Non Perfoming Assets Bank Project Report Finance

Non Performing Assets and its impact on Profitability of
New Private Sector Banks

BABASAB PATIL !
Executive Summery
T"e f#t#re of Indian Banking represents a #ni$#e mi%t#re of #nlimited
opport#nities amidst ins#rmo#ntable c"allenges& 'n t"e one "and we see t"e scenario
represented by t"e rapid process of globali(ation presently taking s"ape bringing t"e
comm#nity of nations in t"e world toget"er) transcending geograp"ical bo#ndaries) in t"e
sp"ere of trade and commerce) and even employment opport#nities of individ#als& All
t"ese indicate newly emerging opport#nities for Indian Banking& B#t on t"e darker side
we see t"e acc#m#lated morass) bro#g"t o#t by t"ree decades of controlled and
regimented management of t"e banks in t"e past& It "as sip"oned profitability of t"e many
banks) acc#m#lated bloated NPA and t"reatens *apital Ade$#acy of t"e Banks and t"eir
contin#ed stability&
New Private Sector Banks in India can solve t"eir problems only if t"ey assert a
spirit of selfinitiative and selfreliance t"ro#g" developing t"eir in"o#se e%pertise& T"ey
"ave to imbibe t"e banking p"ilosop"y in"erent in dereg#lation NPA is a problem
created by t"e Banks and t"ey "ave to find t"e ca#se and t"e sol#tion "ow it was created
and "ow t"e Banks are to overcome it& An attempt is made in t"is st#dy t"e present
sit#ation and to arrive at a sol#tion to solve t"is problem&
BABASAB PATIL +
Design of the study
Title of the project:
Non Performing Assets and its impact on Profitaility of Ne! Private Sector
"an#s$%
Scope of study: Scope of my st#dy restricted only to , New Private Sector Banks
NPA data-s and Advances) and for *omparison of *redit risk pat" , old selected Private
Banks is taken&
Need &or Study:
T"is st#dy will "elp to know t"e recent norms of NPA&
T"is st#dy "elps to know "ow NPA *a#sing Problems to Banking Sector and
w"at mig"t be t"e sol#tion to overcome from t"is problem and also its impact on
Profitability of New Profit Banks&
STATE'ENT (& T)E P*("+E'
Profitability is considered as a benc"mark for eval#ating performance of any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing Non
Performing Assets) "ave a direct impact on profitability of banks and financial
instit#tions& Legally speaking banks and financial instit#tions are not allowed to book
income on s#c" acco#nt and at t"e same times t"ey are forced to make provision on s#c"
assets& So T"is pro/ect is #ndertaken to now impact of NPA on Profitability of New
Private Sector Banks&
BABASAB PATIL 0
(jectives of Study
!& To st#dy t"e 1BI norms on Non Performing Assets) and t"e vario#s reasons for
t"e e%istence of "#ge level of NPA in Indian banking&
+& To know t"e performance comparison of New Private Banks Non performing
asset for past 0 years&
0& To know t"e impact of non performing assets on profitability of New Private
Banks) and comparison of credit risk pat" of New Private Banks wit" , selected
'ld Private Banks&
2& To st#dy t"e vario#s steps taken by t"e banks to bring down t"e NPA-s in
respective bank branc"es&
3& To recommend meas#res for Improving performance and red#ction of Non
Performing Assets&
'ethodology
Primary Data:
4iews of t"e concerned officials were gat"ered by directly interacting wit" t"em) and
s#c" data was fo#nd very #sef#l w"ile analy(ing and drawing concl#sions&
Secondary Data:
1ecent 1BI norms of NPA&
IBA B#lletin 5f +55356 is referred to collect data for Net NPA) and Advances&
7eb site of 8TI Bank and ot"er 7eb sites&
Plan of analysis:
In t"is st#dy $#adrant analysis is #sed on t"e calc#lated fig#res&
+imitations:
T"e st#dy is based mostly on secondary data&
9ata "as been drawn from /o#rnals) so information may not be complete&
BABASAB PATIL 2
:or t"e analysis only t"e advances and NPA percentages of banks and operating
profit) provisions and contingencies as a w"ole and net profit of New PSB-s are
taken into consideration&
,NT*(D-.T,(N
It;s a known fact t"at t"e banks and financial instit#tions in India face t"e problem
of swelling nonperforming assets <NPA-s= and t"e iss#e is becoming more and more
#nmanageable& In order to bring t"e sit#ation #nder control) some steps "ave been taken
recently& T"e Sec#riti(ation and 1econstr#ction of :inancial Assets and >nforcement of
Sec#rity Interest Act) +55+ was passed by Parliament) w"ic" is an important step towards
elimination or red#ction of NPA-s&
'EAN,N/ (& NPA0s:
An asset is classified as nonperforming asset <NPA-s= if d#es in t"e form of
principal and interest are not paid by t"e borrower for a period of !?5 days& .owever
wit" effect from @arc" +552) defa#lt stat#s wo#ld be given to a borrower if d#es are not
paid for A5 days& If any advance or credit facilities granted by bank to a borrower become
nonperforming) t"en t"e bank will "ave to treat all t"e advancesBcredit facilities granted
to t"at borrower as nonperforming wit"o#t "aving any regard to t"e fact t"at t"ere may
still e%ist certain advances B credit facility&
NPA ,N ,ND,AN "AN1,N/ S2STE':
NPA s#rfaced s#ddenly in t"e Indian banking scenario) aro#nd t"e >ig"ties) in t"e
midst of t#rb#lent str#ct#ral c"anges overtaking t"e international banking instit#tions)
and w"en t"e global financial markets were #ndergoing sweeping c"anges& In fact after it
"ad emerged t"e problem of NPA kept "idden and grad#ally swelling #nnoticed and
#nperceived) in t"e ma(e of defective acco#nting standards t"at still contin#ed wit"
Indian Banks #p to t"e Nineties and opa$#e Balance s"eets&
BABASAB PATIL 3
In a dynamic world) it is tr#e t"at new ideas and new concepts t"at emerge
t"ro#g" s#c" c"anges ca#sed by social evol#tion bring beneficial effects) b#t only after
levying a "eavy initial toll& T"e process of $#ickly integrating new innovations in t"e
e%isting set#p leads to an immediate disorder and #nsettled conditions& People are not
acc#stomed to t"e new models& T"ese new formations take time to config#re) and work
smoot"ly& T"e old is cast away and t"e new is fo#nd diffic#lt to ad/#st& @arginal and s#b
marginal operators are swept away by t"ese conv#lsions& Banks being sensitive
instit#tions entrenc"ed deeply in traditional beliefs and conventions were #nable to ad/#st
t"emselves to t"e c"anges& T"ey s#ffered easy victims to t"is #p"eaval in t"e initial
p"ase&
*onse$#ently banks #nderwent t"is transitionsyndrome and lang#is"ed #nder
distress and banking crises s#rfaced in $#ick s#ccession one following t"e ot"er in many
co#ntries& B#t w"en t"e banking ind#stry in t"e global sp"ere came o#t of t"is
metamorp"osis to read/#st to t"e new order) t"ey emerged revitali(ed and as more
vibrant and rob#st #nits& 9ereg#lation in developed capitalist co#ntries partic#larly in
>#rope) witnessed a remarkable innovative growt" in t"e banking ind#stry) w"et"er
meas#red in terms of deposit growt") credit growt") growt" intermediation instr#ments as
well as in network&
9#ring all t"ese years t"e Indian Banking) w"ose environment was ins#lated from
t"e global conte%t and was denominated by State controls of directed credit delivery)
reg#lated interest rates) and investment str#ct#re did not participate in t"is vibrant
banking revol#tion& S#ffering t"e deart" of innovative spirit and c"oking #nder #nd#e
regimentation) Indian banking was lacking ob/ective and pr#dential systems of b#siness
leading from early stagnation to event#al degeneration and red#ced or negative
profitability& *ontin#ed political interference) t"e absence of competition and total lack of
scientific decisionmaking) led to conse$#ences /#st t"e opposite of w"at was "appening
in t"e western co#ntries& Imperfect acco#nting standards and opa$#e balance s"eets
served as tools for "iding t"e s"ortcomings and failing to reveal t"e progressive
BABASAB PATIL 6
deterioration and str#ct#ral weakness of t"e co#ntry;s banking instit#tions to p#blic view&
T"is enabled t"e nationali(ed banks to contin#e to flo#ris" in a deceptive manifestation
and false glitter) t"o#g" stray symptoms of t"e brewing ailment were discernable "ere
and t"ere&
T"e government "astily introd#ced t"e first p"ase of reforms in t"e financial and
banking sectors after t"e economic crisis of !AA!& T"is was an effort to $#ickly res#rrect
t"e "ealt" of t"e banking system and bridge t"e gap between Indian and global banking
development& Indian Banking) in partic#lar PSB-s s#ddenly woke #p to t"e realities of t"e
sit#ation and to face t"e b#rden of t"e s#rfeit of t"eir woes& Sim#ltaneo#sly ma/or
revol#tionary transitions were taking place in ot"er sectors of t"e economy on acco#nt
t"e ongoing economic reforms intended towards freeing t"e Indian economy from
government controls and linking it to market driven forces for a $#ick integration wit"
t"e global economy& Import restrictions were grad#ally freed& Tariffs were bro#g"t down
and $#antitative controls were removed& T"e Indian market was opened for free
competition to t"e global players& T"e new economic policy in t#rn revol#tionalised t"e
environment of t"e Indian ind#stry and b#siness and p#t t"em to similar problems of new
mi%t#re 'f opport#nities and c"allenges& As a res#lt we witness today a scenario of
banking) trade and ind#stry in India) all #ndergoing t"e conv#lsions of total reformation
battling to kick off t"e decadence of t"e past and to gain a new strengt" and vigor for
effective links wit" t"e global economy& @any are still lang#is"ing #nable to get released
from t"e old set#p) w"ile a few progressive corporate are making a nic"e for t"emselves
in t"e global conte%t&
9#ring t"is decade t"e reforms "ave covered almost every segment of t"e
financial sector& In partic#lar) it is t"e banking sector) w"ic" e%perienced ma/or reforms&
T"e reforms "ave taken t"e Indian banking sector far away from t"e days of
nationali(ation& Increase in t"e n#mber of banks d#e to t"e entry of new private and
foreign banksC increase in t"e transparency of t"e banks; balance s"eets t"ro#g" t"e
BABASAB PATIL ,
introd#ction of pr#dential norms and norms of disclos#reC increase in t"e role of t"e
market forces d#e to t"e dereg#lated interest rates) toget"er wit" rapid comp#teri(ation
and application of t"e benefits of information tec"nology to banking operations "ave all
significantly affected t"e operational environment of t"e Indian banking sector&
In t"e backgro#nd of t"ese comple% c"anges w"en t"e problem of NPA was
belatedly recogni(ed for t"e first time at its peak velocity d#ring !AA+A0) t"ere was
res#ltant c"aos and conf#sion& As t"e problem in large magnit#de er#pted s#ddenly banks
were #nable to analy(e and make a realistic or complete assessment of t"e s#rmo#nting
sit#ation& It was not reali(ed t"at t"e root of t"e problem of NPA was centered elsew"ere
in m#ltiple layers) as m#c" o#tside t"e banking system) more partic#larly in t"e transient
economy of t"e co#ntry) as wit"in& Banking is not a compartmentali(ed and isolated
sector delinked from t"e rest of t"e economy& As "as "appened elsew"ere in t"e world) a
distressed national economy s"ifts a part of its negative res#lts to t"e banking ind#stry& In
s"ort) banks are made #ltimately to finance t"e losses inc#rred by constit#ent ind#stries
and b#sinesses& T"e #nprepared ness and str#ct#ral weakness of o#r banking system to
act to t"e emerging scenario and derisk itself to t"e c"allenges t"rown by t"e new order)
trying to switc" over to globali(ation were only aggravating t"e crisis& Partial perceptions
and "asty /#dgments led to a policy of ad"ocism) w"ic" c"aracteri(ed t"e approac" of
t"e a#t"orities d#ring t"e last twodecades towards finding sol#tions to banking ailments
and dismantling recovery impediments& *ontin#o#s concern was e%pressed& 1epeated
correctional efforts were e%ec#ted) b#t positive res#lts were evading& T"e problem was
defying a sol#tion&
T"e t"reat of NPA was being s#rveyed and s#mmari(ed by 1BI and Dovernment
of India from a remote perception looking at a bird;seyeview on t"e banking ind#stry as
a w"ole delinked from t"e rest of t"e economy& 1BI looks at t"e banking ind#stry;s
average on a macro basis) consolidating and tab#lating t"e data s#bmitted by different
instit#tions& It "as collected e%tensive statistics abo#t NPA in different financial sectors
like commercial banks) financial instit#tions) #rban cooperatives) NB:* etc& B#t still it is
BABASAB PATIL ?
a distant view of one o#tside t"e system and not t"e felt view of a s#ffering participant&
Individ#al banks in"erit different c#lt#res and t"ey finance diverse sectors of t"e
economy t"at do not possess identical attrib#tes& T"ere are distinct diversities as among
t"e +A p#blic sector banks t"emselves) between different geograp"ical regions and
between different types of c#stomers #sing bank credit& T"ere are t"ree weak nationali(ed
banks t"at "ave been identified& B#t t"ere are also correspondingly two better performing
banks like *orporation and 'B*& T"ere are also banks t"at "ave s#ccessf#lly contained
NPA and bro#g"t it to single digit like Syndicate <Dross NPA ,&?,E= and And"ra <Dross
NPA 6&!0E=& T"e scenario is not so simple to be generali(ed for t"e ind#stry as a w"ole
to prescribe a readymade package of a common sol#tion for all banks and for all times&
Similarly NPA concerns of individ#al Banks s#mmari(ed as a w"ole and
e%pressed as an average for t"e entire bank cannot convey a dependable pict#re& It is
being statistically stated t"at bank F or G "as !+E gross NPA& B#t if we look down
f#rt"er wit"in t"at Bank t"ere are a few pockets possessing b#lk segments of NPA
ranging 35E to ,5E gross ) w"ic" s"o#ld conse$#ently convey t"at t"ere s"o#ld also be
several ot"er segments wit" 0 to 3E or even NIL E NPA) averaging t"e bank;s w"ole
performance to !+E& @#c" criticism is made abo#t t"e obligation of Nationali(ed Banks
to e%tend priority sector advances& B#t banks "ave neit"er fared better in nonpriority
sector& T"e comparative performance #nder priority and nonpriority is only a difference
of degree and not t"at of kind&
T"e assessment of t"e mi%of contrib#ting factors incl#desH
!& "#man factors <t"ose pertaining to t"e bankers and t"e credit c#stomers=)
+& environmental imbalances in t"e economy on acco#nt of w"olesale c"anges and
also
0& In"erited problems of Indian banking and ind#stry&
BABASAB PATIL A
4ariable skill) efficiency and level integrity prevailing in different branc"es and in
different banks acco#nts for t"e sweeping disparities between interbank and intrabank
performance& 7e may add t"at w"ile t"e core or baselevel NPA in t"e ind#stry is d#e to
common contrib#tory ca#ses) t"e interse variations are on acco#nt of t"e str#ct#ral and
operational disparities& T"e "eavy concentrated prevalence of NPA is definitely d#e to
"#man factors contrib#ting to t"e same&
No bank appears to "ave cond#cted st#dies involving a crosssection of its operating
field staff) incl#ding t"e a#dit and inspection f#nctionaries for a candid and
compre"ensive introspection based on a s#rvey of t"e variables of NPA b#rden #nder
different categories of sectoral credit) different regions and in individ#al Branc"es
categori(ed as wit" "ig") medi#m and low incidence of NPA& 7e do not "ear t"e voice of
t"e operating personnel in t"ese banks candidly e%pressed and e%plaining t"eir fail#res&
>%bankers) i&e& t"e professional bankers w"o "ave retired from service) b#t possess a
dept" of inside knowledge do not o#tpo#r candidly t"eir views& After t"ree decades of
nationali(ed banking) we m#st "ave some "#ndreds of retired Bank e%ec#tives in t"e
co#ntry) w"o can boldly and independently) b#t ob/ectively voice t"eir views& >veryone
is satisfied in blaming t"e ot"ers& Bank e%ec#tives "old ;willf#l defa#lters; responsible for
all t"e plag#e& Ind#stry and b#siness blames t"e government policies&
Important factrevealing information for eac" NPA acco#nt is t"e gap period
between t"e date) w"en t"e advance was originally made and t"e date of its becoming
NPA& If t"e gap is long) it is t"e case of a s#nset ind#stry& T"ings were all rig"t earlier)
b#t economic variance in trade cycles or market sentiments "ave created t"e NPA& *redit
c#stomers w"o are in NPA today) b#t for years were earlier rated as good performers and
creditwort"y clients ranging wit"in t"e top 35 or !55& Significant part of t"e NPA is on
acco#nt of clo#t banking or willf#lly given bad loans& Infant mortality in credit is solely
on acco#nt of "#man factors and absence of "#man integrity&
*redit to different sectors given by t"e PSB-s in fact represents different prod#cts&
Advance to weaker sections below 1s&+3555B represents t"e act#al social banking& NPA
BABASAB PATIL !5
in t"is sector forms ? T' !5E of t"e gross amo#nt& Advance to agric#lt#re) SSI and big
ind#stries eac" calls for different strategies in terms of credit assessment, credit delivery,
project implementation, and post advance supervision& NPA in different sector is not
ca#sed by t"e same res#ltant factors& *ontaining $#ant#m of NPA is t"erefore to be
programmed by a sectorwise strategy involving a role of t"e actively engaged
participants w"o can tell w"ere t"e boot pinc"es in eac" case& B#siness and ind#stry "as
e$#al responsibility to accept acco#ntability for containment of NPA& @any of t"e
present defa#lters were once tr#sted and val#ed c#stomers of t"e banks& 7"y "ave t"ey
become #nreliable now) or "ave t"eyI
T"e credit portfolio of a nationali(ed bank also incl#des a n#mber of lowrisk and
riskfree segments) w"ic" cannot create NPA& Small personal loans against banks; own
deposits and ot"er tangible and easily marketable sec#rities pledged to t"e bank and "eld
in its c#stody are of t"is category& S#c" small loans are #niversally given in almost all t"e
branc"es and "ence t"e aggregate constit#tes a significant fig#re& T"en t"ere is food
credit given to :*I for food proc#rement and similar credits given to ma/or p#blic
8tilities and P#blic Sector 8ndertakings of t"e *entral Dovernment& It is only t"e
resid#al fragments of Bank credit t"at are e%posed to credit fail#res and reasons for NPA
can be ascertained by scr#tini(ing t"is segment&
Secondly NPA is not a dilemma facing e%cl#sively t"e Bankers& It is in fact an all
pervasive national sco#rge swaying t"e entire Indian economy& NPA is a sore t"roat of
t"e Indian economy as a w"ole& T"e banks are only t"e #ltimate victims) w"ere life cycle
of t"e vir#s is terminated&
Now) "ow does t"e Dovernment s#fferI 7"at abo#t t"e rec#rring loss of reven#e
by way of ta%es) e%cise to t"e government on acco#nt of clos#re of several lak"s of
erstw"ile vibrant ind#strial #nits and inefficient #sage of costly ind#strial infrastr#ct#re
erected wit" considerable investment by t"e nationI As per statistics collected t"ree years
back t"ere are over two and "alf million small ind#strial #nits representing over A5
percent of t"e total n#mber of ind#strial #nits& A ma/ority of t"e ind#strial work force
BABASAB PATIL !!
finds employment "ere and t"e sector;s contrib#tion to ind#strial o#tp#t is s#bstantial and
is estimated at over 03 percent w"ile its s"are of e%ports is also val#ed to be aro#nd 25
percent& '#t of t"e +&3 million) abo#t !5E of t"e small ind#stries are reported to be sick
involving a bank credit o#tstanding aro#nd 1s&3555 to 6555 *rores) at t"at period& It may
be even more now& T"ese closed #nits represent some t"o#sands of displaced workers
Previo#sly en/oying gainf#l employment& >ac" closed #nit w"et"er large) medi#m or
small occ#pies costly developed ind#strial land& Several items of mac"inery form sec#rity
for t"e NPA acco#nts s"o#ld eit"er be lying idle or /#nking o#t& In ot"er words) large
val#e of land) mac"inery and money are locked #p in ind#strial sickness& T"ese are t"e
assets created t"at "ave t#rned #nprod#ctive and t"ese represent t"e real p"ysical NPA)
w"ic" indirectly are reflected in t"e financial statements of nationali(ed banks) as t"e
#ltimate financiers of t"ese assets& In t"e final analysis it represents instability in ind#stry&
NPA represents t"e owes of t"e credit recipients) in t#rn transferred and parked wit" t"e
banks&
1ecogni(ing NPA as a sore t"roat of t"e Indian economy) t"e field level
participants s"o#ld first address t"emselves to find t"e sol#tion& 7"y not representatives
of ind#stries and commerce and t"at of t"e Indian Banks; Association come toget"er and
candidly analy(e and find an everlasting sol#tion "eralding t"e real spirit of dereg#lation
and decentrali(ation of management in banking sector) and accepting selfdiscipline and
selfrelianceI 7"at are t"e deficiencies in credit delivery t"at leads to its mis#se) ab#se
or lossI .ow to c"eck mis#se and ab#se at so#rceI .ow to deal wit" erring *orporateI In
s"ort) t"e f#nctional staff of t"e Bank along wit" t"e representatives of b#siness and
ind#stry "as to accept a candid introspection and arrive at a code of discipline in any final
sol#tion& And preventive action to be s#ccessf#l s"o#ld start from t"e creditrecipient
level and t"en e%tend to t"e bankers& 1BI and Dovernment of India can positively
facilitate t"e process by providing enabling meas#res& 9o not try to set rig"t ind#stry and
banks) b#t "elp ind#stry and banks to set rig"t t"emselves& T"e new tool of dereg#lated
approac" "as to be accepted in solving NPA&
BABASAB PATIL !+
*EAS(NS &(* T)E E3,STEN.E (& )-/E +E4E+ (& NPA0S ,N T)E
,ND,AN "AN1,N/ S2STE' 5,"S6:
T"e origin of t"e problem of b#rgeoning NPA-s lies in t"e $#ality of managing
credit risk by t"e banks concerned& 7"at is needed is "aving ade$#ate preventive
meas#res in place namely) fi%ing presanctioning appraisal responsibility and "aving an
effective postdisb#rsement s#pervision& Banks concerned s"o#ld contin#o#sly monitor
loans to identify acco#nts t"at "ave potential to become nonperforming&
To start wit") performance in terms of profitability is a benc"mark for any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing NPA-s "ave a
direct impact on banks profitability as legally banks are not allowed to book income on
s#c" acco#nts and at t"e same time banks are forced to make provision on s#c" assets as
per t"e 1eserve Bank of India <1BI= g#idelines&
Also) wit" increasing deposits made by t"e p#blic in t"e banking system) t"e
banking ind#stry cannot afford defa#lts by borrowers since NPA-s affects t"e repayment
capacity of banks&
:#rt"er) 1eserve Bank of India <1BI= s#ccessf#lly creates e%cess li$#idity in t"e
system t"ro#g" vario#s rate c#ts and banks fail to #tili(e t"is benefit to its advantage d#e
to t"e fear of b#rgeoning nonperforming assets&
BABASAB PATIL !0
Some of the other reasons !ere:
After t"e nationali(ation of banks sector wise allocation of credit disb#rsements
became comp#lsory&
Banks were compelled to give credit to even t"ose sectors) w"ic" were not
considered to be very profitable) keeping in mind t"e federal policy&
People in t"e agric#lt#ral sector were "ardly interested in ret#rning t"e loans as
t"ey were confident t"at t"e loans wit" t"e interest wo#ld be written off by t"e
s#ccessive governments&
T"e small scale ind#stries also availed credit even t"o#g" t"ey were not s#re of
performing to t"e e%tent of ret#rning t"e loans&
Banks were also not in t"e position to press eno#g" sec#rities to cover t"e loans in
calls of timings&
>ven if t"e assets were provided t"ey proved to be s#bstandard assets as t"e
val#es t"at co#ld be reali(ed were very low&
:ree distrib#tion done d#ring loan mails <congress regime= also contrib#ted to
t"e "eavy increase in NPA-s&
T"e slackness in effort by t"e bank a#t"orities to collect or recover loan advances
in time also contrib#tes to t"e increase in NPA-s&
BABASAB PATIL !2
Lack of acco#ntability of t"e officers) w"o sanctioned t"e loans led to a caste
w"ole approac" by t"e officers recovering t"e loans&
Loans sanctioned to #nder servicing candidates d#e to press#re from t"e
ministers and ot"er politicians also led to t"e non recovery of debts&
Poor credit appraisal system) lack of vision w"ile sanctioning credit limits&
Lack of proper monitoring&
1eckless advances to ac"ieve t"e b#dgetary targets&
Lack of sincere corporate c#lt#re) inade$#ate legal provisions on foreclos#re and
bankr#ptcy&
*"ange in economic policiesBenvironment&
Lack of coordination between banks&
Some of the internal factors of the organi7ation leading to NPA0s are:
9ivision of f#nds for e%pansion) diversification) moderni(ation) #ndertaking
new pro/ects and for "elping associate concerns) t"is is co#pled wit"
recessionary trends and fail#re to tap f#nds in t"e capital and debt markets&
B#siness fail#re< prod#ct) marketing etc&)=)inefficient management) strained
labor relations) inappropriate tec"nology) tec"nical problems) prod#ct
obsolescence etc&)
BABASAB PATIL !3
1ecession ) s"ortage of inp#t) power s"ortage) price escalation) accidents)
nat#ral calamities) besides e%ternali(ation problem in ot"er co#ntries leading
to non payment of overd#e&
TimeBcost overr#n d#ring t"e pro/ect implementation stage&
Dovernment policies like c"anges in t"e e%cise d#ties) poll#tion control
orders&
7illf#l defa#lt) sip"oning off of f#nds) fra#d) misappropriation)
promotersBdirectors disp#tes etc&)
9eficiencies on t"e part of t"e banks like delay in release of limits and delay
in release of paymentsBs#bsidies by t"e government&
(perational definitions:
NPA: An asset is classified as nonperforming asset <NPA-s= if d#es in t"e form of
principal and interest are not paid by t"e borrower for a period of A5 days&
Standard Assets: S#c" an asset is not a nonperforming asset& In ot"er words) it carries
not more t"an normal risk attac"ed to t"e b#siness&
Sub-standard Assets: It is classified as nonperforming asset for a period not e%ceeding
!? mont"s
BABASAB PATIL !6
Doubtful Assets: Asset t"at "as remained NPA for a period e%ceeding !? mont"s is a
do#btf#l asset&
Loss Assets: .ere loss is identified by t"e banks concerned or by internal a#ditors or by
e%ternal a#ditors or by 1eserve Bank India <1BI= inspection
Cash eserve atio !C": It is t"e reserve w"ic" t"e banks "ave to maintain wit" itself
in t"e form of cas" reserves or by way of c#rrent acco#nt wit" t"e 1eserve Bank of India
<1BI=) comp#ted as a certain percentage of its demand and time liabilities& T"e ob/ective
is to ens#re t"e safety and li$#idity of t"e deposits wit" t"e banks&
Statutory Li#uidity atio !SL"H It is t"e one w"ic" every banking company s"all
maintain in India in t"e form of cas") gold or #nenc#mbered approved sec#rities) an
amo#nt w"ic" s"all not) at t"e close of b#siness on any day be less t"an s#c" percentage
of t"e total of its demand and time liabilities in India as on t"e last :riday of t"e second
preceding fortnig"t) as t"e 1eserve Bank of India <1BI= may specify from time to time&
*", /-,DE+,NES (N ,N.('E *E.(/N,T,(N 5,NTE*EST ,N.('E (N
NPA0s6
Income 1ecognitionH Income from Non Performing Assets s"o#ld not recogni(e on
accr#al basis b#t s"o#ld be booked as income only w"en it is act#ally received& T"erefore
interest s"o#ld not be c"arged and taken into income acco#nt till t"e acco#nt become
standard asset&
BABASAB PATIL !,
Interest c"arged to be stopped
Provision to be made
(ver Due: Any amo#nt d#e to t"e Bank #nder any credit facility is
'ver d#e if it is not paid on t"e d#e date fi%ed by t"e Bank&
(ut of (rder: An acco#nt s"o#ld be treated as o#t of order
If t"e o#tstanding balance remains contin#o#sly in e%cess of t"e sanctioned limitB
drawing power&
In cases w"ere t"e o#tstanding balance in t"e principal operating acco#nt is less
t"an t"e sanctioned limitB drawing power) b#t t"ere are no credits continuously
for 89 days as on t"e date of Bank-s Balance S"eet or 7"ere are credits are not
eno#g" to cover t"e interest debited d#ring t"e same period&
A Non Performing Asset shall e an advance !here:
Term +oan: Interest andB or installment of principal remain over d#e for a period of
more than 89 days%
.ash .redit: (ver Draft: If t"e acco#nt remains out of order for a period more than
89 days%
"ills: 'verd#e for a period of more t"an A5 days&
(ther accounts: Any amo#nt to be received remains overd#e for a period of more t"an
A5 days&
Short duration crops: If t"e installment of principal or interest t"ere on remains
overdue for t!o crop seasons%
+ong duration crops: If installment of principal or interest t"ere on remains overd#e for
'ne *rop season&
An acco#nt wo#ld be classified as NPA only if t"e interest c"arged d#ring any
$#arter is not serviced f#lly wit"in A5 days from t"e end of t"e $#arter&
ASSET .+ASS,&,.AT,(N
BABASAB PATIL !?
Standard Assets:
Is one w"ic" does not disclose any problem and w"ic" does not carry more t"an normal
risks attac"ed to t"e b#siness&
Sustandard Assets:
7"ic" "as remained NPA for a period of less than or e;ual to <= months%
Doutful Assets:
If it "as remained NPA for a period exceeding <= months%
+oss Assets:
A loss asset is one w"ere loss "as been identified by t"e bank&
*", /-,DE+,NES (N P*(4,S,(N,N/ *E>-,*E'ENT (& "AN1
AD4AN.ES:
+oss Assets: !55E of t"e o#tstanding amo#nt&
Doutful Assets: !55E of #nsec#red portion&
Secured portion
8p to one year +5E
BABASAB PATIL !A
'ne to t"ree years 05E
@ore t"an 0 years
!& '#tstanding stock of NPA as on
0!&0&+552
+& Advances classified as do#btf#l more
t"an 0 years on or after 0!&0&+552
,3E w&e&f&0!
st
@arc") 56
!55E w&e&f&0!
st
@arc")5,
!55E w&e&f&0!
st
@arc")53
Sustandard Assets: Sec#red portion !5E and #nsec#red portion +5E on total
o#tstanding&
Standard Assets: A general provision of 5&25E <:or direct Agric#lt#re J S@> Sector
5&+3E=& Provisioning for standard assets will be done at corporate office centrally&
.alculation of Net NPA 5Non Performing Asset6
:orm#laH
D1'SS NPA
L>SSH Balance in Interest S#spense Acco#nt
L>SSH 9I*D*B>*D* *laims received b#t pending for ad/#stment
L>SSH Part payment received and kept in s#spense acco#nt
BABASAB PATIL +5
Ill#strationH <Based on ann#al reports of 8TI bank +55356=
Particulars Amount
Dross NPA of 8TI for t"e year +556 0,2+?
L>SSH Balance from interest s#spense acco#nt !+,52
L>SSH 9I*D*B>*D* *laims received b#t pending for
ad/#stment
06
L>SSH Part payment received and kept in S#spense ABc +A+?
N>T N'N P>1:'1@IND ASS>TS +!,65
N>T NPA IN P>1*>NTAD> 5&A,E
T)E NA*AS,')AN .('',TTEE?S &,*ST *EP(*T
T"e salient feat#res of t"ese reforms incl#deH
P"asing o#t of stat#tory preemption T"e SL1 re$#irement "ave been bro#g"t
down from 0?&3E to +3E and *11 re$#irement from ,&35E to 3&,3E& <Presently
2&3E=
9ereg#lation of interest rates All lending rates e%cept for lending to small
borrowers and a part of e%port finance "ave been dereg#lated& Interest on all
deposits are determined by banks e%cept on savings deposits&
BABASAB PATIL +!
*apital ade$#acy *A1 of A E prescribed wit" effect from @arc" 0!) +555&
't"er pr#dential norms Income recognition) asset classification and provisioning
norms "as been made applicable& T"e provisioning norms are more pr#dent)
ob/ective) transparent) and #niform and designed to avoid s#b/ectivity&
9ebt 1ecovery Trib#nals ++ 91Ts and 3 91ATs "ave already been set #p and ,
more 91Ts will be set #p d#ring t"e c#rrent financial year& *ompre"ensive
amendment in t"e Act "ave been made to make t"e provisions for ad/#dication)
enforcement and recovery more effective&
Transparency in financial statements Banks "ave been advised to disclose
certain key parameters s#c" as *A1) percentage of NPA-s) provisions for NPA-s)
net val#e of investment) 1et#rn on Assets) profit per employee and interest
income as percentage to working f#nds&
>ntry of new private sector banks A new private sector banks "ave been set #p
wit" a view to ind#ce greater competition and for improving operational
efficiency of t"e banking system& *ompetition "as been introd#ced in a controlled
manner and today we "ave nine new private sector banks and 06 foreign banks in
India competing wit" t"e p#blic sector banks bot" in retail and corporate banking
:#nctional a#tonomy T"e minim#m prescribed Dovernment e$#ity was bro#g"t
to 3!E& Nine nationali(ed banks raised 1s&+?33 crores from t"e market d#ring
!AA2+55!& Banks Boards "ave been given more powers in operational matters
s#c" as rationali(ation of branc"es) credit delivery and recr#itment of staff&
.iving off of reg#latory and s#pervisory control Board for financial s#pervision
was set #p #nder t"e 1BI in !AA2 bif#rcating t"e reg#latory and s#pervisory
f#nctions&
NA*AS,')AN .('',TTEE@ SE.(ND *EP(*T
BABASAB PATIL ++
T"e Narasim"an *ommittee on Banking 1eforms) in its second report) "as
combined drastic s#rgery wit" a strong dose of medicine to c#re t"e ailing ind#stry& 'n
performing assets <NPA-s= "ave been t"e bane of t"e ind#stry& T"e panel "as identified
poor credit decisions by managements) cyclical c"anges in t"e economic environment)
directed credit and cr#de forms of be"estlending as t"e factors responsible for poor asset
$#ality& T"e panel points a finger at priority sector credit as "aving a "ig" contamination
coefficient and s#ggests t"at $#antitative targets "ave ca#sed erosion of asset $#ality& It
laments t"e fact t"at inf#sion of recapitali(ation f#nds notwit"standing) NPA-s remain
#ncomfortably "ig"& Get it recommends t"at advances covered by government g#arantees
t"at "ave t#rned sticky s"o#ld also be reckoned as net NPA-s&
T"e Narasim"an *ommittee;s sol#tion for NPA-s is t"e creation of an Asset
1econstr#ction :#nd <A1:=) w"ic" will take over t"e bad debts of banks from t"eir
balance s"eets to enable t"em to start on a clean slate& 1ecapitali(ation t"ro#g" b#dgetary
inf#sion) t"e panel correctly points o#t) is not a s#stainable option& B#t bankers are
skeptical abo#t t"e workability of t"e A1:& A senior banker asked) KAt w"at price will
t"e A1: take over my NPA-sI .ow will t"e disco#nt be worked o#tIK .e said t"at t"e
A1: cannot bail o#t banks #nder t"e present legal system& Alt"o#g" every bad debt is
sec#red) banks cannot encas" t"e sec#rity beca#se of legal "#rdles& T"e 8rban Land
*eiling Act is a ma/or deterrent to debt recovery& Bankers say t"at t"e legal system "as to
be revamped to facilitate recovery so t"at t"e A1: can pick #p KNPA-s at a viable priceK&
T"e committee "as recommended t"at net NPA-s be bro#g"t down to less t"an 3
per cent by t"e year +555 and 0 per cent by t"e year +55+& K>asier said t"an done)K says a
top banker& KAlready we do a lot of windowdressing& '#tstanding acco#nts are s"own as
priority lending to meet targets& 7e keep lending to defa#lters to roll over t"e NPA-s&
:i%ing #nrealistic targets will be co#nterprod#ctive&K
T"e committee "as recommended t"at banks s"o#ld not lend to defa#lters) b#t
bankers say t"at t"is is #nrealistic& T"ey claim t"at in t"e absence of fres" loans) t"e
defa#lting companies will close down) and leading to loss of /obs& K7ill t"at be
BABASAB PATIL +0
acceptableIK asks a banker& Bankers also complain t"at t"ey are forced by t"e Board for
Ind#strial and :inancial 1econstr#ction <BI:1= to lend to sick companies) yet more often
t"an not t"ere is no t#rnaro#nd and t"e acco#nts t#rn bad&
.redit *is# and NPA0s:
L#ite often credit risk management <*1@= is conf#sed wit" managing non
performing assets <NPA-s=& .owever t"ere is an appreciable difference between t"e two&
NPA-s are a res#lt of past action w"ose effects are reali(ed in t"e present i&e& t"ey
represent credit risk t"at "as already materiali(ed and defa#lt "as already taken place&
'n t"e ot"er "and managing credit risk is a m#c" more forwardlooking approac"
and is mainly concerned wit" managing t"e $#ality of credit portfolio before defa#lt takes
place& In ot"er words) an attempt is made to avoid possible defa#lt by properly managing
credit risk& *onsidering t"e c#rrent global recession and #nreliable information in
financial statements) t"ere is "ig" credit risk in t"e banking and lending b#siness& To
create a defense against s#c" #ncertainty) bankers are e%pected to develop an effective
internal credit risk models for t"e p#rpose of credit risk management&
-sage of financial statements in assessing the ris# of default for lenders:
:or banks and financial instit#tions) bot" t"e balance s"eet and income statement
"ave a key role to play by providing val#able information on a borrower-s viability&
.owever) t"e approac" of scr#tini(ing financial statements is a backward looking
approac"& T"is is beca#seC t"e foc#s of acco#nting is on past performance and c#rrent
positions&
BABASAB PATIL +2
T"e key acco#nting ratios generally #sed for t"e p#rpose of ascertaining t"e
creditwort"iness of a b#siness entity are t"at of debte$#ity ratio and interest coverage
ratio& .ig"ly rated companies generally "ave low leverage& T"is is beca#seC "ig" leverage
is followed by "ig" fi%ed interest c"arges) nonpayment of w"ic" res#lts into a defa#lt&
.apital Ade;uacy *atio 5.A*6 of *", and "asel committee on an#ing supervision
5"."S6:
1eserve Bank of India <1BI= "as iss#ed capital ade$#acy norms for t"e Indian
banks& T"e minim#m *A1 w"ic" t"e Indian Banks are re$#ired to meet at all times is set
at AE& It s"o#ld be taken into consideration t"at t"e bank;s capital refers to t"e ability of
bank to wit"stand losses d#e to risk e%pos#res&
To be more precise) capital c"arge is a sort of reg#latory cost of keeping loans
<perceived as risky= on t"e balance s"eet of banks& T"e $#ality of assets of t"e bank and
its capital are often closely related& L#ality of assets is reflected in t"e $#ant#m of
NPA-s& By t"is) it implies t"at if t"e asset $#ality was poor) t"en "ig"er wo#ld be t"e
$#ant#m of nonperforming assets and viceversa&
@arket risk is t"e risk arising d#e to t"e fl#ct#ations in val#e of a portfolio d#e to
t"e volatility of market prices&
'perational risk refers to losses arising d#e to comple% system and processes& It is
important for a bank to "ave a good capital base to wit"stand #nforeseen losses& It
indicates t"e capability of a bank to s#stain losses arising o#t of risky assets&
T"e Basel *ommittee on Banking S#pervision <B*BS= "as also laid down certain
minim#m risk based capital standards t"at apply to all internationally active commercial
banks& T"at is) bank;s capital s"o#ld at least be ?E of t"eir riskweig"ted assets& T"is
infact "elps bank to provide protection to t"e depositors and t"e creditors&
BABASAB PATIL +3
T"e main ob/ective "ere is to b#ild a sort of s#pport system to take care of
#ne%pected financial losses t"ereby ens#ring "ealt"y financial markets and protecting
depositors&
$%PAC& '( )*C)SS L$+,$D$&-:
'ne s"o#ld also not forget t"at t"e banks are faced wit" t"e problem of increasing
li$#idity in t"e system& :#rt"er) 1eserve Bank of India <1BI= is increasing t"e li$#idity in
t"e system t"ro#g" vario#s rate c#ts& Banks can get rid of its e%cess li$#idity by
increasing its lending b#t) often s"y away from s#c" an option d#e to t"e "ig" risk of
defa#lt& In order to promote certain pr#dential norms for "ealt"y banking practices) most
of t"e developed economies re$#ire all banks to maintain minim#m li$#id and cas"
reserves broadly classified into *as" 1eserve 1atio <*11= and t"e Stat#tory Li$#idity
1atio <SL1=&
*as" 1eserve 1atio <*11= is t"e reserve w"ic" t"e banks "ave to maintain wit"
itself in t"e form of cas" reserves or by way of c#rrent acco#nt wit" t"e 1eserve Bank of
India <1BI=) comp#ted as a certain percentage of its demand and time liabilities& T"e
ob/ective is to ens#re t"e safety and li$#idity of t"e deposits wit" t"e banks&
'n t"e ot"er "and) Stat#tory Li$#idity 1atio <SL1= is t"e one w"ic" every
banking company s"all maintain in India in t"e form of cas") gold or #nenc#mbered
approved sec#rities) an amo#nt w"ic" s"all not) at t"e close of b#siness on any day be
less t"an s#c" percentage of t"e total of its demand and time liabilities in India as on t"e
last :riday of t"e second preceding fortnig"t) as t"e 1eserve Bank of India <1BI= may
specify from time to time&
A rate c#t <for instance) decrease in *11= res#lts into lesser f#nds to be locked #p
in 1BI;s va#lts and f#rt"er inf#ses greater f#nds into a system& .owever) almost all t"e
banks are facing t"e problem of bad loans) b#rgeoning nonperforming assets) t"inning
margins) etc& as a res#lt of w"ic") banks are little rel#ctant in granting loans to corporates&
BABASAB PATIL +6
As s#c") t"o#g" in its monetary policy 1BI anno#nces rate c#t b#t) s#c" news are
no longer warmly greeted by t"e bankers&
),/) .(ST (& &-NDS D-E T( NPA0s:
L#ite often gen#ine borrowers face t"e diffic#lties in raising f#nds from banks
d#e to mo#nting NPA-s& >it"er t"e bank is rel#ctant in providing t"e re$#isite f#nds to
t"e gen#ine borrowers or if t"e f#nds are provided) t"ey come at a very "ig" cost to
compensate t"e lender-s losses ca#sed d#e to "ig" level of NPA-s&
T"erefore) $#ite often corporate prefer to raise f#nds t"ro#g" commercial papers
<*Ps= w"ere t"e interest rate on working capital c"arged by banks is "ig"er&
7it" t"e enactment of t"e Sec#riti(ation and 1econstr#ction of :inancial Assets
and >nforcement of Sec#rity Interest Act) +55+) banks can iss#e notices to t"e defa#lters
to pay #p t"e d#es and t"e borrowers will "ave to clear t"eir d#es wit"in 65 days& 'nce
t"e borrower receives a notice from t"e concerned bank and t"e financial instit#tion) t"e
sec#red assets mentioned in t"e notice cannot be sold or transferred wit"o#t t"e consent
of t"e lenders&
T"e main p#rpose of t"is notice is to inform t"e borrower t"at eit"er t"e s#m d#e
to t"e bank or financial instit#tion be paid by t"e borrower or else t"e former will take
action by way of taking over t"e possession of assets& Besides assets) banks can also
takeover t"e management of t"e company& T"#s t"e bankers #nder t"e aforementioned
Act will "ave t"e m#c" needed a#t"ority to eit"er sell t"e assets of t"e defa#lting
companies or c"ange t"eir management&
B#t t"e protection #nder t"e said Act only provides a partial sol#tion& 7"at banks
s"o#ld ens#re is t"at t"ey s"o#ld move wit" speed and c"arged wit" moment#m in
disposing off t"e assets& T"is is beca#se as #ncertainty increases wit" t"e passage of time)
t"ere is all possibility t"at t"e recoverable val#e of asset also red#ces and it cannot fetc"
good price& If faced wit" s#c" a sit#ation t"an t"e very p#rpose of getting protection
BABASAB PATIL +,
#nder t"e Sec#riti(ation Act) +55+ wo#ld be defeated and t"e "ope of seeing a m#st "ave
growing banking sector can easily vanis"&
Non Performing Assets of Ne! Private Sector "an#s@Sector !ise 5=99A data6
.enturion "an# of Panja +td
Sector Amount5 in .rore6 Percentage to total
Agric#lt#re !5&6? 0&0A
Small Scale Ind#stries !!&+0 0&3,
't"ers ?&AA +&?3
)D&. "an# +td
Agric#lt#re ++&?3 0&A+
Small Scale Ind#stries !A&!3 0&+?
't"ers !,2&+6 +A&??
,.,., "an# +td%
Agric#lt#re 23&63 +&53
Small Scale Ind#stries 03&3? !&65
BABASAB PATIL +?
't"ers !0&56 5&3A
,ndusind "an# +td
Agric#lt#re !!5&0, 2!&56
Small Scale Ind#stries !+&A+ 2&?!
't"ers +2&?5 A&+0
1ota# 'ahindra "an# +td
Agric#lt#re 0&+6 ?&!,
Small Scale Ind#stries
't"ers !3&06 0?&2A
-T, "an# +td
Agric#lt#re 36&,! !3&!,
Small Scale Ind#stries !0&?2 0&,5
't"ers 5&05 5&5?
*E.(4E*2 'EAS-*ES:
BABASAB PATIL +A
s
Broadly speaking) recovery meas#res co#ld be classified into two categories)
namely) legal meas#res and nonlegal meas#res&
+egal 'easures
<% Det *ecovery Triunals5D*T6
In t"e conte%t of recovery from NPAs 91T are ass#ming great importance since
efforts are on to set #p J more 91T d#ring t"is year and also to strengt"en t"em&
T"o#g" t"e recovery t"ro#g" 91T is at present less t"an two per cent of t"e claim
amo#nt) banks and :ls "ave to depend "eavily on t"em& >fforts are on to amend t"e
recovery act to assign more powers to 91Ts& @ore importantly) t"e borrowers tendency
to c"allenge t"e verdict of t"e Appellate Trib#nals in t"e .ig" co#rt to seek nat#ral
/#stice needs to be c"ecked) 't"erwise) early recovery efforts t"ro#g" 91Ts wo#ld be
f#tile& Secondly) training of presiding officers of Trib#nals abo#t t"e intricacies of
banking practices is very essential& :#rt"er) t"e n#mbers of recovery officers "ave to be
en"anced in every 91T for effective recovery& :inally) banks and :ls "ave to come
forward to provide liberal "elp to 91Ts to e$#ip t"em in terms of infrastr#ct#re)
manpower) etc&
BABASAB PATIL 05
=% National .ompany +a! Triunal :
As per t"e anno#ncement made in t"e B#dget+55!5+) Sick Ind#strial *ompany
Act will be repealed and Board for Ind#strial :inance and 1econstr#ction will be wo#nd
#p& As an alternative arrangement) it is proposed to set #p N*LT by amending t"e
*ompanies Act !A36& In A#g#st +55!) t"e N*LT is e%pected to consolidate t"e powers
of BI:1) .ig" co#rt and *ompany Law Board to avoid m#ltiplicity of for#ms& In
matters of re"abilitation of sick #nits) all concerned parties are s#pposed to abide by t"e
orders of N*LT& T"ere s"all be !5 benc"es) w"ic" will deal wit" re"abilitation)
reconstr#ction and winding#p of companies& It is estimated to complete t"e entire
process d#ring a period of +0 years as against +5+, years presently taken& T"e Trib#nal
will "ave) in addition) powers of contempt of co#rt&
A re"abilitation and revival f#nd will be constit#ted to make interim payment of
d#es to workers of a company declared sick or is #nder li$#idation) protection of assets of
sick company and re"abilitate sick companies& 7"ile N*LT will be acting on t"e lines of
BI:1 in t"e matters of re"abilitation viability of t"e pro/ects will be assessed on cas" test
and not in t"e present test of nettime limit for completing eac" formality relating to
re"abilitation and winding#p& T"o#g" t"e Bill is well drafted to ens#re N*LT to
become time wise) and more effective t"an BI:1 in respect of re"abilitation and winding
#p) do#bts are raised abo#t t"e implementation of t"e Bill taking into acco#nt t"e present
political economy& In any case) it is too early to comment&
BABASAB PATIL 0!
B% .orporate Det *estructuring "ody
A need was felt to special agency to facilitate debt restr#ct#ring beca#se t"ere "as
been some "esitancy on t"e part of Bank and financial instit#tion to implement 1BI
g#idelines on debt restr#ct#ring recently t"reetire body) *91 "as been set #p to
coordinate corporate debt Mrestr#ct#ring program& It is yet to be operationali(ed *91
consist of :or#m Dro#p and cell& 7"ile t"e for#m evolves broad policy g#idelines) t"e
gro#p takes decisions on t"e proposals pecommended by t"e *ell& Initially) t"e borrower
approac"es "is Lead bankB:I wit" a re$#est to restr#ct#re debt w"ic" in t#rn p#ts #p t"e
proposal to t"e *ell& T"e *91 *overs only m#ltiple banking acco#nts en/oying credit
facilities e%ceeding 1s&+5crore& *ases of 91T) BI:1 and willf#l defa#lts) do#btf#l and
loss acco#nts and s#itfiled cased are o#tside t"e p#rview of t"e *91& T"#s standard and
s#bstandard acco#nts are only eligible to seek *91 s"elter& 9ecisions of t"e gro#p are
based on t"e s#per ma/ority principle& If ,3 percent of t"e sec#red creditors agree to t"e
re"abilitation plan) it is binding on t"e ot"er banksB:is&
T"e *91 is a vol#ntary system based on debtor creditor agreement and inter
creditors agreement& No bankerBborrower can take reco#rse to any legal action d#ring t"e
standstill period of A5!?5 days& Lastly) *91 will observe t"e 1BI D#ideline on 9ebt
1estr#ct#ring iss#ed in @arc" +556& 7"ile t"e arrangements #nder *91 seem to be
feasible from t"e debt restr#ct#ring perspective) its s#ccess depends #pon t"e cooperation
e%tended by borrowers and bankers) on t"e one "and) and #nderstanding among banks
and :is) on t"e ot"er& 9o#bts are raised abo#t t"e implementation of t"ese agreements
taking into t"e present working of t"e loan consorti#m arrangements&
BABASAB PATIL 0+
C% Asset *econstruction .orporation%
It is proposed to set #p A1*s in t"e private sector to take over NPAs in t"e p#blic
sector banks& T"e 1BI will be t"e reg#lator of t"ese AT*s& T"e A1* will b#y NPAs of
t"e banks and financial instit#tions at t"e predetermined disco#nted val#e and iss#e NPA
redemption bonds) w"ic" carry a fi%ed ret#rn& A1*s are e%pected to be managed by
professionals to effect ma%im#m recovery of NPA) w"ic" will "elp in redemption of
bonds after some time& T"e :inance @inistry "as finali(ed t"e draft Bill to set #p A1*s&
T"o#g" t"e proposed sc"eme seems to be attractive) its s#ccess will depend #pon t"e
efficiency of 91Ts and co#rts& :#rt"er) if A1* is going to depend on t"e staff dep#ted
by weak banks) its recovery c"ances are do#btf#l&
D% .ompany 'ergers%
8nder t"e *ompanies Act) !A36) mergers are permitted& In !A,,) Sec ,+A was
inserted in t"e Income Ta% Act to offer ta% incentives to "ealt"y companies w"ic" take
over t"e sick companies and prepare revival plans& 1esponse to t"is sc"eme formalities
as per t"e instr#ctions of t"e .ig" *o#rt and Income Ta% 9epartment& Ta% incentives are
fo#nd to be inade$#ate to motivate "ealt"y companies to come forward and take
advantage of t"e sc"eme& 1ecovery of bank d#es on companymergers is not ass#red
since "ardly ,&? per cent of sick companies are s#ccessf#lly revived& >nco#raged by t"e
s#ccess ac"ieved in company mergers in developed co#ntries) a review of t"e sc"eme
#nder section ,+A of IT Act is called for&
BABASAB PATIL 00
N(N +E/A+ 'EAS-*ES
<% *eminder System
T"e c"eapest mode of recovery is by sending reminders to t"e borrowers before
t"e loan installment falls d#e& Denerally) response to t"is arrangement partic#larly from
"onest borrowers is enco#raging& B#t efforts need to be strengt"ened in banks in
sending reminders on timely basis&
=% 4isit to "orro!er0s "usiness Premise:*esidence
T"is is a more dependable meas#re of recovery& 4isits need to be properly
planned& Involvement of staff at all levels in t"e bank branc" is called for& *osts
involved in recovery need to be kept to t"e minim#m& :re$#ent visits are called for in
case of "ardcore borrowers& 'ver t"e years) it is observed t"at t"e n#mber and $#ality of
visits are going down& *onse$#ently) t"e recovery process is affected&
B% *ecovery .amps
In respect of agric#lt#ral advances) recovery camps s"o#ld be organi(ed d#ring
t"e "arvest season& To ens#re ma%im#m advantage) recovery camps need to be properly
planned& It is also essential to take t"e "elp of o#tsiders) partic#larly) reven#e officers in
t"e state government) local panc"ayat officials) regional approac" to give a wide
p#blicity of t"e recovery camps to be organi(ed in t"e local area) mobili(e as many
farmers as possible and motivate t"e staff to get involved in t"e recovery drive&
BABASAB PATIL 02
C% *ephrasing -npaid +oan ,nstallments
In respect of small advances) bankers need to be system pat"etic in respect of
sincere and "ardworking borrowers& If s#c" borrowers fail to pay loan installments d#e
to nat#ral calamities or for some ot"er convincing reasons) #npaid loan installments may
be replasedBresc"ed#led& Bankers efforts need to be strengt"ened in t"e regard&
D% *ehailitation of Sic# -nits
Sick #nits bot" in SSI and non SSI sectors s"o#ld be identified on timely basis
keeping in mind t"e official definitions& *a#ses of sickness s"o#ld be gen#ine& If t"e
pro/ect is fo#nd viable in terms of 9ebt Service *overage 1atio <9S*1=) re"abilitation
package "as to be prepared keeping in mind t"e broad parameters s#ggested by t"e 1BI&
T"e package s"o#ld be implemented at t"e earliest by t"e bank and t"e borrower& *lose
monitoring of t"e progress of implementation is called for& T"ere are several s#ccess
stories on re"abilitation of sick #nits& B#t in general) it is observed t"at t"e s#ccess rate
in revival of sickness is disco#raging& :#rt"er) in t"e process of financial sector reforms)
banks and :is are "esitant to re"abilitate d#e to t"e t"reat of fail#re in re"abilitation&
1ecently) t"e 1BI "as permitted banks not to make provision for sick SSI #nits d#ring t"e
first year of implementation& New g#idelines on re"abilitation of sick SSI #nits will also
be iss#ed soon by t"e 1BI& :or s#ccessf#l re"abilitation) it is essential to create a
sense of #rgency on t"e part of bot" banks and borrowers& >fforts on t"e part of t"e
government in terms of concessions) relief-s etc& S"o#ld be made on timely basis&
8nderstanding between bank and S:*s s"o#ld be strengt"ened& Above all) stern action
against willf#l defa#lters is called for&
BABASAB PATIL 03
A% +oan .ompromise
T"is is t"e last resort of recovery& T"is s"o#ld be vol#ntary& It calls for a
professional approac" in preparing t"e compromise proposal for w"ic" eac" bank is
e%pected to introd#ce a sc"eme& *ommittee approac" s"o#ld be adopted to decide on t"e
loan compromise& 9elays in taking decisions s"o#ld be avoided& 1ecently) one Time
Settlement <'TS= sc"eme was introd#ced by t"e 1BI& T"e overall response to t"e
sc"eme was limited& .ence) eac" bank is e%pected to come o#t wit" its own 'TS
sc"eme& In addition) training of operating staff is essential to c"ange t"eir mindset& :or
effective recovery) loan compromise s"o#ld be taken #p on priority basis&
,& Appointment of Professional Agencies for *ecovery
1ecently) IBA "as worked o#t certain g#idelines for banks on matters concerning
t"e appointment of o#tside professional agencies w"ose services can be #tili(ed to
ascertain t"e w"ereabo#ts of t"e borrowers and enforcement of sec#rities& T"ere is some
"esitancy on t"e part of p#blic sector banks in engaging t"em for recovery p#rposes d#e
to #npleasant e%periences in certain cases& B#t d#ring t"e post M 41S scenario) it is
s#ggested to seek s#c" o#tso#rcing& T"is s"o#ld be done after e%amining t"e credentials
of t"e professionals& It is also essential to keep a constant vigil on t"eir practice&
BABASAB PATIL 06

BABASAB PATIL 0,
-nit Trust of ,ndia "an#
8TI Bank was t"e first of t"e new private banks to "ave beg#n operations in
!AA2) after t"e Dovernment of India allowed new private banks to be establis"ed& T"e
Bank was promoted /ointly by t"e Administrator of t"e specified #ndertaking of t"e) 8nit
Tr#st of India&
Life Ins#rance *orporation of India <LI*=
Deneral Ins#rance *orporation Ltd&
't"er fo#r PS8 companies) i&e&
National Ins#rance *ompany Ltd&)
T"e New India Ass#rance *ompany)
T"e 'riental Ins#rance *orporation and 8nited Ins#rance *ompany Ltd&
T"e Bank today is capitali(ed to t"e e%tent of 1s& +?5&3! *rores wit" t"e p#blic
"olding <ot"er t"an promoters= at ,+&26 E&
T"e "an#?s *egistered (ffice is at Ahmedaad and its *entral 'ffice is located at
'umai& Presently t"e Bank "as a very wide network of more t"an 26A branc" offices
and >%tension *o#nters& T"e Bank "as a network of over +5!6 AT@s providing +2"rs a
day banking convenience to its c#stomers& T"is is one of t"e largest AT@ networks in t"e
co#ntry&
T"e Bank "as strengt"s in bot" retail and corporate banking and is committed to
adopting t"e best ind#stry practices internationally in order to ac"ieve e%cellence&
'ission of -T, "an#:
*#stomer Service and Prod#ct Innovation t#ned to diverse needs of individ#al
and corporate clientele&
*ontin#o#s tec"nology #pgradation w"ile maintaining "#man val#es&
Progressive globali(ation and ac"ieving international standards&
>fficiency and effectiveness b#ilt on et"ical practices&
BABASAB PATIL 0?
.ore 4alues
*#stomer Satisfaction t"ro#g"
Providing $#ality service effectively and efficiently
Smile) it en"ances yo#r face val#eK is a service $#ality stressed on
Periodic *#stomer Service A#dits
@a%imi(ation of Stake"older val#e
S#ccess t"ro#g" Teamwork) Integrity and People
Promoters:
8TI Bank Ltd& "as been promoted by t"e largest and t"e best :inancial Instit#tion of t"e
co#ntry) 8TI& T"e Bank was set #p wit" a capital of 1s& !!3 crore) wit"
8TI contrib#ting 1s& !55 crore)
LI* 1s& ,&3 crore and
DI* and its fo#r s#bsidiaries contrib#ting 1s& !&3 crore eac"&
"oard of Directors H
T"e Bank "as <= members on t"e Board& Dr% P% E% Naya# is t"e .hairman and
'anaging Director of the "an#&
T"e members of t"e Board are H
Dr% P% E% Naya# *"airman J @anaging 9irector
Shri Surendra Singh 9irector
Shri N%.% Singhal 9irector
Shri A%T% Pannir Selvam 9irector
Shri E%*% 4arma 9irector
Dr% *% )% Patil 9irector
Smt% *ama "ijapur#ar 9irector
Shri * " + 4aish
9irector
Shri S% .hatterjee >%ec#tive 9irector <7"ole Time 9irector=
Shri S " 'athur 9irector
Shri ' 4 Suiah 9irector
BABASAB PATIL 0A
Shri *amesh *amanathan 9irector
)istory of -T, "an#
<88B T"e Bank was incorporated on 0rd 9ecember and *ertificate of b#siness on!2t"
9ecember& T"e Bank transacts banking b#siness of all description& 8TI Bank Ltd& was
promoted by 8nit Tr#st of India) Life Ins#rance *orporation of India) Deneral
Ins#rance *orporation of India and its fo#r s#bsidiaries&
T"e bank was t"e first private sector bank to get a license #nder t"e new g#idelines
iss#ed by t"e 1BI
<88C M :irst branc" of 8TI Bank ina#g#rated at A"medabad by 9r& @anmo"an Sing")
.on;ble :inance @inister) Dovernment of India&
<88D M *ompletes first profitable year in operation
<88A M *rosses 1s&!555 crore deposit mark
<88F M T"e Bank obtained license to act as 9epository Participant wit" NS9L and
applied for registration wit" S>BI to act as NTr#stee to 9ebent#re .olders;&
1#pees !55 crores was contrib#ted by 8TI) t"e rest from LI* 1s ,&3 crores)
DI* and its fo#r s#bsidiaries 1s !&3 crores eac"&
<88G M T"e Bank "as +? branc"es in #rban and semi #rban areas as on 0!st O#ly& All
t"e branc"es are f#lly comp#terised and networked t"ro#g" 4SAT& AT@
services are available in +, branc"es&
T"e Bank came o#t wit" a p#blic iss#e of !)35)55)555 No& of e$#ity s"ares of
1s !5 eac" at a premi#m of 1s !! per s"are aggregating to 1s 0!&35 crores and
'ffer for sale of +)55)55)555 No& of e$#ity s"ares for cas" at a price of 1s +!
per s"are& '#t of t"e p#blic iss#e +)+5)555 s"ares were reserved for allotment
on preferencial basis to employees of 8TI Bank& Balance of 0)2,)?5)555
s"ares were offered to t"e p#blic&
T"e company offers AT@ cards) #sing w"ic" acco#nt"olders can wit"draw
money from any of t"e bank;s AT@s across t"e co#ntry w"ic" are inter
connected by 4SAT&
BABASAB PATIL 25
8TI Bank "as la#nc"ed a new retail prod#ct wit" operational fle%ibility for its
c#stomers&
8TI Bank will sign a cobrand agreement wit" t"e market) leader) *itibank NA
for entering into t"e "ig"ly promising credit card b#siness&
8TI Bank promoted by India;s pioneer m#t#al f#nd 8nit Tr#st of India along
wit" LI*) DI* and its fo#r s#bsidiaries&
<888 8TI Bank and *itibank "ave la#nc"ed an international cobranded credit card&
8TI Bank and *itibank "ave come toget"er to la#nc" an international co
branded credit card #nder t"e @aster*ard #mbrella&
8TI Bank Ltd "as ina#g#rated an off site AT@ at As"ok Nagar "ere) taking t"e
total n#mber of its off site AT@s to !0&m
=999 T"e Bank "as anno#nced t"e la#nc" of Tele9epository Services for its
depository clients&
8TI Bank "as la#nc" of Ni*onnect;) its Internet banking Prod#ct&
8TI Bank "as signed a memorand#m of #nderstanding wit" e$#itymaster&com
for ebroking activities of t"e site&
Infinity&com financial Sec#rities Ltd&) an ebroking o#tfit is typing #p wit" 8TI
Bank for a banking interface&
Deo/it Sec#rities Ltd) t"e first company to start online trading services) "as
signed a @o8 wit" 8TI Bank to enable investors to b#yPsell demat stocks
t"ro#g" t"e company;s website&
Indiab#lls "as signed a memorand#m of #nderstanding wit" 8TI Bank&
8TI Bank "as entered into an agreement wit" Stock .olding *orporation of
India for providing loans against s"ares to S*.*IL;s c#stomers and f#nding
investors in p#blic and rig"ts iss#es&
8TI Bank "as tied #p wit" LJT Trade&com for providing c#stomi(ed online
trading sol#tion for brokers&
BABASAB PATIL 2!
=99< 8TI Bank la#nc"ed a private placement of nonconvertible debent#res to rise #p
to 1s ,3 crore& 8TI Bank "as opened two offsite AT@s and one e%tension
co#nter wit" an AT@ in @angalore) taking its total n#mber of AT@s across t"e
co#ntry to 033&
8TI Bank "as recorded a 6+ per cent rise in net profit for t"e $#arter ended
September 05) +55!) at 1s 05&A3 crore& :or t"e second $#arter ended September
05) +555) t"e net profit was 1s !A&5? crore& T"e total income of t"e bank d#ring
t"e $#arter was #p 30 per cent at 1s 066&+3 crore&
=99= 8TI Bank Ltd "as informed BS> t"at S"ri B 1 Barwale "as resigned as a
9irector of t"e Bank w&e&f& Oan#ary 5+) +55+& A * S"a") former c"airman of
Bank of Baroda) also retired from t"e bank;s board in t"e t"ird $#arter of last
year& .is place contin#es to be vacant& @ 9amodaran took over as t"e director
of t"e board after taking in t"e reins of 8TI& B S Pandit "as also /oined t"e
bank;s board s#bse$#ent to t"e retirement of Q D 4assal&
8TI Bank Ltd "as informed t"at S"ri Pa#l :letc"er "as been appointed as an
Additional 9irector Nominee of *9* :inancial Service <@a#riti#s= Ltd of t"e
Bank&And S"ri 9onald Peck "as been appointed as an Additional 9irector
<nominee of So#t" Asia 1egional :#nd= of t"e Bank&
8TI Bank Ltd "as informed t"at on laying down t"e office of *"airman of LI*
on being appointed as *"airman of S>BI) S"ri D N Ba/pai) Nominee 9irector of
LI* "as resigned as a 9irector of t"e Bank&
=99= B Paran/pe J Abid .#ssain cease to be t"e 9irectors of 8TI Bank&
8TI Bank Ltd "as informed t"at in t"e meeting of t"e Board of 9irectors
following decisions were takenH @r Gas" @a"a/an) 4ice *"airman and
@anaging 9irector of P#n/ab Tractors Ltd was appointed as an Additional
9irector wit" immediate effect& @r N * Sing"al former 4ice *"airman and
@anaging 9irector of S*I*I was appointed as an Additional 9irector wit"
immediate effect&

BABASAB PATIL 2+
8TI Bank Ltd "as informed BS> t"at a meeting of t"e Board of 9irectors of t"e
Bank is sc"ed#led to be "eld on 'ctober +2) +55+ to consider and take on record
t"e #na#dited "alf yearlyB$#arterly financial res#lts of t"e Bank for t"e "alf
yearBL#arter ended September 05) +55+&
8TI Bank Ltd "as informed t"at S"ri O @ Trivedi "as been appointed as an
alternate director to S"ri 9onald Peck wit" effect from November +) +55+&
=99B 8TI Bank Ltd "as informed BS> t"at at t"e meeting of t"e Board of 9irectors of
t"e company "eld on Oan#ary !6) +550) S"ri 1 N B"aradwa/) @anaging 9irector
of LI* "as been appointed as an Additional 9irector of t"e Bank wit"
immediate effect&
8TI Bank) t"e private sector bank "as opeaned a branc" at Nellore& T"e bank;s
*"airman and @anaging 9irector) 9r P&O& Nayak) ina#g#rating t"e bank branc"
at DT 1oad on @ay +6& Speaking on t"e occasion) 9r Nayak said) KT"is marks
anot"er step towards t"e e%tensive c#stomer banking foc#s t"at we are providing
across t"e co#ntry and reinforces o#r commitment to bring s#perior banking
services) marked by convenience and closeness to c#stomers&
8TI "as been a#t"orised to la#nc" !6 AT@s on t"e 7estern 1ailway Stations of
@#mbai 9ivision&
8TI filed s#it against financial instit#tions I:*I Ltd in t"e debt recovery trib#nal
at @#mbai to recover 1s&?3cr in d#es&
8TI bank made an entry to t"e :ood *redit Programme) it "as made an entry
into t"e 3A cl#ster w"ic" incl#des private sector) p#blic sector) old private sector
and cooperative banks&
S"ri A/eet Prasad) Nminee of 8TI "as resigned as t"e director of t"e bank&
Banks *"airman and @9 9r&P&O&Nayak ina#g#rated a new branc" at Nellore&
8TI bank allots s"ares #nder >mployee Stock 'ption Sc"eme to its employees&
8TI Bank ties #p wit" 8Q govt f#nd for contract farming
S"ri B S Pandit) nominee of t"e Administrator of t"e Specified 8ndertaking of t"e
8nit Tr#st of India <8TII= "as resigned as a director from t"e Bank w&e&f
November !+) +550&
BABASAB PATIL 20
=99C *omes o#t wit" 1s& 355 mn 8nsec#red 1edeemable Non*onvertible 9ebent#re
Iss#e) iss#e f#lly s#bscribed
8TI Bank Ltd "as informed t"at S"ri A/eet Prasad) Nominee of t"e
Administrator of t"e Specified 8ndertaking of t"e 8nit Tr#st of India <8TI I=
"as been appointed as an Additional 9irector of t"e Bank w&e&f& Oan#ary +5)
+552&
8TI Bank opens new branc" in 8d#pi
8TI Bank ties #p wit" S"riram Dro#p *o-s
8nveils premi#m payment facility t"ro#g" AT@s applicable to LI* J 8TI Bank
c#stomers
@etal/#nction <@O= t"e online trading and proc#rement /oint vent#re of Tata
Steel and Steel A#t"ority of India <SAIL= "as roped in 8TI Bank to start off
own e$#ipment for Tata Steel&
9I>B'L9 Systems Private Ltd) a w"olly owned s#bsidiary of 9iebold
Incorporated) "as sec#red a ma/or contract for t"e s#pply of AT@s and services
to 8TI Bank
.SB* completes ac$#isition of !2&6E stake in 8TI Bank for R6,&6 m
8TI Bank installs AT@ in T"ir#vanant"ap#ram
La#nc"es N1emittance *ard; in association wit" 1emit+India) a 7eb site offering
moneytransfer services
=99D: 8TI Bank appointed by Dovernment of Qarnataka as t"e sole banker for t"e
Bangalore 'ne <B!= pro/ect&
@ 8TI Bank la#nc"es a powerf#l version of Qisan *redit *ard&
@ 8TI Bank gets listed on t"e London Stock >%c"ange) raises 8SR +0A&05 million
t"ro#g" Dlobal 9epositary 1eceipts <D91s=&
@ 8TI Bank and Ba/a/ Allian( /oin "ands to distrib#te general ins#rance prod#cts&
@ 8TI Bank and 4isa International la#nc" @obile 1efill facility Anytime)
Anyw"ere PrePaid @obile 1efill for all 4isa *ard"olders in India&
BABASAB PATIL 22
@ 8TI Bank wins International :inancing 1eview <I:1= Asia SIndia Bond .o#se-
award for t"e year +553&
8TI Bank e%tends banking services to t"e r#ral milk prod#cers in Anand and
Q"eda districts in D#/arat&
=99A: 8TI Bank and 8TI @#t#al :#nd to la#nc" a new service for sale and redemption
of m#t#al f#nd sc"emes t"ro#g" t"e Bank-s AT@s across t"e co#ntry&
8TI Bank opens its first international branc" in Singapore&
8TI Bank and LI* /oin "ands to la#nc" an Ann#ity *ard for gro#p
pensioners of LI*&
8TI Bank ties #p wit" Deo/it :inancial Services to offer 'nline Trading service
to its c#stomers&
BABASAB PATIL 23
SH(T Analysis
Strength
8TI Bank "as been in t"e banking
ind#stry since !AA2& It "as
s#ccessf#lly completed !+ years in
t"e Banking ind#stry&
T"e bank "as a so#nd network i&e
Any!here "an#ing facility in 235
Branc"es and !?A!AT'?s at strategic
locations in India&
-T, "an# stands one among t"e top
ten banks in India and is ranked <
st
in gro!th in usiness
T"e bank is "aving well
e%perienced) trained) most dedicated
and committed staff&
In "as a strong c#stomer base&
Hea#ness
Tedio#s proced#res "ave to be
followed before advancing loans
ca#sing inconvenience to c#stomers&
(pportunities
Dlobal aspirations of Indian
cons#mers and growing integration
wit" N1Is&
T"e bank can optimi(e t"e growt"
opport#nities arising o#t of retail
banking and small and medi#m
enterprises <S@>s=&
:#rt"er e%pansion of AT@s networks
and possible arrangements of s"aring
networks of ot"er banks by iss#ing
m#t#al f#nds and ins#rance&
Threat
Bank is facing competition from its
ot"er Private Sector Banks and even
t"e foreign Banks
*"anging economic policies of
Dovernment will "ave serio#s
impact on interest rates and reserve
ratio maintained wit" 1BI
BABASAB PATIL 26
Products and Services of -T, "an#
.onsumer an#ing
8TI Bank is providing in cons#mer banking t"e following prod#cts and servicesH
Savings Acco#nt
Salary Power
Power Sal#te
Priority Banking
7omen Acco#nt
Senior Privilege
ATAA9IK No :rills Savings Acco#nt
1:* <9= Acco#nt
:i%ed 9eposits
1ec#rring 9eposits
Lockers
9ebit *ard
Travel *#rrency *ard
>ncas" +2
1emittance *ard
4isa @oney Transfer
Power Transfer
.urrent Account
Normal *#rrent Acco#nt
B#siness Advantage Acco#nt
B#siness *lassic Acco#nt
B#siness Privilege Acco#nt
*"annel 'ne
BABASAB PATIL 2,
Demand drafts at correspondent bank locations available at very nominal c"arges&
:ree Pay 'rder facility&
:ree 9emand 9rafts
Intercity *as" 9eposit
Intercity *as" 7it"drawal
.ome Branc" *as" 7it"drawal
*etail loans @ 8TI Bank is providing following loan facilities to t"e c#stomers in retail
loan section&
Power 9rive
Power .ome
Asset Power
Personal Power
Loans against Sec#rities
*ons#mer Power
St#dy Power
.orporate an#ing @ In corporate banking 8TI Bank is providing following services&
*as" @anagement Services
LendingB:inancing
Trade Service
*#rrent Acco#nt
:i%ed 9eposits
+ending:&inancing
7orking capital finance
BABASAB PATIL 2?
*as" credit B working capital demand loan
Loan against :*N1 <B= deposit
Term lending
Pro/ect loan
Bill finance s#pply B p#rc"ase bills
*"annel finance
Asset sec#riti(ation
Line of credit
Bank g#arantees
Trade Service
Trade &inance
Bills 9isco#nting
LB* Backed bill disco#nting
9rawee Bill 9isco#nting
9rawer Bill 9isco#nting
&inancial advisory service
It is bank-s endeavor to offer c#stomer complete personal finance sol#tions&
T"ro#g" bank-s financial Advisory Services bank #nderstand c#stomers investment
re$#irements and design tailor made financial sol#tions for t"em&
Beyond merely advising c#stomers) Bank will also "elp t"e c#stomers to invest in
a variety of instr#ments incl#ding&
@#t#al :#nds
Bank ass#rance
>$#ity
Ta% cons#ltancy
IP' B#((
BABASAB PATIL 2A
:i%ed Income Prod#cts
Portfolio Tracker
N*, SE*4,.ES
In 8TI Bank) reali(e t"at as an N1I) c#stomer banking needs are special& And in
keeping wit" t"is p"ilosop"y) and offer val#ed N1I c#stomers a plet"ora of services
c#stomi(ed to t"eir needs) s#c" as
T"e entire bo#$#et of N1I 9eposit Prod#cts J Services&
International 9ebit *ard wit" Accident Ins#rance cover
:ree Internet Banking facility
Portfolio Investment sc"eme for capital market transactions&
*orrespondent BankingB1emittance arrangements in all ma/or c#rrencies
.apital mar#ets
9epository Services
e9epository Services
9ebent#re Tr#stees"ip
*learing bank for NS>BBS>B'T>*I
*learing @embers for 9erivatives Segment
Broker :inancing
Iss#e @anagement
@JA Advisory
IP' :#nding
'nline Trading
BABASAB PATIL 35
/overnment "usiness
8TI Bank is t"e :irst Private Sector Bank to be a#t"orised by t"e 1eserve Bank
of India <1BI= and Dovernment of India for collecting Ta%es on be"alf of a State
Dovernment& T"e Bank is "andling *ollection of *ommercial Ta%es in t"e twin cities of
.yderabad and Sec#nderabad for Dovt& of And"ra Prades" since O#ly +55!&
8TI Bank is now a#t"orised by 1eserve Bank of India and Dovt& of India for
cond#cting all *entral Dovernment and State Dovernment B#siness commencing wit"
'ctober !) +550& T"e a#t"orisation means t"e Bank can #ndertake t"e following
b#siness on be"alf of *entral and State DovernmentsH
Treasury
:oreign >%c"ange 9esk
International Banking
@oney @arket 9esk
*onstit#ent SDL :acility
1etail Dsec
9eposit 1ate
Newsletter
:oreign >%c"ange
BABASAB PATIL 3!

BABASAB PATIL 3+
&indings
And
Analysis
BABASAB PATIL 30
Design of the study
Title of the project:
Non Performing Assets and its impact on Profitaility of Ne! Private Sector
"an#s$%
Scope of study: Scope of my st#dy restricted only to , New Private Sector Banks
NPA data-s and Advances) and for *omparison of *redit risk pat" , old selected Private
Banks are taken&
Need &or Study:
T"is st#dy will "elp to know t"e recent norms of NPA&
T"is st#dy "elps to know "ow NPA *a#sing Problems to Banking Sector and
w"at mig"t be t"e sol#tion to overcome from t"is problem and also its impact on
Profitability of New Profit Banks&
STATE'ENT (& T)E P*("+E'
Profitability is considered as a benc"mark for eval#ating performance of any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing Non
Performing Assets) "ave a direct impact on profitability of banks and financial
instit#tions& Legally speaking banks and financial instit#tions are not allowed to book
income on s#c" acco#nt and at t"e same times t"ey are forced to make provision on s#c"
assets& So T"is pro/ect is #ndertaken to now impact of NPA on Profitability of New
Private Sector Banks&
BABASAB PATIL 32
(jectives of Study
6& To st#dy t"e 1BI norms on Non Performing Assets) and t"e vario#s reasons for
t"e e%istence of "#ge level of NPA in Indian banking&
,& To know t"e performance comparison of New Private Banks Non performing
asset for past 0 years&
?& To know t"e impact of non performing assets on profitability of New Private
Banks) and comparison of credit risk pat" of New Private Banks wit" , selected
'ld Private Banks&
A& To st#dy t"e vario#s steps taken by t"e banks to bring down t"e NPA-s in
respective bank branc"es&
!5& To recommend meas#res for Improving performance and red#ction of Non
Performing Assets&
'ethodology
Primary Data:
4iews of t"e concerned officials were gat"ered by directly interacting wit" t"em) and
s#c" data was fo#nd very #sef#l w"ile analy(ing and drawing concl#sions&
Secondary Data:
1ecent 1BI norms of NPA&
IBA B#lletin 5f +55356 is referred to collect data for Net NPA) and Advances&
7eb site of 8TI Bank and ot"er 7eb sites&
Plan of analysis:
In t"is st#dy $#adrant analysis is #sed on t"e calc#lated fig#res&
+imitations:
T"e st#dy is based mostly on secondary data&
BABASAB PATIL 33
9ata "as been drawn from /o#rnals) so information may not be complete&
:or t"e analysis only t"e advances and NPA percentages of banks and operating
profit) provisions and contingencies as a w"ole and net profit of New PSB-s are
taken into consideration&
,mpact of Provisions and .ontingencies on Net Profit of Ne! Private "an#s%
Performance comparison of Ne! Private Sector "an#s (perating Profit of B years
S No "an#s (perating Profit 5 in .rore6
=99B@9C =99C@9D =99D@9A
! Bank of Pan/ab LtdU !50 !A
+ *ent#rion Bank LtdU !+ 0! !2?
0 .9:* Bank Ltd !55? !022 !A,A
2 I*I*I Bank Ltd +2?! +A36 26A!
3 Ind#sind Bank Ltd& 223 25! ++3
6 Qotak @a"indra Bank Ltd& !+, !00 +!!
, 8TI Bank Ltd 6A? 366 AA2
? Ges Bank <2= AA
-1000
0
1000
2000
3000
4000
5000
B
a
n
k

o
f

P
a
n
j
a
b

L
t
d
*
C
e
n
t
u
r
i
o
n

B
a
n
k

L
t
d
*
H
D
F
C

B
a
n
k

L
t
d
I
C
I
C
I

B
a
n
k

L
t
d
I
n
d
u
s
i
n
d

B
a
n
k

L
t
d
!
o
t
a
k

"
a
#
i
n
d
r
a

B
a
n
k

L
t
d
$
%
I

B
a
n
k

L
t
d
&
e
s

B
a
n
k
2003-04
2004-05
2005-0'
BABASAB PATIL 36
,nterpretation: As we seen in grap" I*I*I Bank Ltd& 'perating Profit is increasing year
by year followed by .9:* Bank Ltd&
BABASAB PATIL 3,
Performance comparison of Ne! Private Sector "an#s Provisions and
.ontingencies of B years
0
500
1000
1500
2000
2500
B
a
n
k

o
f

P
a
n
j
a
b

L
t
d
*
C
e
n
t
u
r
i
o
n

B
a
n
k

L
t
d
*
H
D
F
C

B
a
n
k

L
t
d
I
C
I
C
I

B
a
n
k

L
t
d
I
n
d
u
s
i
n
d

B
a
n
k

L
t
d
!
o
t
a
k

"
a
#
i
n
d
r
a

B
a
n
k

L
t
d
$
%
I

B
a
n
k

L
t
d
&
e
s

B
a
n
k
2003-04
2004-05
2005-0'
,nterpretation:
I*I*I Bank Ltd making large Provisions for losses compares to .9:* Bank Ltd and 8TI
Bank Ltd may be beca#se of t"eir credit wort"iness&
BABASAB PATIL 3?
S No Banks Provisions and *ontingencies < in *rore=
+55052 +55253 +55356
! Bank of Pan/ab LtdU 66 ?!
+ *ent#rion Bank LtdU !!, 6 65
0 .9:* Bank Ltd 2A? 6,? !!5?
2 I*I*I Bank Ltd ?22 A3! +!3!
3 Ind#sind Bank Ltd& !?0 !A! !??
6 Qotak @a"indra Bank Ltd& 2? 2A A+
, 8TI Bank Ltd 2+5 +0! 35A
? Ges Bank 5 22
BABASAB PATIL 3A
Performance comparison of Ne! Private Sector "an#s Net Profit B years
-500
0
500
1000
1500
2000
2500
3000
B
a
n
k

o
f

P
a
n
j
a
b

L
t
d
*
C
e
n
t
u
r
i
o
n

B
a
n
k

L
t
d
*
H
D
F
C

B
a
n
k

L
t
d
I
C
I
C
I

B
a
n
k

L
t
d
I
n
d
u
s
i
n
d

B
a
n
k

L
t
d
!
o
t
a
k

"
a
#
i
n
d
r
a

B
a
n
k

L
t
d
$
%
I

B
a
n
k

L
t
d
&
e
s

B
a
n
k
2003-04
2004-05
2005-0'
,nterpretation:
I*I*I Bank Ltd and .9:* Bank LT9 Net Profit is Increasing >ven t"o#g" lot of @oney
"as spent on Provision and *ontingency& It may be beca#se of t"eir risk taking ability&
BABASAB PATIL 65
S No Banks Net Profit <in *rore=
+55052 +55253 +55356
! Bank of Pan/ab LtdU 0, <6!=
+ *ent#rion Bank LtdU <!53= +3 ??
0 .9:* Bank Ltd 3!5 666 ?,!
2 I*I*I Bank Ltd !60, +553 +325
3 Ind#sind Bank Ltd& +6+ +!5 0,
6 Qotak @a"indra Bank Ltd& ,A ?3 !!?
, 8TI Bank Ltd +,? 003 2?3
? Ges Bank <2= 33
Analysis of aove data:
As we see t"e above grap"s) I*I*I Bank Ltd 'perating Profit is increasing year
by year followed by .9:* Bank Ltd& 8TI Bank Ltd 'perating Profit is decreased in
+55253 b#t its s#ddenly increased to AA2crore in +553+556& B#t Bank of Pan/ab Ltd
'perating Profit for +55052 is !50 crore b#t s#ddenly it decreases to !A crore !n +552
53) t"en it amalgamated wit" *ent#rian Bank 7"ose 'perating Profit is *omparatively
Low in +55052 and +55253 after amalgamation it increases to !2?crore& >ven Ind#sind
Bank Ltd 'perating Profit is go on 9ecreasing and as Ges Bank is very new so initially it
"ad made loss of 2crore b#t made AAcrore operating profit in +55356&
Provisions and *ontingencies made by I*I*I Bank Ltd and .9:* Bank Ltd is
*omparatively "ig" it may be beca#se of risk taking ability and "ave strong financial
backgro#nd wit" more e%perience) And also t"ese banks are able to provide ade$#ate
finance to 9ifferent Sectors& As we seen 8TI Bank Ltd 'perating Profit in +55253
decreased and in +55356 increased so t"e Provisions made is low in +55253 b#t "ig" in
+55356 it may be beca#se of large advances made by bank in +55356& B#t Bank of
Pan/ab Ltd 'perating Profit gone down in +55253 to !Acrore b#t it "as inc#rred to make
?!crore Provisions and *ontingencies it may be beca#se of wrong Strategy made by bank
to provide finance and to maintain operating Profit) same sit#ation "as faced by
*ent#rion Bank Ltd in t"e year +55356& So only Bot"
Bank of Pan/ab Ltd and *ent#rion Bank Ltd Amalgamated to make strong finance
Backgro#nd& Ind#sind Bank 'perating Profit coming down year by year& Qotak
@a"indra is performing better eno#g" ne%t to I*I*I Bank) .9:* Bank) 8TI Bank& As
Ges Bank is new so initially it inc#rred 2crore loss so no provisions were made b#t it
made Provisions in +55356&
I*I*I Bank Ltd) .9:* Bank Ltd and 8TI Bank Ltd "ad comparatively "ig" Net
Profit it may be beca#se of risk taking ability and strong financial backgro#nd wit" more
e%perience& As "eavy Provisions were inc#rred by Bank of Pan/ab Ltd and *ent#rion
Bank Ltd till +55253 "ad amalgamated to make Positive Net profit and named
t"emselves as *ent#rion Bank of Pan/ab Ltd& Ind#sind Bank "ave to adopt different
strategy to increase net profit as it inc#rring loss from past 0 years&
BABASAB PATIL 6!
Analysis of /ross and Net NPA y ta#ing B years Advances paid y Ne! Private
Sector "an#%
"an# of Panja +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
+55052 +,5A !6? 6&+5 +030 !+6 3&03
+55253 +3+5 !+6 3&55 +2!, !!+ 2&62
+55356 @ @ @
.enturion "an# +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
+55052 !,53 ++! !+&A6 !336 6A 2&20
+55253 ++A! !36 6&?! +!A2 33 +&2A
+55356 6?2? 0!3 2&6 6300 ,2 !&!0
,ntrepretation:
As Bank of Pan/ab Ltd and *ent#rion Bank "as amalgamated in +553 September) so we
can see a decrease in Dross NPA from !+&A6E to 2&6E and Net NPA decreases to
!&!0E& 'f co#rse it is a good sign to t"e company as it came below 3E) beca#se if NPA
ratio of any Bank is more t"an 3E t"en it is said t"at t"e Banks need to adopt proper
strategy for recovery of debt&
BABASAB PATIL 6+
)D&. "an# +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
+55052 !?562 006 !&?6 !,,23 +? 5&!6
+55253 +3A,6 20A !&6A +3366 6! 5&+2
+55356 0603, 35A !&25 0356! !33 5&22
,nterpretation:
:rom t"e above table we can see t"at Dross NPA of .9:* Bank Ltd "as decreasing from
!&?6 to !&25 from +55052 to +55356& T"is accomplis"ment is on acco#nt of credit
growt") w"ic" was "ig"er t"an t"e growt" of Dross NPA and not t"ro#g" appreciable
recovery of NPA& T"ere is neit"er red#ction nor even containment of t"e t"reat beca#se
as we seen increase in Net NPA from Past 0 years&
,.,., "an# +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
+55052 63!56 0565 2&,5 62A2? !2+0 +&!A
+55253 A!A+5 0A+3 2&+, A!253 !353 !&63
+55356 !2?+55 +++0 !&35 !26!60 !530 5&,+
,nterpretation:
:rom above table we can see t"at Dross NPA of I*I*I Bank Ltd "as decreasing from
2&,5 to !&35 from +55052 to +55356& T"is accomplis"ment is on acco#nt of credit
recovery of NPA& T"ere is neit"er red#ction nor even containment of t"e t"reat& I*I*I
Bank Ltd is providing "ig" advances compare to ot"er banks in +553+556&
BABASAB PATIL 60
,ndusind "an# +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
+55052 ,?2? +3A 0&0 ,05! +!+ +&A5
+55253 A5A0 0+! 0&30 A555 +22 +&,!
+55356 A0,6 +6A +&A5 A0!5 !A3 +&5A
,nterpretation:
Ind#sind Bank need to adopt strategy in red#cing NPA as its advances were more in
+55253 and also Dross NPA "as increased it may be beca#se of t"eir credit wort"& And
again it decreases Dross NPA in +55356 t"is #ps and down can affect credit wort"iness
of t"e bank&
1ota# 'ahindra "an# +td%
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
+55052 +!53 +5 5&A3 +5A, 0 5&!2
+55253 253? +? 5&6A 25!, !3 5&0,
+55356 6030 0? 5&65 602A !3 5&+2
,nterpretation:
Qotak @a"indra Bank Ltd Net NPA is Increasing from +55052 to +55253 and again it
decreases to 5&+2 in +55356& it implied t"at NPA of Qotak @a"indra Bank are in #ps and
down it may be beca#se of any nat#ral calamities or c"ange in recovery meas#res etc&
b#t Dross NPA and Net NPA of Qotak @a"indra Bank is less t"an !E& So its good sign
to Bank&
-T, "an# +td
BABASAB PATIL 62
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
+55052 A0?6 +,3 +&A0 A060 !!+ !&+5
+55253 !36+? 0!! !&AA !3650 +!, !&0A
+55356 ++255 0,2 !&,5 ++0!2 +!? 5&A?
,nterpretation
8TI Bank Ltd Dross and Net NPA "as decreases from +&A0 to !&,5 and !&+5 to 5&A?
respectively from +55052 to +55356& T"is accomplis"ment is on acco#nt of credit
recovery of NPA& T"ere is neit"er red#ction nor even containment of t"e t"reat&
Performance .omparison of Net NPA of Ne! Private Sector "an#s
Ne! PS"0s =99B@9C =99C@9D =99D@9A
Bank of Pan/ab LtdU
2&6A 2&62 5
BABASAB PATIL 63
*ent#rion Bank
LtdU
2&20 +&2A !&!0
.9:* Bank Ltd
5&!6 5&+2 5&22
I*I*I Bank Ltd
+&+! !&63 5&,+
Ind#sind Bank Ltd&
+&,+ +&,! +&5A
Qotak @a"indra
Bank Ltd&
5&!, 5&0, 5&+2
8TI Bank Ltd
!&+A !&0A 5&A?
Ges Bank
5 5 5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2003-04 2004-05 2005-06
Bank of Panjab
Ltd*
Centurion Bank
Ltd*
HDFC Bank Ltd
CC Bank Ltd
ndu!ind Bank
Ltd.
"otak #a$indra
Bank Ltd.
%& Bank Ltd
'e! Bank
,nterpretation:
:rom above c"art we can see t"at Bank of Pan/ab Ltd-s NPA increasing till it-s
amalgamated wit" *ent#rion Bank Ltd) and came nearer to 3E) after amalgamation bot"
Bank of Pan/ab Ltd and *ent#rion Bank Ltd named t"emselves as *ent#rion Bank of
BABASAB PATIL 66
Pan/ab Ltd& And in +55356 its NPA comes down !&!0E comparatively from previo#s
year NPA&
7e can say t"at .9:* Bank Ltd "as strong financial backgro#nd and credit
wort"iness so it can provide more advances to people and also it is efficient eno#g" to
recover t"ose advances so its Net NPA "as coming down and it is less t"an !E& So
.9:* is performing well&
In +55052 I*I*I Bank Ltd Net NPA is more b#t its declining slowly and came to
5&,+ from +&+! in +55356& it may be beca#se of its credit wort"iness and strong recovery
meas#res& I*I*I Bank Ltd is real risk taker so we cannot compare it wit" ot"er small
banks beca#se it providing "ig" advances compare to ot"er banks&
Ind#sind Bank Ltd Net NPA almost same for +55052 to +55253 and declines to
+&5A in +55356&
As Qotak @a"indra Bank Ltd providing comparatively low advances to avoid
credit risk so its NPA is low compare to ot"er Banks&
>ven 8TI Bank is performing well in recovering debts so its NPA came down
from previo#s year&
BABASAB PATIL 6,
,'PA.T (& NPA0S (N "AN1S? P*(&,TS AND +END,N/ P*(HESS:
KT"e efficiency of a bank is not always reflected only by t"e si(e of its balance
s"eet b#t by t"e level of ret#rn on its assets& NPA-s do not generate interest income for
t"e banks) b#t at t"e same time banks are re$#ired to make provisions for s#c" NPA-s
from t"eir c#rrent profits&
NPA-s "ave a deleterio#s effect on t"e ret#rn on assets in several ways
T"ey erode c#rrent profits t"ro#g" provisioning re$#irements
T"ey res#lt in red#ced interest income
T"ey re$#ire "ig"er provisioning re$#irements affecting profits and accretion to
capital f#nds and capacity to increase good $#ality risk assets in f#t#re) and
T"ey limit recycling of f#nds) set in assetliability mismatc"es) etc t"ere is at
times a tendency among some of t"e banks to #nderstate t"e level of NPA-s in
order to red#ce t"e provisioning and boost #p bottom lines& It wo#ld only
postpone t"e In t"e conte%t of crippling effect on a bank;s operations in all
sp"eres) asset $#ality "as been placed as one of t"e most important parameters in
t"e meas#rement of a bank;s performance #nder t"e *A@>LS s#pervisory rating
system of 1BI&

BABASAB PATIL 6?
.redit ris# path of the Ne! Private "an#0s y .omparing !ith selected F (ld PS"0s
using >uadrant Analysis%
.redit ris# path of the Ne! Private "an#0s:
Ne! Private
"an#s
NPA to Net
Advances
5 I6
Advances5crores6 >uadrant
analysis
=99D =99A =99D =99A =99D =99A
Bank of Pan/ab LtdU
2&62 +2!, .L
*ent#rion Bank LtdU
+&2A !&!0 +!A2 6300 .L .L
.9:* Bank Ltd
5&+2 5&22 +3366 0,66! L. L.
I*I*I Bank Ltd
!&63 5&,+ A!253 !26!60 L. L.
Ind#sind Bank Ltd&
+&,! +&5A A555 A0!5 .L .L
Qotak @a"indra Bank
Ltd&
5&0, 5&+2 25!, 602A LL LL
8TI Bank Ltd
!&0A
5&A? !3650 ++0!2 LL LL
,nterpretation
BABASAB PATIL 6A
.redit ris# path of the Ne! PS"0s: A >uadrant Analysis
In t"e c"art below an attempt is made to trace t"e relations"ip between NPA
proportion and t"e si(e of credit portfolio <advances= of New Private Bank-s& :or t"is
p#rpose proportion of gross NPA-s representing credit risk in"erent is taken on t"e F
a%is and gross credit levels are taken on t"e Ga%is& Since t"ese two parameters are
assets) w"ic" are stock concept variables) t"ey "ave been plotted on t"e basis of + years
+553 and +556 for a comparative analysis&
>-AD*ANT TA"+E@ =99D
L>4>L
*1>9IT L>4>L
NPA
L'7 <B>L'7 A4D=

<L=
.ID. <AB'4> A4D=
<.=

L'7
.ID.
LL <+=
.L <0=
L. <+=
.. <5=
>-AD*ANT TA"+E@ =99A
L>4>L
*1>9IT L>4>L

NPA
L'7 <B>L'7 A4D=

<L=
.ID. <AB'4> A4D=
<.=

L'7
.ID.
LL <+=
.L <+=
L. <+=
.. <5=
BABASAB PATIL ,5
As depicted in t"e tables) t"e banks are divided into 2 $#adrants namely LL) L.)
.L and .. <t"e fig#res are arrived at by taking t"e averages=& T"e average of NPA-s for
t"e year +553 is !&A0E and t"is fig#re is meas#red against eac" bank) any percentage
above t"is fig#re falls in t"e . category and percentage below !&A0E falls in t"e L
category& T"e same applies wit" t"e advances& T"e average of advances for +553 is
+!)23, crores and 0,)6++ crores for +556& T"e average of NPA for +556 is 5&A0E& SL-
represents low or below average of t"e New Private Bank-s and) S.- represents "ig" or
above average& >&g& w"ile LL means low in credit si(e and low in NPA-s) L. implies low
in NPA and .ig" in credit si(e& T"e following facts are visible from t"e $#adrant tableH
<6&As depicted in t"e tables) most of t"e new private banks fall in t"e .L $#adrant& In
+553 t"ere were 0 banks) w"ic" was + in +556& As seen in t"e $#adrants) t"e NPA was
"ig" compared to its credit si(e and t"e credit si(e is low in t"e New Sector Banks it
mig"t be beca#se t"ese banks "esitate to take risk and improper recovery meas#res&
=6&T"ere was + banks in t"e LL $#adrant in +553 w"ic" remain same in +556 also& It
means NPA Level and *redit si(e is low&
B6& Bank of Pan/ab LtdU is in .L $#adrant) t"ere is "ig" level of NPA and Low Advances
in +553 & So only Bank of Pan/ab Ltd& "as merged wit" *ent#rion Bank in +553
September and named as *ent#rion Bank of Pan/ab Ltd b#t still its in .L $#adrant so still
t"is banks "as to adopt proper strategy in providing advances and recovering debts&
D6 T"e best performing bank in t"is sector was t"e I*I*I Bank w"ic" was "ig" in its
credit si(e compared to t"e rest of t"e banks and still maintained a low NPA level
followed by .9:* Bank Ltd&&
BABASAB PATIL ,!
.redit ris# path of the F selected (ld PS"0s:
(ld Private
"an#s
NPA to Net
Advances
5 I6
Advances5crores6 >uadrant
analysis
=99D =99A =99D =99A =99D =99A
*ity 8nion Bank Ltd 0&0, !&A3 +5!0 +335 LL LL
9evelopment *redit
Bank Ltd
6&02 2&35 +!36 !?6, .L .L
IND 4ysya Bank Ltd +&!0 !&,6 A5?! !5+0+ L. L.
Lord Qris"na Bank Ltd 2&++ 0&!! !0?, !2+! .L .L
Bank of 1a/astan Ltd +&35 5&AA +?A6 2563 LL LL
T"e 8nited 7estern
Bank Ltd&
3&?0 3&66 0A,6 2556 .. .L
T"e Qarnatak Bank Ltd +&+A !&!? 6+?, ,,A+ L. L.
,nterpretation
BABASAB PATIL ,+
.redit ris# path of the F Private Sector "an#s: A >uadrant Analysis
In t"e c"art below an attempt is made to trace t"e relations"ip between NPA
proportion and t"e si(e of credit portfolio <advances= of , old Private Bank-s& :or t"is
p#rpose proportion of gross NPA-s representing credit risk in"erent is taken on t"e F
a%is and gross credit levels are taken on t"e Ga%is& Since t"ese two parameters are
assets) w"ic" are stock concept variables) t"ey "ave been plotted on t"e basis of + years
+553 and +556 for a comparative analysis&
>-AD*ANT TA"+E@ =99D
L>4>L
*1>9IT L>4>L
NPA
L'7 <B>L'7 A4D=

<L=
.ID. <AB'4> A4D=
<.=

L'7
.ID.
LL <+=
.L <+=
L. <+=
.. <!=
>-AD*ANT TA"+E@ =99A
L>4>L
*1>9IT L>4>L

NPA
L'7 <B>L'7 A4D=

<L=
.ID. <AB'4> A4D=
<.=

L'7
.ID.
LL <+=
.L <0=
L. <+=
.. <5=
BABASAB PATIL ,0
As depicted in t"e tables) t"e banks are divided into 2 $#adrants namely LL) L.)
.L and .. <t"e fig#res are arrived at by taking t"e averages=& T"e average of NPA-s for
t"e year +553 is 0&?!E and t"is fig#re is meas#red against eac" bank) any percentage
above t"is fig#re falls in t"e . category and percentage below 0&?!E falls in t"e L
category& T"e same applies wit" t"e advances& T"e average of advances for +553 is 0A,!
crores and 236+ crores for +556& T"e average of NPA for +556 is +&,2E& SL- represents
low or below average of t"e PSB-s and) S.- represents "ig" or above average& >&g& w"ile
LL means low in credit si(e and low in NPA-s) L. implies low in NPA and .ig" in
credit si(e& T"e following facts are visible from t"e $#adrant tableH
<6&As depicted in t"e table in +553) o#t of , Private Sector Banks) + are fall #nder LL) i&e&
Low in NPA and Low in credit si(e) + fall #nder L. i&e& Low in NPA and .ig" in credit
si(e& And remaining o#t of 0) + fall #nder .L i&e& .ig" in NPA and Low in credit si(e&
=6 As depicted in t"e table in +556) o#t of , Private Sector Banks) + are fall #nder LL) i&e&
Low in NPA and Low in credit si(e) + falls #nder L. i&e& Low in NPA and .ig" in credit
si(e& And 0 fall #nder .L i&e& .ig" in NPA and Low in credit si(e&
B6 T"ere were + banks in t"e .L $#adrant in +553 w"ic" increased to 0 in +556& It means
NPA Level is increasing year by year&
C6& T"e 8nited 7estern Bank Ltd moved from .. to .L ) t"ere is "ig" level of NPA and
.ig" Advances in +553 w"ic" moved to .ig" level of NPA and Low level of advances in
+556& Its not good sign to Bank beca#se as in +553 t"ere is .ig" NPA and *redit si(e so
Bank red#ces its advances in +556) b#t also its NPA increasing&
D6 T"e best performing bank in t"is sector was t"e IND 4ysya Bank w"ic" was "ig" in
its credit si(e compared to t"e rest of t"e banks and still maintained a low NPA level&
BABASAB PATIL ,2
.omparison of Ne! Private "an#0s credit path !ith (ld selected Private "an#0s
credit path y using aove >uadrant Analysis%
7"en compare to 'ld PB-s) New PB-s are performing well from past + years&
'ld PB-s Net NPA on Advances are crossing 3E or nearer to 3 E) b#t almost all
New PB-s Net NPA on Advances are below 0E& It is good sign to New PSB-s as
it "as strong credit pat"&
New PB-s are taking "ig" risk by Providing more and more advances w"en
compare to 'ld PB-)
@a/ority of 'ld PB-s provide advances to Priority sectors w"ose recovery are
very diffic#lt) beca#se advances paid for agric#lt#re are very diffic#lt to recover)
b#t New PB-s are able to provide advances to bot" priority and non priority
sectors b#t it not e%panded its services over villages& T"at-s w"y New PB-s
recovering its advances very $#ickly&
Adverse Effects of NPA on the Hor#ing of Ne! Private "an#s:
NPA "as affected t"e profitability) li$#idity and competitive f#nctioning of New
Private Banks and finally t"e psyc"ology of t"e bankers in respect of t"eir disposition
towards credit delivery and credit e%pansion& Between +552 and +556 New Private Banks
inc#rred a total amo#nt of 1s&20AA *rores towards provisioning NPA& T"is "as bro#g"t
Net NPA to 1s&3,?5 *rores or !&+5E of net advances& To t"is e%tent t"e problem is
contained) b#t at w"at costI T"is costly remedy is made at t"e sacrifice of b#ilding
"ealt"y reserves for f#t#re capital ade$#acy& T"e enormo#s provisioning of NPA toget"er
wit" t"e "olding cost of s#c" nonprod#ctive assets over t"e years "as acted as a severe
drain on t"e profitability of t"e New Private Banks& In t#rn New Private Bank-s are seen
as poor performers and #nable to approac" t"e market for raising additional capital& T"is
"as alternatively forced New Private Bank-s to borrow "eavily from t"e debt market to
b#ild Tier II *apital to meet capital ade$#acy norms p#tting severe press#re on t"eir
profit margins) else t"ey are to seek t"e bo#nty of t"e *entral Dovernment for repeated
1ecapitali(ation&
BABASAB PATIL ,3
&indings:
T"e brig"test spot in t"e Indian banking ind#stry in +553+556 was t"e massive
cleaning #p of banks- balance s"eets by red#cing non performing assets <NPA-s=&
T"e net NPA-s of , New Private Bank-s are red#ced by <= !?E w"ile compare to
previo#s year) i&e& from +5A, to !,5A& 7"ic" was 6E "ig"er Net NPA in +55253
w"en compare to +55052&
Net Profit of New Private Bank-s are increased by +?E from +55253 to +55356&
It may be beca#se of provisions made in +556 is comparatively low&
@ost of t"e New Private Bank-s fall #nder LL $#adrant i&e& Low in NPA and Low
in credit pat" in +55356&
All New Private Bank-s Net NPA on advances is less t"an 3E in +55356) its
good sign for companies to increase profit&
New Private Bank-s recorded a growt" in advances of 35&0E in +556 as compare
to 2+&3E of t"e previo#s year& 7"en compare to total advances of 'ld Private
Bank-s rose from 02&AE to 25&0,E& we can say New PSB-s *redit capacity is
more w"ile compare to 'ld PSB-s&
@ost banks were able to take advantage of fat profits from treas#ry operations)
bro#g"t abo#t by t"e lower interest rates) to make "ig"er provisions for bad debts&
As a res#lt) o#t of , new Private Bank-s) + New Private Bank-s i&e& .9:* Bank
Ltd and Qotak @a"indra Bank Ltd- Net NPA on advances "as become less t"an
!E& :ollowed by I*I*I Bank Ltd& And 8TI Bank Ltd Net NPA on advances are
less t"an +E&
I*I*I is Best Performer in New Private Banks as it providing "ig"er advances by
taking risk compare to ot"er banks) and is able to its NPA less t"an +E&
BABASAB PATIL ,6
Suggestions
!& :i%ing #p t"e b#dget for profits and recovery rat"er t"an for advances& B#dget
oriented approac" at times leads to release of credit facilities wit"o#t ens#ring
compliance of covenants of sanction& A s#itable mec"anism co#ld be drawn at
eac" bank level to provide monetary benefitsB reorgani(ation of t"e operating
staff partic#larly for recovery in NPA-s writeoff cases&
+& Pro/ects wit" old tec"nology s"o#ld not be considered for finance&
0& 8p gradation of credit skills of t"e operating staff working in advance to avoid
over and #nder finance&
2& Timely sanctionB release of loan to avoid time and cost overr#ns& and also proper
c"ecking of doc#ments w"ile sanctioning loan are recommended&
3& It is s#ggested for possible restr#ct#ring of banks t"ro#g" mergers and
ac$#isitions to keep t"emselves competitive in t"e "ig" credit risk market in
India&
6& 'ne of best sol#tion to overcome NPA is 'TS < 'ne Time Settlement=) 1BI "as
advised all banks to provide a simplified mec"anism for one time settlement of
loans w"ere t"e principle amo#nt is e$#al to or less t"an +3555B and w"ic" "ave
become do#btf#l and loss assets&

BABASAB PATIL ,,
.onclusion
An attempt is made in t"is st#dy to present a compre"ensive pict#re of non
performing advances of New Private banks in India) to#c"ing #pon vario#s $#antitative
and $#alitative trends in t"e post reform period) besides carrying o#t wit" some policy
and strategic implications& 8ndo#btedly India is one of t"e few co#ntries w"ere NPA
levels are very "ig" as t"ere is an increase in t"e percentage of gross advances eroding
t"eir Profit by ma/or basic points) after netting t"e provision&
New Private Banks NPA "as come down i&e& less t"an !E& 7"ile compare to old
Private Bank-s w"ose NPA is more t"an 3E& It may be beca#se of t"e proportion of
credit risk among t"e priority sector advances is do#ble t"at of nonpriority advances
implying t"e irrationality of <administered= price controls) w"ic" still e%ists in some form&
>%ternal factors o#tweig" t"e internal factors contrib#ting to t"is "ig" acc#m#lation of
NPA-s& If t"e banks "ave to s#rvive in t"e competitive and increasingly globali(e market
conditions t"ey s"o#ld be "elped bot" by t"e 1BI and t"e government in t"e form of
faster recovery climate) especially for t"e legal processes of enforcement of contracts&
T"e $#adrant analysis of credit risk clearly identifies t"at , New Private banks are
comparatively performing well w"en compare to old selected PSB-s& It also offers scope
for mergers and ac$#isitions among t"e banks to be better prepared for "ig" risk credit
marketing in India& And also $#adrant analysis "elps to identify profitability position of
New Private Banks by #sing advances provided and Non Performing Assets&
8nless New Private Banks adopt proper Strategy to prevent "#ge level of NPA-s)
it go on affecting Profitability of Banks&
BABASAB PATIL ,?

BABASAB PATIL ,A
Areviation used:
IBAH Indian Banking Association
NPAH Non Performing Assets
PB-sH Private Banks
8TI Bank LtdH 8nit Tr#st of India Bank
I*I*I Bank Ltd H Ind#strial *redit and Investment *orporation of India
.9:* Bank Ltd&H .o#sing 9evelopment :inance *orporation Bank Ltd
BABASAB PATIL ?5
"iliography
Indian Banking Association <IBA= B#lletin +55356
7ebsites
@ www&Indianbankingassociation&com
@ www&#tibank&com
@ www&Doogle&com
BABASAB PATIL ?!

Non Perfoming Assets Bank Project Report Finance

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Non Perfoming Assets Bank Project Report Finance

Uploaded by

Copyright:

Available Formats

Non Performing Assets and its impact on Profitability of

New Private Sector Banks

You might also like