Abstract

The banking sector is the backbone of the Indian economy since it performs a variety of services that directly and indirectly contribute to the country's growth and development. The banking industry is vital to India's financial system. One of the primary duties of a bank is to make loans to individuals, businesses, governments, and non-governmental organisations. When these individuals or corporations fail to return their loans, it is a big problem for the bank. As it will have an impact on other financial functions and mechanisms in banks. Debt financing is a form of asset for Indian banks. When this asset fails to provide revenue, it becomes a non-performing asset (NPA). NPA can reduce a bank’s financial stability and profitability. Indian banks mainly focus to provide lending to the priority sector and non-priority sector. The Indian debt finance environment is dynamic and prone to continual development. The Indian Finance Ministry unveiled a number of strategic proposals within the framework of the 2022–2023 Union Budget to encourage increased private sector investments, bolster credit accessibility for emerging industries like digital infrastructure and green energy, and increasing credit assistance for micro, small, and medium-sized enterprises (MSME). Nevertheless, persistent barriers impeding the efficiency of the loan cycle encompass unnoticed leakages, subpar returns, and prolonged recuperation periods. Notably, despite stringent oversight and internal processes, financial institutions—both public and private sector banks—face the challenging problem of non-performing assets (NPAs). To offer policy recommendations for NPL management and mitigation that are both successful and efficient, a full understanding of the non-performing loan status in financial institutions is required. This research paper's main objective is to review a variety of journals, news items, and reports in order to evaluate the impact and results on the Indian economy. This study conducts a detailed investigation of the main causes of the non-performing loan (NPL) problem in India, emphasising its seriousness. The first step in managing non-performing assets (NPAs) is to proactively identify and carefully categorise loans that are in trouble. Financial institutions utilise a wide range of risk assessment techniques, such as stress testing and credit scoring models, to determine whether loans are at danger of default. Examine the legal processes for managing non-performing loans (NPLs), encompassing methods for collection and settlement. Examine the efficacy of various strategies for handling troubled loans. Subsequently, specific techniques are employed to address non-performing loans. These methods may involve restructuring, recovery, or liquidation procedures. These procedures are through SARFAESI ACT and RDBFI ACT.

Keywords