This study provides the detailed information on the problem called Non-performing assets which is been faced by the banks and the financial institutions. The non performing asset is considered as the significant problem which is showing the major impact on the economy of the banks and the financial institutions. According to this study it is been concluded that there are different types of reasons for the causes of non-performing assets and they are not even taking the measures to solve this problem. Most of the banks are not considering the non performing asset as the problem, for this reason there is a rapid increase in the existence of the non performing assets.
There are different reasons for the existence of the non performing asset problem such as the improper selection of the genuine customers, the inappropriate guidance by the management to the customers, the lack of awareness of the banking procedure to the customers, the non payments the pending loans and debts by the customers and many more. In order to overcome all these problems the government related to those specific countries has established some of the legal acts to the banks in order to recover their loans and debts. By making use of these acts the banks should initially send the notification to that customer regarding his due payments and dates, and even after receiving these notifications if the customers are not paying the loans and debts in the specified time, then the banks as well as the financial institutions can make use of these acts and can take any sort of legal and illegal actions on the customers. Another measure to reduce this problem is to planning and implementing the efficient recovery process. The banks and financial institutions will appoint the recovery agents in order to recover their loan amount and these recover agents will visit the customers place and will explain the payment modes and due dates, in some situations in order to handle typical customers the recovery agents will take some illegal actions on them, so to solve this the banks should allot certain principles to the recovery agents while dealing with the customers, the recovery process should recover the loan amounts but should not spoil the relationship between the banks and the customers.
Another measure is that the banks should verify and cross check the customer’s standards twice and thrice before allotting the loans and should clearly explain the payment procedure and should indirectly warn the customers regarding the acts and actions taken on them if the payments are not done in time. A strong banking sector is important for a flourishing economy. The failure of banking sector may have an adverse impact on other sectors. There is also a general prescription of 40% of net bank credit to priority sectors have lead to higher NPA, due to credit to these sectors becoming sticky. In the changed context of new prudential norms and emphasis on quality lending and profitability, managers should make it amply clear to potential borrowers that bank resources are scarce and these are meant to finance viable ventures so that these are repaid on time and relevant to other needy borrowers for improving the economic lot of maximum number of households . Hence, selection of right borrowers, viable economic activity, adequate finance and timely disbursement, correct end use of funds and timely recovery of loans is absolutely necessary preconditions for preventing or minimizing the incidence of new NPA.
The function of NPAs pressures the importance of the sound thinking of the system issues and macroeconomic variables pertaining to banks as well as the economy so as to resolve the problem of NPAs beside with the considerably of a strong legislative framework and legal frame work. Clear understanding is not required but also it very important to utilize the foreign experiences for the local conditions in order to generate a tailor made solutions and this solution for all the stakeholders should be fair and transparent .
It is also analyzed in these studies that in India the public sector bank’s expressed non-performing loans in terms of NPLs response to terms of macroeconomic condition variables, credit and bank size. The results offer significant insights for lending behavior of bank. From perspective of policy, these results are aligned with method of policy to Indian banking sector, which in turn emphasizes on lending policy as well as suitable credit culture designed with appropriate financial as well as economic factors. The impact of business cycle on non-performing loans could be controlled with suitable lending in terms of capital requirement, maturity and loan interest rate.