K. S. Rajeev, Suresh Subramoniam |
Deputy General Manager, Kerala Financial Corporation, Trivandrum, Kerala, India.
Abstract
According to Reserve Bank of India (RBI) Governor,
public sector banks are having stressed accounts equivalent
to over Rs.7 lakh Crores including non-performing assets
(NPA) and restructured loans (News Asia, 2016). RBI has
also pointed out that gross NPA of public sector banks
has risen to 6.03% during June 2015 from 5.20% during
March 2015. As banks have growing huge bad debts,
steps are being laid down by the RBI and the government
to help lending banks clean up their balance sheet by
2017. NPAs impact bank growth or stability and deteriorate
profits, increase provisions, reduce reserves, affect capital
adequacy, increase market borrowings, drop share values,
build negative image about the economy and high interest
rates. In order to compensate for the money lost in the form
of interest in NPAs, banks have to charge high interest rate
from other borrowers. This will have indirect impact on
inflation and results in negative impact on development.
Overall development of the country will also get affected
due to NPA by way of unemployment, business exit due to
inability to meet its loan repayment obligations, instability
of the banking system, and liquidity crisis. A detailed
analysis on the factors which cause NPA has become a
high priority research agenda in the present day context. A
questionnaire is developed for the purpose to acquire and
analyse data to identify factors which cause NPA. Also, an
exploratory factor analysis has been carried out to identify
factors which contribute to growing NPA in financial
institutions.
Purpose:
The purpose of this paper is to identify factors which
cause non-performing assets in non-banking financial
institutions.
Design or methodology or approach:
A questionnaire has been developed to gather data from 120 professionals who are involved in the process of granting
or recovering loans in non-banking financial institutions in
India and appropriate statistical techniques have been used
to test for statistical significance.
Findings:
As a result of exploratory factor analysis, three components
with corresponding factors are identified for the cause
of non-performing assets in non-banking financial
institutions. These are component 1 which is professional
incapability of the borrower in running the firm leading
to NPA, component 2 related to borrower nature in wilful
default and his or her influential nature on financial institution
and government resulting in NPA and, component 3 due to
weak internal policy of the firm or external environment
which aid non-repayment of loan. Component 1, component
2, and component 3 have nine factors, seven factors, and
six factors associated with them, respectively, as explained
in the paper.
Research limitations or implications:
The study identified the factors which are to be critically
analysed prior to granting loan so that chance of the loan
becoming NPA can be minimised. The success of this
finding depends on suitably designed electronic credit
worthiness evaluation system that evaluate the borrower.
Originality or value:
The identification of various factors which contribute to
non-performing assets and to take suitable measures to
control them is a high priority agenda for any financial
institution and this research is directly oriented towards
that direction.
Keywords: NPA, RBI, Exploratory Factor Analysis, Causes
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