The assets of banks are classified as NPA. The Non-Performing Assets (NPAs) are a loan or advance for which the principal or interest payment remained overdue for 90 days. This asset ceases to generate income for the bank. In addition to stoppage of income generation to the banks, banks are required to make provision for NPA. Although, NPA is a double-edged razor: damaging the profit, weakening the capital structure and reducing the rating of the bank. Now we will show you ways to reduce NPAs.
Ways to reduce NPAs
- A smart intelligent learning platform can automatically match delinquencies to agencies across regions. It can improve speed and security and help lenders track the collection process in real-time with the help of live dashboards, data analytics, and insights.
- This can also help in monitoring consumer data efficiently so that one can have a more granular customer segmentation, apply sophisticated data science measures like sentiment analysis, and deliver customised communication to the audience base that is timely and relevant or suggest a strategy for a field agent or caller.
- For example, from data analysis, the platform can identify that Sushil in Nashik is likely to respond better to an SMS in Marathi at 2:30 pm on Tuesday than Kavita from Pune would likely to respond to a phone conversation in English at 11 am on Friday.
- Unfortunately, many lenders do not have real-time reporting, which hinders efficiency and speed on collecting and creates stress. It is essential to have clear visibility at each stage of the cycle. In addition, the data should be stored in a secure environment, which is pure regulatory compliant.
- Technology is to make repayments a positive and also pleasant with experience. With the right analysis, one can determine the real-time state of the customer and deliver the appropriate message accordingly.
- Among all defaulters, the top 20 companies created nearly Rs 1.54 lakh crore NPAs. If the bank focuses on these major defaulters government may not have to rescue banks.
- The bank should thoroughly inspect the company they are giving loans to. Loans to bad companies will lead to a lack of money for good investments.
- It’s better to display the defaulters’ name list publicly. This will cause fear and acts as a deterrent.
- After banks grants loan, it should observe the capacity of the company continuously and should be able to assess whether it is about to bankrupt. This will lead the bank to sell the assets before the loans become NPA.
- Creating ‘bad bank’ and transferring NPAs to it. In such ways, NPAs will be cleared for banks on papers. This method is useful to resolve the stress in the banking system.
- Credit Risk Management: Proper credit appraisal of the project, creditworthiness of clients and their skill and experience should be carried out. Along with conducting these analyses, banks should also do a sensitivity analysis and should build safeguards against external factors. The Management Information System (MIS) needs to be implemented to monitor early warning signals about the projects. It should ideally detect issues and set off timely alerts to management so that necessary action is taken.
