TITLE:
Why Non-Performing Assets Are More in Public Sector Banks in India?
AUTHORS:
Bezawada Brahmaiah
KEYWORDS:
Credit Risk Management, Public Sector Banks, Non-Performing Assets
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.1,
January
29,
2019
ABSTRACT: The paper identifies why there are more
non-performing assets (NPAs) in the public sector banks (PSBs) than those in the private sector banks (PVSBs). It evaluates and reviews the policies
and practices of scheduled commercial banks (SCBs) in terms of NPA management.
It studies the causes of NPAs, such as ownership structure, credit terms,
conditions and covenants, nature of loans, kind of borrowers, bank management
practices and business cycles. The study suggests that PSBs have adopted
liberal and loose credit policies, and have concentrated loans on borrowers and sectors, i.e., huge credit exposures to a few
large corporate borrowers and to a few sectors. It also finds that
PSBs are subject to weak and mild regulatory and supervisory impacts on their operations and functions as these are owned by the Government of India.
The managements of PSBs are indifferent to the success and performance of PSBs
as there are no incentives or penalties for their performance and nonperformance. It is suggested that the PSBs should
develop both the skills and practices towards credit and credit risk
management. The government has to introduce flexible compensation package and incentives
to the managements of PSBs linked to the performance so that it will
improve profitability and reduce NPAs. The Reserve Bank of India’s regulation
and supervision should be ownership neutral.