ganesh-final internship
TRANSCRIPT
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ABSTRACT
NPA is one of the biggest challenges faced by every bank in economy. It is the result of Non
payment of the loan amount, so rise in NPA reduces the profit margin as it requires provision
too for it. So the bank now a days quite alert regarding increase in NPA amount, so the bankofficial before granting any loan need to check credentials of the borrower & other important
thing. The project NPA management in PSU banks is useful to know about the problem ofNPA faced by the PSU banks & how they overcame to this problem at same time some lights
on the employee efficiency is also given.
Many banks over the period of time either closed down or merged with other bank this is
only because of the high amount of NPA, so it is great challenge for the bank managers to
grant loan to a person who can repay it, so before the granting of loan deep study of
borrowers capacity need to be made.
The project will look to the problem of NPA faced by the bank over period of time, the
reasons behind such default & what are the ill effects on the banking industry. It will help to
know about the previous record of the NPAs so that comparison can be made easily & theproper results can be easily drawn
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ACKNOWLEDGEMENT
I would like to express my sincere thanks to the management ofUNION BANK OF INDIA& Staff Of UNION BANK OF INDIA, Mulund, west Branch, who gave me the
opportunity to work and study in the organization.
I express my sincere gratitude to Mr.Rawal (Assistant General Manager) Union Bank ofIndia, Mulund, west Branch.
I would also express my Sincere thanks to Mr. Prabhakar D Tayade (Accounts Manger)
and Mr. Yogesh V Magodia (Assistant Manger) Union Bank Of India, Mulund, west
Branch.
I also express my gratitude to Ms. Kishore (Manager Credit) who guided me from time to
time in completion of my project.
Last but not the least, I would like to thank all the respondents for giving their precious time,
relevant information and experience, I required, without which the project would have not
been possible.
Ganesh kadam
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Executive summary
The problem that banking industry facing is the Bad debts, borrower never repays the loan to
the bank, so most of the banks find it difficult to come over the problem of npa. This problem
is minimises the income, at the same time the funds which is allotted by the banks goes in
vain. Hence, there is no chance of recovery of loan
The history of banking industry tells about the Indian banking scenario in past how the
number of banks & its branches increased in India
The study gives the basic idea of npa, there are some criteria which when not fulfilled by the
account holder under certain limit of time, the account is treated as npa. The default norms
for individual or corporate sector people are different. The banks has different provision to
minimise the loss due to npa
The study deals with types of npa i.e. gross npa, net npa and the difference between the both
npa, the classification of assets such as standard assets, sub-standard assets, bad loans, loss
assets
The emphasis is given on the main reason behind the npa, its rise and to know whether
default made by the concerned party is by will or inability to repay.
The secondary data used during the study is related to the all banks in India, the problem of
NPA. The data is used to compare the NPAs of PSU banks with private & foreign banks,
and there problems. Some of the examples from PSU banks & private sector are analyzed
to study the ill effects of npa
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Introduction to B nking industry
1.1 Introduction to the banking industry:
Fi i l Position of everyone is nott e same. Some time t e people have extra amount of
money with them, so ratherthan keeping same in hand itis betterto keep itin the one oftheinstitute called as bank, so you can earn the interest overit. Atthe same time there are some
people who face the shortage of money for such people the bank provides the loan, as we can
say thatitis a middle man between lender & borrower, only thing is thatitis a legallending
& borrowing where less amount of riskis involved. In India the banks carries there business
underthe guidance ofthe RESERVE BANK OF INDIA (R.B.I).Itis an apex institute in India
which makes the rules & regulation thatis need to be followed by the all banking running
their business in India. Without of prior permission from R.B.I no any bank can expand his
business, it means thatthe permission from RBI is mandatory.
Indian banking sector:
The concept of banking came into India in last decade of 18th
century; the growth of banking
sectorin Indian economy can be explained with the help of some stages such as introduction
stage, First World Warto independence stage, postindependence & then nationalisation,
liberalisation
The first bankin India is GeneralBank of India & bank of Hindustan which started in
1786.both are now not exist. The oldest bankin India is State Bank of India, which isoriginated in bank ofCalcutta in Jan 1806,which is then called as bank ofBengal & there was
anothertwo banks named as bank ofBombay & bank of madras, allthese banks establishedunderthe charter ofthe from British east India company. the all 3banks were merged in 1925
& formed new bank named as imperial bank of India, which afterindependence named asSBI, the Indian merchants formed the union bankin 1839, but failed in 1848, because of
economic crisis of 1848-49.the Allahabad bank established in 1865 in still running its
business & itis oldestjoint stock bankin India at same time foreign banks arrived in India
like HSBC. The Calcutta was most active trading partin India, mainly due to trade ofBritish
& so it became a banking sector.
(THE BANK OF BENGAL WHICH TURNED AS STATE BANK OF INDIA)
In 1895 the Punjab national bankis established at Lahore. During the period of 1906&1911many banks emerged due to the concept of swadeshi movement which inspired many of
businessman & politicalto found bank of India community. So the bank of India, corporation
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bank, Indian bank, bank of Baroda, Canara bank, Central bank of India are some banks whichare established
1.2 First world war to independence:
The period of First World War (1914-1918) & Second World War (1939-1945) & two years
after that the independence of India were challenging for India banking. The year of First
World War very violent as it affected the banking industry on large scale, near about 94banksfailed between 1913-1918
Years Number of
banks failed
1913 12
1914 42
1915 11
1916 13
1917 9
1918 7
Post independence: in 1947 the partition of India affected economy of Punjab & west Bengal,& it has very huge ill effect on banking industry, so the government of India introduced
measures to play active role in economy life of nation & industrial policy resolution adopted
by government of India 1948.
In 1948 the reserve bank of India is formed as an central banking authority & it is owned by
Government of India 1949,the banking resolution act was enacted in order to control the &
inspect the banks in India.
1.3 Nationalisation:
In 1960, for the purpose of development of Indian economy Indian banking industry hasbecame an important tool. Late Mrs. Indira Gandhi that time expressed the intention
regarding nationalisation of banks in their annual conference of all India congress committee,so the response for the same proposal was good, and then government of India issued an
ordinance & nationalised the 14 largest commercial bank from July 1969. In 1980 another 6
banks nationalised in order to have more control on credit delivery, it helped government of
India to control near about 91% banking business in India. In the year 1993, the government
of India merged new bank of India with the Punjab national bank which reduced the number
of nationalised bank to 19 from 20.
1.4 Liberalisation:
In the year 1990, Mr. Narsimha Rao government put an emphasis on liberalisation, whichliberalised the many rules & regulation & licensing a small number of private banks. This is
knows as new generation tech savvy bank, & it includes global trust bank which afterwards
amalgamated with the oriental bank of commerce, The banks like AXIS,ICICI,HDFC is
among the some of the private sector bank which emerged during liberalisation period & nowa days this banks are in great position in India banking industry
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After liberalization the Indian banking sector developed very appreciate. The RBI alsonationalized good amount of commercial banks for proving socio economic services to the
people of the nation. The Public Sector Banks have shown very good performance as far asthe financial operations are concerned.
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B
CHAPTER2
Introduction to Bank.
Organization Profile.
UNION BANK OF INDIA
UNION BANK OF INDIA is a Government of India undertaking. UBI was registered on
November 11, 1919 as a limited company in Mumbai. It was inaugurated by Mahatma
Gandhi. In the year1947 UBI had only 4 branches - 3 in Mumbai and 1 in Saurashtra all
concentrated in key trade centres. In the year 1975 The Government nationalized UBI. After
nationalization, UBI merged in Belgaum Bank, a private sector bank established in
1930.1985 UBI merged in Miraj State Bank, established in 1929.UBI acquired Sikkim
Bankin 1999 in a rescue at the request of the Reserve Bank of India after the discovery of
extensive irregularities at the non-scheduled bank. Sikkim Bank had eight branches located inthe North-east, which was attractive to UBI.
Union Bank of India is firmly committed to consolidating and maintaining its identity as a
leading, innovative commercial Bank, with a proactive approach to the changing needs of the
society. This has resulted in a wide gamut of products and services, made available to its
valuable clientele in catering to the smallest of their needs. Today, with its efficient, value-
added services, sustained growth, consistent profitability and development of new
technologies, Union Bank has ensured complete customer delight, living up to its image of,
GOOD PEOPLE TO BANK WITH. Anticipative banking- the ability to gauge the
customer's needs well ahead of real-time - forms the vital ingredient in value-based services
to effectively reduce the gap between expectations and deliverables. Key to the success of
any organisation is with its people. No wonder, Union Bank's unique family of about 26,000qualified / skilled employees is and ever will be dedicated and delighted to serve the
discerning customer with professionalism and wholeheartedness.
Union Bank is a Public Sector Unit with 55.43% Share Capital held by the Government ofIndia. The Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and Follow
on Public Offer in February 2006. Presently 44.57 % of Share Capital is presently held byInstitutions, Individuals and Others.
Over the years, the Bank has earned the reputation of being a techno-savvy and is a frontrunner among public sector banks in modern-day banking trends. It is one of the pioneer
public sector banks, which launched Core Banking Solution in 2002. Under this solution
umbrella, All Branches of the Bank have been 1135 networked ATMs, with online
Telebanking facility made available to all its Core Banking Customers - individual as well as
corporate. In addition to this, the versatile Internet Banking provides extensive information
pertaining to accounts and facets of banking. Regular banking services apart, the customer
can also avail of a variety of other value-added services like Cash Management Service,
Insurance, Mutual Funds and Demat.
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The bank provides the services like deposits, loans, insurance, demat, rtgs, neft, credit cards& online, nri banking
Product profile.
Government business:
The UBI helps for the payment of government dues & pension payments; the UBI serves
following government business
8% Saving (Taxable) Bonds 2003
Any individual, or on joint basis, or anyone or survivor basis, on behalf of a minor as
father/mother legal guardian, a Hindu Undivided Family, Charitable Institutions may investin this bond.
Public Provident Fund
A PPF account is the most useful tax-saving way for those sunset years, which gives
amazing returns, particularly when we consider that there is no risk at all.
Direct Tax Collection
Collection of Direct Taxes like Income Tax, Corporate Tax, Interest Tax, Expenditure Tax,
Estate Duty Tax and Gift Tax etc.608 branches throughout country are designated to accept
Direct Tax Collection from the assesses.
Central Excise & Service TaxBank accepts collections of Central Excise Duties and Service Tax from the assesses.
Senior Citizen Saving SchemeThis scheme aims to benefit the senior citizens by providing them a simple and high yielding
channel for investing their money. It is governed by the Senior Citizens Saving Scheme
Rules, 2004.
Agriculture - Greening Farm lands
Agriculture Finance is provided for short/medium/long term for various agricultural activities
like crop loan, purchase of tractors, poultry, allied agriculture activities etc.
SMALL ENTERPRISES- Energizing Small Entrepreneurs
Financing to Small Enterprises and other related Schemes.
Other Sectors- Education, Housing or Trade, grow with us for sure
Union Bank provides finance to students, traders, business enterprises, and those aspiring toconstruct/purchase houses or renovate them.
New initiatives - For rural growth and development
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Union Bank has taken big initiatives for establishing village knowledge centres /self-employment training centres etc.
Insurance:
Life Insurance
The union bank provides the insurance facility to borrowers on attractive terms
Union Health Care - Group Mediclaim Floater Policy
UBI is very careful about its customer nd his family,so therefore Bank has introduced Group
Floater Mediclaim Policy for the family up to maximum four persons, at a very competitive
premium.
Mutual Fund
It is good to invest, but it is better if our investments work for us round the clock.UBI
provides investment options in almost all the Asset Management Companies operating in the
country through experienced and certified (from Association of Mutual Fund of India
AMFI) Marketing Personnels.
Union Gold
Gold is a trusted investment and we can avail this time-tested asset from a name that has
inspired trust for more than 88 years. Celebrate special occasions with Union Bank's Gold
Coins. UBIs Gold coins are available in 5gms, 8gms, 10gms and 20 gms at selected centers
with guaranteed purity of 999.99 with a refiners certificate. Union Bank assure uscompetitive market based pricing. :
Credit Cards:
UBI offers VISA International credit card i Union Card -Classic, Silver & Gold
International Debit Card:
Freedom to access your savings or current account at any VISA accredited
Merchant Establishments or ATMs. This card allows you to purchase goods at retail outlets
and withdraw cash from ATMs in India and abroad.
Kisan Atm:
Union Bank takes initiatives to promote ATM culture in rural areas by providing them with
user friendly cash dispensing machine which can read out instruction over voice. KISANATM work on bio-metric authentication like finger print verification, easy to operate and
does not warrant high level of literacy, remembering PINS.
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Union Home Plus:
Union Bank of India now provides complete protection to its home loan borrowers. Nowhome loans from Union Bank of India come with life insurance cover equivalent to the
amount of the outstanding home loan. Insurance cover provided by SBI Life Insurance Co.
Ltd., who alone bears the insurance liability. Union Bank has tied up with SBI Life Insurance
Co. to provide unmatched security to all those who avail of the home loans. It providescomplete security to the family in the event of an unfortunate death of the home loan
borrower. SBI Life assumes the responsibility to repay the balance loan amount in the event
of death.
Union Bullet
Fund Transfer never made so easy. UnderREAL TIME GROSS SETTLEMENT (RTGS) weensure the fastest, efficient and secure mode of fund transfer without making the Demand
Draft.
Demat:
Having a Demat Account is compulsory for share trading in today's scenario but its opening
and maintenance is easy with your own Bank. We are privileged to service more than
1,00,000 Demat Accounts.
Online Trading of Shares
Now you can be active player in Capital Market that too at your convenience. Your bank
introduces convenient trading platform by linking your trading account with your Demat aswell as Bank account.
DGFT: it helps the exporter to pay there license fees online with the help of internet banking
Nonlife insurance:
The UBI provides non life insurance with the New India Assurance Co Ltd
UBI Branches are marketing following traditional policies covering.
Stock in Trade Plant and Machinery
Vehicles Goods in Transit
Buildings Office equipments
Agriculture Machinery & Implements.
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Goals: Good service to the people which deals with the bank
Vision:
To become the bank of first choice in our chosen area By building beneficial & lasting
relationship With customer through process Of continuous improvement
Mission:
To gain market recognition in the chosen areas.To build a sizeable market shares in each of
the chosen areas of business through effective strategies in terms of pricing, product
packaging and promoting the product in the market.
Location:
Head office at Nariman point, Mumbai, and branches all over India Overseas offices locatedat Hongkong, Abu Dhabi, shanghai
Share Holding Pattern
The authorised share capital of the Bank is Rs. 15,000.00 million as per sub-section 2A of
Section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970..
There have been no changes to our authorised share capital since nationalisation on July 19,
1969.
The paid up share capital of the Bank is 505117900 equity shares of Rs. 10/- each. The
Government of India holds 55.43 equity share capital of the Bank.
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Directors:
y SHRI M.V.NAIRChairman & Managing Director
y SHRI T.Y. PRABHUExecutive Director
y SHRI S.RamanExecutive Director
y Government of India NomineeSHRI K.V. EAPEN
y Government of India nominee on the recommendation ofRBI.SHRI K. SIVARAMAN
y Chartered Accountant DirectorK.S. SREENIVASAN
y Director representing Workmen Employees
y SHRI N. SHANKAR
y WORKMEN DIRECTOR
y Director representing Officer EmployeesDEBASIS GHOSH
y Government Nominee Director under General CategorySMT. RANI SATISH
y Government Nominee Director under General Category
y SHRI ASHOK SINGH
y Part-time non-official Director
y Dr. Gulfam Mujibi
y Shareholder DirectorPROF. M.S. SRIRAM
y Shareholder DirectorShri Arun Kumar Nanda
y Shareholder Director
y Shri.S. Ravi
Joint venture: in collaboration with Union bank & Dai ichi insurance company the union
banks started Star union dai ichi insurance company.
Distribution channels:
The UBI is having more than 2400 branches all over India, as it is an PSU bank the number
of customer are more but in order to compete with the other PSU banks the UBI is taking
more efforts, in each & every branch the UBI has appointed the such officer who do themarketing very well at same time the the UBI is having tie up with the union bank so it gives
them exposure of more than 5000 bank all over India so this large network help them for the
distribution of their product.
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Various marketing activity:
The bank is offering Kisan Atm which is help the bank to get the customer from rural regionas these cards are so easy to operate & maximum number of people from the rural region.
The bank recently launched the overdraft salary A/C, with the help of which the account
holder can withdraw the amount even if at nil balance, because this many salary accounts are
opened in UBI. The bank is also doing the marketing Birla sun life mutual fund & Star uniondai ichi life insurance it help the bank to get more customer
Environmental scan:
The bank is among the top 10 leading bank in India, the bank is facing stiff competition fromother PSU banks at same time the private & foreign banks also giving tough competition to
UBI, the bank, the bank is updated with the new technology in the area of banking as themost of branches of UBI is CBS (centralised), the bank is having the branches at international
locations like Shanghai, Abu Dhabi, Hongkong.
Competition:
The bank is facing big competition from many banks which includes banks from private &
government sector too; the leading competitor from government sector is SBI, PNB. These
2banks having more market share than any other banks as the BPLRis very lesser in PNB
only whereas the SBI providing the loan at cheaper rate of interest at early stage. Both of this
two competitor is having brand image in market as both banks are very older in Indian market
& there past records & performance helps them to stick with old customer & attract some
new customer.
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Strategy of the bank
The bank is providing insurance policy with the collaboration with the foreign insuranceplayer, at same time the other investment option is also available by the way of mutual funds
of private sector. The bank is making new innovations in their offerings by introducing new
& different product than the other banks
The banks conduct the meeting with the corporate people at end of each month in every
branch as it helps them to know how was the service & what further improvement they want
but for such meeting only top customer is been called who is having transaction in crores for
each day. For the refreshment of employee the motivational programme hr dept undertakes.
Whatever transactions that did in bank that automatically get saved in software & the RBI
having control over the banks regarding this.
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C
Introduction to the topic:
The accumulation of huge Non-Performing Assets in banks has assumed greatimportance. The depth of the problem of bad debts was first realized only in early 1990s.
The magnitude of NPAs in banks and financial institutions is overRs.1, 50,000 crores. Whilegross NPA reflects the quality of the loans made by banks, net NPA shows the actual burden
of banks. Now it is increasingly evident that the major defaulters are the big borrowerscoming from the non-priority sector. The banks and financial institutions have to take the
initiative to reduce NPAs in a time bound strategic approach.
Public sector banks figure prominently in the debate not only because theydominate the banking industries, but also since they have much larger NPAs compared with
the private sector banks. This raises a concern in the industry and academia because it is
generally felt that NPAs reduce the profitability of banks, weaken its financial health and
erode its solvency.
For the recovery of NPAs a broad framework has evolved for the management
of NPAs under which several options are provided for debt recovery and restructuring.
Banks and FIs have the freedom to design and implement their own policies for recovery and
write-off incorporating compromise and negotiated settlements
The three letters NPA Strike terror in banking sector and business circle today. NPA isshort form of Non Performing Asset. The dreaded NPA rule says simply this: when interest
or other due to a bank remains unpaid for more than 90 days, the entire bank loan
automatically turns a non performing asset. The recovery of loan has always been problem
for banks and financial institution. To come out of these first we need to think is it possible to
avoid NPA, no can not be then left is to look after the factor responsible for it and managing
those factors.
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
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i. Interest and/or instalment of principal remain overdue for a period of more than 180days in respect of a term loan,
ii. The account remains out of order for a period of more than 180 days ,in respect of
iii. an overdraft/cash credit (OD/CC)
iv. The bill remains overdue for a period of more than 180 days in case of bill purchasedor discounted.
v. Interest and/or principal remains overdue for two harvest season but for a period notexceeding two half years in case of an advance granted for purpose ,and
vi. Any amount to be received remains overdue for a period of more than 180 days inrespect agricultural 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
NPAs, From the year ending March 31 2004, a Non Performing Asset shell be a loan or
an advance where;
1. Interest and/or instalment of principal remain overdue for a period of more than 90days 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)
2. The bill remains overdue for a period of more than 90 days in case of bill purchasedor discounted.
3. Interest and/or principal remains overdue for two harvest season but for a period notexceeding two half years in case of an advance granted for agricultural purpose ,and
4. Any amount to be received remains overdue for a period of more than 90 days inrespect of other accounts
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CHAPTER4. INTRODUCTION TO THE PROJECT
4.1 NPA management
The function of banking industry is to accept deposits & provide credit accordingly for the
smooth flow of liquidity & to fulfil the needs of needy people. So the bank lends the moneyto people who wish to have it, such money is called as loan/credit given by the bank to the
individual/organisation/partnership firm. So the concerned party to the loan need to repay theloan as per the equated monthly amount to the bank each & every month, so under such
situation some parties to the loan faces the problem to repay the loan. So the banks givesthem certain period to repay the dues, even if within that prescribes period party fails to repay
the loan then such amount is considered as the Non Performing Assets, which never bringsany returns
This term NPA is used in each & every finance department. As far banking industry is
concerned the NPA means the kind of assets over which there is no any kind of returns &
funds of the organisation is blocked. The main functions of any commercial bank is to
accepts the deposits from the public & provide the loans to the individuals, corporate sectoretc.
The depositors deposit the money in the bank from view point of gaining the fare rate ofinterest as well as expecting the effective utilisation of deposits. Banks use the deposited
amount to allot loan to the party interested to obtain the loan.
The banks lend the money to the borrower of the loan & borrower repays the loan with EMI(Equated Monthly Instalment) which contains the sum of the lending amount along with the
interest. Some time borrower fails to pay the EMIs for consistent period of 90 days in case ofcommercial loan whereas same period is extended up to 180 days in case of consumer loan.
For last so many years we have seen that the many of the banks are closed down or either
merged with the other existing bank. It is very difficult to maintain 0% NPA .with an increase
in amount of NPA more amount of fund blocked so it is very difficult to release such amount.
In short we can say that NPA is an amount which remains overdue over the prescribed periodof time.
4.2 Objective of the study
The of the NPA management study is primary & secondary
The primary objective of the study is to know why the NPA is big challenge to banking
industry. Whereas the secondary objective sis to know what are the reasons for increasing
the amount of NPA over the years in banking industry & what are the impacts of NPA & at
same time what are the steps taken by the bank in order to reduce the amount of NPA.
4.3 Significance of the study:
The main aim of any person is the utilization money in the best manner since the India is
country were more than half of the population has problem of running the family in the most
efficient manner. However Indian people faced large number of problem till the development
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of the full-fledged banking sector. The Indian banking sector came into the developing naturemostly after the 1991 government policy. The banking sector has really helped the Indian
people to utilise the single money in the best manner as they want. People now have startedinvesting their money in the banks and banks also provide good returns on the deposited
amount. The people now have at the most understood that banks provide them good security
to their deposits and so excess amounts are invested in the banks. Thus, banks have helped
the people to achieve their socio economic objectives. The banks not only accept the depositsof the people but also provide them credit facility for their development. Indian banking
sector has the nation in developing the business and service sectors. But recently the banks
are facing the problem of credit risk.
The function of banking industry is to accept deposits & provide credit accordingly for thesmooth flow of liquidity & to fulfil the needs of needy people. So the bank lends the money
to people who wish to have it, such money is called as loan/credit given by the bank to theindividual/organisation/partnership firm. So the concerned party to the loan need to repay the
loan as per the equated monthly amount to the bank each & every month, so under such
situation some parties to the loan faces the problem to repay the loan. So the banks gives
them certain period to repay the dues, even if within that prescribes period party fails to repay
the loan then such amount is considered as the Non Performing Assets, which never bringsany returns
4.4 Research methodology:
Before undertaking any task it becomes very essential for anyone to determine the problem of
study. So researcher adopted the following procedure in completing report study.
1. Formulating the problem 2. Research design
3. Determining the data sources 4. Analysing the data
5. Interpretation 6. Preparing research report
1. Formulating the problem:As researcher interested in the banking sector and want to
make my future in the banking sector so decided to prepare research study on the
banking sector. Researcher did the analysis of the factors that are important for the
banking sector and then he came to know that providing credit (loan) facility to the
borrower is one of the important factors/function in banking sector. As per the result
of analysis researcher felt that the important issue right now as far as the creditfacilities are provided by bank is non performing assets. So the researcher started to
know about the base of the NPAs and decided to study on the NPAs management.
2. Research DesignThe research design tells about the mode through which the
entire project is prepared. The research design for this study is mixture of analytical.
As the researcher utilised the data of the Public Sector Banks & the some descriptive
information.
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3. Determining the data sourceThe researcher utilised the secondary data as available in the market
as it is easy to analyse the data rather going for collection of new primary data.
4. Analysing the data:
Researcher analysed the data and edited them and turned them in the
useful tabulations. So, it became useful in report study.
5. Interpretation of the dataWith the help of analysed data researcher managed to prepare his
project report. But the analyzing of data only would not help the study to reach towards
its objectives. The interpretation of the data is required so that for others it is easy to
understand study in simple manner.
6. Project writing
This is the final step in preparing the project report. The objective of the
report writing is to report the findings of the study to the concerned authorities.
4.5 Limitations of the study
The limitations that researcher felt in his study are:
It was critical for me to gather the financial data of the every bank of the PublicSector Banks so the better evaluations of the performance of the banks are not
possible.
Since his study is based on the secondary data, the practical operations as related tothe NPAs are adopted by the banks are not learned.
Since the Indian banking sector is so wide so it was not possible for researcher tocover all the banks of the Indian banking sector.
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Chapter 5
Facts & findings:
After liberalization the Indian banking sector developed very appreciate. The RBI also
nationalized good amount of commercial banks for proving socio economic services to the
people of the nation. The Public Sector Banks have shown very good performance as far as
the financial operations are concerned If we look to the glance of the financial operations, wemay find that deposits of public to the Public Sector Banks have increased from
859,461.95crore to 1,079,393.81crore in 2003, the investments of the Public Sector Bankshave increased from 349,107.81crore to 545,509.00crore, and however the advances have
also been increased to 549,351.16crore from 414,989.36crore in 2003. The total income ofthe public sector banks have also shown good performance since the last few years and
currently it is 128,464.40crore. The Public Sector Banks have also shown comparativelygood result. The gross profits of the Public Sector Banks currently 29,715.26crore which has
been doubled to the last to last year, and the net profit of the Public Sector Banks is
12,295,47crore. However, the only problem of the Public Sector Banks these days are the
increasing level of the non performing assets. The non performing assets of the Public Sector
Banks have been increasing regularly year by year, if we glance on the numbers ofnonperforming assets we may come to know that in the year 1997 the NPAs were
47,300crore and reached to 80,246crore in 2002. The only problem that hampers the possible
financial performance of the Public Sector Banks is the increasing results of the non
performing assets. The Non Performing Assets impacts drastically to the working of the
banks.
The efficiency of a bank is not always reflected only by the size of its balance sheet but by
the level of return on its assets. NPAs do not generate interest income for the banks, but at the
same time banks are required to make provisions for such NPAs from their current profits.
NPAs have a deleterious effect on the return on assets in several ways
They erode current profits through provisioning requirements
It result in reduced interest income
It require higher provisioning requirements affecting profits and accretion to capital fundsand capacity to increase good quality risk assets in future, and
They limit recycling of funds, set in asset-liability mismatches, etc. The RBI has also tried
to develop many schemes and tools to reduce the non performing assets by introducinginternal checks and control scheme, relationship managers as stated by RBI who have
complete knowledge of the borrowers, credit rating system, and early warning system and so
on. The RBI has also tried to improve the securitization Act and SRFAESI Act and other acts
related to the pattern of the borrowings. Though RBI has taken number of measures to reduce
the level of the non performing assets the results is not up to the expectations. To improve
NPAs each bank should be motivated to introduce their own precautionary steps. Before
lending the banks must evaluate the feasible financial and operational prospective results of
the borrowing companies. They must evaluate the business of borrowing companies by
keeping in considerations the overall impacts of all the factors that influence the business
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For recovery of dues of banks and financial institutions are allowed:
Setting up of Debt Recovery Tribunals providing a mechanism for expeditious loan
recoveries.
Constitution of a High Power Committee under former Justice Shri Eradi to suggest
appropriate foreclosure laws.
An appropriate legal framework for securitisation of assets is engaging the attention of theGovernment, Due to this paradigm shift in the Regulatory framework for banks had achieved
the desired results. The banking sector has shown considerable degree of resilience. (a) Thelevel of capital adequacy of the Indian banks has improved: the CRARof public sector banks
increased from an average of 9.46% as on March 31, 1995 to 11.18% as on March 31, 2001.(b) The public sector banks have also made significant progress in enhancing their asset
quality, enhancing their provisioning levels and improving their profits.
Asset quality and solvency indicators for Indian Public Sector Banks (PSBs)
have improved considerably since 2000-01. Their gross nonperforming assets (NPAs) have
reduced following the improvement in recoveries from existing NPAs, an increase in thelevel of write-offs. Further, gains from trading portfolios, booked when interest rates were ona decline during April2002-March 2004, have helped the banks make higher provisions
against NPAs and thereby improve their Net NPAs and solvency profiles (Net NPAs aspercentage of Net Worth). The reduction in incremental provisions in the subsequent period
has however not lead to any material deterioration in the solvency profiles of the PSBs, asrecoveries from existing NPAs have balanced out the fresh slippages.
The following table indicates about the total advances made by of public sector bank & out of
that how much recovered from the year 1996 to the 2001.
Rs. In Crores.
Year Total
Advances
Gross
NPA
Net
NPA
%-age of
GrossNPA to total
advances
%-age of
NetNPA to net
advances
1996-
97
244214 43577 20285 17.8 % 9.2 %
1997-
98
284971 45563 21232 16.0 % 8.2 %
1998-
99
325328 51710 24211 15.9 % 8.1 %
1999-
00
380077 53033 26188 14.00 % 7.4%
2000-
01
442134 54773 27967 12.39 % 6.74%
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The total advances ofthe public sector bank had been increased overthe period of 1996-
2001. Atthe same time the amount ofthe NPA ofthe said advances is less, as itlooks huge infigure abutiflooktowards the comparison between the amount & the NPA it shows thatthe
percentage of NPA to the advances is considerable declining over period oftime
It also indicates that performance ofthe banks is relatively better; the people preferred thePSU banks.
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
1996-97 1997-98 1998-99 1999-2000 2000-2001
Total Advances
Gross NPA
Net NPA
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Comparison of classification of loan between PSU Banks& Private/Foreign Banks .
AS ON 31 ST MARCH
Rs. In crores
YEARS STANDARD
ASSETS
SUBSTANDARD
ASSETS
DOUBTFUL
AEESTS
PSUBANKS
Amount % Amount % Amount %
1 2 3 4 5 6
2003 523274 90.6 14909 2.6 32340 5.6
2004 610435 92.2 16909 2.6 28756 4.3
2005 824253 94.6 10838 1.2 29988 3.4
2006 1029493 96.1 11394 1.1 24804 2.3
2007 1335175 97.2 14147 1.0 19945 1.5
2008 1656585 97.7 16870 1.0 19617 1.1
PRIVATE
BANKS2003 131620 90.8 3703 2.6 8512 5.9
2004 167076 94.2 3127 1.8 6391 3.6
2005 216448 96.1 2213 1.0 5578 2.5
2006 296020 97.4 2396 0.8 4438 1.5
2007 382628 97.6 4378 1.1 3923 1.0
2008 459369 97.3 7280 1.5 4452 0.9
FORIEGN
BANKS
2003 50851 94.6 994 1.8 944 1.8
2004 59619 95.2 990 1.6 1099 1.8
2005 72963 97.0 714 0.9 974 1.32006 96772 97.9 946 1.0 698 0.7
2007 125415 98.1 1367 1.1 631 0.5
2008 159882 98.1 1963 1.2 768 0.5
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CLASSIFICATION OF LOAN ASSETS
Rs. In crores
YEARS LOSS ASSETS TOTAL NPAS TOTAL
ADVANCES
PUBLICBANK AMOUNT % AMOUNT %
7 8 9 10 11
3+5+7 4+6+8 1+3+5+7
2003 6840 1.2 54089 9.4 577813
2004 5876 0.9 51541 7.8 661976
2005 5771 0.7 46597 5.4 870850
2006 5181 0.5 41379 3.9 1070872
2007 4510 0.3 38602 2.8 1373777
2008 3712 0.2 39749 2.3 1696334
PRIVATE
BANKS2003 1118 0.8 13333 9.2 144953
2004 825 0.5 10343 5..8 177419
2005 900 0.4 8691 3.9 225139
2006 940 0..3 7774 2.6 303794
2007 941 0.2 9242 2.4 391870
2008 1244 0.3 12976 2.7 472345
FOREIGN
BANKS
2003 954 1.8 2892 5.4 53743
2004 924 1.5 3013 4.8 626322005 569 0.8 2257 3.0 75220
2006 446 0.5 2090 2.1 98862
2007 454 0.4 2452 1.9 127867
2008 387 0.2 3118 1.9 163000
Asset quality in the Public Sector Bank.
The NPA affects the assets quality of the bank, as it declines debtors of the bank i.e. the party
to the loan fails to pay the amount of the borrowed fund, the following table indicates the
improvement in the asset quality of the bank which is the result of the recovery of the dues.
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Improvement in the asset quality.
2000-01 2001-02 2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
Fresh NPA
Generation %
4.12% 2.49% 3.37% 3.46% 2.46% 2.00% 1.77%
Gross NPA % 12.4% 11.1% 9.4% 7.8% 5.5% 3.7% 2.75%Reduction in NPAs 13% 14% 32% 38% 39% 45% 51%
Growth in Net
Advances
17% 16% 14% 23% 27% 29% 31%
The Gross NPA percentage of the PSBs has reduced considerably since 2000-01 following a
consistent reduction in fresh NPA generation and improvement in recoveries. Incremental
fresh NPA generation has declined from over 4% in 2000-01 to less than 2% in 2006-07. PBs
have written off substantial NPAs, which along with strong credit expansion, has also led to a
reduction in the Gross NPA percentage.
The ability of the PSBs to maintain a relatively low fresh NPA generation rate and makestrong recoveries from existing NPAs would have a critical bearing on their asset quality. To
be able to assess their ability to do the same, it is important to go into the reasons for thesignificant decline in their fresh NPA
Generation rate and for the recoveries they have been able to make in recent years.
Improvements in risk management would help the PSBs control asset quality,
Some stress may be visible in their retail as well as corporate portfolios. Currently, about half
the retail portfolios of the PSBs is accounted for by mortgage loans, with a significant
proportion of such loans being at floating rates of interest. Of late, the rates of interest on
such loans have seen a significant increase in the Indian market. Increases in interest rates are
typically passed on to the borrowers either in the form of extended tenures or higher equated
monthly instalments (EMIs). In some cases, PSBs may be forced to resort to the latter
measure, which however has the potential to worsen the debt servicing capability of
borrowers, in case their incomes do not increase by the
Same magnitude as the EMIs does. Besides mortgage, other retail asset classes may also see
an increase in slippage as competition in the retail finance space and change in attitude
towards debt have pushed up the leveraging of certain borrower classes to relatively high
levels. As for the corporate sector, while the overall business environment is expected toremain benign, a moderate
Deterioration in the credit profiles of corporate borrowers is not unlikely. This is so becauseof the following factors:
With corporate borrowers expected to pursue aggressive expansion (including acquisition)
the associated leveraging and project risks (integration related challenges in the case ofacquisitions) are also likely to increase. Besides, high-value acquisitions may also impacttheir cost competitiveness and capital structures adversely.
For borrowers exposed to commodity cycles, deterioration in the global economic
environment may cause some erosion in their credit metrics, especially in a scenario in which
the Indian rupee strengthens against major foreign currencies and duty protection levels are
lowered further. However, this may benefit borrowers in the user industries, especially those
servicing the domestic market.
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Tightening liquidity conditions may translate into enhanced refinancing risks and higherinterest rates in general and thus could bring in stress on borrowers with relatively inferior
credit profiles or those with significant short-term funding mismatches
NPA recovery:
From view point of recovering the at least some amount of loan the settlement scheme started
by banks in which the borrower can pay the amount which he can pay to the bank out of histotal dues, provided that both party agreed to do so i.e. bank & borrower
OTS scheme: one time settlement scheme introduced by RBI in order to recover dues, at
very beginning the ceiling amount is maximum 5crore means the amount up to 5crore can berecovered under this scheme this scheme gave discount to borrower for one time settlement
as it is seen that most of defaulters are having dues less than 5cores after some period theamount of ceiling increased up to 10 crores rupees.
Debt recovery tribunal:
The Debts Recovery Tribunal have been constituted under Section 3 of the Recovery ofDebts Due to Banks and Financial Institutions Act, 1993. The original aim of the Debts
Recovery Tribunal was to receive claim applications from Banks and Financial Institutionsagainst their defaulting borrowers. For this the Debts Recovery Tribunal (Procedure) Rules
1993 were also drafted.
The tribunal appoints recovery officer whereas at same time the creditor of borrower files thecase in court so court appoints the official liquidator but it was found that the recovery officer
revokes the whole amount for bank only because of which workmen & creditor not getanything out of liquidation. so amendment is made in DRT act in 2000 as even after that also
it was not easy for the lender to recover their dues under the burden of NPA of borrower, so
new act came into existence Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interests Act, also called as SRFAESI Act
SARFAESI Act
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their
non-performing assets without the intervention of the Court. The Act provides three
alternative methods for recovery of non-performing assets, namely: -
y Securitisation
y Asset Reconstruction
y Enforcement of Security without the intervention of the Court
The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00
lakhs. NPA loan accounts where the amount is less than 20% of the principal and interest are
not eligible to be dealt with under this Act.
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Non-performing assets should be backed by securities charged to the Bank by way ofhypothecation or mortgage or assignment.
The Act empowers the Bank:
y To issue demand notice to the defaulting borrower and guarantor, calling upon them
to discharge their dues in full within 60 days from the date of the notice.
y To give notice to any person who has acquired any of the secured assets from the
borrower to surrender the same to the Bank.
y To ask any debtor of the borrower to pay any sum due or becoming due to theborrower.
y Any Security Interest created over Agricultural Land cannot be proceeded with.
If on receipt of demand notice, the borrower makes any representation or raises anyobjection, Authorised Officer shall consider such representation or objection carefully and if
he comes to the conclusion that such representation or objection is not acceptable or tenable,
he shall communicate the reasons for non acceptance WITHIN ONE WEEK of receipt of
such representation or objection.
A borrower / guarantor aggrieved by the action of the Bank can file an appeal with DRT and
then with DRAT, but not with any civil court. The borrower / guarantor have to deposit 50%
of the dues before an appeal with DRAT.
If the borrower fails to comply with the notice, the Bank may take recourse to one or more ofthe following measures:
y Take possession of the security
y Sale or lease or assign the right over the security
y Manage the same or appoint any person to manage the same
BIFR: Board for Industrial & Financial Reconstruction
To identify the sick & loss making unit the & take remedial measures
y BIFRhas been given the power to consider revival and rehabilitation of companiesunder the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA), which
has been repealed by passing of the Sick Industrial Companies (Special Provisions)
Repeal Bill of 2001.
y The board of Directors shall make a reference to BIFRwithin sixty days from the dateof finalization of the duly audited accounts for the financial year at the end of which
the company becomes sick
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y The company making reference to BIFRto prepare a scheme for its revival andrehabilitation and submit the same to BIFRthe procedure is same as laid down under
the CPC.
y The shelter of BIFRmisused by defaulting and dishonest borrowers
y It is a time consuming process
Corporate debt restructuring:
CDRis a non-statutory voluntary mechanism applicable only to standard and sub-standard
assets of banks and financial institutions with high priority given to potentially viable cases
which ensures timely and transparent restructuring of the corporate debts of viable entities
affected by internal and external factors. This restructuring mechanism will apply only to
multiple banking accounts/syndicates/consortium accounts with outstanding exposure ofRs
20 crores and above with banks and financial institutions. Initially, CDRdid not involve
cases under the BIFR, the DRT and other legal entities. Recently, though, BIFRcases with
minimum cut-off limit ofRs 25 crores of aggregate outstanding exposures have been
considered for CDR.
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6 Analysis & interpretation:Gross NPA:Gross NPAs are the sum total of all loan assets that are classified as NPAs as
perRBI 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.Net NPA: Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs. NetNPA shows the actual burdenof banks. Since in India, bank balancesheets 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 tothe central bank guidelines, are quite significant. That is why the difference between gross
and net NPA is quite high.
CCaatteeggoorriieess ooffNNPPAAss
SSttaannddaarrdd AAsssseettss::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 does not exceed 90 days at the end offinancial 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.
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 realisability of the dues:
11..SSuubb--ssttaannddaarrdd AAsssseettss
22.. DDoouubbttffuull AAsssseettss
33.. LLoossss AAsssseettss
(1) Sub-standard Assets:--
With effect from 31 March 2005, a sub standard asset would be one, which has remainedNPA for a period less than or equal to 12 month. The following features are exhibited by substandard assets: the current net worth of the borrowers / guarantor or the current market value
of the security charged is not enough to ensure recovery of the dues to the banks in full; andthe asset has 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.
(2) Doubtful Assets:--
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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(3) Loss Assets:--A loss asset is one which 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.Also, these assets would have been identified as loss assets by the bank or internal or
external auditors or the RBI inspection but the amount would not have been written-off
wholly.
Provisioning NormsS.No. Categories Days past due Provisioning
requirements
1 Sub standard 10%
2 Doubtful 1) Up to 1year 100% of unsecured +20% of secured
portion
2)1 to 3year 100% of unsecured +
30% of securedportion
3)more than 3years 100% of unsecured +50% of secured
portion
3 Loss 100%
As shown in the table the provision for substandard assets is required to be 10% of the gross
advances. In case of doubtful assets for very first year 100% provision is need to be made onunsecured part of advances & 20% of secured portion, & for 1 to 3
rdyear the percentage of
secured portions provision is increased by 10% & that on unsecured portion remained same100%, if even in 3
rdyear it remain in account of NPA the provision need to be of 100% on
unsecured advances plus 50% on secured advances.In case of loss assets 100% provision need to be made as this amount is not going to be
recovered at any cost.The standard assets is not falls under the above category as the such amount will be recovered
definitely even then also the provision of 0.25% On direct advances to Agriculture and SME ,
Residential Housing loans beyond Rs.20 lakhs 1%, pecific sector advance like personal
loans, Credit Card dues, Loan on Capital Market instrument commercial Real estate Loans &
NBFC. - 2%
All Other advances - 0.40%
The comparison between the NPA of public sector banks & private/foreign sector banks.
The data for the year 1996-97 indicates that the NPA of rs.43577 cores is the 17.8% of the
total advances of rs.244214; in the sub subsequent year 1997-98 the total advances made by
the banks is Rs. 284971 which indicates the increase in the amount of advances by rs.40757at same time the NPA rise from Rs. 20285 to Rs. 21232 which show the increase in NPA by
rs.1986 crores, in the year total advances reached at Rs. 325328 from Rs. 284971,which
indicates the increase in the advances by Rs 40357 crores at same time NPA rose to Rs 51710
from Rs 45563 the net increase is ofRs 6147 crores, which are the near about 15.28% of the
current year net increased advances whereas for the previous year the same percentage was
4% only, it shows that as compared to the year 1997-98 the year 1998-99 was totally bad year
for PSU banks, the data only indicating about the % of gross NPA to net but not about the %
of net increase in advances to the % of net increase in NPA as compared to the previous
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year. In the year 1999-00 the advances rose to the 380077 from the 325328 which show thenet increase in the total advances is rs.54749crores at same time amount of NPA is also rose
to 53033from 51710 the net increase is 1323 crores which is 2.42% of the net increasedadvances as compared to the year 1998-99 in the year 1999-00 the % of NPA is very less. In
the year 2000-01 the advances reached at Rs 442134 from Rs 380077which show the net
increase in advances by Rs.62057 at same time the amount of NPA rise from Rs 53033 to Rs
54773 show the net increase in NPA by Rs.1740 crores & it is the 2.80% of the net increasedamount of NPA.
At the same time the net advances for the year 1996-97 is Rs.220922 & for 1997-98 it isRs.260640 which shows net increase in net advances is Rs.39718 at the same time the
difference between gross advances of this two years is Rs 40757 which means that the netadvances is near about 97.5% of the difference between gross advances of this two years, in
the year 1998-99 the net advances increased to Rs.297829 from previous years 260640 whichindicate the net difference of Rs 37189 at same time the difference between gross advances
is 40367 crores so the net advances is 92.14% of the gross difference between the advances
of the two years. Subsequently for the year 2000-01 net advances reach at Rs 415328 from
previous years Rs 297829 which indicates the difference Rs 117499 at same time the net
increase in gross advances is Rs.62057,so the net advances is near about double the amountof gross advances. So the efficiency of the banks analysed easily
If the analysis made by this way it show the better performance but the fact is that the amount
of NPA is increasing as increase in the amount of the advances
The table indicates that the preference of the people to the public sector banks in order to
avail loan, the percentage of gross NPA to total advances showing declining trend but the
actual need is that the difference or the net increase in amount of advances & the net increase
in amount of NPA need to be compared which helps to know the progress of the bank as
increase in the proportionate amount of advances to the same of the NPA.
Comparison of loan assets:
In 2003 total advances Rs.577813, out of which Rs 54089 is only NPA which reflects 9.4%
of the total advances whereas the same time the NPA of private bank is 9.2% & that of
foreign bank 5.4%, it show that the PSU banks somewhere lesser as compare to the private
& foreign banks. The result is that the maximum amount of loan lies under the doubtful
category, where the chances of recovery are less i.e. loss for bank. In the subsequent years the
percentage of NPA goes on declining year wise it show the positive impact but if we compare
it with the private sector bank & foreign banks the declining in percentage is nothing, the
performance of private sector bank is better than the PSU banks.
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ANALYSIS & INTERPRETATION
For the purpose of analysis and comparison between private sector and public sector banks,
we take five-five banks in both sectors to compare the non performing assets of banks. For
understanding we further bifurcate the non performing assets in priority sector and non
priority sector, gross NPA and net NPA in percentage as well as in rupees, deposit investment advances.
Deposit Investment Advances is the first in the analysis because due to these we can
understand the where the bank stands in the competitive market. As at end of march 2008, in
private sector ICICI Bank is the highest deposit-investment-advances figures in rupees crore,
second is HDFC Bank and KOTAK Bank has least figures.
In public sector banks Punjab National Bank has highest deposit-investment-advances but
when we look at graph first three means Bank of Baroda and Bank of India are almost the
similar in numbers and Dena Bank is stands for last in public sector bank. When we comparethe private sector banks with public sector banks among these banks, we can understand themore number of people prefer to choose public sector banks for deposit-investment.
But when we compare the private sector bank ICICI Bank with the public sector banks ICICI
Bank is more deposit-investment figures and first in the all banks.
DEPOSIT-INVESTMENT-ADVANCES (RS.CRORE) of both sector banks and
comparison among them, year 2007-08.
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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B DE IT INVE T ENT ADVANCE
B B 152034 43870 106701
B I 150012 41803 113476
DENA 33943 10282 23024
PNB 166457 53992 119502
UBI 103859 33823 74348
T TAL 606305 183770 437051
0
50000
100000
150000
200000
250000
ICICI HDFC AXIS INDUSIND KOTAK
DEPOSIT
INVESTMENT
ADVANCES
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
PNB BOB BOI UBI DENA
DEPOSIT
INVESTMENT
ADVANCES
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4
ICICI BANK AND PUNJAB NATIONALBANK :-
BANK DEPOSIT INVEST ENT ADVANCES
ICICI BANK 244431 111454 225616
PNB 166457 53992 119502
There are two concepts related to non-performing assets_ gross and net. Gross refers to all
NPAs on a banks balance sheetirrespective ofthe provisions made. It consists of allthe non
standard assets, vi . sub standard, doubtful, and loss assets. A loan assetis classified as sub
standard ifit remains NPA up to a period of 18 months; doubtful ifit remains NPA formore 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 hugeamount 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 bankguidelines, are quite significant.
0
50000
100000
150000
00000
50000
ICICI PNB
DEPOSIT
INVESTMENT
ADVANCES
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YEAR 2006-07
BANK GROSS NPA NET NPA
BOB 1.46 0.35
BOI 1.48 0.45
DENA 2.37 1.16
PNB 2.09 0.45
UBI 1.82 0.59
2007-08
BANK GROSS NPA NET NPA
BOB 1.10 0.27
BOI 1.08 0.33
DENA 1.48 0.56
PNB 1.67 0.38
UBI 1.34 0.10
0
0.5
1
1.5
2
2.5
DENA UBI PNB BOI BOB
GROSS NPA
NET NPA
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2006-07
BANK GROSS NPA NET NPA
AXIS 0.57 0.36
HDFC 0.72 0.22
ICICI 1.20 0.58
KOTAK 1.39 1.09
INDUSIND 1.64 1.31
2007-08
BANK GROSS NPA NET NPA
AXIS 0.45 0.23
HDFC 0.68 0.22
ICICI 1.90 0.87
KOTAK 1.55 0.98
INDUSIND 1.69 1.25
0
0.2
0.
0.6
0.8
1
1.2
1.
1.6
1.8
DENA PNB BOI BOB UBI
GROSS NPA
NET NPA
0
0.2
0.
0.6
0.8
1
1.2
1.
1.6
1.8
INDUSIND KOTAK ICICI AXIS HDFC
GROSS NPA
NET NPA
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COMPARISON OF GROSS NPA WITH ALL BANKS FOR THE YEAR 2007-08.
The growing NPAs affectthe health of banks, profitability and efficiency. In the longrun, it eats up the net worth ofthe banks. We can say thatNPA is not a healthy sign
for financialinstitutions. Here we take allthe ten banks gross NPA together for better
understanding. Average ofthese ten banks gross NPAs is 1.29 as percentage oftotal
assets. So if we compare in private sector banks AXIS and HDFC Bank are below
average of all banks and in public sectorBOB and BOI. Average ofthese five private
sector banks gross NPA is 1.25 and average of public sector banks is 1.33. Which is
higherin compare of private sector banks?
GROSS NPA:-
COMPARISON OF NET NPA WITH ALL BANKS FOR THE YEAR 2007-08.Average ofthese ten banks net NPA is 0.56. And in the public sector banks allthese
five banks are below this. Butin private sector banks there are three banks are above
average. The difference between private and public banks average is also vast.Private sector banks net NPA average is 0.71 and in public sector banks itis 0.41 as
percentage oftotal assets. As we know that net NPA shows actual burden of banks.
IndusInd bank has highest net NPA figure and HDFCBank has lowestin comparison.
0
0.2
0.
0.6
0.8
1
1.2
1.
1.6
1.8
2
INDUSIND KOTAK ICICI HDFC AXIS
GROSS NPA
NET NPA
0
0.5
1
1.5
2
ICICIINDUSINDKOTAK HDFC AXIS BOI BOB UBI DENA PNB
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PRIORI Y NON PRIORI Y SEC OR
When we further bifurcate NPA in priority sector and Non priority sector.Agriculture + small + others are priority sector. In private sector banks ICICI Bank
has the highest NPA in both sectors in compare to other private sector banks. Around
72% of NPA is with ICICI Bank with Rs.1359 crore in priority sector and around78% in non priority sector. We can see thatin private sector banks , banks has more
NPA in non priority sectorthan priority sector.
BANK AGRI
( 1 )
SMALL
( 2 )
OTHERS
( 3 )
PRIORIT
SECTOR
( 1+2+3 )
NON-
PRIORIT
AXIS 109.12 14.76 86.71 210.59 275.06
HDFC 36.12 110.56 47.70 194.41 709.23
ICICI 981.85 23.35 354.13 1359.34 6211.12
KOTAK 10.00 33.84 4.04 47.87 405.20
INDUSIND 30.44 3.18 30.02 63.64 328.67
TOTAL 1167.53 185.69 522.60 1875.85 7929.28
BANK PRIORIT SECTOR
(ADVANCED RS.CRORE
)
NPA
BOB 5469 350
BOI 3269 325
DENA 1160 106
PNB 3772 443
UBI 1924 197
0
1000
000
3000
000
000
6000
7000
A I HD C ICICI KOTAK INDUSIND
PRIORITY
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When we talk about public sector banks they are more in priority sector and they given
advanced to weaker sector orindustries. Public sector banks give more loans to Agriculture ,small scale and others units and as a result we see that there are more number of NPA in
public sector banks, than in private sector banks. BOB given more advanced to priority
sectorin 2007-08 than other four banks and Dena Bankis in least.
But when there are comparison between private bank and public sector bank still ICICI Bank
has more NPA in both priority and non priority sector with the comparison of public sector
banks. Large NPA in ICICI Bank because the strategy of bankthat risk-reward attitude andinitiative in each sector. Above we also discuss that ICICI Bank has highest deposit-
investment-advance than other banks.
Now, when we compare the all public sector banks and public sector banks on priority and
non-priority sectorthan the figures are really shocking. Because in compare of private sectorbanks, public sector banks numbers are very large.
SECTOR
PUBLIC SECTOR NE PRIVATE
2006-07 2007-08 2006-07 2007-08
PRIORITY 22954 25287 1468 2080
PUBLIC 490 299 3 0
NON PRT 15158 14163 4800 8339
TOTAL 38602 39749 6271 10419
Here, there is huge difference between private and public sector banks NPA. There is
increase in new private sector banks NPA of Rs.4148 crin 2007-08 which is almost 66% risethan previous year. In public sector banks the numbers are not increased like private sector
banks.
0
1000
2000
3000
000
5000
000
BOB BOI DENA PNB UBI
PRIORITY
NPA
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0
The following are the some of the factors which are responsible for rise inamount of NPA
The banking sector has been facing the problem of NPA, but the problem of NPA is high in
public sector bank as compared to the private & foreign banks as we saw. For such NPA the
internal & external both factors are responsible
The some of the external factor are as follows because of which the big problem of NPA isIndia PSU banks facing
Impact of recovery tribunal: the govt has set of number of recovery tribunals which looks in
to the matter of recovery of unpaid dues but such tribunals is not working effectively so itaffects the profitability & liquidity position of the banks
External factors
y
Default by will:
There are some people in the society who makes the default by their will even they are in
position to pay the amount of dues, so it is better to take a strict & fast action against such
people so that the dues can be recovered easily
y Nature:
Over the many years India is affected by the natural calamities, so the borrowers is not in
position to repay loan for that purpose only banks required to make a good amount of
provision to get secured against such looses. In India most of the farmers takes the loan from
the bank at same time the agriculture sector depend upon the rain , if at any year rain never
came then under such situation the farmer is not able to pay the dues .
y Industrial slowdown:
Some of the industry closed down because of the improper management, improper projecthandling, changes in government policy gives rise to industrial sickness hence the industry is
not in position to pay the loan & such amount remain unrecovered & comes under the NPA,
automatically the bank get affected
Internal factors:
y Faulty lending process:
The banks has to follow certain principles while lending such as principal of safety, liquidity,
profitability
The principal of safety means the position of the borrower to repay the loan & interest. Thepayment of dues depends upon the capacity of the borrower & willingness to pay. Whereas
the capacity to pay means the amount of tangible assets & the growth in business on the otherhand the willingness to pay means the reputation of the borrower in the market.therefroe
before granting loan all such principle must be taken into consideration.
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y Lack of swot analysis:
While going through the documents the banks should focus on the not only the strength of theborrower at the same time which are the threats for him in market which can be lead to
slowdown of his business which can result in non payment of dues because poor amount ofprofit
y Visit at the projects:
The banking officials never gives visit to the place or place of business for which borrowers
took loan, because of this it is not so easy to know about the whether the borrower notpaying dues wilfully even he is making growth in business.
Problems of NPA:
The banks lends the money which are deposited by the other customer if the amount of NPA
goes on increasing it is very tough for bank to repay the depositors there savings plus interest.
In order to overcome such kind of problem bank charges high amount of interest on thelending where as they gives the lower interest to the depositor, inversely it affects the
economic growth
Symptoms of NPA:
Financial: when the borrower fails to pay the instalment in case of term loan, cheque bounce,on payment of dues regularly, declining current ratio
y Operational:
Borrower is in the process of winding up of the business, overdue receivables, non payment
of dues other than the load instalment,
y Individual:
Use of fund for investment in shares & in other source of investment, avoiding contact withbank, disputes among partners
Whereas changes in govt policy, death of borrower, competition in market
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Impact of NPA
y 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 prodigalityof 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 NPAdoesnt 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 islow ROI (return on investment), which adversely affect current earning of bank.
yy 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.
y Involvement of management:-
Time and efforts of management is another indirect cost which bankhas 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.
y Credit loss:-Bank is facing problem of NPA then it adversely affect the value of
bank in terms 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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Conclusion & suggestion:
Conclusion
The NPA is serious problem in front of each & every bank in India, as the bank lendsthe money to the borrower from view point of earning fair amount of interest but
borrowers sometimes never pays the dues so it is not the only problem faced by the
PSU banks but also it is also faced by other than PSU banks also, as compared to
other banks the lending of the PSU banks is more ,so with increase in advances the
NPA is also increased, as the banking sector undertook many measures to controlNPA but then after also it is difficult for them to maintain 0% level of NPA. The bank
officials have to be very efficient while granting loan to any of the applicant, thesettlement schemes are effective but main thing is that
The loss is after all of bank only, every now & then bank have to suffer from this,whatever the act is made in order to protect the interest of the banks from the unpaid
dues, the banks has to compromise with the defaulter in from view point of coveringthe same amount of principal & interest. If such kind of problems remain in the
economy then it is tough for banks to run their business. The amount of fund providedby the bank to the borrower is like investing in the risk, as while granting the loan the
bank official may feel that the project is having some amount of return but if suddenly
market goes on changing the condition of the project may change, if the market is
having positive impact then the borrower can repay & if the condition is totally
opposed then it is very hard for business man to survive so indirectly bank suffers. So
the reason for the NPA is varies as time and condition changes we cant blame the
official for funding to the project which were not having the any kind of return, the
whatever the provision that bank makes in order to reduce the amount of NPA is
indirectly only the fund of bank which replaces the fund of bank which is in the
market, means again the one and same thing the loss belongs to only banks.
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Suggestions:
The following are the some suggestions which can help the banks in order to avoid
future bad debts/loss assets
In case of individual borrower whatever the amount of loan he requires the bank haveto look in to the his future stability of the job, the amount which he has earned till
date, what will be his savings, in case if loose the job what benefits of previous job hewill have, to have new job, on basis of his current job. So that the risk of bad assets
can be minimised by determining the future speculation that may take place in aneconomy, at any point of time. While granting the loan the co-borrower should be
there who is also in productive condition so that in case original borrower fails torepay the co borrower can be with held for repayment of dues
Most of the time it is seen that the many of the individual opt for housing loan frombank or financial institution, at the same the plot which the borrower going to
purchase may have the loans of other bank on it, so there is need to have clearance
certificate about that plot or flat that it is not having any amount of loan over and it isnot mortgaged anywhere from the concerned authority
Over period it is seen that the people gives wrong valuation of the property in order toget more amount of loan, so bank must appoint the staff who will do the valuation,
certificate of private valuer should not be there, so the overvaluation of the property
can be avoided easily
For the corporate borrower the balance sheet is always the way through which thebank official come to know about the stability of business and the future of business
but as per the prediction the market condition may not be the same it may be positive
or may be negative, if it is an negative then the lender suffers not borrower so it isbetter to mortgage whatever the property the borrower have in his business whether it
is movable or immovable, so that in case of default the bank can make an auction of
that in order to cover the dues. While allotting the loan the bank should keep a norm that the every borrower has to
obtain the insurance policy against the loan, so that in case of default the dues can be
recovered with the help of insurance
For the salaried person it is need to made in mandatory to open a salary account inbank, so that whatever the amount of salary he earn will be deposited in bank, so the
bank can easily deduct the amount of its instalment . The fast track court need to be there to give the results as early as possible so that
blocked amount of liquidity get releases
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BIBLIOGRAPHY
News papers & journals:
1. Financial Daily from THE HINDU group of publications dated Tuesday,
January 23, 2001,Saturday, Jul 09, 2005
2. Risk management book of JAIIB exam3. Google.com4. RBI official web site
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ANNEXURE
Questionnaire
1. Is there is need to make provision against NPA?2. What is the main reason behind NPA?3. Is NPA is only about lending only?4.