Non-Performing Loans in Emerging Economies – Case Study of India

Abstract

Recovery of non-performing assets is considered as one of the biggest problems for the entire banking industry as the earning capacity and profitability of many banks are adversely affected by the high level of NPAs. In this paper an attempt is made to outline the problem of NPAs in Indian banking system. The objectives of the paper are to observe the trends in the incidence of NPAs in Indian banking system, to understand the problem of NPAs in India in comparison with select economies in the world and to outline the policy measures to curtail incidence of NPAs in India. It is observed that the public sector and to some extent the private banks accounts for the bulk of the NPA problem during recent years due to global financial turmoil. Thus, while the policies that have been implemented to address the NPA problem may have been largely successful, there are further steps that can be taken by the RBI as well as by the banks themselves to tackle the problem of NPAs.