The Snowball Effects of NPA on Indian Economy

Abstract

Today, India has been proved to be the fastest growing country among the whole world. The economy of India showed 8.2 percent growthin the second quarter of 2018-19 on an accelerating development of manufacturing and agriculture sectors. Though good enough, but every coin has two sides. The banking sector of India is facing a very serious issue of raising Non-Performing Assets (NPA). Non-performing Assets means the amount of interest, which is not received by the banks in return of loans disbursed.It has become the major concern for commercial banks, as a high level NPA affects the profitability, liquidity, net-worth and survival of a bank. The higher the NPA, the greater the probability of credit defaults. It also erodes the value of assets. Not only the banks, but the whole economy is being affected by this. It reflects the health of trade and industries of a country. Resolving the problem of increasing NPA and improving the financial health of banking system should be the high priority task for the government at present. Some steps have already been taken to improve the balance sheet of the banks after the recommendations of Narasimham Committee and Verma Committee. Narasimham Committee highlighted the need of Zero Non-Performing Assets for all the Indian Banks. This paper makes an effort to understand NPA, the status and trends of NPAs in Indian Commercial Banks, the factors causing rise in NPA in Indian Commercial Banks and its effect on Indian Economy.It will also make some suggestions for a systematic evaluation to tackle the problem and highlight few policies to be followed by the banks to make speedy recovery of NPAs through various channels.