Banking sector plays an imperative role in the cohesion of the economy. It serves as the backbone of the nation's economy. The banking industry in India has a glorious last three decades history that supplemented various achievements. It has alleged many financial restorations in last few decenniums. These developments had positioned Indian banking system at 6th position in developing countries of the World.

Nationalisations of banks in 1969 and in 1980 resulted in the creation of a powerful banking system that created history and was indeed a foundation for the current banking system. Banks were nationalised in order to authorise the government control over them. India endorsed a mixed economic model for the largely destitute and agricultural population. The banking sector was principally concentrated to urban areas, educated and the financially higher-class people. The ordinary rural Indian man still confides on the local moneylender and are oppress through the high-interest rate, draconian mortgage rules, and slavery. Private bank that usually prioritized profit did not venture beyond the urban and high-class market. The basic idea behind nationalisation was to broaden the population admittance for banking and financial facilities. This stringent control led to diminish the lack of competition among the banks and high intermediate cost, under-lending, corruption and bureaucratic lethargy. Private sector banks fundamentally the smaller one of the Indian origin were allowed to continue after the nationalisation of the banks. Financial reforms or government's liberalization-privatization-globalization policy helped Indian banking system to cultivate rapidly before granting permission to private banks and foreign banks for carrying on their business in India. Entry barriers were concentrated, which captivated the foreign and private banks to penetrate the Indian banking sector. Banking sector reforms adhered in two phases the one in 1991-92 and the other after 1998.

The financial crisis of the year 2007-08 had a major brunt of recession worldwide. The impact of the recession on one place/industry spilled over to all the linked industries. This was witnessed, as the collapse of US market had a negative impact on world's economy. The impact of the world recession marked the very experience of falling stock prices, recession in jobs, retrenchment of employees, dispatching of perquisites and salaries. This global recession affected different economics of the World. The responsibility for this global financial crisis could be fixed onto the parties including regulators, credit rating agencies, borrowers, accountants, and bankers. However, bad borrowers were mainly responsible for the mentioned crisis.

The turbulence in the global banking industry pushed up the discussion on handling the problem of bad loans with firmness, creativity and aptness. In 2014, the former governor of Reserve Bank of India came up with the idea of cleaning the non-performing assets from the balance sheets of all the Indian Banks. In late 2015, RBI issued a list of 150 largest accounts facing problems in their debt servicing and asked the lenders to perceive these accounts as non-performing assets or bad loans. RBI gave two-quarters’ time to banks for recognising the losses hitting banks with ₹70,000 crores to cover for these reverses. The banks declared over ₹8 trillion of their assets as stressed until March 2016 with NPAs crossing 7.6%.

Former governor of Reserve Bank of India, Dr. Raghuram Rajan expected banks to clean up their balance sheets in terms of stressed assets by the end of March 2017. Banks are to show their bad, stressed or the non-performing assets in the balance sheet to intensify the accuracy. The new RBI NPA guidelines forced banks to undertake the courage for the cleanup. Some have gone above what was expected of them by not only disclosing their real NPA values but also reconstituted their previous balance sheets to the new format.The banks now have to find out various ways to restructure some of the relevant high NPA accounts which would make them healthy for a longer period. One of the ways to eliminate NPA in a particular bank is that one should make the provision for the same. These provisions will certainly help in clearing even a single trail of NPA in a bank but eventually, it will take the time to do so. In 1997, when the gross NPA touched 15.4%, it took 9 years for the NPA rate to fall below 5% with SARFESI act and Asset Reconstruction Companies but maybe in this time context, the span will be less due to the new contriving policies of RBI. The profitability of some banks will debilitate in the short run but the cleaned system will be able to support the economic growth in an imperishable and cost-effective way.

LITERATURE REVIEW:

The financial reforms implemented in India had varied impact on the efficiency of the banking sector. The banking sector showed a high degree of inefficiency in the initial post-reform period (Bhattacharya and Pal, 2013). The subsequent reforms in the banking sector have improved its performance in terms of business per employee, profit per employee, capital and reserves and surplus, deposits, investments, advances, interest and other incomes (Arumugam and Selvalakshmi, 2014), but the performance dwindled in the middle of 2007-08 with global financial crisis The Euro-crisis did not affect the capital adequacy ratio of banks. However, it had an impact in terms of fluctuating credit growth, deposit growth and net interest margin with a manageable impact on the return on assets (Sharma and Panwar, 2014). The liquidity of banking industry as a whole reduced during the crisis period and banking industry got severely affected on asset quality and profitability parameter (Govil and Tripathi, 2014).Foreign and private banks were way ahead of their performance level but there are chances for them to improve their performance if they overcome their challenges (Koundel, 2012). Foreign banks perform better as compared to national and domestic private banks (Tzeremes, 2015). Also on account of performance during the crisis period, cooperative banks performance was more satisfactory than that of the entire banking industry during the global financial crisis (Gautam and Bhatis, 2011). Although cooperative banks play a vital role in rural areas via inclusion of people with little savings and finances, still they are not working well based on financials (Agrawal and Solanke, 2012).The improvement in financial performance and health is well established in the urban cooperative sector. It is important to initiate the revival of the cooperative sector in long run (Renuka and Elamathi, 2013). Suggestions drawn from various studies, for instance highlights, that banks should use the modern techniques of banking, should plan schemes to appeal new customers and gratifying the present ones, thereby increasing the overall customer experience along with parallel expansion of branches (Usha, 2013). NPA clean-up is an enormous step for the advancement of Indian banking system as well for enduring the economy, for which, a critically strong legal and legislative framework should be used. Changes that are required to tackle the problem would have to span by the entire gaument of Judiciary, polity and bureaucracy (Reddy, 2002). NPAs affects significantly to the performance of banks and factors like better credit culture, managing risk and business conditions leads to lowering of NPAs (Rajput et al., 2012). Interest rates spread affects non-performing assets in bank and it also increases the cost of the loan charged on the borrowers (Collins and Wanjau, 2011). As the NPA level of the banks has increased over time, the risk associated with them are increasing too. NPA should be controlled in order to avoid serious consequences in the future (Selvarajan and Vadivalagan, 2013).The magnitude of NPA is comparatively higher in public sector banks and to improve the efficiency and profitability of banks, NPA needs to be reduced and controlled (Ganesan and Krishnan, 2013). The relationship between Non-Performing Loans (NPL) ratio and loan quality, financial system stability is very determinant in the banking sector. A marginal increase in NPL ratio raises riskier lending; causing the deterioration of the loan quality and financial system instability (Zhang et al., 2015). Dimittrios et al., (2016) identified taxable income and output gaps as two potential significant determinants of NPL. Credit growth and Non-Performing Loans have a negative impact on profitability. An increase in the supply of bank loans increases the level of non-performing loans; it does not edge to higher profitability (Vithessonthi, 2016). On the contrary, in a bank specific study of Punjab National Bank – one of the Indian nationalized bank, Narula and Singla (2014) found a positive relationship between NPA level and profitability, citing mismanagement on the side of the bank as a major problem for this.

With the deadline of the deep surgery (NPA Cleanup) started by former governor Rajan ended on 31^st March 2017, banks again are looking for a cushiony approach from the central bank. This is because of a more pragmatic view of current governor Dr. Urjit Patel on the issue. While it is important to understand that another former governor Dr. Rangarajan had advised banks not to escape their responsibility of NPA clean up. In an environment of widely divergent views presented above the study sees an analytical gap on the financial impact of NPA clean up on the banking industry of India.

OBJECTIVES:

Banks are often the victim of the incrementing NPA. The above sections highlight a clear gap in literature on the current clean up by regulator on the financial health of Indian banking sector. Therefore, the objectives of the study are-

· To analyze the status of NPAs prevailing in most stressed PSU banks in India

· To find out the impact of NPA clean up on the financial performance of these PSU banks.

RESEARCH METHODOLOGY:

The study is based on the annual secondary data of the 10 PSU banks collected from their annual reports for the period from April 2010 to March 2016. This includes the data on the variables like their Return on Assets (ROA), Gross NPA, Net NPA, Total Assets and Total Advances. The data will be used to highlight the present position of the 10 PSU banks with GNPA greater than 8 % (Shetty 2016) for the above-mentioned variables. These banks in the decreasing order of GNPA includes Indian Overseas Bank, UCO Bank, Dena Bank, Bank of Baroda, United Bank, Bank of India, Central Bank of India, IDBI Bank, Punjab National Bank and Bank of Maharashtra. The new NPA provisioning introduced by RBI from December 2015 had led to sudden surge in the quantum of NPA in the balance sheet of these banks. The stressed assets hinders the lending capacity of these banks, which further pressurizes the return on the assets of the banks. The following regression model is used to analyze the impact of NPAs on the returns of these banks:-

Y_t = β₀ + β₁X_1t + β₂X_2t + β₃X_3t +µ_t

In the first regression analysis incorporating the macro variables alongside NPA, ROA is taken as dependent variable with NNPA as a % of total advances, GDP growth rate and Inflation rate calculated on CPI as X_1t , X_2t , X_3t variables respectively. Another linear regression analysis will be done in the same framework by substituting NNPA as a % of total assets instead of NNPA as a % of total advances as first independent variable. The model will be studied using the quarterly data of these variables for the period from April 2010 to December 2016, which were collected from various sources like RBI, Kotak securities financial database and International Financial Statistics of IMF.

FINDINGS AND DISCUSSION:

The Current time is witnessing a turbulence in Indian corporate sector, which is burdened with a high level of indepthness measured as Debt/ EBIDTA (Earnings before interest, depreciation and tax ratio). This is creating a debt servicing challenge for these debt-ridden companies. The great Indian debt Saga is seeing many victims mainly the lenders. These lenders are none other than the Indian banks especially the PSU banks who had aggressively lent to such corporates in greed of more income. Even though there is a close monitoring by regulator, but still these banks escaped the stressed assets by not reporting them in NPAs. The recent tightening of the guidelines forced them come out clean by properly positioning these stressed assets as part of NPAs. This has resulted in sharp rise in NPA level of the Indian lenders. The study therefore highlights the new financial health of these banks by providing a synoptic view of their assets, advances and NPAs that will help in understanding the further relationship of NPAs with the return on assets of these most stressed banks. The listing of the banks is according to the descending order of percentage of Gross NPAs in their Balance sheets (Shetty 2016).

Indian Overseas Bank:

Indian Overseas Bank (IOB) which accomplished 100% networking status as well as 100% CBS status for its branches and became the first public sector bank to get the latest digital banking software Finacle 10 suite package from Infosys, is ranked 1^st in the list of PSU banks with highest GNPA of 12.6%.

Table 1 Synoptic View of Indian Overseas Bank

Year	Advances (cr ₹)	Total assets (cr ₹)	Gross npa (cr ₹)	Gnpa ratio as % of advances	Gnpa ratio as % of total assets	Net npa (cr ₹)	Nnpa ratio as % of advances	Nnpa ratio as % of total assets	Return on assets (%)
2010-11	111833.0	178784.3	3089.59	2.76	1.73	1328.42	1.19	0.74	0.59
2011-12	140724.4	219637.1	3920.07	2.79	1.78	1907.44	1.36	0.87	0.47
2012-13	160364.1	244656.0	6607.96	4.12	2.70	4027.21	2.51	1.65	0.23
2013-14	175887.8	274904.8	9020.48	5.13	3.28	5658.12	3.22	2.06	0.21
2014-15	171756.0	285637.0	14922.45	8.69	5.22	9813.33	5.71	3.44	-0.15
2015-16	160860.7	274436.8	30048.62	18.68	10.95	19212.57	11.94	7.00	-1.05