Introduction:
Special attention was put upon reduction of a large fund in the head of bad debt which is popularly known as the non-performing assets (NPA) so that the productive real sectors are entitled to get more bank credit in one hand and profitability of banks rises on other.
Assumptions were made that, it will improve the health of the banking institutions, it will also lead to influence the real sectors' output growth through channelization of savings money into investment money as there is linkage between financial sector and real sector.
To avert the credit risk, there are rising trends of commercial banks' intention of making their funds to be invested in the government and other approved securities other than investing in the real sectors in spite of significant margin of fall in the non-performing assets (NPA) of the banks.
Moral suasion, Capital Infusion and other incentives have been used by Government of India and Reserve Bank of India to motivates the Banks for lending to real sector specially the Priority Sector as classified by Reserve Bank of India. Before discussing, how the PSU Banks in India have paly upon the craving of Government of India, first let discuss what is NPA and how the loan in India are classified as NPA.
Non-Performing Assets (NPA):
As per RBI Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances No. RBI/2023-24/06 DOR.STR.REC.3/21.04.048/ 2023-24 dated 01-04.2023 an asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank.
A non-performing asset (NPA) is a loan or an advance where;
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