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Impact of Non-Performing Assets (NPAs) on Assets Turnover Ratios of Punjab National Bank Limited

A well-developed and financially strong banking sector is the backbone of the economic development of any nation. Banks mobilize the savings of the public by accepting deposits and disburse credit according to socio-economic priorities of the
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  THINK INDIA JOURNAL ISSN:0971-1260 Vol-22-Issue-14-December-2019 Page | 693 Copyright ⓒ  2019Authors Impact of Non-Performing Assets (NPAs) on Assets Turnover Ratios of Punjab National Bank Limited Pallavi Singh Yadav Research Scholar, Faculty of Commerce, Maharaja Ganga Singh University, Bikaner, Rajasthan, India. charmypall@gmail.com https://orcid.org/0000-0003-4895-0120 Dr. Raj Kumar Thathera HOD, Department of Commerce, Government Dungar College, Bikaner, Rajasthan, India. Abstract A well-developed and financially strong banking sector is the backbone of the economic development of any nation. Banks mobilize the savings of the public by accepting deposits and disburse credit according to socio-economic priorities of the country. Banks and financial institutions provide financial assistance in the form of advances to agricultural and industrial units, MSMEs and service sector, to run their businesses efficiently and to contribute in the economic development. It took almost 3-4 years for banks to come out of the 2008 financial crisis that happened in the world economy and still, banks are facing issues like non-performing assets, which not only reduced the profitability of banks but also affect their smooth operations and goodwill. A drastic increase in NPAs is happening in public sector banks of India. Public sector banks are ruling the banking sector in concern of net worth, which is 70 percent of the banking system of India. In the mid of September 2018 gross NPAs of SCBs crosses the limit of nine lakh crores out of which 90% NPAs were in the  public sector banks. State Bank of India and Punjab National Bank are leading in that. Although, Reserve Bank of India and banks themselves have taken numerous steps to solve the NPAs problem but it is still alarming in the Indian economy.  THINK INDIA JOURNAL ISSN:0971-1260 Vol-22-Issue-14-December-2019 Page | 694 Copyright ⓒ  2019Authors The paper touches upon the meaning and definition of non-performing assets, types and classification of NPAs, causes of NPAs and impact of NPAs on turnover ratios of Punjab  National Bank Limited. This paper would analyze the impact of NPAs on the turnover ratios of Punjab National Bank Limited. Keywords:  Non-Performing Assets (NPAs), Public Sector Banks, Financial Institutions, Profitability, Turnover, Turnover Ratios, Assets Turnover Ratios, Economic Growth. Introduction After the economic liberalisation of 1991 banking sector faced a drastic change. Till the 1991 era of liberalisation assets quality was never beenthe main concern for the banking sector in India. Banks were mainly focused on opening new branches, expanding their  banking business, priority sector lending and so on.The primary function of banks is to granting advance to their customers according to their financial needs. Banks grant loans to  borrowers and increase their cash cycle by the mean of receiving interest or instalment of  principal on the same. This receiving of funds plays a major role in increasing the income of  banks. If funds provided to borrowers came back with interest then it generates profit for  banks and if don’t it affects the profitability and goodwill of the banks. Cease to generate income from funds is termed as Non-Performing Assets.Public sector banks are ruling the  banking sector in concern of net worth, which is 70 percent of the banking system of India. In the mid of September 2018 gross NPAs of SCBs crosses the limit of nine lakh crores out of which 90% NPAs were in the public sector banks. State Bank of India and Punjab National Bank Limited are leading in that. A well-developed banking sector is a prime important pillar for the economic development of a nation, especially for developing nations. The economic crisis of  THINK INDIA JOURNAL ISSN:0971-1260 Vol-22-Issue-14-December-2019 Page | 695 Copyright ⓒ  2019Authors 2008,affect the banking sector too. To fight back in such a crisis, the BASEL norms have  been introduced by the BASEL committee on banking supervision with three aims; a.   minimum capital requirement should be maintained by banks so that they can stand strong during the economic and financial crisis,  b.   reducing the risk factor in the banking sector and c.   make banking function more transparent. Every bank needs to adopt these norms for operating in India or globally. India adopted BASEL norms for the first time in 1999. The financial crisis of 2008 draw attention that the current BASEL norms need to update and BASEL III norms introduced. Basel III norms are an international regulatory, provided a set of reforms that are designed to improve the regulation functions, supervision function and risk management in the banking industry. The Basel Committee on Banking Supervision introduced Basel III norms during the year 2009, give the bank a minimum of three years to adopt these norms. BASEL III norms considered risk related to credit risk, the discipline of market and risk related to continuous banking operations. To face these risk banks need to maintain a minimum amount of capital and not to lend all the money to borrowers which they get from their depositors. NPAs: An Introduction At the time of operating banking functions, banks attract many types of risks such as market risk, credit risk, systematic risk, operation risk and so on. These risks are always indulged in banking operations. According to the banking regulation act 1949, sub-clause 5(b) “banking” means accepting and depositing the money of the public for providing loans or investment and repayable this money to the needy section on their demand or otherwise withdrawing in the form of a cheque, demand draft and so on. These lending or providing loans to the needy section always come with a risk of not returning interest of income or bad  THINK INDIA JOURNAL ISSN:0971-1260 Vol-22-Issue-14-December-2019 Page | 696 Copyright ⓒ  2019Authors debts of even principal amount. If a fund comes along with interest and the principal amount is known as an income to a bank and if not it becomes a loss to the bank or in the banking term is called, “Non- Performance of Assets” or “Non-Performance ofFunds.” Reserve bank of India’s Master Circular on prudential norm on income recognition and asset classification provides the following condition when an asset become non- performing;    When a period of 180 days crossed in the case of the term loan, still interest and/ or instalment of principal amount remains overdue.    When a period of 180 days crossed in the case of an overdraft/ cash credit (OD/CC), still accounts remains ‘out of order’.    When a period of 180 days crossed in the case of bills purchased and discounted, still  bills remain overdue.    When two crops seasons have gone in the case of short duration crops, still instalment of principal or interest remains overdue.    When one crop season has gone in the case of long duration crops, still instalment of  principal or interest remains overdue.    When a period of 90 days crossed in the case of the securitization transaction, still the amount of liquidity facilities remains overdue.    When a period of 90 days crossed in the case of derivative transactions, still the amount remains overdue. When a period of 90 days crossed (from the end of the quarter) in the case of interest  payments, still the amount of interest is due (during any quarter). Categories of Non-Performing Assets (NPAs)  THINK INDIA JOURNAL ISSN:0971-1260 Vol-22-Issue-14-December-2019 Page | 697 Copyright ⓒ  2019Authors On the basis of non-performance of assets, banks (on the guidelines provided by reserve bank of India) further classified them into the following categories;   Figure 1: Categories of Non-Performing Assets      Substandard Assets: When an asset remained NPA for a period of less than or equal to 12 months. This asset shows the credit weakness and risk on the advanced  provided. Also, it shows there is a possibility that the bank will face some loss on such assets if the amount not recovered as soon as possible.    Doubtful Assets: When an asset remained in substandard category for 12 months, such assets inherent all the weakness of substandard assets with the addition of make collection or liquidation in full,- depended on conditions and values and highly improbable.    Loss Assets: Such assets identified in internal or external audit of a particular bank or when RBI does his inspection on a particular bank but the amount has not to be written off wholly. These assets are lost because a particular bank was unable to recover or collect them. Review of Literature Sasikala, P. and Mohanapriya, G. (2017) A uthor examined various factors ofcooperative banks in Pondicherry, plays an important role in increasing the NPAs. The
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