| NPA - Concept -
June 15th, 2008
Executive Summary:
The Non-Performing Assets (N.P.As) problem is one of the foremost and the most formidable problems that have shaken the entire banking industry in India like an earthquake. Like a canker worm, it has been eating the banking system from within, since long. And like the dreaded AIDS, banks have not been able to find a reliable cure for this malady. It has grown like a cancer and has infected every limb of the banking system.
At macro level, N.P.As have chocked off the supply line of credit to the potential borrowers, thereby having a deleterious effect on capital formation and arresting the economic activity in the country. At the micro level, the unsustainable level of N.P.As has eroded the profitability of banks through reduced interest income and provisioning requirements, besides restricting the recycling of funds leading to serious asset liability mismatches. The problem of N.P.As is not a matter of concern for the lenders alone. It is a matter of grave concern to the public as well, as bank credit is the catalyst to the economic growth of the country and any bottleneck in the smooth flow of credit, one cause for which is mounting N.P.As, is bound to create adverse repercussions in the economy. Mounting menace of N.P.As has raised the cost of credit, made banks more adverse to risk and squeezed genuine small and medium enterprise from accessing competitive credit and has throttled their enterprising spirits as well.
The spiraling and the devastating affect of N.P.As on the economy have made the problem of N.P.As as issue of public debate and of national priority. Therefore, any measure or reform on this front would be inadequate and incomprehensive, if it fails to make a dent in N.P.As reduction and stall their growth in future, as well. | 
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