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A Study on Non-Performing Assets

A strong banking sector is important for flourishing economy. One of the most
important and major role played by banking sector is that of lending business. It is generally
encouraged because it has the effect of funds being transferred from the system to productive
purposes, which also results into economic growth. As there are pros and cons of everything,
the same is with lending business that carries credit risk, which arises from the failure of
borrower to fulfil its contractual obligations either during the course of a transaction or on a
future obligation. The failure of the banking sector may have an advance impact on other
sectors. Non-performing assets are one of the major concerns for banks in India. NPAs reflect
the performance of banks. A high level of NPAs suggests high profitability of a large number
of credit defaults that affect the profitability and net-worth of banks and also erodes the value
of the asset. The NPA growth involves the necessity of provisions, which reduces the overall
profits and shareholders value. The issue of Non-Performing Assets has been discussed at
length for financial system all over the world. The problem of NPA is not only affecting the
banks but also the whole economy. In fact high level of NPAs in Indian banks is nothing but a
reflection of the state of health of the industry and trade. This project deals with
understanding the concept of NPAs, its magnitude and major causes for an account becoming
non-performing, projection of NPAs over next years in banks and concluding remarks.
The magnitude of NPAs have a direct impact on Banks profitability legally they are
not allowed to book income on such accounts and at the same time banks are forced to make
provisions on such assets as per RBI guidelines. The RBI has advised all State CO-operative
Banks as well as the Central Co-operative Banks in the country to adopt prudential norms
from the year ending 31/03/1997. These have been amended number of times since 1997. As
per their guidelines the meaning of NPAs, the norms regarding assets classification problem
of amplification of non-performing assets (NPAs) and the issue is becoming more and more
unmanageable. In order to bring the situation under control, various steps have been taken.
Among all other steps most important one was the introduction of Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by
Parliament, which was an important step towards elimination or reduction of NPAs.
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A Study on Non-Performing Assets

After 10 years of Non Performing Assets terror in the banking industry, Now the
Banks Have Teeth, a new law lightens the burden of bad loans for Indian Banks. The law
that has been the catalyst for the bad loan cleanup passed Indias parliament in November
2002. It allows lenders more easily to foreclose on debtors assets or even demand a change
in management. Within weeks of the laws passage, banks saw a flood of loans once
unrecoverable being repaid in double time.
The act is The Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (also known as the Securitization Act). This Act enables the
setting up of assets management companies for addressing the problem of Non Performing
Assets of Banks and Financial Institutions.

An asset is classified as Non Performing Assets (NPA) if dues in the form of
instalment and the interest due are not paid by the borrower before 90 days of due. If any
advance or credit facility is granted by the bank to a borrower who become non-performing,
then the bank will have to treat all the advances/credit facilities granted to that borrower as
non performing without having any regard to the fact that there may still exist certain
advances/credit facilities having performing status.
An asset is treated as Non- Performing Asset (NPA) when it ceases to generate
income to the bank. Such Non Performing Assets shall have well defined credit weakness,
which may liquidation of the debt and are characterized by distinct possibility that the bank
would sustain some loss, if the deficiencies are not corrected.

According toNarasimhamCommittee , The problem of NPAs was first brought into

focus by the Narasimham Committee on financial system (1991), set up by with initiation of
liberalization process in the country. The committee stated that the genesis of the problem
was in the laxity of the prudential norms relating to income recognition, asset classification
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A Study on Non-Performing Assets

and provisioning. The committee placed emphasis on identifying problem loans of banks and
making provision for such loans and so instituted proper definition of NPAs. Apart from
identification of bad assets, the committee also suggested some ways to deal with them.
Further, Narasimham Committee clearly defined that an asset may be treated as Nonperforming Asset (NPAs), if interest or instalment of principal or both remain unpaid for a
period of more than 180 days. However, with effect from March 2004, default status is given
to borrower account if dues are not paid for a period of 90 days.
According to the prudential Norms, an asset, including a leased asset, becomes nonperforming when it ceases to generate income for the bank. A non-performing asset was
defined as a credit facility in respect of which interest remained past due for a period of four
quarters in the year ending March 31,1993, three quarters during the year ending March 31,
1994 and two quarters during the year ending March 1995 and onwards.
According to RBI guidelines defined that NPAs consists of substandard assets,
doubtful assets and loss assets. Any assets usually turn as NPA when it fails to yield income
during a certain period. As a result, doubtful assets find their way from substandard assets
after 18 months in Indian context (against 12 months under the international norms of NPAs).
If it is fond irrecoverable, then it migrates to loss assets category. Banks are allowed to make
full provision for such assets, that is, 100 percent for unsecured portion of doubtful assets
plus 20-50 percent of secured portion, depending on the period for which the account is
doubtful and a general 10 percent (20 percent under international norms) of the outstanding
balance in respect of substandard assets.

Standard Assets: It carries not more than the normal risk attached to the business and is not
an NPA. 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. 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. If asset fails to be in category of standard asset that is amount due
more than 90days then it is NPA and NPAs are further need to classify in sub categories.

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There are 3 types of NPA:

I. Sub-standard Asset: A sub-standard asset [is one which has remained NPA for a period
less than or equal to 12months from 31.3.2005. In such case the current net worth of the
borrower/guarantor or the current market value of the security charged is not enough to
ensure recovery of the dues to the banks in full. In other words, such an asset will have well
defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by
the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.
ii. Doubtful Assets: With effect from 31.3.2005, an asset is to be classified as doubtful, if it
has remained NPA for a period exceeding 12 months. A loan classified as doubtful has all the
weaknesses inherent in assets that were classified as sub-standard, with the added
characteristics that the weaknesses make collection or liquidation in full, - on the basis of
currently known facts, conditions and values- highly questionable and improbable. Under this
category there are three stages:
D-I Doubtful up to one year
D-II Doubtful for further two years
D-III Doubtful beyond three years.
iii. Loss Assets: An asset identified by the bank or internal/ external auditors or RBI
inspection as loss asset, but the amount has not yet been written off wholly or partly. The
banking industry has significant market inefficiencies caused by the large amounts of Non
Performing Assets (NPA) in bank portfolios, accumulated over several years. Discussions on
non-performing assets have been going on for several years now. One of the earliest writings
on NPA defined them as assets which cannot be recycled or disposed off immediately, and
which do not yield returns to the bank, examples of which are: Overdue and stagnant
accounts, suit filed accounts, suspense accounts and miscellaneous assets, cash and bank
balances with other banks, and amounts locked up in frauds".

Review of Non Performing Assets

Though, Syndicate Bank Kollegal Branch is industry leader in bringing down the level of
NPA year- on- year. But still a huge amount is trapped as NPAs which a burden for the bank.
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The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk by
the bank concerned what is needed is having adequate preventive measures in place namely,
fixing pre-sanctioning appraisal responsibility and having a effective post- disbursement


The needs of the study are as follows:

To study what kind of role NPAs are playing upon the operations of the Bank
To know the variables available to control NPAs
The need also has been felt to study the financial performance of particular branch
To know the current position of bad debts in particular bank


The objectives of the study are as follows:

To analyze the NPA of the Syndicate Bank Kollegal

To know the underlying reasons for the emergence of the NPAs
To understand the impacts of NPAs on the operations of the Bank
To know what steps are being taken by the Bank to reduce the NPAs


After the II phase of financial reforms in the name of economic reforms Indian Public
Sector Banks and Regional Rural Banks has facing a stiff competition from private banks.
The sustenance and growth of Regional Rural Banks is in a dilemma by the end of 3 rd
financial reforms that will more focus on BASEL II and III.
My project work on Non-Performing Assets a study on Syndicate Bank Kollegal
branch was focused the trends in NPA, deposit and advances, profitability and sector-wise
recovery management in Syndicate Bank Kollegal branch.


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Research is defined as a scientific and systematic search for pertinent information on
a specific topic. Research is an art of scientific investigation. Research is a systemized
effort to gain knowledge. It is a careful enquiry especially through search for new facts in
any branch of knowledge. The search for knowledge through objective and systematic
method of finding solution to a problem is a research.
The project work is based on primary and secondary data. An effort made actual data
about the NPA- A study in Syndicate Bank Kollegal Branch.

Research design:
Research design is a statement or specification of procedures for collecting and
analyzing the information required for the solution of specific problem. It provides a specific
framework for conducting some research investigation.

Primary data:The information is collect through interaction with managers, non

managerial staff and prime customers.

Secondary data: The information is collect through literature reports, statistical figures
and such other collected from books, research thesis, published reports and other unpublished
of Syndicate Bank Kollegal Branch.
The collected data and observed facts are subjected to statistical and mathematical analysis,
the data is also interpreted and help of line chart and bar chart.

Like any other project work in the field of social science, the present project on NPAs
A study on Syndicate Bank Kollegal branch is also not free from limitations. The major
limitations are,
1. Non-performing advances/assets is a generic in financial sector but, the project is
confined to Syndicate Bank Kollegal branch.
2. The analysis and interpretation based on the interaction of Manager and the data
collected from the Syndicate Bank Kollegal branch will not reflecting the responses and
interpretation of the universe as a whole.
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3. The statistical figures collected from the Syndicate Bank Kollegal Branch for the
purpose of project work may slightly variation in the analysis and interpretation.
4. The study is based only on NPA section of the bank.

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The banking system in the country has undergone a sea change with the introduction
of prudential norms on income recognition, asset classification, and their provisioning.
However, the system requires a combination of new technologies, well-guarded risk and
credit appraisal, treasury management, product diversification, internal control, external
regulations reduction of mounting NPAs and professional as well as skilled human resource
to achieve the heights of the international excellence to play its role critically in meeting the
global challenges.
However, the problem of Non Performing Assets is also found even in advanced
economies like Japan. According to international rating agency the level of NPAs of China is
more than 50% and in case India it is more than 20%. The problem of NPAs is not only the
problem of the lenders but also the borrowers. The high level of NPAs in the banks and
financial institutions is a very important problem because bank credit is a catalyst to
economic growth of the country. If there is any bottleneck in the smooth flow of credit then it
is due to the increasing level of NPAs. This will have an adverse effect on the economy.
Banking business is mainly that of borrowing from the public and lending to the
needy persons and business. Lending involves credit risk. When the loans and advances made
by a bank of financial institution turn-out non-productive and non-rewarding they become
Non-performing Assets (NPAs). Apart from the magnitude of growth in deposits credit
expansion, profit etc. the level of NPAs also is an important, measure for judging the
performance of banks, as it reflects the quality of loan portfolio.
In India, an asset is classified as Non- performing Assets (NPAs) if interests are
instalment of principal due remains unpaid for more than 180 days. However, with effect
from March 2004, default status would be given to a borrower if dues were not paid for 90
days. If any advances or credit facilities granted by a bank to borrower become Nonperforming, then the bank will have to treat all the advances/credits facilities granted to that
borrower as Non-performing without having any regard to the fact that there may still exist
certain advances/credit facilities having performing status

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Non-Performing Assets - Background: Its a known fact that the banks and financial
institutions in India face the problem of swelling non-performing assets (NPA) and the issue
is becoming more and more unmanageable. In order to bring the situation under control,
some steps have been taken recently. The Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, (SARFAESI) 2002 was passed by
Parliament, which is an important step towards elimination or reduction of NPA. Meaning of
NPA .An asset is classified as non-performing asset (NPA) if dues in the form of principal
and interest are not paid by the borrower for a period of 180 days. However with effect from
March 2004, default status would be given to a borrower if dues are not paid for 90 days. If
any advance or credit facility granted by bank to a borrower becomes non-performing, then
the bank will have to treat all the advances/credit facilities granted to that borrower as nonperforming without having any regard to the fact that there may still exist certain advances /
credit facilities having performing status.


The three letters NPA Strike terror in banking sector and business circle today. NPA
is short form of Non Performing Asset. The dreaded NPA rule says simply this: When
interest or other due to a bank remains unpaid for more than 90 days, the entire bank loan
automatically turns a non performing asset. The recovery of loan has always been problem
for banks and financial institution. To come out of these first we need to think is it possible to
avoid NPA, then left is to look after the factor responsible for it and managing those factors.
Action for enforcement of security interest can be initiated only if the secured asset is
classified as Non Performing Asset. Non Performing Asset means an asset or account of
borrower which has been classified by bank or financial institution as sub standard, doubtful
or loss asset, in accordance with the direction or guidelines relating to assets classification
issued by RBI.
An amount due under any credit facility is treated as past due when it is not been
paid within 30 days from the due date. Due to the improvement in the payment and
settlement system, recovery climate, up gradation of technology in the banking system etc, it
was decided to dispense with past due concept, with effect from March 31, 2001.
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Accordingly as from that date, a Non performing asset shall be an advance where. Interest
and / or installment of principal remain overdue for a period of more than 90 days in respect
of a term loan,
ii. The account remains out of order for a period of more than 90 days, in respect of an
overdraft / cash credit (OD/CC)
iii. The bill remains overdue for a period of more than 90 days in case of bill purchased or
iv. Interest and / or principal remains overdue for two harvest season but for a period not
exceeding two half years in case of an advance granted for agricultural purpose, and
v. Any amount to be received remains overdue for a period of more than 180 days in respect
of other accounts With a view to moving towards international best practices and to ensure
greater transparency, it has been decided to adopt 90 days overdue norms for identification
of NPAs, from the year ending March 31, 2004, a non performing asset shall be a loan or an
advance where;
I. Interest and / or installment of principal remain overdue for a period of more than 90 days
in respect of a term loan,
ii. The account remains out of order for a period of more than 90 days ,in respect of an
Overdraft/cash credit (OD/CC)
iii. The bill remains overdue for a period of more than 90 days in case of bill purchased or
iv. Interest and/or principal remains overdue for two harvest season but for a period not
exceeding two half years in case of an advance granted for agricultural purpose, and
v. Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.

Out of order
An account should be treated as out of order if the outstanding balance remains
continuously in excess of sanctioned limit / drawing power. In case where the outstanding
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balance in the principal operating account is less than the sanctioned amount /drawing power,
but there are no credits continuously for six months as on the date of balance sheet or credit
are not enough to cover the interest debited during the same period, these account should be
treated as out of order.
Any amount due to the bank under any credit facility is overdue if it is not paid on
due date fixed by the bank.
In short
A NPA is a loan or an advance where;
Interest and/ or installment of principal remain overdue for a period of more than 90
days in respect of a term loan.
The account remains out of order in respect of an overdraft/ cash credit.
The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted.
The installment or interest remains overdue for two crop seasons in case of short
duration crops and for one crop season in case of long duration crops.

The history of financial institutions also reveals the fact that the biggest banking
failures were due to credit risk. Due to this banks are restricting their lending operations to
secure avenues only with adequate collateral on which to fall back upon in a situation of
default. It needs to be recognized that prudential norms in respect of loan classification vary
widely across the countries. A country follows varied approaches, from the subjective to the
prescriptive. Illustratively, in the United Kingdom, supervisors do not need banks to adopt
any particular form of loan classification and either is there any recommendation on the
number of classification categories that bank should employ. Other countries, such as, United
States follow up a more prescriptive approach, where in loans are classified into several
categories based on a set of criteria ranging from payment experience to the environment in
which the debtor evolves. The adoption of such a system points to the usefulness of a
structured approach those facilities the supervisors ability to analyse and compare banks
loan portfolios.
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Capital Adequacy Ratio (CAR):

The RBI prescribed the CAR as per the Basel norms gave banks time to raise the
capital level in a phased manner. With effect from April 1, 000 all banks are required
to maintain percent CAR. Apart from the overall level of CAR, the RBI has also
introduced certain structural adjustments in the assignment of risk weights on the
various categories of assets. These are:
The banks' foreign exchange open position limit as well as the open position limit in
gold has been assigned a 100 percent risk weight with effect from March 31, 1999.
Investment in government and other approved securities require to be assigned a risk
weight of 2.5 percent since April 1, 2000.
Fresh investment in government guaranteed securities of Public Sector Units that do
not form part of market borrowings are subject to an additional risk weight of 20
percent from April 1, 2001.
Advances guaranteed state governments that have defaulted as of March 31, 2012 is
to be assigned a risk weight of 20 percent in case the guarantee has been invoked. The
risk weight will increase to 100 percent if they continue to be in default after March
31, 2012
Liquidity - Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). A major
reform measure was the gradual reduction of the CRR and SLR. In 1990s CRR and
SLR aggregated together 53.5 percent of deposits. The CRR refers to the minimum
proportion of the net demand and time liabilities (NDTL) that the bank must maintain
in cash with the RBI. The CRR percentage is reviewed every six months and the RBI
has the power to modify the CRR between 3 percent and 20 percent. Commercial
banks are currently required to maintain a CRR of7.5 percent of NDTL.
The existing policy is to reduce the CRR to the minimum 3 percent in line with
international norms. The SLR expresses the quantity of certain specified assets (as mentioned
in the banking act) as a percentage of the total demand and time liabilities.
The SLR is set at 25 percent of NDTL. The RBI has the power to modify the SLR between
25 percent and 40 percent.

Credit Controls and Delivery Systems:

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Prior to the reforms initiated in 1992, there were detailed regulations regarding the
calculation of the Maximum Permissible Bank Finance (MPBF) with norms for receivables
and inventory holding for various industries. In a phased manner from 1993 to 1997, all
instructions relating to MPBF were withdrawn with a view to providing freedom to banks.
The RBI now only provides broad guidelines (except for small-scale industries) emphasizing
the need to clearly lay down the loan policy for each industry. Banks are free to sanction term
loans for projects as long as the exposure and concentration norms are maintained.

Interest Rates:
Interest rate on deposits has been completely deregulated. The only administered
interest rate is that on savings bank deposits. On current account balances, no interest is
payable. For foreign currency denominated deposits from non-resident Indians (NRIs), there
is a ceiling on the interest rate offered. On the lending side banks are required to announce
the Prime Lending Rate (PLR) and the maximum spread charged over the PLR. Interest rates
are currently prescribed for only three categories of loans; loans below 200,000, lending rates
for exports, and advances in foreign currency.
Lending Limits for Single Borrower:
Prudential exposure norms have been prescribed both in respects of operations of
foreign branches and for domestic banks, lending to individual group borrowers at 25 to 50
percent of the bank's capital funds. To encourage low of funds to the infrastructure sector, the
borrower norm is fixed at higher level of 60 percent for companies engaged in infrastructure
industry. A quarterly reporting to the RBI on the exposure ceilings for off-site monitoring is
in place. The banks are required to report top 20 borrowers with balances outstanding.
Priority Sector Lending: Norms: Domestic commercial banks (both public and private sector)

Total priority sector advances: 40 percent of net bank credit

Total agricultural advances: 18 percent of net bank credit
Advances to weaker sections: 10 percent of net bank credit

Foreign banks operating in India

Total priority sector advances: 32 percent of net bank credit

Advances to small-scale industries: 10 percent of net bank credit
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Export credit: 12 percent of net bank credit

The definition of the priority sector has been broadened to include:

Loans to traditional plantation crops like tea, coffee, and rubber;

Loans for housing up to Rs. 500,000 (US $ 10,752);
Loans to transport operators with 10 vehicles or less;
Advances to dealers of certain types of irrigation systems and agricultural machinery;
Investments made by banks in special bonds of SIDBI, NABARD, NHB, NSIC,
HUDCO, SIDCs, Rural Electrification Corporation (REC) and contributions to Rural
Infrastructure Development Fund (RIDF) and advances up to Rs. 10 million (US
$0.21 million) to the software industry.

The market risks in the investment portfolio of banks are controlled through quantitative
restrictions on the extent of exposure that the banks can have in capital market. Investments
comprise nearly 35 percent of the total assets of the banking system.


The origin of the problem of burgeoning NPAs lies in the quality of managing credit
risk by the concerned banks. What is need is having adequate preventive measures in place
namely, fixing pre-sanctioning appraisal responsibility and having an effective postdisbursement supervision.
The core banking business is of mobilizing the deposits and utilizing it for lending to
industry. Lending business is generally encouraged because it has the effects of funds being
transferred from the system to productive purposes which results into economic growth.
However lending also carries credit risk, which arises from the failure of borrower to fulfil its
contractual obligation either during the course of a transaction or on a failure obligation. The

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history of financial institutions also reveals the fact that the biggest banking failures were due
to credit risk. Due to this, banks are restricting their lending operations to secured avenues
only with adequate collateral on which to fall back upon a situation of default.
Banking sector plays an indispensable role in economic development of a country
through mobilization of savings and deployment of funds to the productive sectors. Bank
lending is very crucial for it makes it possible, the financing of agricultural, industrial and
commercial activities of the country. It is an established fact that a fragile banking system
can, not only hamper the development of a particular economy but also it can deepen the real
economic crisis and impose heavy social costs. So the health of the banking system should be
one of the primary concerns of the government of each country. Currently the Indian banking
sector is not in a good health. The symptoms of the disease are vastly apparent viz. rising
NPAs, high labour costs, competition from mutual funds, bureaucratic hurdle and red tapism
to name a few. The existing weak banks only compound the problem.
Most of these symptoms have been present in the Indian banking system since
independence but it is only in the post reform era that they have became more ostensible.
The problem of NPA became apparent following the introduction of internationally
accepted prudential accounting norms. Prudential norms were adopted with regard to income
recognition, asset classification, provisioning norms and capital adequacy. Till the adoption of
prudential norms twenty-six out of twenty-seven public sector banks (PSBs) were reporting
profits. In the first post-reform year, i.e., 1992-93, the profitability of the PSBs as a group
turned negative with as many as twelve nationalized banks reporting losses. By March 1996,
the outer time limit prescribed for attaining capital adequacy of 8 per cent, eight public sector
banks were still short of the prescribed level. The emphasis on maintenance of capital
adequacy and compliance with the requirement of asset classification and provisioning norms
put severe pressure on the profitability of PSBs. Banks have so far been able to meet their
requirements of additional capital by infusion of funds by the government or by accessing the
markets. However, a stage has been reached where further efforts at restructuring some of
these banks cannot be confined merely to infusion of capital and giving certain targets for
improvement in performance. But major restructuring has to be done to improve the asset
quality of the banks.

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Undoubtedly the world economy has slowed down, recession is at its peak, globally
stock markets have tumbled and business itself is getting hard to do. The Indian economy has
been much affected due to high fiscal deficit, poor infrastructure facilities, sticky legal
system, cutting of exposures to emerging markets by FIIs, etc. Further, international rating
agencies like, Standard & Poor have lowered India's credit rating to sub-investment grade.
Such negative aspects have often outweighed positives such as increasing forex reserves and
a manageable inflation rate. Under such a situation, it goes without saying that banks are no
exception and are bound to face the heat of a global downturn. One would be surprised to
know that the banks and financial institutions in India hold non-performing assets worth Rs.
1, 10, 000 crores. Bankers have realized that unless the level of NPAs is reduced drastically,
they will find it difficult to survive.
The whole Indian banking industry consists of commercial banks, all India financial
institutions, regional rural banks and co-operative banks. This report focuses on commercial
banks, which have three categories of banks (PSBs- government owned banks), private sector
banks (old and new), and foreign banks.
The banking sector in India functions under the purview of the Reserve Bank of India
(RBI) the central bank of the country. The Banking Regulation Act passed in 1949 provides
RBI with wide range of powers for supervision and regulation of banks, licensing power and
authority to conduct inspection. Today there are 27 PSBs, 24 old private banks, 8 new private
banks and 42 foreign banks. As of march 31, 2000 these 101 banks with a branch network of
50,855 had a total asset base of rs.11, 104 billion (US $ 239 billion), making them the most
active and predominant financial intermediaries in the country.

Banking Sector Reforms:

In the 1970s and 1980s the banking industry was marked by a high degree of
regulation. The banks functioned in a heavily regulated and controlled environment, with an
administered interest structure, quantitative restrictions on credit flows, high reserve
requirements , and pre-emption of a significant proportion of lend able resources towards the
priority ( the definition of the priority sector include loans to traditional plantation crops
like tea, coffee, and rubber : housing up to a limit of Rs 500,000 ( US $ 10,752 ); loans to
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transport operators with 10 vehicles or less: advances to dealers of certain types of irrigation
systems and agricultural machinery; rural development ) and the government sectors. These
regulations resulted insignificant reduction in the bank managements autonomy in asset
deployment, credit rationing, low asset quality, and low levels of investment and growth.
Although the business volumes improved in recent years, productivity and efficiency
declined with profitability remaining sluggish. In 1991, the government of India established a
nine-member committee on financial systems, under the chairmanship of Mr. Narasimhan to
evaluate the systematic banking problem. The Narasimhan committee report published
towards the end of 1991, containing far-reaching recommendations for the banking sector.
This report forms the basis for the sectors reforms, which were undertaken in parallel
with the overall economic reforms of the 1999s.
The salient features of these reforms were:

Introduction of stricter income recognition and assets classification norms.

Introduction of higher capital adequacy requirements.
Introduction of higher disclosure standards in financial reporting.
Introduction of phased de-regulation of interest rates.
Lowering of statutory liquidity ratio and credit reserve ratio requirements.

Major regulatory reforms are discussed in the section on market access. Other changes
include entry of Indian private sector in banking, liberalization of the entry and expansion of
foreign banks, removal of restriction on automated teller machines, increased number of
activities and products, a reduction of government ownership in PSBs.
The funds raised by banks in Indian are deployed under two major categories- loans &
advances, and investments. The assets financed by banks are linked to the liabilities through
statutory regulation, principal among which are the statutory liquidity ratio and the credit
reserve ratio that mandate banks to maintain a specified minimum proportion of their deposits
in certain designated liquid assets.
Advances by Indian banks are- cash credit, overdrafts, and loans. Cash credit is the
most popular mode of borrowing by India companies. The advantage of this mode is that the
borrower can withdraw only the amount needed and not the entire amount sanctioned and can
return any surplus funds. Banks in India generally hold government securities far in excess of
their SLR requirements. Although the return is low, the investments are virtually risk-averse
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and there is no danger of generating non-performing assets (NPA). Such risk-averse
behaviour can be attributed to the implementation of strict provisioning norms, capital
adequacy requirements, and the system of managerial compensation that is not performance

Why NPA have become an issue for banks and financial institutions in India?
To start with, performance in terms of profitability is a benchmark for any business
enterprise including the banking industry. However, increasing NPA have a direct impact on
banks profitability as legally banks are not allowed to book income on such accounts and at
the same time banks are forced to make provision on such assets as per the Reserve Bank of
India(RBI) guidelines. Also, with increasing deposits made by the public in the banking
system, the banking industry cannot afford defaults by borrowers since NPA affects the
repayment capacity of banks. Further, Reserve Bank of India (RBI) successfully creates
excess liquidity in the system through various rate cuts and banks fail to utilize this benefit to
its advantage due to the fear of burgeoning non-performing assets

The following are the primary causes for turning the accounts into NPA:

Diversion of funds, mostly for the expansion / diversification of business or for

promoting associate concern.

Factors internal to business like product / marketing failure, inefficient management,

inappropriate technology, labor unrest.

Changes in the Macro-environment like recession in the economy, infrastructural


Inadequate control / supervision, leading to time / cost over-runs during project.

Changes in Government policies e.g. Import duties.

Deficiencies like delay in the release of limits/ funds by banks / FIs

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Secondary causes are as follows:

Selection of the project.

Implementation of the project- time over-run, cost over-run, under-financing

technology involved.
Intention of the borrower.
Industrial / Economic trend.
Absence of the up gradation of the unit / ploughing back of the profit.


Classification of Assets: While new private banks are careful about their asset quality
and consequently have low non-performing assets (NPAs), public sector banks have large
NPAs due to wrong lending policies followed earlier and also due to government regulations
that require them to lend to sectors where potential of default is high. Allaying the fears that
bulk of the Non-Performing Assets (NPA) was from priority sector, NPA from priority sector
constituted was lower at 46 percent than that of the corporate sector at 48 per cent. Loans and
advances account for around 40 per cent of the assets of SCBs. However, delay/default in
payment of interest and/or repayment of principal has rendered a significant proportion of the
loan assets non- performing. As per RBIs prudential norms, a Non-Performing Asset (NPA)
is a credit facility in respect of which interest/installment has remained unpaid for more than
two quarters after it has become past due. Past due denotes grace period of one month after
it has become due for payment by the borrower.
Regulations for asset classification
Assets are classified into four classes - Standard, Sub-standard, Doubtful, and Loss
assets. NPA consist of assets fewer than three categories: sub-standard, doubtful and loss.
RBI for these classes of assets should evolve clear, uniform, and consistent definitions. The
banks should classify their assets based on weaknesses and dependency on collateral
securities into four categories:
I. Standard Assets: It carries not more than the normal risk attached to the business and is
not an NPA. 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. 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
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the end of financial year. If asset fails to be in category of standard asset that is amount due
more than 90days then it is NPA and NPAs are further need to classify in sub categories.
ii. Sub-standard Asset: A sub-standard asset is one which has remained NPA for a period
less than or equal to 12months from 31.3.2005. In such case the current net worth of the
borrower/guarantor or the current market value of the security charged is not enough to
ensure recovery of the dues to the banks in full. In other words, such an asset will have well
defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by
the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.
iii. Doubtful Assets: With effect from 31.3.2005, an asset is to be classified as doubtful, if it
has remained NPA for a period exceeding 12 months. A loan classified as doubtful has all the
weaknesses inherent in assets that were classified as sub-standard, with the added
characteristics that the weaknesses make collection or liquidation in full, - on the basis of
currently known facts, conditions and values- highly questionable and improbable.
Under this category there are three stages:
D-I Doubtful up to one year
D-II Doubtful for further two years
D-III Doubtful beyond three years.
iv. Loss Assets: An asset identified by the bank or internal/ external auditors or RBI
inspection as loss asset, but the amount has not yet been written off wholly or partly. The
banking industry has significant market inefficiencies caused by the large amounts of Non
Performing Assets (NPA) in bank portfolios, accumulated over several years. Discussions on
non-performing assets have been going on for several years now. One of the earliest writings
on NPA defined them as assets which cannot be recycled or disposed off immediately, and
which do not yield returns to the bank, examples of which are: Overdue and stagnant
accounts, suit filed accounts, suspense accounts and miscellaneous assets, cash and bank
balances with other banks, and amounts locked up in frauds".

Guidelines for the classification of assets

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Classification of assets into above categories should be done taking into account the
degree of well defined credit weaknesses and the extent of dependencies on collateral
security for the realization of dues.
Banks should establish appropriate internal systems to eliminate the tendency to delay
or postpone the identification of NPAs especially in respect of high value of accounts.
Account with temporary Deficiencies:
The classification of an asset as NPA should be based on the record of recovery. Bank
should not classify an advance account as NPA merely due to the existence of some
deficiencies, which are temporary in nature as such as non availability of adequate drawing
power based on latest stock.
Asset classification to be borrowerwise and not facility-wise:
It is difficult to envisage a situation when only one facility to a borrower becomes a
problem credit and not others. Therefore, all the facilities granted by a bank to a borrower
will have to be treated as NPA and not the particular facility or a part thereof, which has
become irregular.

Advances under consortium arrangements:

Asset classified of accounts under consortium should be based on the record of
recovery of the individual member banks and other aspects having bearing on the
recoverability of the advances. Accounts where there is erosion in the value of security can be
reckoned as significant when the realizable value of the security is less than 50 percent of the
value assessed by the bank or accepted by RBI at the time of last inspection, as the case may
be. Such NPAs may best right way classified under doubtful category and provisioning
should be made as applicable to doubtful assets.
Agricultural Advances
In respect of advances granted for agricultural purpose where interest and / or
installment of principal remains unpaid after it has become past due for two harvest seasons
but for a period not exceeding two half years , such an advance should be treated as NPA.

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Where the natural calamities impair the repaying capacity of agricultural borrowers,
banks may decide on their own as a relief measure-conversion of the short term production
loan into a term or reschedule of the repayment period.
In such cases of conversation or re-schedule, the term loan as well as fresh short-term
loan may be treated as current dues and need not be classified as NPA.
Restructuring /rescheduling of loans:
A standard asset where the terms of the loan arrangement regarding interest and
principal have been renegotiated or rescheduled after the commencement of production
should be as sub-standard and should remain in such category for at least one year of
satisfactory performance under the renegotiated or restructured terms. In case of substandard
and doubtful assets also, rescheduling does not entitle a bank to upgrade the quality of









rescheduled renegotiated terms.

Exceptions: As trading involves only buying and selling of commodities and the problems
associated with manufacturing units such as bottleneck in commercial production, time and
cost escalation etc. are not applicable to them.

NPA Norms
Provisional Norms: Banks will be required to make provisions for bad and doubtful debts on
a uniform and consistent basis so that the balance sheets reflect a true picture of the financial
status of the bank. The Narsimham Committee has recommended the following provisioning
(i) 100 per cent of loss assets or 100 per cent of out- standings for loss assets;
(Ii) 100 per cent of security shortfall for doubtful assets and 20 percent to 50 per cent of the
secured portion; and
(iii) 10 per cent of the total out standings for substandard assets. A provision of 1% on
standard assets is required as suggested by Narsimham Committee II, 1998. Banks need to
have better credit appraisal systems so as to prevent NPA from occurring. The most important
relaxation is that the banks have been allowed to make provisions for only30 per cent of the
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"provisioning requirements" as calculated using the Narsimham Committee recommendations
on provisioning. The encouraging profits recently declared by several banks have to be seen
in the light of provisions made by them. To the extent that provisions have not been made, the
profits would be fictitious.
Disclosure Norms:
Banks should disclose in balance sheets maturity pattern of advances, deposits, and
investments and borrowings. Apart from this, banks are also required to give details of their
exposure to foreign currency assets and liabilities and movement of bad loans. These
disclosures were to be made for the year ending March 2000. In fact, the banks must be
forced to make public the nature of NPA being written off.
This should be done to ensure that the tax payers money given to the banks, as capital
is not used to write off private loans without adequate efforts and punishment of defaulters.


(Basel II)
Capital adequacy to be increased from 8 % to 10 % in stages
Asset Reconstruction Companies to be set up to issue bonds which would form part of
Tier II capital.
Introduction of income recognition norms of 90 days in a phased manner.
Provision to be made for standard asset and the period for sub Standard asset to be
reduced to 11/2 years.
Banks should adopt strategic risk management techniques like Value-at-risk in respect
of balance sheet items.
Actions to be under taken on reducing expenditure through value at-risk in respect of
balance sheet items.
The major parameters for the banks that seek to become International players could be
return on equity, return on assets and employees, productivity measured not in terms
of business volume but net profit.

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Investment decisions should be taken by committee at various levels within the policy
framed by the bank.
Accurate and timely information for strategic decisions-identify and provide
profitable products to customers.
2 or 3 larger banks with international orientation, 8-10 national banks and large
number of local banks proposed.
Minimum shareholding of government should be brought down to 33%.
Training systems to address newer areas like product development, marketing skills,
modern credit management skills and new internal audit skills.
Need for network of regional data warehouse and credit information bureau.
Transfer of priority sector portfolio between high level and lower level banks.
Single integrated system of regulation and supervision covering banks, FIs and

Basel III
Basel III is a global, voluntary regulatory standard on bank capital adequacy, stress
testing and market liquidity risk. It was agreed upon by the members of the Basel Committee
on Banking Supervision in 201011, and was scheduled to be introduced from 2013 until
2015; changes from January 7, 2013 extended implementation until 2019 however.The third
installment of the Basel Accords was developed in response to the deficiencies in financial
regulation revealed by the late-2000s financial crisis. Basel III was supposed to strengthen
bank capital requirements by increasing bank liquidity and bank leverage.
Basel III has been criticized by banks, organized in the Institute of International
Finance in Washington D.C. (large American and European banks, including Goldman Sachs,
Morgan Stanley, Deutsche Bank) with the argument it would hurt them and economic growth.
OECD estimated that implementation of Basel III would decrease annual GDP growth by
0.050.15% blaming regulation as responsible for slow recovery from the late-2000s
financial crisis.

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Basel III was also criticized to negatively affect the stability of the financial system by
increasing incentives of banks to game the regulatory framework. The American Bankers
Association, the community banks, organized in the Independent Community Bankers of
America, and some of the most liberal Democrats in the U.S. Congress. including the entire
Maryland congressional delegation with Democratic Sens. Cardin and Mikulski and Reps.
Van Hollen and Cummings voiced opposition to Basel III in their comments submitted to
FDIC as hurting small banks, by increasing "their capital holdings dramatically on mortgage
and small business loans.", a theme repeated at H.R. hearings on 11/29/12.Others have argued
that Basel III did not go far enough to regulate banks as inadequate regulation was a cause of
the financial crisis.
On January 6, 2013 the global banking sector won a significant easing of Basel III
Rules,when the Basel Committee on Banking Supervision extended not only the
implementation schedule to 2019, but broadened the definition of liquid assets.

Basel 3 measures aim to:

improve the banking sector's ability to absorb shocks arising from financial and economic
stress, whatever the source
improve risk management and governance
strengthen banks' transparency and disclosures.

Asset Classification
Types of Assets
Standard Assets

Provision Requirement (%)

0.40% of the outstanding balance (for
AGR & SME it is 0.25%)
[Provision made at the H.O Level]
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10% of the outstanding balance

Doubtful Assets:

20% of the outstanding balance

For Unsecured portion 100%
For Secured portion:

DA1(Up to 1 year):

20% of the outstanding balance

DA2(1 to 3 years):

30% of the outstanding balance

DA3(> 3 years):
Loss Asset

100% of the outstanding balance

100% of the outstanding balance

Provision requirements
Standard assets 0.25% of the o/s dues in all Standard Assets under SME and Agricultural
1.00% of the o/s dues in all Standard Assets of the A/c to Capital market exposure, personal
loan, commercial real estate and residential HSG. Beyond Rs. 20lakhs .0.40% of the o/s dues
in all standard assets belonging to all other categories. Substandard assets 10% of the sum of
the net investment in the lease and the unrealized portion of finance income net of finance
charge component. The terms net investment in the lease, finance income and finance charge
are as defined inAS19 Leases issued by the ICAI.
Doubtful assets 20% - 50% of the secured portion depending on the age of NPA,
an100%of the unsecured portion.Loss assets It may be either written off or fully provided by
the bank. The entire asset should be written off if the assets are permitted to remain in the
books for any reason, 100 % of the outstanding should be provided for.
The following categories of advances are totally exempted from asset classification, income
recognition and provisioning:

Advances against banks own term deposit including recurring deposits

National Savings Certificate

Surrender value of L.I.C policies

Indira VikasPatra

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Interest debited to the advances against the above whether recovered or not can be taken to
income account provided adequate margin is available.


The reasons for NPAs may be broadly classified into:
1. Advances made in Priority Sector.
2. Advances made in Non-Priority Sector.


In Priority Sector Advances:
1. Directed and pre-approved natures of loans sanctioned under sponsored programmes.
2. Mis-Utilization of loans and subsidies.
3. Diversion of funds.
4. Absence of security.
5. Lack of effective follow-up (post sanction supervision and control).
6. Absence of Bankruptcy and fore-closure loans.
7. Decrepit legal system.
8. Cost in-effective legal recovery measures.
9. Difficulty in execution of decrees obtained.
In Non-Priority Sector Advances:
1. Inadequate credit appraisal
2. Demand recession
3. Industrial sickness and labour problems
4. Slow Legal System.
5. Diversion of funds.
6. Wilful default.
7. Technology Obsolescence.
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8. Managerial inefficiency.
9. Political compulsion and corruption.
The banking sector has been facing the serious problems of the rising NPAs. But the problem
of NPAs is more in public sector banks when compared to private sector banks and foreign
banks. The NPAs in PSB are growing due to external as well as internal factors.
Ineffective recovery tribunal
The Govt. has set of numbers of recovery tribunals, which works for recovery of loans and
advances. Due to their negligence and ineffectiveness in their work the bank suffers the
consequence of non-recover, their by reducing their profitability and liquidity.
Willful Defaults
There are borrowers who are able to pay back loans but are intentionally withdrawing it.
These groups of people should be identified and proper measures should be taken in order to
get back the money extended to them as advances and loans.
Natural calamities
This is the measure factor, which is creating alarming rise in NPAs of the PSBs. Every now
and then India is hit by major natural calamities thus making the borrowers unable to pay
back there loans. Thus the bank has to make large amount of provisions in order to
compensate those loans, hence end up the fiscal with a reduced profit. Mainly ours framers
depends on rain fall for cropping. Due to irregularities of rain fall the framers are not to
achieve the production level thus they are not repaying the loans.
Industrial sickness
Improper project handling, ineffective management, lack of adequate resources, lack
of advance technology, day to day changing govt. Policies give birth to industrial sickness.
Hence the banks that finance those industries ultimately end up with a low recovery of their
loans reducing their profit and liquidity.
Lack of demand

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Entrepreneurs in India could not foresee their product demand and starts production which
ultimately piles up their product thus making them unable to pay back the money they borrow
to operate these activities. The banks recover the amount by selling of their assets, which
covers a minimum label. Thus the banks record the none recovered part as NPAs and has to
make provision for it.
Change on Govt. policies
With every new govt. banking sector gets new policies for its operation. Thus it has to cope
with the changing principles and policies for the regulation of the rising of NPAs. The fallout
of handloom sector is continuing as most of the weavers Co-operative societies have become
defunct largely due to withdrawal of state patronage. The rehabilitation plan worked out by
the Central govt to revive the handloom sector has not yet been implemented. So the over
dues due to the handloom sectors are becoming NPAs.
Defective Lending process
There are three cardinal principles of bank lending that have been followed by the
commercial banks since long.
I. Principles of safety
ii. Principle of liquidity
iii. Principles of profitability
I. Principles of safety
By safety it means that the borrower is in a position to repay the loan both principal
and interest. The repayment of loan depends upon the borrowers:
A. Capacity to pay
B. Willingness to pay
Capacity to pay depends upon:
1. Tangible assets
2. Success in business
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Willingness to pay depends on:
1. Integrity
2. Honest
3. Reputation of borrower
The banker should, therefore take utmost care in ensuring that the enterprise or business
for which a loan is sought is a sound one and the borrower is capable of carrying it out
successfully he should be a person of integrity and good character.
Inappropriate technology
Due to inappropriate technology and management information system, market driven
decisions on real time basis cannot be taken. Proper MIS and financial accounting system is
not implemented in the banks, which leads to poor credit collection, thus NPA. All the
branches of the bank should be computerized.
Improper SWOT analysis
The improper strength, weakness, opportunity and threat analysis is another reason for rise in
NPAs. While providing unsecured advances the banks depend more on the honesty, integrity,
and financial soundness and credit worthiness of the borrower.

Banks should consider the borrowers own capital investment.

It should collect credit information of the borrowers from bankers Enquiry from
market/segment of trade, industry, business. From external credit rating agencies.

Analyze the balance sheet.

True picture of business will be revealed on analysis of profit/loss a/c and balance

Purpose of the loan when bankers give loan, he should analyses the purpose of the
loan. To ensure safety and liquidity, banks should grant loan for productive purpose
only. Bank should analyses the profitability, viability, long term acceptability of the
project while financing.

Poor credit appraisal system

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Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal the
bank gives advances to those who are not able to repay it back. They should use good credit
appraisal to decrease the NPAs.
Managerial deficiencies
The banker should always select the borrower very carefully and should take tangible assets
as security to safe guard its interests. When accepting securities banks should consider the
1. Marketability
2. Acceptability
3. Safety
4. Transferability.
The banker should follow the principle of diversification of risk based on the famous
maxim do not keep all the eggs in one basket; it means that the banker should not grant
advances to a few big farms only or to concentrate them in few industries or in a few cities. If
anew big customer meets misfortune or certain traders or industries affected adversely, the
overall position of the bank will not be affected.

Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of
bank officials to the customer point decreases the collection of interest and principals on the
loan. The NPAs due to willful defaulters can be collected by regular visits.
Re loaning process
Non remittance of recoveries to higher financing agencies and re loaning of the same have
already affected the smooth operation of the credit cycle. Due to re loaning to the defaulters
and CCBs and PACs, the NPAs of OSCB is increasing day by day.


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At the Micro level, NPAs have choked off the supply line of credit of the potential
lenders thereby having a deleterious effect on capital formation and arresting the economic
activity in the country.
At the Micro level, unsustainable level of NPAs has eroded current profits of banks
and FIs. They have led to reduction of interest income and increase in provisions and have
restricted and recycling of funds leading to various Asset Liability mismatches. Besides this,
it has led to erosion in their capital base and reduction in competitiveness.
The problem of NPA is not a matter of concern to banks and FIs alone. It is the matter
of grave concern to the country and any bottleneck in the smooth flow of credit is bound to
create adverse repercussions in the economy. The mounting menace of NPAs has raised the
cost of credit, made Indian business man uncompetitive as compared to their counterparts in
other countries.
It has made banks more adverse to risks and squeezed genuine Small and Medium
Enterprises (SMEs) from accessing competitive credit and has throttled their enterprising
spirits as well, to a great extent.
Due to their crippling effect on the operation of the banks, Assets quality has been
considered as one of the most important parameters in the measurement of banks
performance under the CAMELS Supervisory Rating System of RBI.


The magnitude of NPAs in the nation is an alarming predicament. The main causes of
increase in NPAs are as follows:
Causes attributable to the borrower:

Failure to bring in required capital.

Over ambitious project.

Longer gestation period.

Unwanted expenses.

Over trading.

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Imbalance of inventories.

Lack of proper planning.

Dependence on single customers.

Lack of expertise.

Improper working capital management.


Diversion of funds.

Poor quality management.

Heavy borrowings.

Poor credit collection.

Lack of quality control.

Causes attributable to the banks:

Wrong selection of borrower.

Poor credit appraisal.

Unhelpful in supervision.

Tough stand on issues.

Too inflexible attitude.

Systems overloaded.

Non inspection of units.

Lack of motivation.

Delay in sanction.

Lack of trained staff.

Lack of delegation of work.

Sudden credit squeeze by banks.

Other Causes:

Lack of infrastructure.

Fast changing technology.

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Unhelpful attitude of government.

Changes in consumer preferences.

Increase in material cost.

Government policies.

Credit policies.

Taxation laws.

Civil commotion.

Political hostility.

The primary aim of any business is to make profits. Therefore, any asset created in the
course of the conduct of business should generate income for the business.
This applies equally to the business of banking. The banks the worlds over deal in
money, by accepting deposits (liabilities) and out of such deposits (liabilities)
lend/create loans (assets).If for any reason such assets created do not generate income
or become sticky and difficult of recovery, then the very position of the banks in
repaying the deposits (liabilities) on the due dates would be at stake and in jeopardy.
Banks with such assets portfolio would become weak and naturally such weak banks
will lose the faith and confidence of the investors.
With the introduction of prudential norms for income recognition, assets classification
and provisioning, banks have become quite sensitive and are taking all possible steps
to strengthen their assets acquisition and monitoring systems.
There is also a growing awareness to bring down non-performing assets as these are
having adverse impact on their profitability due to de-recognition of interests as well
as requirement of heavy loan loss provisions on such assets. Therefore it would be
prudent for banks to manage either asset in such a manner that they always remain
healthy, generate sufficient income and capable of repayment/recovery on the due
Management of performing/non-performing assets in banks has become an `art and
science' and virtually `a battle of wits' between the banker and the borrower with the

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latter demanding write off or at least a major sacrifice from the bankers side
irrespective of whether he is in a position to pay or not.
Management of non-performing assets of the financial sector was put on fast track
recently with the Union Cabinet approving the promulgation of an ordinance to
facilitate securitization and reconstruction of financial assets.
Besides enabling banks and financial institutions to create a market for the securitized
assets and improve their asset liability management, the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance
would also assist in setting up Asset Reconstruction Companies. Though this is a
welcome development, the bankers have to do their basic homework and to utilize this
opportunity to clean up and recover their dues at an early date
Over the last few years Indian banking in its attempt to integrate itself with the global
banking has been facing lots of hurdles in its way due to its inherent weaknesses, despite its
high sounding claims and lofty achievements. One of the major hurdles, the Indian banking is
facing today, is its ever-growing size of non-performing assets over which the top
management of almost each bank is baffled. On account of the intricacies involved in
handling the NPA the ticklish task of assets management of the bank has become a tight rope
walk affair for the controlling heads, because a little wavering this or that side may land the
concern bank in trouble. The growing NPA is a potent source of worry for the finance
minister as well, because in a developing country like ours, banking is seen as an important
instrument of development, while with the backbreaking NPA banks have become helpless
burden on the economy.

NPA with outstanding up to 5 crore:

In case of doubtful and loss assets, through the modified schemes, the banks have
been directed to follow up a settlement formula under which the minimum amount to be
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recovered, amounts to be entire outstanding running ledger balances as on the date the
account was identified as NPA i.e. the date from which the interest was not charged to the
running ledger, an analysis of the given formula shows that RBI has been very much
generous in granting huge relaxation to the borrowers who were not coming forward for
setting their overdue loans due to one or other reason.
The scheme is of high practical value as it protects the borrowers who were having
genuine problems in clearing their dues because the interest component constituted a
multiplied amount of principal outstanding. On the other hand, the concerned banks were also
finding in difficult to sacrifice the entire interest component, but outstanding in the dummy
Now as per the provision to the scheme, they will be ready to grant such relaxation in
favor of the borrowers. These guidelines have come as a windfall for borrowers who after a
lot of negotiations were almost ready to repay back their principal as well as part of the
interest component to settle their accounts, as under the modified scheme, they would be able
to save the interest component. To that extent the concerned bank stands to lose.
In the case of sub standard assets, the settlement formula as given in the modified
scheme states that the minimum sum to be recovered must contain the entire running ledge
outstanding balance as on the date of the account was identified as NPA i.e. the date from the
which interest was not charged to the running ledger plus interest at the existing prime
lending rate of the bank. As per the modified scheme, the terms suggested for the payment of
settlement amount NPA are simple and pragmatic. As per the terms of the scheme, the
settlement amount should be paid in lump sum by the borrower.
However in case of the borrower is unable to repay back in a lump sum, the scheme
allows sufficient breathing period to enable him to arrange the funds and clear at least 25
percent of the settlement amount to be paid upfront and the remaining amount to be
recovered in installments spread over a period of one year along with interest at the existing
PLR from the date of settlement up to the date of final payment.
NPA with outstanding over Rs. 5 crores:
For recovery of NPA over Rs. 5 crore, RBI has left the matter to the concerned banks
and advised that the concerned banks may formulate policy guidelines regarding their
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settlement and recovery. The freedom, in such cases, is given to the banks, because the
attending circumstances in each case may vary from the other. Therefore it was in the right
direction that adopting a generalized approach was not thought appropriate.
In cases, where the amount involved is above Rs. 5 crore, RBI expects CMD of each
bank to supervise the NPA personally. The CMDs of the concerned banks are advised to
review all such cases within a given timeframe and decide the course of action in terms of
RBI also desires the submission of a quarterly report of all NPA above Rs. 5 crore
from PSU banks. Thus by putting up the cut-off dates for the implementing of the scheme,
RBI desires the banks to realize the seriousness of the issue and gear up to sweep away the
NPA in one go. For commercial banks, it is a golden opportunity to clear the mess,
consolidate and come out on a track leading the path of global banking. The time given for
weeding out the disastrous NPA is neither too long nor too short and the banks, with proper
planning and follow up can drastically reduce their NPAs, if they firmly resolve to do so. RBI
expects the commercial banks to follow the guidelines in letter and spirit without any
discrimination or discretion as a slight dilution may jeopardize their interest.
A proper monitoring system is also desired to be evolved for monitoring the progress
of the scheme. As this is a rare opportunity given to the defaulting borrowers so that they can
avail the chance given for the settlement of their loans. Without adequate publicity of the
scheme the response from the defaulting borrowers may not be there to the expected level.

Legal and Regulatory Regime

A. Debt Recovery Tribunals
DRTs were set up under the Recovery of Debts due to Banks and Financial
Institutions Act, 1993. Under the Act, two types of Tribunals were set up i.e. Debt Recovery
Tribunal (DRT) and Debt Recovery Appellate Tribunal (DRAT). The DRTs are vested with
competence to entertain cases referred to them, by the banks and FIs for recovery of debts
due to the same. The order passed by a DRT is appeal able to the Appellate Tribunal but no
appeal shall be entertained by the DRAT unless the applicant deposits 75% of the amount due
from him as determined by it. However, the Appellate Tribunal may, for reasons to be
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received in writing, waive or reduce the amount of such deposit. Advances of Rs. 1 million
and above can be settled through DRT process. An important power conferred on the Tribunal
is that of making an interim order(whether by way of injunction or stay) against the defendant
to debar him from transferring, alienating or otherwise dealing with or disposing of any
property and the assets belonging to him within prior permission of the Tribunal. This order
can be passed even while the claim is pending. DRTs are criticized in respect of recovery
made considering the size of NPAs in the Country. In general, it is observed that the
defendants approach the High Court challenging the verdict of the Appellate Tribunal which
leads to further delays in recovery. Validity of the Act is often challenged in the court, which
hinders the progress of the DRTs. Lastly, many needs to be done for making the DRTs
stronger in terms of infrastructure.
Registrar Functions, duties and powers of Registrar:

To examine and verify documents including petitions, notes of defense and

memoranda of appeals to be filed with the tribunal or appellate tribunal and register
them if they meet requirements or endorse them with reasons if they cannot be

To verify duplicate copies submitted in a case with the originals and certify them if
they appear in order, and if the originals appear to have some defects, to mention such
defects and get the concerned party to sign to that effect,

To verify whether documents submitted along with petitions, memoranda of appeal

and notes of defense are correct or not,

To issue summons and get it served,

To appoint days for appearance in cases, indicating reasonable reasons pursuant to


To obtain power of attorney and get a case assumed pursuant to prevailing law,

To promptly execute, or cause to be executed, actions as referred to in the order made

by the Bench,

To have security or guarantee as per the order made by the Bench,

To maintain, or cause to be maintained, updated records including registration books,

To maintain personal records of employees,

To safely retain orders and directions in a serial order.

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The institution of Lokadalat constituted under the Legal Services Authorities Act,
1987helps in resolving disputes between the parties by conciliation, mediation, compromise
or amicable settlement. It is known for effecting mediation and counseling between the
parties and to reduce burden on the court, especially for small loans.
Cases involving suit claims up to Rs. 1 million can be brought before the Lokadalat
and every award of the Lokadalat shall be deemed to be a decree of a Civil Court and no
appeal can lie to any court against the award made by the Lokadalat. Several people of
particular localities/ various social organizations are approaching Lokadalats which are
generally presided over by two or three senior persons including retired senior civil servants,
defense personnel and judicial officers.
They take up cases which are suitable for settlement of debt for certain consideration.
Parties are heard and they explain their legal position. They are advised to reach to some
settlement due to social pressure of senior bureaucrats or judicial officers or social workers. If
the compromise is arrived at, the parties to the litigation sign a statement in presence of
Lokadalats which is expected to be filed in court to obtain a consent decree. Normally, if such
settlement contains a clause that if the compromise is not adhered to by the parties, the suits
pending in the court will proceed in accordance with the law and parties will have a right to
get the decree from the court.
In general, it is observed that banks do not get the full advantage of the Lokadalats. It
is difficult to collect the concerned borrowers willing to go in for compromise on the day
when the Lokadalats meets. In any case, we should continue our efforts to seek the help of the

C. Enactment of SARFAESI Act

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The "The Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act" (SRFAESI) provides the formal legal basis and regulatory framework
for setting up Asset Reconstruction Companies (ARCs) in India. In addition to asset
reconstruction and ARCs, the Act deals with the following largely aspects,
Securitization and Securitization Companies
Enforcement of Security Interest
Creation of a central registry in which all securitization and asset reconstruction
transactions as well as any creation of security interests has to be filed.
The Reserve Bank of India (RBI), the designated regulatory authority for ARCS has
issued Directions, Guidance Notes, Application Form and Guidelines to Banks in April 2003
for regulating functioning of the proposed ARCS and these Directions/ Guidance Notes cover
various aspects relating to registration, operations and funding of ARCS and resolution of
NPAs by ARCS. The RBI has also issued guidelines to banks and financial institutions on
issues relating to transfer of assets to ARCS, consideration for the same and valuation of
instruments issued by the ARCS. Additionally, the Central Government has issued the
security enforcement rules ("Enforcement Rules"), which lays down the procedure to be
followed by a secured creditor while enforcing its security interest pursuant to the Act.
The Act permits the secured creditors (if 75% of the secured creditors agree) to enforce
their security interest in relation to the underlying security without reference to the Court
after giving a 60 day notice to the defaulting borrower upon classification of the
corresponding financial assistance as a non-performing asset. The Act permits the secured
creditors to take any of the following measures:
Take over possession of the secured assets of the borrower including right to transfer
by way of lease, assignment or sale;
Take over the management of the secured assets including the right to transfer by way
of lease, assignment or sale;
Appoint any person as a manager of the secured asset (such person could be the ARC
if they do not accept any pecuniary liability); and
Recover receivables of the borrower in respect of any secured asset which has been
transferred. After taking over possession of the secured assets, the secured creditors

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are required to obtain valuation of the assets. These secured assets may be sold by
using any of the following routes to obtain maximum value.
By obtaining quotations from persons dealing in such assets or otherwise interested in
buying the assets;
By inviting tenders from the public;
By holding public auctions; or
By private treaty.
Lenders have seized/take possession collateral in some cases and while it has not yet
been possible to recover value from most such seizures due to certain legal hurdles, lenders
are now clearly in a much better bargaining position vis--vis defaulting borrowers than they
were before the enactment of SARFAESI Act.
When the legal hurdles are removed, the bargaining power of lenders is likely to
improve further and one would expect to see a large number of NPAs being resolved in
quick time, either through security enforcement or through settlements. Under the SRFAESI
Act ARCS can be set up under the Companies Act, 1956. The Act designates any person
holding not less than 10% of the paid-up equity capital of the ARC as a sponsor and prohibits
any sponsor from holding a controlling interest in, being the holding company of or being in
control of the ARC.
The SARFAESI and SRFAESI Rules/ Guidelines require ARCS to have a minimum
net-owned fund of not less than Rs. 20,000,000. Further, the Directions require that an ARC
should maintain, on an ongoing basis, a minimum capital adequacy ratio of 15% of its risk
weighted assets. ARCS have been granted a maximum realization time frame of five years
from the date of acquisition of the assets. The Act stipulates several measures that can be
undertaken by ARCs for asset reconstruction. These include:
Enforcement of security interest;
Taking over or changing the management of the business of the borrower;
The sale or lease of the business of the borrower;
Settlement of the borrowers' dues; and
Restructuring or rescheduling of debt.

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ARCS are also permitted to act as a manager of collateral assets taken over by the
lenders under security enforcement rights available to them or as a recovery agent for any
bank or financial institution and to receive a fee for the discharge of these functions. They can
also be appointed to act as a receiver, if appointed by any Court or DRT.
D. Institution of CDR Mechanism
The RBI has instituted the Corporate Debt Restructuring (CDR) mechanism for
resolution of NPAs of viable entities facing financial difficulties. The CDR mechanism
instituted in India is broadly along the lines of similar systems in the UK, Thailand, Korea
and Malaysia.
The objective of the CDR mechanism has been to ensure timely and transparent
restructuring of corporate debt outside the purview of the Board for Industrial and Financial
Reconstruction (BIFR), DRTs or other legal proceedings. The framework is intended to
preserve viable corporate affected by certain internal/external factors and minimize losses to


through an orderly

and coordinated


programme. RBI has issued revised guidelines in February 2003 with respect to the CDR
mechanism. Corporate borrowers with borrowings from the banking system of Rs. 20crores
and above under multiple bank in arrangement are eligible under the CDR mechanism.
Accounts falling under standard, sub-standard or doubtful categories can be
considered for restructuring. CDR is a non-statutory mechanism based on debtor-creditor
agreement and inter-creditor agreement. Restructuring helps in aligning repayment
obligations for bankers with the cash flow projections as reassessed at the time of
Therefore it is critical to prepare a restructuring plan on the lines of the expected
business plan along with projected cash flows. The CDR process is being stabilized. Certain
revisions are envisaged with respect to the eligibility criteria (amount of borrowings) and
time frame for restructuring.
Foreign banks are not members of the CDR forum, and it is expected that they would be
signing the agreements shortly. However they attend meetings. The first ARC to be
operational in India- Asset Reconstruction Company of India (ARGIL) is a member of the
CDR forum. Lenders in India prefer to resort to CDR mechanism to avoid unnecessary delays

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in multiple lender arrangement sand to increase transparency in the process. While in the RBI
guidelines it has been recommended to involve independent consultants, banks are so far
resorting to their internal teams for recommending restructuring programs.
E. Compromise Settlement Schemes One Time Settlement Schemes
NPAs in all sectors, which have become doubtful or loss as on 31st March 2000. The
scheme also covers NPAs classified as sub-standard as on 31st March 2000, which have
subsequently become doubtful or loss. All cases on which the banks have initiated action
under the SRFAESI Act and also cases pending before Courts/DRTs/BIFR, subject to consent
being obtained from the Courts/DRTs/BIFR are covered. However cases of willful default,
fraud and malfeasance are not covered. As per the OTS scheme, for NPAs up to Rs. 10crores,
the minimum amount that should be recovered should be 100% of the outstanding balance in
the account.
Negotiated/Compromise Settlement Schemes
The RBI/Government has been encouraging banks to design and implement policies
for negotiated settlements, particularly for old and unresolved NPAs. The broad framework
for such settlements was put in place in July 1995. Specific guidelines were issued in May
1999 to public sector banks for one-time settlements of NPAs of small scale sector. This
scheme was valid until September 2000 and enabled banks to recover Rs 6.7 billion from
various accounts. Revised guidelines were issued in July 2000 for recovery of NPAs of Rs. 50
million and less. These guidelines were effective until June 2001 and helped banks recover
Rs. 26 billion.
The Bank accorded top most priority to management ofNon Performing Assets
(NPAs). NPA level management wasgiven priority with focus on reducing NPA level at least
by15% in absolute terms over March 2012 level, maximizingcash recovery of NPAs and
upgrading the existing NPAs.
Banks Recovery Policy is oriented towards addressing theentire gamut of NPA
management and enables the fieldfunctionaries in resolving any category of nonperformingaccounts.

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Bank has introduced/extended special OTS schemes forconsidering proposals of
farmers eligible under AgriculturalTractor loans, small NPA accounts under doubtful andloss
assets category with book balance of 2,00,000/- &below as at March 2012 and of Micro and
Small Enterprisesborrowers. A special OTS scheme for settling SyndJaikisanNPA loans of
Farmers was introduced during 2012-13 forthe benefit of majority of NPA farmers.
Bank continued to reduce large number of smaller NPAaccounts by settling the dues
at SyndAdalats at allbranches throughout the year by meet, talk and settleapproach. Four
BruhatSyndAdalat were conductedat regional/cluster level on 25.09.2012, 27.11.2012,
12.02.2013 & 11th to 16th March 2013 and 46561 OTScases were settled, by recovering a
sum of 139.47 crore with an offer amount of 535.44 crore.
Bank was able to register a recovery of `531.88 croreduring the year 2012-13 by
issuing notices and takingpossession/auctioning of properties under SARFAESI Act2002. The
efforts at branch level were supplemented byempanelling more enforcement agencies and
Special intensive NPA recovery campaign namedSyndVasuliAbhiyan -1213 was held
successfully from 4thJuly 2012 to 31st March, 2013 for maximizing recovery.
Bank has opened 6 more Asset Recovery ManagementBranches during the year at
Ahmedabad, Ernakulam,Lucknow, Patna, Pune and Vishakapatnam to vigorouslyfollow-up
DRT cases and to monitor and supervise suit filedcases effectively. Quick decision- making
was ensured at all levels for OTS proposals.
Top NPAs from each Region were identified for givingfocused attention in the
beginning of the year itselfand many accounts were successfully resolved beforeMarch 2013.
The novel idea of formation of Stressed TinyAsset Recovery team (START) at all Regional
office levelfor assisting the branches having high concentration ofSpecial Monitoring Assets /
Non Performing accounts of below 10.00 lakh has made remarkable success in thisregard.
The recovery in NPAs amounted to 1440.54 crore which includes 940.14 crore
recovery towards principal and497.62 crore towards uncharged interest.

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The following Articles are reviewed:

1. Title: The Good, the Bad, and the Non Performing Mortgages
A non-performing asset is a loan that is in default or close to being a default. Many loans
become non-performing after being in default for 3 months, but this can depend on the
contract terms.
A loan is non-performing when payments of interest and principals are past due by 90
days or more, or at least 90 days of interest payments have been capitalized, refinanced for
delayed by agreement, or payments are less than 90 days overdue, but there are other good
reasons to doubt that payments will be made in full.
2. Its known that the banks and financial institutions in India face the problem of
amplifications of issue non-performing asset (NPA) and the issue is becoming more and
more unmanageable. In order to bring the situation under control various steps have been
taken. Among all other steps most important one was the introduction of Securitization
and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by
Parliament, which was an important step towards elimination or reduction of NPAs.
The NPA level of our Banks is very higher than international standards. One cannot
ignore the fact that a part of the reduction in NPAs is due to the writing off bad worthy
customers. In this context the dictum prevention is always better than cure acts as
golden rule to NPAs.
Source: http:/
3. A study on The performance of Non Performing Assets of Indian Banking during Post
Millennium Period by Siraj.K.K and Dr. P. SudarsananPillai March 2012 says NPA as
Non Performing Assets engender negative impact on banking stability and growth. Issue
of NPA and its impact on erosion of profit and quality of asset was not seriously
considered in Indian banking prior to 1991. A Committee on Banking Sector Reforms
known as Narasimham Committee was set up by RBI to study the problems faced by
Indian banking sector and to suggest measures revitalize the sector. The committee
identified NPA as a major threat and recommended prudential measures for income
recognition, asset classification and provisioning requirements.
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4. A study of Indian Commercial Banks by Meenakshi Rajeev and H.P.Mahesh according
to the study Banks have been able to recover NPAs through the use of legal measures
which are a good sign for Banks. Among the various channels of recovery available to
banks for dealing with bad loans, the SARFAESI Act and the Debt Recovery Tribunals
(DRTs) have been the most effective in terms of amount recovered.
The issue of non-performing assets (NPA), the root cause of the recent global
financial crisis, has been drawing the attention of the policy makers and academicians
alike. The problem of NPAs, which was ignored till recently, has been given considerable
attention after liberalisation of the financial sector in India.
5. A comparative study of Non Performing Assets in Indian Banking Industry by
PachaMalyadri, S. Sirisha in 2011 says that the study observed that there is increase in
advances over the period of the study. However, the decline in ratio of NPAs indicates
improvement in the asset quality of Indian public sector banks and private sector banks.
It is found on the basis of analysis that there is significant improvement in the
management of nonperforming assets of the public sector banks in India. The study
finally observes that the prudential and provisioning norms and other initiatives taken by
the regulatory bodies has pressurized banks to improve their performance, and
consequently resulted into trim down of NPA as well as improvement in the financial
health of the Indian banking system, It has been observed that the banking sector in India
has responded very positively in the field of enhancing the role of market forces regarding
measures of prudential regulations of accounting, income recognition, provisioning and
exposure, introduction of CAMELS supervisory rating system and reduction of NPAs
and up gradation of technology.
But at the same time reforms failed to bring banking system at a par with international
level and still the Indian banking section is mainly controlled by government as
PSBs(Public Sector Banks) being leaders in this sphere. It is suggested that government
should formulate bank specific policies and should implement these policies through
Reserve Bank of India for upliftment of Public Sector Banks .Public sector banks should
try to upgrade technology and should formulate customer friendly policies to face
competition at national and international level.

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6. According toPoongavanam.SNonperforming assets: Issues, Causes and remedial Solution
(2011) the banking industry has undergone a sea change after the first phase of economic
liberalization in 1991 and hence credit management. While the primary function of banks
is to lend funds as loans to various sectors such as agriculture, industry, personal loans,
housing loans etc., in recent times the banks have become very cautious in extending
loans, this is due to mounting nonperforming assets (NPAs). Therefore, an NPA account
not only reduces profitability of banks by provisioning in the profit and loss account, but
their carrying cost is also increased which results in excess & avoidable management
Apart from this, a high level of NPA also puts strain on a banks net worth because
banks are under pressure to maintain a desired level of Capital Adequacy and in the
absence of comfortable profit level; banks eventually look towards their internal financial
strength to fulfil the norms there by slowly eroding the net worth.
Considering all the above facts banking industry has to give more importance to NPA and
to structure proper remedial solutions.
7. A study on Non Performing Assets A Cause of Concern for Banks by Chandan Kumar
Tiwari and Dr. RavindraSontakke (2013) a well-developed financial system enables
smooth flow of savings and investments and hence, supports economic growth. A healthy
financial system can help achieve efficient allocation of resources across time and space
by reducing inefficiencies arising out of market frictions and other socio-economic
factors. Amongst the various desirable characteristics of a well functioning financial
system, the maintenance of a few non-performing assets (NPA) is an important one. NPAs
beyond a certain level are indeed cause for concern for everyone involved because credit
is essential for economic growth and NPAs affect the smooth flow of credit. The paper
outlines the concept, types, causes and impact of non-performing assets in the banking
context. Moreover, the NPA scenarios of Indian commercial bank for the last decade have
been traced.
8. According to DebarshiGhosh, This study emphasizes on management of non-performing
assets in the perspective of the public sector banks in India under strict asset classification
norms, use of latest technological platform based on Core Banking Solution, recovery
procedures and other bank specific indicators in the context of stringent regulatory
framework of the Reserve Bank of India. Non-performing Asset is an important
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parameter in the analysis of financial performance of a bank as it results in decreasing
margin and higher provisioning requirement for doubtful debts. Various banks from
different categories together provide advances to different sectors like agricultural, SSI,
priority sector, public sector & others. These advances require pre-sanctioning appraisal
and post-disbursement control to contain increasing non-performing assets in the Indian
Banking Sector. The reduction of non-performing asset is necessary to improve
profitability of banks and comply with the capital adequacy norms as per the Basel
Accord. This study traces the movement of the nonperforming assets present in public
sector banks of India by analyzing the financial performance of the banks with respect to
key performance indicators and management of the non-performing assets under the
purview of new policy actions and regulatory compliance of the Reserve Bank of India.

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The word bank originated the French word benque or Italian banco which means
an office for monitory transaction over the country. In those days banks or desks were used as
centers for monitory transactions. The origin of banking, in the modern era, is traced in Italy.
The word bank is having originated from Italy. The bank is supposed to have been derived
from the German word language Bank meaning a mound or heap from which Italian
adopted Banco which means a bench at which the money changers used to change one kind
of money into another and transact their banking business. The bank of Venice, founded in
1157 was the first public banking institution. The bank of Barcelona and the bank of Genoa
were established in 1401 and 1407 respectively.
During the barter system also, there existed traced of banking, i.e. people used to
deposit cattle and agricultural products in specified places get loans of some other form in
exchange for these. There is solid evidence found in record excavated from Mesopotamia,
showing some bank existed around 1700 B.C. during this time barley, silver, gold, copper,
etc., were used as a standard for valuation.

Greece was the first country to introduce a satisfactory system of coinage. After the
invention of coins started, a meaningful system of banking came into existence taking into
account all the avenue of banking a credit system. Rome was the first country to start a bank
at the department of state level in the 4th century B.C. with transactions such as depositing
and investments in other forms. I n India ancient records show that banking was popular and
money lending was a common practice among the common people.
In the olden days Goldsmith, merchants and money lenders conducted the business.
They had transactions among themselves by which funds were transferred from one business
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firm to another. They had no general or uniform principles of banking, lending, rate of
interest, etc.
The banking industry, the world over, has undergone a profound transformation since
the early 1990s. The changed operating environment for the banking sector, underpinned by
liberalization, privatization and globalization, coupled with the reforms of information
technology, has resulted in intense competitive pressures. Banks have responded to this
challenge by diversifying through organic growth of existing businesses as well as through
mergers and acquisitions. This has exposed the banking sector to newer risk and posed
serious regulatory challenges. Regulatory and supervisory policies are, therefore, being
continuously refined to meet the emerging challenges. The focus of regulatory has been on
strengthening the financial institutions by aligning the prudential norms with the international
standards, identifying systematic risks and adopting appropriate risk mitigating policies.
While continuously improving bank governance and information disclosures that enhance
market discipline. In most cases, the regulatory initiatives have been guided by international
best practices, adapted suitably to the domestic conditions. The major challenge facing the
banking system and the supervisory authorities continues to the maintenance of financial

Public sector banks under open economy:

Financial services are at the centre of the present trend in globalization. On the one
hand, increasing integration of economies and market is making global banking a reality
while, on the other, global banks are the drivers behind global trade and corporate
globalization. Deregulation of capital markets in India result in free flow of capital. With
capital flow across continents becoming significant, the provision of financial services on
global scale is gaining impotent in the Indian banking sector. In fact international banking is
key component of the open economy.
In the open economy, Indian public sector banks gradually changes from traditional
banking to modern banking. Indian banking has huge net work branches of 68,483
commercial banks, 100 RRBs, with the net work of 14567 branches.
Due to the changing scenario, the challenge for the Indian banker, in the modern
world is to retain the customer. Customer ecstasy is the challenge. The present situation in the
banking sector matches exactly what Mr. WILL ROGERS; the American Humanist said
(1879-1935) said Even if you are in the right track, you will get run over if you just sit
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there. So, there has to be some different approach, different thinking, different calculation
or a banker to survive. Todays focus is on operational efficiency and bottom line and on size.
Lines of demarcation between banks and financial institutions are disappearing leading to
social banking. Therefore, everyday dawns with a fresh challenge for the present day banker.

Banking structure in India:

The formal banking system in India comprises the Reserve Bank of India,
Commercial Banks, Regional Rural Banks and the Co-operative Banks. In the recent past,
private non-banking finance companies also have been active in the financial system, and are
being regulated by the RBI. The schedule commercial banks in India has been classified in to
two categories viz., schedule commercial (289) and schedule co-operative banks (73). The
schedule commercial; banks further classified as public sector banks (27) private sector banks
(32) Industry old private banks (21) and new private banks (29); Foreign banks (36) and
Regional Rural Banks (196) as at end March 2007.
After financial reforms in the name of LPG along with public sector banks both
private and foreign banks are competitively operate in India.

A. The main functions are as follows:
Borrowing of money in the form of deposits.
Lending or advancing of money in the form of different types of loans.
The drawing, making, accepting, discounting, buying and selling, collecting and
dealing in bills of exchange, promissory notes, coupons, raft, bills of lading, railway
receipts, warrants, debentures, certificates, securities both negotiable and nonnegotiable.
The granting and issuing of credit, travelers cheques, etc.
The acquiring , holding, issuing on commission, underwriting, dealing in stock, funds,
shares, debentures, bonds, securities of all kind.
Providing safe deposit vaults.
Collecting transmitting of money and securities.
The purchasing and selling of bonds script and other form of securities on behalf of
constituents or others.
Buying and selling of foreign notes.
B. The subsidiary functions are as follows:
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Acting as agent for government or local authorities or any other persons.

Carrying out agency business of any description.
Contracting for public and private loans and negotiation and issuing the same.
Carrying on guarantee and indemnity business.
Managing to sell and realize any property or any interest in an such property.
Undertaking and executing of trusts.
Granting of pensions and allowances and making payments.


A bank is a financial institution that provides banking and other financial services to
their customers. A bank is generally understood as an institution which provides fundamental
banking services such as accepting deposits and providing loans. There also non-banking
provides certain banking services without meeting the legal definition of a bank. Banks are
subset of the financial services industry.


The first bank in India is called the general bank of India was established in the year
1786. The east India Company established the bank of Calcutta(1809). Bank of Bombay and
bank of Madras (1843). The next bank was Bank of Hindustan which was established in
1870. These three individual units were called as Presidency Bank.
Allahabad bank which was established in 1865 was for the first time completely run
set up in 1894 with headquarters al Lahore between 1906 and 1913, bank of India, central
bank of India, bank of Baroda, Canara bank, Indian bank, and bank of Mysore were setup. In
1992 all presidency bank of India which was run by European shareholder. After that the
reserve bank of India was established in April 1935. After independence of the country in
1947, there were 648 commercial banks with 4819 branches in India. The organized banking
system in India is broadly divides into three categories, i.e. the central bank knows as the
Reserve Bank of India, the commercial banks and co-operative banks. The Reserve bank of
India is the supreme monetary

and banking authority in the country and has the

responsibility to control the banking system in the country. It is known as the RESERVE
BANK As it keeps the reserve of all commercial banks. Banking regulations act of India,
1949 defines banking accepting, for the purpose of lending or investing of deposits of

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money from the public, repayable on demand or other wise and withdrawal by cheques,
draft, and order.

Most of the activities a bank performs are derived from the above definition. In
addition, banks are allowed to perform certain activities, which are ancillary to this business
of accepting deposits and lending. A banks relationship with the public therefore revives
around accepting deposits and lending money. Another activity, which is assuming increasing
importance, is transfer of money both domestic and foreign from one place to another.
This activity is generally known as remittance business in baking parlance. The so-called
forex (foreign exchange) business is largely a part of remittance. It involves the buying and
selling of foreign currencies.
The law governing banking activities in India is called negotiable instruments act 1881.The
banking activities can be classifies as:

Accepting deposits from public/other (deposits)

Lending money to public(loans)
Transferring money from one place to another(remittance)
Acting as trustees
Acting as intermediaries
Keeping valuable in safe custody
Collection business
Government business
Commercial banks have been in existence for many decades. After 1969 commercial

banks are broadly classified into nationalized or public sector and private sector banks. The
state bank of India an associative banks along with another 20 banks are the public sector
banks. The private sector banks include a number of Indian scheduled banks, which have not
been nationalized, and branches of foreign banks operating in India.
The regional rural banks (RRBs) came into existence since the middle of 1970s with
the specific objective of providing credit and deposit facilities particularly to the small and
marginal farmers, agricultural laborers and artisans and the small entrepreneurs.
Primary co-operative credit societies or banks were originally set up in villages to promote
thrift and saving of the farmers and to meet their credit needs for cultivation. The central or
district co-operative banks above them state co-operative banks were established. The funds
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of RBI meant for agricultural sector actually pass through the state co-operative banks and
central co-operative banks. These have now spread to the urban areas.
Under the RBI act 1934, banks were classified as scheduled banks ans non-scheduled
banks. They scheduled banks are those, which are entered in the second schedule of RBI act,
1934, they are banks, which have paid up capital an reserves of an aggregate value of not less
than 5 lakhs and which satisfy RBI that their affairs are carried out in the interest of the
depositors. All commercial banks- Indian and foreign, regional rural banks and state cooperative banks are schedule banks. Non-scheduled banks are those, which have not been
including in the second scheduled of RBI act 1934.
The present banking scenario in the country looks extremely promising. For the past
few years most of the banks have posted very good results quarter after quarter and are
displaying their ability for high growth.
Keeping in view the necessity of regulation rapidly growing business of banking
institution an their organization problems, a separate act known as the banking regulation act
1949, was enacted the act has been amended several times keeping in view the new roles
which the abnks are expected to play in the economic development of the country.

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As per the section 5(c) of banking regulation act, 1949 a Banking Company means any
company which transacts the business of banking in India.
Explanation: Any company which is engaged in the manufacture of goods or carries on any
trade and which accepts the deposits of money from public merely for the purpose of
financing its business as such manufacture or trade shall not be demand to transact the
business of banking within the meaning of this clause.
A per section 5(b) of banking regulation act, 1949, baking means the accepting, for the
purpose of lending or investment, of deposits of the money from the public, repayable on
demands or otherwise, and withdraw able by cheque, draft, order, or otherwise.
As per section 5(d) of banking regulation act, 1949, company means any company as defined
in section 3 of the companies act, 1956 and includes foreign company within the meaning of
section 591 of that act.
As per section 51 of banking regulation act, 1949, certain provisions of the banking
regulation acts are also applicable to the state bank of India, any corresponding new bank, a
regional rural bank and any subsidiary bank. Corresponding new bank has been defined
under the clause of section 2 of the DICGC act to mean a corresponding new bank constituted
under the banking companies (Acquisition and transfer of undertakings) acts of 1970 or 1980.


Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.
For the past three decades India banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans
or cosmopolitans in India. In fact Indian banking system has reached even to the remote
corners of the country. This is one of the main reasons of Indian growth process.
The government regular policy for Indian bank since 1969 has paid rich dividends with the
nationalization of 14 major private banks in India.
Not long ago, an account holder had to wait for hours at the banks counter for getting a draft
of for withdrawing his own money. Today he has a choice. One is days when the most

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efficient bank transferred money from one branch to another in two days. Now it is simple as
instant messaging of dial a pizza. Money has become the order of the day.

The first bank in India, through conservative, was established in 1786, from 1786 till today,
the journey o Indian banking system can be segregated into three distinct phase. They areas
mentioned below.
Early phase from 1786 to 1969 of Indian banks.
Nationalization of Indian banks and up to 1991 prior to Indian banking sector
New phase of Indian banking system with the advent of Indian financial and banking
services reforms in 1991.


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Head Office :Manipal 576104

Syndicate Bank was established in 1925 in Udupi, the abode of Lord Krishna in
coastal Karnataka with a capital of Rs.8000/- by three visionaries - Sri UpendraAnanthPai, a
businessman, Sri VamanKudva, an engineer and Dr.T M A Pai, a physician - who shared a
strong commitment to social welfare. Their objective was primarily to extend financial
assistance to the local weavers who were crippled by a crisis in the handloom industry
through mobilising small savings from the community. The bank collected as low as 2 annas
daily at the doorsteps of the depositors through its Agents under its Pigmy Deposit Scheme
started in 1928. This scheme is the Bank's brand equity today and the Bank collects around
Rs. 2 crore per day under the scheme.
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The progress of Syndicate Bank has been synonymous with the phase of progressive
banking in India. Spanning over 80 years of pioneering expertise, the Bank has created for
itself a solid customer base comprising customers of two or three generations. Being firmly
rooted in rural India and understanding the grassroot realities, the Bank's perception had
vision of future India. It has been propagating innovations in Banking and also has been
receptive to new ideas, without however getting uprooted from its distinctive socio-economic
and cultural ethos. Its philosophy of growth by mutual sustenance of both the Bank and the
people has paid rich dividends. The Bank has been operating as a catalyst of development
across the country with particular reference to the common man at the individual level and in
rural/semi urban centres at the area level.
The Bank is well equipped to meet the challenges of the 21st century in the areas of
information technology, knowledge and competition. A comprehensive IT plan is being put in
place and the skills and knowledge of the Bank's personnel are being upgraded through a
variety of training programmes to promote customer delight in every sphere of its activity.
The Bank has launched an ambitious technology plan called Centralised Banking
Solution (CBS) whereby 500 of our strategic branches with their ATMs are being networked
nationwide over a 4 year period. The Bank is pioneer among Public Sector Banks on
launching CBS. Our bank has already achieved CBS implementation among all its branches.
Thus, the bank is 100% CBS enabled.

Vision Statement (2011-2021)

To be as Bank of choice of every Indian, and

A preferred Banking Partner globally.

Mission Statement (2011-2021)

To achieve consistent growth in business

To endeavour for inclusive development and ensure service excellence through
effective harnessing of human capital and technology.

Macro Economic Environment

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The global financial crisis had moved into a more chronic phase during the year 2012,
marked by a deterioration of financial conditions and recurring bouts of financialinstability.
The downside risks emerged from prolonged stagnation in the euro area and excessive shortterm fiscal tightening in the United States, has also dampened therecovery prospects of global
economy. The most recent Cyprus crisis has also reminded us the continued fragility of global
financial market and its stability. Investment declinedin major economies and the demand
was almost sluggish hobbled by low employment rates.
The cumulative impact of all these developments pulled down the global GDP growth
from 4.0 per cent in 2011 to 3.2 per cent in 2012. Emerging market and developing
economies also registered slow growth rate of 5.1 per cent in 2012 as against 6.4 per cent in
2011. In this globalised economic environment India could hardly insulate itself from global
slowdown and its ill effects viz. inflationary pressures and subdued investment climate,
leadingto sharp decline in countrys GDP from 6.2 per cent in FY 2012 to 5.0 per cent in FY
2013. Scheduled Commercial Banks (SCBs) business grew by 14.19 per cent as atMarch 22,
2013 as against 15.07 per cent recorded during the similar period of previous year.
Even in these challenging global macroeconomic conditions, I am pleased to
announce that your bank has delivered sound financials and has significantly improved its
performance under all key parameters.
The Bank has crossed new milestone with global business of 300000 crore by
31.12.2013 and achieved global business level of 334779 crore by 31.03.2014.
Other highlights of performance registered by our Bank during 2013-14 are outlined as
1. Global Business grew by 18.06 per cent to 334779 crore in 2013-14as against 283558
crore in 2011-12.
2. Global Deposits grew by 17.36 per cent to 185356 crore in 2013-14as against 157941
crore in 2011-12, whereas global advances grew by 18.95 per cent to 149423 crore in 201213 as against 125617crore in 2011-12.
3. Net Profit of the Bank grew by 52.61 per cent to 2004.42 crore in 2013-14as against
1313.39 crore in 2011-12.
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4. The Return on Assets (ROA) improved to 1.07 per cent in 2012-13 as against 0.81 per cent
in 2011-12.
5. The Earnings Per Share (EPS) of the Bank improved to 33.30 as at March 31, 2014 as
against `22.89 as at March 31, 2013.
6. Net NPA percentage to Net Advances declined to 0.76 per cent in 2012-13 as against 0.96
per cent in 2011-12. Gross NPA percentage to Gross Advances declined to 1.99 per cent in
2013-14as against 2.53 per cent in 2011-12.
7. The Provision Coverage Ratio of the Bank improved from 80.06 per cent as at March 31,
2012 to 83.41 per cent as at March 31, 2013.
8. Priority Sector Advances registered a growth of 12.21 per cent to 46437 crore during 201213 and constituted 44.62 per cent to the Adjusted Net Bank Credit (ANBC), as against the
mandatory requirement of 40 per cent.
9. Credit to Agriculture increased by 15.78 per cent to 20156 crore and constituted 19.37 per
cent of Adjusted Net Bank Credit (ANBC), as against the mandatory requirement of 18 per
10. Net Interest Margin (NIM) of the Bank stood at 3.19 per cent in 2013-14as against 3.43
per cent in 2011-12.
11. Book value per share improved to 175.12 as at March 31, 2013 as against 150.13 as
atMarch 31, 2012. The Board of Directors of the Bank have proposed a dividend of 67 per
cent for the year ended 31st March 2013, increased from 38 per cent in previous year.

Branch Network
Bank has opened 215 branches during the year 2013-14taking the total number of
branches to 2934 including a branch in London, UK. The domestic branch network consisted
of 903 rural branches, 788 semi-urban branches, 629 urban branches, 567 metro branches and
46 port town branches. Bank has 1306 ATMs as on 31.03.2013.

New product development

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Bank has launched a unique and attractive new product under its brand name
SyndNavaratna which provides savings bank account with multiple benefits to customers
viz. zero balance facility, cheque book facility at all branches at par, funds transfer facility
through RTGS/NEFT up to `1.00 lakh, internet and mobile banking facilities, free instant
global debit card, SMS banking facility, etc. Your Bank is committed and focused towards
providing excellent Customer Service by state-of-the-art technology, launching of e-products
& services and multiple service delivery channels, which are best suited to the diverse needs
of different customers.

Priority Sector Advances

Bank has adopted various strategies during the year to achieve sustainable credit
growth, improved asset quality, higher earnings and for maintaining well diversified credit
portfolio covering all sections of the society to ensure inclusive growth. Priority Sector
Advances of the Bank reached a level of `46437 crore as at March 2013 constituting 44.62
per cent of ANBC against the mandatory level of 40 per cent. Credit to Agricultural Sector
reached a level of `20156 crore forming 19.37 per cent of ANBC as at March 2013 against
the mandatory requirement of 18 per cent.

Technological initiatives
a) The Bank has a Strong base of over 32 million customers. Our vision is to be a bank of
choice of every Indian and a preferred banking partner globally. To actualize that, Bank has
operationalised 1306 ATMs as at 31.03.2014, spread across 729 Centres throughout the
country. Bank has Global Debit-cum-ATM cards through VISA and Master Card
PaymentGateways with a Card-base of over 55.55 Lakhs for global access to ATMs and POS
b) Cheque Truncation System (CTS) was initially implemented in National Capital Region
(NCR) at New Delhi covering the Branches in Delhi, Faridabad, Chandigarh and Ghaziabad
Regions and has been further extended to other centres. Chennai Service Branch is handling
Grid CTS instruments of various centres covering the states of Tamil Nadu, Andhra Pradesh
and Karnataka, including Puducherry. Western CTS-Grid is proposed to be established at
Mumbai during the current year.

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c) Bank is in the process of obtaining Multi Protocol Label Switching (MPLS) connectivity
for all its Branches from alternate Service Provider, other than BSNL/MTNL to improve
Network Performance and redundancy for the Branches. The commissioning of MPLS
connectivity has been completed in 1265 locations and further rollout in another 1493
locations is under process.
d) Bank has outsourced the 24X7 monitoring & management of the Security Devices and the
security events through the Managed Security Service (MSS) Provider. Banks Website is
also being monitored 24X7 basis by the same MSS Provider.

Strategic Alliance & Joint Ventures

During the year 2012-13, Bank has undertaken many strategic alliances & joint ventures,
which are enumerated below:
a) Bank has entered into a Tie-up arrangement with M/s PIAGGIO Vehicles Pvt Ltd (PVPL)
for promotion of the Banks financing through its SyndMSE Scheme for purchase of vehicle
for commercial use. Bank has renewed MOU with M/s Maruti Suzuki India Ltd.,forfinancing
cars under SyndVahan Scheme as a preferred financing partner with the company.
b) Bank has also renewed MOUs signed with reputed Commercial Vehicle Manufacturers
viz., Tata Motors, TVS Motors, Bajaj Auto Ltd and Force Motors, for financing commercial
vehicles under Micro and Small Enterprises.
c) To boost fee income, Bank has entered into tie-up arrangements with Nine leading Asset
Management Companies Viz., 1) Reliance Asset Management Company Ltd., 2) Birla Sun
Life Asset Management Company Ltd., 3) IDBI Asset Management Ltd., 4) HDFC Asset










FranklinTempleton Asset Management Company Ltd., 7) SBI Funds Management Private

Limited, 8) ICICI Prudential Asset Management Company Ltd., 9) DSP Black Rock
Investment Managers Pvt. Ltd. for distribution of mutual fund products.

New Initiatives
a) Bank has started providing E-Lounge, Self Service Banking facilities at HSR Layout
Bangalore initially and will be extended to other major centres where facilities like Pass Book

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Printing, Internet Banking, ATM, Self Serviced Kiosk for Cash and Cheque Deposits
acceptance etc. will be provided to customers.
b) As image building exercise, Bank has given a new look to the Corporate Office building at
Bangalore by a face lift and enhancing the front elevation, besides relocating the ATMs,
increasing numbers of ATMs, and placing cheque deposit kiosk and self service terminalfor
internet backup to ground floor for customers convenience.
c) A new vertical for increasing the Mid Corporate Credit has also started functioning at
Corporate Office during the year. Bank has also initiated steps for creation of a separate
vertical at Regional Offices to cater to the credit needs of customers, so that these
customersare given special attention. Bank has also started new vertical to increase non
interest fee based income.
d) Centralized Savings and Current Account opening is started initially at Bangalore which
will be extended to other centres, shortly. This Back Office, after account opening, sends Pass
Book, Cheque Book, ATM Card in a Welcome Kit to customers directly. This will enable
branches to devote more time for customer service and marketing of banks products for
improving fee income.
e) We have taken lot of steps to improve the image of the Bank & visibility by meeting the
Press, Analysts etc. at the end of every quarter, to keep them informed about financial results
of the Bank.

Human Resource Planning

Realizing the importance of human capital, Bank has put in place a more articulated
HR Policy. To cope with the business expansion, superannuation, attrition etc. and alsoto fill
the knowledge gap, Bank has recruited 75 Specialist Officers, 435 Probationary Officers and
893 Clerks during the current fiscal. During the financial year 2013-14, Bankis planning to
recruit 1500 officers and 1400 clerks to strengthen the human resources and to facilitate
customer service / marketing efforts.

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Training & Development

During the year 2012-13, 278 programmes covering 5180 officers and 227
programmes covering 3946 workmen employees were conducted by the Training System. In
addition, 87 executives and 221 officers were deputed to external training programmes
conducted by training institutes of repute in India. Further, 6 executives and 2 officers were
deputed to overseas training programmes. During the year 2013-14, Bank had initiated
promotionprocess to fill up the identified vacancies in various scales/grades upto
31.03.20134and 1179 promotions were made during the year 2012-13 in various scales.

Award & Recognitions

Bank has received good number of awards during the year and some of these are as follows:
a) Our Manipal and Kumta RSETIs have been adjudged as the Countrys Best and Second
Best RSETIs as on 31.03.2012. Hon'ble Minister for Rural Development, Govt of India,
ShriJairam Ramesh presented the awards during the first National Meet of RSETI stake
holders held at VigyanBhavan, New Delhi on 28.07.2012.
b) The Bank has been conferred Best Banker award by Sunday Standard amongst large
category banks based on field level survey of implementation of financial inclusion.
c) Gold Award has been conferred on our Bank at SKOCH Foundations Digital Inclusion
Awards 2012, for Business Continuity Plan (BCP) and IT Disaster Recovery (DR) Project.
d) The Bank was also awarded Certificate of Merit and trophy for the meritorious
performance under Financial Inclusion during 2012 by M/s Skoch Group at New Delhion

Risk Management Architecture

Risk Management Department of the Bank oversees the overall implementation of various
risk management initiatives across the Bank. The Bank has also formulated its Internal
Capital Adequacy Assessment Process Policy (ICAAP), which is fine tuned regularly so as to
be in line with the market realities and economic environment and regulatory requirements.
The Bank is having well articulated policies and processes with regard to Credit Risk,
MarketRisk and Operational Risk. Bank has taken various measures to strengthen its capital
base. During the year, we have raised ` 1,000 crore under Tier- II bonds to boost our Tier II
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capital. We have also raised USD 500 million through MTN issue for funding of
overseasoperation of our London branch.

Industrial Relations
The Industrial Relations in the Bank have been cordial and harmonious, fostering a healthy
work environment. The Unions / Associations have been responsive and proactive and they
have extended unstinted support for the measures aimed at the progress and prosperity of

Financial Inclusion (FI)

Our Bank has 11.23 lakh No Frill Accounts in FI villages and has extended 2.13 lakh
KCCs, 0.42 lakh GCCs and issued 3.90 lakh smart cards / mobile enabled accounts. Our
Bankwas allotted 496 villages in the population category of 1600-2000 for covering these
villages with banking outlets before 31.03.2013 and Bank has engaged 514 BCAs and opened
8 Branches / Satellite Offices, thus accomplishing the target given. Bank is visualising
underlying opportunities of financial inclusion (FI) as a tool for potent business growthin
future, and for widening the customer base.

Direct Benefit Transfer (DBT)

The Bank has taken a number of steps for smooth roll out of Direct Benefit Transfer
in the identified 43 districts w.e.f. 01.01.2013. Sensitization programmes for the
implementing personnel have been organized. Specific Nodal Officer / Executives have been
designated for each of the identified Districts for supervision and monitoring. Assessment of
the requirement of BCAs / ATMs /Branch etc., has been made and steps are taken to meet

Reorganisation of Regions
Due to increase in business and number of branches under some specific regions, for
effective control andbusiness development, Bank has effected bifurcation of certain regions
like Delhi, Mumbai and Bangalore into two regions resulting in three additional regions and
taking the tally of regions to 41 at present.

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Banking is the key sector of the economy. Its energy and vitality indicates the healthy
and prosperity of the nation. In the liberalization economy, banking and financial reforms
assume high priority. The new economic reforms have given a new thrust to the banking
sector as a whole and private sector in particular. NPA is an important parameter in the
analysis of financial performance of the banks. Reduction of NPA is necessary to improve
profitability of banks.
Banks are the service institutions which supply lubricants in the form of loans and
advances to industry, trade and commerce of the country for their smooth functioning. The
success of the bank depends to large extent upon its effective management of the loan
portfolio (a set of investments). If loans of banks are not channeled in the proper directions,
they will not only adversely affect the economic activities in the country but would also
endanger the safety of depositors existence of the banks themselves.

The proportion of the credit deployed to the deposits mobilized, popularly known as
credit deposit ratio, is one of the parameters to access the performances of the bank. C/D ratio
is also known as deposit advance ratio. The C/D ratio of a bank in general, indicates the
extents to which the depositors money in invested in advances. In other words, it explains
the extent to which the depositors money is advanced in the form of loans and also the extent
to which such money is placed in another form of investment.
The C/D ratio of the Syndicate Bank Kollegal Branch from 2009-10 to 2012-13 is shown in
the below table.

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Table No.4.1
Credit Deposit Ratio of Syndicate Bank Kollegal Branch
At the end of March 31 2009-10 to 2012-13 (Rs. In Lakhs)

Source: Primary Data (BY) = Base Year



The table 4.1 shows that the deposits of the banks were increased from Rs.2401.82
lakh at the end of March 2011 to Rs.2648.98 lakh as end of March 2014.The deposits growth
as shown completely decreasing trend which moved from 100% to 60.65%. Its advances of
the banks were increased from Rs.1905.25 lakh (100%) at the end of March 2011 to
Rs.1902.86 lakh (71.83%) at end of March 2014. The C/D ratio of Syndicate bank Kollegal
from 2010-11 to 2013-14 shows a marginal increasing trends in observed that is from 79.32%
to 71.83% . And also bank were suddenly increasing 70.07 in 2011-12 and decreasing trends
to 60.89% in 2012-13 respectively.
Fig.4.1: Credit Deposit Ratio

Chart Title

Axis Title




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The factor responsible for accounts becoming non performing in priority sector are
in proper selection of borrowers socio-political pressures, higher target , mis-management of
funds, lack of proper following up by banks and failure to take punitive action against will
defaulters, non-cooperation of government agencies in recovery and the effect of agricultural
debt relief scheme.
Total NPAs of priority sector includes agricultural and other sectors with a view to
ensuring flow of credit to these neglected sectors, the concept of priority was evolved and
commercial banks of India were advice to grant at least 40% to their total advances to the
borrowers in the priority sector. The priority sector in Syndicate Bank Kollegal Branch is
depicted in table no.2
Table No.4.2
Priority sector Advances inSyndicate Bank Kollegal Branch (Rs. In Lakhs)








Source: Primary Data

It is observed from the table 4.2, that the agricultural sectors NPAs in gradually
increasing trend from 51.45% in the year 2011 to 64.96% in the year 2014 to the total priority
sector. In the other sector the NPAs is high comparative to agriculture and other sectors
marginally increasing trend to 48.55% in the year 2011 to 64.98% in the year 2013 and
suddenly decreasing trend to 35.04% in year 2014. This is more than other sector and the
agricultural sector in last 2 years.
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Fig 4.2: Priority Sector Advances






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The total advances of the bank can also classify as priority sector and nonpriority
sector advances. The advances of these sectors are shown in table 4.3
Table No.4.3
Sector wise Advances ofSyndicate Bank Kollegal Branch (Rs. InLakhs)



































Source: Primary Data

In the table 4.3 the sector-wise analysis of NPAs of Syndicate Bank Kollegal Branch
shows that the proportion of NPAs in priority sector of this bank as gradually decreasing
trend from 85.00% at the end of March 2011 to 79.60% at the end of March 2013 and
increasing trend from 79.60% at the end of 2013 to 83.94% at the end of 2014. The NPAs of
non-priority sector was increasing trend from the year 2011 to 2013.i.e 15.00% to 20.39%
and declining trend from the year 2013 to 2014. i.e.20.39% to 16.06% respectively.

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Fig 4.3: Sector wise Advances of Syndicate Bank Kollegal Branch



Priority Sector






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Table No.4.4
Interest on deposit ratio (Rs. In Lakhs)
Source: Primary Data









Interest on deposit ratio= interest paid/deposits*100


Table No.4.5
Interest on advance ratio (Rs. In Lakhs)

Source: Primary Data







Interest on advance ratio=interest received /total advances*100

Profit margin=interest on advance ratio%- interest on deposits ratio%

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The above table 4.04 and 4.05 reveals the interest on deposit ratio are fluctuating point
wise and interest on advance ratio fluctuating in a manner increasing and decreasing. The
profit margin in also fluctuating, it was decreased by 6.83% to 4.35 from 2011 to 2014 but in
the year 2013 it got small positive value on profit margin i.e., 4.54.

Fig.4.4: Interest on advance ratio

interst on deposit

interst on a
profit margin




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Profit is the prime motive for any business, the most important function of profit is the
establishment of viability of the organization it has to be appreciated that the banks or
commercial organization and they cannot compromise profitability while fulfilling social
obligation and playing a developmental role. In fact, profit is an index of their operational
efficiency and therefore, it becomes necessary to prepare a budget to achieve profit both at
the micro as well as macro levels since the banking sector reforms have been set a motion
there had been a shift of emphasis from development are social banking to commercially
viable banking. Profitability becomes the prime mover of the financial strength and
performance of banks. In contrast with the past practices, all banking operations are now
being measured in terms of their ability to generate profits. The net profit of Syndicate Bank
Kollegal Branch during the period 2010-11 to 2013-14 is shown in the table no 4.6

Table No.4.6
Profitability of Syndicate Bank KollegalBranch at the end of March 2010 to March 2013
(Rs. In lakhs)




















Source: Primary Data

The above table 4.6 reveals that the net profit recorded is 85.96 by the year ending
2014. In this period, the bank got some relief, some provisions and contingencies.
The total income of the bank decreased from 283.63 at the end of March 2011 to
195.45 at the end of March 2012. Again it is increased by 255.74 at the end of March 2013.

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But suddenly it is decreased by 271.65 at the end of March 2014. Simultaneously, the
expenditure also increased from 151.05 to 185.69 at the end of March 2011 to 2014.

Fig.4.5: Net Profitability



Net Profit




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Table No.4.7

AMOUNT( In Lakhs)







The above table shows that Gross Non-performing assets of Syndicate Bank Kollegal
Branch from March 2011 to 31 March 2014. The NPA level ofSyndicate Bank
KollegalBranch was increased trend of 223.69 in the year 2010to 253.14 in the year 2012,
and suddenly decreased by 244.15 in the year 2013 and again increased by 235.78 in the year
2014. It shows that the bank has taken the recovery of loans seriously.
Fig.4.6: Gross NPA

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Relationship between Total Advances and NPA

Table No.4.8






IN %









Source: Primary Data

The above table 4.7 shows that the differential relationship between total advances and
NPAs from the year 2010-2011 to 2013-2014. The NPA and advances are fluctuating from
year to year, it shows that even though the advances are increasing in the year 2013-2014, but
the NPAs are decreased. It indicates that the bank is very serious in recovery aspects.

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Fig.4.7: Advance NPA





Sector-wise NPAs of Syndicate Bank Kollegal Branch:

Table No.4.8


Source: Primary Data























The above table shows that the NPAs from priority sector and Non priority sectors of
Syndicate bank Kollegal branch it reveals the NPAs from priority sector and non priority
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sectors these are fluctuating in a manner increasing and decreasing. Priority sector is
gradually increased from the year 2010 2011 to 2012-2013suddenly; it decreases from
62.36% to 55.00% in the year 2012- 2013 to 2013-2014.
The non priority sector is gradually decreased from the year 2010-2011 to 2012-2013.
Suddenly it increases from 37.63% to 45.00% in the year 2012-2013 to 2013-2014.
Fig.4.7. Sector-wise NPA
priority sector




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The above table shows that the net recoveries of NPA as a percentage of gross NPA
from the year 2010-2011 to 2013-2014. The recovery of NPA is gradually decreased from the
year 2010-2011 to 2012-2013. It has 59.63 lakh, 32.08akh, and 28.00 lakh in the year 2011,
2012, and 2013 respectively. Suddenly it has positive result in the year 2014 i.e.77.27 lakh.It
indicates that the bank is very serious in recovery aspects.
Fig: 4.8.Net Recovery of Syndicate Bank Kollegal Branch as a Total of Gross NPA




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1. The credit deposit ratio of Syndicate bank Kollegal from 2010-11 to 2013-14 shows a
marginal increasing trends in observed that is from 79.32% to 71.83% .
2. The Non-performing advances in the overall scenario of Syndicate Bank Kollegal
branch is in decreasing trend but, in agriculture sector the NPA was drastically
reduced to 64.96% in 2014 as against 51.45 by the end of march 2011.
3. The NPA in case of industrial sector is finding mixed scenario but, ultimately it
decreased by 35.04%.
4. As per the analysis of data collected from the Syndicate Bank Kollegal Branch an
average of 83.5% of NPA is from priority sector, only and only 16.48% is from the
advances of Non- Priority sector.
5. The rate of interest and the normal deposit received by the bank is average fluctuating
from 3.75 to 3.23 to 3.52. The interest charge by the bank and the advances the
average rate of interest is ranges from 9.75 to 7.87 from last 4 years by net decreasing
of 1.88%.
6. Syndicate bank, Kollegal branch is maintaining profit in the same proportionate.
7. The bank is very serious in recovery aspects.

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1. Due to the positive response of both state and central government towards agricultural
lending it yields a result by the NPA in agricultural lending, but still its not as per the
expected standards.
2. Other than agricultural and medium enterprises the rates of NPA is marginally
decreasing trend due to the effective lending and recovery policy. In the entire bank
lending due to the proper recovery management is essential for the sustenance of
Indian Regional Rural Banks in general and more particularly for Syndicate Bank
Kollegal branch.
3. The alarming increasing of NPA is find only in priority sector still the percentage of
NPA in priority sector is reducing trend. The government announcing any subsidy in
rate of interests, abolition of agricultural loan must seriously considered the net effect
on NPA.
4. The overall growth of profit as more ups and downs, may be due to global financial
crisis and economic slowdown may affect the profit margin of the Syndicate Bank
Kollegal Branch also, that result, they have incurred a loss, as usually the economic
system recovers the margin in 2012-2013. This kind of fluctuated profit line is not
good sign for the sustenance and recovery by ensuring good profit, growth.
5. Timely sanction and release of loans by the banks so has to avoid time and cost over
6. To face the stiff competition from inter intra bank and major public sector banks, the
Syndicate Bank, Kollegal must ensure regular constant income.
7. The Syndicate Bank Kollegal Branch, is situated in a backward district itself is a
challenging one. But still, the performance of each employee in the bank is an
accountable for the success of the branch. In this regard, the employee at the time of
lending and recovery is doubly cautions.

In the challenging global banking scenario, the sustenance and growth is the prime
objective. For this, public sector banks, private sector banks, and Regional Rural banks are
enjoying the competition. The sustenance and growth of any banking sector is highly depends
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A Study on Non-Performing Assets

on its profit margin and NPA. The NPA is the chronicle disease in almost all the public sector,
regional rural banks and even minor effect on private sector banks. The lending policy and
credit control measures of the RBI should be properly educates the ban officials to lending
the bank advances to the productive areas.
The present performance evaluation of bank manager must be more effective in
respect of calculation the performance ratio between lending and recovery of banks advances.
Any situation is demanded by exceeding the rate of NPA more than the normal rate the bank
officials are not only responsible they are deserve for own the responsibility of punishment.
Further, I also expressed the great commitment of the borrowers towards the repayment of
loans they are borrowed.
My project on NPA in Sindicate bank Kollegal branch is an attempt to study how the
NPA is arises and it reflects on profitability. I request the bank officials to show minimum
concerns about my findings and suggestions in effective of NPA. NPA will not be eradicated
but effective management is highly appreciable


Financial Management
- Prasanna Chandra
Management of NPAs and Indian Banking Sector.
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A Study on Non-Performing Assets

-Dr. DurgaMadhabMahapatar
-Prof. (Dr.) Ashok Kumar Mohanty

Articles by:1) Siraj and Sudarsanan (2012): A study on the performance of Non Performing Assets of
Indian Banking during Post Millennium Period. IJBMT, Vol. 2 No.3, pp: 1-12.
2) Meenakshi Rajeev and H.P.Mahesh (2010): A study of Indian Commercial Banks.
Banking sector reforms and NPA. Working paper 25, pp: 1-15.
3) PachaMalyadri, S. Sirisha (2011): A comparative study of Non Performing Assets in
Indian Banking Industry. IJEPT, Vol.1, No.2, pp: 77-87.
4) Poongavanam.S (2011): Nonperforming assets: Issues, Causes and remedial Solution
Asian journal of management research, volume 2 issue 1, pp: 123-132.
5) Chandan Kumar Tiwari and Dr. RavindraSontakke (2013): A study on Non Performing
Assets A Cause of Concern for Banks, pp: 1-6.
6) DebarshiGhosh and SukanyaGhosh (2011) Management of Non Performing Assets in
Public Sector Banks. (ICM 2011) pp: 750-760.

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