REPORT SUBMITTED TO DEI IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE FOLLOWING AWARD OF
FINANCE & MARKETING
NON PERFORMING ASSETS IN BANKS
The work with this dissertation has been extensive and trying, but in the first place exciting, instructive, and fun. Without help, support, and encouragement from several persons, I would never have been able to finish this work.
First of all, I would like to thank my teacher and guide Mr. S.P.Singh who not only served as my supervisor but also encouraged and challenged me throughout my academic program. He patiently guided me through the dissertation process, never accepting less than my best efforts. His editorial advice was essential to the completion of this dissertation and has taught me innumerable lessons and insights on the workings of academic research in general.
TABLE OF CONTENTS
•What is NPA
•Basel norm I
•Evolution of NPAs
8 – 12
•Banking theory –history and banking system
•Banking today and tomorrow
•Indian banking system
•The problem of non performing assets
•Reasons for turning an asset in NPA
•Trend in NPAs
34 – 52
7.FINDINGS AND CONCLUSIONS
•Impact of NPAs
•Difficulties with NPA
•Key structural changes
•Reporting format of NPA
This report deals with the problem of having non-performing assets, the reasons for mounting of non-performing assets and the practices present in country for dealing with non-performing assets. “Banks are in the business of managing risk, not avoiding it……………………..” Risk is the fundamental element that drives financial behaviour. Without risk, the financial system would be vastly simplified. However, risk is omnipresent in the real world. Financial Institutions, therefore, should manage the risk efficiently to survive in this highly uncertain world. The future of banking will undoubtedly rest on risk management dynamics. Only those banks that have efficient risk management system will survive in the market in the long run. The effective management of credit risk is a critical component of comprehensive risk management essential for long-term success of a banking institution. Credit risk is the oldest and biggest risk that bank, by virtue of its very nature of business, inherits. This has however, acquired a greater significance in the recent past for various reasons. Foremost among them is the wind of economic liberalization that is blowing across the globe. India is no exception to this swing towards market driven economy. Better credit portfolio diversification enhances the prospects of the reduced concentration credit risk as empirically evidenced by direct relationship between concentration credit risk profile and NPAs of banks.
“……………………A bank’s success lies in its ability to assume and aggregate risk within tolerable and manageable limits”.
Financial sector reform in India has progressed rapidly on aspects like interest rate deregulation, reduction in reserve requirements, barriers to entry, prudential norms and risk-based supervision. But progress on the structural-institutional aspects has been much slower and is a cause for concern. The sheltering of weak institutions while liberalizing operational rules of the game is making implementation of operational changes difficult and ineffective. Changes required to tackle the NPA problem would have to span the entire gamut of judiciary, polity and the bureaucracy to be truly effective. The future of Indian Banking represents a unique mixture of unlimited opportunities amidst insurmountable challenges. On the one hand we see the scenario represented by the rapid process of globalisation presently taking shape...