Non Performing Assets: An Indian Perspective

One of the major concerns for banks in India is the rising level of NPAs. NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affects the profitability and net-worth of banks and also erodes the value of assets. High NPAs degrade a bank’s credit rating, lowering its creditability as well as the ability to raise fresh capital. Moreover with high level of NPAs banks are left with less liquidity in hands to handle the day to day operations. Before the initiation or reform measures in 1990s, commercial banks were not in the habit of classifying their assets into performing and non-performing assets. The Narasimham Committee (1991) recommended the adoption of international accounting practices so that banks can make their balance sheets financial healthy. In the present paper an attempt is made to study the trends in NPAs of scheduled commercial banks in India and also to study the major reasons responsible for the high levels of NPAs. Moreover, various measures adopted in India to tackle the problem of high NPAs have also been examined.