only management responsible for rising npas of public sector

Proceedings of the Second International Conference on Global Business, Economics, Finance and

Social Sciences (GB14Chennai Conference) ISBN: 978-1-941505-14-4

Chennai, India 11-13 July 2014 Paper ID: C484

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www.globalbizresearch.org

Only Management Responsible for Rising NPAs of Public Sector

Banks in India?

Abhay Korde,

Jamnalal Bajaj Institute of Management Studies,

University of Mumbai,

Email: [email protected]

Kavita Laghate,

Jamnalal Bajaj Institute of Management Studies,

University of Mumbai,

Email: [email protected]

_____________________________________________________________________

Abstract

The concept of Non-Performing Assets (NPAs) was introduced for the first time in the

Narasimham Committee report that was tabled in the Parliament on December 17, 1991.

Based on the Narasimham Committee recommendations, RBI has implemented the prudential

norms for improving the financial health of commercial banks and the quality of their loan

portfolio. [1].The study starts with an introduction, definition of NPA, Literature Review has

been done to find out what other research scholars have studied about NPA Management in

the Indian Banking Sector. It takes a look mainly as to what should be the objective of study

from analyzing growth of Banks in the Indian Banking System from 2008-09 to 2012-13 i.e.

for 5 years, growth of employees, profit per employee, trends in NPAs of Domestic Banks,

Classification of Loan Assets, factors contributing to the NPAs in light of the recent statement

made by Dr.Bimal Jalan, Former RBI Governor, measures to control the rise of NPAs and

scope for future study related to NPAs in the Indian Banking System. All the said datas for

the period 2008-09 are analyzed with the help of tables calculating the progress from April

2008 to March 2009 in respect of all items mentioned and analyzing the percentage of

increase/decrease, classification of loan assets group wise, sector-wise progress of NPAs

during the period of study and preparing pie chart of the same.

___________________________________________________________________________

Keywords: Non Performing Asset (NPA), Performance, Analyzing, Growth, Banks, Indian

Banking System, Tables, Loan, Assets, Percentage)

mailto:[email protected]




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1. Introduction

Banks are the significant players in the Indian Financial market. They are the biggest

purveyors of credit and they also attract most of the savings from the people. The Scheduled

Commercial Banks in India act as efficient partner in the growth and development of the

country. The banking sector in India has undergone remarkable changes since the economic

reforms initiated in 1991-92. The reform measures alongwith Reserve Bank of India (RBI)

effort to adopt international banking standards and best practices as prescribed in the Basel

Accords have no doubt helped enormously the banking industry to enter a new era. In the

background of these complex changes, the Indian Banking Sector especially the public sector

banks have been facing the challenge of NPA (Non Performing Assets). The PSBs are

adopting many measures to reduce the NPAs by the guidelines of RBI and the

recommendations of various Committees with the objective of reducing the average level

NPAs.

The issue of NPAs in the financial sector has been an area of concern for all economies

and reduction in NPAs has become synonymous with, functional efficiency of financial

intermediaries. Although NPAs are a balance sheet issue of individual banks and financial

institutions, it has wider macroeconomic implications. It is important that, if resolution

strategies for recovery of dues from NPAs are not put in place quickly and efficiently, these

asset would deteriorate in value overtime and only scrap value would be realized at the end.

It should, however, be kept in mind that NPAs are an integral part of the business of taking

risk and their earnings reflect the risk they take. It operate in an environment, where there

would be defaults as well as deterioration in portfolio value, as market movements can never

be predicted with certainty. It is in this context, that countries have adopted regulatory

measures and the guiding structure has been provided by the Basel guidelines.

Banks and Financial Institutions 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 speaks volume for performance of Indian

Banks and FIs. However, the NPAs in the credit portfolios have become a thorn in the flesh

during the last one decade or so. NPAs not only affect the productivity but also sully image

of Indian banking. The quality of loan assets is the most important factor for the basic

viability of the banking system. NPAs not only eat into profitability and to hamper their

ability to recycle funds, but also shakes the public confidence which is crucial for existence of

any financial institution. The present trend of NPAs is alarming and calls for rigorous and

concerted efforts by banks and financial institutions as well as Government.[4]




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2. Definition of Non-Performing Asset

In terms of Para 2.1 of RBI Master Circular RBI/2013-14/62

DBOD.No.BP.BC.1/21.04.048/2013-14 dated July 01, 2013 addressed to all Commercial

Banks (excluding RRBs) on Prudential norms on Income Recognition, Asset Classification

and Provisioning pertaining to Advances, Non-Performing Assets is defined as under:

2.1 Non performing Assets

An asset, including a leased asset, becomes non performing when it ceases to generate

income for the bank. A non -performing asset (NPA) is a loan or an advance where interest

and/ or installment of principal remain overdue for a period of more than 90 days in respect of

a term loan. The account remains „out of order‟ in respect of an Overdraft/Cash Credit

(OD/CC),the bill remains overdue for a period of more than 90 days in the case of bills

purchased and discounted, the installment of principal or interest thereon remains overdue for

two crop seasons for short duration crops, the installment of principal or interest thereon

remains overdue for one crop season for long duration crops, the amount of liquidity facility

remains outstanding for more than 90 days, in respect of a securitization transaction

undertaken, in respect of derivative transactions, the overdue receivables representing positive

mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days

from the specified due date for payment. In case of interest payments, banks should, classify

an account as NPA only if the interest due and charged during any quarter is not serviced

fully within 90 days from the end of the quarter. In addition, an account may also be classified

as NPA in terms of paragraph 4.2.4 of this Master Circular. An account should be treated as

'out of order' if the outstanding balance remains continuously in excess of the sanctioned

limit/drawing power. In cases where the outstanding balance in the principal operating

account is less than the sanctioned limit/drawing power, but there are no credits continuously

for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest

debited during the same period, these accounts should be treated as 'out of order'. Any amount

due to the bank under any credit facility is „overdue‟ if it is not paid on the due date fixed by

the bank.

2.2 Accounts with temporary deficiencies

The classification of an asset as NPA should be based on the record of recovery. Bank

should not classify an advance account as NPA merely due to the existence of some

deficiencies which are temporary in nature such as non -availability of adequate drawing

power based on the latest available stock statement, balance outstanding exceeding the limit

temporarily, non -submission of stock statements and non -renewal of the limits on the due

date, etc. In the matter of classification of accounts with such deficiencies banks may follow

the following guidelines:




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i) Banks should ensure that drawings in the working capital accounts are covered by the

adequacy of current assets, since current assets are first appropriated in times of distress.

Drawing power is required to be arrived at based on the stock statement which is current.

However, considering the difficulties of large borrowers, stock statements relied upon by the

banks for determining drawing power should not be older than three months. The outstanding

in the account based on drawing power calculated from stock statements older than three

months, would be deemed as irregular.

A working capital borrowal account will become NPA if such irregular drawings are

permitted in the account for a continuous period of 90 days even though the unit may be

working or the borrower's financial position is satisfactory.

ii) Regular and ad hoc credit limits need to be reviewed/ regularised not later than three

months from the due date/date of ad hoc sanction. In case of constraints such as non-

availability of financial statements and other data from the borrowers, the branch should

furnish evidence to show that renewal/ review of credit limits is already on and would be

completed soon. In any case, delay beyond six months is not considered desirable as a general

discipline. Hence, an account where the regular/ ad hoc credit limits have not been reviewed/

renewed within 180 days from the due date/ date of ad hoc sanction will be treated as NPA.

In short NPA is defined as An asset, including a leased asset, becomes non-performing

when it cases to generate income for the bank. A non-performing asset 9NPA) is defined as a

credit facility in respect of which the interest and/or instalment of principal has remained

„past due‟ for specified period of time (90 days, March 31, 2004 onwards).

3. Literature Review

Khushpat S. Jain and Rahul G. Chopra‟s objective was to analyze the trends in NPAs in

the Indian Banking Sector from 2004-2011, to assess the contributing factors to the NPA in

the Indian Banking Sector and to suggest measures to halt and curtail the rising burden of

NPAs, the authors mainly dealt with the rising burden of NPAs in Indian financial system and

their likely impact and measures to minimize such adverse impact on the Indian banking

system in particular and Indian economy in general. The authors arrived at a conclusion that

the major contributor to the NPAs in banking sector was agricultural sector. NPAs in non-

priority sectors are likely to increase due to decelerating trends in major sectors like

manufacturing and infrastructure and slowing down of economy during 2012. They were also

of the view that the factor contributing to the rising NPAs is the upward shift in interest rates

due to the RBI‟s tight money policy for controlling inflation. The increased interest rate

(floating interest) has increased the repayment burden of borrowers which is compelling them

to default their interest payments and repayments. They also feel that the banks should focus

on recovery of existing loans and be more circumspect in their credit appraisal, rescheduling




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of large corporate loans as rising interest cost and falling sales revenue may result in

widespread defaults of corporate loans, phasing out of priority sector loans to 10% of the total

loans so as to reduce the burden of NPAs in priority sector, making priority sector loans need-

based rather than target based which results in poor credit appraisal and loan default.

Mr. Gunjan M. Sanjeev has attempted to identify the critical factors, which were

responsible for the loans to go bad in the Indian commercial banking system. The study had

used primary data collected from credit managers of banks operating in India. His study has

revealed that the external factors have a higher influence compared to the internal factors.

Economic downturn and wilful default have been found to be most critical. Poor credit

scoring skill of managers, absence of suitable administrative penalties and target completion

have been found to have a significant influence amongst factors related with the loan

appraisal mechanism. Seizure and disposal of collateral have found to be the toughest

challenges amongst the factors related with the loan monitoring and controlling mechanism.

Loan manger‟s level of motivation, manpower, skill to appraise collateral, effort to reduce

costs, government and political intervention and soft budget constraints have been found to

have a lower influence.

Shivpuje C.V. and Kaveri V.S. states that the study was basically confined to identifying

the factors influencing NPAs, suggesting measures that would prevent the growth of NPAs

and affect their speedy recovery. The major emphasis was laid on internal factors over which

banks and financial institutions have direct control. For this purpose, they surveyed a few

branches, had interaction with the branch managers and the borrowers along with the study of

inspection reports. In addition, discussions were held with the credit officers, law officers,

executives, bank lawyers, and civil judges. Along with this, the secondary data was analyzed

to find out the various dimensions of NPAs. They concluded that NPA problem could be

solved if proper care of internal factors is taken or in other words recovery from NPAs is

possible if efforts of the bank and financial institutions are strengthened. They observed that

though the branch managers were quite clear about the RBI guidelines on the classification of

advances, they varied the actual classification of advances made by them based on their

personal experience with different borrowers. This trend, in particular, was observed in

trading accounts with persisting irregularity in cash credit account for a long time. They

noted that eight branch managers included the said account in the health code no.2 while six

managers classified it under the code no.4. In the end they had also offered several

suggestions calling for changes in internal systems, procedures and practices.

4. Objective of Research Study

The objective of the research study is to:




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i) Analyze growth of Banks, Employees and Profit per Employees in the Indian

Banking Sector from 2008-2009 to 2012-2013.

ii) Analyze the trends in NPAs, Sector-wise NPAs of Domestic Banks, Classification of

Loan Assets in the Indian Banking Sector from 2008-2009 to 2012-2013.

iii) Analyze Cross Country Comparison – Gross NPAs to Total Advances of selected Ten

Countries of the World.

iv) Study the factors opined by some Research Scholars contributing to the NPAs in the

Indian Banking Sector in light of recent statement made by Shri Bimal Jalan, Former RBI

Governor and their suggestions to control rise of NPAs.

5. Methodology

i) As the study of the research paper is mainly related to Bad Loans in the Indian Banking

Sector the findings are based on the secondary data.

ii) The growth as indicated in the objectives are arrived from calculating the progress in

the Indian Banking Sector for the period 2008-09 to 2012-13, with the help of table and pie

chart.

iii) The percentage of progress in the Indian Banking Sector for the period 2008-09 to

2012-13 is calculated from the data available in the various Trends & Progress Reports of

RBI.

iv) The possible factors contributing to the NPAs in the Banking Sector and Measures to

control them are studied from the previous research papers, internet and books.

6. Analysis/Findings of Data

It can be analysed from the findings in the Tables 1.1 to 1.4 as follows:

6.1 Growth of Banks, Employees & Profit per Employees

There was an increase of 9 Scheduled Commercial Banks in the Indian Banking Sector

for the period April 2008 – March 2013 i.e. an increase of 11.25%. During the same period

the Public Sector Banks and Private Sector Banks were reduced by 1 and 2 respectively.

Thus total reduction of 3.70% and 9.09% respectively. However, the Foreign Banks

registered a growth of 12 Banks taking the percentage growth by 38.71%.

The total employees of the Scheduled Commercial Banks increased by 142300 Millions

i.e. 14.91%. Of which Public Sector Banks and Private Sector Bank‟s growth during the

period April 2008 to March 2013was, 70135 Millions and 76363 Millions respectively taking

the percentage increase to 9.59% and 39.45%. In other words it also means that the Private

Sector Banks were reduced by 2, but still they provided 30% more employmentopportunities

to the youths of our country. Even though there was a growth of 12 Foreign Banks during the

said period, the total Employees reduced by 4198 Millions, thus reducing the percentage of




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growth of employment opportunities by 14.19% and preferring to do business in India with

less manpower.

There was an increase of Profit Per Employees of Scheduled Commercial Bank by 0.28

Millions for the period April 2008 to March 2013, an increase of about 50.91%. The Public

and Private Sector Banks profit per employee increase was 0.16 Millions and 0.51 Millions

and percentage rise was 34.04% and 91.07%. The Private Sector Bank Management were

successful in utilizing the manpower better as compared to Public Sector Banks. The

Foreign Banks too increased its profit per employees by 0.28 Millions, a rise of

50.91% and were too more successful than the Public Sector Banks. The reasons for HR

Management and Manpower Planning of both Private Sector Banks and Foreign Banks needs

further study.

6.2 Trends in NPAs in Indian Banking System

There was a rise of NPAs of Scheduled Commercial Banks by 0.63 Millions i.e. 60.00%

during the period April 2008 to March 2013. The Public Sector Banks made a poor show by

showing a rise of their NPAs by 1.08 Millions i.e. 114.89% as compared to spectacular

reduction of NPAs shown by Private Sector Banks by 0.77 Millions i.e. 59.64% and Foreign

Banks 0.80 i.e. 44.20% reduction during the said period. The NPA Management of the

Private Sector Banks and Foreign Banks seems to be far better as compared to that of Public

Sector Banks. A further study of NPA Management by these banks will reveal a more correct

picture.

6.3 Sector-wise NPAs of Domestic Banks (excluding Foreign Banks)

(In terms of latest RBI Guidelines issued vide Master Circular

RPCD.CO.RRB.BC.No.7/03.05.33/2013-14 dated July 01, 2013, the Commercial Banks are

advised to achieve the target of priority sector lending at 40% of aggregate bank advances).

NPAs towards Priority Sector Advances- The scheduled commercial banks rise in NPAs

during the period April 2008 to March 2013 was 441420 Millionsii.e. 157.89%. The Public

Sector Banks NPAs during the said period was 425820 Millions i.e. 175.10%, whereas that of

Private Sector Banks was 15590 Millions i.e. 42.82%.

NPAs towards PSAs of which related to Agriculture- The scheduled commercial banks

rise in NPAs during the period April 2008 to March 2013 towards Agriculture Sector was

230510 Millions i.e. increase by 322.44%. The Public Sector Banks rise towards Agriculture

was 222920 Millions i.e. 390.54%. Whereas in respect of Private Sector Banks the increase

was 7590 Millions i.e. 52.67%.

NPAs towards PSAs of which related to Micro & Small Enterprises - The scheduled

commercial banks rise in NPAs during the same period of Scheduled Commercial Banks

increased by 227500 Millions i.e. 297.39%. The Public Sector Bank‟s increase was 214160




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Millions i.e. 306.64%, whereas that of Private Sector Banks was also 13340 Millions i.e.

200.30%.

NPAs towards PSAs of which related to Others – The scheduled commercial banks

overall NPAs to Others Sector reduced by 15590 Millions i.e. reduction by 11.85%.

Surprisingly the Public Sector Banks registered a marginal reduction of 11260 Millions i.e.

9.69%, as that of Private Sector Bank‟s reduction of 4330 Millions i.e. 42.26%, during the

period of study.

NPAs towards Non-Priority Sector Advances. - The Scheduled Commercial Banks

showed an increase in this Sector by 713770 Millions i.e. 220.14%. The Public Sectors rise

was by 697490 Millions i.e. 362.31%, whereas that of Private Sector Banks increase was only

16280 Millions i.e. 12.36%.

(The rise in NPAs towards Priority Sector Lending – particularly towards Agriculture,

Micro & Small Enterprises and towards Non-Priority Sector Lending and downfall in NPAs

towards Priority Sector Lending related to Others gives a way to rethink of Government‟s

Policy towards advancing to Priority Sector Lending specially Agriculture, Micro & Small

Enterprises and some sectors in Non-Priority Sector Lending, requires a separate study in this

area).

6.4 Analysis Based on Classification of Loan Assets – Bank Group-wise

Total Standard Assets in the Indian Banking System - The scheduled commercial banks

related to Standard Assets increased by 28270300 Millions i.e. 95.25%. The Public Sectors

increase was by 21581440 Millions i.e. 96.45%. The Private Sector Banks increase was by

5703070 i.e. 100.39%, which means that they took care that accounts do not slip to next level.

The Foreign Banks showed an increase of 42332780 Millions i.e. 2606.35%. The foreign

banks were much more careful.

Total Sub-Standard Assets in the Indian Banking System - The Sub-Standard Assets of

the scheduled commercial banks increased by 538310 Millions i.e. 145.22%. At the same

time that of Public Sector Banks increased by 608970 Millions i.e. 95.57%. Whereas that of

Private Sector Banks reduced by 41920 Millions i.e. 39.58%. The Foreign Banks also

increased by 756260 Millions i.e. 1287.47%. The reasons of reduction of Sub-Standard

Assets of Private Sector Banks and sharp rise in that of Foreign Banks needs to be studied

further in future.

Total Doubtful Assets in the Indian Banking System - The Doubtful Assets of the

Scheduled Commercial Banks showed an increase of 629420 Millions i.e. 232.62%. The

Public Sector Banks 550810 Millions i.e. 262.05%. Private Sector Banks 61650 Millions i.e.

122.44% and the Foreign Banks 750960 Millions i.e. 7479.68%.




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Total Loss Assets in the Indian Banking System - The Loss Assets of Scheduled

Commercial Banks increased by 62440 Millions i.e. 103.10%. That of Public Sector Banks

by 25040 Millions i.e. 58.29%. Private Sector Banks increased by 18550 Millions i.e.

137.92% and Foreign Banks too increased by 63840 Millions i.e. 1534.62%.

6.5 Cross Country Comparison of Gross Non-Performing Loans to Total Loans during

2008-09 to 2012-13 of 10 Major Countries

A comparison of ten major countries from Table 1.14 it can be observed that this

countries were able to reduce its Gross NPAs i.e. Thailand by 56.60%, Singapore by

55.00%, Malaysia by 50.00%, China by 37.50%, United States by 36.00%, New Zealand by

29.41%, Japan by 8.00%. Whereas the Gross NPAs of this countries increased i.e. France by

7.50%, Pakistan by 17.21% and India at the top by 72.37%. The countries which were hit by

2008 recession have also started overcoming it and have controlled their NPAs to a large

extent, even emerging Asian Economies like China, Singapore, Malaysia, Thailand, Japan.

Even a country like Pakistan also did not allow to slip its NPAs much i.e. in 2008-09 it

was 12.2 and whereas in 2012-13 it was 14.3 i.e. during this 5 years it increased by 2.1 i.e.

17.21% and India is said to be the 2nd

or 3rd

top Economies of the World in next 25 years and

it allowed its Gross NPAs to grow from 2.2 in 2008-09 to 3.8 in2012-13 i.e. rise of 72.73%,

as already seen from various tables PSBs are the major contributors for rise in NPAs in the

Indian Banking Sector and that too NPAs of Priority Sector lendings are more and a matter of

concern not only to the Indian Banks, but to the economy of the country and it must be seen

that firm speedy steps are to control it.

7. Factors Contributing to the NPAs in the Indian Banking Sector

Khushpat S. Jain and Rahul G. Chopra in their research paper have mentioned that two

main factors responsible for contributing to NPA i.e. (i) Non-implementation of Narasimham

Committee recommendations due to political and other factors (ii) RBI‟s tight monetary

policy for controlling inflation.

Gunjan M. Sanjeev in his research paper has stated there are two major factors

contributing to the NPAs in the Indian Banking System i.e. Internal Factors and External

Factors.

7.1 Internal Factors

The impact of internal factors on the whole is less than medium.

i) The influence of appraisal factors is less than medium.

(a) Poor credit scoring skills of managers

(b) No administrative penalties

(c) Target completion

(d) Lack of Motivation to Managers




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(e) Managers are not fully competent in appraising the value of collateral

ii) The influence of “monitoring and controlling” factors is medium or higher.

(a) Seizing and disposing off the collateral.

(b) Effort to reduce costs

(c) Lack of effort on part of managers

(d) Lack of focus of the top management

(e) Seizing and disposing of collaterals.

7.2 External Factors

(i) Economic down turns

(ii) Willful default of borrowers

7.3 Dr. Bimal Jalan, Former Governor of RBI is of the view that factors contributing to the

NPAs in the Indian Banking System is not political intervention per se but could also be a

product of the credit worthiness analysis that the banks do i.e. wrong assessment of credit

worthiness. Part of the reason was also slowdown.

7.4 Mr. Tamal Datta Chaudhari in his article observes that an asset can turn non-

performing because of –

a) Misconceived project

b) Poor governance

c) Product failure

d) Inefficient management

e) Diversion of funds

f) Dormant capital market

g) Regulatory charges

7.5 Narayana Surya is of the view that the following causes are important for rising

NPAs.

1. Inability and unwillingness of the borrower to repay.

2. Mismanagement and diversion funds.

3. Failure of the activity.

4. Recessionary market trend.

5. Time involved in the legal process and realization of securities.

6. Under financing/untimely financing.

7. Non-compliance of sanction terms and conditions.

8. Failure to identify problems in advances.

8. Measures to control the rise of NPAs in the Indian Banking Sector

Khushpat S. Jain and Rahul G. Chopra in their research paper are of the view that to

control rise of NPAs in the Indian Banking Sector the following measures may be adopted:




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(i) Banks should focus on recovery of existing loans and be more circumspect in their

credit appraisal.

(ii) Rescheduling of large corporate loans as rising interest cost and falling sales revenue

may result in widespread defaults of corporate loans.

(iii) Phasing out of priority sector loan to 10% of the total loans so as to reduce the burden

of NPAs in priority sector.

(iv) Making priority sector loans need-based rather than target-based which results in

poor credit appraisal and loan default.

8.2 Dr. Bimal Jalan, Former Governor, RBI is of the view that:

Management of the banks should be free to run the banks without government

intervention.

Make the management of the institution accountable, rather than the ministry of the

government.

Management can appoint, they can decide on rural priorities, small scale priorities that are

applicable to banks.

8.3 Raghunathan R.S. in his article has suggested the following to reduce NPAs.

Proper selection of the borrower/activity.

Financing only viable schemes.

Extending need based financing.

Ensuring proper end-use

Proper post sanction follow-up.

Regular contact with borrowers.

Regular monitoring of the accounts.

Avoiding overdrawing extraneous debt.

Holding of recovery camps.

8.4 Dr. Durga Madhab Mahapatra & Prof.Dr. Ashok Kumar Mohanty opines the

following measures to control NPAs in PSBs:

The legal system should be revamped on priority basis for recovery of bank dues.

Exemplary and deterrent penalties should be imposed without delay on borrowers who submit

falsified financial statements and divert funds for unintending purposes.

Better coordination between financial institutions and banks, new credit insurance scheme

for priority sector lending, gradual shift from bank-based to market-based system and

technology backed and sound credit and risk management skills will enable banks to meet the

challenges in environment and keep their NPAs low;




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Revamping of recovery process, delegation of more powers to the branch managers and

concentrate on recovery of blocked funds;

Constant touch with borrowers, continued follow-up through official correspondence and

by personal visits have proved effective in a majority cases;

Special tribunals are required to be established all over the country exclusively for bank

legislation at least for large advances. Such arrangements would reduce time factor

substantially and help the bank, as well as borrowers;

Banks need to be given wider powers like taking over or to enforce securities charged to

them without going to courts. These provisions will reduce court cases, improve environment

and discourage defaulters;

The revival effort should be undertaken with the stipulated time frame;

Banks, while granting advances, will secure such advances with adequate collateral

security. But due to inordinate delay, which is inherent in our legal system, bulk of the

available resources get blocked up. The Narasimham Committee Report has recommended

introduction of legislative measures to set up special tribunals for speedy recovery which

come into existence of certain centres. But the functioning of Recovery Tribunals is not

satisfactory due to shortage of infrastructure facilities, staff etc, which needs improvement.

Cases of delinquent and dishonest officials perpetrating frauds, both individually and in

collusion with borrowers, should be investigated and severe punishment should be meted out

to them.

9. Conclusion of Study

Since ages, banks have been in the business of granting loans to borrowers engaged in

different kind of activities. This is based on trust of banks in the borrowers, that the monies

lent would be repaid in the time frame as specified in the loan agreements. Bank loans are

normally backed by some form of collateral security or at least the primary security. But still

in good number of cases, banks are unable to recover the loans by enforcing the securities.

As a result, huge amounts are getting locked up in the form of NPAs. The reasons are many.

Banks are seen struggling to increase business volumes on one hand, and to minimize the

adverse effect of NPAs on their bottom lines, on the other hand. It has become necessary for

the banks to train their Managers for better NPA Management, Keep distance from the

political interference and follow the regulatory guidelines to avoid slippage of accounts and

turning the advances into bad loans which are difficult to recover into loss not only to the

banks but to the country. In this backdrop, banks should explore more of the non-legal

options to yield quick and positive results in reduction of NPAs, to keep pace with the current

trends. India is said to be the 2nd

or 3rd

top Economies of the World in next 25 years and it

allowed its Gross NPAs to grow from 2.2 in 2008-09 to 3.8 in2012-13 i.e. rise of 72.73%, as




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already seen from various tables PSBs are the major contributors for rise in NPAs in the

Indian Banking Sector and that too NPAs of Priority Sector lendings are more and a matter of

concern not only to the Indian Banks, but to the economy of the country and it must be seen

that firm speedy steps are to control it. A future study in the various areas of NPA

Management will give a clear picture of the NPA Management in the Indian Banking Sector.

10. Limitations & Scope for Future Study related to NPAs in the Indian

Banking Sector

The scope for future study related too NPAs in the Indian Banking Sector are observed

from the limitations which are contained in this research paper.

10.1The growth of employees of Private Sector Banks and Foreign Banks reduced during

the study period i.e. April 2008 – March 2009, but still the Profit Per Employees of these

banks was more. The reasons for HR Management and Manpower Planning of both Private

Sector Banks and Foreign Banks gives scope for further study.

10.2 The NPA Management of the Private Sector Banks and Foreign Banks seems to be

far better as compared to that of Public Sector Banks. A further study of NPA Management

by these banks will reveal a more correct picture.

10.3 The rise in NPAs towards Priority Sector Lending – particularly towards

Agriculture, Micro & Small Enterprises and towards Non-Priority Sector Lending and

downfall in NPAs towards Priority Sector Lending related to Others gives a way to rethink of

Government‟s Policy towards advancing to Priority Sector Lending specially Agriculture,

Micro & Small Enterprises and some sectors in Non-Priority Sector Lending, requires a

separate study in this area.

10.4 The causes of rise in NPAs mentioned by Gunjan M. Sanjeev in the Indian Banking

Sector was based on primary data collected only from few bankers and in the year 2007 i.e.

before the sub-prime crisis of 2008, it needs a fresh look in the present scenario. A large

number of bankers and top executives of the banks are required to be interviewed.

10.5 A study is also required to be considered as to whether imparting trainings in the

field of NPA Management, Basel related and HR Issues will help the bankers to control NPAs

and enhance the performance and profit in the Indian Banking Sector.

TABLE 1.1 – PUBLIC SECTOR BANKS (Rs. In Millions)

2008-09 2009-10 2010-11 2011-12 2012-13

Progress April 2008 – Mar 2013

Analysis of % I/D

Bks 27 27 26 26 26 -1.00 1.10

Emp 731524 739646 755102 774329 801659 70135 1.10

PPE 0.47 0.53 0.59 0.64 0.63 0.16 34.04

NNPAs 0.94 1.10 1.09 1.53 2.02 1.08 114.89

PSAs 243180 308480 413000 562000 669000 425820 175.10

AGRI 57080 83300 145000 227000 280000 222920 390.54

M&SE 69840 115370 124000 174000 284000 214160 306.64

OTHS 116260 109810 124000 161000 105000 -11260 -9.69

NPSL 192510 264530 298000 536000 890000 697490 362.31

SAs 22375560 26735340 32718000 38255000 43957000 21581440 96.45




14


SSAs 206030 287910 350000 623000 815000 608970 295.57

DAs 210190 25383 332000 490000 761000 550810 262.05

LAs 42960 5750 65000 60000 68000 25040 58.29 % I/D = Percentage Increase Decrease

(1) Bks = Total Banks (2) Emp = Total Employees (3) PPE = Profit Per Employees

(4) NNPAs = Net NPAs (5) PSA = Priority Sector Advances (6) AGRI = Agriculture

(7) M&SE = Micro & Small Enterprises (8) OTHS =Others (9) NPSL=Non Priority

Sector Advances

(10) SAs = Standard Asssets (11) SSAs = Sub-Standard Asssets (12 DAs = Doubtful

Asses (13) Loss Assets

Chart 1.1– Public Sector Banks

TABLE 1.2 – PRIVATE SECTOR BANKS (Rs. In Millions)

2008-09 2009-10 2010-11 2011-12 2012-13


Analysis of % I/D

Bks 22 22 21 20 20 -2 -9.09%

Emp 193578 188332 217953 248284 269941 76363 39.45%

PPE 0.56 0.7 0.81 0.92 1.07 0.51 91.07%

NNPAs 1.29 1.04 0.56 0.46 0.52 -0.77 -59.64%

PSAs 36410 47920 48000 51000 52000 15590 42.82%

AGRI 14410 20230 22000 22000 22000 7590 52.67%

M&SE 6660 11390 13000 17000 20000 13340 200.30%

OTHS 15330 16300 14000 12000 11000 -4330 -28.25%

NPSL 131720 125920 132000 132000 148000 16280 12.36%

SAs 5680930 6264720 7936000 9629000 11384000 5703070 100.39%

2008-09

2012-13

-10000000

0

10000000

20000000

30000000

40000000

500000002008-09

2009-10

2010-11

2011-12

2012-13

Progress

%




15


SSAs 105920 88420 45000 52000 64000 -41920 -39.58%

DAs 50350 65900 108000 104000 112000 61650 122.44%

LAs 13450 21660 29000 29000 32000 18550 137.92%

% I/D = Percentage Increase Decrease

(1) Bks = Total Banks (2) Emp = Total Employees (3) PPE = Profit Per

Employees



Sector Advances



Chart 1.2– Private Sector Banks

Table 1.3 – Foreign Banks (Rs. In Millions)

2008-09 2009-10 2010-11 2011-12 2012-13


Analysis of % I/D

Bks 31 32 33 41 43 12 38.71%

Emp 29582 28012 28041 25907 25384 -4198 -14.19%

PPE 2.54 1.69 2.75 3.64 4.56 2.02 79.53%

NNPAs 1.81 1.82 0.67 0.61 1.01 -0.8 -44.20%

SAs 1624220 1603110 32718000 38255000 43957000 42332780 2606.35%

SSAs 58740 49290 350000 623000 815000 756260 1287.47%

DAs 10040 14400 332000 490000 761000 750960 7479.68%

LAs 4160 7580 65000 60000 68000 63840 1534.62%



(4) NNPAs = Net NPAs (5) SAs = Standard Asssets (6) SSAs = Sub-Standard Asssets

(7) DAs = Doubtful Asses (8) Loss Assets

2008-09

2012-13

-2000000

0

2000000

4000000

6000000

8000000

10000000

120000002008-09

2009-10

2010-11

2011-12

2012-13

Progress

%




16


Chart 1.3– Private Sector Banks

Table 1.4 – All Scheduled Commercial Banks (Rs. In Millions)

2008-09 2009-10 2010-11 2011-12 2012-13


Analysis of % I/D

Bks 80 81 81 87 89 9 11.25%

Emp 954684 955990 1001096 1048520 1096984 142300 14.91%

PPE 0.55 0.6 0.7 0.78 0.83 0.28 50.91%

NNPAs 1.05 1.12 0.97 1.28 1.68 0.63 60.00%

PSAs 279580 356400 461000 613000 721000 441420 157.89%

AGRI 71490 103530 167000 249000 302000 230510 322.44%

M&SE 76500 126760 157000 191000 304000 227500 297.39%

OTHS 131590 126110 138000 173000 116000 -15590 -11.85%

NPSL 324230 390450 430000 695000 1038000 713770 220.14%

SAs 29680700 34603170 42596000 50168000 57951000 28270300 95.25%

SSAs 370690 425620 414000 695000 909000 538310 145.22%

DAs 270580 334130 461000 617000 900000 629420 232.62%

LAs 60560 86740 104000 109000 123000 62440 103.10%





Sector Advances



2008-09

2011-12

%

-50000000

5000000100000001500000020000000

25000000

30000000

35000000

40000000

45000000

2008-09

2009-10

2010-11

2011-12

2012-13

Progress

%




17


Chart 1.4– All Scheduled Commercial Banks

Table 1.5 – Cross Country Comparison - Gross NPAs to Total Advances –

Ten Selected Countries of the world

Country 2008-09 2009-10 2010-11 2011-12 2012-13 Progress % I/D

China 1.6 1.1 1 1 1 -0.6 -37.50%

France 4 3.8 4.3 4.3 4.3 0.3 7.50%

India 2.2 2.4 2.7 3.4 3.8 1.6 72.73%

Japan 2.5 2.5 2.4 2.4 2.3 -0.2 -8.00%

Malaysia 3.6 3.4 2.7 2 1.8 -1.8 -50.00%

New Zealand 1.7 2.1 1.7 1.4 1.2 -0.5 -29.41%

Pakistan 12.2 14.7 16.2 14.5 14.3 2.1 17.21%

Singapore 2 1.4 1.1 1 0.9 -1.1 -55.00%

Thailand 5.3 3.9 2.9 2.4 2.3 -3 -56.60%

United States

5 4.4 3.8 3.3 3.2 -1.8 -36.00%


Chart 1.5 – Cross Country Comparison - Gross NPAs to Total Advances –

Ten Selected Countries of the world

2008-09

2012-13

-10000000

0

10000000

20000000

30000000

40000000

50000000

600000002008-09

2009-10

2010-11

2011-12

2012-13

Progress

%

2008-09

2012-13

-10

0

10

20

Ch

ina

Fran

ce

Ind

ia

Jap

an

Mal

aysi

a

Pak

ista

n

Sin

gap

ore

Thai

lan

d

2008-09

2009-10

2010-11

2011-12

2012-13

Progress

http://data.worldbank.org/country/china?display=default

http://data.worldbank.org/country/france?display=default

http://data.worldbank.org/country/india?display=default

http://data.worldbank.org/country/japan?display=default

http://data.worldbank.org/country/malaysia?display=default

http://data.worldbank.org/country/new-zealand?display=default

http://data.worldbank.org/country/pakistan?display=default

http://data.worldbank.org/country/singapore?display=default

http://data.worldbank.org/country/thailand?display=default

http://data.worldbank.org/country/united-states?display=default

http://data.worldbank.org/country/united-states?display=default




18


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Business in Turbulent Times”, Excel India Publishers, New Delhi,

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Business in Turbulent Times (Pages 94 – 98), Excel India Publishers, N.Delhi).

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RBI Annual Reports/Trend & Progress Reports from 2008-09 to 2012-13




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Reddy Ramachandra B, , Management of Non-Performing Assets in Banks and Financial

Institutions (ISBN 81-86771-33-6), Serial Publications, New Delhi.

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only management responsible for rising npas of public sector

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