Maximum Run Algorithm for Non-Performing Assets Problem

Abstract

The problem of Non-Performing Assets (NPA) has been a major concern for the banks worldwide. With the help of the process of restructuring of loans, banks have been trying to mitigate the problem of NPA. But the scenario is challenging and it’s difficult to conclude how far the restructuring of loans is actually helping the banks to reduce its gross NPA. This paper is an attempt to provide an answer to the question backed by an in depth analysis of the problem. The paper discusses a new approach called “Maximum Run Algorithmâ€, and thereby implements it on the data of amount of NPA and amount of restructured loans for Indian banks to have a deeper insight into the problem. The algorithm has been given a detailed mathematical structure and it is expected to be useful for data analysis in other fields as well. The consistency of the results of the algorithm has been compared with the VAR model and Impulse response functions on NPA and restructuring data.
Keywords: Non-performing assets, Restructured amount, Length of a run.