| SMART JOURNAL OF BUSINESS MANAGEMENT STUDIES |
VOL. 13 |
NO. 2 |
PAPER 5 |
DOI : 10.5958/2321-2012.2017.00013.6 |
RISING LEVEL OF STRESSED ASSETS IN PUBLIC SECTOR BANKS AND THEIR IMPACT ON THE BANKS’ STABILITY IN INDIA
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| Ashok Kumar Pandey* Chandan Dasgupta** and Tohid Kachwala***
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| * Executive MBA Scholar, School of Business Management, NMIMS, Mumbai
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| ** Professor, School of Business Management, NMIMS, Mumbai
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| ** Professor, School of Business Management, NMIMS, Mumbai
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| According to the International Monetary Fund’s (IMF) Global Financial Stability Report, 36.9 per cent of India’s total debt is at risk, which is among the highest in the emerging economies while India’s banks have only 7.9 per cent loss absorbing buffer, which is among
the lowest. Bad loans of the banking system have risen alarmingly in the fiscal year 2015. The gross Non-Performing Assets (NPAs), for Public Sector Banks (PSBs), as on March 2015, stood at 5.17 per cent while the stressed assets ratio stood at 13.2 per cent, nearly 230 basis points more than that for the banking system. PSBs have been reeling under pressure, due to the rising number of defaults, affecting their bottom line. As a result, there is a substantial increase in the need for a Corporate Debt Restructuring (CDR) mechanism, to streamline their loans. The sharp increase in stressed assets has adversely affected the profitability of the banks. The annual return on assets has come down from 1.09 per cent, during 2010-11, to 0.78 per cent, during 2014-15. Considering the effect it has on both capital and liquidity position of the bank, there is an urgent need for banks to reduce their stressed assets and clean up their balance sheets. To test the hypotheses, multivariate regression was employed. Findings indicated a negative relationship between stressed assets and profitability.
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