The Impact of Non-Performing Assets on the Indian Banking Sector: Trends and Solutions

Authors

Dr Manoj Kumar Sharma

Abstract

Non-Performing Assets (NPAs) pose a significant challenge to the stability and efficiency of the Indian banking sector. This paper examines the impact of NPAs on banking operations, profitability, and credit growth, analysing trends over the past two decades. It explores key factors contributing to the rise in NPAs, including economic downturns, poor credit appraisal mechanisms, and wilful defaults. The study also presents numerical data illustrating the increasing NPA burden, with Gross NPAs of scheduled commercial banks rising from 2.4% in 2008 to 4.1% in 2014. Through an assessment of policy responses, including the SARFAESI Act, Debt Recovery Tribunals, and the role of Asset Reconstruction Companies, the paper evaluates their effectiveness in mitigating NPA-related risks. Comparative analysis highlights differences in NPA management strategies between public and private sector banks. Furthermore, the study identifies emerging challenges such as the restructuring of stressed assets and the role of Basel norms in strengthening risk management frameworks. The paper concludes with policy recommendations aimed at improving credit risk assessment, enhancing recovery mechanisms, and fostering financial discipline among borrowers. By addressing the persistent NPA crisis, Indian banks can achieve greater financial resilience, ensuring sustainable economic growth and a more robust banking framework.

Keywords

Non-Performing Assets, Indian Banking Sector, Credit Risk, SARFAESI Act, Asset Reconstruction, Financial Stability, Public Sector Banks, Loan Defaults, Risk Management, Basel Norms.

The Impact of Non-Performing Assets on the Indian Banking Sector: Trends and Solutions. Dr Manoj Kumar Sharma. 2015. IJIRCT, Volume 1, Issue 2. Pages 1-10. https://www.ijirct.org/viewPaper.php?paperId=2502023