Impact of Non-Performing Assets on Profitability- A Comparative study of Public and Private Sector Banks
VEENA.T
Research Scholar
S J B College of Management Studies,
B. G. S Health and Education City, Kengeri, Bengaluru - 560060
Dr.B.S. SUDHA
Professor of Commerce
RESEARCH CENTRE, DEPARTMENT OF COMMERCE, S J B COLLEGE OF MANAGEMENT STUDIES, B. G. S Health and Education City, Kengeri Bengaluru - 560060
Introduction
1.1 Non-Performing Assets
The main revenue source for banks is giving loans and advances. When the payments from the loans and advances either default or are late, then that is called non-Performing assets. Non-Performing assets are bad for banks or institutions. There are different rules by different countries regarding the recording of non-Performing assets. Generally, there is a certain stipulated period, after which an asset is recorded as non-Performing. Banks are strictly regulated by governing bodies as they deal with public money, so if non-performing asset increases at an alarming rate, then it triggers the regulators to take strict action against the management of the bank. Reserve Bank of India defines Non-Performing Assets as any advance or loan that is overdue for more than 90 days. “An asset becomes non-performing when it ceases to generate income for the bank,” said RBI in a circular form 2007. To be more attuned to international practices, RBI implemented the 90 days overdue norm for identifying NPAs has been made applicable from the year ended March 31, 2004. Depending on how long the assets have been an NPAs, there are different types of non-performing assets as well. Asset means anything that is owned. For banks, a loan is an asset because the interest we pay on these loans is one of the most significant sources of income for the bank. When customers, retail or corporates, are not able to pay the interest, the asset becomes ‘non-performing’ for the bank because it is not earning anything for the bank. Therefore, RBI has defined Non-Performing Assets as assets that stop generating income for them.
