12 --------------------------------------------------------------------------------------------------- Responsibility of Contents of this paper rests upon the authors and not upon GRIET publications ISSN: 2348-3989 (Online) ISSN: 2230-9764 (Print) Doi: http://dx.doi.org/10.11127/gmt.2015.03.03 pp.12-22 Copyright@GRIET Publications. All rights reserved. MANAGEMENT TODAY -for a better tomorrow An International Journal of Management Studies home page: www.mgmt2day.griet.ac.in Vol.5, No.1, January-March 2015 A Study of Non-Performing Assets in the Indian Banking Industry Sipra Debnath and Mihir Dash Alliance University, mihirda@rediffmail.com A R T I C L E I N F O Article history: Received 29.01.2015 Accepted 31.03.2015 Keywords: asset quality, non-performing assets (NPAs), recovery. A B S T R A C T The strength and soundness of a banking system primarily depends upon the quality of the assets. Non-performing assets (NPA) is one of the major concerns for banking system in India. This study analyzes NPA management in Indian banks for the period 2004-2013. The data for the study pertained to gross and net NPAs of different bank groups over the research period, and was collected from the Reserve Bank of India (RBI) website. The results of the study show that there has been a reduction in the NPA ratios over the research period, which indicates improvement in the asset quality of Indian public sector banks, private sector banks, and foreign banks. There was significant improvement in the management of NPAs of the public sector banks. The stringent prudential and provisioning norms and other initiatives taken by the regulatory bodies have pressurized banks to improve their performance, and consequently resulted in reduction of NPA as well as improvement in the financial health of the Indian banking system. The various steps initiated by the RBI and the Government of India in strengthening/improving the functioning of the Debt Recovery Tribunals, Lok Adalats, and SARFAESI Act as a comprehensive settlement policy certainly has resulted in improved recovery of NPA accounts. All these efforts have improved the efficiency and profitability of Indian banks, and have strengthened the financial position of the public sector banks and private sector banks. The study further reveals that despite the huge NPA level of public sector banks, they have been successful in reducing their respective gross and net NPA ratios at par with the private sector banks. Introduction One of the primary functions of banking is the granting of loans and advances to customers to provide finance for their economic activities. The funds received back from borrowers plays a major part in the cash cycle of banks, and contributes largely to their profits. Non-recovery of interest and/or instalments on the loan portfolio disrupts the effectiveness of the credit cycle, constraining the funds of banks, impacting their profitability, and compelling banks to maintain minimum capital reserves and provisions to act as an offset for possible loan losses. As per RBI guidelines, as of March 31, 2004, a non-performing asset (NPA) is a loan or an advance in any of the following cases:  interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan,  the account remains ‘out of order’ for a period of more than 90 days, in respect of an overdraft/cash credit (OD/CC),  the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,  interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and  any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.