Commercial Banks Case Study

1.4 Internal factors

a. Defective lending process There are three cardinal principles of bank lending that have been followed by the commercial banks since long. i. Principle of safety ii. Principle of liquidity iii. Principle of profitability.

b. Inappropriate technology Due to inappropriate technology and management information system, market driven decisions on real time basis can’t be taken. Proper MIS and financial accounting system is not implemented in the banks, which leads to poor credit collection, thus NPAs. All the branches of the bank should be computerized.

c. Improper SWOT analysis The improper strength, weakness, opportunity and threat analysis is another reason for rise in NPAs. While providing unsecured advances

Poor credit appraisal system - Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal the bank give advances to those who are not able to repay it back. They should use good credit appraisal to decrease the NPAs.

e. Managerial deficiencies The banker should always select the borrower very carefully and should take tangible assets as security to safe guard its interests. When accepting securities banks should consider the: 1. Marketability 2. Acceptability 3. Safety 4. Transferability. The banker should follow the principle of diversification of risk based on the famous maxim do not keep all the eggs in one basket, it means that the banker should not grant advances to a few big farms only or to concentrate them in few industries or in a few cities. If a new big customer meets misfortune or certain traders or industries affected adversely, the overall position of the bank will not be affected.

f. Absence of regular industrial visit The irregularities in spot visit also increases the NPAs. Absence of regularly visit of bank officials to the customer point decreases the collection of interest and principals on the loan. The NPAs due to willful defaulters can be collected by regular

Upon analyzing the banking sector in India, it is evident that the NPAs still pose a significant threat to the banking sector. This research is an attempt to examine the non-performing assets of public sector banks (PSBs) in India and to evaluate the various facets of NPA and its management in Indian banking sector.

1.6 Indian private sector bank: An Overview The banking system is central to a nation’s economy. Banks are special as they not only accept and deploy large amounts of uncollateralized public funds in a fiduciary capacity, but also leverage such funds through credit creation. In general, the banking system performs four basic functions essential to economic development and growth: mobilization of savings, allocation of resources to productive uses, facilitating transactions and risk management and exerting corporate control. The banking system in India is significantly different from that of other Asian nations because of the country’s unique geographic, social and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. The banking system in India has had to serve the goals of economic policies enunciated in the successive five year development plans, particularly