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ABSTRACT

The incidence of Non Performing Assets is affecting the performance of the Bank both financially and psychologically which has been reflecting ultimately on the Balance Sheet of the Bank. With the increase of concern towards the Circle ffice!s Non Performing Asset" with special reference to SS# sector" the study was undertaken to Analyse the reasons for Non Performing Assets. Attempts are also made analy$e the mo%ement of NPA. Primary data form the Circle ffice constituted the pre%ious four years data relating to NPA. And also a sur%ey was conducted to understand the perception of &anagers' fficers of %arious branches on Non Performing Assets. A structured (uestionnaire was prepared to undertake the sur%ey.

MKPC, Bhopal

Contents S.interpretation bser%ation . Contents ) * + . 0 2 3 4 #ntroduction rganisational Profile b.Anne5ure MKPC.No. Bhopal .literature re%iew /esearch &ethodology 1ata analysis .findings Conclusion .Suggestions Bibliography .ecti%e of the study .

INTRODUCTION MKPC. Bhopal .

Per or!"n# Assets $ Stan%ar% Assets: Performing Assets are standard assets which do not disclose any problem and which do not carry more than the normal risk attached to the business. An account is considered to be a Standard asset when it is . The biggest e%er challenge that the industry facing is the management of Non Performing Assets.n order or where the o%erdue amount is within a period of )4< days and in respect of 1irect Agricultural ad%ance if the amount o%erdue is less than two 6ar%est seasons but for a period not e5ceeding two 6alf years. ASSET CLASSIFICATION: All loan assets are broadly classified as performing assets or standard assets 8PA9 and Non: performing Assets 8NPA9. Before understanding the %arious committee recommendations on NPAs" the following concepts need to be understood. Therefore its efficiency and de%elopment are %ital for enhancing growth and impro%ing the chances for stability. 1uring the recent past" profits of the bank came under pressure due to rise in interest rates" decrease in non interest income and increase in pro%isions and contingencies. The classification is based on the record of reco%ery of interest'principal in these accounts. /B# has classified all the assets of a bank as performing assets and non performing assets" which are e5plained below. 7or the sake of uniformity and proper running /B# has gi%en many guidelines to the banks in respect of NPAs. The Performing Asset is one which generates income for the Bank.INTRODUCTION Banking system which constitutes the core of the financial sector plays a crucial role in transmitting monetary policy impulses to the economic system. The incidence of Non Performing Assets is affecting the performance of the credit institutions both financially and psychologically. Bhopal . MKPC. The most crucial factor that go%erns the performance of the bank is spotting their NPA. 6igh le%el of Non Performing Assets calls for pro%isioning for the same" thus profitability and operations are se%erely affected" which makes further lending increasingly difficult.

*<<) ha%e been paid" i9 Ad%ances granted to 1irect Agricultural purpose e5cept allied acti%ities where amount is o%erdue less than two 6ar%est seasons but a period not e5ceeding two 6alf years.*<<). e9 Ad%ances guaranteed by the State >o%ernment to the e5tent of guarantee co%er a%ailable" if not in%oked. Non Performing assets are further classified as Sub standard assets" 1oubtful assets and =oss assets.7or the purpose of Balance Sheet as at +)sl march *<<*" the following accounts can be classified as Standard Assets. Such Non Performing Asset shall ha%e well defined credit weaknesses" which . b9 7resh loans 8including Term =oans9 a%ailed where date for payment falls on or after +.)<.)<. Non Performing AssetsB An amount is to be treated as Non Performing Asset when it ceases to generate income for the Bank. #n respect of loan amount if any amount is o%erdue for a period of more than )4< days from the due date" the account should be classified as Sub Standard Assets" pro%ided it is co%ered by ade(uate securities i. where erosion in securities is less than 0<C of the %alue of securities 8?alue of securities means the %alue as assessed by the bank pre%iously accepted MKPC.)<.eopardi$e the li(uidation of the debt and characteri$ed by distinct possibility that the bank would sustain same loss" if the deficiencies are not corrected.)<. h9 A5isting loans and ad%ances where interest'installment due on or up to +. a9 7resh running limits a%ailed on or after +). c9 7resh Bills limit a%ailed where due date for payment falls on or after +. d9 Ad%ances guaranteed by the State >o%ernment to the e5tent of guarantee co%er a%ailable.*<<).*<<). g9 =oans'Ad%ances against the Banks Term 1eposits" =#C Policies" NSCs" #?Ps and @?Ps.e. Ad%ances to staff members e5cept cases mentioned elsewhere. Bhopal .

Such Non Performing asset accounts can remain in Sub Standard category for a ma5imum period of )4 months. 7urther" if the reali$able %alue of the security as assessed by the Bank'appro%ed %aluers '/B# is less than )<C of the outstanding in the borrowal accounts" such accounts should be classified as =oss Assets. #t is not necessary that there should be any gestation period to classify an account as =oss Asset. >ross NPA refers to the percentage of bad loans on the total ad%ances whereas net NPA is calculated after deducting from the gross NPA pro%isions and the claims recei%ed from the 1eposit #nsurance and Credit >uarantee Corporation 81#C>C9. The /B# wants these two NPAs for analy$ing the performance of the banks because a lower NPA le%el depicts the fundamental strength of a bank. #n other words" such an asset is considered uncollectible with sal%age or reco%ery %alue. 7urther accounts where there is a potential threat of reco%ery on account of erosion in the %alue of security or non a%ailability of security and e5istence of other factors such as fraud" Bill discounted with fake documents" etc" should be classified as 1oubtful Assets 8where erosion in the %alue of securities is more than 0<C of the %alue of securities assessed earlier and reali$able %alue being more than )<C of the outstanding liability9 or =oss Asset 8where reali$able %alue of securities is less than )<C of the outstanding liability9" irrespecti%e of the period it has remained as Non Performing asset. Bhopal . An account which has completed )4 months in Sub Standard category and which is co%ered by securities'AC>C'C>TD# co%er where the reali$able %alue is less than )<C of the %alue of security assessed earlier and the a%ailable %alue of securities is more than )<C of the outstanding liability should be classified as 1oubtful Asset. A =oss Asset is one where the loss has been identified by the Bank or the #nternal'A5ternal Auditors or the /eser%e Bank of #ndia inspectors" but the amount has been written off wholly or partly. MKPC.e. #n the annual accounts of the public sector bank according to the directi%es of /B#" two sets of NPA figures should be shown i.by /eser%e Bank of #ndia at the time of last inspection9. the gross NPA and the net NPA.

Entil )FF* there was no system of classification of assets" based on their income earning capacity. INCOME RECO&NITION: The income recognition is linked to the concept of performance of the assets. The debiting of interest used to be continued till the date on which the accounts were transferred to =P1 and the entire interest so debited would ha%e been accounted as income. %er the years" refinements in the norms ha%e been brought about to take care of the changing re(uirements. Asset Classification" #ncome /ecognition and Pro%isioning. The abo%e norms ha%e three main criteria i. Bhopal . Based on the recommendation of the Narasimhan committee" the prudential norms relating to income recognition" Asset Classification and Pro%isioning were introduced by /B# from ). Narasimhan. The income from Non: performing Assets is recognised only to the e5tent of actual reco%ery made during the accounting year. #nterest is not at all debited to all NPAs from the day on which they are first recognised as Sub:Standard" 1oubtful or =oss assets. &ENERAL MKPC.F*.e. Branches are also re(uired to note in the re(uired to note in the ledger the date from which interest is not debited to these accounts.. #n order to standardise and introduce common norms to all the banks" >o%ernment of #ndia had appointed a committee headed by &r.ecti%ity. PRO'ISIONIN&: The amount of pro%ision re(uired to be created for each assets depends on the classification of the asset" a%ailability'%alue of security" amount of AC>C'other >uarantee a%ailable" the age of the NPA etc.. The abo%e system ga%e room for sub. The amount of pro%ision re(uired for each asset was decided based on the a%ailability and %alue of securities. #n other words the income from performing assets only is to be recognised.

6ence" the endea%or of the Bank should be to pre%ent the loan accounts from slipping to NPA category. RE)ABILITATION* NURSIN& PACKA&E: Nursing Program is sanctioned either as per the directi%es of BT7/ or Team'other institutions'Banks. b9 Additional limits sanctioned as per the package alone can be classified as Standard Asset and hence there is no need for making any Pro%ision for a period of one year from the date of disbursement of additional facilities. #n such casesB a9 The e5isting facilities shall continue to be classified under category of Asset Classification before sanctioning of the package. BORRO(ER$(ISE CLASSIFICATION The Asset Classification into performing and non performing is borrower wise and not account'facility wise. ne" the income from the Non:performing Assets cannot be recognised 8e5cept to the e5tent of actual reco%ery9. The Branches are also to be guided by the Circulars issued by the 6 from time to time in this regard. Two" Bank is re(uired to create pro%ision for the Non: performing Assets.G Since the Asset Classification is borrower:wise" the total liability of the borrower and the securities a%ailable therefore should be considered'aggregated for Asset Classification and Pro%isioning. Accordingly" if one account of the borrower is NPA" the other accounts which are otherwise performing should be classified as NPA and such PA are called 1eemed NPAs. #n case any asset becomes NPA" appropriate steps are to be initiated to upgrade the assets. Both these ha%e a negati%e impact on our profitability. 6owe%er" if up gradation is not at all possible" immediate reco%ery steps are to be initiated. Bhopal . G#f the borrower is ha%ing more than one account and if anyone of the account is to be classified as doubtful" all other accounts of the borrower should be classified as 1oubtful" though such account may (ualify for classifying as standard and 'or sub:standard asset.7rom the foregoing" it may be obser%ed that the prudential Norms ha%e twin effect on the profitability of the Banks. MKPC.

Priority sector redefined and bank finance to be restricted to )< C. PRO'ISIONIN& RE+UIREMENT FOR DOUBTFUL ASSETSREMARKS 7irst year of 1oubtful Security 1eficit H *< C of 1eficit : 8Net =iability minus security a%ailable H AC>C Co%er9 Second or Third year of 1eficit H +< C of /ealisable %alue of 1oubtful security tangible should be taken. The highlights were as follows. Borrower' >uarantor!s worth should not be 7ourth year to be taken. I#nterest rate to be deregulated. MKPC. Appropriate Authority )9 =ess than /s. NARASIM)AM COMMITTEE$ FIRST REPORT$)I&)LI&)TS: • • • I Banks to achie%e capital ade(uacy of 4 C by )FF2 of /isk Weighted assets I IS=/ and C// are to be brought down.0 lakhs /egional office *9 /s.NPA with liability. Credit Wing'/eco%ery Wing" nwards security 1eficit H 0< C of Proportionate amount of AC>C co%er only COMMITTEE REPORTS Se%eral committees were formed to study the NPAs in the Bank. Bhopal . considered.*0 lakhs and abo%e Corporate Credit Wing ' 6 . The e5cepted committees are the Narasimham committee recommendations. 0 lakhs to *0 lakhs Circle office +9 /s.

MKPC. The successful banker:client relationship in the credit functions of bank in%ol%es three important and interlinked phases %i$B loan a%ailability" loan utilisation phase and loan repayment phase. NPA AND BANK LENDIN&: Phases o Ban.Adoption of uniform accounting practices particularly on income recognition asset classification and pro%ision. Bhopal . Len%"n# The incidence of non:performing ad%ances is affecting the performance of the banks both financially and psychologically.

OR&ANISATIONAL PROFILE MKPC. Bhopal .

o In%"a Central Bank of #ndia T-pe Public BSA . Bhopal .&anaging 1irector In%.people Re0en.F billion9 8*<)<:))9 K)L www.in MKPC.n%e% )ea%/.0< crore 8ESJ+.centralbankofindia.F.arters Ke.OR&ANISATIONAL PROFILE Central Ban.NSABCANT/A=B@ 7inancial Commercial banks *) 1ecember )F)) 8)<) years ago9 &umbai" #ndia Shri & ? Tanksale" Chairman .co.e (e1s"te )F").strFo..

The Mambian go%ernment holds . months. #ts total business at the end of the last fiscal amounted to *"<F"303. Central Bank of #ndia has approached the /eser%e Bank of #ndia 8/B#9 for permission to open representati%e offices in fi%e locations : Singapore" 1ubai" 1oha" =ondon and 6ong @ong.< per cent stake and each of the banks has *< per cent. MKPC.40 crore.oint %enture with Bank of #ndia"Bank of Baroda" and the Mambian go%ernment. At present" Central Bank of #ndia has one o%erseas office" which is a . o In%"a a go%ernment:owned bank" is one of the oldest and largest commercial banks in #ndia.)<< branches and *3< e5tension counters across *3 #ndian states and three Enion Territories. K.L As on +) &arch *<))" the bank!s reser%es and surplus stood at 2"424. Bhopal .Central Bank of #ndia" &umbai Central Ban. #t is based in &umbai.K*L The bank has . Central bank of #ndia is one of )4 Public Sector banks in #ndia to get recapitalisation K+L finance from the go%ernment o%er the ne5t *.++ crore.

Central Bank of #ndia was one of first bank to issue credit cards in the year )F4< in collaboration with &asterCard MKPC. #n )F*+" it ac(uired the Tata In%. #n )F2F" the #ndian >o%ernment nationali$ed the bank on )F Duly" together with )+ others.ute trader /a.ab National Bank" and Enion Bank of #ndia were caught up in a fraud in which they made dubious loans to the Bangladeshi .ender Singh Sethia.i Pochkhanawala with Sir Phero$esha &ehta as Chairman" and claims to ha%e been the first commercial #ndian bank completely owned and managed by #ndians.str"al Ban. The regulatory authorities in Angland and #ndia forced all three #ndian banks to close their =ondon branches. #n the )F4<s the managers of the =ondon branches of Central Bank of #ndia" Pun. in the wake of the failure of the Alliance Bank of Simla.History #t was established on *) 1ecember )F)) by Sir Sorab. Bhopal .