Compared to financial sector reforms in India, which moved ahead fast on issues like riskbased supervision, interest rate deregulation, and barriers to entry, the focus on structural institutional aspects has been much slower, causing concern. Mounting Non-Performing Assets (NPAs) is a growing anxiety for lending institutions and banks and their recovery would help improvizing the bottom line. The recovery is being made through policy changes, recovery strategies and judicial and non-judicial methods.

After nationalization the banks initially focused on expansion of branch network, extending credit and increasing the savings rate in the rural sector and the smallscale industries. This was achieved successfully. But due to increasing NPAs they have shifted their focus towards improving quality of assets and better risk management. For a long time now, banks have been scrutinizing measures for solving the NPA problem. The potential measures are filing suits in courts, Debt Recovery Tribunals (DRTs) and with the Board of Industrial and Financial Reconstruction (BIFR). Corporate Debt Restructuring was introduced in 2001, in accordance with the Reserve Bank of India (RBI) guidelines. This aims to ensure a timely and transparent mechanism for corporate debt restructuring outside the purview of BIFR, DRT and other legal procedures. The two major criteria used to check the financial health in the industry are NPAs and the Capital Adequacy Ratio (CAR). The RBI insists on a CAR of 9% and anything under that figure reflects the inadequacy of a bank’s capital in comparison with its assets, which have a risk attached to them. In simple terms it means that the capital for these banks is not in accordance with the risk profile for their loan advances. Also, according to bank experts, banks which have an NPA ratio of higher than 5%, cause concern. It was observed that Bank of Punjab, City Union Bank, United Western Bank, Tamilnadu Merchantile Bank, Lord Krishna Bank, and many such unlisted banks had the NPA to total assets ratio exceeding 5%.