NPA's and the Banking Sector

Ever since the crisis engulfed the global economy, there has been an increase in lending rates and corporate borrowing came down. At the same time NPA of 40 banks listed in India went up by 36% due to default from borrowers aided by poor economic activity. At the same time their profit got a hit by 20%. The NPA which was 179000 Crore last year has crept up to 243000 Crore. And one bank reported their NPA to be 10.82% of their total Loan assets. NPA as we know is a crucial parameter of concern for any bank. The money given as loan to the public or a corporate is termed as assets of a bank. When a debtor does not pay back the EMI for more than 90 days or if there is a default on payment for three consecutive months, that asset is named as Non Performing Asset. It's the failure on the part of the banks in assessing the real credibility of a client that resulted in assets becoming non-performing. Much of the NPA burden is felt by the public sector banks. Private sector banks, since they focus more on retail lending, have lesser NPA numbers. They concentrated more on retail business such as home loans, vehicle loans etc. Reserve bank Governor has stated that he intends to take relevant measures to arrest the skyrocketing NPA numbers. Presenting their 3rd quarter results, all banks have expressed their concern over the issue. They have, however, stated that they are taking the necessary steps from their end. Let's hope that NPA numbers will descend to manageable levels in the next couple of quarters.