Non Performing Assets

Topics: Bank, Banking in India, Banks Pages: 37 (5432 words) Published: February 21, 2013
International Journal of Economic Practices and Theories, Vol. 1, No. 2, 2011 (October), e-ISSN 2247 – 7225

A Comparative Study of Non Performing Assets in Indian Banking Industry by
Pacha Malyadri, S. Sirisha
Principal, Government Degree College, Osmania University, Andhra Pradesh, India Institute of Technology and Management, Warangal, Andhra Pradesh, India,
Abstract. The Indian banking system has undergone significant transformation following financial sector reforms. It is adopting international best practices with a vision to strengthen the banking sector. Several prudential and provisioning norms have been introduced, and these are pressurizing banks to improve efficiency and trim down NPAs to improve the financial health in the banking system. In the background of these developments, this study strives to examine the state of affair of the Non performing Assets (NPAs) of the public sector banks and private sector banks in India with special reference to weaker sections. The study is based on the secondary data retrieved from Report on Trend and Progress of Banking in India. The scope of the study is limited to the analysis of NPAs of the public sector banks and private sector banks NPAs pertaining to only weaker sections for the period seven (7) years i.e. from 2004-2010. It examines trend of NPAs in weaker sections in both public sector and private sector banks .The data has been analyzed by statistical tools such as percentages and Compound Annual Growth Rate (CAGR). The study observed that the public sector banks have achieved a greater penetration compared to the private sector banks vis-à-vis the weaker sections. Key words: old private sector banks, new private sector banks, credit risk. JEL classification: E50

In present times, banking in India is fairly
mature in terms of supply, product range and
reach. But reach in rural India still remains a
challenge for the public sector and private
sector banks. The Reserve Bank of India is
mainly concerned with providing finance to
weaker section of society, development of
priority sectors and providing credit under
differential rate of interest scheme. After
reforms in 1991, the entry of many private
players has been permitted. Post liberalization
demand PSB’s to compete with well diversified
and resource rich private banks and to provide
fine funded services and unique products to suit
customers need. PSB’s have already sacrificed a
lot of their profits for achievement of social
objectives. Due to cut throat competition and
technology, the PSB’s are thinking to improve
productivity and profitability which is essential
to survive in a globalised economy.

1 Introduction
Banking industry is a major sector of the
economy that has achieved renewed focus after
financial sector reforms and the entry of private
sector banks. This sector is the foundation of
modern economic development and linchpin of
development strategy .It forms the core of the
financial sector of an economy. Through
mobilization of resources and their better
allocation, commercial banks play an important
role in the development process of
underdeveloped countries. Commercial banks
improve the allocation of resources by lending
money to priority sector of the economy. These
banks provide a meeting ground for the savers
and investors among various indicators of
financial stability, banks’ non-performing loan
assumes critical importance since it reflects on
the asset quality, credit risk and efficiency in the
allocation of resources to productive sectors. A
common perspective is that the problem of
banks’ non-performing loans is ascribed to
political, economic, social, technological, legal
and environmental

The future of PSB’s would be based on their
capability to continuously build good quality
assets in an increasingly competitive
environment and maintaining capital adequacy
and stringent...
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