Problems of NPA in Banking Sector in India & Debt Recovery Remedies

Abstract

The issue of Non Performing Assets has been discussed at length for financial system all over the world. The problem of NPAs is not only affecting the banks but also the whole economy. In fact level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade. Granting of credit for economic activities is the prime duty of banking. Apart from raising resources through fresh deposits, borrowings and recycling of funds received back from borrowers constitute a major part of funding credit dispensation activity. Lending is generally encouraged because it has the effect of funds being transferred from the system to productive purposes, which results into economic growth. However, lending also carries a risk called credit risk, which arises from the failure of borrower. Non-recovery of loans along with interest forms a major hurdle in the process of credit cycle. These loans affect the bank’s profitability on a large scale. The rising NPA has had posed a great challenge on the survival of Banking Industry in India and with this tenuous Banking Industry smitten with NPA, our desire to become an economic superpower would just be a daydream, thus, recent steps taken by RBI and Government of India to mitigate the deleterious effect of NPA has been discussed in this paper.