Vol: 2, Issue: 2 2012

Page: 37-48

Mounting NPAS in Indian Commercial Banks

Govind Singh

The problem of non-performing assets has shaken the entire Indian banking sector. The main reason of high percentage of NPAs is the target-oriented approach, which deteriorates the qualitative aspect of lending. NPAs put detrimental impact on the profitability, capital adequacy ratio and credibility of banks. The paper highlights the most significant factors contributing towards the problem of non performing assets from the point of view of top bankers from public sector banks in India, some foreign banks and the measures required for management of NPAs like reformulation of banks’ credit appraisal techniques, establishment of monitoring department. As the build-up of NPAs has been a major factor in the erosion of profitability of public sector banks in India, the Narasimham Committee (II) underscored the need to reduce the average level of NPAs of all banks from 15 to 3 percent by 2002. The definition of weak banks given by this committee has internalized the concept of NPAs. The Working Group on Restructuring Weak Public Sector Banks supplemented the above definition by a combination of seven parameters covering solvency, earning capacity and profitability.