Types of NPA
- SUB-STANDARD - NPA Less than 12 Months
- DOUGHTFUL – NPA more than 12 months
- LOSS ASSETS – When Bank or its auditor have identified the loss , but it has not been written off.
Reasons for Such a Situation
- EXTERNAL REASON – Global Economic Slowdown.
- INTERNAL REASON – Indiscriminate lending and poor recovery.
External Reasons
- Reasons related to the corporate sector
- The global economy has also slowed down
- Continuing uncertainty in the global markets has lead to lower exports of various products like textiles , engineering goods , leather , gems , etc .
- A hurt Corporate sector is finding it difficult to pay loans .
Other Factors
- The ban in mining projects , delay in environment related permits affecting power , iron and steel sector , volatility in prices of raw material and the shortage in availability of power .
- Bank in india are highly regulated . Priority sector lending (PSL) is one of these regulations which require the bank to give a certain % of their loans to certain sectors of society
- The sluggish legal system (Judiciary in India) and lack of systematic and constant efforts by the banks make it difficult to recover these loans from corporate and non-corporate .
Internal Factors
- Indiscriminate lending by some state owned banks during the high growth period (2004-2008) is one of the main reasons for the deterioration in assets quality .
- Bankers say there is a lack of rig our in loan appraisal systems and monitoring of warning signals at state run banks.
- Poor recovery and use of coercive technique by banks in recovering loans.
Improving Processes
- The credit sanctioning process of bank needs to go much more beyond the traditional analysis statement and analysing the history of promoters
- For example , banks rely more on the information given by credit bureaus . However , it is often noticed that several defaults by some corporate are not registered in their credit history .
Implemented Recommendations
Implemented Recommendations
Impact on Indian Banking Sector
Technology Related Measures
“True test of the success of the banking reforms would be the extents of NPS’s ’’
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