Asset Quality and Accounting Jugglery in Indian Banks

Bashir Ahmad Joo .


In the context of recent financial and banking crisis, the stability of the banking system becomes a priority on the agenda of the national monetary authorities. Since “asset quality” is widely accepted as the fundamental concept for the study of banking stability, this paper therefore attempts to highlight the asset quality of public and private sector banks in the pursuit of accounting jugglery and maneuvering techniques. One of the techniques banks use to depict even a financially weak and non-performing asset as standard asset is “ever greening”. Moreover, as banks have become broad based financial institutions engaging in full spectrum of financial services their credit risk exposures have become more complex and interdependent. Hence, the risk and sensitivity of bank failures due to poor asset quality will trigger a chain reaction and generating negative externalities for the whole financial system has significantly grown. Consequently, there is a stringent need for appropriate regulations and proper asset quality surveillance by the national monetary authorities for macro prudential supervision. In present study, revenue slippage analysis and financial ratio analysis has been used to analyze the asset quality in banks. The asset quality of select banks has been statistically tested by using standard deviation, F Test and exponential growth rate. Further, for the purpose examining the impact of ever greening of credit portfolio simulation analysis has been attempted. The findings of the study reveals that reported asset quality of the banks has witnessed healthy improvement but one important revelation is that usage of “ever greening” of advance portfolio has become common practice among banks in India.  Finally, study has identified that coefficients of credit growth were positive and statistically significant from second lag onwards reflecting that credit growth fed into growth in NPAs in a lagged manner.


Asset quality, Revenue slippage, Non-performing assets, Banking crisis, Ever greening, Capital adequacy.

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