The problem of Non-Performing Assets (NPA) has multiple origins, multiple interfaces, multiple textures, multiple durations and so on; it is much more complex than we think it is. It cannot be solved by following the example of David in overcoming Goliath.

It needs the right approach and the right solution.

The Approach by Lenders

The approach by Lenders must be multi-pronged and this is what they can do:

1. Take a holistic approach to monitoring: Don’t just focus on extra-large accounts; monitor large, medium and small accounts also proportionately

2. Share information among other banks; most borrowers deal with multiple banks

3. Focus on preventing NPAs; not merely on managing them

4. Monitor more frequently, not once in a year or once in a quarter

5. Take advantage of the huge amounts of data; use analytics to draw intelligent conclusions

6. Automate smaller problems; spend more attention to larger issues

The Essentials of an Ideal Solution

Most banks adopt a patchwork approach to improve their readiness in dealing with frauds. Primarily, trying to add a few functionalities to pass the audit and not beyond.

One of the most significant contributors in Credit Risk Monitoring is an effective and efficient Early Warning Signals (EWS) System.

An ideal EWS system should have the following characteristics:

1. Reduces delinquencies significantly

2. Raises alerts through a comprehensive, holistic monitoring of assets

3. Expects minimal time of human resources; provides decluttered, critical information

4. Has realistic and effective workflow for collaboration across divisions

5. Equipped with an easy-to-use analytics tool that uses advanced technology, but which is found to be useful by a layman as well as a geek

6. Helps in regulatory compliance in addition to credit monitoring

Managing the NPAs to maintain them at a reasonable level is a significant contributor to the success of a bank. Identifying the risks associated with a potential fraudulent account at a nascent stage can help the lenders take preventive action on an account to be declared a fraud. This could eb managed having the right EWS system in place.