Mismanagement of Non-Performing Assets is a Hindrance Towards Sustainable Development: A Critical Study With Reference to Indian Economy

Abstract

Non-performing assets (NPAs) are classified as loans and advances which are in default, either refund of principal or interest payments are not duly met. This not only leads to dishonour of loan agreement from the recipients' point of view but also huge NPAs result macroeconomic instability and economic crisis. The financial crisis may create hindrances towards achievement of sustainable development of an economy. Keeping NPA in balance sheet portrays lacunae in management of the lender. The non-recovery of interest and principal reduces the lender's operating cash flow, which upsets the budget and drops the earnings. Statutory provisions, set aside to cover probable losses, reduce the income further. When the non-recovery is determined to be definite in nature, they are written off against earnings of the lending institution. Thus, presence of NPAs in balance sheet gives a distress signal to the stakeholders of the lending institution. Under this consideration, the present study will look upon some of these issues related to NPA management in Indian banking sector. The main objective of this study is to discuss the nexus between the NPA of Indian scheduled banks for priority sector, non-priority sector and public sector and the gross domestic product (GDP) of Indian economy for the time period 2005–2020. To study this objective, the ratio analysis and the trend analysis of NPA of three sectors and GDP of Indian economy over the given time frame have been done. Finally, some policy prescriptions regarding achievement of sustainable development after taking into account NPA management of an economy have also been proposed.

Citation

Dan, A.K., Som, S. and Tripathy, V. (2024), "Mismanagement of Non-Performing Assets is a Hindrance Towards Sustainable Development: A Critical Study With Reference to Indian Economy", Chatterjee, T. (Ed.) International Trade, Economic Crisis and the Sustainable Development Goals, Emerald Publishing Limited, Leeds, pp. 133-146. https://doi.org/10.1108/978-1-83753-586-620241009