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Why NPA is increasing

Posted Date: 16-05-2023 Posted By: user

The fundamental purpose of running a bank is to take deposits and offer loans to the public. Though the primary intention is to offer services to the customers, it is also supposed to make profits.

To achieve that, a bank offers loans to its customers and charges interest on that. Interest is the prime source of earnings and profitability.

However, to get more interest, at times, banks tend to ignore the basic financial health checks of the clients and as a result, many bank loans do not get repaid in the predefined duration.

Such unrecovered loan accounts are called Non-Performing Asset or NPA. When it becomes beyond control, stringent npa management activities are supposed to be implemented.

Reasons behind the increase in NPA

Why has there been an increase in npa in india? Well, there are many reasons behind that.

Increase in the credit

There was a boom in credit during the last two decades. Therefore, NPA increased. Both Indian and world economies flourished. Several firms borrowed big amounts and these amounts were not repaid in time and converted into NPA

Stringent monetary policy

Since npa management and control mechanisms were made more stringent. NPA increased due to that. Earlier, when NPA was not being looked at seriously, it was not even used to get accounted for. Now, due to focus on NPA, it becomes more visible.

Government-imposed judiciary & legislative procedures

The courts in India gave judgments that were against the businesses. The judements negatively affected businesses.

Furthermore, the businesses had to face problems regarding the acquisition of land because of which many projects got on hold.

Furthermore, the government established systematic processes and legislative and judiciary procedures to control NPA. It brought many unaccounted cases into the net of npa management.

It was a major reason behind the increasing NPA in India.

Intentional Defaults

Before the government started taking tough actions against NPA, many defaults happened at the international level. Though the borrowers took loans, they intentionally refused to pay the loans. Thus, the level of NPA went very high and affected the overall Indian economy and economic health.