Growth from the people (Mohanty and Mahapatra, 2010) [2].

Growthof banking is inevitable for social and economic development. They are thebiggest purveyors of credit and they also attract most of the savings from thepeople (Mohanty and Mahapatra, 2010) 2.

The modern banking, in addition tointermediating function, also carry out many other financial services andventured into other financial markets including insurance, etc. The stabilityand viability of commercial banking is synonym for sustainable economicdevelopment. Banking distress leads to economic crisis. The post-liberalizationperiod observed an era of decontrolled system and reasonable pressure inbanking sector, leading to improved importance for asset quality for sustained reasonableedge in the market. Even though financial institutions in general are controlledby Reserve Bank of India, bank efficiency depends on the quality of credit riskmanagement followed by financial institutions. NPA management is measured crucialfor overall efficiency of banking sector. The best indicator for the health ofthe banking industry in a country is its level of Non-performing assets (NPAs).Reduced NPAs generally gives the intuition that financial institutions have toughenedtheir credit evaluation processes over the years and growth in NPAs employ the requirementof provisions, which decreases the total profitability of banks (Prasad andVeena, 2011) 3 .

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 Koeva,P (2000) 4 documented the significance of non performing loans as one of the mainexhibit in explaining the bank level disparity in intermediation costs andprofitability throughout the financial liberalization phase. The economic disasterin fact originate from banking crises due to higher levels of non performingassets. Khan and Bishnoi (2001) 5 observed that banking crises subsist incountries if the level of NPA touches 10% of GDP.

NPA is a bug distressing theeconomy. NPAs force banks in a different way including a decline in interestspread (Brahmananda, 1999) 6, reduction of profitability and shareholdervalue (Kaur and Singh, 2011) 7 and jeopardize the viability of the bank(Micheal et al, 2006) 8. On one hand, it reduces the income earning capacityof banks, at the same time, banks need to provision from their income towardsprobable credit losses. The effect of NPA is not limited to bank alone, itaffect the economy, borrowers, creditors, industries, etc. At macro level, NPAblocks the flow of funds to prospective borrowers and hence results in reducedcapital formation and economic activity.

Also, higher levels of NPA force banksto invest in risk free government securities and other investments. This alsoresults in reduced capital formation and economic activity.  Managementof NPA is one major objective promulgated in various reform measures sincepost-liberalization period. Prudential measures on income recognition, assetclassification, provisioning, etc were carried out in order to control the NPAin banking sector. Various committee’s (including Narasmiham Committee, VermaCommittee) were appointed to chalk out strategies and reform measures to manageNPA. The reform process has shifted the focus of public sector dominatedbanking system from social banking to a more efficient and profit orientedindustry (Ketkar and Ketkar, 2008) 9.

 Thestudy on efficiency of NPA management is extensive folded. Some study explainedthe efficiency of several recovery management measures, such as SARFAESI, DebtRecovery Tribuals, Lok Adalats etc (Siraj and Pillai, 2012 10; Mahlawat andKajal, 2012) 11, while different studies also observed the comparativeefficiency of different bank groups in India and explaining their NPA levels(Rajeev and Mahesh, 2010 12; Siraj and Pillai, 2012 13; Vallabh et al, 200714; Malyadri and Sirisha, 2011 15; Chaudhary and Sharma, 2011 16). Sincepost-liberalization period, various studies have utilized NPA statistics whileassessing the relative efficiency of banks in India (Prabhakar, et al, 2012)17.

The reforms in post-liberalization period have led to the increase inresource productivity, increasing level of deposits, credits and profitabilityand decrease in non-performing assets (Badola and  Verma, 2006) 18. Indian banking system can arguethat their intensity of NPAs have recorded a declining tendency over a periodof time and which is parlance of international standards, with prudentialprovisioning, classification (Chaudhary and Singh, 2012) 19. NPAresults from many internal and external causes.

The reasons for NPA areclassified differently; into systematic and situational causes (Istrate et al,2007) 20 into overhand component and incremental component (Poongavanam,2011) 21, into internal and external factors (Misra and Dhal. 2010; 22Muniappan, 2002) 23, based on its effects (Islam, et al, 2005) 24. Thereasons classified into internal factors and external factors are more commonin literatures. NPA cannot be eliminated completely from the market; rather itcan be controlled and brought in to acceptable limits.

Rawlin and Saran (2012)25 found that Gross advances and NPA of banks have strong correlation and NPA can be predicated based on itsrelationship with Gross advances. Studies also indicated the relevance ofdirected lending mostly priority sector advances to generate NPA of banks(Uppal, 2009) 26.