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How do NPA's get into the banking system? Research Team | Updated On Friday, September 26,2014, 04:13 PM

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How do NPA's get into the banking system?



  • Poor Credit regulation
  • Insufficient Credit & Risk Management
  • Diversion of funds by promoters
  • Funding of non-viable projects
  • In the early 1990s PSBs started suffering from acute capital insufficiency and lower/ negative profitability. The parameters set for their functioning did not project the paramount need for these corporate goals.
  • The banks had little freedom to price products, supply products to chosen segments or invest funds in their best interest
  • Since 1970s, the SCBs functioned as units cut off from international banking and unable to take part in the structural transformations and new types of lending products.
  • Audit and control functions were not self-governing and thus not capable to correct the effect of serious flaws in policies and directions
  • Banks were not adequately developed in terms of skills and expertise to regulate the humongous increase in credit and manage the diverse risks that emerged in the process
  • Insufficient mechanism to gather and disseminate credit information amongst commercial banks
  • Effective recovery from defaulting and overdue borrowers was hampered on account of sizeable overhang component arising from infirmities in the available process of debt recovery, insufficient legal provisions on foreclosure and bankruptcy and difficulties in the execution of court decrees.


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