Question

Today most of the banks are focusing on recovery of non-performing assets (npas). A large chunk of bank's money is locked in these assets. Major defaulters are intentional who plan to defraud the bank and run away. The other type of defaulters are those, who because of circumstances or due to some inability are unable to repay the bank loans. Banks have to make huge provisions for npas, which reduce the profitability of the banks. However, new legislations have been passed expediting recovery process but more needs to be done. In light of the above statements, what is the main focus of banks today?

1) Recovery of non-performing assets (npas)
2) Reducing provisions for npas
3) Increasing profitability
4) Passing new legislations

Answer 1

Banks today are focused on recovering non-performing assets to maintain financial health and profitability, employing strategies such as loan diversification and secondary market sales, alongside financial risk planning.

Step-by-step explanation:

The main focus of banks today is the recovery of non-performing assets (NPAs). Banks are addressing the challenge of NPAs by diversifying their loan portfolios, which involves extending credit to a varied mix of borrowers. This reduces the impact that any single economic downturn or sectoral crisis might have on the bank's financial health. Furthermore, to protect against loan defaults and maintain a positive net worth, banks can sell some of their loans on the secondary loan market and invest more in government bonds or reserves. The primary goal is to minimize losses during economic downturns and maintain profitability. Banks also factor the risk of non-repayment into their financial planning, but in the case of a widespread recession, such strategies like diversification may not be sufficient to prevent a decline in net worth.