Non-performing assets are those assets on which the interest is unpaid for a long period, i.e., approximately 90 days. These non-performing assets cause a great decline in the profitability of the banks and even lead to the collapse of banking. The major cause of the increase of NPAs with banks was the extreme lending by banks in the early 2000s to different businessmen and companies. These businessmen were unable to pay back the loans due to low earnings. Thus, it greatly increased the NPA. There were a lot of cases of fraud and corruption that were also responsible for the increase in NPAs. 

Report on Amount of NPA with Banks

According to the reports in the Times of India, the gross NPAs of public sector banks within 7 years have doubled. The gross non-performing assets of public sector banks in 2021 were 5.40 Lakh, whereas the NPA of 2014 was 2.24 lakhs. According to the reply of the minister for state finance, Dr Bhagwad Karan, the gross NPA of 13 banks between June 2014 to September 2021 was 540,442 INR. The gross NPA of the SBI rose to 1,23,386 crores INR and it tops the list. The next bank was the PNB, i.e. the Punjab National Bank. The NPA of PNB rose to 98,484 crores INR from 32,416 crores INR from 2014 to 2021. 

Due to the famous government policy of 4 R, i.e. recognition, resolution, recapitalisation, and reforms, the gross NPA of scheduled commercial banks was reduced. As per the RBI data, the NPAs of these banks were 1,36,187 crores INR on 31st March 2018, which lower down to 8,35,051 crore on 31st March 2021.

The NPA is classified into three sub-categories by the banks based on the period of non-payment of the interest or capital. These three classes are as follows:

1. Substandard assets: Assets that are present in the NPA for 12 months or lesser, these types of assets are Substandard assets.
2. Doubtful assets: If an asset is in the state of non-performing for more than 12 months, it will be regarded as a doubtful asset of NPAs.
3. Loss assets: Loss assets are the assets that are considered as completely lost. The auditor or any inspector identifies the loans that will always remain unpaid and should be fully written off. The loss of assets is the case of non-payment for a longer period.

Causes of Rising of NPAs in Banks

Some of the major causes that give rise to NPAs in the banking sector are given below:

• India holds a booming economy in the early 2000s. Thus, the banks grant a considerable amount of loans to businessmen and companies. Due to some issues such as low earnings and non-feasibility of the business, the businessmen were not able to pay their debts too. Thus, banks incurred a huge loss, and most of today’s NPA is from those losses.
• Another important factor that led to the high NPAs with banks was the relaxed lending norms to the corporate houses. These lending of the high amount of loans without any proper analysis greatly contribute to the increase of NPA.
• Capitalism was also a cause of increasing NPA in India.
• There are many cases of fraud and corruption that also disturbs the normal statistics of the balance sheet of the bank.
• The huge amount of loan granted to Kingfisher airlines by RBI was not fully recovered.
• The ban on the mining industries made the industrial sector unable to pay back their loans. This greatly affects the Indian public sector banks. 
• The contribution of increased NPA by the priority sector was through their loans on agriculture, education, housing etc. 

Result of Increased NPA in Banks

The increased NPA greatly decreases the profitability and also the credibility of the bank. It is estimated that the amount of this NPA can erode half of the capital base of public sector banks. The bank loses its image if the NPA increases from its sustainable limit. The accountholders lose their trust in the bank and may want to withdraw their money and close their accounts. This can cause a great loss to the banks and can even lead to the collapse of it. The banks will be thus forced to decrease the rate of interest to increase their margin. 

Conclusion

The increase in the amount of NPAs with banks greatly reduces the profitability and credibility of the banks. NPAs are the assets on which the interest remain unpaid for approximately 90 days resulting in a great loss for the banks and eventually to the Indian economy. According to the reports in the Times of India, the gross NPAs of public sector banks within 7 years have doubled. Due to the famous government policy of 4 R, i.e. recognition, resolution, recapitalisation, and reforms, the gross NPA of scheduled commercial banks was reduced. The major cause of the rise of this NPA was the low earnings that caused a hindrance for people in business in paying back their loans. Other causes include relaxed lending norms to corporate houses, corruption and cases of fraud.