Volume : IV, Issue : XII, December - 2015

CREDIT RISK AND NON–PERFORMING ASSETS

Dr. A. Venkatachalam, M. Karthikeyan

Abstract :

The banking sector being the backbone of the economy, social orientation of banking had been considered essential for the planned economic development of India. It is with this acknowledged aim that the Bank Nationalization was initiated in. 1969. The Indian banking system, endowed with a large network of anches and wide range of financial instruments, has achieved considerable progress in the two decades after Nationalization. The concept of banking had undergone a dynamic change in keeping with the need to achieve rapid socio– economic progress. As the traditional banking theory, a shift inthe approach to lending from security–orientation to purpose– orientation also became a predominant concept during the period. Despite the overall progress made by the financial system, poor capital base, inefficient organizational structure, declining profitability and very high and ever growing non–performing assets had become the major stumbling blocks in the banking sector during the postnationalization decades. It was against this background that the Financial Sector Reforms became inevitable and were initiated In India. Credit Risk Credit Risk is the potential that a bank borrower/counter party fails to meet the obligations on agreed terms. There is always a scope for the borrower to default from commitments for one or the other reason resulting in crystalisation of credit risk to the bank. NPAs are closely linked with credit management and the main aim of the credit policy of a bank will free to screen out the best proposal for acceptance. The bank can in fact quantify its Credit Risk on the level of NPAs. Credit risk can be quantified in terms of the ratio of the percentage of earning before tax as a proportion of NPA (ENPA). However, despite continuous monitoring, banks usually do end up with a few of their credit turning into NPA.

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Article: Download PDF   DOI : 10.36106/ijsr  

Cite This Article:

Dr.A.Venkatachalam, M.Karthikeyan Credit Risk and Non-Performing Assets International Journal of Scientific Research, Vol : 4, Issue : 12 December 2015

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