Bankers' Perceptions on Causes of Bad Loans in Banks

Non performing assets (NPAs) or bad loans, as they are commonly called, have been a menace for the banking sector across the world. The Indian environment is no different. Non-performing assets (NPAs) have been detrimental to the performance of the Indian banks. This study has attempted to identify the critical factors, which are responsible for the loans to go bad in the Indian commercial banking system. The study uses primary data collected from credit mangers of banks operating in India. The study reveals that the external factors have a higher influence compared to the internal factors. Economic downturn and willful default have been found to be most critical. Poor credit scoring skills of managers, absence of suitable administrative penalties and target completion have been found to have a significant influence amongst factors related with the loan appraisal mechanism. Seizure and disposal of collateral have been found to be the toughest challenges amongst the factors related with the loan monitoring and controlling mechanism. Loan managers' level of motivation, manpower, skills to appraise collateral, efforts to reduce costs, government and political intervention and soft budget constraints have been found to have a lower influence.