P. 1
npa management

npa management

|Views: 8,610|Likes:
Published by sahil1508
Final Project on NPA Management 2010
Final Project on NPA Management 2010

More info:

Categories:Types, Research
Published by: sahil1508 on Sep 16, 2010
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

07/29/2013

pdf

text

original

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

1

UNIVERSITY OF MUMBAI

A

PROJECT REPORT ON

“A study of Non Performing Asset
Management”

IN PARTIAL FULFILLMENT OF

MASTER OF MANANGEMENT STUDIES (MMS)

FINANCE

SUBMITTED BY

SAHIL B MULLA

NCRD’S

STERLING INSTITUTE OF MANAGEMENT STUDIES

Sector - 19, Near Seawoods Darave Petrol Pump, Nerul (E),

Navi Mumbai - 400 706

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

2

Date :5th

APRIL 2010

CERTIFICATE

This is to certify that Mr. SAHIL B MULLA, Roll No. 91 is a bonafide

student studying for MMS Course of the University of Mumbai in this

institute for the year 2009-10. As a part of the University curriculum he

has completed a Final Project titled “A study of NPA Management

under the guidance of Prof. Sonali Athawale.

Prof. Sonali Athawale

Prof. Anjan Kumar Maiti

Faculty Guide

Director

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

3

ACKNOWLEDGEMENT

This is to express my earnest gratitude and extreme joy at being bestowed with an

opportunity to get an opportunity to get an interesting and informative project. It is impossible to

thank all the people who have helped me in completion of project, but I would avail this

opportunity to express my profound gratitude and indebtness to the following people for all the

help they have given me.

I am extremely grateful to my project guide and co-coordinator Prof. Sonali Athawale

who has given an opportunity to work on such an interesting project. She proved to be a constant

source of inspiration to me and provided constructive comments on how to make this project

better. Credit also goes to my friends whose constant encouragement let me in good stead.

Lastly, I would thank our Director Mr. Anjan Maiti and all my faculties for providing all explicit

and implicit support to me during the course of my project. I would also like to thank the staff of

Bank of India for providing me few but very valuable details about my project.

Name: Sahil B Mulla

MMS (FINANCE)

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

4

EXECUTIVE SUMMARY

After liberalization the Indian banking sector developed very appreciate. The RBI also

nationalized good amount of commercial banks proving socio economic services to the people of

the nation. The public Sector banks have shown very good performance as far as the financial

operations are concerned. The total income of the public sector banks has also shown good

performance since the last few years. The public sector Banks have also shown comparatively

good result. The gross profits and the net profits of the Public Sector banks have been on a high

from past few years. The private sector banks are also showing good results in case of profits.

However, the only problem of the Scheduled Commercial Banks these days are the increasing

level of the non performing assets. The Non-Performing Assets (NPAs) problem is one of the

foremost and the most formidable problems that have shaken the entire banking industry in India

like an earthquake. Like a canker worm, it has been eating the banking system from within, since

long. It has grown like a cancer and has infected every limb of the banking system.

At macro level, NPAs have choked off the supply line of credit to the potential

borrowers, thereby having a deleterious effect on capital formation and arresting the economic

activity in the country. At the micro level, the unsustainable level of NPAs has eroded the

profitability of banks through reduced interest income and provisioning requirements, besides

restricting the recycling of funds leading to serious asset liability mismatches. The problem of

NPAs is not a matter of concern for the lenders alone. It is a matter of grave concern to the

public as well, as bank credit is the catalyst to the economic growth of the country and any

bottleneck in the smooth flow of credit, one cause for which is mounting NPAs, is bound to

create adverse repercussions in the economy. Mounting menace of NPA has raised the cost of

credit, made banks more adverse to risk and squeezed genuine small and medium enterprise from

accessing competitive credit and has throttled their enterprising spirits as well.

The spiraling and the devastating effect of NPA on the economy have made the problem

of NPA as issue of public debate and of national priority. Therefore, any measure or reform on

this front would be inadequate and incomprehensive, if it fails to make a dent in NPA reduction

and stall their growth in future, as well.

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

5

NPAs have deleterious effect on the return on assets in several ways: ---

(1) They erode current profits through provisioning requirements

(2) They result in reduced interest income

(3) They require higher providing requirements affecting profits and accretion to Capital

funds recycling of funds, set in asset-liability mismatches, etc.

The RBI has also tried to develop many schemes and tools to reduce the non Performing

assets the results are not up to the expectations. To improve NPAs each bank should be

motivated to introduce their own precautionary steps. Before lending the banks must evaluate the

feasible financial and operational prospective results of the borrowing companies by keeping in

Considerations the overall impacts all the factors that influence the business.

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

6

Index

Sr.No.

Contents

Page No.

1.

Introduction

07

2.

Profile of the organization

09

3.

Literature Review

12

4.

Objectives of the Study

14

5.

Hypotheses

15

6.

Methodology

16

7.

Conceptual Framework

18

8.

NPA Management Policy of Bank of India

42

9.

Data Collection and Analysis

56

10.

Conclusion

67

11.

Suggestions and Recommendations

69

12.

Bibliography

71

13.

Annexure

72

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

7

MANAGEMENT OF NON-PERFORMING ASSETS – A BRIEF OVERVIEW

INTRODUCTION

In human life, sickness, bankruptcy and death are not welcome, but they do occur. So is

the case with advances, which fall sick, go into liquidation and die much against the wishes of all

concerned. Realities cannot be escaped. It is necessary to face them.

In the context of non-performing assets the situation is no different. The frequent references to

non-performing assets primarily concern sick industrial units and mounting over dues in all other

sectors of advances, particularly in agriculture. Financial assets become non-performing

primarily because of the failure of the units financed by banks.

The costs of managing non-performing assets are exorbitant. Bankers are compelled to get

bogged down with these matters thereby neglecting their role as a developing catalyst.

NATURE OF NON-PERFORMING ASSETS

The term non-performing assets can be defined both in the wider and in the narrower

sense. While in the narrow sense it includes only non-performing credit portfolio, in the wider

sense it may also include the volume of unutilized cash balances, unutilized or underutilized

physical assets like buildings and premises in the still wider sense, it may also include non-

performing human resources – a large volume of workforce not effectively unutilized.

A non-performing asset in the banking sector also is termed as an asset not contributing

to the income of the Bank. In other words they are the zero yielding assets that are considered.

The non-performing assets, interalia, includes surplus cash and bankers balances hold over the

optimal levels, amounts lying in the suspense account, investments in shares or debentures and

other securities not yielding any dividend or interest, advances where interest is not forthcoming

and even the principal amount is difficult to recover. In terms of Health code basis, we may say

that advances classified under the Health Code Numbers 6,7,8 and those advances under the

Health Code Numbers 4,5 on which no interest is being charged, may be classified among non-

performing assets.

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

8

REASONS FOR ACCUMULATION OF NON-PERFORMING ASSETS:

There may be various internal and external factors behind the transformation of an asset

from a performing one to a non-performing one. Some of the reasons for accumulation of the

non-performing assets are:

The fast and rapid geographical expansion of the banking sector during a short span, throughout

the country, and our inability to cope with the voluminous work in an orderly manner.

Lack of adequate care while appraising the various proposals in the initial stage. Inadequacy of

the technical staff equipped with the latest market information and the technological

developments is also an important factor in faulty appraisal of proposals.

In case of most of the large and medium scale industries, the main reason for sickness has been

found to be mismanagement.

Power shortages, outdated machinery, fluctuations in supply of raw materials due to

various causes, non-release of subsidy in time and deficiency in demand are also important

reasons. Small scale industries are prone to sickness mainly due to lack of managerial

experience, technical incompetence and decline in demand for their products and overall demand

recession.

Further cases are not unknown where deliberate efforts are made by a certain category of

borrowers to declare their units sick, or weak to avail of benefits from different sources.

NPA MANAGEMENT 2010

NCRDs Sterling Institute of Management Studies

9

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->