Trends in NPA Management: Comparative Study of Indian PSU Banks & Private Banks

Post reform era has changed the whole structure of banking sector of India. The emerging Competition has re- sulted in new challenges for the Indian banks. Hence, parameters for evaluating the performance of banks have also changed With the slowdown of the Indian economy a number of Companies/Projects are under stress. As a result the Indian Banking System has seen increase in NPAs and restructured accounts during recent years. The public sector banks as a whole are sitting on time bomb of Nonperforming assets that is ticking away fast. All over the problems faced by the banks either flow from it or are vastly aggravated by it. Not only do financially distressed assets produce less than economically possible, they also deteriorate quickly in value. Therefore there is a need to ensure that the banking system recognizes financial distress early, takes prompt steps to solve it. Dilution of government ownership of banks however is a necessary but not sufficient reform to tide over the crisis. This paper an effort has been made to analyze how efficiently Public and Private sector banks can manage NPA. Banking system plays a vital role in the economic system of a country by mobilizing the nation's savings and directing them into high investment priorities for better utilization of avail- able resources. Banking in India originated in the last decade of the 18th century. Private and public sector banks occupy a major part of the banking in India. They are the oldest form of banking institution having large volume of operations over a vast area. They are having very good net-work of branches even in rural and semi-urban areas. The Indian banking system has undergone significant transformation following financial sector reforms were set in motion in 1991. It is adopting international best practices with a vision to strengthen the banking sector. The failure of the banking sector may have an adverse impact on other sectors. Non-performing asset (NPA) is one of the ma- jor concerns for banks in India. NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholders' value. Ballooning NPA of banks across the nation have been a cause of great concern for the bankers. Several prudential and provisioning norms have been introduced, and these are pressurizing banks to improve efficiency and trim down NPAs to improve the financial health in the banking system. Slow pace economy and consequent pay- ment defaults among enterprises is major contributor to the constant surge in NPA levels of banks. Every quarter banks have been projecting more and more grim picture in the financial re- sults. This has not only been sending shivers down the spine of respective banks but it has also been raising serious concern for the regulator and policy makers.