Abstract

The banking industry has undergone a sea change after the first phase of economic liberalization in1991 and hence credit management. While the primary function of banks is to lend funds as loans to various sectors such as agriculture, industry, personal loans, housing loans etc., in recent times the banks have become very cautious in extending loans. The reason being mounting Non-Performing Assets (NPAs). An NPA is defined as a loan asset, which has ceased to generate any income for a bank whether in the form of interest or principal repayment. As per the prudential norms suggested by the Reserve Bank of India (RBI), a bank cannot book interest on an NPA on accrual basis. In other words, such interests can be booked only when it has been actually received. Therefore, this has become what is called as a -critical performance area- of the banking sector as the level of NPAs affects the profitability of a bank. An NPA account not only reduces profitability of banks by provisioning in the profit and loss account, but their carrying cost is also increased which results in excess & avoidable management attention. Apart from this, a high level of NPA also puts strain on a bank-s net worth because banks are under pressure to maintain a desired level of Capital Adequacy and in the absence of comfortable profit level; banks eventually look towards their internal financial strength to fulfill the norms thereby slowly eroding the net worth. Today the Net NPAs of Indian PSBs (which account for around three-fourths of the total assets of Indian banking industry) are as low as 0.72 percent and gross NPAs are at 2.5 percent. However, Nitsure (2007) contends that once there is a slowdown in private expenditure and corporate earnings growth, companies on these banks- books will not be in a position to service their debts on time and there is a strong likelihood of generation of new NPAs. Moreover, he also suggests that with rising interest rates in the government bond market, the banks- treasury incomes have declined considerably. So banks will not have enough profits to make provisions for NPAs. Under these circumstances, management of NPAs is a difficult task. Therefore, my study focused on the problem of NPAs being faced by the public sector banks. Though industry-wise it is not a developed state yet, still it houses some of the best names in industry namely Tata Steel, HINDALCO of the AV Birla Group, BOC Gases, Uranium Corporation, SAIL, Heavy Engineering Corporation, Metallurgical Consultancy etc. Over a period of six years or so, there has been a spurt in credit demand in the entire sector like industry (mostly SMEs), personal, agriculture and other Small Scale Industries. With an objective of overall development of the country is very poor.

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