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How can NPAs be avoided? What went wrong?

The gross non-performing assets of the public sector and private sector banks as on September 30, 2017, were Rs 7,33,974 crore, Rs 1,02,808 crore, respectively. Few banks NPA have reached to 24% of advances. Banks are required to capital adequacy ratio of 12-14% which means in absence of Government intervention depositors have to face the brunt for any NPAs over capital adequacy ratio.

Banks have been at the mercy of borrowers to make repayments. In case of default/account turning bad, banks have to approach DRTs for the resolution which may take years for judgements and there have been very few cases where banks have been able to recover money.

Every day there has been news of fresh NPAs adding to the system. Why are there so many NPAs in the system? What has fundamentally gone wrong with the banks’ lending system? When banks core function is of lending, why have the banks failed to lend right and even if the decision of lending the promoter has proved wrong, why have banks not been able to recover the money?

Then the answer lies in banks' policies of lending.

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