The Problem Of Bad Debts

1941 Words8 Pages

The accumulation of huge NPA in banks has assumed great importance. The depth of the problem of bad debts was first realised only in early 1990s. The magnitude of NPAs in banks and financial institution is over Rs. 150000 cr.

So gross NPA reflects the quality of the loans made by banks, net NPA shows the actual burden of banks. Now it is increasingly evident that the major defaulters are the big borrowers coming from the initiative to reduce NPAs in a time bound strategic approach.

Public sector banks figure prominently in the debate not only because they dominate the banking industries, but also since they have much larger NPAs compared with the private sector banks. This raises a concern in the industry and academia because it is generally felt that NPAs reduce the profitability of a banks, weaken its financial health and erode its solvency.

For the recovery of NPAs a board framework has evolved for the management of NPA under which several options are provided for debt recovery and restructuring. Banks and FIs have the freedom to design and implement their own policies for recovery and write off incorporating compromise and negotiate settlements.

An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank.

A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time.
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