A Project on Npa 4th Sem

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A PROJECT

On

NPA MANAGEMENT IN BANKING INDUSTRY

Report Submitted in partial fulfillment of Requirement

for Post Graduate Programme in Management

Under the guidance of

Prof. Saroj Upadhyay

SUBMITTED BY

Puneet Mishra

EIILM/PGP/JULY09-JUNE11/CO59

Eastern Institute For Integrated Learning In

Management





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Table of contents

Abstract.....4

1. Introduction......5

1.1 O bjective of project«««««««««««««««««««««« 6

1.2 Research Methodology«««««««««««««««««««««. 6

1.3 Scope of Study««««««««««««««««««««««««.. 7

1.4 Limitation of Study««««««««««««««««««««««.. 7

2. Indian Economy and NPA.8

3. Factor for Rise in NPA9-12

4. Types of NPA.13

5. Provision For Norms.14-18

6. Analysis for NPAs in Various Public and Private sector Banks19-25

7. Conclusion for the Problem.26-27

8. Recommendation .......28

9. Annexure .29

10. References 30



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Abstract

Non Performing Asset means an asset or account of borrower, which has been

classified by a bank or financial institution as sub -standard, doubtful or loss asset, inaccordance with the directions or guidelines relating to asset classification issued by

The Reserve Bank of India.

With a view to moving towards international best practices and to ensure greater

transparency, it has been decided to adopt the '90 days overdue' norm for

identification of NPAs, from the year ending March 31, 2004. Accordingly, with

Interest and /or installment of principal remain overdue for a period of more than 90

days in respect of a Term Loan,

y the account remains 'out of order' for a period of more than 90 days, inrespect of an overdraft/ cash Credit(OD/CC),

y the bill remains overdue for a period of more than 90 days in the case of billspurchased and discounted,

y interest and/ or installment of principal remains overdue for two harvestseasons but for a period not exceeding two half years in the case of anadvance granted for agricultural purpose

An account treated as 'out of order' if the outstanding balance remains continuouslyin excess of the sanctioned limit/ drawing power. In case where the outstanding

balance in the principal operating account is less than the sanctioned limit/ drawing

power, but there are no credits continuously for six months as on the date of balance

sheet or credits are not enough to cover the interest debited during the same period,

these account should be treated as 'out o f order¶. it is called out of order



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Introduction

RBI introduced, in 1992-93, the prudential norms for income recognition, assetClassification & provisioning ± IRAC norms in short ± in respect of the loan portfolioof the UCBs. The objective, inter-alia, was to bring out the true picture of a bank¶sloan portfolio. The fallout of this momentous regulatory measure for the managementof the UCBs was to divert its focus to profitability, which till then used to be a lowpriority area for it. Asset quality assumed greater importance for the UCBs when RBIintroduced the Basel norms for Capita Adequacy from year -ended March 31, 2002 inthe aftermath of serious financial problems in the sector. Maintenance of high qualitycredit portfolio continues to be a major challenge for the UCBs, especially with RBIgradually moving towards convergence with more stringent global norms for impaired assets.

The quality of a bank¶s loan portfolio can impact its profitability, capital and

liquidity. Asset quality problems are at the root of other financial problems for banks,leading to reduced net interest income and higher provisioning costs. If loan lossesexceed the Bad and Doubtful Debt Reserve, capital strength is reduced. Reducedincome means less cash, which can potentially strain liquidity. Market knowledgethat the bank is having asset quality problems and associated financial conditionsmay cause outflow of deposits. Thus, the performance of a bank is inextricably linkedwith its asset quality. Managing the loan portfolio to minimise bad loans is, therefore,fundamentally important for a financial institution in today¶s extremely competitiveand market driven business environment. This is all the more important for theUCBs, which are at a disadvantage vis-à-vis the commercial banks in terms of professionalised management, skill levels, technology adoption and effective riskmanagement systems and procedures .

Management of NPAs begins with the consciousness of a good portfolio, whichwarrants a better understanding of risks in lending. The Board has to decide astrategy keeping in view the regulatory norms, the business environment, its marketshare, the risk profile, the available resources etc. The strategy should be reflectedin Board approved policies and procedures to monitor implementation. The essentialcomponents of sound NPA management are i) quick identification of NPAs, ii) their containment at a minimum level and iii) ensuring minimum impact of NPAs on thefinancials. A two-pronged strategy of preventing slippage of standard assets in toNPA category and reducing NPAs through cash recovery, up gradation,compromise, legal means etc., is called for.



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Objective of Project

The basic idea behind undertaking the Grand Project on NPA was to:

To evaluate NPAs (Gross and Net) in diff erent banks.

To study the past trends of NPA.

To calculate the weighted of NPA in risk management in Banking

To analyze financial perf ormance of banks at diff erent level of NPA

RESEARCH METHODOLOGY

The research methodology adopted for carrying out the study were

In this project Descriptive research methodologies were use.

At the first stage theoretical study is attempted.

At the second stage Historical study is attempted.

At the Third stage Comparative study of NPA is undertaken.



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Scope of the Study

Concept of Non-Perf orming Asset

Guidelines

Impact of NPAs

Reasons f or NPAs

Preventive Measures

Tools to manage NPAs

Limitations of the study

It was critical for me to gather the financial data of the every bank of the

Public Sector Banks so the better evaluations of the per formance of the

banks are not possible.

Since my study is based on the secondary data, the practical operations as

related to the NPAs are adopted by the banks are not learned.

Since the Indian banking sector is so wide so it was not possible for me to

cover all the banks of the Indian banking sector.



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INDIAN ECONOMY AND NPAs

Undoubtedly the world economy has slowed down, recession is at its peak,

globally stock markets have tumbled and business itself is getting hard to do.

The Indian economy has been much aff ected due to high fiscal deficit, poor

inf rastructure facilities, sticky legal system, cutting of exposures to emerging

markets by FIs, etc.

Further, international rating agencies like, Standard & Poor have lowered

Indias credit rating to sub-investment grade. Such negative aspects have of ten

outweighed positives such as increasing f orex reserves and a manageable

inflation rate.

Under such a situation, it goes without saying that banks are no exception and

are bound to face the heat of a global downturn. One would be surprised to

know that the banks and financial instit ution in India hold nonperf orming

assets worth Rs. 110000 crores Bankers have realized that unless the level of

NPAs is reduced drastically, they will find it difficult to survive.



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FACTORS FOR RISE IN NPAs

The banking sector has been facing the serious problems of the rising NPAs.

But the problem of NPAs is more in public sector banks when compared to private sector banks and f oreign banks. The NPAs in PSB are growing due to

external as well as internal factors.

EXTERNAL FACTORS

Ineffective recovery tribunal

The Govt. has set of numbers of recovery tribunals, which works f or

recovery of loans and advances. Due to their negligence and

ineff ectiveness in their work the bank suff ers the consequence of non-recover, thereby reducing their profitability and liquidity.

Willful Defaults

There are borrowers who are able to pay back loans but are intentionally

withdrawing it. These groups of people should be identified and proper

measures should be taken in order to get back the money extended to

them as advances and loans.

Natural calamities

This is the measure factor, which is creating alarming rise in NPAs of the

PSBs. every now and then India is hit by ma jor natural calamities thus

making the borrowers unable to pay back there loans. Thus the bank has

to make large amount of provisions in order to compensate those loans,

hence end up the fiscal with a reduced profit.

Mainly ours farmers depends on rain fall f or cropping. Due to

irregularities of rain fall the farmers are not to achieve the productionlevel thus they are not repaying the loans.

Industrial sickness

Improper project handling , ineff ective management , lack of adequate

resources , lack of advance technology , day to day changing govt.



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Policies give birth to industrial sickness. Hence the banks that finance

those industries ultimately end up with a low recovery of their loans

reducing their profit and liquidity.

Lack of demand

Entrepreneurs in India could not f oresee their product demand and

starts production which ultimately piles up their product thus making

them unable to pay back the money they borrow to operate these

activities. The banks recover the amount by selling of their assets,which

covers a minimum label. Thus the banks record the non-recovered part asNPAs and has to make provision for it.

Change on Govt. policies

With every new govt. banking sector gets new policies for its operation. Thusit has to cope with the changing principles and policies for the regulation of the rising of NPAs.

The fallout of handloom sector is continuing as most of the weaversCo-operative societies have become defunct largely due to withdrawal of statepatronage. The rehabilitation plan worked out by the Central government torevive the handloom sector has not yet been implemented. So the over duesdue to the handloom sectors are becoming NPAs.

INTE NAL FACTORS

Defective Lending process

There are three cardinal principles of bank lending that have been

f ollowed by the commercial banks since long.

i. Principles of saf ety

ii. Principle of liquidity

iii. Principles of profitability

i. Principles of safety :-

By saf ety it means that the borrower is in a position to repay the loan

both principal and interest. The repayment of loan depends upon the

borrowers: a) Capacity to pay b) Willingness to pay

a) Capacity to pay depends upon:

1. Tangible assets



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2. Success in business

b ) Willingness to pay depends on:

1. Character

2. Honest

3. Reputation of borrower

The banker should, theref ore take utmost care in ensuring that the

enterprise or business f or which a loan is sought is a sound one and the

borrower is capable of carrying it out successfully .He should be a person

of integrity and good character.

Inappropriate technology

Due to inappropriate technology and management inf ormation system,

market driven decisions on real time basis cannot be taken. Proper MISand financial accounting system is not implemented in the banks, which

leads to poor credit collection, thus NPA. All the branches of the bank

should be computerized.

Improper SWOT analysis

The improper strength, weakness, opportunity and threat analysis is

another reason f or rise in NPAs. While providing unsecured advances the

banks depend more on the honesty, integrity, and financial soundness

and credit worthiness of the borrower.

y Banks should consider the borrowers own capital investment .

y it should collect credit inf ormation of the borrowers f rom _

a. From bankers.

b. Enquiry f rom market/segment of trade, industry, business.

c. From external credit rating agencies.

y Analyze the balance sheet.

True picture of business will be revealed on analysis of profit/lossa/c and balance sheet.

y Purpose of the loan

When bankers give loan, he should analyze the purpose of the

loan. To ensure saf ety and liquidity, banks should grant loan f or

productive purpose only. Bank should analyze the profitability,

viability, long term acceptability of the project while financing.



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Poor credit appraisal system

Poor credit appraisal is another factor f or the rise in NPAs. Due to poor

credit appraisal the bank gives advances to those who are not able to

repay it back. They should use good credit appraisal to decrease the

NPAs.

Managerial deficiencies

The banker should always select the borrower very carefully and should

take tangible assets as security to saf e guard its interests. When

accepting securities banks should consider the _

1. Marketability

2. Acceptability3. Saf ety

4. Transf erability.

The banker should f ollow the principle of diversification of risk

based on the famous maxim do not keep all the eggs in one basket; it

means that the banker should not grant advances to a f ew big farms

only or to concentrate them in f ew industries or in a f ew cities. If a new

big customer meets misf ortune or certain traders or industries aff ected

adversely, the overall position of the bank will not be aff ected.

Like OSCB suff ered loss due to the OTM Cuttack, and Orissa hand loom

industries. The biggest defaulters of OSCB are the OTM (117.77lakhs),

and the handloom sector Orissa hand loom WCS ltd (2439.60lakhs).

Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. Absence of regularly

visit of bank officials to the customer point decreases the collection of interest

and principals on the loan. The NPAs due to willful defaulters can be collected

by regular visits.

Re loaning process

Non remittance of recoveries to higher financing agencies and re loaning of the

same have already aff ected the smooth operation of the credit cycle . Due to re



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loaning to the defaulters and CCBs and PACs, the NPAs of OSCB is increasing

day by day

TTyyppeess oof f NNPPAA

AA]] GGrroossss NNPPAA

BB]] NNeett NNPPAA

AA]] GGrroossss NNPPAA::

Gross NPAs are the sum total of all loan assets that are classified as NPAs as

per R

BI

guidelines as on Balance Sh

eet date.Gr

oss NPAr eflects the quality of

the loans made by banks. It consists of all the non-standard assets like as sub-

standard, doubtful, and loss assets.

It can be calculated with the help of f ollowing ratio:

Gross NPAs Ratio] Gross NPAs

Gross Advances

BB ] ] N N eet t N N P P A A::

Net NPAs are those type of NPAs in which the bank has deducted the provision

regarding NPAs. Net NPA shows the actual bur denof banks. Since in India,

bank balance sheets contain a huge amount of NPAs and the process of

recovery and write off of loans is v ery time consuming, the provisions the

banks have to make against the NPAs according to the central bank guidelines,

are quite significant. That is why the diff erence between gross and net NPA is

quite high.

It can be calculated by f ollowing

Net NPAs ] Gross NPAs Provisions

Gross Advances - Provisions



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PPrroovviissiioonniinngg NNoorrmmss

GGeenneerraall

In order to narrow down the divergences and ensure adequate

provisioning by banks, it was suggested that a bank's statutory auditors,

if they so desire, could have a dialogue with RBI's Regional Office/

inspectors who carried out the bank's inspection duri ng the previous

year with regard to the accounts contributing to the diff erence.

Pursuant to this, regional offices were advised to f orward a list of

individual advances, where the variance in the provisioning

requirements between the RBI and the bank is above certain cut off

levels so that the bank and the statutory auditors take into account the

assessment of the RBI while making provisions f or loan loss, etc.

The primary responsibility f or making adequate provisions f or any

diminution in the value of loan assets, investment or other assets is that

of the bank managements and the statutory auditors. The assessment

made by the inspecting officer of the RBI is furnished to the bank to

assist the bank management and the statutory auditors in taking a

decision in regard to making adequate and necessary provisions in terms

of prudential guidelines.

In conf ormity with the prudential norms, provisions should be made on

the non-perf orming assets on the basis of classification of assets into

prescribed categories as detailed in paragraphs 4 supra. Taking into

account the time lag between an account becoming doubtful of

recovery, its recognition as such, the realization of the security and the

erosion over time in the value of security charged to the bank, the ban ks

should make provision against sub-standard assets, doubtful assets and

loss assets as below:

LLoossss aasssseettss::

The entire asset should be written off. If the assets are permitted to remain in

the books f or any reason, 100 percent of the outstanding should be provided

f or.



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DDoouubbttf f uull aasssseettss::

100 percent of the extent to which the advance is not covered by the

realisable value of the security to which the bank has a valid recourse

and the realisable value is estimated on a realistic basis.

In regard to the secured portion, provision may be made on the

f ollowing basis, at the rates ranging f rom 20 percent to 50 percent of the

secured portion depending upon the period f or which the asset has

remained doubtful:

Period for which the advance has

been considered as doubtful

Provision

requirement (%)

Up to one year 20

One to three years 30

More than three years:

(1) Outstanding stock of NPAs as

on March 31, 2004.

(2) Advances classified as

doubtful more than three

years on or af ter April 1, 2004.

60% with eff ect f rom

March 31,2005.

75% eff ect f rom March

31, 2006.

100% with eff ect f rom

March 31, 2007.

Additional provisioning consequent upon the change in the definition of

doubtful assets eff ective f rom March 31, 2003 has to be made in phases

as under:

�As on31.03.2003, 50 percent of the additional provisioning requirement

on the assets which became doubtful on account of new norm of 18months f or transition f rom sub-standard asset to doubtful category.

� As on 31.03.2002, balance of the provisions not made during the

previous year, in addition to the provisions needed, as on 31.03.2002.

Banks are permitted to phase the additional provisioning consequent

upon the reduction in the transition period f rom substandard to



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doubtful asset f rom 18 to 12 months over a f our year period

commencing f rom the year ending March 31, 2005, with a minimum of

20 % each year.

Note: Valuation of Security for provisioning purposes

With a view to bringing down divergence arising out of diff erence in

assessment of the value of security, in cases of NPAs with balance of Rs. 5

crore and above stock audit at annual intervals by external agencies appointed

as per the guidelines approved by the Board would be mandatory in order to

enhance the reliability on stock valuation. Valuers appointed as per the

guidelines approved by the Board of Directors should get collaterals such as

immovable properties charged in favour of the bank valued once in three

years.

SSuubb--ssttaannddaarrdd aasssseettss::

A general provision of 10 percent on total outstanding should be made

without making any allowance f or DICGC/ECGC guarantee cover and securities

available.

SSttaannddaarrdd aasssseettss::

From the year ending 31.03.2000, the banks should make a general

provision of a minimum of 0.40 percent on standard assets on global

loan portf olio basis.

The provisions on standard assets should not be reckoned f or arriving at

net NPAs.

The provisions towards Standard Assets need not be netted f rom gross

advances but shown separately as 'Contingent Provisions against

Standard Assets' under 'Other Liabilities and Provisions - Others' inSchedule 5 of the balance sheet.

FFllooaattiinngg pprroovviissiioonnss::

Some of the banks make a 'floating provision' over and

above the specific provisions made in respect of accounts identified as NPAs.



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The floating provisions, wherever available, could be set -off against provisions

required to be made as per above stated provisioning guidelines. Considering

that higher loan loss provisioning adds to the overall financial strength of the

banks and the stability of the financial sector, banks are urged to voluntarily

set apart provisions much above the minimum prudential levels as a desirable

practice.

PPrroovviissiioonnss oonn LLeeaasseedd AAsssseettss::

LLeeaasseess aarree ppeeccuulliiaarr ttrraannssaaccttiioonnss wwhheerree tthhee aasssseettss aarree nnoott rreeccoorrddeedd iinn tthhee

bbooookkss oof f tthhee uusseerr oof f ssuucchh aasssseettss aass AAsssseettss,, wwhheerreeaass tthheeyy aarree rreeccoorrddeedd iinn tthhee

bbooookkss oof f tthhee oowwnneerr eevveenn tthhoouugghh tthhee pphhyyssiiccaall eexxiisstteennccee oof f tthhee aasssseett iiss wwiitthh tthhee

uusseerr ((lleesssseeee)).. _ _ _ _((AASS1199 IICCAAII))

Sub-standard assets : -

�10 percent of the 'net book value'.

�As per the 'Guidance Note on Accounting f or Leases' issued by the ICAI,

'Gross book value' of a fixed asset is its historical cost or other amount

substituted f or historical cost in the books of account or financial statements.

Statutory depreciation should be shown separately in the Profit & Loss

Account. Accumulated depreciation should be ded ucted f rom the Gross Book

Value of the leased asset in the balance sheet of the lesser to arrive at the 'net

book value'.

�Also, balance standing in 'Lease Ad justment Account' should be ad justed in

the 'net book value' of the leased assets. The amount of ad justment in respect

of each class of fixed assets may be shown either in the main balance sheet or

in the Fixed Assets Schedule as a separate column in the section related to

leased assets.

Doubtful assets :-

100 percent of the extent to which the finance is not secured by the realisable

value of the leased asset.Realisable value to be estimated on a realistic basis. In

addition to the above provision, the f ollowing provision on the net book value



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of the secured portion should be made, depending upon the period f or which

asset has been doubtful:

Period %age of provision

Up to one year 20

One to three years 30

More than three years 50

Loss assets :-

The entire asset should be written-off. If f or any reason, an asset is allowed to

remain in books, 100 percent of the sum of the net investment in the lease and

the unrealised portion of finance income net of finance charge component

should be provided f or. (Net book value')

GGuuiiddeelliinneess f f oorr PPrroovviissiioonnss uunnddeerr SSppeecciiaall CCiirrccuummssttaanncceess

GGoovveerrnnmmeenntt gguuaarraanntteeeedd aaddvvaanncceess

�With eff ect f rom 31 March 2000, in respect of advances sanctioned against

State Government guarantee, if the guarantee is invoked and remains in

default f or more than two quarters (180 days at present), the banks should

make normal provisions as prescribed in paragraph 4.1.2 above.

�As regards advances guaranteed by State Governments, in respect of which

guarantee stood invoked as on 31.03.2000, necessary provision was allowed to

be made, in a phased manner, during the financial years ending 31.03.2000 to

31.03.2

003 with

a minimum of 2

5 percent each

year.



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ANALYSIS

For the purpose of analysis and comparison between Public and private sector

banks, We have taken five banks f rom both sectors to compare then on-

perf orming assets of banks. For understanding we further bifurcate the non-

perf orming assets in priority sector and non-priority sector, gross NPA and net

NPA in percentage as well as in rupees, deposit investment advances.

Further we also analysis on the basis of Deposit Investment Advances to

get the clear view where the bank stands in the competitive market. At the end

of March 2010, in private sector ICICI Bank is the highest deposit-investment-

advances figure in rupees crore, second is HDFC Bank and KOTAK Bank has

least figure.

In public sector banks Pun jab National Bank has the highest deposit

investment-advances but when we look at the graph we can see that the Bank

of Baroda and Bank of India are almost the similar in numbers and Dena Bank

is stands last in public sector bank. When we compare the private sector banks

with public sector banks, we can understand the more number of people

pref er to choose public sector banks f or deposit-investment.

DEPOSIT-INVESTMENT-ADVANCES (RS.CRORE) of both sector banks and

comparison among them, year 2009-10.

Private Sector Banks:-

(Rs in crore)

BANK DEPOSIT INVESTMENT ADVANCES

AXIS 87626 33705 59661

HDFC 100769 49394 63427

ICICI 244431 111454 225616

KOTAK 16424 9142 15552

INDUSIND 19037 6630 12795

TOTAL 468287 210325 377051



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n l i :- Fro

¡ he above figure we can see ¡ ha ¡ ¡ he ICICI Bank deposi ¡ -

invest

ent-advances are ¢ uite high than other banks like

HDFC,AXIS,INDUSIND,KOTAK

P li Sector nk

£

¤

NK DEPOSIT INVESTMENT ¤

DVAN ¥ ES

£ O £ ¦ §

̈

©

© ¦ © © ¦

£ OI ¦ § © © ¦

̈

¦ © ¦ ¦

DENA

¦ ©

̈

̈

̈

©

¨

PN £ ¦

§

§

̈

¦ ¦

§ ©

̈

U £ I ¦ © §

̈

TOTAL © © §

¦ ©

© § ¦

0

50000

100000

150000

200000

250000

ICICI HDFC AXIS INDUSIND KOTAK

DEPOSIT

INVESTMENT

ADVANCES



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An l i :- In public sector Punjab National Bank deposit-invest ent-advances

are co paratively uite high rather than Bank of Baroda, Bank of India, United

bank of India and Dena Bank.

om r i on etween ICICI ANK AND PUNJAB NATIONAL BANK in ter m of d

posit-

in

st

nt-!

d

!

n"

s:-

BANK DEPOSIT INVESTMENT ADVANCES

ICICI BANK# $ $ $

% &

& & &

$

'

$

# #

' ( & (

PNB & ( (

$

' )

' %

0 0 #

& &

0

' 1

#

0

20000

40000

60000

80000100000

120000

140000

160000

180000

PNB BOB BOI UBI DENA

DEPOSITIN

2

ESTMENT

ADVANCES



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An3

l4

sis: -Here we havecompared et een I I I BA K A P JAB A I A

BA K in term of deposit-invest 5 ent-advances. Fro 5 the above figure we can see

that ICICI bank deposit and advances are 6 uite higher than Punjab National

Bank. But in case of Invest 5 ent ICICI Bank invest 5 ent amount is doubled than

Punjab National Bank amount.

Gross NPA and N7

t NPA:-

There are two concepts related to non-perf orming assets a 8 gross and b 8 net.

Gross refers to all NPAs on a banks balance sheet irrespective of the provisions made. It consists of all the non-standard assets, viz. Substandard, doubtful,

and loss assets. A loan asset is classified as substandard if it remains NPA up

to a period of 18 months; doubtful if it remains NPA f or more than 18

months; and loss, without any waiting period, where the dues are considered

not collectible or marginally collectible.

Net NPA is gross NPA less provisions. Since in India, bank balance sheets

contains a huge amount of NPAs and the process of recovery and write off of

loans is very time consuming, the provisions the banks have to make against

the NPA according to the central bank guidelines, are9

uite significant.

Here, we can see that there are huge differences between gross and net NPA.

Whil7

gross NPA reflects the qualit@

of the loans made b@

ban A s, net NPA

shoB

s the actual burden of ban A s. The re 9 uirements f or provisions are:

100C f or loss assets

0

50000

100000

150000

200000

250000

ICICI PNB

DEPOSIT

INVESTMENT

ADVANCES



23 | P a g e

100D of the unsecured portion plus 20-50 D of the secured portion,

depending on the period f or which the account has remained in the

doubtful category

10 E general provision on the outstanding balance under the

substandard category.

Here, there are gross and net NPA data f or 2009-10 we taken f or comparison

among banks. These data are NPA AS PERCENTAGE OF TOTAL ASSETS. As we

discuss earlier that gross NPA reflects the F uality of the loans made by banks.

Among all the ten banks Dena Banks has highest gross NPA as a percentage of

total assets in the year 2007-08 and also net NPA. Punjab National Bank shows

huge difference between gross and net NPA. There is an almost same figure

between BOI and BOB.

Gross NPA and Net NPA Of diff erent Public Sector ban G s in the year 2009-10

BANK H ROSS NPA NET NPA

BOB I .P

Q R .S T

BOI I .P

U R .P

T

DENA V

.S W

I .I Q

PNB V

. R

X

R .P

T

UBI I . U

V

R . T

X

0

0.5

1

1.5

2

2.5

DENA UBI PNB BOI BOB

GROSS NPA

NET NPA



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Gross NPA and Net NPA Of diff erent Public Sector ban Y s in the year 2009-10

BANK ̀

ROSS NPA NET NPA

BOB a .

a b

b .

c

d

BOI a . b e b . f f

DENA a .g

e b .h i

PNB a .i d

b .f e

UBI a . f

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Gross NPA and Net NPA Of diff erent Prip

ate Sector ban q s in the year 2009-10

BANK r ROSS NPA NET NPA

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DENA PNB BOI BOB UBI

GROSS NPA

NET NPA



25 | P a g e

Gross NPA and Net NPA Of diff erent Pri�

ate Sector ban � s in the year 2009-10

BANK � ROSS NPA NET NPA

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NET NPA

0

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INDUSIND KOTAK ICICI HDFC AXIS

GROSS NPA

NET NPA



26 | P a g e

Conclusion to the problem

A report is not said to be completed unless and until the conclusion is given to

the reports. A conclusion reveals the explanations about what the report has

covered and what is the essence of the study. What my project report cover is

concluded below.

The problem on which I f ocused my study is NPAs the big challenge

bef ore the public sector banks .The Indian Banking sector is the important

service sector that helps the people of the India to achieve the socio economic

ob jective. The Indian banking sector is developing with good appreciate as

compared to the global benchmark banks. The Indian banking system is

classified into schedule and non schedule banks. The public sector banks play

very important role in developing the nation in terms of providing goo d

financial service. The public sector banks have also shown good perf ormance in

the last f ew years.The only problem is that the public sector banks are facing today is the

problem of nonperf orming assets. The non perf orming assets means those

assets which are classified as bad assets which are not possibly by return back

to the banks by the borrowers. If the proper management of the NPAs is not

undertaken it would be hampers the business of the banks. The NPAs would as

try the current profit, interest income due to large provisions of the NPAs and

would aff ect the smooth functioning of the recycling of the funds.

If we analyze the past years data, we may

come to know that the NPAs have increased very drastically af ter 2001, in 2000

the gross NPAs of the Indian banking sector was 47,300 crore where as in 2001

the fig was63,883 and which increase at faster rate in 2003 with 94,905 crore.

The public sector banks involve its nearly 50% of share in the NPAs .The RBI has

been trying to take number of measures but the ratio of NPAs is not decreasing

of the banks. The banks must find out the measures to reduce the evolving

problem of the NPAs. If the concept of NPAs is taken very lightl y it would be

dangerous f or the Indian banking sector. The reduction of the NPAs would help

the banks to boost up their profits, smooth recycling of funds in the nation.

This would help the nation to develop more banking branches and developing

the economy by providing the better financial services to the nation

Allahabad Bank has set a target to bring down its net non -

perf orming asset (NPA) to below 1% by the end of current fiscal and expects

its balance sheet size to double during the next two-three years if it managed

to maintain the existing growth rate of 30-35%.



27 | P a g e

The bank is also planning to put in place the centralized banking solution (CBS)

by December this year. According to ON Singh, chairman and managing

director, Allahabad Bank: We are going to be one of the best in the indu stry in

terms of NPA management. We are targeting gross NPA of 5% and net npa of

less than 1% by March, 2005.

Incidentally, the net NPA of the bank has already come down to 1.7% or Rs

299.8 crore as in September f rom a high of 5.2% or Rs 683.4 crore as i n

September, 2003. Mr. Singh said the bank was f ocusing on NPA provision

coverage, the ratio of which went up to 76.6% as in September f rom 73.8% as

in March and 60% as in September, 2003.

The bank has already crossed the Rs 55,000 crore business mark at Rs 55,330

crore during the second quarter of the current financial year and is confident

of crossing Rs 61,000 crore marks by the end of the fiscal. In March 2008 gross

NPA declined to 1.8% f rom 2.00% .



28 | P a g e

Recommendations

Through RBI has introduced number of measures to reduce the problem of

increasing NPAS of the bank such as CDR mechanism. One time settlement

sch

emes, enacted of SR

FAE

SI

ACT

etc. A lot of measures desired in terms of eff ectiveness of these measures. What I should suggest f or introducing. The

evolutions of the NPAs of public sector banks as under:--

y Each bank should have its own independence credit rating agency which

should evaluate the financial capacity of the borrower bef ore than credit

facility.

y The credit rating agencies should regularly evaluate the financial

condition of the clients.

y Special accounts should be made of the clients where monthly loan

concentration report should be made.

y It is also wise f or the banks to carry out special investigation audit of all

financial and business truncations and books account of the borrower

company when there is possibility of the diversion on the funds and

mismanagement.

y .Bank should evaluate the swot analysis of the borrower companies.ie

how they would face the environmental threats and opportunities with

the use of their strength and weakness, and what will be their possible

future growth in concerned to financial and operation perf ormance.

y There should be proper monitoring of the restructuring accountsbecause there is every possibility os the loan slipping into NPAs category

again.

y Proper training is important to the staff of the banks at the appropriate

level either ongoing process. That hoe they should deal the problem of

NPAs and what continues steps should take to reduce the NPAs.

y Willful default of bank loans should be made a criminal off ence.

y No loan is to be given to a group whose one or the other undertaking

became a defaulter.

y

There should be proper monitoring of the restructured accounts

because there is every possibility of the loans slipping into NPAs

category again.

y Independent settlement procedure should be more strict and faster and

the decision made by the settlement committee should be binding both

borrowers and lenders and any one of them failing to f ollow the decision

of the settlement committee should be punished severe .



29 | P a g e

ANNE URE REPORTING FORMAT FOR NPA ± GROSS AND NET NPA

Name of the Bank:

Position as on«««

PARTICULARS

1) Gross Advanced *

2) Gross NPA *

3) Gross NPA as %age of Gross Advanced

4) Total deduction( a+b+c+d )

( a ) Balance in interest suspense a/c **

( b ) DICGC/ECGC claims received and held pending

adjustment

( c ) part payment received and kept in suspense a/c

( d ) Total provision held ***

5) Net advanced ( 1-4 )

6) Net NPA ( 2-4 )

7) Net NPA as a %age of Net Advance

8) Net NPA as a %age of Net Advance

*excluding Technical write -off of Rs.________crore.

**Banks which do not maintain an interest suspense a/c to park the accrued interest on

NPAs may furnish the amount of interest receivable on NPAs.

***Excluding amount of Technical write -off (Rs.______crore) and provision.



References

1.Websites

y http://www.indiastat.com/banksandfinancialinstitutions/3/performance/16063/nonperformingassetsnpas/377761/stats.aspx

y http://www.bankcapitalgroup.net/services-non-performing-assets.php

y http://rituparnodas.blogspot.com/2009/01/npa -management.html

y

http://www.finanssivalvonta.fi/en/Statistics/Credit_market/Nonperforming_assets/Pages/Default.aspx

http://findarticles.com/p/articles/mi_hb5562/is_200905/ai_n31896461/

2. our nal

Chartered Secretary, February 2003, V S Datey, Page 128-135

SECURITISATION, RECONSTRUCTION AND ENFORCEMENT OF SECURITY

INTEREST.

3. Others

Banking Finance (FEB 2010)

IBA Bulletin(JAN2010)

My khan and public sector banks k Jain ³managers Accounting

³Tata Mc Graw- hill publishing company ltd.

www.rbi-org.com

www.google.com

A Project on Npa 4th Sem

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