Magnitude and Causes of Non-Performing Assets


One of the most disquieting features of the agricultural credit structure in India is the incidence of ever increasing Non Performing Assets (NPAs). The high level of NPAs restricts the capacity of lending institutions to recycle funds, besides threatening the prospects of continued flow of external credit for agricultural development. A wide range of causes influence the level and the trends in NPAs of the agricultural credit institutions. In this paper an attempt has been made to study the concept of NPAs and magnitude and causes of NPAs among different categories of farmers in SPSR Nellore District.


There are 70 Andhra Pragathi Grameena Bank branches functioning in SPSR Nellore District. These branches are divided into two groups, those serving the farmers in the canal region and those serving in the non-canal region. There are 40 branches in the canal region and 39 branches in the non-canal region. A random sampling of 8 per cent of the total branches i.e., 6 branches in all were taken, representing 3 APGB branches from each region.

Further, the list of farmers who borrowed loans from 6 APCB branches. The ultimate sample in both the regions works out to 21-.

Definition of NPAs

According to, an asset including a leased asset, becomes non-performing when it ceases to generate income for the bank. Non-performing asset means an asset or account of borrower, which has been classified by bank as sub-standard, doubtful or loss asset, in accordance with the direction or guidelines relating to assets classification issued by RBI. A non-performing asset (NPA) is a loan or an advance where;

  1. Interest and/ or Installment of principal remain overdue for a period of more than 90 days in respect of a Term Loans (TLs).
  2. In respect of overdraft or cah credit advances, the account remains “out of order”, i.e. if the outstanding balance exceeds the sanctioned limit or drawing power continuously for a period of 90 days, or if there are no credits continuously for 90 days as on the date of balance sheet, or if the credits are not adequate to cover the interest due during the same period.
  3. In respect of bills purchased or discounted, the bill remains overdue for a period of more than 90 days.   
  4. In respect of agricultural advances for short duration crops, where the installment of principal or interest remains overdue for two crop seasons, and
  5. In respect of agricultural advances for long duration crops, where the principal or interest remains overdue for one crop season.


Category wise distribution of Defaulters

The average amount defaulted by them was Rs.64,545. The percentage of defaulters among the marginal farmers was 73, followed by the small farmers 65 per cent, medium farmers 65 per cent and large farmers 76 per cent. The average amount per defaulter was more among the large farmers (Rs.99,615), followed by the medium farmers (Rs.83,176), the small farmers (Rs.56,041) and the marginal farmers (Rs.33,194). It may be noted that the amount defaulted per beneficiary increases when the land holding size increases. T- value is calculated (3.97), which is significant at 1 per cent level.

The total number of defaulters in the canal region was 70 and the total amount defaulted was Rs.46,35,000. The percentage of defaulters was 57.14 among those who borrowed below Rs.50,000 and this percentage decreased to 32.86 in the case of those who borrowed between Rs.50,000 and 1,00,000 and further decreased to 10 in the case of those who borrowed above 1,00,000. The percentage of amount in default in the non-canal region was 39.25 among those who borrowed below Rs.50,000. The percentage decreased to 36.41 in the case of those who borrowed between Rs.50,000 and Rs.1,00,000 and the percentage decreased further to 24.34 in the case of those who borrowed above Rs.1,00,000.

In the canal region the percentage of defaulters of the marginal farmers was 24.28. It was 31.42 among the small farmers, 27.14 among the medium farmers, and 17.14 among the large farmers. In the non-canal region the percentage of defaulters of marginal farmers was 25.33, 36 among the small farmers, 20 among the medium farmers, and 18.67 among the large farmers. The percentage of total defaulters among the same borrowers in the canal and non-canal region were 24.84 among the marginal farmers, 33.79 among the small farmers, 23.44 among the medium farmers, and 17.93 among the large farmers. Paired sample t-test is applied to calculate t-value in canal and non-canal regions. The t-value for the canal region 3,147, which significant at 5 per cent level. Similarly, the t-value for non-canal region is 6.301, which significant at 1 per cent level.

In the canal region 32.86 per cent of the defaulters were illiterates, 34.29 per cent had primary education, 30 per cent had secondary education, and 2.86 per cent had college education. In the non-canal region 38.67 per cent of the defaulters were illiterates, 32 per cent had primary education, 26.67 had secondary education and 2.66 per cent had college education. The total percentage of illiterate defaulters was 35.86, 33.1 per cent among those with primary education, 28.27 per cent among those with secondary education and 2.77 per cent among those with college education in both the canal and non-canal region. The t-value for the canal region is 4.636 and non-canal region is 3.326 which is significant at 5 per cent level in both regions.

Causes for NPAs

There are a multiplicity of causes for loan default among the different categories of farmers. The reasons for default are also quite varied. The collected from the sample investigation regarding defaulters has been summarized into six categories following the model of Nirmal Sande Rathe.

Defects in Farm Production

Poor productive conditions of the farming enterprise often make it difficult to repay. This defect is also expressed in terms of “non-viable farm units”, which often refers to the small size of farms. The implication is that farmers are unable but willing to repay(2). The data shows that defects in farm production one of the important factors to which 14.28 per cent of the respondents attributed their default and the default amount was 10.5 per cent. In non-canal region the percentage of defaulters for the same region was 22.67 per cent and 22.25 per cent of the loan amount was defaulted.

Variability in Incomes

The farmer may be unable to repay his loan in a particular season owing to crop failure due to natural calamities or the destruction of a crop by theft, fire or other hazards. His inability to repay may also be caused by a sudden fall in prices or the unmarketability of his produce(3). Farmers in this category are normally able and willing to repay. Defaulters in this category are 22.86 per cent and their default amount was 21.1 per cent. In the non-canal region the defaulters were 18.67 per cent and the loan amount defaulted was 31.2 per cent.

Defects in the Credit Organisation

The farmer in this category is able to repay and willing to do so, but since the organization giving credit does not force him to repay, he does not. The farmer may believe that he will neither suffer penal interest nor endanger his subsequent borrowing by his default, loopholes which enable a defaulter to borrow subsequently and abandoning attempts to collect earlier defaults would support this belief. Sometimes the staff of the credit agency itself might even encourage borrowers not to repay(4). Deficiencies in credit organisation accounted for 11.43 per cent of defaulting borrower, these default amount being 8.25 per cent in canal region. In the non-canal region for the same reason 8 per cent were defaulters and the loan amount defaulted was 8.25 per cent, which is less than the canal region.

Attitudinal Conditions

Farmers who do not want to repay loans even though they have the repaying capacity falls in this category. They did not consider government funds as loans, but often as grants. This is as a result of credit organizations defective policies such as little efforts to collect arrears under earlier schemes and the lack of effective sanctions on defaulters. 14.29 per cent defaulters felt under this category and their default amount was 9.15 per cent in canal region. In the non-canal region the defaulters were 10 per cent and loan amount defaulted was 12 per cent, which is comparatively high.


This category includes the farmers who use the loan for purpose other than those stated in the application. These farmers invested to loan amount for other activities in which they had failed or even though successful they face a problem of liquidity to repay in time. Other misallocation include for repayment of other loans, ceremonial purpose and illness or death. In canal region nearly 25 per cent of the loan amount was unpaid because 24.28 per cent of the defaulters have used the money for unauthorized purposes, which result in failure or liquidity problems. For the same reason in non-canal region 20 per cent of the defaulters accounted for 21.5 per cent of the loan amount defaulted.


This includes other reasons not easily categorized. Political interference is also included in this category. In the canal region 12.86 per cent of the defaulters and 19.6 per cent of the loan amount defaulter belongs to this category. For the same category 17.33 per cent of defaulters and 4.8 per cent of defaulted amount comes in non-canal region. They did not indicate any specific reason for default in repayment of dues to credit organization. Some of these could be the cases of willful” defaulters and this is in fact a “Don’t know” category.


Measures to Curb NPAs

In the present study six major reasons are identified for default in repayment. The following suggestions are made to curb the malady of default and to improve the recovery performance.

  • Loan should not be sanctioned to any one in a hurry or under political pressure. Every application for loan should be properly and thoroughly scrutinized.
  • Bank officials should strictly monitor the utilization of the loan by frequent visits to the villages, so that the loans are used by the borrowers for the purpose for which they are sanctioned.
  • Crop insurance scheme should be extended to the entire district and adequate supply of agricultural inputs are made available at reasonable prices to the farmers.
  • Bank officials should convincingly explain to the borrowers about the importance of prompt and timely repayment of loans for recycling of funds and also to sanction new and additional loans.
  • Proper procedure with a suitable repayment schedule should be adopted for the recovery of loans at the time when the farmers sell their produce. Efforts should be made well in advance to recover the loan installments by sending timely reminders and notices to the borrowers.
  • Political leaders should not be allowed to interfere in the working of the bank and the sanction of loans in particular. The bank officials must be left free to grant loans only to the deserving applications and to take suitable action against the defaulters.
  • The realization of bank dues through the court, besides being lengthy in procedure, and is quite expensive. Hence special tribunals, should be set up for the recovery of agricultural loans.
  • A common cause for NPAs in the study area is the incidence of cyclones and floods in the canal area and drought in the non-canal area. Heavy default in repayment of loans is often caused by these natural calamities. Through the introduction of crop insurance scheme in both the regions, the farmers will be benefited.


  1. Nirmal Sande Rathne, An Analytical approach to Loan defaulters by7 small farmers in rural Financial Markets in Developing Countries, J. D. Vonpischke, John Hopkins University, London, 1983, p.188.
  2. Co-operative Perspective, Vaikunta Mehta National Institute of Co-operative Management (VAMNICOM), Pune, Vol.30, No.3, Oct-Dec. 1995, p.49.
  3. Von Pischke, J. D. et al. Rural Financial Markets in Developing Countries: Their Use and Abuse, The John Hopkins University Press, London, 1983.
  4. RBI, Report of the agricultural credit review committee (ACRC), a review of the agricultural credit system in India, Bombay, 1989, p.635.


A. Chiranjeevi
Ph. D. Research Scholar, Dept. of Commerce, S. V. University Tirupati


Prof. B. Ramachandra Reddy
Proessor, Dept. of Commerce, S. V. University,  Tirupati

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