Inflating NPAs –A Critical Issue in Indian Banking System

Abstract

This paper examined the trend of inflating Non-Performing Assets (NPAs) in the Indian Banking System with special reference to Scheduled Commercial Banks, Public Sector Banks, Private Sector Banks and Foreign Banks. It also investigated the issues and challenges of escalating NPAs and their implications on the profitability of banks. It also discussed the role of regulatory framework in management of rising NPAs. The time period of study was from 1997 till 2019. Secondary data analysis was done using time series method. It was observed that in all categories of Indian Banks including Scheduled Commercial Banks, Public Sector Banks, Foreign Banks and New Private Sector Banks of India, there was a sharp rise and increasing trend in the gross NPA percent aftermath the Global Financial Crisis 2007-08. But before the occurrence of Global Financial Crisis 2007-08, these banks including Old Private Sector Banks of India had comparatively less amount of NPAs and decreasing trend in NPA level till the crisis. It was also observed that inflating NPAs adversely impacted the Indian Banks’ profitability and solvency. The results confirmed that a large number of credit defaults occurred in the Public Sector Banks as compared to Private Sector and Foreign Banks in India. It is expected that future researches will be accomplished including macroeconomic variables and bank-specific factors that are responsible for occurrence of NPAs in Indian Banks.