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“ANALYSIS OF ON NON PERFORMING ASSETS OF PUNJAB AND SIND BANK”
SUBMITTED TO PUNJABI UNIVERSITY,PATIALA IN PARTIAL FULFILLMENT OF THR REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION(SESSION 2009-2011)
Submitted to :-
Submitted by:GEETIKA MBA(III) PUNJABI UNIVERSITY,PATIALA
I, GEETIKA hereby declare that this project report entitled “Analysis of non performing assets of Punjab and Sind bank” Prepared by me is a confide record of work done at Punjab and Sind bank, Branch Office, Patiala, under the guidance of Prof S.S Virdhi, faculty, PUNJABI UNIVERSITY, Patiala in partial fulfilment of MBA Program- during academic year-2009-11. I further declare that the information presented in this project is true and original to the best of my knowledge.
Research Project is an integral part of the professional studies and its purpose is to provide the students with the practical exposure of the market in today’s changing scenario. It helps in the development of knowledge, skills and analytical thinking progress. “Theoretical Knowledge without practical learning is of little value.” To fulfill the need, the management course has the provision of practical learning. We took our summer training in ‘PUNJAB AND SIND BANK’. It was our fortune that we got the opportunity to do our summer training in an esteemed organization in very healthy and co-operative atmosphere. In the forthcoming pages, an attempt has been made to present a comprehensive report concerning different aspects of our training.
If words are considered to be signs of gratitude then let these words convey the very same. My sincere gratitude to PUNJAB AND SIND BANK for providing me with an opportunity to work with BANK and giving necessary directions on doing this project to the best of my abilities. At the very outset I would like to express my sincere gratitude to Mr.Surjeet Singh, Branch Manager,Sector-34, Chandigarh, who was kind enough for providing me this opportunity to supervise my summer training in this organization. I would like to extend my heartfelt thanks to the staff members of Punjab and Sind bank, Branch Office, G.N.N Tripuri, Patiala without whose guidance and support I would not have been able to successfully complete my project. I also offer my sincere appreciation to the staff in PSB. My several well-wishers helped me directly or indirectly; I virtually fall short of words to express my gratefulness to them. Therefore I am leaving this acknowledgement incomplete in their reminiscence.
8.TABLE OF CONTENTS S. banks 86 . 6. 5. TOPICS Introduction Company Profile Literature Review Research Methodology NPA and Provisioning Analysis and Interpretation Recovery Procedure Suggestions and Conclusion Bibliography Annexure PAGES 8-12 13-22 23-26 27-30 31-62 63-75 76-79 80-85 86 87 EXECUTIVE SUMMARY NPAs have turned to be a major stumbling block affecting the profitability of Indian banks before 1992. 2. 3. 9. 4.NO 1. 10.banks did not disclose the bad debts sustained by them and provision made by them fearing that it may have an adverse. 7. Owing to the low levels of profitability.
These prudential norms relate to income recognition. logical conclusions are drawn. The entire project report is presented in the form of a report using chapter scheme. The method adopted for collection of data was personal interview with bank officials using Inventory schedule as a tool for the same.owned funds had to be strengthened by repeated infusion of additional capital by the government. and the study was conducted in PUNJAB AND SIND BANK. asset classification. To suggest measures for efficient management of NPAs. maximum care has been taken to arrive at appropriate conclusion. Net NPAs are decreasing. On analyzing the data. After collecting data from the respective sources. developed logically and sequentially from ‘introduction’ to ‘bibliography & references. the following findings were arrived at: Net advances are an upward trend. and further. An Explorative & Descriptive study was considered to be adequate to achieve the objectives of the study. provisioning for bad and doubtful debts and capital adequacy. However the study was conducted with the following specific objectives. The general objective of the study was to analyze the NPA level in commercial banks. The introduction of prudential norms strengthen the banks financial position and enhance transparency is considered as a milestone measure in the financial sector reform. on “An analysis of NPA in commercial banks with special reference to Punjab and Sind Bank”. To analyze the NPA level of Punjab and Sind bank.. To examine how far the bank has been successful in reducing the NPA level.’ 86 . and it was also sourced from the secondary data. Staff productivity is increasing and is reflected the recovery results. To study the recovery procedures of Punjab and Sind Bank. The major limitation of the study was the paucity of time. Based on the findings. analysis & interpretation of data has been made. Even then. suitable suggestions & recommendations are brought out.
HISTORY OF BANKING 86 .
as not all of the merchants would ask for the gold and silver back at the same time. The bank of England was formed in 1694 to borrow money from the public for the government to finance the war of Augsburg against France. Banking began thousands of years ago. Receipts given to the Merchant were sometimes used to buy or sell. The history of banking could be said to have started with the appearance of money. in England merchant started to ask goldsmiths to hold gold and silver in their safes in return for a fee. The history of banking in each country runs in lines with the development of trade and industry. BANKING HISTORY OF INDIA 86 . By 1709. Eventually. Modern banking began in Venice. Babylonians and Ancient Greeks practiced simple forms of banking – safekeeping. The Romans did not have State Banks but had minute regulations regarding private banks. the goldsmiths paid them to deposit their gold and silver. and with the level of political confidence and stability. Banking is nearly as old as civilization. with many banks created to deal with increasing trade. Temples such as those of Ephesus and Delphi were Greek banking institutions. the first European banknotes. Asia and Africa. which extended throughout Europe. These were calculated to create utmost confidence in the system. The goldsmith realized that they could lend out some of the gold and silver that they had and charge interest. At the same time. The ancient Romans developed an advanced banking system to serve their vast trade network. which was handwritten appeared in1661. exchanging foreign coins and making loans – mainly in connection with trade. The word bank comes from the Italian word “ban co”. because moneylenders worked on benches in market places. with the metal itself staying under lock and key.Banks were born to facilitate trade – to lend monies to purchase goods. instead of charging the merchants. meaning bench. to store monies and to change currencies. cheque and printed paper money appeared in the 1700’s and 1800’s. The Assyrians. goldsmith were using bank of England notes of their own receipts.C. in Sweden. The bank of Venice was established in 1171 to help the government raise finance for a war. The first record of minted metal coins was in Mesopotamia in about 2500B.
The first fully Indian owned bank was the Allahabad Bank. mainly due to the trade of the British Empire. After India's independence in 1947. along with the rapid growth in the economy of India. This was followed by Bank of Hindustan. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment. NATIONALIZATION The next significant milestone in Indian Banking occurred on July 19. in 1906. in Mumbai . 1969 when the then Indira Gandhi government nationalized the 14 largest commercial banks. Calcutta was the most active trading port. where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%. kick started the banking sector in India. The oldest bank in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in June 1806. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After this. which was established in 1865. foreign banks like Credit Lyonnais started their Calcutta operations in the 1850s. The stated reason for the nationalization was to give the government more control of credit delivery. closer to the average growth rate of the Indian economy. A second nationalization of 6 more commercial banks followed in 1980. This move. the nationalized banks grew at a leisurely pace of around 4%. namely. By the 1900s.both of which were founded under private ownership. which included banks such as UTI Bank (the first of such new generation banks to be set up). and due to which banking activity took roots there and prospered. which came to be known as new generation tech-savvy banks. in 1895 in Lahore and Bank of India. LIBERALIZATION In the early 1990s the Narasimha Rao government embarked on a policy of liberalization and gave licenses to a small number of private banks. A couple of decades later.Banking in India originated in the first decade of 18th century with The General Bank of India coming into existence in 1786. Both these banks are now defunct. ICICI Bank and HDFC Bank. government banks. At that point of time. private banks and foreign banks. which has seen rapid growth with strong contribution from all the three sectors of banks. 86 . the Reserve Bank was nationalized and given broader powers. until the 1990s. the market expanded with the establishment of banks such as Punjab National Bank.
Lend at 6%. Banks fulfills the role of a financial intermediary. Banks play a pivotal role in enhancing each and every sector. Taking deposits generates funds for lending and money transfer services are necessary for the attention of deposits. till this time. Before few decades there existed some influential people who used to land money. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. which is the profitable activity of the three. the objective being to lend money. BANKING STRUCTURE IN INDIA In today’s dynamic world banks are inevitable for the development of a country. All this led to the retail boom in India. Bankers. People not just demanded more from their banks but also received more. The Bank have developed their roles to such an extent that a direct contact between the depositors and borrowers in now known as disintermediation. Banking industry has always revolved around the traditional function of taking deposits. But a substantially high rate of interest was charged which made borrowing of money out of the reach of the majority of the people so there arose a need for a financial intermediate. Go home at 4) of functioning. This means that it acts as a vehicle for moving finance from those who have surplus money to (however temporarily depositors whose accounts are in credit to borrowers who are in debit. This can and does happen of course. money transfer and making advances. This is what has lead to the very foundation of financial institution like banks. were used to the 4-6-4 method (Borrow at 4%. The Bank have introduced progressively more sophisticated versions of these services and have diversified introduction in numerable areas of activity not directly relating to this traditional trinity 86 .The new policy shook the Banking sector in India completely. Those three are closely related to each other. They have helped bring a draw of development on the world’s horizon and developing country like India is no exception. Without the intermediary of the banks both their depositors and their borrowers would have to contact each other directly.
COMPANY OVERVIEW (a)HISTORY 86 .
CORPORATE MISSION • To put in place the effective risk management and internal contol system. through planned reduction in the average cost of funds. of life. (b)VISION AND MISSION CORPORATE VISION We envision to emerge as a strong vibrant Bank through synchronization of the human. • To strive to achieve excellence in customer service.They enjoyed the highest society in respect their with economic the endeavours to people raise their of Punjab. increased yield on advances and investments besides reduction in cost of operations. financial and technological resources. when a humble idea to uplift the poorest of poor of the land culminated in the birth of Punjab & Sind Bank with the far-sighted vision of luminaries like Bhai Vir Singh. • To adopt and operationalise high-level technology standards. Sir Sunder Singh Majitha and Sardar Tarlochan Singh. even today Punjab & Sind Bank stands committed to honor the social commitments of the founding fathers. (c) MANAGEMENT 86 . • To maximize competitive risk adjusted return on capital. • To achieve the highest standards of transparency and accountability in the conduct of banking business. • To maximize profitability and profits of the Bank with due compliance of prudential guidelines. The bank was founded on the principle of social commitment to help the weaker section of the standard Decades have gone by.It was in the year 1908.
) 86 .O. SURANA (C.) (Posted at H. of Financial Services.) (Posted at H. Category) SHRI KARANPAL SINGH SEKHON SHRI MANISH GUPTA GENERAL MANAGERS SARDAR GURCHARAN SINGH REKHI (Chief General Manager) SARDAR HARCHARAN SINGH MAKKER (Posted at H. ADDITIONAL DIRECTOR (Regional Director.SHRI PARVEEN KUMAR ANAND EXECUTIVE DIRECTOR DIRECTORS SHRI A.A.O.OFFICIAL DIRECTORS SHRI MATTA VENKATA SIVA PRASAD SHRI KRISHAN MURARI GANGAWAT SHRI HARI CHAND BAHADUR SINGH SHRI A.) SARDAR HARCHARN SINGH LAMBA SARDAR PARAMJIT SINGH GHAWRI SARDAR JASPAUL SINGH KOCHAR SARDAR GURVINDER SINGH BINDRA SARDAR KULWANT SINGH SUCHDEVA (Posted at H. SADANANDAM (RBI Nominee Director) SHRI SANDIP GHOSE.) (Posted at H.O. BHATTACHARYA DIRECTOR (Ministry of Finance.) (Posted at H.O.O.O. Deptt.K. RBI New Delhi) NON. New Delhi) SHRI R.
O) (d) SERVICE PROFILE DEPOSITS Different types of deposit accounts: Different types of deposit accounts: (a) Saving Bank account (c) interest rate account (e) Recurring deposit account ADVANCES • Base rate • Priority sector • Housing • Consumer • Conveyance • Personal loan • Education • Debt restructuring • Other loans • FPC leading (b) Term deposit account (d) Current account (f) Lockers account SERVICES 86 .) (CVO .Posted at H.O. MUMBAI) (Posted at H.O.(Posted at H.O.O.) SARDAR GURCHARAN SINGH SARDAR GURPAL SINGH MALIK SARDAR HARVINDER PAL SINGH SARDAR MANJIT SINGH SHRI DINESH KUMAR GUPTA (Posted at Z. KOLKATTA) (Posted at Z.
PSB-MARUTI SUZUKI 86 . “The Bank has tied up with Bajaj Allianz Life Insurance Company Ltd.• ATM branches • Locker facilities • Credit cards • RTGS/NEFT • PSB-eFunds transfer (e) SPL TIEUPS PSB AVIVA ALLIANZ-Insurance Punjab & Sind Bank has special tie-up arrangements for Non Life insurance business with M/s Bajaj Allianz General Insurance Company and Life Insurance business arrangements with M/s Aviva Life Insurance Company India Pvt. under the Group Insurance Scheme”. (BALIC) to provide Low Cost Life Insurance Cover to New & Existing Education Loan and Housing Loan borrowers on voluntary basis. About PSB and Aviva Tie-up Aviva signed Corporate Agency Agreement with PSB in September 2004 under which the bank deployed its Insurance Officers (Specified Persons) to sell the Life Insurance products to its customers through vast network of 918 branches spread over 175 Districts .25 States and Union Territory of Chandigarh. Ltd. The Bank has established insurance desks throughout the country at different branches where Insurance Officers are posted and have also allotted cluster of surrounding branches. for providing its valued customers all the insurance related services under one roof.
2 . Purpose To finance new Maruti Suzuki vehicles Eligibility: Quantum of Loan Thrice the average of annual (i) to income of past three years as per ITR/ Salary details subject to a maximum of Rs.10 lac . ( Income of spouse can be clubbed) Thrice the average of annual income of the past three years as per ITR ( Income of spouse can (v) be clubbed ) . 40% of the total income to meet day to day expenses should be ensured. where loan (iii ) installment is paid by salary deduction or undertaking from employer for remitting the terminal benefits is available. Employees of Corporate clients of Bank. Employees of established & recognized schools/ colleges / local registered bodies. CAs doctors . where loan (ii) installment is paid by salary deduction or undertaking from employer for remitting the terminal benefits is available. Employees of reputed (iv) Corporates in regular service and having permanent residence proof. Architects and General public. (iv): 86 . Employees of Central/ (i) State Government PSUs.Rs.10 lac . Professionals/ Self (v) employed. Organisations.The Bank having signed MOU with MSIL for Auto financing through their approved dealers. The features of the scheme under Tie-up arrangement are as under – 1 . Maxm.
2./ Limited company. owning and operating or proposing to own and operate transport vehicles for carrying passengers or good on hire. a co-borrower having sufficient net worth to be included. proprietorship/partnership firm. Margin: DSCR 15% on chasis and 25% on body. In case where the borrower does not meet this requirement. society. Insurance. .Tata Motors Ltd. Minimum 1. PSB. etc. trust. The salient features of the approved scheme are as under: 1. 86 .75 3. In this context. Bank has introduced a competetive and innovative credit delivery system in association with TML. b) The borrower should have sufficient net worth to pay for the margin and initial recurring expenses like registration. effective implementation which will be a source of successful business growth for the Bank. In order to boost lendings under Commercial Vehicle segment Bank has entered into an MOU with Tata Motors Ltd India’s largest Commercial Vehicle Co for financing of commercial vehicles . under this arrangement. Eligibility a)Individuals.
54 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 11844. The modest growth especially during the last three years is mainly due to a conscious decision on to shed the 86 .50 13877.20 12.02 crores to 22939.THE DEPOSITS OF PUNJAB AND SIND BANK (FROM 04-05 TO 09-10) Amount in crores Year Deposits of the bank (Rs) Increase / Decrease over the previous years figure --6.26 22939.02 12591.81 23.56 crores during the period 2004-05 to 2009-10.06 15656.56 The aggregate deposits of the bank has increased from 11844.60 18. On analyzing the trend of such increase in the deposits over the period we can clearly see that it is increasing at a increasing rate.31 10.46 19351.
Exposure to various sectors is strictly maintained within the stipulated ceiling.18 17.89 8538.The credit appraisal system was fine tuned and effective system was put to place to ensure the quality of asset. The system and procedures were 86 .85 1267.highest cost deposits.81 84868.68 49.46) 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 39567.20 0. With focus on bringing down the cost of deposit. ADVANCES OF THE PUNJAB AND SIND BANK (FROM 2004-05 TO 2009-10) Amount in crores %Increase / Year Advance of the Bank (Rs) Increase/decrease over the previous year figure _ Decrease over the previous years figure --3.22 66648.38 (21.21 28057.33 40834.71 48271.41 (18219. field function areas have been constantly exhorted to step up the share of low cost of deposit.38 7437.37) The aggregate advances of the bank has increased from 39567. A tenor linked prime lending rate was introduced during the year 2006 to give a boost to short term lending.85 crores during the period 2004-05 to 2009-10.60 56810.33 crores to 66648.
A substantial positive change in credit dispensation and monitoring was initiated through a visited credit policy. Which primarily aim at segmentation of the retail and corporate portfolios for improved thrust in both these areas. 86 .streamlined to incipient irregularities in the asset step without delay.
WEAKNESSES • • • • No provision of new age services like Home Banking. THREATS • Increased competition from innovative service profile of private sector banks like ICICI. On-line Banking. SSI loans from other UCBs and public sector banks 86 .SWOT ANALYSIS OF PSB MISSION Promotion and sustenance of economic interest & providing easy finance. Limited Branch network. Advances to salary earners etc. Well Qualified and trained staff fully dedicated towards fulfillment of bank’s objectives. Lack of ATMs and debit card facility to its customers. STRENGTHS • Special incentives in form of aides and subsidised loans given by state and central government in order to expand credit to rural and priority sector. Commercial Dairy development scheme. Non Farm sector loan scheme(NFS) that caters to the special needs of farmers and other priority sectors. • Diversified Portfolio with innovative schemes like Revolving Cash Credit to farmers (RCC). Conversion loan facility. • Competition in core sectors like rural advances. Telephone Banking. cost effective and quality banking services to customer & PACs. • • Well laid organisation structure and effective leadership. HDFC etc. OPPURTUNITIES • Introduction of new and innovative loan schemes like Dairy loan scheme for purchase of cow. Partial computerization of the operations.
Caprio & Klingebiel (1996), studied the Bank insolvency is more costly in the developing world, where losses represent a greater share of income. The authors present data on bank insolvency episodes since the late 1970s. This new database can be used in conjunction with readily available data. Information and insights are presented in seven tables on: a) major bank insolvencies episodes and systemic banking crises; b) main characteristics of banking crises; c) trade terms in crisis countries; d) trade concentration prior to crises; e) restructuring characteristics; f) financial analysis of crisis countries; and g) restructuring outcome in crisis countries. In a companion paper the authors discuss possible preventatives and the tradeoff between safety and soundness versus efficiency. Meanwhile, this initial database suggests further avenues for research. There is a dearth of widely available indicators on bank performance. More attention should be focused on developing indicators that might predict bank insolvency for individual banks and systems as a whole. The authors devise criteria for assessing how governments deal with insolvency and find that countries handle it well. Lawrence Sáez (2001), analyzes the important process about financial reform in the area of bank illiquidity in low-income emerging markets. This process is taking place within the context of a debate as to whether or not governments should try to rehabilitate existing stateowned banks or allow a new or parallel banking system to emerge in order to reduce nonperforming assets from state-owned commercial banks. A comparison of institutional development in China and India suggests that new entry rather than the rehabilitation approach may work more favorably to reduce non-performing assets. The paper offers an explanation as to why governments choose rehabilitation over new entry. Milind Sathye(2001), measured the productive efficiency of banks in a developing country, that is, India. The measurement of efficiency is done using data envelopment analysis. Two models have been constructed to show how efficiency scores vary with change in inputs and outputs. The efficiency scores, for three groups of banks, that is, publicly owned, privately owned and foreign owned, are measured. The study shows that the mean efficiency score of Indian banks compares well with the world mean efficiency score and the efficiency of private sector commercial banks as a group is, paradoxically lower than that of public sector banks and foreign banks in India. The study recommends that the existing policy of reducing nonperforming assets and rationalization of staff and branches may be continued to obtain
efficiency gains and make the Indian banks internationally competitive which is a declared objective of the Government of India. Reddy Prashanth K. (2002), studied financial sector reform in India has progressed rapidly on aspects like interest rate deregulation, reduction in reserve requirements, barriers to entry, prudential norms and risk-based supervision. But progress on the structural-institutional aspects has been much slower and is a cause for concern. The sheltering of weak institutions while liberalizing operational rules of the game is making implementation of operational changes difficult and ineffective. Changes required to tackle the NPA problem would have to span the entire gamut of judiciary, polity and the bureaucracy to be truly effective. This paper deals with the experiences of other Asian countries in handling of NPAs. It further looks into the effect of the reforms on the level of NPAs and suggests mechanisms to handle the problem by drawing on experiences from other countries. Reddy, Mohan (2003, 2004),examined that several studies have underscored the role of banks’ lending policy and terms of credit, which include cost, maturity and collateral in influencing the movement of non-performing assets of banks. Satish Kumar B. (2005), analyzed that in liberalizing economy, banking and financial sector get high priority. Indian banking sector is having a serious problem due to non performing loans. The financial reforms have helped largely to clean NPA was around Rs. 52,000 crores in the year 2004. The earning capacity and profitability of the bank are highly affected due to this. The extent of NPA is comparatively higher in public sectors banks. It is highly impossible to have zero percentage NPA. But at least Indian banks can try competing with foreign banks to maintain international standard. Dhanuskodi R. (2006), studied the Non-Performing Assets (NPAs) in Commercial Bank of Ethiopia. Banks play a very important role in the economic development of every nation. They have control over a large part of the supply of money in circulation. Banks are the main stimulus of the economic progress of a country. In general there are several challenges confronting of commercial banks. The main challenge confronting the commercial bank is the disbursement of funds in quality assets (loans and advances).
He, Dong (2008), reviewed the nature of NPAs in the Indian banking system and discusses the key design features that would be important for the (asset reconstruction company) ARCs to play an effective role in resolving NPAs. The analysis draws upon recent regional and cross-country experiences in dealing with impaired assets during periods of financial crises.
RESEARCH METHODOLOGY 86 .
Why a research study has been undertaken. associated with something else. The scope of research methodology is wider than that of research methods. we may think of research objectives as falling into a number of following broad categories: group. To gain familiarity with a phenomenon or to achieve new insights into it. it may be understood as a science of studying how research is done scientifically. Though each research study has its own specific purpose. The main aim of research is to find out the truth which is hidden and which has not been discovered as yet. situation or a Research methodology is a way to systematically solve the research problem . This intellectual investigation produces a greater understanding of events. 86 . Research is often described as active. To portray accurately the characteristics of a particular individual. In other words we can say. when we talk of research methodology we not only talk of the research methods but also consider the logic behind the methods we use in the context of our research study and explain why we are using a particular method or technique and why we are not using others so that research results are capable of being evaluated either by the researcher himself or by others. the purpose of research is to discover answers to the questions through the application of scientific procedures. Research methodology has many dimensions and research methods do constitute a part of the research methodology.The purpose of research is to discover answers to the questions through the application of scientific procedures. why particular technique of analyzing data has been used and a host of similar other question are usually answered when we talk of research methodology concerning a research problem or study. interpreting and revising facts. diligent and systematic process of inquiry aimed at discovering. To determine the frequency with which something occurs or with which it is To test a hypothesis of a casual relationship between variables. Thus. behaviors or theories and makes practical application through laws and theories. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. what data have been collected and what particular method has been adopted. The main aim of research is to find out the truth which is hidden and which has not been discovered as yet.
in this study. held with the Finance Manager in presence of the other officials of Punjab and Sind bank . At the second stage Historical study is attempted.Research methodology is a way to systematically solve the research problem. • To analyze the NPA level of Punjab and Sind bank. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. At the Third stage Comparative study of NPA is undertaken. 86 .were collected using Inventory schedule & also through interview. SAMPLING TECHNIQUE Sampling refers to selecting a part of the population to represent the characteristics of the population. Both primary and secondary data were collected & used for drawing conclusions for the study. OBJECTIVE OF THE STUDY The general objective of the study was to analyze the NPA level of banks. • To bring out an explorative & descriptive report on “Analysis of NPA in banks. Finance Manager of the bank is the source of data and therefore. However the study was conducted with the following specific objectives. However. with special reference to Punjab and Sind bank. • To study the recovery procedures of Punjab and Sind bank • To examine how far the bank has been successful in reducing the NPA level. It may be understood as a science of studying how research is done scientifically. there is no question of any sampling. Primary data:. since he is the only one source of information.Patiala” METHODOLOGY OF STUDY The research methodology adopted for carrying out the study were: In this project Descriptive research methodologies were use. At the first stage theoretical study is attempted. • To suggest measures for efficient management of NPAs.
maximum care has been taken to arrive at appropriate conclusion.Patiala. his biases may have crept into the data Data pertains to NPA from 2004-05 to 2009 – 10 only.Secondary data:. Following are the limitations of the study: given. SCOPE OF THE STUDY The study was conducted in the Punjab and Sind bank. For this purpose I have covered officials of the bank from various department. Finance Manager of the bank is only contacted & interviewed.The following are the main scope of the study: Scope of this study is limited to the organization selected. This study will help them to think about new innovative recovery strategy. Graphical representation is also used for better comprehension & presentation. LIMITATIONS OF THE STUDY The major limitation of the study was the paucity of time. Some of the information is considered confidential and not available for the study. This study will help to know the drawbacks of the present recovery strategies. Since he is an individual. Present a picture of the movement of NPA in Punjab and Sind bank. TOOLS USED FOR ANALYSIS OF DATA The data collected were analyzed with the help of statistical tools like frequency. Due to time constraint depth analysis could not be made. For the purpose of collecting vital information. percentage and trend analysis. Even then. 86 . Tables are used to represent the consolidated data.were collected from the published annual reports of the Bank and other sources. Such data collected were analyzed for some kind of a trend and its impact on the profit of the bank.
PERFORMING AND NON PERFORMING ASSETS A performing asset is an advance. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time. no can not be then left is to look after the factor responsible for it and managing those factors. Definitions: An asset. An NPA is an advance of borrower account which does not generate income for the bank but they incur various inherent costs like a) Cost of deposit b) Cost of servicing c) provisioning at appropriate rates d) Capital adequacy requirements on these assets and e) Cost of recovery. doubtful or loss asset. The dreaded NPA rule says simply this: when interest or other due to a bank remains unpaid for more than 90 days. The recovery of loan has always been problem for banks and financial institution. 86 .The three letters “NPA” Strike terror in banking sector and business circle today. which generate income to the bank by way of interest and their charges. To come out of these first we need to think is it possible to avoid NPA. NON PERFORMING ASSETS (NPA) Nonperforming asset means an asset or account of borrower . becomes non-performing when it ceases to generate income for the bank. including a leased asset. the entire bank loan automatically turns a non performing asset. NPA is short form of “Non Performing Asset”.which has been classified by bank or financial institution as sub –standard . in accordance with the direction or guidelines relating to assets classification issued by RBI .
However due to improvement in the payment and settlement systems. cut off date is September 30th of the Year under audit. up gradation of technology in banking systems etc. the concept of ‘past due’ was incorporated and it was classified that an amount should be classified as past due when it remains outstanding for 30 days beyond the due date. B. There is credit but such credit is not enough to cover the interest debited during the six month as on the date of banks balance sheet. borrowal account with repayment programs: - If interest / installment of principal remain overdue for a period of more than 180 days. The balance outstanding remakes continuously in excess of the sanctioned limit during the last six months prior to balance sheet. recovery climate. The balance outstanding is within the limit / drawing / drawing power but there is no credit in the account continuously for six months as on the balance sheet date. Non operative like term loans. Operative like cash credit.IDENTIFICATION OF NPAs Identification of an account as NPA depends upon the nature of borrowable account whether it is a) Operative b) Non operative c) Bills d) Agricultural advances or any other miscellaneous accounts. A. Note: When the prudential norms were introduced in 1992. C. c. It has been decided by RBI to dispense with the past due concept with effect from 31st March 2001. An account shall be out of order if any one of the following conditions exist:a. Bill purchased / Discounted / Negotiated: 86 . over draft etc: - A cash credit / over draft account will have to be treated as NPA if account remains out of order for more than 180 days. Hence to all account to become NPA. b.
if it remains overdue and unpaid for two quarters or more. • The account remains ‘out of order’ in respect of an Overdraft/ Cash Credit (OD/CC). from the year ended March 31.A bill purchased / discounted / negotiated becomes NPA. Accordingly. for the unusance period and grace period should be taken to consideration for arriving at the due date. Adoption of 90 days norm: The RBI has advised banks to adopt 90 days norm instead of 180 days for classification of assets as in impaired one with effect from MARCH 2004 and to start making additional provisions for such asserts from March 2002 to absorb the impact due to reduction of NPA period. the ‘90 days’ overdue norm for identification of NPAs has been adopted.2007. 86 . 2004. Agricultural advances: - Agricultural advances where interest and or installments of principal remains unpaid after it has become past due for two harvest season but for a period exceeding to half years should be treated as NPA.03. E. D. • The bill remains overdue for a period of more than 90 days in the case of Bills Purchased and Discounted. Miscellaneous accounts:- Any other credit facility or account should be treated as NPA if any amount to be received in respect of that facility or amount remains unrealized / uncovered for a period of two quarters. a Non Performing Asset shall be a loan or advance where: • Interest and/or installment of principal remain overdue for a period of more than 90 days in respect of a Term loan. The 90 days norm would continue to be applicable for the Balance Sheet as at 31. The accounts which may turn NPA with 90-day period have to be identified and 10% rprovision to be found out. For bills discounted. 90 Days Norms: With a view to moving towards international best practices and to ensure greater transparency.
Branches should therefore. The installment of principal falls due for payment as per the term of sanction. the date of classification of an advance as NPA should not be changed on account of charging of interest at monthly rests. the due date should fall only after the expiry of the said specified period. 'Out of Order' status: An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power.. continue to classify an account as NPA only if the interest charged during any quarter is not serviced fully with in 90 days from the end of the quarter. ‘Due Date’: Due Date refers to the date on which interest/installment is payable by the borrower. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power. In respect of certain category of advances such as Project Finance. Interest has to be collected at monthly rests in respect of Working Capital and Term Loans. Education Loan etc. 86 .• In case of advance granted for agricultural purposes interest and/or installment of principal remains for two crop seasons (in case of short duration crops) and for one crop season (in case of long duration crops) • Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. Normally interest falls due for payment immediately on the date of debit. Loans granted to Staff. ‘Overdue’: Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on due date fixed by the bank. In case of EMI Loans. these accounts should be treated as 'out of order'. Even though. due date refers to the due date for the stipulated installment which comprises both principal and interest. interest is being charged at monthly rests. where repayment holiday is granted. except Agriculture Advances as per instructions. but there are no credits continuously for six months as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period. Agricultural Advances (including Gold Loans).
which has remained NPA for a period less than or equal to 12 month. The following features are exhibited by sub standard assets: the current net worth of the borrowers / guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. (2) Doubtful Assets:-A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard. If asset fails to be in category of standard asset that is amount due more than 90 days then it is NPA and NPAs are further need to classify in sub categories. – on the basis of currently known facts. with the added characteristic that the weaknesses make collection or liquidation in full.Asset classification Norms Standard Assets: Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues: (1) Sub-standard Assets (2) Doubtful Assets (3) Loss Assets (1) Sub-standard Assets:-With effect from 31 March 2005. and the asset has well-defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss. Here it is also very important that in this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end of financial year. 86 . conditions and values – highly questionable and improbable. a sub standard asset would be one. if deficiencies are not corrected.
although there may be some salvage or recovery value. all the facilities granted by a bank to a borrower will have to be treated as NPA and not the particular facility or part there of which has become irregular. 86 . balance outstanding exceeding the limits temporarily. Accounts with temporary deficiencies: The classification of assets as NPA should be based on record of recovery. Guidelines for classificationn of assets The classification of assets into above categories should be done taking into account the degree of well-defined credit weakness and the extend of dependence on collateral security for realization of dues. an asset would be classified as doubtful if it remained in the sub-standard category for 12 months. Also. these assets would have been identified as ‘loss assets’ by the bank or internal or external auditors or the RBI inspection but the amount would not have been written-off wholly. 2005. The bank may fix a minimum cut off point to decide what would constitute a high value account depending upon their respective business levels. non submission of stock statements and non renewal of the limits on the due date etc. Therefore. It is difficult to envisage a situation when only one facility to a borrower becomes a problems credit and not others. The cut off point will be valid for the entire accounting year. Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs.With effect from March 31. Banks should not classify an advance as NPA merely due to the existence of some deficiencies which are temporary in nature such as non availability of adequate drawing power base don the latest available stock statement. Asset classification to be borrower-wise and not facility-wise a. (3) Loss Assets:-A loss asset is one which considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. especially in respect of high value accounts.
Erosion in the value of security can be reckoned as significant when realizable value of the security is less than 50% of the value assessed by the bank or accepted by the RBI at the time of last inspection. b. asset classification and provision. If the debits arising out of development of letters of credit or invoked guarantees are parked in a separate account. as the case may be. A NPA need not go through various stages of classification in cases of serious credit impairment and such assets should be straight away classified as doubtful or loss asset as appropriate. It may be either written off or fully provided for by the bank.b. the balance outstanding in that account also should be treated as a part of the borrowers principal operating account for the purpose of application of prudential loans on income recognition. Accounts where there is erosion in the value of security a. If the realizable value of the security has assessed by the bank/approved valuers / RBI is less than 10% of the outstanding in the borrowal accounts. Such NPAs may be straight away classified under doubtful category and provisioning should be made as applicable to doubtful assets. the existence of security should be ignored and the asset should be straight away classified as loss asset. 86 .
Net NPA shows the actual burden of banks. doubtful. Since in India.Provisions The following are deducted from gross NPA to arrive at net NPA. It can be calculated as follows: Net NPAs Gross NPAs – Provisions Gross Advances . bank balance sheets contain a huge amount of NPAs and the process of recovery and write off of loans is very time consuming. and loss assets. the provisions the banks have to make against the NPAs according to the central bank guidelines.TYPES OF NPA A] Gross NPA B] Net NPA A] Gross NPA: Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. 86 . It consists of all the non standard assets like as sub-standard. are quite significant. It can be calculated with the help of following ratio: Gross NPAs Ratio Gross NPAs Gross Advances B] Net NPA: Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. That is why the difference between gross and net NPA is quite high. Gross NPA reflects the quality of the loans made by banks.
a. Deposit Insurance Guarantee Corporation / Export Credit Guarantee receive and pending adjustment. Corporation claim d. Balance in Interest Suspense account. 86 . c. if applicable. b. RBI has advised that while reporting banks has to reduce technical write off made at Head Office from gross advance also. Part payment received and kept in Suspense account. Total provisions held excluding technical write off made at Head Office and provision of standard assets.
Income recognition – Policy The policy of income recognition has to be objective and based on the record of recovery. the interest on such advances should not be taken to income account unless the interest has been realised Reversal of income: If any advance. Therefore. This will apply to Government guaranteed accounts also. 86 . interest on advances against term deposits. provided adequate margin is available in the accounts. should be reversed or provided for if the same is not realised. accrual or both. income can be recognized on the basis of receipts. the banks should not charge and take to income account interest on any NPA. Fees and commissions earned by the banks as a result of re-negotiations or rescheduling of outstanding debts should be recognised on an accrual basis over the period of time covered by the re-negotiated or rescheduled extension of credit. If Government guaranteed advances become NPA. This means income can be recognized only on receipt for NPA accounts. However. Internationally income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. becomes NPA as at the close of any year. NSCs. including bills purchased and discounted. For performing assets. KVPs and Life policies may be taken to income account on the due date.INCOME RECOGNITION Interest income is recognized on an approval basis – except in case of NPAs where it is recognized on receipt. Due to the implementation of the prudential norms “accrual concept” has been changed into “recoverability concept” in recognizing in the income on NPA. IVPs. interest accrued and credited to income account in the corresponding previous year.
Doubtful assets: 100 percent of the extent to which the advance is not covered by the realisable value of the security to which the bank has a valid recourse and the realisable value is estimated on a realistic basis. PROVISIONING NORMS Loss assets: The entire asset should be written off. commission and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods. if uncollected. In regard to the secured portion. fees. provision may be made on the following basis. In respect of NPAs. 100 percent of the outstanding should be provided for. at the rates ranging from 20 percent to 50 percent of the secured portion depending upon the period for which the asset has remained doubtful: 86 . If the assets are permitted to remain in the books for any reason.
03. 2007.Period for which the advance has been considered as doubtful Up to one year One to three years More than three years: (1) Outstanding stock of Provision requirement (%) 20 30 60% with effect from March 31.2002.03. 2004. • As on 31. (2) Advances classified as on or after April 1. 2004. 2003 has to be made in phases as under: • As on 31. Banks are permitted to phase the additional provisioning consequent upon the reduction in the transition period from substandard to doubtful asset from 18 to 12 months over a four year period commencing from the year ending March 31. ‘doubtful’ more than three years Additional provisioning consequent upon the change in the definition of doubtful assets effective from March 31. with a minimum of 20 % each year. 100% with effect from March 31. 50 percent of the additional provisioning requirement on the assets which became doubtful on account of new norm of 18 months for transition from sub-standard asset to doubtful category. March 31. 2006. 75% effect from NPAs as on March 31. in addition to the provisions needed. 2005.2003. Note: Valuation of Security for provisioning purposes 86 . balance of the provisions not made during the previous year. as on 31.2005.03.2002.
40 percent on standard assets on global loan portfolio basis. 5 crore and above stock audit at annual intervals by external agencies appointed as per the guidelines approved by the Board would be mandatory in order to enhance the reliability on stock valuation. The floating provisions. Valuers appointed as per the guidelines approved by the Board of Directors should get collaterals such as immovable properties charged in favour of the bank valued once in three years. Provisions on Leased Assets: 86 . Standard assets: From the year ending 31. in cases of NPAs with balance of Rs. could be set-off against provisions required to be made as per above stated provisioning guidelines.03.With a view to bringing down divergence arising out of difference in assessment of the value of security. Considering that higher loan loss provisioning adds to the overall financial strength of the banks and the stability of the financial sector. The provisions towards Standard Assets need not be netted from gross advances but minimum of 0. Sub-standard assets: A general provision of 10 percent on total outstanding should be made without making any allowance for DICGC/ECGC guarantee cover and securities available. banks are urged to voluntarily set apart provisions much above the minimum prudential levels as a desirable practice. Floating provisions: Some of the banks make a 'floating provision' over and above the specific provisions made in respect of accounts identified as NPAs.2000.Others' in Schedule 5 of the balance sheet. wherever available. shown separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions . the banks should make a general provision of a The provisions on standard assets should not be reckoned for arriving at net NPAs.
Leases are peculiar transactions where the assets are not recorded in the books of the user of such assets as Assets. Accumulated depreciation should be deducted from the Gross Book Value of the leased asset in the balance sheet of the lesser to arrive at the 'net book value'. Doubtful assets :- 100 percent of the extent to which the finance is not secured by the realisable value of the leased asset. 'Gross book value' of a fixed asset is its historical cost or other amount substituted for historical cost in the books of account or financial statements. The amount of adjustment in respect of each class of fixed assets may be shown either in the main balance sheet or in the Fixed Assets Schedule as a separate column in the section related to leased assets. Statutory depreciation should be shown separately in the Profit & Loss Account. depending upon the period for which asset has been doubtful: Period Up to one year One years More than three years 50 to three %age provision 20 30 of Loss assets :86 . Realisable value to be estimated on a realistic basis. the following provision on the net book value of the secured portion should be made. In addition to the above provision. • As per the 'Guidance Note on Accounting for Leases' issued by the ICAI. whereas they are recorded in the books of the owner even though the physical existence of the asset is with the user (lessee). __(AS19 ICAI) Sub-standard assets : - • 10 percent of the 'net book value'. balance standing in 'Lease Adjustment Account' should be adjusted in the 'net book value' of the leased assets. • Also.
BC.01/2001-2002 dated 16 January 2002] and where rehabilitation packages/nursing programmes have been drawn by the banks themselves or under consortium arrangements.2003 with a minimum of 25 percent each year. in respect of advances sanctioned against State Government guarantee.2000. during the financial years ending 31.03.The entire asset should be written-off. provision on additional facilities sanctioned need not be made for a period of one year from the date of disbursement. 86 . the provision should continue to be made in respect of dues to the bank on the existing credit facilities as per the their classification as sub-standard or doubtful asset. Advances granted under rehabilitation packages approved by BIFR/term lending institutions: • In respect of advances under rehabilitation package approved by BIFR/term lending institutions. in respect of which guarantee stood invoked as on 31. no provision need be made for a period of one year. • As regards advances guaranteed by State Governments. • As regards the additional facilities sanctioned as per package finalised by BIFR and/or term lending institutions. If for any reason.PLNFS. 100 percent of the sum of the net investment in the lease and the unrealised portion of finance income net of finance charge component should be provided for.03.03. ('net book value') Guidelines for Provisions under Special Circumstances Government guaranteed advances • With effect from 31 March 2000. in a phased manner.57 /06. if the guarantee is invoked and remains in default for more than two quarters (180 days at present). • In respect of additional credit facilities granted to SSI units which are identified as sick [as defined in RPCD circular No. the banks should make normal provisions as prescribed in paragraph above.04. necessary provision was allowed to be made. an asset is allowed to remain in books.2000 to 31.
4 lakhs 50 percent More years doubtful Rs. KVPs. provision should be made only for the balance in excess of the amount guaranteed by these Corporations. Advances covered by ECGC/DICGC guarantee: In the case of advances guaranteed by DICGC/ECGC. NSCs eligible for surrender. IVPs. realisable value of the securities should first be deducted from the outstanding balance in respect of the amount guaranteed by these Corporations and then provision made as illustrated hereunder: Example Outstanding Balance DICGC Cover Period for which the advance has remained doubtful Value of security held Rs. Further. However. should be made on the balances after such deduction. advances against gold ornaments.) than 3 remained 86 .50 lakhs (excludes worth of Rs. government securities and all other kinds of securities are not exempted from provisioning requirements.Advances against term deposits. while arriving at the provision required to be made for doubtful assets. provisioning as per the norms. and life policies are exempted from provisioning requirements. 1. Treatment of interest suspense account: Amounts held in Interest Suspense Account should not be reckoned as part of provisions. Amounts lying in the Interest Suspense Account should be deducted from the relative advances and thereafter.
00 lakhs of secured of unsecured Rs. 1.75 lakhs (@ 50 percent portion) Rs.25 lakhs Rs. 2. 0. The amount outstanding in excess of the guaranteed portion should be provided for as per the extant guidelines on provisioning for nonperforming advances.50 lakhs Rs. no provision need be made towards the guaranteed portion. 1.00 lakhs Rs.25 lakhs Advance covered by CGTSI guarantee In case the advance covered by CGTSI guarantee becomes non-performing. 4.25 lakhs (@ 100 percent portion) Rs. 1. 86 . 2. 1.50 lakhs Rs.Provision required to be made Outstanding balance Less: Value of security held Unrealised balance Less: DICGC Cover (50% of unrealisable balance) Net unsecured balance Provision for unsecured portion of advance Provision for secured portion of advance Total provision required to be made Rs. Two illustrative examples are given below: Example I Asset classification status: Doubtful – More than 3 years.
50 lakh Rs.75 Realisable value of Security Balance outstanding Less Realisable Rs.38 lakh Rs. 2. 6. whichever is the least value of security Unsecured amount Less CGTSI cover (75%) Net unsecured and uncovered portion: Example II Asset classification status CGTSI Cover Doubtful – More than 3 years.75 lakh (@ 50%) Rs.00 lakh Rs.12 lakh Rs.87 lakh Rs.50 lakh lakh.12 lakh Provision Required Secured portion Unsecured uncovered portion Total required provision & Rs.1. 2.10.2. 8. 2.50 lakh Rs.1. 1.50 lakh Rs.CGTSI Cover 75% of the amount outstanding or 75% of the unsecured amount or Rs. 0.12 lakh ( 100%) Rs. 75% of the amount outstanding or75% of the unsecured amount or 86 .18.
the corresponding provisions could be reversed.25 lakh Rs. 16. 5.25 lakh Take-out finance The lending institution should make provisions against a 'take-out finance' turning into NPA pending its take-over by the taking-over institution.75 lakh Rs.00 lakh lakh.75 Realisable value of Security Balance outstanding Less Realisable Rs.00 lakh Rs.10. As and when the asset is taken-over by the taking-over institution.11. the outstanding amount of foreign currency denominated a loan (where actual disbursement was made in Indian Rupee) 86 . 11.11. 30. Reserve for Exchange Rate Fluctuations Account (RERFA) When exchange rate movements of Indian rupee turn adverse.18.Rs.10.40.25 lakh Rs.00 lakh Rs.00 lakh Rs.25 lakh (100%) Rs. 18.00 lakh Rs. whichever is the least value of security Unsecured amount Less CGTSI cover (75%) Net unsecured and uncovered portion: Provision Required Secured portion Unsecured uncovered portion Total required provision & Rs. 10.00 lakh (@ 50%) Rs.
The Report should be furnished as per the prescribed format given in the Annexure I. on account of Foreign Exchange Fluctuation as provision against the particular assets. Such assets should not normally be revalued. including the advances at the foreign branches. Besides the provisioning requirement as per Asset Classification. banks should treat the full amount of the Revaluation Gain relating to the corresponding assets. 86 .which becomes overdue goes up correspondingly. if any. the following procedure may be adopted: • The loss on revaluation of assets has to be booked in the bank's Profit & Loss Account. The NPAs would relate to the banks’ global portfolio. In case such assets need to be revalued as per requirement of accounting practices or for any other requirement. REPORTING OF NPAs Banks are required to furnish a Report on NPAs as on 31st March each year after completion of audit. with its attendant implications of provisioning requirements.
the amount held in interest suspense account. which may lead to loss of some long-term beneficial opportunity. Whenever NPAs are reported to RBI. should be shown as a deduction from gross NPAs as well as gross advances while arriving at the net NPAs. which occurred due to wrong choice of client. While reporting NPA figures to RBI. Because of the money getting blocked the prodigality of bank decreases not only by the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in some return earning project/asset. may furnish the amount of interest receivable on NPAs as a foot note to the Report. Banks which do not maintain Interest Suspense account for parking interest due on non-performing advance accounts. the amount of technical write off. So NPA doesn’t affect current profit but also future stream of profit. Another impact of 86 . should be reduced from the outstanding gross advances and gross NPAs to eliminate any distortion in the quantum of NPAs being reported. if any. IMPACT OF NPA Profitability:NPA means booking of money in terms of bad asset.
decreased profit lead to lack of enough cash at hand which lead to borrowing money for shorter period of time which lead to additional cost to the company. REASONS FOR NPA: Reasons can be divided in to two broad categories:A] Internal Factor B] External Factor [ A ] Internal Factors:Internal Factors are those. which are internal to the bank and are controllable by banks. 86 . Now day’s banks have special employees to deal and handle NPAs. which would have given good returns. Time and efforts of management in handling and managing NPA would have diverted to some fruitful activities. which is additional cost to the bank. Involvement of management:- Time and efforts of management is another indirect cost which bank has to bear due to NPA. Credit loss:- Bank is facing problem of NPA then it adversely affect the value of bank in terms of market credit. Routine payments and dues.reduction in profitability is low ROI (return on investment). Liquidity:Money is getting blocked. It will lose it’s goodwill and brand image and credit which have negative impact to the people who are putting their money in the banks. which adversely affect current earning of bank. Difficulty in operating the functions of bank is another cause of NPA due to lack of money.
which are external to banks they are not controllable by banks.• Poor lending decision: • Non-Compliance to lending norms: • Lack of post credit supervision: • Failure to appreciate good payers: • Excessive overdraft lending: • Non – Transparent accounting policy: [ B ] External Factors:External factors are those. 86 . • Socio political pressure: • Chang in industry environment: • Endangers macroeconomic disturbances: • Natural calamities • Industrial sickness • Diversion of funds and wilful defaults • Time/ cost overrun in project implementation • Labour problems of borrowed firm • Business failure • Inefficient management • Obsolete technology • Product obsolete Early symptoms by which one can recognize a performing asset turning in to Non-performing asset Four categories of early symptoms:--------------------------------------------------(1) Financial: • Non-payment of the very first instalment in case of term loan.
External non-controllable factor like natural calamities in the city where borrower conduct his business. Declining Current Ratio. Irregularity of operations in the accounts. (4) Others: • Changes in Government policies. Payment which does not cover the interest and principal amount of that instalment.• • • • • • Bouncing of cheque due to insufficient balance in the accounts. Non payment of wages. 86 . While monitoring the accounts it is found that partial amount is diverted to sister concern or parent company. • Problem between partners. Unpaid overdue bills. • Competition in the market. ( 3 ) Attitudinal Changes: • Use for personal comfort. • Death of borrower. Stock statement not submitted on time. Overdue receivables. • Avoidance of contact with bank. Irregularity in instalment. (2) Operational and Physical: • • • • • • If information is received that the borrower has either initiated the process of winding up or are not doing the business. stocks and shares by borrower. Frequent changes in plan.
Identifying Borrowers with Genuine Intent: Identifying borrowers with genuine intent from those who are non. This will obviate the need to route the additional funding through the controlling offices in deserving cases.PREVENTIVE MEASUREMENTS FOR NPA Early Recognition of the Problem:Invariably.both in terms of rehabilitation of the project and recovery of bank’s dues. so as to recover whatever is possible through legal means before the security position becomes worse. In respect of totally unviable units as decided by the bank. after an objective assessment of the promoter’s intention. banks are convinced of a turnaround within a scheduled timeframe. is imperative. it is better to facilitate winding up/ selling of the unit earlier. Timeliness and Adequacy of response:- 86 . Here the role of frontline officials at the branch level is paramount as they are the ones who has intelligent inputs with regard to promoters’ sincerity. by the time banks start their efforts to get involved in a revival process. Banks may have penal of technical experts with proven expertise and track record of preparing techno-economic study of the project of the borrowers.serious with no commitment or stake in revival is a challenge confronting bankers. Based on this objective assessment. books of account in order to ascertain real factors that contributed to sickness of the borrower. Identification of weakness in the very beginning that is : When the account starts showing first signs of weakness regardless of the fact that it may not have become NPA. Assessment of the potential of revival may be done on the basis of a technoeconomic viability study. Borrowers having genuine problems due to temporary mismatch in fund flow or sudden requirement of additional fund may be entertained at branch level. banks should decide as quickly as possible whether it would be worthwhile to commit additional finance. and for this purpose a special limit to such type of cases should be decided. Restructuring should be attempted where. and capability to achieve turnaround. In this regard banks may consider having “Special Investigation” of all financial transaction or business transaction. it’s too late to retrieve the situation. and help avert many accounts slipping into NPA category.
Focus on Cash Flows:While financing. The package of assistance may be flexible and bank may look at the exit option. Where the default is due to deeper malady. MEASURES INITIATED BY RBI AND GOVERNMENT OF INDIA FOR REDUCTION OF NPAs Compromise settlement schemes 86 . grater the injury to the account and the asset. viability study or investigative audit should be done – it will be useful to have consultant appointed as early as possible to examine this aspect. A bank may commit additional finance to an aling unit only after basic viability of the enterprise also in the context of quality of management is examined and confirmed. A proper techno.economic viability study must thus become the basis on which any future action can be considered.Longer the delay in response. But this may not be the case all the time. which could yield a potentially misleading picture. under the restructuring exercise. at the time of restructuring the banks may not be guided by the conventional fund flow analysis only. Appraisal for fresh credit requirements may be done by analyzing funds flow in conjunction with the Cash Flow rather than only on the basis of Funds Flow. Time is a crucial element in any restructuring or rehabilitation activity. has to be adequate in terms of extend of additional funding and relaxations etc. Management Effectiveness:The general perception among borrower is that it is lack of finance that leads to sickness and NPAs. The response decided on the basis of techno-economic study and promoter’s commitment. Management effectiveness in tackling adverse business conditions is a very important aspect that affects a borrowing unit’s fortunes.
5 lakh for compromise settlement under Lok Adalats. 2600 crore by September 2001] An OTS Scheme covering advances of Rs. 2001. The broad framework for compromise or negotiated settlement of NPAs advised by RBI in July 1995 continues to be in place.50. with outstanding balance of Rs. 668 crore through compromise settlement under this scheme. particularly for old and unresolved cases falling under the NPA category.] Guidelines were modified in July 2000 for regcovery of the stock of NPAs of Rs. The public sector banks had recovered Rs. 5 crore and less as on 31 March 1997. [The above guidelines which were valid up to June 30.Specific guidelines were issued in May 1999 to public sector banks for one time non-discretionary and non-discriminatory settlement of NPAs of small sector.25000 and below continues to be in operation and guidelines in pursuance to the budget announcement of the Hon’ble Finance Minister providing for OTS for advances up to Rs. I would like to recapitulate at this stage. 2000. For more details about Lok Adalats please refer to page Lok Adalat Debt Recovery Tribunals 86 .38 crore as on September 30. [Public sector banks recovered Rs. The policy framework suggested by RBI provides for setting up of an independent Settlement Advisory Committees headed by a retired Judge of the High Court to scrutinize and recommend compromise proposals.The RBI / Government of India have been constantly goading the banks to take steps for arresting the incidence of fresh NPAs and have also been creating legal and regulatory environment to facilitate the recovery of existing NPAs of banks. through the forum of Lok Adalat.10 lakhs and above. Lok Adalats Lok Adalat institutions help banks to settle disputes involving accounts in “doubtful” and “loss” category. The progress through this channel is expected to pick up in the coming years particularly looking at the recent initiatives taken by some of the public sector banks and DRTs in Mumbai. Debt Recovery Tribunals have now been empowered to organize Lok Adalats to decide on cases of NPAs of Rs. More significant of them. Banks are free to design and implement their own policies for recovery and write-off incorporating compromise and negotiated settlements with the approval of their Boards.40.000 in respect of NPAs of small/marginal farmers are being drawn up. The scheme was operative up to September 30. 2001 helped the public sector banks to recover Rs.
71 crore pertaining to public sector banks since inception of DRT mechanism and till September 30.6264. as on 31st March every year. Calcutta and Chennai.84 crore pending before them as on September 30. management. power to attach defendant’s property/assets before judgment.1864. they could decide only 9814 cases for Rs. This serves as a caution list while considering requests for new or additional credit limits from defaulting borrowing units and also from the directors /proprietors / partners of these entities.42988. Looking at the huge task on hand with as many as 33049 cases involving Rs. and notify borrowers who default to honour the decrees passed against them. Though there are 22 DRTs set up at major centers in the country with Appellate Tribunals located in five centers viz. Delhi. they serve as negative basket of steps shutting off fresh loans to these defaulters. I strongly believe that a real breakthrough can come only if there is a change in the repayment psyche of the Indian borrowers. 86 . penal provisions for disobedience of Tribunal’s order or for breach of any terms of the order and appointment of receiver with powers of realization. Mumbai. RBI on its part has suggested to the Government to consider enactment of appropriate penal provisions against obstruction by borrowers in possession of attached properties by DRT receivers. However. Provisions for placement of more than one Recovery Officer. It is our experience that these measures had not contributed to any perceptible recoveries from the defaulting entities. 2001. RBI also publishes a list of borrowers (with outstanding aggregating Rs. passed in March 2000 has helped in strengthening the functioning of DRTs. I may add that familiarization programmes have been offered in NIBM at periodical intervals to the presiding officers of DRTs in understanding the complexities of documentation and operational features and other legalities applicable of Indian banking system. I would like the banks to institute appropriate documentation system and render all possible assistance to the DRTs for speeding up decisions and recovery of some of the well collateralized NPAs involving large amounts.The amount recovered in respect of these cases amounted to only Rs. 1 crore and above) against whom suits have been filed by banks and FIs for recovery of their funds. Circulation of information on defaulters The RBI has put in place a system for periodical circulation of details of willful defaults of borrowers of banks and financial institutions. Allahabad. 2001.The Recovery of Debts due to Banks and Financial Institutions (amendment) Act.30 crore. protection and preservation of property are expected to provide necessary teeth to the DRTs and speed up the recovery of NPAs in the times to come.
The CDR process would also enable viable corporate entities to restructure their dues outside the existing legal framework and reduce the incidence of fresh NPAs. Since enacted by way of Ordinance in June 2002 and passed by Parliament as an Act in December 2002. It would negotiate with banks and financial institutions for acquiring distressed assets and develop markets for such assets. Vepa Kamesam. Corporate Debt Restructuring (CDR) Corporate Debt Restructuring mechanism has been institutionalized in 2001 to provide a timely and transparent system for restructuring of the corporate debts of Rs.2000 crore and initial paid up capital Rs. Board of Directors are required to review NPA accounts of Rs. Recovery action against large NPAs After a review of pendency in regard to NPAs by the Hon’ble Finance Minister. The Group will review the operation of the CDR 86 .. The CDR structure has been headquartered in IDBI. As announced by the Hon’ble Finance Minister in the Union Budget 2002-03.1400 crore is to be set up as a trust for undertaking activities relating to asset reconstruction. RBI has set up a high level Group under the Chairmanship of Shri. On their part RBI and the Government are contemplating several supporting measures including legal reforms. RBI had advised the public sector banks to examine all cases of willful default of Rs 1 crore and above and file suits in such cases. RBI to review the implementation procedures of CDR mechanism and to make it more effective. Mumbai and a Standing Forum and Core Group for administering the mechanism had already been put in place. Asset Reconstruction Company: An Asset Reconstruction Company with an authorized capital of Rs. and file criminal cases in regard to willful defaults. Government of India proposes to go in for legal reforms to facilitate the functioning of ARC mechanism Legal Reforms The Honorable Finance Minister in his recent budget speech has already announced the proposal for a comprehensive legislation on asset foreclosure and Securitization. The experiment however has not taken off at the desired pace though more than six months have lapsed since introduction. some of them I would like to highlight.20 crore and above with the banks and financial institutions. Deputy Governor.1 crore and above with special reference to fixing of staff accountability.
Scheme. Ganguly was set up by the Reserve Bank to review the supervisory role of Boards of banks and financial institutions and to obtain feedback on the functioning of the Boards vis-à-vis compliance. in the smooth implementation of the scheme and suggest measures to make the operation of the scheme more efficient. A. I hope. Corporate Governance A Consultative Group under the chairmanship of Dr. which had in no small measure contributed to the incremental NPAs of banks.Iyer Group (Chairman of CIBIL) to operationalise the scheme of information dissemination on defaults to the financial system. RBI is considering the recommendations of the S.R. disclosures. would prevent those who take advantage of lack of system of information sharing amongst lending institutions to borrow large amounts against same assets and property. if any. 86 . The Group is finalizing its recommendations shortly and may come out with guidelines for effective control and supervision by bank boards over credit management and NPA prevention measures. and make recommendations for making the role of Board of Directors more effective with a view to minimizing risks and over-exposure. identify the operational difficulties. Proposed guidelines on willful defaults/diversion of funds RBI is examining the recommendation of Kohli Group on willful defaulters.S. (CIBIL) is under way. transparency. This. Credit Information Bureau Institutionalisation of information sharing arrangements through the newly formed Credit Information Bureau of India Ltd. The main recommendations of the Group include dissemination of information relating to suit-filed accounts regardless of the amount claimed in the suit or amount of credit granted by a credit institution as also such irregular accounts where the borrower has given consent for disclosure. It is working out a proper definition covering such classes of defaulters so that credit denials to this group of borrowers can be made effective and criminal prosecution can be made demonstrative against willful defaulters. audit committees etc.
which deals with money and credit. makes the funds available to those who need them. and helps in the remittances of money from one place to another. a banks collects money from those who have it to spare or who are saving it out of their income and it lends money to those who require it. A unique function of the bank is to create credit. In fact. When a bank advances a 86 . credit creation is the natural outcome of the process of advancing loans as adopted by the banks. It accepts deposits from public. In other words.A bank is an institution.
85 86 . Banks have the ability to create many times more than their deposit and this ability of multiple credit creation depends up on the cash reserve ratio of the banks. the bank has to borrow additional capital funds to repay the depositors and creditors. If the borrowers does not repay.94 727.84 781. economy is badly hurt. Once the the credit to the various sectors of the economy slows down. Thus whenever a bank grants a loan. it creates an equal amount of bank deposit.3 890. Which results in a net increase in the money stock of the economy. There will be slow down in the growth in industrial output and fall in the profit margins of the corporate and subsequent in the markets. When these loans taken are not repaid so much of funds has gone out of the financial system and the cycle of lending-repaying-re lending is broken. The bank has to repay it’s depositors and others from whom money has been borrowed.loan to its customers it does not lend cash but open an account in the borrower’s name and credit the amount of loan to this account. NET NPA FIGURES OF PUNJAB AND SIND BANK (FROM 2004-05 TO 2009-10) In crores Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Net NPA Particulars: 993. Creation of such deposit is called credit creation. This lead to a situation where bank also reluctant to lend fresh loans thus chocking the system.69 799.70 984.
But taking on a yearly basis. has decreased from year 2005 to 2008 but has increased in year 2009. So from data analyzed above. it can be assumed that the bank has taken stringent steps to reduce the NPA or it might not have given more advances during that year.ANALYSIS The aggregate net non-performing asset of the bank is at decreasing trend. net non-performing asset. not much trend could be identified out of the six years of data considered for analysis. INTERPERTATION It can be seen from the trend that net NPA is decreasing from year 2005 to 2008 . NET ADVANCES OF PSB 86 .
81 84868.33 40834.60 56810.85 ANALYSIS The advances of the bank show an upward trend through the period 2004-05 to 2008-09 but has decreased during year 2010. This can be seen from the data regarding the advances of the 86 .71 48271.22 66648.(FROM 2004-05 TO 2009-10) In crores Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 PARTICULARS: Net Advances 39567.
If recovery were good.16 1.18 1.62 1.28 1. perhaps.51 2. in time. it should not mean increased justification for the higher incidence of nonperforming assets. increased NPA can be directly attributed to non-recovery advances made to borrowers. INTERPRETATION Non-performing assets being a direct result of advances. NET NON PERFORMING ASSETS OF PSB AS A PERCENTAGE OF NET ADVANCES (FROM 2004-05 TO 2009-10) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Particular: Net NPA to Net Advances 2.20 86 . In other words.bank during this period. NPA could have been reduced.The decrease in advances in the year 2010 due to increase in NPAs as compared to last year as NPA is directly related to amount of loan advanced. While increasing advances may be necessary for the survival & progress of the bank itself. it may have resulted from increase in the net advances.
what can be seen is that the said percentage (the net non performing assets as percentage of net advances) is nearly constant from year 2006 to 2010. INTERPRETATION Even though there was a sharp increase in the advances given by the bank in the year 2009. During the year 2004-05 to 2009-10. the chart is drawn taking the net nonperforming assts of the bank as a percentage of the net advances. it can be seen that Net NPA has maintained a constant level in that year. From such chart.there has been steady and considerable 86 . From this we can assume that bank must have taken up fruitful efforts to recover money from the willful defaulters.ANALYSIS To understand the real impact of non-performing assets.
20 12.decrease in percentage of net NPA to net Advances.50 13877.46 19351.81 23.54 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 11844. THE DEPOSITS OF PUNJAB AND SIND BANK (FROM 04-05 TO 09-10) Amount in crore Year Deposits of the bank (Rs) Increase / Decrease over the previous years figure --6. The trend line also show that there is a decreasing trend and net NPAs over subsequent years would decrease considerably.02 12591.60 18.26 22939.06 15656.56 86 .31 10.
The reason behind the upgradtion is the higher rate of interest as compared to other banks on deposits especially on fixed deposits.lockers account.02 crores to 22939. NET PROFIT AND PROVISION TOWARDS NON-PERFORMING ASSETS OF PUNJAB AND SIND BANK (FROM 2004-05 TO 2009-10) 86 .56 crores during the period 2004-05 to 2009-10. INTERPERTATION The bank has recognized the up gradation of deposits from year 2004-05 to 2009-10. The modest growth especially during the last three years is mainly due to a conscious decision on to shed the highest cost deposits.The accounts like saving bank account. field function areas have been constantly exhorted to step up the share of low cost of deposit.term deposit account. With focus on bringing down the cost of deposit.recurring deposit account.current account.ANALYSIS The aggregate deposits of the bank has increased from 11844. also have the higher interest rate as compared to other banks. On analyzing the trend of such increase in the deposits over the period we can clearly see that it is increasing at a increasing rate.
A 637.Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Particulars:Provision towards NPA Net profit during the year N.65 669.3 262.36 75.24 632.26 697.26 103.43 237.01 295.58 642.65 117.54 ANALYSIS 86 .
the provision made towards NPA has increased at an increasing rate over the year. Here in the case of PSCB. Level of non-performing asset is an important factor affecting the profit of the bank.. which has a negative impact on the net profit of the banks. which has a negative impact on the profit of the bank.25% even on their standard assets . This may be because. INTERPRETATION Profit is the most important parameter for evaluating the performance of a bank. certain provisions become necessary in order to reduce profits. a increase can be seen in the provision made towards non performing assets insubsequent years. so that taxation can be under control.On analyzing profit and loss account of the bank. it could be seen that provisions and contingencies is one herd. and provisions made towards non-performing assets. which could be explained by the tightening of provision norms which made it compulsory for banks to keep a provision of . but is surely more which ensures survival and growth in the future. So we can assume that profit of the bank might have affected negatively because of the exorbitant provision towards NPA. being item contributing to such head. as the profit margin depends up on the synthesis of cost and yield (by yielding no income) reduce the profit. NET RECOVERY OF PUNJAB AND SIND BANK (FROM 2006-07 TO 2009-10) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Particulars:86 . In the present day scenario profit is not just an accounting concept of excess of income over the expenditure. On going through the figures of the PSCB relating to net profit and provision made towards non performing assets. in the event of absolute non-recovery of the lent money.
INTERPRETATION 86 . while it was 7.8 ANALYSIS The net recovery during the year 2004-05 was 6.25% of gross non performing assets. the net recovery is increasing over time and has declined in year 2009.serious efforts were taken to set it right...45 5.25 7. i.45% and 8% in the following two years i. in 2005-06 and 2006-07 respectively.e.RECOVERY AS a% OF GROSS NPAs 6.e.1 6.45 8 8.
46 (0.38 7.67 5. On analyzing the trend of increase in the cost of deposit we can see that it is increasing at decreasing rate. As it can seen from the trend that it has decreased in year 2009-10 and it is achieved by systematic branch wise monitoring. the bank’s recovery in-charge officials may not have taken the necessary Herculean efforts towards the same in order to save the bank from the declining trend in year 2009.95 the previous year --(0.89) The cost of deposit of PSB shown a constant increase during the period 2004-05 to 2008-09 except for the year 2009-10 in which there was a slight decrease of 0.68 7. COST OF DEPOSIT OF PUNJAB AND SIND BANK (FROM 04-05 TO 09-10) Amount in crores Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Percentage of Increase / Decrease over cost 6.39) 0. So we can conclude that bank’s NPA has decreased perhaps because of efficient recovery strategy.7 0. While the strategy for recovery may have been good. NET PROFIT OF PUNJAB AND SIND BANK (FROM 04-05 TO 09-10) Amount in crores 86 .01 1.The above analysis reflects that the Bank’s recovery strategy is effective..89%.06 5.84 6. Also shift in deposit portfolio of the bank from high cost deposit to low cost deposit also has contributed to the effort.
47 670. Voluntary Retirement Scheme (VRS) also added to the burden by an amount of 248 lakhs.61) 13.2) (9.98 % Increase / decrease over the previous years figure --17.41 324.43 237.One of the reasons was the continuous fall in the interest and the adverse market conditions due to which the profit in trading in investment was reduced . which were written off instead of being provided for.18 723.71 53. STAFF PRODUCTIVITY OF PUNJAB AND SIND BANK (FROM 04-05 TO 09-10) Year Productivity / Business per employee 571.51) 13.26 103. Another major contribution was the impaired loan assets. but the treasury market contributed appreciably to the profitability.65 117.74 Increase / Decrease over the previous years figure --98.82) % Increase / decrease over the previous years figure --(11.71 (41.4 10.2 8 26 35. The continuous fall in the interest rate continued even in 2008.51 135.36 75.43) (134.31 262.54 --(33.Year Increase / Net Profit of Decrease over the Bank the previous years figure 295.88) (24.35) (56.25 1238.66 190.84 914.57) 2004-05 2005-06 2006-07 2007-08 2008-09 2009-2010 There is no particular trend in profits.97 86 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 .76 1374.50 (35.
Accordingly. human resource management. 86 . marketing etc. priority sector.The bank has recognized that up gradation of employee skills at all levels is essential to meet competitive challenges.The staff productivity of the banks has increased from 571.74 crores over the period 2004-05 to 2009-10. The bank is also at times introduce staff welfare measures aimed at increasing the motivational level of employees with a futuristic vision . automation. non-performing assets management. customer service. credit.47 crores to 1374. the PSB staff training imparts timely training to the employees covering areas like forex.
The bank also keeps flagging the NPA accounts to have real time surveillance over such accounts. 86 . The venue of such recovery Melas is usually the branch premises. which are either border line or identified as NPAs in certain identified centers where the incidents of NPAs Sis on the higher side. The bank as its recovery policy follows the measures like . than all facilities enjoyed by the borrower should be treated as NPA and classified under the same asset classification. reduction of interest etc.h COMPLIANCE ADVICE FOR BRANCH FUNCTIONARIES NPA accounts are to be grouped and classified borrower wise and not facility wise ie. • Conduct over recovery melas • Offer compromise proposal or • Filing suits RECOVERY MELAS The letter sent to the borrower should not include a general offer of discount. NPA account where the recovery would become difficult on account of erosion in the value of security or non-availability of security and existence of factors such as fraud committed by borrowers should be straight away classified as doubtful and loan asset without keeping them under sub-standard asset. Other borrowers/customers should not be permitted to be present while discussions are going on with one borrower • Conduct recovery Melas It has been decided to organize recovery melas in respect of accounts. Confidentiality of information should be respected even in respect of small clients. The TBA package available in the computer is made use of in doing so. If a borrower enjoys more than one facility and one of them become NPA. Such offers should be made only during individual discussions depending up on the merit of each case.
Compromise proposals cannot be encouraged as a routine. branches shall furnish the 86 . Action Points Branches to contact the NPA / border line borrowers personally and fix a date(s) mutually convenient for the Mela. Branches / Zonal heads should also explore the possibility of the recovery / settlement in respect of suit filed as well as decreed accounts also. During the notice period. branches shall arrange to issue legal notice within five days if not already issued. Bank resorts to legal recourse for recovery of the dues as a last resort even though other process will also be continued simultaneously for realization of the amount. The compromise should be negotiated settlement under which the bank should ensure the recovery of dues to the maximum extend possible at minimum expense. It is not the right of any customer.The avoidable delay on the part of the operating staff may on account of the misplaced optimism based on the promise made by the defaulting borrowers without making any substantial remittance towards the account shall not be relied upon. FILING SUITS Recourse to legal procedure is not only time consuming but also expensive.Mela will be attended by senior executives from central office in addition to zonal head so as to enable to take spot decisions according to the merit of the case. Here it means a process of reconciliation with the borrower for recovery of dues with sacrifice. LEGAL PROCESS(ADVISE TO BRANCHES) On the receipt of necessary approval / sanction for filing suit. The sacrifice is on the part of the bank only and not the borrower. If issued before. COMPROMISE PROPOSALS Compromise means agreement reached between two parties by mutual concession.On the expiry of the notice period given at the time of issuance of legal notice. It is the bank. Where there is cluster of branches situated in a particular area. draft plaint shall be got prepared from the advocate. who decides whether to go in for compromise or not. the borrower of the near by branches may also be called to attend the Mela. a fresh notice to be issued.
of zonal office / legal sanction of company office for necessary approval. arrangements for filing suit to be made and completed within 10 days. title deed etc. On getting the draft plaint duly approved by the zonal office / company office.response of the parties along with draft plaint. 86 . together with all security documents.
FINDINGS 86 .
From analyzing the data collected. • Absence of proper systems at the branches and controlling offices resulting in. • Lack of regular follow up. advances. • Net advances is increasing at increasing rate over the period under study. staff productivity etc. • The aggregate net NPAs of the bank are showing decreasing trend. of the bank over a past few years. Net NPAs. which includes: • Non-conduct of post sanction inspections • Defective documentation • Lapses in creation of mortgages and registration of charges with the registrar of companies. • Persistent difficulties in accessing collaterals and recovering their market values because of legal hurdles. The decrease in advances in the year 2010 due to increase in NPAs as compared to last year as NPA is directly related to amount of loan advanced. SUGGESTION FOR MANAGEMENT OF NPAs 86 . the various parameters like the deposits. • The net result. • Non-ostentation of stock / receivable statement and failure to calculate eligible drawing power. The major reasons for NPAs are: • Lack of proper and systematic appraisal system • Flouting of stipulations and conditions in the sanction advice. which indicates efficient recovery measures . the following findings were arrived at. • Staff productivity of the bank is increasing. gross NPA. the recovery is showing increasing trend. • Failure to detect incipient signs of sickness. cost of deposits.
Guwahati. Some cities have more than one Debt Recovery Tribunal located therein. The Debt Recovery Tribunal are located across the country. Ernakulam. • Strong inter-department management information system among loans. • Credit rating of clients • Computerization of loan accounts. • Timely extension of period of limitation. Chennai and Kolkata have two Debt Recovery Tribunal each. Jabalpur. NPA menace. the Government of India has constituted thirty three Debt Recovery Tribunal and five Debt Recovery Appellate Tribunal across the country. Some of the strategies at the preventive stage are as follows: • Maintenance and regular upgradation of client profile. One Debt Recovery Tribunal each has been constituted at Ahmdabad. Allahabad. Arungabad. Hydrabad. Chandigrah. 86 . Coimbatore. • Observance of limitation period.It has been proved beyond doubt that non-performing assets in banks ought to be kept at lowest level. New Delhi and Mumbai have three Debt Recovery Tribunal. Jaipur. • To establish a system of early warning for potentially weak loan accounts. Bangalore. following suggestions is necessary. FOLLOW-UP OF DEBT RECOVERY TRIBUNAL (DRT) CASES. PREVENTIVE FRAMEWORK Banks need a robust end-to-end credit management process begins with an in depth appraisal focused on risk inherent in proposal and credit rating of clients and ends with effective value addition to the bank. operations and recovery departments. Cuttack. Appraisal and monitoring are therefore the two most important factors in order to prevent the occurrence of NPAs at the first instance. Coping in line with the international trends on helping financial institutions recover their bad Debt quickly and efficiently.
write offs in small NPA account of doubtful and loss categories where chances of recovery are bleak. WRITE OFFS With view to cleaning the balancing the balance sheet . Patna. For example. HUMAN RESOURCE DEVOLOPMENT Regular training programme on credit and NPA management for all levels of executives are desirable to upgrade the skills necessary to : Prevent deterioration of assets Limit losses on fuzzy assets and Effect quicker recovery/realization in NPA accounts. Depending upon the number of cases a Debt Recovery Tribunal is constituted. with compromise offers to repay the banks dues. Thus the territorial jurisdiction of some Debt Recovery Tribunal is very vast. the territorial jurisdiction of the Debt Recovery Tribunal located at Chandhigarh too has a very wide jurisdiction over the States of Punjab. need to be expedited by formulating broad parameters/guidelines. Ranchi and Vishakapatnam. Similarly. Chandhigarh. 86 . COMPROMISE AND ONE TIME SETTLEMENT Recalcitrant borrowers are coming forward. Nagpur. The Banks & Financial Institutions and other parties in these States have to go to Debt Recovery Tribunal located in other states having jurisdiction over there area.Lucknow. Harayana. especially from the areas where functioning of DRT’s is stabilized. Needless to mention. There are a number of States that do not have a Debt Recovery Tribunal. Pune. delays in processing compromise proposals must be avoided at every stage with the objective of setting the issue. the Debt Recovery Tribunal located in Guwahati has jurisdiction over all the seven North Eastern States.
counseling the borrowers could be done. for U. with a view to reducing NPA ratios. It is possible that average yields on loans and advances net of default provisions and service costs may not far exceed the average yields on safer security which net yield by definition because of absence of risk and service costs. banks derive only 62% of income from interest. the banks can earn sufficient net margins. the better it is. housing. compromise/OT’s. Indian banks have to look for source from services and products. while the banks in the developed countries do not depend up on this income. 86%of income of Indian banks is accounted by interest. would go long way in guiding bank functionaries to effectively deal with problem loan account. agriculture etc. If by investing in safer securities though at high rates of interest. Germany 64% and Switzerland 51%. NARROW BANKING To mitigate the problem of NPAs. U. REHABILITATION There should be normally no case for rehabilitation and bank’s financial assistance. rephasement etc. rehabilitation.S. RESCHEDULEMENT The public sector banks should use their wide network of branches and infrastructure to deepen their lending for whole sale and retail trade. So that the banks reduce their average credit deposit ratios and the incremental NPAs will be zero. RECOVERY CAMP By holding recovery camps and Lok Adalat. BANK SHOULD REDUCE DEPENDENCE ON INTEREST INCOME Indian banks are largely dependent on the lending and investment. Non-interest income should come from 86 . The rest of income is fee based. reduce the incremental credit deposit ratio of banks over a period. financial irregularities. banks is only 59%. if the unit is sick due to technical obsolescence/ inefficient management. write offs. then it is possible to gradually eliminate their high NPA levels. IDENTIFICATION OF PROBLEM LOAN Tackling NPAs through non legal measures like quick review of potential NPA account.K. The sooner we settle the dues of such companies/OTs or through legal action.
GENERAL STRATEGIES • Effective recovery • Compromise to improve recovery status of account. • Special recovery drive • Help from revenue authority.innovative products and not through higher service changes that the public sector banks charges to the customer. the basic pitfalls of Indian banking systems are:Absence of marketing concepts in the business development plans. Indian banks have to give more concentration to remove the above-mentioned problems to reduce NPA level. INTRODUCE MARKETING CONCEPTS AND NEW TECHNOLOGIES TO SHARPEN COMPETITIVE EDGE According to Sir De. 86 . • Partial write off. Lack of skill and inefficiency to adopt new technology to sharpen competitive edge. • Pressure on guarantors. • Adjustment of collateral security. • Settlement of claims with DIGGC/ECGC. the winner of writers association life time achievement award 1997. on banking research. • Officials from controlling offices should visit branches frequently and should check for any incipient irregularities\sickness.
L.com Psb.com Businessstandard.com Google.com RBI.BIBLIOGRAPHY BOOKS REFERRED: Macro economics – MISHRA and PURI Banking and law practices-S.com 86 . GUPTA Marketing Research – NARESH MALHOTRA. JOURNALS REFERRED: Journal of Reserve Bank of India Economic survey WEBSITES VISITED: Marketresearch.
(Rs.______crore) and provision on standard assets.________crore.ANNEXURE REPORTING FORMAT FOR NPA – GROSS AND NET NPA Name of the Bank: Position as on……… PARTICULARS Gross Advanced * 2) Gross NPA * 3) Gross NPA as %age of Gross Advanced 4) Total deduction( a+b+c+d ) ( a ) Balance in interest suspense a/c ** ( b ) DICGC/ECGC claims received and held 1) pending Adjustment ( c ) part payment received and kept in suspense a/c ( d ) Total provision held *** 5) Net advanced ( 1-4 ) 6) Net NPA ( 2-4 ) Net NPA as a %age of Net Advance *excluding Technical write-off of Rs. 86 . 7) **Banks which do not maintain an interest suspense a/c to park the accrued interest on NPAs may furnish the amount of interest receivable on NPAs._____crore). ***Excluding amount of Technical write-off (Rs.
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