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How to reduce NPA?

Posted Date: 16-04-2021 Posted By: user

npa management.

The primary function of banks was to lend. It resulted in a gradual increase in the non-performing assets or NPA. Since the increase did not happen overnight, it was ignored by everyone.

In the past few years, banks and the government have realized the tremendous increase of NPA and its harmful effects on the economy. Now regulations have been established to identify and restrict NPA cases. Also, tribunals have been authorized to perform npa debt settlement.

What is the way forward? How to keep NPA under control? This blog explains some workable strategies.

Decision-making has to be multilayered

The fundamental reason for NPA is to make junior employee decision-makers. However, the real responsibility lies with the senior people. Therefore, it is important to make the structure such that multiple people are involved in the decision process.

No compromise on NPA recovery

The government has already started putting the focus on NPA recovery by making laws stringent. Now the banks are required to behave more responsibly. They should not give any concession to NPA and all the measures to be taken to recover the loan as early as possible.

The RBI has asked for additional powers under the Banking Regulation Act. Now it has the powers to remove and appoint CMDs and to supersede the Board of Directors.

RBI can make an application for winding up defaulter banks and enforce voluntary and involuntary amalgamation.

Banks are also required to work sincerely on npa management. It is a collective work of RBI and banks to keep the NPA under control.

Improved Credit Risk Management

Banks need to appraise the project well. They should check the trustworthiness and creditworthiness of the client. Banks need to carry out the skill and experience of the client. By establishing effective MIS, they can trigger early warning signals about the health of loans.

Other than these measures, banks are supposed to set up Asset Reconstruction Company to resolve stressed assets fast. It will reduce pressure on npa debt settlement as well.

Looking at the increasing pressure on banks, they must keep NPA under control to maintain better financial health.