A Study on Relationship between Non-Performing Assets (NPAs) and Advances of Selected Public Sector Banks

In emerging economies, banks not merely act as agents of financial intermediation but also carry the additional responsibility of achieving the government's social agenda. Banks play a very important role in economic development of the country as they provide financial resources to different sectors like agriculture, Industry, SME's, personal and housing. Extension of credit, however, poses some risks, which range from pure credit risk to the risk of over-lending. NPAs have been continuously increasing despite taking all adequate precautions at the time of loan origination. The magnitude of NPAs is comparatively higher in public sectors banks than in private sector banks. The gross NPAs of banking sector are estimated at 5 percent of total loans. The cumulative gross NPAs of 24 listed public sector banks stood at Rs. 3, 93, 035 crores as on 31st December, 2015 which is nearly 1.5 times of their total market value. Banks are making attempts to resolve such bad debts but no best way has been found to deal with them. To improve the efficiency and profitability of banks the NPAs must be reduced and controlled.