Simer Project on Non Performing Assets..

8/4/2019 Simer Project on Non Performing Assets..

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Project report on Non Performing

Assets of banks

(SUBMITTED TO PUNJAB TECHNICAL UNIVERSITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR

MASTERS DEGREE IN BUSINES ADMINISTRATION

Supervised by: - Submitted by:-

ISHA MEHRA MAM Simerjit kaur

Class MBA 4th

Roll no: - 95323565261

Swami Satyanand College of Management and Technology


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Contents

Chapters Page no.

Chapter no. 1

Introduction to the bank HDFC

Chapter no. 2

Introduction to the topic.NPA

Types of NPA

Causes for NPA.

Factors responsible for rise in NPAImpact of NPA

Income recognition

Preventive Measurement for NPA

ManagementManagement of NPA

Early symptoms

Steps or Initiatives Taken By RBI to curtailNPAS

Steps to follow up and avoid slippage from

PAS to NPAS

Chapter no. 3

Review of literature

Chapter no. 4

Research methodology

Chapter no. 5

Data Analysis and interpretation

Chapter no. 6

Conclusion and Recommendations

Bibliography


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CHAPTER: 1

Introduction of the Bank


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WE UNDERSTAND YOUR

WORLD

History

The Housing Development Finance Corporation Limited (HDFC) was amongst the first

to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a

bank in the private sector, as part of the RBI'S liberalization of the Indian BankingIndustry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC

Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced

operations as a Scheduled Commercial Bank in January 1995. HDFC is India's premier

housing finance company and enjoys an impeccable track record in India as well as in

international markets. Since its inception in 1977, the Corporation has maintained a

consistent and healthy growth in its operations to remain the market leader in mortgages.

Its outstanding loan portfolio covers well over a million dwelling units. HDFC has

developed significant expertise in retail mortgage loans to different market segments and

also has a large corporate client base for its housing related credit facilities. With its

experience in the financial markets, a strong market reputation, large shareholder base

and unique consumer franchise, HDFC was ideally positioned to promote a bank in the

Indian environment.

HDFC Bank began operations in 1995 with a simple mission: to be a World Class

Indian Bank. We realized that only a single minded focus on product quality andservice excellence would help us get there. Today, we are proud to say that we are well

on our way towards that goal.


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INTRODUCTION

NON PERFORMING ASSETS (NPA)

WHAT IS A NPA (NON PERFORMING ASSET)

Action for enforcement of security interest can be initiated only if the secured asset is

classified as Nonperforming asset.

Non performing asset means an asset or account of borrower ,which has been classified

by bank or financial institution as sub standard , doubtful or loss asset, in accordance

with the direction or guidelines relating to assets classification issued by RBI .

An amount due under any credit facility is treated as past due when it is not been

paid within 30 days from the due date. Due to the improvement in the payment and

settlement system, recovery climate, up gradation of technology in the banking system

etc, it was decided to dispense with past due concept, with effect from March 31, 2001.

Accordingly as from that date, a Non performing asset shell be an advance where

Interest and/or instalment of principal remain overdue for a period of more than 180 days

in respect of a term loan,

The account remains out of order for a period of more than 180 days, in respect of an

overdraft/cash credit (OD/CC)

The bill remains overdue for a period of more than 180 days in case of bill purchased or

discounted.

Interest and/or principal remains overdue for two harvest season but for a period not

exceeding two half years in case of an advance granted for agricultural purpose, and


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Any amount to be received remains overdue for a period of more than 180 days in respect

of other accounts.

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

transparency, it has been decided to adopt 90 days overdue norms for identification of

Naps, from the year ending March 31, 2004, a non performing asset shell be a loan or an

advance where;

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

in respect of a term loan,

The account remains out of order for a period of more than 90 days, in respect of an

overdraft/cash credit (OD/CC)

The bill remains overdue for a period of more than 90 days in case of bill purchased or

discounted.

Interest and/or principal remains overdue for two harvest season but for a period not

exceeding two half years in case of an advance granted for agricultural purpose, and

Any amount to be received remains overdue for a period of more than 90 days in respectof other accounts

Out of order

An account should be treated as out of order if the outstanding balance remains

continuously in excess of sanctioned limit /drawing power. in case where the out standing

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

power, but there are no credits continuously for six months as on the date of balancesheet or credit are not enough to cover the interest debited during the same period ,these

account should be treated as out of order.

Overdue:-Any amount due to the bank under any credit facility is overdue if it is not

paid on due date fixed by the bank.


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Types of NPATypes of NPA

A] Gross NPAA] Gross NPA

B] Net NPAB] Net NPA

A] Gross NPA:A] Gross NPA:

Gross NPAS are the sum total of all loan assets that are classified as NPAS as per RBI

guidelines as on Balance Sheet date. Gross NPA reflects 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 following ratio:

Gross NPAS Ratio Gross NPAS

Gross Advances

B] Net NPA: B] Net NPA:

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

regarding NPAS. Net NPA shows the actual burden of banks. Since in India, bank

balance sheets contain 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

NPAS according to the central bank guidelines, are quite significant. That is why the

difference between gross and net NPA is quite high.

It can be calculated by following_

Net NPAS Gross NPAS Provisions

Gross Advances Provisions


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Causes for NPA.

Failure to bring in required capital.

Too ambitious project.

Longer gestation period. Un wanted expenses

Over trading

Imbalances of inventories.

Lack of proper planning.

Dependence on single customer

Lack of expertise.

Improper working capital management.

Mismanagement.

Diversion of funds

Poor quality management

Heavy borrowings.

Poor credit collection.

Lack of quality control.

Wrong selection of borrowers.

Poor credit appraisal.

Unhelpful in supervision.

Tough stand on issue.

Too in flexible attitude.

System overloaded.

Non inception of units.

Lack of motivation.

Delay in sanction.

Lack of trained staff.

Lack of delegation of work.


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Lack of commitment of recovery.

Lack of technical, personnel and zeal to,

Lack of infrastructure.

Fast changing technology.

Unhelpful attitude of government.

Changes in customer perception.

Increase in material cost.

Government policies.

Credit policies.

Taxation laws.

Civil commotion.

Political hostility

Sluggish legal system.

Changes related to banking amendment act.


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Factors responsible for rise in NPA

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 foreign 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 for recovery of loans

and advances. Due to their negligence and ineffectiveness in their work the bank suffers

the consequence of non-recover, their by reducing their profitability and liquidity.

Wilful Defaults

There are borrowers who are able to payback 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 major 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 framers depends on rain fall for cropping. Due to irregularities of rain fall

the framers are not to achieve the production level thus they are not repaying the loans.

Industrial sickness


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Improper project handling , ineffective management , lack of adequate resources , lack of

advance technology , day to day changing govt. 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 foresee 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 no recovered part as

NPA; S and has to make provision for it.

Change on Govt. policies

With every new govt. banking sector gets new policies for its operation. Thus it 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 weavers Co-operative

societies have become defunct largely due to withdrawal of state patronage. The

rehabilitation plan worked out by the Central govt to revive the handloom sector has not

yet been implemented. So the over dues due to the handloom sectors are becoming

NPAS.

INTERNAL FACTORS

Defective Lending process

There are three cardinal principles of bank lending that have been followed by thecommercial banks since long.

Principles of safety

Principle of liquidity


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Principles of profitability

Principles of safety

By safety it means that the borrower is in a position to repay the loan both principal andinterest. The repayment of loan depends upon the borrowers:

Capacity to pay

Willingness to pay

Capacity to pay depends upon: 1. Tangible assets 2. Success in business

Willingness to pay depends on: 1. Character 2. Honest 3. Reputation of borrower

The banker should, there fore take utmost care in ensuring that the enterprise or business

for 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 information system, market drivendecisions on real time basis can not be taken. Proper MIS and 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 computerised.

The improper strength, weakness, opportunity and threat analysis is another reason for

rise in NPAS. While providing unsecured advances the banks depend more on the

honesty, integrity, and financial soundness and credit worthiness of the borrower.

Banks should consider the borrowers own capital investment.

It should collect credit information of the borrowers from

From bankers


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Enquiry from market/segment of trade, industry, business.

From external credit rating agencies.

Analyse the balance sheet

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

Purpose of the loan

When bankers give loan, he should analyse the purpose of the loan. To ensure safety and

liquidity, banks should grant loan for productive purpose only. Bank should analyse the

profitability, viability, long term acceptability of the project while financing.

Poor credit appraisal system

Poor credit appraisal is another factor for 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 NPA;S.

Managerial deficiencies

The banker should always select the borrower very carefully and should take tangible

assets as security to safe guard its interests. When accepting securities banks should

consider the 1. Marketability

2. Acceptability

3. Safety

4. Transferability.

The banker should follow 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


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not grant advances to a few big farms only or to concentrate them in few industries or in a

few cities. If a new big customer meets misfortune or certain traders or industries affected

adversely, the overall position of the bank will not be affected.

Like OSCB suffered 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 increase 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 wilful 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 affected the smooth operation of the credit cycle .

Due to re loaning to the defaulters and CCBS and PACS the NPAS of OSCB is

increasing day by day.


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Impact of NPAImpact of NPA

Profitability:-Profitability:-

NPA means booking of money in terms of bad asset, which occurred due to

wrong choice of client. Because of the money getting blocked the prodigality of bank

decreases not only by the amount of NPA but NPA lead to opportunity cost also as that

much of profit invested in some return earning project/asset. So NPA doesnt affect

current profit but also future stream of profit, which may lead to loss of some long-term

beneficial opportunity. Another impact of reduction in profitability is low ROI (return on

investment), which adversely affect current earning of bank.

Liquidity:-Liquidity:-

Money is getting blocked, decreased profit lead to lack of enough cash at hand which

lead to borrowing money for shot\rtes period of time which lead to additional cost to the

company. Difficulty in operating the functions of bank is another cause of NPA due to

lack of money. Routine payments and dues.

Involvement of management:-Involvement of management:-

Time and efforts of management is another indirect cost which bank has to bear due to

NPA. Time and efforts of management in handling and managing NPA would have

diverted to some fruitful activities, which would have given good returns. Now days

banks have special employees to deal and handle NPAS, which is additional cost to the

bank.

Credit loss:-Credit loss:-Bank is facing problem of NPA then it adversely affect the value of bank interms of market credit. It will lose its goodwill and brand image and credit which have

negative impact to the people who are putting their money in the banks.


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INCOME RECOGNITIONINCOME RECOGNITION

Income recognition - PolicyIncome recognition - Policy

The policy of income recognition has to be objective and based on the record of

recovery. Internationally income from non-performing assets (NPA) is not recognised on

accrual basis but is booked as income only when it is actually received. Therefore, the

banks should not charge and take to income account interest on any NPA.

However, interest on advances against term deposits, NSCS, IVPS, KVPS and Lifepolicies may be taken to income account on the due date, provided adequate margin is

available in the accounts.

Fees and commissions earned by the banks as a result of re-negotiations orrescheduling of outstanding debts should be recognised on an accrual basis over the

period of time covered by the re-negotiated or rescheduled extension of credit.

If Government guaranteed advances become NPA, the interest on such advancesshould not be taken to income account unless the interest has been realised.

Reversal of income:Reversal of income:

If any advance, including bills purchased and discounted, becomes NPA as at theclose of any year, interest accrued and credited to income account in the corresponding

previous year, should be reversed or provided for if the same is not realised. This will

apply to Government guaranteed accounts also.

In respect of NPAS, fees, commission and similar income that have accrued should

cease to accrue in the current period and should be reversed or provided for with respect

to past periods, if uncollected.


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Leased Assets

The net lease rentals (finance charge) on the leased asset accrued and credited toincome account before the asset became non-performing, and remaining unrealised,

should be reversed or provided for in the current accounting period.

The term 'net lease rentals' would mean the amount of finance charge taken to thecredit of Profit & Loss Account and would be worked out as gross lease rentals adjusted

by amount of statutory depreciation and lease equalisation account.

As per the 'Guidance Note on Accounting for Leases' issued by the Council of theInstitute of Chartered Accountants of India (ICAI), a separate Lease Equalisation

Account should be opened by the banks with a corresponding debit or credit to Lease

Adjustment Account, as the case may be. Further, Lease Equalisation Account should be

transferred every year to the Profit & Loss Account and disclosed separately as a

deduction from/addition to gross value of lease rentals shown under the head 'Gross

Income'.

Appropriation of recovery in NPAsAppropriation of recovery in NPAs

Interest realised on NPAS may be taken to income account provided the credits in theaccounts towards interest are not out of fresh/ additional credit facilities sanctioned to the

borrower concerned.

In the absence of a clear agreement between the bank and the borrower for thepurpose of appropriation of recoveries in NPAS (i.e. towards principal or interest due),

banks should adopt an accounting principle and exercise the right of appropriation of

recoveries in a uniform and consistent manner.

Interest Application:Interest Application:


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There is no objection to the banks using their own discretion

in debiting interest to an NPA account taking the same to Interest Suspense Account or

maintaining only a record of such interest in Performa accounts.

Reporting of NPAsReporting of NPAs

Banks are required to furnish a Report on NPAS as on 31 st March each year aftercompletion of audit. The NPAS would relate to the banks global portfolio, including the

advances at the foreign branches. The Report should be furnished as per the prescribed

format given in the Annexure I.

While reporting NPA figures to RBI, the amount held in interest suspense account,

should be shown as a deduction from gross NPAS as well as gross advances while

arriving at the net NPAS. Banks which do not maintain Interest Suspense account for

parking interest due on non-performing advance accounts, may furnish the amount of

interest receivable on NPAS as a foot note to the Report.

Whenever NPAS are reported to RBI, the amount of technical write off, if any,should be reduced from the outstanding gross advances and gross NPAS to eliminate

any distortion in the quantum of NPAS being reported.

Asset ClassificationAsset Classification

Categories of NPASCategories of NPAS

Standard Assets:Standard Assets:

Standard assets are the ones in which the bank is receiving interest as

well as the principal amount of the loan regularly from the customer. Here it is also very

important that in this case the arrears of interest and the principal amount of loan do not

exceed 90 days at the end of financial year. If asset fails to be in category of standard

asset that is amount due more than 90 days then it is NPA and NPAS are further need to

classify in sub categories.


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Banks are required to classify non-performing assets further into the

following three categories based on the period for which the asset has remained non-

performing and the reliability of the dues:

a) Sub-standard Assetsa) Sub-standard Assets

b) Doubtful Assetsb) Doubtful Assets

c) Loss Assetsc) Loss Assets

Sub-standard Assets:Sub-standard Assets:

A sub-standard asset was one, which was classified as NPA

for a period not exceeding two years. With effect from 31 March 2001, a sub-standard

asset is one, which has remained NPA for a period less than or equal to 18 months. In

such cases, the current net worth of the borrower/ guarantor or the current market value

of the security charged is not enough to ensure recovery of the dues to the banks in full.

In other words, such an asset will have well defined credit weaknesses that jeopardise the

liquidation of the debt and are characterised by the distinct possibility that the banks will

sustain some loss, if deficiencies are not corrected.

Doubtful Assets:Doubtful Assets:

A doubtful asset was one, which remained NPA for a period

exceeding two years. With effect from 31 March 2001, an asset is to be classified as

doubtful, if it has remained NPA for a period exceeding 18 months. A loan classified as

doubtful has all the weaknesses inherent in assets that were classified as sub-standard,

with the added characteristic that the weaknesses make collection or liquidation in full,

on the basis of currently known facts, conditions and values highly questionable and

improbable.

With effect from March 31, 2005, an asset would be classified as doubtful if it remained

in the sub-standard category for 12 months.


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Loss Assets:Loss Assets:

A loss asset is one where the bank or internal or external auditors have

identified loss or the RBI inspection but the amount has not been written off wholly. In

other words, such an asset is considered uncollectible and of such little value that its

continuance as a bankable asset is not warranted although there may be some salvage or

recovery value.

Provisioning NormsProvisioning Norms

GeneralGeneral

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 during the

previous year with regard to the accounts contributing to the difference.

Pursuant to this, regional offices were advised to forward 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 for loan loss, etc.

The primary responsibility for making adequate provisions for any diminution in thevalue 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 conformity with the prudential norms, provisions should be made on the non-performing 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 realisation of the security and


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the erosion over time in the value of security charged to the bank, the banks should make

provision against sub-standard assets, doubtful assets and loss assets as below:

Loss assets:Loss assets:

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

in the books for any reason, 100 percent of the outstanding should be provided for.

Doubtful assets:Doubtful assets:

100 percent of the extent to which the advance is not covered by the realisable value ofthe 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 following basis, at therates ranging from 20 percent to 50 percent of the secured portion depending upon the

period for which the asset has remained doubtful:

Period for which the advance has beenconsidered as doubtful

Provisionrequirement (%)

Up to one year 20

One to three years 30

More than three years 50

Additional provisioning consequent upon the change in the definition of doubtfulassets effective from March 31, 2001 has to be made in phases as under:

As on 31.03.2001, 50 percent of the additional provisioning requirement on the assetswhich became doubtful on account of new norm of 18 months for transition from sub-

standard asset to doubtful category.


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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 thereduction in the transition period from substandard to doubtful asset from 18 to 12

months over a four year period commencing from 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 difference 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. Values

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.

Sub-standard assets:Sub-standard assets:

A general provision of 10 percent on total outstanding

should be made without making any allowance for DICGC/ECGC guarantee cover and

securities available.

Standard assets:Standard assets:

From the year ending 31.03.2000, the banks should make a general provision of aminimum of 0.25 percent on standard assets on global loan portfolio basis.

The provisions on standard assets should not be reckoned for arriving at net NPAs.

The provisions towards Standard Assets need not be netted from gross advances butshown separately as 'Contingent Provisions against Standard Assets' under 'Other

Liabilities and Provisions - Others' in Schedule 5 of the balance sheet.


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Floating provisions:Floatingprovisions: Some of the banks make a 'floatingprovision' over and above the specific provisions made in respect of accounts identified

as NPAS. 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.

Provisions on Leased Assets:Provisions on Leased Assets:

Sub-standard assets

10 percent of the 'net book value'.

As per the 'Guidance Note on Accounting for Leases' issued by the ICAI, 'Gross bookvalue' of a fixed asset is its historical cost or other amount substituted for 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 deducted

from the Gross Book Value of the leased asset in the balance sheet of the lessor to arrive

at the 'net book value'.

Also, balance standing in 'Lease Adjustment Account' should be adjusted in the 'netbook value' of the leased assets. The amount of adjustment 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


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above provision, the following provision on the net book value of the secured portion

should be made, depending upon the period for 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 for any reason, an asset is allowed to remain in

books, 100 percent of the 'net book value' should be provided for.

Guidelines for Provisions under Special CircumstancesGuidelines for Provisions under Special Circumstances

Government guaranteed advancesGovernment guaranteed advances

With effect from 31 March 2000, in respect of advances sanctioned against StateGovernment guarantee, if the guarantee is invoked and remains in default for 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 guaranteestood 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 31.03.2003 with a minimum of

25 percent each year.

Advances granted under rehabilitation packages approved by BIFR/term lending Advances granted under rehabilitation packages approved by BIFR/term lending

institutions:institutions:

In respect of advances under rehabilitation package approved by BIFR/term lendinginstitutions, the provision should continue to be made in respect of dues to the bank on

the existing credit facilities as per their classification as sub-standard or doubtful asset.


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As regards the additional facilities sanctioned as per package finalised by BIFR and/orterm lending institutions, provision on additional facilities sanctioned need not be made

for a period ofone year from the date of disbursement.

In respect of additional credit facilities granted to SSI units which are identified as sick[as defined in RPCD circular No.PLNFS.BC.57 /06.04.01/2001-2002 dated 16 January

2002] and where rehabilitation packages/nursing programmes have been drawn by the

banks themselves or under consortium arrangements, no provision need be made for a

period of one year.

Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs, and lifeAdvances against term deposits, NSCs eligible for surrender, IVPs, KVPs, and life

policies are exempted from provisioning requirements.policies are exempted from provisioning requirements.

However, advances against gold ornaments, government securities and all other kindsHowever, advances against gold ornaments, government securities and all other kinds

of securities are not exempted from provisioning requirements.of securities are not exempted from provisioning requirements.

Treatment of interest suspense account:Treatment of interest suspense account:

Amounts held in Interest Suspense Account should not be reckoned as part of provisions.

Amounts lying in the Interest Suspense Account should be deducted from the relative

advances and thereafter, provisioning as per the norms, should be made on the balances

after such deduction.

Advances covered by ECGC/DICGC guaranteeAdvances covered by ECGC/DICGC guarantee

In the case of advances guaranteed by DICGC/ECGC, provision should be made only for

the balance in excess of the amount guaranteed by these Corporations. Further, while

arriving at the provision required to be made for doubtful assets, realisable value of the

securities should first be deducted from the outstanding balance in respect of the amount

guaranteed by these Corporations and then provision made as illustrated hereunder.


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Example

Outstanding Balance Rs. 4 lakhs

DICGC Cover 50 percent

Period for which the advance has remained

doubtful

More than 3 years remained

doubtful

Value of security held

(excludes worth of Rs.)

Rs. 1.50 lakhs

Provision required to be made

Outstanding balance Rs. 4.00 lakhs

Less: Value of security held Rs. 1.50 lakhs

Unrealised balance Rs. 2.50 lakhs

Less: DICGC Cover

(50% of unrealisable balance)

Rs. 1.25 lakhs

Net unsecured balance Rs. 1.25 lakhs

Provision for unsecured portion of advance Rs. 1.25 lakhs (@ 100 percent of

unsecured portion)

Provision for secured portion of advance Rs. 0.75 lakhs (@ 50 percent of

secured portion)

Total provision required to be made Rs. 2.00 lakhs

Advance covered by CGTSI guaranteeAdvance covered by CGTSI guarantee

In case the advance covered by CGTSI guarantee becomes non-performing, no provision

need be made towards the guaranteed portion. The amount outstanding in excess of the

guaranteed portion should be provided for as per the extant guidelines on provisioning for

non-performing advances. Two illustrative examples are given below:

Example I

Asset classification status: Doubtful More than 3 years;


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CGTSI Cover 75% of the amount outstanding or

75% of the unsecured amount or

Rs.18.75 lakh, whichever is the

least

Realisable value of Security Rs.1.50 lakh

Balance outstanding Rs.10.00 lakh

Less Realisable value of

security

Rs. 1.50 lakh

Unsecured amount Rs. 8.50 lakh

Less CGTSI cover (75%) Rs. 6.38 lakh

Net unsecured and uncovered

portion:

Rs. 2.12 lakh

Provision Required

Secured portion Rs.1.50 lakh Rs. 0.75 lakh (@ 50%)

Unsecured & uncovered portion Rs.2.12 lakh Rs. 2.12 lakh ( 100%)

Total provision required Rs. 2.87 lakh

Example II

Asset classification status Doubtful More than 3 years;

CGTSI Cover 75% of the amount outstanding

or75% of the unsecured amount or

Rs.18.75 lakh, whichever is the

least

Realisable value of Security Rs.10.00 lakh

Balance outstanding Rs.40.00 lakh

Less Realisable value of

security

Rs. 10.00 lakh

Unsecured amount Rs. 30.00 lakh

Less CGTSI cover (75%) Rs. 18.75 lakh

Net unsecured and uncovered Rs. 11.25 lakh


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portion:

Provision Required

Secured portion Rs.10.00 lakh Rs. 5.00 lakh (@ 50%)

Unsecured & uncovered portion Rs.11.25 lakh Rs.11.25 lakh (100%)Total provision required Rs. 16.25 lakh

Take-out financeTake-out finance

The lending institution should make provisions against a 'take-out finance' turning into

NPA pending its take-over by the taking-over institution. As and when the asset is taken-

over by the taking-over institution, the corresponding provisions could be reversed.

Reserve for Exchange Rate Fluctuations Account (RERFA)Reserve for Exchange Rate Fluctuations Account (RERFA)

When exchange rate movements of Indian rupee turn adverse, the outstanding amount of

foreign currency denominated loans (where actual disbursement was made in Indian

Rupee) which become overdue goes up correspondingly, with its attendant implications

of provisioning requirements. Such assets should not normally be revalued. In case such

assets need to be revalue as per requirement of accounting practices or for any other

requirement, the following procedure may be adopted:

The loss on revaluation of assets has to be booked in the bank's Profit & Loss Account.

Besides the provisioning requirement as per Asset Classification, banks should treat the

full amount of the Revaluation Gain relating to the corresponding assets, if any, on

account of Foreign Exchange Fluctuation as provision against the particular assets.

Preventive Measurement for NPA

Early Recognition of the Problem:-Early Recognition of the Problem:-

Invariably, by the time banks start their efforts to get involved in a revival process, its

too late to retrieve the situation- both in terms of rehabilitation of the project and


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recovery of banks dues. Identification of weakness in the very beginning that is : When

the account starts showing first signs of weakness regardless of the fact that it may not

have become NPA, is imperative. Assessment of the potential of revival may be done on

the basis of a techno-economic viability study. Restructuring should be attempted where,

after an objective assessment of the promoters intention, banks are convinced of a

turnaround within a scheduled timeframe. In respect of totally unviable units as decided

by the bank, it is better to facilitate winding up/ selling of the unit earlier, so as to recover

whatever is possible through legal means before the security position becomes worse.

Identifying Borrowers with Genuine Intent:-Identifying Borrowers with Genuine Intent:-

Identifying borrowers

with genuine intent from those who are non- serious with no commitment or stake in

revival is a challenge confronting bankers. Here the role of frontline officials at the

branch level is paramount as they are the ones who has intelligent inputs with regard to

promoters sincerity, and capability to achieve turnaround. Base don this objective

assessment, banks should decide as quickly as possible whether it would be worthwhile

to commit additional finance.

In this regard banks may consider having Special Investigation of all financialtransaction or business transaction, books of account in order to ascertain real factors that

contributed to sickness of the borrower. Banks may have penal of technical experts with

proven expertise and track record of preparing techno-economic study of the project of

the borrowers.

Borrowers having genuine problems due to temporary mismatch in fund flow or

sudden requirement of additional fund may be entertained at branch level, and for thispurpose a special limit to such type of cases should be decided. This will obviate the need

to route the additional funding through the controlling offices in deserving cases, and

help avert many accounts slipping into NPA category.

Timeliness and Adequacy of response:-Timeliness and Adequacy of response:-


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Longer the delay in response, grater the injury to the account and the asset. Time is a

crucial element in any restructuring or rehabilitation activity. The response decided on

the basis of techno-economic study and promoters commitment, has to be adequate in

terms of extend of additional funding and relaxations etc. under the restructuring

exercise. The package of assistance may be flexible and bank may look at the exit option.

Focus on Cash Flows:-Focus on Cash Flows:-

While financing, at the time of restructuring the banks may not be guided by the

conventional fund flow analysis only, which could yield a potentially misleading picture.

Appraisal for fresh credit requirements may be done by analyzing funds flow in

conjunction with the Cash Flow rather than only on the basis of Funds Flow.

Management Effectiveness:-Management Effectiveness:-

The general perception among borrower is that it is lack of finance that leads to sickness

and NPAS. But this may not be the case all the time. Management effectiveness in

tackling adverse business conditions is a very important aspect that affects a borrowing

units fortunes. A bank may commit additional finance to an align unit only after basic

viability of the enterprise also in the context of quality of management is examined and

confirmed. Where the default is due to deeper malady, viability study or investigative

audit should be done it will be useful to have consultant appointed as early as possible

to examine this aspect. A proper techno- economic viability study must thus become the

basis on which any future action can be considered.

Multiple Financing:-Multiple Financing:-

During the exercise for assessment of viability and restructuring, a Pragmatic and

unified approach by all the lending banks/ FIs as also sharing of all relevant information

on the borrower would go a long way toward overall success of rehabilitation exercise,

given the probability of success/failure.


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In some default cases, where the unit is still working, the bank should make sure that it

captures the cash flows (there is a tendency on part of the borrowers to switch bankers

once they default, for fear of getting their cash flows forfeited), and ensure that such cash

flows are used for working capital purposes. Toward this end, there should be regular

flow of information among consortium members. A bank, which is not part of the

consortium, may not be allowed to offer credit facilities to such defaulting clients.

Current account facilities may also be denied at non-consortium banks to such clients and

violation may attract penal action. The Credit Information Bureau of India Ltd.

(CIBIL) may be very useful for meaningful information exchange on defaulting

borrowers once the setup becomes fully operational.

In a forum of lenders, the priority of each lender will be different. While one set oflenders may be willing to wait for a longer time to recover its dues, another lender may

have a much shorter timeframe in mind. So it is possible that the letter categories of

lenders may be willing to exit, even a t a cost by a discounted settlement of the

exposure. Therefore, any plan for restructuring/rehabilitation may take this aspect into

account.

Corporate Debt Restructuring mechanism has been institutionalized in 2001 to provide

a timely and transparent system for restructuring of the corporate debt of Rs. 20 crore and

above with the banks and FIS on a voluntary basis and outside the legal framework.

Under this system, banks may greatly benefit in terms of restructuring of large standard

accounts (potential NPAS) and viable sub-standard accounts with consortium/multiple

banking arrangements.


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Tools for recovery of NPAS

Credit Default

Inability to PayInability to Pay Willful defaultWillful default

nviablenviable ViableViable

Lok AdalatLok Adalat

Debt RecoveryDebt RecoveryTribunalsTribunals

SecuritizationActAssetAssetReconstructioReconstructioompromiseompromise RehabilitationRehabilitationConsortium FinanceConsortium Finance Sole BankerSole BankerCorporate Debt RestructuringCorporate Debt RestructuringFresh Issue ofFresh Issue of

Term LoanTerm LoanConversionConversioninto WCTLinto WCTL Fresh WC LimitFresh WC Limit

Replacement ofReplacement of

Repayment PeriodRepayment Period


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Once NPA occurred, one must come out of it or it should be managed in most efficient

manner. Legal ways and means are there to over come and manage NPAs. We will look

into each one of it.

Wilful Default:-Wilful Default:-

A] Lok Adalat and Debt Recovery Tribunal

B] Securitization Act

C] Asset Reconstruction

Lok Adalat:Lok Adalat:

Lok Adalat institutions help banks to settle disputes involving account in

doubtful and loss category, with outstanding balance of Rs. 5 lakh for compromise

settlement under Lok Adalat. Debt recovery tribunals have been empowered to organize

Lok Adalat to decide on cases of NPAs of Rs. 10 lakh and above. This mechanism has

proved to be quite effective for speedy justice and recovery of small loans. The progress

through this channel is expected to pick up in the coming years.

Debt Recovery Tribunals (DRT):Debt Recovery Tribunals (DRT):

The recovery of debts due to banks and financial

institution passed in March 2000 has helped in strengthening the function of DRTs.

Provision for placement of more than one recovery officer, power to attach defendants

property/assets before judgment, penal provision for disobedience of tribunals order or

for breach of any terms of order and appointment of receiver with power of realization,

management, protection and preservation of property are expected to provide necessary

teeth to the DRTs and speed up the recovery of NPAs in the times to come. DRTs which

have been set up by the Government to facilitate speedy recovery by banks/DFIs, have

not been able make much impact on loan recovery due to variety of reasons like

inadequate number, lack of infrastructure, under staffing and frequent adjournment of


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cases. It is essential that DRT mechanism is strengthened and vested with a proper

enforcement mechanism to enforce their orders. Non observation of any order passed by

the tribunal should amount to contempt of court, the DRT should have right to initiate

contempt proceedings. The DRT should empowered to sell asset of the debtor companies

and forward the proceed to the winding up court for distribution among the lenders

Inability to Pay

Consortium arrangements:Consortium arrangements:

Asset classification of accounts under

consortium should be based on the record of recovery of the individual member banks

and other aspects having a bearing on the recoverability of the advances . Where the

remittances by the borrower under consortium lending arrangements are pooled with one

bank and/or where the bank receiving remittances is not parting with the share of other

member banks, the account will be treated as not serviced in the books of the other

member banks and therefore, be treated as NPA. The banks participating in the

consortium should, therefore, arrange to get their share of recovery transferred from the

lead bank or get an express consent from the lead bank for the transfer of their share of

recovery, to ensure proper asset classification in their respective books.

\Corporate debt restructuring (CDR):\Corporate debt restructuring (CDR):

BackgroundBackground

In spite of their best efforts and intentions, sometimes corporate find themselves in

financial difficulty because of factors beyond their control and also due to certain internal

reasons. For the revival of the corporate as well as for the safety of the money lent by the

banks and FIs, timely support through restructuring in genuine cases is called for.

However, delay in agreement amongst different lending institutions often comes in the

way of such endeavours. Based on the experience in other countries like the U.K.,

Thailand, Korea, etc. of putting in place institutional mechanism for restructuring of

corporate debt and need for a similar mechanism in India, a Corporate Debt Restructuring

System has been evolved, as under


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MANAGE MENT OF NPA

Since NPA have been adverse effects over return on assets and capital adequacy ratio of

banks, each public sector bank has formulated its own NPA management policy and is torecover NPA in its own way. A reduction in the gross and net NPA s indicates a

significant improvement in the management of NPAs .The present methods of dealing

with NPAs includes both legal remedies but since the bank experiences a considerable

deal in getting the results .On legal remedies of late non legal remedies are also gaining

popular with the bankers. The measures adopted by the Indian banks are as follows:-

Resolution strategy framework suits filled and BIFR are the two most common

approaches to resolution of NPA in public sector banks.Rehabiliation and settlement have

been considered in few cases. Data available on resolution strategies adopted by public

sector banks suggest that compromise settlement schemes with in the borrower are found

to be more effective than legal measures ,

1) Debt recovery tribunals: - Debt recovery tribunals were set up in 1992. These tribunals

can entertain the cases for recovery of debts.

2) Lok Adalats: - The lok adalat helps to resolve disputes between parties by

conciliation, meditation, compromise, settlement schemes.

3) Credit Information Bureau:- It was incorporated in January 2004 by SBI India

.Association with 3 more institutions now banks and financial institutions are required to

submit the list of suit filed cases of Rs-10 millions CIBIL.

4) Legal Measures:-The following legal and regulatory measures are instituted for the

settlement of NPAs.

A) SARFAESI ACT:- The securitization and reconstruction of financial assets and

enforcement of security interest act permits the secured creditors (if 75% of the secured

creditors agree) in enforce security interest in relation to the under lying security with out

reference to the court after giving 60 days notice to the defaulting borrowers .The act


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gives the sweeping powers to secured creditors such as taking over the possession of

secured assets of the borrowers including the right to transfer by way of lease ,assignment

or sale, take over the management of secured assets.

B) Assets Reconstruction co.:-The setting of assets Reconstruction Company may be

another channel to discount the NPAs of the bank of such an agency and to developing

the process of such an agency and to developing the process of securitization on of banks

loans assets for providing liquidity. Secondary market of derivates based on securitized

assets could also be developed as in individuals country.

C) Revenue recovery Act:- In some states revenue recovery act has been made

applicable to banks . Since this is also expenditure process of adjudicating claims, banks

may be noticed to cover the act by State.


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Early symptoms by which one can recognize a

performing asset turning in to Non-performing asset

Four categories of early symptoms:-

( 1 ) Financial:

Non-payment of the very first instalments in case of term loan.

Bouncing of cheque due to insufficient balance in the accounts.

Irregularity in instalments.

Irregularity of operations in the accounts.

Unpaid over due bills.

Declining Current Ratio.

Payment which does not cover the interest and principal amount of that instalment.

While monitoring the accounts it is found that partial amount is diverted to sister concern

or parent company.

(2) Operational and Physical:

If information is received that the borrower has either initiated the process of winding up

or are not doing the business.

Overdue receivables.

Stock statement not submitted on time.

External non-controllable factor like natural calamities in the city where borrower

conduct his business.


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Frequent changes in plan.

Non payment of wages.

(3) Attitudinal Changes:

Use for personal comfort, stocks and shares by borrower.

Avoidance of contact with bank.

Problem between partners.

(4) Others:

Changes in Government policies.

Death of borrower.

Competition in the market.


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Steps or Initiatives Taken By RBI to curtail NPAS

Recognising the fact that the origin of nonperforming could be at the initial stage if loan

decision making .RBI had impressed upon banks from time to time to strengthen creditsupervision. After sanction and dispersal of credit, banks are required to closely monitor

the operations of the borrower units and accounts by way o ostentation of periodic stock

operation statements brought down, end use etc. In the cases sickness nursing back the

sick units etc. Problem accounts above a certain outstanding balance are required to be

monitored individually by designated senior officials of the bank. In respect of accounts

where the classification of assets of the banks are required to take prompt steps to recover

the dues and staff accountability is required to be examined.

Banks have also been advised to take decisions regarding findings of some expeditiously

and to effectively follow up the cases of suit filed and decreased accounts .During

periodic discussions with bank management special emphasis is given on monitoring of

large NPA accounts at the highest level in the banks and also on reductions of NPA

through up gradation recovery and compromise settlements. RBI has advised and

accordingly bank board have laid down policies in regard to credit etc. Banks has

constituted recovery cells recovery branches and NPA management departments andfixed recovery targets.

Policies evolved and steps taken in this regard are critically examined .During the annual

on sight inspection of banks. The off sights returns also provide RBI and insights into the

quality credit portfolio at quarterly intervals.

Introduction of prudential norms on income recognition, asset classification,

provisioning. During 1992-93 and other steps initiated apart from beginning in

transparency in the loan portfolio of banking industry have significantly contributed

towards improvement of the pre sanction appraisal and post sanction appraisal which is

reflected in lowering of the levels of fresh accretion of non performance advances of

banks after 1992.


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RBI impressed upon the banks to strengthen the credit appraisal and credit supervision.

Adoption of 90 days norm for recognition of loan impairment as against the current

norms of 180 days effective March 2004.

Reduction in transition period of sub standard assets to doubt full category to 12 months

effective from March 2005.

Revision in the norms in terms of new barrel capital accord after 2005.

In cases of incipient sickness detailed guidelines have been issued to banks to take steps

for avoiding sickness nursing back the sick units etc.

During periodic description with bank description with bank management special

emphasis is given on monitoring of large NPA accounts at the highest in the banks and

also on reduction of NPAs through up gradation recovery and compromise settlements.

RBI has advised and accordingly banks laid down policies in regard to credit

dispensation, recovery of credit etc.

Policies evolved and steps taken are critically examined during the annual on sight

inspection of banks.


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Steps to follow up and avoid slippage from PAS to

NPAS

The sanction of loan should with in the stipulated time as per head office guidelines all

information should be collected about the borrower at the time of sanctioning the loan.

At the time of fixation of repayment period, generation of income, surplus repaying

capacity and gestation period allowed should be taken into consideration.

The amount should be disbursed according to the borrower he should neither be under

financed nor over financed.

All necessary requirement in the loan sanctioned should be complied with before

realizing the loan limit.

The business premises of the borrower should be visited regularly .Any short comings if

found should be informed higher officials of banks.

End use of funds is to be verified it means that the banker should always ensure that the

purpose for which the loan was disbursed has been served or not that is same things has

been purchased or not.

Recovery reminders should be sent regularly to the borrower and that too well in time i.e.

before the date when his instalments become due.

Loans and limits should be reviewed and renewed timely.

A complete and proper set of security documents duly filled and signed by all borrowersshould be obtained.

In case of natural the repayment should be rescheduled The safety, security,

documentation, proper stamping etc.should be ensured will before the disbursement of

loans.


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Chapter 2



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1.) Kumar S.B (1998):-IN liberalizing economy banking and financial sector get high

priority. Indian banking sector of having a serious problem due to non performing assets.The financial reforms have helped largely to clean NPA was around RS. 52000 cores. In

the year 2004. The earning capacity and profitability of the bank are highly affected due

to this. NPA is defined as an advance for which interest or repayment of principal or both

remain out standing for a period of more than two quarters. The level of NPA act as an

indicator showing the bankers credit risks and efficiency of allocation of resources.

2.) Reddy R.B (2002):- banks and financial institutes have made significant contributions

to almost all the sectors of the Indian economy like agriculture, industry, trade,

employment and infrastructure. The ever increasing trends in deposits and credit speak

volumes for the performance of Indian banks and FIS. However, the NPA in the credit

portfolios have become a thorn in the flesh during a last one decade or so. NPA not only

affect the productivity but also sully the image of Indian banking. The quality of loan

assets is the most important factor for the basic viability of the banking system. NPA not

only eat into profitability and hamper their ability to recycle funds but also shake the

public confidence which is crucial for existence of any financial institution. The presenttrends of NPA are alarming and calls for rigorous and concerted efforts by banks and

financial institutes as well as government.

3.).KUNDU S.(2004):- Non performing loans epitomize bad invested .they miss allocate

credit from good projects ,which do not receive funding to failed projects .Bad invest

ment ends up in misallocation of capital and by extension ,labour and natural resources .

The economy performs below its production potential. NPA loans may spill over the

banking system and control the money stock, which may lead to economic contraction.

This spill over effect cans channels through liquidity or bank insolvency

A .when many borrowers fail to pay interest banks may experience liquidity shortage.

These shortages can jam payments across the country.


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B. Liquidity constraints bank in paying deposits e.g. cashing their pay check. Banking

panic follows a run on banks by depositor as part of the national money stock. Contracts

and economic contraction follows.

C. undercapitalized banks exceed the banks capital base. There are 3 ways of solving this

problem of NPA .They are

1. Recapitalization of banks with government aid

2, disposal and write off NPA.

3. Increased regulations.

4.) Shajahan M.K (2005):- NPA reflect the health of the banking system . So it is a matter

of some significance when the reserve bank discloses as it does in its latest report on

trend and progress of banking in India that between ends March 1996 and 1997. NPA of

public sector banks were brought down by almost one half. Closely connected with the

magnitude of NPA is the proportion of NPA attributable to the priority sector. Have

according to RBI almost one half of all NPA of public sector banks are accounted for by

the priority sector.

5.) Mishra S. (2007):-The NPA is considered as an important parameter to judge the

performance and financial health of banks. The level of NPA is one of the drivers of

financial stability and growth of the banking sector.

6.) Ahmed V.J (2008):- The growth competition and sluggish growth in economy

coupled with poor credit deposit ratio. The large volume of non performing assets in the

balance sheet and lack of automation and professionalism in operations have been flaring

up the country. The level of non performing loan is recognized as an indicator for

assessing banks credit risk, assets quality and efficiency in allocation of resources to

production sector.


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Chapter 4.




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Research is defined as a scientific and systematic search for pertinent information on a

specific topic. It is a systematic collection, recording, analysis, and interpretation and

reporting of information about various facts of a phenomenon .Under study several steps

go together into making of research project. To be precise it involve following steps:-

Formulating and classifying the topic.

Critically reviewing the literature.

Development of hypothesis.

Preparing the research design.

Data collection.

Analyzing data.

Writing, presenting submitting the project reports.

Data Collection

Primary data:-

Primary data is first hand information which is collected a fresh and thus happens to be

original in character. The primary data was collected by the way of well framed

questionnaire .Questionnaire was administered together the information relation to

NPA.On the basis of question arises; I have made the tables and pie charts. Sample Size

is 50.

Secondary Data:-

Secondary data are those which have already been passed through the statistical process.

The data which pre essential for this study relating to management of NPA was bared on

secondary source of data ,This data was collected from materials provided by bank

,annual reports, management reports , magazines , journals, RBI circulars and some

essential books on banking was referred.

Objectives of the study


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1) To know its meaning.

2) To study causes responsible.

3) To know norms given by RBI.

4) To know the measure taken at various levels for management of NPA.

5) To know the impact of NPA on banks.

Scope of study:-

The study mainly covers meaning of NPA, then classification and provisioning, factor

responsible for the emergence of NPA, impact of NPA in banks and Management of

NPA through resolution. Strategy framework credit information bureau, legal measures

and compromise settlement schemes. The study has been conducted at HDFC Tarn Taran

branch.


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Chapter 5.

Data Analysis and interpretation

Data Analysis and Interpretation


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Question no. 1

Since how long is the HDFC branch is functioning?1) .2 years

2.) 2-3 years

3) 3-5 years4.) 5 year +

2 year

2-3 year

3-5 year

5 year+

Interpretation:-we can observe that 56% of branches for functioning since 5 years and all

other branches are functioning from a minimum period of 3-5 years.

Question no 2

Since how long the presence of NPA is observed in your HDFC branch?Year

0-1

1-2

Year No. of respondents Percentage %

2 year 2 4

2-3 year 6 12

3-5 year 14 28

5 year + 28 56

Total 50 100


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2-3

3-4

5 + above

0-1

1-2 years

2-3 years

3-4 years

5 +years

Interpretation:-From the above it can be interpreted that in nearly 40% of branches NPAS and

present since 5 years and above. And in 28% of branches NPAS are present between 3-4 years

and in rest of branches NPAS are present from 3 years.

Question no. 3

What is the appointment value of NPA in your branch?

Amount

1-10

Year No. of respondents Percentage %

0-1 3 61-2 5 10

2-3 8 16

3-4 14 27

5 and above 20 40

Total 50 100


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10-20

20-30

30-5050 and above

Amount No. of respondents Percentage %0-10 2 4

10-20 5 10

20-30 8 16

30-50 13 26

50 and above 22 44

Total 50 100

0-10

10-20.

20-30

30-50

50 and above

Interpretation:-From the above table it can be interpreted that in nearly 44% branches

NPAS are above 50 lacs. Another 26% of branches have NPAS of about 30-50 lacs in

rest of branches NPAS up to 30 lacs are found.

Question no.4

Which is the main cause responsible for the presence of NPA?1) Proper selection of borrowers

2) Deficiency in processing

3) Improper appraisal of assets4) Lack of supervision and follow up

5) Natural calamities


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6) Will full default of borrower

Improper select ionof borrowers.

Deficiency in

processing

Improper appraisal

of assets

Lack of supervision

and follow up

Natural calamities

Willful default of

borrower

Causes No. of respondents Percentage

Improper selection of

borrowers.

6 12

Deficiency in processing. 4 8

Improper appraisal of assets 4 8

Lack of supervision and

follow up

8 16

Natural calamities - -

Wilful default of borrower 28 56

Total 50 100


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Interpretation:-From the above table it can be interpreted that in 56% off the branches

wilful is the main cause of the emergence of NPAS .In 16% branches lack of supervision

and follow up is the main cause of NPAS. Then it is followed by many causes.


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Question no.5

Do you think that NPA can be controlled?1. Definitely yes

2. Yes

3. Cant say4. No

5. Definitely no

Definitely yes

yes

Cant say

No

Definitely no

Interpretation: - From the above table, it can be interpreted that really 50% of respondents

have told that definitely NPA can be controlled and another 38% respondents say that

NPAS can be controlled , while 12% of respondents could not make any decision .

Question no. 6

Result No. of respondents Percentage %

Definitely yes 25 50

yes 19 38

Cant say 6 12

No 0 0

Definitely no 0 0

Total 50 100


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To what extent NPA has been converted into good assets?

1) 1

2) 23) 3

4) 5

5) >5

Result No. of respondents Percentage %

1 0 0

2 4 8

3 5 10

4 9 18

5 9 18

>5 23 46

Total 50 100

1

2

3

4

5

above than 5

Interpretation: - From the above table, It can be interpreted that 46% of NPA have been

converted into good assets to the extent of 5% or more.

Question no. 7

Which is the most appropriate measure to reduce the level of NPAS?

1) Constant dialogue with borrowers2) Self involvement

3) Lok adalat


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4) Debt recovery

5) Tribunals

Measures No. of respondents Percentage %

1) ) Constant dialogue with

borrowers

6 12

2) Self involvement 7 14

3) Lok adalat 10 20

4) Debt recovery 12 24

5) Tribunals 15 30

Total 50 100

Constant dialogue with

borrowers

) Self involvement

) Lok adalat

Debt recovery

Tribunals

Interpretation :- From the above it can be interpreted that 30% branches debt recovery

tribunals are the most appropriate measure for reducing the level of NPAS . In 24%

branches lok adalat in 20% branches SARFAESI ACT is the most appropriate measure

for reducing the level of NPA S.

Question no.8

To what extent the profitability has been affected by NPAS?

%age profit affected by NPA

0-55-10

10-20

20 and above


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0-5

5-10.

10-20.

20 and above

Interpretation:-we can observe that 40% of respondents have told that profitability is

affected to the extent of 0-5 % due to NPAS and other 30% respondents think that

profitability is affected to the extent of 5-10% while other 20% of respondents think thatprofitability is affected to the extent of 10-20% and the remaining 10% of respondents

think that profitability is affected to the extent of more than 20%.

Question no.9

Has the profitability improved after adopting NPA reduction techniques?

% profit affected by NPA No. of respondent Percentage %

1 .0-5 20 40

2. 5-10 15 30

3. 10-20 10 20

4. 20 and above 5 10Total 50 100


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Result

Definitely improved

ImprovedCant say

Not improved

Definitely not improved

Result No. of respondent Percentage %

1) definitely improved 25 50

2) Improved 15 30

3) cant say 5 10

4) not improved 5 10

5) definitely not improved 0 0

Total 50 100

definitely improved

Improved

) cant say

not improved

definitely not improved

Interpretation :-In the above table ,it can be interpreted that 50% of respondents say that

profitability has been improved after adopting NPA reducing techniques and 10% of

respondents say that profitability has been improved while the remaining 10% of

respondents could not make any decisions.

CHAPTER 6


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Conclusion and Recommendations.

Conclusion


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The problem of non performing assets has been a major issue for the banking industry.

There are various reasons for the emergence of non performing assets like will full

default lack of demand, industrial sickness, improper appraisal system etc. The problem

of NPAS not only affects the profitability of the bank but also affects its image in the

market. The banks are taking various steps for controlling the level of NPAS. The RBI

which is the apex body for controlling the level of NPA has been giving guidelines and

getting norms for the bank in order to control the incidents of defaults.

Recommendations

It is the recommendation that the proper documentation and verification to be

made before sanctioning the loan.

Regular visits should be made in the business premises of the borrower.

Empowering staff to make decisions related to sanctioning of loans.

Constant interactions have to be maintained with the customer to keep track of

their loan payments.

Strict measures have to be taken while issuing or sanctioning the loan . The

measures can includes verification of job and salary slips, verification of

securities and the like.

All the banks are trying to reduce NPA through various techniques and it is

suggested that there measures have to be continue.

Bibliography


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Varshnay P.N Banking law and practice publishers. Sultan Chand and Sons. 19th

edition.

Sharma R.K, Singh Jaswant, Gupta K Shashi, Banking Insurance of foreign trade

laws and procedures. Published by Kalyani publishers.

Chandra Prassana Financial Management Published by Tata MC Graw hill

Publishers.

Aggarwal Monica Banking theory and Practice, Published by Kalyani

Publishers.

RBI Bulletins.

Websites.

WWW.RBI.ORG.IN

WWW.BANKING.COM
http://www.rbi.org.in/http://www.banking.com/http://www.rbi.org.in/http://www.banking.com/

Simer Project on Non Performing Assets..

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