NON-PERFORMING ASSETS IN PUBLIC SECTOR AND PRIVATE SECTOR BANKS: - A COMPARATIVE STUDY

Abstract

         “When the lifeline of nation is itself in ICU, state of economy is not in good health”

Well-Performing Banking Industry is core of a healthy functioning economy, it facilitates the flow of funds in our economy and ensures financial resources are allocated efficiently towards promoting economic development and growth.It is well known by all that, banks play an important role in maintaining the economic lifeline of the country. For an instance, he banks allocate funds from savers to borrowers and provide specialized financial services.These kind of services help in maintaining the cash reserve in country. Modern Indian Banking system, started in the 19^th century, supports the world’s fastest-growing large economy but is grappling with challenges that test its strength and resilience.

Primary problem that banks in India face today are Non-Performing Assets, NPA account is a loan asset, which has ceased to generate any income for a bank whether in the form of interest or principal repayment.Different categories of NPA are classified according to various time-frames given and several other criteria’s. Rate of higher NPA is not signal of warning for banks but also for the country. Because, firstly the shareholders of the bank are adversely affected by the NPA’s of banks, depositors get affected because banks start charging higher rates to compensate for NPA losses. Further, liquidity problems may ensue in quantum of NPA in books of accounts of the banks start rising. Recently, in this year the Nirav Modi scam was exposed which had huge impact on the credibility as well as profitability of banking sector.

When the issue regarding NPA is being raised, it is observed that Public Sector Banks have much higher NPA compared to the Private Sector Banks. Recent data on the NPAs shows that 21 public sector banks, saw their bad loans pile grow by Rs 1.19 lakh crore to Rs 8.97 lakh crore in the March 2018 quarter, while that of 18 private banks surged by Rs 19,446 crore to Rs.1.28 lakh crore in the March 2018 quarter from Rs. 1.09 lakh crore in the December 2017 quarter. It can be observed that there is much parity, when comparison is made in the quantum of NPA of both types of banks. There are different reasons for such inequality in numbers, primary one of them is priority-sector lending. Banks are required to pay some percent of loans to priority sectors such as agriculture, MSME’s and other small-scale industries. However, this sectors do not share the reputation of paying loans back on time. Hence, due to various other factors involved the loan given to such sector becomes Non-Performing Assets for a bank. Others reasons for higher NPA’s and suggestions to reduce them are provided in the subsequent parts of the paper.

The paper, which primarily deals with the issue of Non-Performing Assets, attempts to make a comparison between NPA’s in Public Sector Banks and NPA’s in Private Sector Banks. To give a theoretical background for the paper and to understand the concept of NPA’s, in the first chapter of the paper, Banking and history of Indian Banking industry, challenges facing the banks and types of banks has been explained. In the second chapter of the paper, concept of NPA’s has been introduced, their classification, reasons and suggestions to reduce have been elucidated. In the third chapter, data showing comparison between NPA’s of public-sector and private-sector banks have been showed. In the fourth chapter, suggestions to reduce the parity and redefine the structure of the banking system is dealt with. Finally, the sixth and the last chapter deals with conclusion and opinion of the authors.