Non-performing assets and lending rate of banks: Dispelling a myth

Abstract

This paper examines the long held belief that high lending rates by banks, with high risk appetite, result in a large proportion of such advances turning into Non-Performing Assets (NPAs) affecting the profitability of the bank and the economy as a whole. The results of the study are used to prove that tackling the menace of NPAs lies not in restructuring or writing them off but in proactively putting in place systems of information sharing and superior technology. The performances of some of the top lenders in India are compared to identify definitive, quantifiable trends in the banks’ NPAs and lending rates. The results of the study are collaborated with existing literature to form a coherent understanding on what has been ailing the Indian banking industry in the past few years.