Non-performing assets in Banks and Credit Risks MBA Seminar Topic

Various numbers of banks of public sector are not proficient of imagining the risk which is facing in the economic scenario of emerging global. The equipment of risk management implemented needs a widespread overhaul of the system with changing condition of the banks. The second review of the document on the capital of New Basle deal on the administration of banking has offered a pressure on the part of the banks risk management with a more consistent risk sensitive sophisticated on capital adequacy. In its place of the strict suggestions and hesitations of the banking sectors of RBIs will have adequate attentiveness in implementing orders, it is somewhat clear about the banks motivation to forcefully follow risk management device of efficient credit by observing the magnitude of the credit risk management in order to condense the NPAs mounting in its growths. The improving debts portion by Debt Recovery Tribunals is turned to a grand collapse.

The set up Asset Reconstruction Company (ARC) aspect has significantly benefited as of containing the NPAs at a convenient level in banks. In public sector banks bad debits has been obtained by the ARC. Some of the options are contained by these banks either liquidating the assets of default companies or usually writing concerning these terrible debts. In the public sector banks the result that is very viable and existing has to approach for a developed system of the credit risk management that can be measured as difficult preposition. But a clear alertness of the risk perception, to curtail risk instruments availability and to implement needed strategies for a risk management scheme are considered as of the hour call.

Dealing with NPA:

Dealing with NPA involves two steps of policies

  1. Relating to existing NPA
  2. To reduce fresh NPA generation

As far as old NPA are concerned, a bank can remove it on its own or sell the assets to AMCs to clean up its balance sheet. For preventing fresh NPAs, the bank itself should adopt proper policies.

Reasons for an account becoming NPA:

There are several reasons for an account becoming NPA

  1. Internal factors
  2. External factors

Internal factors:

  1. Funds borrowed for a particular purpose but not use for the said purpose.
  2. Project not completed in time.
  3. Poor recovery of receivables.
  4. Excess capacities created on non-economic costs.
  5. In-ability of the corporate to raise capital through the issue of equity or other debt instrument from capital markets.
  6. Business failures.
  7. Diversion of funds, willful defaults, fraud, disputes, management disputes, mis-appropriation etc.

External factors:

  1. Sluggish legal system- long legal tangles, changes that had taken place in legal laws, lack of sincere effort.
  2. Shortage of raw materials, power shortage, industrial recession, excess capacity, natural calamities like foods, accidents.
  3. Failures, non-payment and over dues in other countries, recession in other countries, externalization problems.
  4. Government policies like excise duty charges, import duty charges.

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