An Appraisal and Forecasting of NPAs in Indian Banking Industry

Abstract

This paper raises the issue of Non-performing Assets (NPA) which apart from being blocking the income generation in banks also generate losses to the banks. There are reasons like directive lending to few sectors, wilful defaults, lack of proper due diligence, inefficient legal policies, political pressure, adverse economic and market conditions, delay in disbursement of loan, inefficient recovery mechanisms which raise non-performing assets in Indian banking system. Among the banks in India, public sector banks have highest portion of non-performing assets that is more than 80%. In Public sector banks trend of gross non-performing assets ratio is increasing after 2009, whereas in private and foreign banks the trend is continuously decreasing. The NPAs’ trend is forecasted using time series analysis method where moving average, weighted moving average, exponential techniques and errors are computed. Private, public & foreign banks ratios are forecasted and some measures are suggested as proper credit monitoing, better KYC norms, and faster disbursement of loans with efficient due diligence, productive recovery mechanism, universal standards and policies which can be useful in improving the bank's performance in controlling NPAs.