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Management of NPA

IndianMoney.com Research Team | Updated On Friday, September 26,2014, 04:11 PM

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Management of NPA

 

 

The percentage of NPA will be higher due to ineffective recovery of bank credit, lacuna in credit recovery system, inadequate legal provision etc. Different steps have been taken by the government to recover and decrease NPAs. Some of them are, One time settlement / compromise scheme, Lok adalats, Debt Recovery Tribunals, Securitization and reconstruction of financial assets and enforcement of Security Interest Act 2002, Corporate Reconstruction Companies, credit information on defaulters and role of credit information bureaus.

The main aim of any business is to make profits. So, any asset created in the course of the conduct of business should make income for the business. This applies similarly to the business of banking. The banks the worlds over deal in money, by accepting deposits (liabilities) and out of such deposits (liabilities) provide/create loans (assets). If for any reason such assets produced do not make income or become sticky and difficult of recovery, then the very position of the banks in repaying the deposits (liabilities) on the due dates would be at stake and in jeopardy. Banks with such assets portfolio would become weak and logically such weak banks will lose the faith and confidence of the investors.

With the introduction of prudential norms for income recognition, assets classification and provisioning, banks have become quite responsive and are taking all likely steps to strengthen their assets acquisition and monitoring systems. There is also a rising awareness to bring down non-performing assets as these are having adverse impact on their profitability due to de-recognition of interests as well as requirement of heavy loan loss provisions on such assets. Therefore it would be prudent for banks to manage their assets in such a way that they always remain healthy, generate sufficient income and competent of repayment/recovery on the due dates. Management of performing/non-performing assets in banks has become an `art and science' and virtually `a battle of wits' among the banker and the borrower with the latter demanding write off or at least a major sacrifice from the bankers side irrespective of whether he is capable to pay or not.

 

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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