indian legal system is sympathetic towards the borrowers and works against the banks interest. Despite most of their loans being backed by security, banks are unable to enforce their claims on the collateral, when the loans turn non-performing and therefore loan recoveries have been insignificant. The Narshimham Committee on financial system (1991) has recommended the establishment of Debt Recovery Tribunals (DRT) for the speedy recovery of the assets from NPAs category. On the basis of recommendations 22 DRTs were established by passing the bill on Recovery of Debt due to Banks and Financial Institutions Act 1993. But the performance of DTRs for the past years has not been found satisfactory or up to the mark. The Act has some limitations, which must be removed to make its effective implementation. At present one presiding officer is handling at least 80-90 cases per day. It is suggested that DRT Act may be amended to enable the central government to appoint additional presiding officers for speedy disposal of recovery cases. One of the major factors accounting for delay in disposing of application by DRT is the delay caused due to refusal by defendants to accept the summons, and at times due to change in address too. DRT may be empowered to order service of summons by hand, registered post and by publications simultaneously. Attachment of immovable property of borrower is not admitted due to service of summons. Enforcement of security and obtaining court decree take unduly long time, it encourages wilful default and ultimately the banks may be compelled to write off loans. Wilful default should be declared a criminal offence. Government should not go for mass waiver of interest/ instalments as it sends unhealthy signals to the borrower. During 1990-91 there was a massive waiver of rural debt amounting to over Rs. 15000 crore and Rs. 65000 crore in 2008. These types of activities put a premium on wilful default and dishonesty. It lowers the repayment ethics. In case of government sponsored schemes government should assist in recovery. It may be noted that suggestions enumerated will go a long way in reducing the NPAs. This will only considerably improve the profitability of the banks, improve the quality of assets, but also make the Indian “Banking system stringent, resilient and geared to meet the challenges of globalisation (Mohan Kumar & Govind Singh, 2012).