In a self-resilient economy, banking system assumes importance in imparting momentum to economic growth and prosperity through mobilization of financial assets. Performance of banks, irrespective of their nature and function, is germane to their asset creation and maintenance capacity. In a neo-liberal regime, radical policy changes have crept into loan mechanism, thereby subjecting the banks to efficiently recover the loans, which is a vital asset for any banking firm. In this context, the authors through intensive review of literature identified micro and macro banking factors responsible for productive NPA management. The macro banking factors refer to the economic environment whereas the micro banking factors refer to the bank and branch-specific factors. The authors identified the critical role of organizational structure, involvement of employees, and organizational efficiency in driving prudent NPA management. The authors have found that the efficiency in managing NPAs differ in public and private banks, which is attributed to involvement of employees.
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In an emerging economy like India, for the rapid growth of the economy and industrialization most influential role is played by the banking sector (Gerschenkron 1965, Sylla 1969, Mayer 1990) because banks are intermediary between the providers of fund and users of the fund (Mayer 1988, 1990). The financial stability of an economy to great extent is dependent on efficiency and effectiveness of banking/financial sector (Schumpeter 1912, Gurley and Shaw 1960, Goldsmith 1969, and McKinnon 1973).The financial crisis of 2008 leads to a ‘great recession’1 in the world economy, is due to the debt accumulation, (Bezemer 2009 a, b), housing bubble (Shiller 2008) insolvency of few investment banks in the western country (Verick, & Islam, 2010). Always the banks and financial institutions are one of the most important pillars of a stable economy and play a vital role in growth and development of the economy(Mowery, 1998, Khan and Senhadji, 2000). In the era of globalisation, Indian Banking Sector struggled with restriction from regulatory bodies (Sáez, 2009), quality management, and fast changing norms and so on. The economic crisis of 2008 has increased the quantum of Non-Performing Assets (NPA) and deteriorated revenue of banks (Baselga-Pascual & Orden-Olasagasti, 2015) throughout the world. NPA also applicable to asset including a leased asset of banks, and these lease assets becomes non-performing when they cease to generate income for the bank (RBI, 2010). In general, NPA means an asset relating to the account of the borrower, which has been classified by the bank as sub-standard, doubtful or loss making asset, in accordance with the directions or guidelines relating to asset classification issued by Reserve Bank of India (RBI). NPA otherwise called as non-performing loans (NPLs) and defined as those loans on which payment are due more than one year and no repayment made. Dimitros, et.al, (2016), reported that loans past due more than 90 days are called NPLs. Out of several factors of credit risk for the banking sector, NPA is one of the most important factors which contribute a lot for enhancement of credit risk of banks.
The balance sheet is a summary sheet of Assets and Liabilities held by any organisation2. As per the principle of accounting equation, at any point of time, the aggregate of assets is equals to aggregate of liabilities of an organisation (Mann,1994). The performing assets have a positive impact on cash flow whereas the non-performing assets have a negative impact on cash flow. For a bank generally, the net income is the difference between interests received on loan and paid on the deposits. NPAs/NPLs are the asset/loans on which bank fails to collect interest as well as the principal given to the borrower. The concept of NPAs coined by the banking experts in India in light of financial sector reforms took place during the 1990s.
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Rampell (2009) traces the evolution of the term and points out with some irony that it has also been used to describe all post-war recessions.
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The balance sheet explained: The basics of finance II, in basics of finance. . (2001, Jan 01).[Video/DVD] Retrieved from https://search.proquest.com/docview/1822829890?accountid=175698