Indian banking has made a significant progress after nationalization especially in three aspects: Branch expansion, deposit mobilization and loan maximization. Among these, monitoring of loans took a back seat in an era of mass banking and social banking. In the changing scenario of the operations of Public Sector Banks (PSBs), Non-performing Assets (NPAs) have been the most vexing problem faced by PSBs. The Reserve Bank of India (RBI) and Government of India (GoI) have initiated various measures to curb NPAs in the post-financial sector reforms. But PSBs are still unable to solve the problem. In the liberalized scenario, the continuation of the NPAs is a menace for the survival of the banks. After over a decade of implementation of financial sector reforms and prudential norms, there is a need for a systematic analysis of NPAs. In this milieu, this article is an investigation of the trends in NPAs, sectoral composition of NPAs, asset quality diagnosis and the scenario of NPAs at the bank level. This study reveals that the gross and net NPAs have gone down gradually from 23.2% and 14.5% from 1993-94 to 7.8% and 3.0% in the year 2003-04, showing the strong commitment of PSBs towards reduction and management of NPAs. The quality of portfolio of the PSBs has improved quite impressively over the period. In a nutshell, NPAs have been reducing in the PSBs as a whole due to the effectiveness of various measures initiated by RBI and GoI. To survive and compete with private and foreign banks, it is crucial for the PSBs to clean up their balance sheets by increasing the equity capital; and bring changes in the attitude of the bankers and borrowers both in the present and the future.
Immediately after nationalization, Public Sector Banks (PSBs) focused on three main
objectives, namely, branch expansion, deposit mobilization and loan maximization—
especially to the priority sector and other areas that were deemed important. These objectives
were largely achieved even though it caused cross-subsidized administered interest rates and
loan approvals without adequate regard for security and collaterals. Monitoring of the loans
took a back seat in an era of ‘mass banking’. Indian public sector banks have not only been perceived as the vehicles of social change but have also played a pivotal role in stepping up
credit for agricultural and rural development. Banks have also been shouldering the
responsibility of social banking for a variety of poverty alleviation or self-employment
programs. This has to be kept in view while analyzing the level of Non-performing Assets
(NPAs) in banks. |
