| Pub. Date | : October, 2021 |
|---|---|
| Product Name | : The IUP Journal of Accounting Research and Audit Practices |
| Product Type | : Article |
| Product Code | : IJARAP061021 |
| Author Name | : D Sreenivasa Chary |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 12 |
Banks are obliged to repay the deposits to the public on due date with an embedded option for foreclosure. They can also take preventive, remedial and legal measures for recovery of loans. However, despite their best efforts, some loans become Non-Performing Assets (NPAs) as they do not generate income. On the other hand, banks are required to make provision out of the current year's profits as a cushion against such NPAs. If such NPAs become irrecoverable, the resultant losses are required to be absorbed by banks. In this context, banks are required to maintain as much capital as required to meet the probable loan losses. The Reserve Bank of India (RBI) issued detailed guidelines to banks on classification of loan accounts and provisioning norms, called Income Recognition and Asset Classification (IRAC) norms. The two important groups of banks in India are public sector and private sector banks. The present study is an attempt to analyze the performance of these two banking groups in terms of classification and provisioning of their loan assets under standard, substandard, doubtful and loss assets as per RBI guidelines. The study observes that private sectors banks are comparatively better in maintaining standard assets and making adequate provision for the NPAs.
Banking is defined as the business activity of accepting deposits from customers for the purpose of lending and investment. Prima facie, it appears that banking business is luxurious, because banks lend money to public from the deposits raised. The deposits collected by banks from public are of two types: demand deposits and time deposits. Current and savings deposits are called demand deposits. They are repayable on demand. Fixed deposits, recurring deposits, daily deposits are called term deposits. They are normally repayable on expiry of the period for which they are accepted. In reality, these term deposits also have the option of foreclosure. It means the term deposits can also be closed by the depositors, as and when they want, irrespective of the period of deposit. To put it in a nutshell, we can say that all