CREDIT DEFAULTS CAUSE NON-PERFORMING ASSETS IN PUBLIC SECTOR BANKS IN INDIA

A strong banking sector is important for healthy economy. The failure of the banking sector may have an adverse impact on other sectors. Over the years, much has been talked about NPAs and the emphasis so far has been only on identification and quantification of NPAs rather than on ways to reduce and upgrade them. Non-performing assets are one of the major concerns for banks in India. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks. The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholders value. The problem of NPAs is not only affecting the banks but also the whole economy of the country. In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of the trade and industry. The objectives of the study are (1) To understand the meaning & nature of NPAs, (2) To examine the causes for NPAs in public sector banks and (3) To project the NPAs in public sector banks over next three years using Analysis as a tool. The paper deals with understanding the concept of NPAs, its magnitude and major causes for non-performing assets and the projection of NPAs over next three years. The method used for this study is Trend Analysis – Moving Average Method The paper focused on measuring the on four aspects: (1) Gross NPAs to Gross Advances, (2) Gross NPAs to Total Advances, (3) Net NPAs to Net Advances and (4) Net NPAs to Total Advances. The study of NPA accounts in 27 public sector banks has been tabulated from the available information revealed by RBI. The secondary data have been collected for the period of 10 years i.e. 2003-04 to 2012-13. There is also a general perception that 40% of net bank credit to priority sectors have led to higher NPAs. Managers of rural and semi-urban branches generally sanction these loans. Hence, selection of right borrowers, viable economic activity, adequate finance and timely disbursement, correct end