Role of Risk Management Framework in NPA Management A Study of Select Banks in India

Abstract

The banking sector is the lifeblood of an economy. Banks are the nodal financial institutes that channel the funds received from borrowers via interest and repayment of loans. Banks create credit and are therefore considered the foundation stone of a healthy economic system. Risk in banking terms refers to the slippage of the accounts into the NPA category, i.e., the category of assets that are classified as nonperforming. Perhaps incremental NPA accumulation is the most critical problem and is not 100 percent avoidable by its very nature. Management of NPAs is termed quotrisk management,quot and the framework for such management is known as the Risk Management Framework. Risk is an integral part of all aspects, particularly in the financial sectors banks develop a competent quotrisk management frameworkquot to mitigate risk, on which not only that particular bank but the credit creation of the whole economy depends. The success of the banking industry, in particular, relies on the productivity and viability of the risk assessment of the board and the structure planned and regulations carried out by them. newlineNPA has always been a famous subject of research and has attracted the attention of researchers for decades. A lot of studies have been conducted on the NPA accumulation and recovery and, lately, on the performance of various NPA recovery channels operating in India, yet there exists a research gap on a dedicated study on the role and effectiveness of the Risk Management Framework in NPA management in the Indian banking sector. This study was conducted with the purpose of filling this kind of research gap. Our banking sector comprises various private and public banks. newline