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PROJECT REPORT
ON
COMPARATIVE ANALYSIS ON
NON PERFORMING ASSETS
OF PRIVATE AND PUBLIC SECTOR
BANKS
SUBMITTED IN PARTIAL FULFILLMENT OF
REQUIRMENT OF PG PROGRAME
Dasmesh girls college,chak alla baksh
mukerian
SUBMITTED BY:
Shivani Sharma
Session: 2015-16
A
PROJECT REPORT
ON
COMPARATIVE ANALYSIS ON
NON PERFORMING ASSETS
OF PRIVATE AND PUBLIC SECTOR
BANKS
SUBMITTED IN PARTIAL FULFILLMENT OF
REQUIRMENT OF PG PROGRAME
Institute of business management and
research
Ahmadabad
SUBMITTED BY:
JIGAR J. SONI
(5)
Session: 20072009
Project title:
COMPARATIVE ANALYSIS ON
NON PERFORMING ASSETS
OF PRIVATE AND PUBLIC SECTOR BANKS
By:
Jigar J. Soni
Nirav N. Gusai
Manipal-576 104
We
here
by
declare
that
the
project
report
entitled
Reg.No:
Name
520781709
JIGAR J. SONI
Date:
Place:
ANNEXURE C (EXAMINERS
CERTIFICATE)
The project report by Jigar Soni & Nirav Gusai on
COMPARATIVE ANALYSIS ON NON PERFORMING
ASSETS OF PRIVATE AND PUBLIC SECTOR BANKS
is approved and is acceptable in quality and form.
Internal examiner
External
examiner
Name:Qualification: Designation: -
Name:Qualification:Designation:-
for
the
degree
of
MASTER
OF
BUSINESS
Name
Jigar Soni
Reg. no
520781709
Certified
(Guides Name and
Qualification)
ACKNOWLEDGEMENT
With a deep sense of gratitude I express we thanks to all those who have
been instrumental in the development of the project report.
I am also grateful to Institute of Business Management And Research,
Ahmedabad who gave me a valuable opportunity of involving me in real
live business project. I am thankful to all the professors whose positive
attitude, guidance and faith in my ability spurred me to perform well.
I am also indebted to all lecturers, friends and associates for their valuable
advice, stimulated suggestions and overwhelming support without which
the project would not have been a success.
INTRODUCTION
The accumulation of huge non-performing assets in banks has
assumed great importance. The depth of the problem of bad debts was
first realized only in early 1990s. The magnitude of NPAs in banks and
financial institutions is over Rs.1,50,000 crores.
While gross NPA reflects the quality of the loans made by
banks, net NPA shows the actual burden of banks. Now it is increasingly
evident that the major defaulters are the big borrowers coming from the
non-priority sector. The banks and financial institutions have to take the
initiative to reduce NPAs in a time bound strategic approach.
Public sector banks figure prominently in the debate not only
because they dominate the banking industries, but also since they have
much larger NPAs compared with the private sector banks. This raises a
concern in the industry and academia because it is generally felt that
NPAs reduce the profitability of a banks, weaken its financial health and
erode its solvency.
For the recovery of NPAs a broad framework has evolved for
the management of NPAs under which several options are provided for
debt recovery and restructuring.
design and implement their own policies for recovery and write-off
incorporating compromise and negotiated settlements.
RESEARCH METHODOLOGY
Type of Research
The research methodology adopted for carrying out the
study were
Sampling plan
To prepare this Project we took five banks from public sector as well as
five banks from private sector.
SUBJECT COVERED
NO.
Introduction to NPAs
Research Methodology
Scope of Research
Type of Research
Sources of Data Collection
Objective of Study
Data Collection
Introduction to Topic
Definition
History of Indian Banking
Non Performing Assets
Factor for rise in NPAs
Problem due to NPAs
Types of NPAs
Income Recognition
Reporting of NPAs
Provisioning Norms
General
Floating provisions
Leased Assets
PAGE
Early Symptoms
Preventive Measurement
Early Recognition of Problem
Identifying Borrowers with genuine Intent
Timeliness
Focus on Cash flow
Management Effectiveness
7
Multiple Financing
Tools for Recovery
Willful default
Inability to Pay
Special Cases
Role of ARCIL
Analysis
Deposit-Investment-Advances
Gross NPAs and Net NPAs
10
Bibliography
Definitions:
An asset, including a leased asset, becomes non-performing when it
ceases to generate income for the bank.
A non-performing asset (NPA) was defined as a credit facility in respect of
which the interest and/ or instalment of principal has remained past due
for a specified period of time.
In the first half of the 19th century the East India Company
established three banks; the Bank of Bengal in 1809, the Bank of
Bombay in 1840 and the Bank of Madras in 1843. These three
banks also known as Presidency banks were amalgamated in 1920
and a new bank, the Imperial Bank of India was established in
1921. With the passing of the State Bank of India Act in 1955 the
undertaking of the Imperial Bank of India was taken by the newly
constituted State Bank of India.
The Reserve Bank of India which is the Central Bank was created
in 1935 by passing Reserve Bank of India Act, 1934 which was
followed up with the Banking Regulations in 1949. These acts
bestowed Reserve Bank of India (RBI) with wide ranging powers for
licensing, supervision and control of banks. Considering the
proliferation of weak banks, RBI compulsorily merged many of them
with stronger banks in 1969.
the
Committee
(Chairman:
Shri
M.
Narasimham),
Monetary
Fund,
International
Bank
for
(ii)
been
accepted
and
implemented.
The
other
1970- 1980
Pay roll
Unprecedented expansion in geographical coverage, staff,
business & transaction volumes and directed lending to
agriculture, SSI & SB sector
Manual systems struggle to handle exponential rise in
transaction volumes - Outsourcing of data processing to service bureau begins
Back office systems only in Multinational (MNC) banks'
offices
1981- 1990
1991-1995
1996-2000
infrastructure
improves
and
becomes
2000-2003
owned
banks
and
old
private
banks
start
ii.
The account remains out of order for a period of more than 180
days ,in respect of an overdraft/cash credit (OD/CC)
iii.
The bill remains overdue for a period of more than 180 days in case
of bill purchased or discounted.
iv.
v.
ii.
iii.
iv.
v.
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 out standing 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.
Overdue
Any amount due to the bank under any credit facility is overdue if it
is not paid on due date fixed by the bank.
which covers a minimum label. Thus the banks record the non
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 government to revive the handloom sector has not
yet been implemented. So the over dues due to the handloom
sectors are becoming NPAs.
INTERNAL FACTORS :-------------------------------- 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
Inappropriate technology
Due to inappropriate technology and management information
system, market driven decisions on real time basis can not 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
investment.
consider
the
borrowers
a. From bankers.
b. Enquiry from market/segment of
business.
c. From external credit rating agencies.
own
trade,
capital
industry,
The three letters 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, no can not be then left is to look after the factor
responsible for it and managing those factors.
Overdue:
Any amount due to the bank under any credit facility is
overdue if it is not paid on the due date fixed by the bank.
Types of NPA
A] Gross NPA
B] Net NPA
A] Gross NPA:
Gross NPAs are the sum total of all loan assets that are classified as
NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA
reflects the quality of the loans made by banks. It consists of all the
non standard assets like as sub-standard, doubtful, and loss assets.
It can be calculated with the help of following ratio:
Gross NPAs
Gross Advances
B]
Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the
provision regarding NPAs. Net NPA shows the actual burden of banks.
Since in India, bank balance sheets contain a huge amount of NPAs and
the process of recovery and write off of loans is very time consuming, the
provisions the banks have to make against the NPAs according to the
central bank guidelines, are quite significant. That is why the difference
between gross and net NPA is quite high.
It can be calculated by following_
Net NPAs Gross NPAs Provisions
Gross Advances - Provisions
INCOME RECOGNITION
Income recognition Policy
Fees and commissions earned by the banks as a result of renegotiations or rescheduling of outstanding debts should be
recognised on an accrual basis over the period of time covered by
the re-negotiated or rescheduled extension of credit.
Reversal of income:
If any advance, including bills purchased and discounted, becomes
NPA as at the close of any year, interest accrued and credited to
income account in the corresponding previous year, should be
reversed or provided for if the same is not realised. This will apply
to Government guaranteed accounts also.
Leased Assets
The net lease rentals (finance charge) on the leased asset accrued
and credited to income account before the asset became nonperforming, and remaining unrealised, should be reversed or provided
for in the current accounting period.
The term 'net lease rentals' would mean the amount of finance
charge taken to the credit of Profit & Loss Account and would be
worked out as gross lease rentals adjusted by amount of statutory
depreciation and lease equalisation account.
Interest Application:
There is no objection to the banks using their own discretion in debiting
interest to an NPA account taking the same to Interest Suspense Account
or maintaining only a record of such interest in proforma accounts.
Reporting of NPAs
Banks are required to furnish a Report on NPAs as on 31 st March
each year after completion of audit. The NPAs would relate to the
banks global portfolio, including the advances at the foreign
branches. The Report should be furnished as per the prescribed
format given in the Annexure I.
Asset Classification
------------------------------Categories of NPAs
Standard Assets:
Standard assets are the ones in which the bank is receiving interest as
well as the principal amount of the loan regularly from the customer. Here
it is also very important that in this case the arrears of interest and the
principal amount of loan does 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 90 days then it is NPA and NPAs are further need to classify in
sub categories.
Banks are required to classify non-performing assets
further into the following three categories based on the period for which
the asset has remained non-performing and the realisability of the dues:
( 1 ) Sub-standard Assets
( 2 ) Doubtful Assets
( 3 ) Loss Assets
( 1 ) Sub-standard Assets:-With effect from 31 March 2005, a sub standard asset would be one,
which has remained NPA for a period less than or equal to 12 month. The
following features are exhibited by sub standard assets: the current net
worth of the borrowers / guarantor or the current market value of the
security charged is not enough to ensure recovery of the dues to the
banks in full; and the asset has well-defined credit weaknesses that
jeopardise the liquidation of the debt and are characterised by the distinct
possibility that the banks will sustain some loss, if deficiencies are not
corrected.
( 2 ) Doubtful Assets:--
( 3 ) Loss Assets:-A loss asset is one which considered uncollectible and of such little value
that its continuance as a bankable asset is not warranted- although there
may be some salvage or recovery value. Also, these assets would have
been identified as loss assets by the bank or internal or external auditors
or the RBI inspection but the amount would not have been written-off
wholly.
Provisioning Norms
-----------------------------------------General
Loss assets:
The entire asset should be written off. If the assets are permitted to
remain in the books for any reason, 100 percent of the outstanding should
be provided for.
Doubtful assets:
Provision
requirement (%)
Up to one year
20
30
April 1, 2004.
permitted
to
phase
the
additional
provisioning
Sub-standard assets:
A general provision of 10 percent on total outstanding should be made
without making any allowance for DICGC/ECGC guarantee cover and
securities available.
Standard assets:
From the year ending 31.03.2000, the banks should make a
general provision of a minimum of 0.40 percent on standard assets
on global loan portfolio basis.
The provisions on standard assets should not be reckoned for
arriving at net NPAs.
Floating provisions:
Some of the banks make a 'floating provision' over
and above the specific provisions made in respect of accounts identified
as NPAs. The floating provisions, wherever available, could be set-off
against provisions required to be made as per above stated provisioning
guidelines. Considering that higher loan loss provisioning adds to the
overall financial strength of the banks and the stability of the financial
sector, banks are urged to voluntarily set apart provisions much above the
minimum prudential levels as a desirable practice.
Sub-standard assets : -
__(AS19 ICAI)
As per the 'Guidance Note on Accounting for Leases' issued by the ICAI,
'Gross book value' of a fixed asset is its historical cost or other amount
substituted for historical cost in the books of account or financial
statements. Statutory depreciation should be shown separately in the
Profit & Loss Account. Accumulated depreciation should be deducted from
the Gross Book Value of the leased asset in the balance sheet of the
lesser to arrive at the 'net book value'.
adjusted in the 'net book value' of the leased assets. The amount of
adjustment in respect of each class of fixed assets may be shown either in
the main balance sheet or in the Fixed Assets Schedule as a separate
column in the section related to leased assets.
Doubtful assets :100 percent of the extent to which the finance is not secured by the
realisable value of the leased asset. Realisable value to be estimated on a
realistic basis. In addition to the above provision, the following provision
on the net book value of the secured portion should be made,
depending upon the period for which asset has been doubtful:
Period
%age of provision
Up to one year
20
30
50
Loss assets :-
Advances
granted
under
rehabilitation
packages
advances
against
gold
ornaments,
Rs. 4 lakhs
DICGC Cover
50 percent
than
remained doubtful
of
security
years
Unrealised balance
Less:
DICGC
unsecured portion)
for
secured
portion
advance
secured portion)
Example I
Asset classification status:
CGTSI Cover
Rs.1.50 lakh
Balance outstanding
Rs.10.00 lakh
Less
Realisable
value
security
Unsecured amount
Net
unsecured
uncovered portion:
Provision Required
Secured portion
Unsecured
&
Rs.1.50 lakh
uncovered Rs.2.12 lakh
portion
Total provision required
Example II
Asset classification status
CGTSI Cover
Rs.10.00 lakh
Balance outstanding
Rs.40.00 lakh
Less
Realisable
value
security
Unsecured amount
Net
unsecured
uncovered portion:
Provision Required
Secured portion
Unsecured
portion
&
Rs.10.00 lakh
uncovered Rs.11.25 lakh
Take-out finance
The lending institution should make provisions against a 'take-out finance'
turning into NPA pending its take-over by the taking-over institution. As
and when the asset is taken-over by the taking-over institution, the
corresponding provisions could be reversed.
Impact of NPA
NPA doesnt affect current profit but also future stream of profit,
which may lead to loss of some long-term beneficial opportunity.
Another impact of reduction in profitability is low ROI (return on
investment), which adversely affect current earning of bank.
Liquidity:-
Involvement of management:-
Time and efforts of management is another indirect cost which bank has to
bear due to NPA. Time and efforts of management in handling and
managing NPA would have diverted to some fruitful activities, which would
have given good returns. Now days banks have special employees to
deal and handle NPAs, which is additional cost to the bank.
Credit loss:-
Bank is facing problem of NPA then it adversely affect the value of bank in
terms of market credit. It will lose its goodwill and brand image and credit
which have negative impact to the people who are putting their money in
the banks .
[ A ] Internal Factors:Internal Factors are those, which are internal to the bank and are
controllable by banks.
[ B ] External Factors:External factors are those, which are external to banks they are not
controllable by banks.
Natural calamities
Industrial sickness
Business failure
Inefficient management
Obsolete technology
Product obsolete
Irregularity in installment.
Payment which does not cover the interest and principal amount of
that installment.
(2)
Overdue receivables.
( 3 ) Attitudinal Changes:
Use for personal comfort, stocks and shares by borrower.
Avoidance of contact with bank.
Problem between partners.
( 4 ) Others:
Changes in Government policies.
Death of borrower.
Competition in the market.
Longer the delay in response, grater the injury to the account and the
asset. Time is a crucial element in any restructuring or rehabilitation
activity. The response decided on the basis of techno-economic study and
promoters commitment, has to be adequate in terms of extend of
additional funding and relaxations etc. under the restructuring exercise.
The package of assistance may be flexible and bank may look at the exit
option.
Focus on Cash Flows:While financing, at the time of restructuring the banks may not be guided
by the conventional fund flow analysis only, which could yield a potentially
misleading picture. Appraisal for fresh credit requirements may be done by
analyzing funds flow in conjunction with the Cash Flow rather than only on
the basis of Funds Flow.
Management Effectiveness:The general perception among borrower is that it is lack of finance that
leads to sickness and NPAs. But this may not be the case all the time.
Management effectiveness in tackling adverse business conditions is a
very important aspect that affects a borrowing units fortunes. A bank may
commit additional finance to an aling unit only after basic viability of the
enterprise also in the context of quality of management is examined and
confirmed. Where the default is due to deeper malady, viability study or
investigative audit should be done it will be useful to have consultant
appointed as early as possible to examine this aspect. A proper technoeconomic viability study must thus become the basis on which any future
action can be considered.
Multiple Financing:A. During the exercise for assessment of viability and restructuring, a
Pragmatic and unified approach by all the lending banks/ FIs as
also sharing of all relevant information on the borrower would go a
long way toward overall success of rehabilitation exercise, given
the probability of success/failure.
B. In some default cases, where the unit is still working, the bank
should make sure that it captures the cash flows (there is a
tendency on part of the borrowers to switch bankers once they
default, for fear of getting their cash flows forfeited), and ensure
that such cash flows are used for working capital purposes. Toward
this end, there should be regular flow of information among
consortium members. A bank, which is not part of the consortium,
may not be allowed to offer credit facilities to such defaulting
clients. Current account facilities may also be denied at nonconsortium banks to such clients and violation may attract penal
action. The Credit Information Bureau of India Ltd.(CIBIL) may
be very useful for meaningful information exchange on defaulting
borrowers once the setup becomes fully operational.
of
the
exposure.
Therefore,
any
plan
for
D. Corporate
Debt
Restructuring
mechanism
has
been
Inability to Pay
Unviable
Willful default
Viable
Lok Adalat
Debt Recovery
Tribunals
Rehabilitation
Compromise
Sole Banker
Consortium Finance
Securitization
Act
Asset
Reconstruction
Fresh Issue of
Term Loan
Conversion
into WCTL
Fresh WC Limit
Rephasement of
Repayment Period
Lok Adalat:
Lok Adalat institutions help banks to settle disputes involving
account in doubtful and loss category, with outstanding balance of Rs.
5 lakh for compromise settlement under Lok Adalat. Debt recovery
tribunals have been empowered to organize Lok Adalat to decide on
cases of NPAs of Rs. 10 lakh and above. This mechanism has proved to
be quite effective for speedy justice and recovery of small loans. The
progress through this channel is expected to pick up in the coming years.
Debt Recovery Tribunals(DRT):
The recovery of debts due to
banks and financial institution passed in March 2000 has helped in
strengthening the function of DRTs. Provision for placement of more than
one recovery officer, power to attach defendants property/assets before
judgment, penal provision for disobedience of tribunals order or for breach
of any terms of order and appointment of receiver with power of
realization, management, protection and preservation of property are
Inability to Pay
Consortium arrangements:
Asset classification of
accounts under consortium should be based on the record of recovery of
the individual member banks and other aspects having a bearing on the
recoverability of the advances. Where the remittances by the borrower
under consortium lending arrangements are pooled with one bank and/or
where the bank receiving remittances is not parting with the share of other
member banks, the account will be treated as not serviced in the books of
the other member banks and therefore, be treated as NPA. The banks
participating in the consortium should, therefore, arrange to get their share
of recovery transferred from the lead bank or get an express consent from
the lead bank for the transfer of their share of recovery, to ensure proper
asset classification in their respective books.
Objective
Structure:
CDR system in the country will have a three-tier structure:
(A) CDR Standing Forum
(B) CDR Empowered Group
(C) CDR Cell
A CDR Core Group will be carved out of the CDR Standing Forum
to assist the Standing Forum in convening the meetings and taking
decisions relating to policy, on behalf of the Standing Forum. The Core
Group will consist of Chief Executives of IDBI, ICICI, SBI, Bank of Baroda,
Bank of India, Punjab National Bank, Indian Banks Association and a
representative of Reserve Bank of India.
The CDR Standing Forum shall meet at least once every six
months and would review and monitor the progress of corporate debt
restructuring system. The Forum would also lay down the policies and
guidelines to be followed by the CDR Empowered Group and CDR Cell for
debt restructuring and would ensure their smooth functioning and
adherence to the prescribed time schedules for debt restructuring. It can
also review any individual decisions of the CDR Empowered Group and
CDR Cell.
The CDR Standing Forum, the CDR Empowered Group and CDR
Cell (described in following paragraphs) shall be housed in IDBI. All
financial institutions and banks shall share the administrative and other
costs. The sharing pattern shall be as determined by the Standing Forum.
CDR Cell:
The CDR Standing Forum and the CDR Empowered Group will be
assisted by a CDR Cell in all their functions. The CDR Cell will make the
initial scrutiny of the proposals received from borrowers / lenders, by
calling for proposed rehabilitation plan and other information and put up
the matter before the CDR Empowered Group, within one month to decide
whether rehabilitation is prima facie feasible, if so, the CDR Cell will
proceed to prepare detailed Rehabilitation Plan with the help of lenders
and if necessary, experts to be engaged from outside. If not found prima
facie feasible, the lenders may start action for recovery of their dues.
Other features:
CDR will be a Non-statutory mechanism.
CDR mechanism will be a voluntary system based on debtorcreditor agreement and inter-creditor agreement.
The scheme will not apply to accounts involving only one financial
institution or one bank. The CDR mechanism will cover only multiple
banking accounts / syndication / consortium accounts with outstanding
exposure of Rs.20 crore and above by banks and institutions.
The CDR system will be applicable only to standard and substandard accounts. However, as an interim measure, permission for
corporate debt restructuring will be made available by RBI on the basis of
specific recommendation of CDR "Core-Group", if a minimum of 75 per
cent (by value) of the lenders constituting banks and FIs consent for CDR,
Legal Basis
The legal basis to the CDR mechanism shall be provided by the
Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement.
The debtors shall have to accede to the DCA, either at the time of original
loan documentation (for future cases) or at the time of reference to
Corporate Debt Restructuring Cell. Similarly, all participants in the CDR
mechanism through their membership of the Standing Forum shall have to
enter into a legally binding agreement, with necessary enforcement and
penal clauses, to operate the System through laid-down policies and
guidelines.
Stand-Still Clause:
One of the most important elements of DebtorCreditor Agreement would be 'stand still' agreement binding for 90
days, or 180 days by both sides. Under this clause, both the debtor and
creditor(s) shall agree to a legally binding 'stand-still' whereby both
the parties commit themselves not to taking recourse to any other
legal action during the 'stand-still' period, this would be necessary for
enabling the CDR System to undertake the necessary debt restructuring
exercise without any outside intervention judicial or otherwise.
The Inter-Creditors Agreement would be a legally binding
agreement amongst the secured creditors, with necessary enforcement
and penal clauses, wherein the creditors would commit themselves to
abide by the various elements of CDR system. Further , the creditors shall
agree that if 75% of secured creditors by value, agree to a debt
restructuring package, the same would be binding on the remaining
secured creditors.
category subject to the condition that the amount of sacrifice, if any, in the
element of interest, measured in present value terms, is either written
off or provision is made to the extent of the sacrifice involved. For the
purpose, the future interest due as per the original loan agreement in
respect of an account should be discounted to the present value at a rate
appropriate to the risk category of the borrower (i.e., current PLR+ the
appropriate credit risk premium for the borrower-category) and compared
with the present value of the dues expected to be received under the
restructuring package, discounted on the same basis.
category) and compared with the present value of the dues expected to be
received under the restructuring package, discounted on the same basis.
In case there is a sacrifice involved in the amount of interest in
present value terms, as at (b) above, the amount of sacrifice should either
be written off or provision made to the extent of the sacrifice involved.
Even in cases where the sacrifice is by way of write off of the past interest
dues, the asset should continue to be treated as sub-standard.
General:
Income recognition
Funded Interest:
Provisioning
While there will be no change in the extant norms on provisioning
for NPAs, banks which are already holding provisions against some of the
accounts, which may now be classified as standard, shall continue to
hold the provisions and shall not reverse the same.
Special Cases
Accounts with temporary deficiencies:
period of 180 days even though the unit may be working or the borrower's
financial position is satisfactory.
not later than three months from the due date/date of ad hoc sanction. In
case of constraints such as non-availability of financial statements and
other data from the borrowers, the branch should furnish evidence to show
that renewal/ review of credit limits is already on and would be completed
soon. In any case, delay beyond six months is not considered desirable as
a general discipline. Hence, an account where the regular/ ad hoc credit
limits have not been reviewed/ renewed within 180 days from the due
date/ date of ad hoc sanction will be treated as NPA.
years)/two quarters, as the case may be, after it has become due will be
classified as NPA and not all the credit facilities sanctioned to a PACS/
FSS. The other direct loans & advances, if any, granted by the bank to the
member borrower of a PACS/ FSS outside the on-lending arrangement
will become NPA even if one of the credit facilities granted to the same
borrower becomes NPA.
Agricultural advances
Where
natural
calamities
impair
the
repaying
capacity
of
dated
20.06.98
and
Take-out Finance:
Takeout finance is the product emerging in the context of the
funding of long-term infrastructure projects. Under this arrangement, the
institution/the bank financing infrastructure projects will have an
arrangement with any financial institution for transferring to the latter the
outstanding in respect of such financing in their books on a predetermined basis. In view of the time-lag involved in taking-over, the
possibility of a default in the meantime cannot be ruled out. The norms of
asset classification will have to be followed by the concerned
bank/financial institution in whose books the account stands as balance
sheet item as on the relevant date. If the lending institution observes that
the asset has turned NPA on the basis of the record of recovery, it should
be classified accordingly. The lending institution should not recognise
income on accrual basis and account for the same only when it is paid by
the borrower/ taking over institution (if the arrangement so provides). The
lending institution should also make provisions against any asset turning
into NPA pending its take over by taking over institution. As and when the
asset is taken over by the taking over institution, the corresponding
provisions could be reversed. However, the taking over institution, on
taking over such assets, should make provisions treating the account as
NPA from the actual date of it becoming NPA even though the account
was not in its books as on that date.
depositing the amount in the bank abroad before it turned into NPA in the
books of the bank, but the importer's country is not allowing the funds to
be remitted due to political or other reasons, the asset classification may
be made after a period of one year from the date the amount was
deposited by the importer in the bank abroad.
ROLE OF ARCIL :This empowerment encouraged the three major players in Indian banking
system, namely, State Bank of India (SBI), ICICI Bank Limited (ICICI) and
IDBI Bank Limited (IDBI) to come together to set-up the first ARC. Arcil
was incorporated as a public limited company on February 11, 2002 and
obtained its certificate of commencement of business on May 7, 2003. In
pursuance of Section 3 of the Securitization Act 2002, it holds a certificate
of registration dated August 29, 2003, issued by the Reserve Bank of India
(RBI) and operates under powers conferred under the Securitization Act,
2002. Arcil is also a "financial institution" within the meaning of Section 2
(h) (ia) of the Recovery of Debts due to Banks and Financial Institutions
Act, 1993 (the "DRT Act").
Arcil is the first ARC in the country to commence business of resolution of
non-performing assets (NPAs) upon acquisition from Indian banks and
financial institutions. As the first ARC, Arcil has played a pioneering role in
setting standards for the industry in India.
ANALYSIS
For the purpose of analysis and comparison between private sector and
public sector banks, we take five-five banks in both sector to compare the
non performing assets of banks. For understanding we further bifurcate
the non performing assets in priority sector and non priority sector, gross
NPA and net NPA in percentage as well as in rupees, deposit investment
advances.
Deposit Investment Advances is the first in the analysis because due
to these we can understand the where the bank stands in the competitive
market. As at end of march 2008, in private sector ICICI Bank is the
highest deposit-investment-advances figures in rupees crore, second is
HDFC Bank and KOTAK Bank has least figures.
In public sector banks Punjab National Bank has highest depositinvestment-advances but when we look at graph first three means Bank of
Baroda and Bank of India are almost the similar in numbers and Dena
Bank is stands for last in public sector bank.
private sector banks with public sector banks among these banks, we can
understand the more number of people prefer to choose public sector
banks for deposit-investment.
But when we compare the private sector bank ICICI Bank with the public
sector banks ICICI Bank is more deposit-investment figures and first in the
all banks.
BANK
AXIS
HDFC
ICICI
KOTAK
INDUSIND
TOTAL
DEPOSIT
87626
100769
244431
16424
19037
468287
INVESTMENT
33705
49394
111454
9142
6630
210325
ADVANCES
59661
63427
225616
15552
12795
377051
BANK
BOB
BOI
DENA
PNB
UBI
TOTAL
DEPOSIT
152034
150012
33943
166457
103859
606305
INVESTMENT
43870
41803
10282
53992
33823
183770
ADVANCES
106701
113476
23024
119502
74348
437051
DEPOSIT
244431
166457
INVESTMENT
111454
53992
ADVANCES
225616
119502
There are two concepts related to non-performing assets_ gross and net.
Gross refers to all NPAs on a banks balance sheet irrespective of the
provisions made. It consists of all the non standard assets, viz.
sub
sheets contains a huge amount of NPAs and the process of recovery and
write off of loans is very time consuming, the provisions the banks have to
make against the NPA according to the central bank guidelines, are quite
significant.
Here, we can see that there are huge difference between gross and net
NPA.
banks, net NPA shows the actual burden of banks. The requirements
for provisions are :
Here, there are gross and net NPA data for 2006-07 and 2007-08 we
taken for comparison among banks.
YEAR 2006-07
BANK
GROSS NPA
NET NPA
BOB
BOI
DENA
PNB
UBI
1.46
1.48
2.37
2.09
1.82
0.35
0.45
1.16
0.45
0.59
2007-08
BANK
GROSS NPA
NET NPA
BOB
BOI
DENA
PNB
UBI
1.10
1.08
1.48
1.67
1.34
0.27
0.33
0.56
0.38
0.10
BANK
GROSS NPA
NET NPA
AXIS
HDFC
ICICI
KOTAK
INDUSIND
0.57
0.72
1.20
1.39
1.64
0.36
0.22
0.58
1.09
1.31
2006-07
2007-08
BANK
GROSS NPA
NET NPA
AXIS
HDFC
ICICI
KOTAK
INDUSIND
0.45
0.68
1.90
1.55
1.69
0.23
0.22
0.87
0.98
1.25
profitability and efficiency. In the long run, it eats up the net worth
of the banks.
financial institutions. Here we take all the ten banks gross NPA
together for better understanding.
So if we
compare in private sector banks AXIS and HDFC Bank are below
average of all banks and in public sector BOB and BOI. Average of
these five private sector banks gross NPA is 1.25 and average of
public sector banks is 1.33. Which is higher in compare of private
sector banks.
GROSS NPA :-
AXIS
HDFC
ICICI
KOTAK
INDUSIND
TOTAL
BANK
AGRI
SMALL
OTHERS
PRIORITY
NON-
(1)
(2)
(3)
SECTOR
PRIORITY
109.12
36.12
981.85
10.00
30.44
1167.53
14.76
110.56
23.35
33.84
3.18
185.69
86.71
47.70
354.13
4.04
30.02
522.60
( 1+2+3 )
210.59
194.41
1359.34
47.87
63.64
1875.85
275.06
709.23
6211.12
405.20
328.67
7929.28
PRIORITY SECTOR
NPA
BOB
BOI
DENA
PNB
UBI
(ADVANCED RS.CRORE )
5469
3269
1160
3772
1924
350
325
106
443
197
When we talk about public sector banks they are more in priority sector
and they given advanced to weaker sector or industries. Public sector
banks give more loans to Agriculture , small scale and others units and as
a result we see that there are more number of NPA in public sector banks
than in private sector banks. BOB given more advanced to priority sector
in 2007-08 than other four banks and Dena Bank is in least.
But when there are comparison between private bank and public sector
bank still ICICI Bank has more NPA in both priority and non priority sector
with the comparison of public sector banks. Large NPA in ICICI Bank
because the strategy of bank that risk-reward attitude and initiative in each
sector.
shocking.
SECTOR
PRIORITY
PUBLIC
NON PRT
TOTAL
PUBLIC SECTOR
2006-07
2007-08
22954
490
15158
38602
25287
299
14163
39749
NEW PRIVATE
2006-07
2007-08
1468
3
4800
6271
2080
0
8339
10419
Here, there are huge difference between private and public sector banks
NPA. There is increase in new private sector banks NPA of Rs.4148 cr in
2007-08 which is almost 66% rise than previous year. In public sector
banks the numbers are not increased like private sector banks.