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Pr

ojectonNonPer
for
mingAsset
sinBanks
CONTENTS

Chapt
er Ti
tl
e Pageno.
no.
Execut
iveSummar
y 2

1 Gener
alI
ntr
oduct
ion

I
ntr
oduct
iont
otheTopi
c 4

 CompanyPr
ofi
l
e 6

 Nonper
for
mingasset
s 10

2 Resear
chMet
hodol
ogy 32

3 Dat
aAnal
ysi
s&I
nter
pret
ati
on 38

4 Fi
ndi
ngs,
Suggest
ions&Concl
usi
ons 64

5 Annexur
e:
a)Bi
bli
ogr
aphy 68
b)Quest
ionnai
re 70

1
EXECUTI
VESUMMARY

St
udy
ingbooksandmer
elypassi
ngex
amsi
snotwor
th,t
heeducat
ion,
knowl
edgeandexper
iencei
sincompl
etewi
thoutbei
ngexposedt
owhati
s
happeni
ngi
nreal
.
I
nor
dert
omakest
udent
scompet
entenought
ofacer
ealwor
ld,t
her
eisa
r
equi
rementofcour
sef
orunder
goi
ngt
rai
ningf
orsi
xtoei
ghtweekswi
th
somer
eput
edor
gani
zat
ion.Thi
sexposur
etor
eall
i
fesi
tuat
iongi
vesan
i
nsi
ghtt
othest
udent
stheki
ndofpr
essur
eandpr
obl
emst
heycanexpectt
o
f
acedur
ingt
hei
rcar
eer
.
Fort
her
equi
rementofunder
goi
ngt
rai
ningIsentmyr
equestf
ort
rai
ningt
o
HDFCBANKandf
ort
unat
elyi
twasaccept
ed.Iwasassi
gnedt
hepr
oject“
a
st
udyofi
nvest
mentbehav
iorofpeopl
einr
espectt
odemogr
aphi
cfeat
ures
i
.e.AgeandOccupat
ion.
Ther
ear
elotmanyi
nvest
mentav
enuesar
eav
ail
abl
etheseday
stoi
nvest
moneyl
i
keI
nsur
ance,BankDeposi
ts,Equi
tyMar
ketet
c.Ther
epor
tst
udi
es
t
hev
ari
ousi
nvest
mentav
enuespr
efer
redbypeopl
eandt
hev
ari
ousf
act
ors
l
i
keAgeandOccupat
iont
hati
nfl
uencet
hei
nvest
mentbehav
iorofpeopl
e.

Chapt
ergi
vest
hei
ntr
oduct
iont
oinv
est
ment
.Itpr
ovi
desi
nfor
mat
ionabout
t
hev
ari
ousi
nvest
mentopt
ionsav
ail
abl
etot
hei
nvest
orl
i
kemut
ualf
unds,
bonds,shar
es,r
ealest
ate,bankdeposi
tset
c.Nextchapt
erdescr
ibest
he
i
ndust
rypr
ofi
l
est
ati
ngabouti
nvest
mentmanagement
,inv
est
mentbanki
ng
&maj
orpl
ayer
s.Thencomest
het
urnofcompanypr
ofi
l
ewher
etheHi
stor
y,
Mi
ssi
on&t
hePr
oduct
sof
fer
edbyHDFCBankar
edi
scussed.Someoft
he
pr
oduct
s of
fer
ed ar
e sav
ing account
,cur
rentaccount
,fi
xed deposi
t,
any
wher
ebanki
ng,
onl
i
nebr
oki
ng,
insur
ance,
locker
set
c.

2
Ser
iesofst
epswer
eunder
takeni
nor
dert
ost
udyt
hei
nvest
mentbehav
ior
ofpeopl
e.Descr
ipt
iver
esear
ch desi
gn & Non pr
obabi
l
ity conv
eni
ent
sampl
i
ngt
echni
quei
sused.

I
NTRODUCTI
ON

3
I
NTRODUCTI
ON
Theaccumul
ati
onofhugenon-
per
for
mingasset
sinbankshas
assumedgr
eati
mpor
tance.Thedept
hoft
hepr
obl
em ofbaddebt
swas
f
ir
str
eal
i
zedonl
yinear
ly1990s. Themagni
tudeofNPAsi
nbanksand
f
inanci
ali
nst
it
uti
onsi
sov
erRs.
1,50,
000cr
ores.

Whi
l
egr
ossNPAr
efl
ect
sthequal
i
tyoft
hel
oansmadebybanks,
netNPAshowst
heact
ualbur
denofbanks.Nowi
tisi
ncr
easi
ngl
yev
ident
t
hatt
hemaj
ordef
aul
ter
sar
ethebi
gbor
rower
scomi
ngf
rom t
henon-
pri
ori
ty
sect
or.Thebanksandf
inanci
ali
nst
it
uti
onshav
etot
aket
hei
nit
iat
ivet
o
r
educeNPAsi
nat
imeboundst
rat
egi
cappr
oach.

Publ
i
csect
orbanksf
igur
epr
omi
nent
lyi
nthedebat
enotonl
y
becauset
heydomi
nat
ethebanki
ngi
ndust
ri
es,butal
sosi
ncet
heyhav
e
muchl
argerNPAscompar
edwi
tht
hepr
ivat
esect
orbanks.Thi
srai
sesa
concer
nint
hei
ndust
ryandacademi
abecausei
tisgener
all
yfel
tthatNPAs
r
educet
hepr
ofi
tabi
l
ityofabanks,weakeni
tsf
inanci
alheal
thander
odei
ts
sol
vency
.

Fort
her
ecov
eryofNPAsabr
oadf
ramewor
khasev
olv
edf
or
t
hemanagementofNPAsunderwhi
chsev
eralopt
ionsar
epr
ovi
dedf
ordebt
r
ecov
eryandr
est
ruct
uri
ng.BanksandFI
shav
ethef
reedom t
odesi
gnand
i
mpl
ementt
hei
rown pol
i
cies f
orr
ecov
ery and wr
it
e-of
fincor
por
ati
ng
compr
omi
seandnegot
iat
edset
tl
ement
s.

4
COMPANY
PROFI
LE

5
ABOUTHDFC

TheHousi
ngDev
elopmentFi
nanceCor
por
ati
onLi
mit
ed(
HDFC)was

amongstt
hef
ir
stt
orecei
vean'
i
npr
inci
ple'appr
ovalf
rom t
he

Reser
veBankofI
ndi
a(RBI
)tosetupabanki
nthepr
ivat
esect
or,
as

par
toft
heRBI
'
sli
ber
ali
zat
ionoft
heI
ndi
anBanki
ngI
ndust
ryi
n1994.

Thebankwas i
ncor
por
atedi
nAugust1994i
nthenameof'
HDFC

BankLi
mit
ed'
,wi
thi
tsr
egi
ster
edof
fi
cei
nMumbai
,I
ndi
a.HDFCBank

commencedoper
ati
onsasaSchedul
edCommer
cial
Banki
nJanuar
y

1995.

HDFC i
sIndi
a'
spr
emi
erhousi
ngf
inancecompanyandenj
oysan

i
mpeccabl
etr
ackr
ecor
dinI
ndi
aaswel
lasi
nint
ernat
ional
mar
ket
s.

Si
nce i
tsi
ncept
ioni
n1977,t
heCor
por
ati
onhasmai
ntai
ned a

consi
stentandheal
thygr
owt
hini
tsoper
ati
onst
oremai
nthemar
ket

l
eaderi
nmor
tgages.I
tsout
standi
ngl
oanpor
tfol
i
ocov
erswel
lov
era

mi
l
li
ondwel
l
inguni
ts. HDFChasdev
elopedsi
gni
fi
cantexper
ti
sei
n

r
etai
lmor
tgagel
oanst
odi
ff
erentmar
ketsegment
sandal
sohasa

l
argecor
por
atecl
i
entbasef
ori
tshousi
ngr
elat
ed cr
edi
tfaci
l
iti
es.

Wi
thi
tsexper
iencei
nthef
inanci
almar
ket
s, ast
rongmar
ket

6
r
eput
ati
on,
lar
geshar
ehol
derbaseanduni
queconsumerf
ranchi
se,

HDFCwasi
deal
l
yposi
ti
onedt
opr
omot
eabanki
ntheI
ndi
anenv
ironment
.

HDFCBankbeganoper
ati
onsi
n1995wi
thasi
mpl
emi
ssi
on:
tobea

“Wor
ldCl
assI
ndi
anBank.
”Wer
eal
i
zedt
hatonl
yasi
ngl
emi
nded

f
ocusonpr
oductqual
i
tyandser
viceexcel
l
encewoul
dhel
pusget

t
her
e.Today
,wear
epr
oudt
osayt
hatwear
ewel
lonourway

t
owar
dst
hatgoal
.

AsofMar
ch31,
2008,t
heBank’
sdi
str
ibut
ionnet
wor
kwasat761

Br
anchesand1977ATMsi
n327ci
ti
esasagai
nst684br
anches

and1,
605ATMsi
n320ci
ti
esasofMar
ch31,
2007.

Agai
nstt
her
egul
ator
yappr
oval
sfornew br
anchesi
nhand,t
he

Bankexpect
stof
urt
herexpandt
hebr
anchnet
wor
kbyar
ound150

br
anchesbyJune30,
2008.Dur
ingt
hey
ear
,theBankst
eppedup

r
etai
lcust
omeracqui
sit
ionwi
thdeposi
taccount
sincr
easi
ngf
rom

6.
2mi
l
li
ont
o8.
7mi
l
li
onandt
otalcar
dsi
ssued(
debi
tandcr
edi
t

car
ds)i
ncr
easi
ngf
rom 7mi
l
li
ont
o9.
2mi
l
li
on.

PERSONALBANKI
NG

LoanPr
oduct Deposi
tPr
oduct I
nvestment &
I
nsurance

 AutoLoan  Savi
nga/c  MutualFund
 Loan Against  Cur
renta/
c  Bonds
Securi
ty  Fi
xeddeposi
t  Knowledge
 Loan Against  Demata/c Centr
e
Proper
ty

7
 Personal l
oan  Safe Deposi
t Insurance
 Creditcard Locker
s  General and
 2-wheelerloan Heal
thInsurance
 Commer cial  Equi
ty and
vehicl
esf i
nance Deri
vati
ves
 Homel oans  MudraGoldBar
 Retailbusi ness
banking
 Tractorloan
 Wor ki
ngCapi t
al
Finance
 Const r
uction
Equipment
Finance
 Health Care
Finance
 EducationLoan
 GoldLoan

Car
ds Pay
mentSer
vices AccessToBank

 CreditCar
d  Net Safe  Net Banki
ng
 DebitCard  Mer chant  OneVi ew
 PrepaidCard  Prepai dRefi
ll Inst aAler
t
 Bill
pay MobileBanking
 VisaBi ll
pay  ATM
I nstaPay  PhoneBanki ng
-
--
---
--
---
--
--
--
--
--
---
--
---
--
-  DirectPay  Emai l
ForexServices  VisaMoney Statement s
-
--
---
--
---
--
--
--
--
--
---
--
---
--
- Transf er  BranchNet work
 Product &  e–Moni es
Servi
ces ElectronicFunds
 TradeServices Transf er
 Forex ser vice  Online Pay ment
BranchLocat er ofDi r
ectTax
 RBIGuideli
nes

8
WHOLESALEBANKI
NG

Cor
por
ate Small and Medi
um Fi
nancial Inst
it
uti
ons
Ent
erpr
ises andTrusts

 Funded  FundedSer vi
ces BANKS
Servi
ces  Non Funded  Cleari
ng Sub-
 Non Funded Servi
ces Member ship
Servi
ces  Special
ized  RTGS –
 ValueAdded Servi
ces submember ship
Servi
ces  Value added  FundTr ansf er
Internet servi
ces  ATM Tie- ups
Banking I nt
ernetBanking  CorporateSal arya/c
 TaxCol l
ect i
on
Fi
nancialI
nst it
uti
ons

Mut
ual
Funds

St
ockBr
oker
s

I
nsur
anceCompani
es

Commodi
ti
esBusi
ness

Tr
ust
s

HDFC’
smai
ngoal
sar
eto:
-

Thepri
maryobj
ect
iveofHDFCi
stoenhancer
esi
dent
ialhousi
ngst
ockand
topr
omotehomeownershi
p.

Toacqui
rebypurchase,
lease,exchange,
hir
eorot
her
wisel
ands&pr
oper
ty
oranyi
nter
esti
nthesamei nIndia.

Toadvancemoneytoanyperson/per
sons,companyorcorpor
ati
on,soci
ety
orassoci
ati
onei
therati
nter
estwit
hout,andorwit
horwithoutanysecuri
ty

9
andinpar t
icul
artoadvancemoneyt oshareholder
soft hecompanyort o
oth4rpersonstoenablet hepersontoerect,orpurchase,orenl
arge,or
repai
ranyhouseorbui l
dingoranypartorporti
onst her
eofortopurchase
anyfreehol
dorleasehol
doranylandsorestat
eorpr oper
tyinI
ndi
aupont he
termsandconditi
onsaslaidbythecompany.

NON-
PERFORMING
ASSETS

10
NONPERFORMI
NGASSETS(
NPA)

WHATI
SANPA(
NONPERFORMI
NGASSETS)?

Acti
on f
orenforcementofsecur
it
yi nt
erestcan bei
nit
iat
ed onl
yift
he
secur
edasseti
sclassi
fi
edasNonper
formingasset
.

Nonper f
ormi ngassetmeansanassetoraccountofbor
rower,whichhas
beenclassif
iedbybankorf i
nanci
ali
nst
it
uti
on assub–st
andard,doubtf
ul
orlossasset,inaccordance wi
ththedir
ecti
onorgui
del
i
nes relat
ing to
assetsclassifi
cat
ioni
ssuedbyRBI.

Anamountdueunderanycr editfacil
it
yi st r
eatedas“pastdue”wheni tis
notbeenpai dwi t
hin30day sfrom theduedat e.Duetotheimprov ementi n
thepay mentand set tlementsy stem,r ecoverycli
mate,up gr adation of
technologyinthebankingsystem et c,
itwasdeci dedtodispensewi th“past
due“ concept,witheffectfr
om Mar ch31,2001.Accor dingl
yasf rom that
date,aNonper formingassetshellbeanadv ancewhere

i
. I
nter
estand/ori
nstal
lmentofprinci
palr
emainov
erduef
oraper
iodof
morethan180daysinrespectofatermloan,

i
i
. Theaccountremai
ns‘outoforder‘foraper
iodofmor
ethan180day
s
,i
nrespectofanover
draft
/cashcredit(
OD/CC)

i
i
i. Thebi
l
lremai
nsoverduef
oraper
iodofmor
ethan180day
sincaseof
bi
ll
pur
chasedordi
scount
ed.

i
v. I
nterestand/orpr
inci
palremainsover
duefort
wohar
vestseason but
foraper i
odnotexceedi ngt wohalfyear
sincaseofanadv ance
grantedf
oragri
cul
turalpurpose,
and

v
. Anyamounttoberecei
vedremainsover
duef
oraper
iodofmor
ethan
180day
sinrespectofot
heraccount
s

Wi
thav
iewt
omov
ingt
owar
dsi
nter
nat
ionalbestpr
act
icesandt
oensur
e

11
great
ertr
ansparency
,ithasbeendecidedtoadopt’90day sover
due

normsforident
ifi
cat
ionofNPAs,f
rom t
heyearendi
ngMar ch31,
2004,
a
nonperf
ormingassetshel
lbeal
oanoranadvancewhere;

i
. I
nterestand/
or i
nst
all
mentofprinci
palr
emainover
duef
ora
peri
odofmor et
han90daysi
nrespectofater
mloan,

i
i
. Theaccountremains‘
outofor
der‘foraperiodofmor
ethan90
days,
inrespectofanov
erdr
aft
/cashcredi
t(OD/CC)

i
i
i. Thebil
lremainsoverduef
oraper i
odofmor
ethan90day
sin
caseofbi
llpur
chasedordiscount
ed.

i
v. Int
erest and/ orpr
inci
palremains over
due fortwo harv
est
season butforaperi
odnotexceedingtwohalfyear
sincaseof
anadv ancegrant
edf
oragri
cult
uralpur
pose,and

v
. Anyamountt
ober ecei
vedr emainsov er
dueforaper
iod of
moret
han90day
sinrespectofotheraccount
s

Outofor
der

An accountshoul d bet reated asoutofor derift heout standing


balancer emainscontinuouslyinexcessofsanct ionedlimit/drawi
ngpower .
i
ncasewher et heoutstandingbal anceint hepri
ncipaloperati
ngaccounti s
l
esst hanthesanct i
onedamount/ drawingpower ,buttherear enocr edi
ts
continuouslyf orsixmont hsasont hedat eofbalancesheetorcr editare
notenought ocov er the interest debitedduringthesameper iod, these
accountshoul dbet r
eatedas‘ outofor der’
.

Ov
erdue

Anyamountduetothebankunderanycr
edi
tfaci
l
ityi
s‘ov
erdue’
ifi
tis
notpaidonduedatef
ixedbythebank.

12
FACTORSFORRI
SEI
NNPAs

Thebanki
ngsect orhasbeenfaci
ngtheseri
ousprobl
emsofther
isi
ng
NPAs. Butthepr oblem ofNPAsi smor einpubli
csectorbankswhen
comparedt
oprivatesectorbanksandfor
eignbanks.TheNPAsinPSBare
growi
ngduetoexternalaswellasi
nter
nal
factor
s.

 EXTERNALFACTORS: -
-
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
-

 I
nef
fect
iver
ecov
eryt
ri
bunal

TheGov t
.hassetofnumbersofrecover
yt r
ibunal
s,whichwor
ks
f
orrecoveryofl oansand adv
ances.Duet ot heirnegli
genceand
i
nef
fect
ivenessinthei
rworkt
hebanksuffer
stheconsequenceofnon-
r
ecover
,thei
rbyreducingt
hei
rprof
it
abi
li
tyandliquidi
ty.

 Wi
l
lfulDef
aul
ts

Thereareborrower swhoar eabl


et opay backloansbutare
i
ntent
ional
l
y wit
hdrawing it
.These groups ofpeopl e shoul
d be
i
denti
fi
edandpropermeasur esshoul
dbet akeninordertogetback
t
hemoneyextendedtot hem asadv
ancesandloans.

 Nat
ural
cal
ami
ti
es

Thisist hemeasurefactor,whi
chiscr eat
ingalarmingrisein
NPAsoft hePSBs.every now andthenIndiaishitbymaj ornatural
cal
amiti
esthusmakingtheborrowersunabl
et opaybackt hereloans.
Thusthebankhast omakel argeamountofpr ovisi
onsi norderto
compensatethosel
oans,henceendupthefiscalwit
har educedprofit
.

13
Mainlyour
sf armersdependsonr ainf
allf
orcroppi
ng.Duet o
i
rr
egular
it
iesofrainfallt
hefarmersarenottoachi
evetheproduct
ion
l
evel
thust heyar
enotr epay
ingtheloans.

I
ndust
ri
alsi
ckness

I
mpr operpr oject handli
ng,i neffect
ivemanagement,lackof
adequater esources, lackofadv ancetechnology,
daytodaychanging
govt.Policiesgivebi rthtoindustri
alsickness.Hencethebanksthat
fi
nancet hosei ndust r
iesult
imatelyendupwi thal
owr ecov
eryoft
heir
l
oansr educi ngtheirprofi
tandliquidi
ty.

 Lackofdemand

EntrepreneursinI
ndiacouldnotf or
eseetheirproductdemandand
startsproducti
onwhichult
imatel
ypil
esupt hei
rpr oductthusmaki ng
them unabl etopaybackt hemoneyt heybor row tooper atethese
acti
v i
ti
es.Thebanksr ecovertheamountbysel l
i
ngoft heirassets,
which cov er
s a minimum label
.Thus the banks r ecordt he non
recoveredpartasNPAsandhast omakeprov i
sionforit.

 ChangeonGov
t.pol
i
cies

Withever
ynew govt.banki
ngsectorgetsnew polici
esforits
operati
on.Thus ithas t
o cope withthe changi
ng pr
inci
ples and
pol
iciesfort
heregul
ati
onoftheri
singofNPAs.

Thefal
loutofhandl
oom sect
oriscont
inui
ngasmostoft he
weav
ersCo-oper
ati
vesoci
eti
eshavebecomedefunctl
argel
ydueto

14
wit
hdrawalofstatepatr
onage.Therehabi
l
itat
ionpl
anwor kedoutby
theCentralgov
er nmenttorevi
vethehandloom sectorhasnoty et
beenimplemented.Sotheoverduesduetothehandloom sect
orsare
becomingNPAs.

I
NTERNALFACTORS:
-

-
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--

 Def
ect
iveLendi
ngpr
ocess

Therear
ethreecar
dinalprinci
plesofbanklendi
ngt
hathav
ebeen
fol
l
owedbythecommer ci
albankssincel
ong.

i
. Pr
inci
plesofsaf
ety

i
i
. Pr
inci
pleofl
i
qui
dit
y

i
i
i. Pr
inci
plesofpr
ofi
tabi
l
ity

i
. Pr
inci
plesofsaf
ety:
-

Bysaf
etyi
tmeanst hatt
heborroweri
sinaposi
ti
ontorepaythe
l
oanbothpri
nci
palandinter
est
.Therepay
mentofloandepends
upont
heborr
owers:

a.Capaci
tyt
opay

15
b.Wi
l
li
ngnesst
opay

Capacit
ytopaydependsupon:
1.Tangibl
easset
s
2.Successinbusiness

Wil
li
ngnesstopaydependson:
1.Charact
er
2.Honest
3.Reputat
ionofbor
rower

Thebankershould,ther
eforetakeutmostcareinensuri
ngt hatt
he
enterpr
iseorbusi
nessforwhi
chal oanissoughtisasoundoneand
theborroweri
scapableofcar
ryi
ngitoutsuccessf
ull
y.heshouldbea
personofint
egri
tyandgoodcharact
er.

I
nappr
opr
iat
etechnol
ogy

Duetoinappropri
atetechnologyandmanagementi
nformat i
onsystem,
marketdri
vendeci si
onsonr ealt
imebasi
scannotbet aken.Proper
MISandf i
nancialaccountingsyst
em i
snotimpl
ementedi nthebanks,
whichl
eadstopoorcr editcoll
ecti
on,
thusNPA.Al
lthebranchesoft he
bankshouldbecomput erized.

I
mpr
operSWOTanal
ysi
s

Thei mproperstr
ength,weakness,opportunit
yandthreatanaly
sisis
anotherreasonforri
seinNPAs.Whi leprovidi
ngunsecuredadvances
the banks depend more on t he honesty,int
egr
it
y,and f i
nancial
soundnessandcr edi
twort
hinessofthebor r
ower.

16
 Banksshoul
dconsi
dert
hebor
rower
sowncapi
tal
inv
est
ment
.

i
tshoul
dcol
l
ectcr
edi
tinf
ormat
ionoft
hebor
rower
sfr
om_

a.Fr
om banker
s.

b.Enqui
ryf
rom mar
ket
/segmentoft
rade,
indust
ry,
busi
ness.

c.Fr
om ext
ernal
credi
trat
ingagenci
es.

 Anal
yzet
hebal
ancesheet
.

Tr
ue pict
ure ofbusi
ness willbe r
eveal
ed on anal
ysi
s of
pr
ofi
t/
lossa/candbal
ancesheet.

 Pur
poseoft
hel
oan

Whenbankersgiveloan,heshouldanal y
zet hepur
poseoft he
l
oan.Toensuresafet
yandl i
quidi
ty,banksshouldgrantloanfor
pr
oducti
vepurposeonly.Bankshoul danalyzethepr of
itabi
l
ity
,
vi
abi
li
ty,
longt
erm acceptabi
l
ityoft
hepr oj
ectwhilef
inancing.

 Poorcr
edi
tappr
aisal
syst
em

Poorcr
edi
tappr
aisali
sanot
herf
act
orf
ort
her
isei
nNPAs.Duet
o

17
poorcreditappr
aisalt
hebankgi
vesadvancest
ot hosewhoar enot
abl
et or epayitback.Theyshoul
d use good cr
editappr
aisalto
decr
easet heNPAs.

 Manager
ial
def
ici
enci
es

Thebankershould al
waysselecttheborrowerv er
ycaref
ullyand
shoul
dtaketangi
bleassetsassecuri
tytosaf eguardi
tsinterest
s.
Whenaccept
ingsecuri
ti
esbanksshoul
dconsidert
he_

1.Mar
ket
abi
l
ity

2.Accept
abi
l
ity

3.Saf
ety

4.Tr
ansf
erabi
l
ity
.

Thebankershouldf oll
ow t
heprinci
pleofdiver
sif
icat
ionofrisk
basedont hefamousmaxi m“ donotkeepalltheeggsinonebasket ”
;
i
tmeanst hatthebankershouldnotgrantadvancestoafewbigf ar
ms
onl
yort oconcentrat
et hem infew i
ndustri
esori nafew cit
ies.I
fa
new bigcustomermeet smi sfor
tuneorcertai
nt r
adersorindustr
ies
aff
ectedadversel
y,t
heov eral
lposi
ti
onofthebankwi l
lnotbeaffect
ed.

Li
keOSCBsuf fer
edlossduet ot heOTM Cutt
ack,andOrissa
handloom industri
es.Thebiggestdefaul
ter
sofOSCBare the
OTM (117.77lakhs),andthehandloom sect
orOr
issahandloom WCS
l
td(2439.60lakhs).

 Absenceofr
egul
ari
ndust
ri
alv
isi
t

18
The i rregul
ari
ti
esi nspotvisitalsoincr
easestheNPAs.Absenceof
regular
lyv i
sitofbankof f
ici
alst ot hecustomerpointdecr
easest
he
coll
ectionofi nter
estandpr incipal
sont hel
oan. TheNPAsduet o
will
fuldefaul
terscanbecol l
ectedbyr egul
arvisi
ts.

 Rel
oani
ngpr
ocess

Nonremitt
anceofrecov
eri
esto hi
gherfi
nanci
ngagenci
esandr e
l
oani
ngoft hesamehavealr
eadyaf
fect
edthesmoothoperat
ionof
t
hecredi
tcycl
e.

Duetorel
oani
ngtothedef
ault
ersandCCBsandPACs,t
heNPAsof
OSCBisi
ncr
easi
ngdaybyday.

PROBLEMSDUETONPA

1.Ownersdonotr ecei
veamar ketretur
nont her
ecapi
tal.
int
hewor
st
case,i
fthebanksf ai
ls,ownerslooset hei
rasset
s.I
nmodernt
imes
thi
smayaffectabroadpoolofshar ehol
ders.

2.Deposi
tor
sdonotrecei
v eamarketretur
nonsaving.Int
heworstcase
i
fthebankfai
l
s,deposi
torsl
oosetheirasset
soruninsur
edbal
ance.

3.Banks r
edi
str
ibut
elosses t
o ot
herbor
rower
s by char
ging hi
gher

19
i
nter
estrat
es,l
owerdeposi
tratesandhigherlendi
ngrat
esrepr
ess
savi
ngandfi
nanci
almar
ket,
whichhampereconomicgrowt
h.

4.Nonper f
ormingl oansepi tomizebadinv estment.Theymisall
ocate
cr
editfr
om goodpr oj
ects,whi chdonotr ecei
vefundi
ng,tof ai
led
pr
oject
s.Badi nvestmentendsupi nmi sall
ocati
onofcapit
al,andby
ext
ensi
on, l
abourandnat uralresour
ces.

Nonper
for
mingassetmayspi
l
lov
ert
hebanki
ngsy
stem andcont
ractt
he
moneyst
ock,
whi
chmayl
eadt
oeconomi
ccont
ract
ion.Thi
sspi
l
lov
eref
fect
canchannel
i
zet
hroughl
i
qui
dit
yorbanki
nsol
vency
:
a)When many bor
rower
sfai
lto pay i
nter
est
,banks may exper
ience
l
i
qui
dit
yshor
tage. Thi
scanj
am pay
mentacr
osst
hecount
ry,
b)I
ll
i
qui
dit
yconst
rai
ntsbanki
npay
ingdeposi
tor
s
.
c)Under
capi
tal
i
zedbanksexceedst
hebankscapi
tal
base.

Thet
hreel
ett
ersSt
ri
ket
err
ori
nbanki
ngsect
orandbusi
nessci
rcl
etoday
.
NPAi
sshor
tfor
m of“
NonPer
for
mingAsset
”.Thedr
eadedNPAr
ulesay
s
si
mpl
ythi
s:wheni
nter
estorot
herduet
oabankr
emai
nsunpai
dformor
e
t
han90day
s,t
heent
ir
ebankl
oanaut
omat
ical
l
ytur
nsanonper
for
ming
asset
.The r
ecov
eryofl
oan has al
way
s been pr
obl
em f
orbanks and
f
inanci
ali
nst
it
uti
on.To comeoutoft
hesef
ir
stweneed t
othi
nki
sit
possi
blet
oav
oidNPA,nocannotbet
henl
efti
stol
ookaf
tert
hef
act
or
r
esponsi
blef
ori
tandmanagi
ngt
hosef
act
ors.

I
nter
estand/
ori
nst
almentofpr
inci
palr
emai
nsov
erduef
ort
wo
har
vestseasonsbutf
oraper
iodnotexceedi
ngt
wohal
fyear
sin
t
hecaseofanadv
ancegr
ant
edf
oragr
icul
tur
alpur
poses,
and

 Anyamountt
ober
ecei
vedr
emai
nsov
erduef
oraper
iodofmor
e
t
han90day
sinr
espectofot
heraccount
s.

20
Asaf
aci
l
itat
ingmeasur
eforsmoot
htr
ansi
ti
ont
o90day
snor
m,bankshav
e
beenadv
isedt
omov
eov
ert
ochar
gingofi
nter
estatmont
hlyr
est
s,byApr
il
1,2002.Howev
er,t
hedat
eofcl
assi
fi
cat
ionofanadv
anceasNPAshoul
d
notbechangedonaccountofchar
gingofi
nter
estatmont
hlyr
est
s.Banks
shoul
d,t
her
efor
e,cont
inuet
ocl
assi
fyanaccountasNPAonl
yift
hei
nter
est
char
geddur
inganyquar
teri
snotser
vicedf
ull
ywi
thi
n180day
sfr
om t
he
endoft
hequar
terwi
thef
fectf
rom Apr
il1,2002and90day
sfr
om t
heend
oft
hequar
terwi
thef
fectf
rom Mar
ch31,
2004.

'
OutofOr
der
'st
atus:

Anaccountshoul
dbet
r edas'
eat outofor
der
'ift
heout
standi
ng
bal
ancer
emai
nscont
inuousl
yinexcessoft
hesanct
ionedl
i
mit
/dr
awi
ng
power
.Incaseswher
etheout
standi
ngbal
ancei
nthepr
inci
paloper
ati
ng
accounti
slesst
hant
hesanct
ionedl
i
mit
/dr
awi
ngpower
,butt
her
ear
eno
cr
edi
tscont
inuousl
yforsi
xmont
hsasont
hedat
eofBal
anceSheetor
cr
edi
tsar
enotenought
ocov
ert
hei
nter
estdebi
teddur
ingt
hesameper
iod,
t
heseaccount
sshoul
dbet
reat
edas'
outofor
der
'.

Over
due’
:
Anyamountduet
othebankunderanycr
edi
tfaci
l
ityi
s‘ov
erdue’
i
fiti
snotpai
dont
heduedat
efi
xedbyt
hebank.

I
mpactofNPA

 Pr
ofi
tabi
l
ity
:-
NPA meansbooki
ngofmoneyi
nter
msofbadasset
,
whi
choccur
redduet
owr
ongchoi
ceofcl
i
ent
.Becauseoft
hemoney
get
ti
ngbl
ockedt
hepr
odi
gal
i
tyofbankdecr
easesnotonl
ybyt
he

21
amountofNPAbutNPAl
eadt
ooppor
tuni
tycostal
soast
hatmuchof
pr
ofi
tinv
est
edi
n somer
etur
near
ningpr
oject
/asset
.SoNPAdoesn’
t
af
fectcur
rentpr
ofi
tbutal
sof
utur
est
ream ofpr
ofi
t,whi
chmayl
eadt
o
l
ossofsomel
ong-
ter
m benef
ici
aloppor
tuni
ty.Anot
heri
mpactof
r
educt
ion i
n pr
ofi
tabi
l
ityi
slow ROI(
ret
urn on i
nvest
ment
),whi
ch
adv
ersel
yaf
fectcur
rentear
ningofbank.

 Li
qui
dit
y:-
Moneyi
sget
ti
ngbl
ocked,decr
easedpr
ofi
tleadt
olackofenoughcashat
handwhi
chl
eadt
obor
rowi
ngmoneyf
orshot
\rt
esper
iodoft
imewhi
chl
ead
t
oaddi
ti
onalcostt
othecompany
.Di
ff
icul
tyi
noper
ati
ngt
hef
unct
ionsof
banki
sanot
hercauseofNPAduet
olackofmoney
.Rout
inepay
ment
sand
dues.

 I
nvol
vementofmanagement
:-
Ti
meandef
for
tsofmanagementi
sanot
heri
ndi
rectcostwhi
chbankhast
o
beardue t
o NPA.Ti
me and ef
for
ts ofmanagementi
n handl
i
ng and
managi
ngNPAwoul
dhav
edi
ver
tedt
osomef
rui
tf
ulact
ivi
ti
es,whi
chwoul
d
hav
egi
vengoodr
etur
ns.Nowday
’sbankshav
especi
alempl
oyeest
odeal
andhandl
eNPAs,
whi
chi
saddi
ti
onal
costt
othebank.

 Cr
edi
tloss:
-
Banki
sfaci
ngpr
obl
em ofNPAt
heni
tadv
ersel
yaf
fectt
hev
alueofbanki
n
t
ermsofmar
ketcr
edi
t.I
twi
l
llosei
t’
sgoodwi
l
landbr
andi
mageandcr
edi
t
whi
chhav
enegat
ivei
mpactt
othepeopl
ewhoar
eput
ti
ngt
hei
rmoneyi
nthe
banks.

REASONSFORNPA:

22
Reasonscanbedi
vi
dedi
ntot
wobr
oadcat
egor
ies:
-

A]I
nter
nalFact
or
B]Ext
ernalFact
or

[A]I
nter
nalFact
ors:
-

I
nter
nalFact
ors ar
ethose,whi
ch ar
eint
ernalt
othe bank and ar
e
cont
rol
l
abl
ebybanks.
 Poorl
endi
ngdeci
sion:

 Non-
Compl
i
ancet
olendi
ngnor
ms:

 Lackofpostcr
edi
tsuper
visi
on:

 Fai
l
uret
oappr
eci
ategoodpay
ers:

 Excessi
veov
erdr
aftl
endi
ng:

 Non–Tr
anspar
entaccount
ingpol
i
cy:

[B]Ext
ernalFact
ors:
-
Ext
ernalf
act
ors ar
ethose,whi
ch ar
e ext
ernalt
o banks t
hey ar
e not
cont
rol
l
abl
ebybanks.

 Soci
opol
i
tical
pressur
e:

23
 Changi
nindust
ryenv
ironment
:

 Endanger
smacr
oeconomi
cdi
stur
bances:

 Nat
ural
cal
ami
ti
es

I
ndust
ri
alsi
ckness

 Di
ver
sionoff
undsandwi
l
lful
def
aul
ts

 Ti
me/costov
err
uni
npr
ojecti
mpl
ement
ati
on

 Labourpr
obl
emsofbor
rowedf
ir
m

 Busi
nessf
ail
ure

I
nef
fi
cientmanagement

 Obsol
etet
echnol
ogy

 Pr
oductobsol
ete

Ty
pesofNPA

A]Gr
ossNPA
B]NetNPA

24
A]Gr
ossNPA:
Gr
ossNPAsar
ethesum t
otalofal
ll
oanasset
sthatar
ecl
assi
fi
edasNPAs
asperRBIgui
del
i
nesasonBal e.Gr
anceSheetdat ossNPAr
efl
ect
sthe
qual
i
tyoft
hel
oansmadebybanks. I
tconsi
stsofal
lthenonst
andar
d
asset
sli
keassub-
standar
d,doubt
ful
,andl
ossasset
s.
I
tcanbecal
cul
atedwi
tht
hehel
poff
oll
owi
ngr
ati
o:

Gr
ossNPAsRat
io Gr
ossNPAs
Gr
ossAdv
ances

B] NetNPA:
NetNPAsar
ethoset
ypeofNPAsi
nwhi
cht
hebankhasdeduct
edt
he
pr
ovi
sionr
egar
dingNPAs.NetNPA showst
heact
ualbur
denofbanks.
Si
ncei
nIndi
a,bankbal
ancesheet
scont
ainahugeamountofNPAsandt
he
pr
ocessofr
ecov
eryandwr
it
eof
fofl
oansi
sver
yti
meconsumi
ng,t
he
pr
ovi
sionst
hebankshav
etomakeagai
nstt
heNPAsaccor
dingt
othe
cent
ralbankgui
del
i
nes,ar
equi
tesi
gni
fi
cant
. Thati
swhyt
hedi
ff
erence
bet
weengr
ossandnetNPAi
squi
tehi
gh.
I
tcanbecal
cul
atedbyf
oll
owi
ng_

NetNPAs Gr
ossNPAs–Pr
ovi
sions
Gr
ossAdv
ances-Pr
ovi
sions

PREVENTI
VEMEASUREMENTFORNPA

Ear
lyRecogni
ti
onoft
hePr
obl
em:
-

25
I
nvar
iabl
y,byt
het
imebanksst
artt
hei
ref
for
tst
ogeti
nvol
vedi
nar
evi
val
pr
ocess,i
t’
stool
atet
oret
ri
evet
hesi
tuat
ion-bot
hint
ermsofr
ehabi
l
itat
ion
oft
hepr
ojectandr
ecov
eryofbank’
sdues.I
dent
if
icat
ionofweaknessi
nthe
v
erybegi
nni
ngt
hati
s:Whent
heaccountst
art
sshowi
ngf
ir
stsi
gnsof
weaknessr
egar
dlessoft
hef
actt
hati
tmaynothav
ebecomeNPA,i
s
i
mper
ati
ve.Assessmentoft
hepot
ent
ialofr
evi
valmaybedoneont
hebasi
s
ofat
echno-
economi
cvi
abi
l
ityst
udy
.Rest
ruct
uri
ngshoul
dbeat
tempt
ed
wher
e,af
teranobj
ect
iveassessmentoft
hepr
omot
er’
sint
ent
ion,
banksar
e
conv
incedofat
urnar
oundwi
thi
naschedul
edt
imef
rame.I
nrespectof
t
otal
l
yunv
iabl
euni
tsasdeci
dedbyt
hebank,
iti
sbet
tert
ofaci
l
itat
ewi
ndi
ng
up/sel
l
ingoft
heuni
tear
li
er,soast
orecov
erwhat
everi
spossi
blet
hrough
l
egal
meansbef
oret
hesecur
it
yposi
ti
onbecomeswor
se.

I
dent
if
yingBor
rower
swi
thGenui
neI
ntent
:-
I
dent
if
ying
bor
rower
swi
thgenui
nei
ntentf
rom t
hosewhoar
enon-ser
iouswi
thno
commi
tmentorst
akei
nrev
ivali
sachal
l
engeconf
ront
ingbanker
s.Her
ethe
r
oleoff
ront
li
neof
fi
cial
satt
hebr
anchl
eveli
spar
amountast
heyar
ethe
oneswhohasi
ntel
l
igenti
nput
swi
thr
egar
dtopr
omot
ers’si
ncer
it
y,and
capabi
l
ityt
oachi
evet
urnar
ound.Basedont
hisobj
ect
iveassessment
,banks
shoul
ddeci
deasqui
ckl
yaspossi
blewhet
heri
twoul
dbewor
thwhi
l
eto
commi
taddi
ti
onal
finance.

I
nthi
sregar
d banksmayconsi
derhav
ing “
Speci
alI
nvest
igat
ion”ofal
l
f
inanci
alt
ransact
ionorbusi
nesst
ransact
ion,booksofaccounti
nor
dert
o
ascer
tai
nrealf
act
orst
hatcont
ri
but
edt
osi
cknessoft
hebor
rower
.Banks
mayhav
epenaloft
echni
calexper
tswi
thpr
ovenexper
ti
seandt
rackr
ecor
d
ofpr
epar
ingt
echno-
economi
cst
udyoft
hepr
ojectoft
hebor
rower
s.

26
Bor
rower
shav
inggenui
nepr
obl
emsduet
otempor
arymi
smat
chi
n
f
undf
low orsuddenr
equi
rementofaddi
ti
onalf
undmaybeent
ert
ainedat
br
anchl
evel
,andf
ort
hispur
poseaspeci
all
i
mitt
osucht
ypeofcases
shoul
dbedeci
ded.Thi
swi
l
lobv
iat
etheneedt
orout
etheaddi
ti
onalf
undi
ng
t
hrought
hecont
rol
l
ingof
fi
cesi
ndeser
vingcases,andhel
pav
ertmany
account
ssl
i
ppi
ngi
ntoNPAcat
egor
y.

Ti
mel
i
nessandAdequacyofr
esponse:
-

Longert
hedel
ayi
nresponse,
grat
ert
hei
njur
ytot
heaccountandt
heasset
.
Ti
mei
sacr
uci
alel
ementi
nanyr
est
ruct
uri
ngorr
ehabi
l
itat
ionact
ivi
ty.The
r
esponsedeci
dedont
hebasi
soft
echno-
economi
cst
udyandpr
omot
er’
s
commi
tment
,hast
obeadequat
eint
ermsofext
endofaddi
ti
onalf
undi
ng
and r
elaxat
ions et
c.undert
he r
est
ruct
uri
ng exer
cise.The package of
assi
stancemaybef
lexi
bleandbankmayl
ookatt
heexi
topt
ion.

FocusonCashFl
ows:
-
Whi
l
efi
nanci
ng,
att
het
imeofr
est
ruct
uri
ngt
hebanksmaynotbegui
dedby
t
heconv
ent
ionalf
undf
low anal
ysi
sonl
y,whi
chcoul
dyi
eldapot
ent
ial
l
y
mi
sleadi
ngpi
ctur
e.Appr
aisalf
orf
reshcr
edi
trequi
rement
smaybedoneby
anal
yzi
ngf
undsf
lowi
nconj
unct
ionwi
tht
heCashFl
owr
athert
hanonl
yon
t
hebasi
sofFundsFl
ow.

ManagementEf
fect
iveness:
-

Thegener
alper
cept
ionamongbor
roweri
sthati
tisl
ackoff
inancet
hat
l
eadst
osi
cknessandNPAs.Butt
hismaynotbet
hecaseal
lthet
ime.
Managementef
fect
ivenessi
ntackl
i
ngadv
ersebusi
nesscondi
ti
onsi
sav
ery
i
mpor
tantaspectt
hataf
fect
sabor
rowi
ng uni
t’
sfor
tunes.A bankmay

27
commi
taddi
ti
onalf
inancet
oanal
i
nguni
tonl
yaf
terbasi
cvi
abi
l
ityoft
he
ent
erpr
iseal
soi
nthecont
extofqual
i
tyofmanagementi
sexami
nedand
conf
ir
med.Wher
ethedef
aul
tisduet
odeepermal
ady
,vi
abi
l
ityst
udyor
i
nvest
igat
iveaudi
tshoul
dbedone– i
twi
l
lbeusef
ult
ohav
econsul
tant
appoi
ntedasear
lyaspossi
blet
oexami
net
hisaspect
.Apr
opert
echno-
economi
cvi
abi
l
ityst
udymustt
husbecomet
hebasi
sonwhi
chanyf
utur
e
act
ioncanbeconsi
der
ed.

Mul
ti
pleFi
nanci
ng:
-

A.Dur
ingt
heexer
cisef
orassessmentofv
iabi
l
ityandr
est
ruct
uri
ng,a
Pr
agmat
icanduni
fi
edappr
oachbyal
lthel
endi
ngbanks/FI
sasal
so
shar
ingofal
lrel
evanti
nfor
mat
ionont
hebor
rowerwoul
dgoal
ong
way t
owar
d ov
eral
lsuccess ofr
ehabi
l
itat
ion exer
cise,gi
ven t
he
pr
obabi
l
ityofsuccess/
fai
l
ure.

B.I
nsomedef
aul
tcases,
wher
etheuni
tisst
il
lwor
king,
thebankshoul
d
makesur
ethati
tcapt
urest
hecashf
lows(
ther
eisat
endencyonpar
t
oft
hebor
rower
stoswi
tchbanker
soncet
heydef
aul
t,f
orf
earof
get
ti
ngt
hei
rcashf
lowsf
orf
eit
ed)
,andensur
ethatsuchcashf
lows
ar
eusedf
orwor
kingcapi
talpur
poses.Towar
dthi
send,t
her
eshoul
d
ber
egul
arf
low ofi
nfor
mat
ionamongconsor
ti
um member
s.Abank,
whi
chi
snotpar
toft
heconsor
ti
um,
maynotbeal
l
owedt
oof
fercr
edi
t
f
aci
l
iti
est
osuchdef
aul
ti
ngcl
i
ent
s.Cur
rentaccountf
aci
l
iti
esmayal
so
bedeni
edatnon-
consor
ti
um bankst
osuchcl
i
ent
sandv
iol
ati
onmay
at
tr
actpenal
act
ion.TheCr
edi
tInf
ormat
ionBur
eauofI
ndi
aLt
d.(
CIBI
L)
maybev
eryusef
ulf
ormeani
ngf
uli
nfor
mat
ionexchangeondef
aul
ti
ng
bor
rower
soncet
heset
upbecomesf
ull
yoper
ati
onal
.

28
C.I
naf
orum ofl
ender
s,t
hepr
ior
it
yofeachl
enderwi
l
lbedi
ff
erent
.Whi
l
e
onesetofl
ender
smaybewi
l
li
ngt
owai
tforal
ongert
imet
orecov
er
i
tsdues,anot
herl
endermayhav
eamuchshor
tert
imef
ramei
nmi
nd.
Soi
tispossi
blet
hatt
hel
ett
ercat
egor
iesofl
ender
smaybewi
l
li
ngt
o
ex
it,ev
enatacost–byadi
scount
edset
tl
ementoft
heexposur
e.
Ther
efor
e,any pl
an f
orr
est
ruct
uri
ng/
rehabi
l
itat
ion may t
ake t
his
aspecti
ntoaccount
.

D.Cor
por
ateDebtRest
ruct
uri
ngmechani
sm hasbeeni
nst
it
uti
onal
i
zedi
n
2001t
opr
ovi
deat
imel
yandt
ranspar
entsy
stem f
orr
est
ruct
uri
ngof
t
hecor
por
atedebtofRs.20cr
oreandabov
ewi
tht
hebanksandFI
s
onav
olunt
arybasi
sandout
sidet
hel
egalf
ramewor
k.Undert
his
sy
stem,banksmaygr
eat
lybenef
iti
nter
msofr
est
ruct
uri
ngofl
arge
st
andar
daccount
s(pot
ent
ialNPAs)andv
iabl
esub-
standar
daccount
s
wi
thconsor
ti
um/
mul
ti
plebanki
ngar
rangement
s.

29
Tool
sforr
ecov
eryofNPAs

Cr
edi
tDef
aul
t

I
nabi
li
tyt
oPay
Wi
l
lful
def
aul
t

Unvi
abl
e Vi
abl
e

Rehabi
li
tat
ion LokAdalat
DebtRecov
er y Secur
it
izat
ion
Compr
omi
s Tri
bunal
s Act
e

Sol
eBanker Asset
Consor
ti
um Fi
nance Reconst
ruct
ion

Cor
por
ateDebtRest
ruct
uri
ng

Rephasementof
Conv
ersi
on
Fresh Fr
eshWC RepaymentPeri
od
i
ntoWCTL
I
ssueof
Term Loan

30
OnceNPAoccur
red,onemustcomeoutofi
tori
tshoul
dbemanagedi
n
mostef
fi
cientmanner
.Legalway
sandmeansar
ether
etoov
ercomeand
manageNPAs.Wewi
l
llooki
ntoeachoneofi
t.

 Wi
l
lfulDef
aul
t:-
A]LokAdal
atandDebtRecov
eryTr
ibunal

B]Secur
it
izat
ionAct

C]AssetReconst
ruct
ion

LokAdal
at:

LokAdal
ati
nst
it
uti
onshel
p bankst
o set
tl
edi
sput
esi
nvol
vi
ng
accounti
n“doubt
ful
”and“
loss”cat
egor
y,wi
thout
standi
ngbal
anceofRs.5
l
akhf
orcompr
omi
seset
tl
ementunderLokAdal
at.Debtr
ecov
eryt
ri
bunal
s
hav
ebeenempower
edt
oor
gani
zeLokAdal
att
odeci
deoncasesofNPAs
ofRs.10l
akhandabov
e.Thi
smechani
sm haspr
ovedt
obequi
teef
fect
ive
f
orspeedyj
ust
iceandr
ecov
eryofsmal
lloans.Thepr
ogr
esst
hrought
his
channel
isexpect
edt
opi
ckupi
nthecomi
ngy
ear
s.

DebtRecov
eryTr
ibunal
s(DRT)
:

Ther
ecov
eryofdebt
sduet
obanksand
f
inanci
ali
nst
it
uti
onpassedi
nMar
ch2000hashel
pedi
nst
rengt
heni
ngt
he
f
unct
ionofDRTs.Pr
ovi
sionf
orpl
acementofmor
ethanoner
ecov
eryof
fi
cer
,
power t
o at
tach def
endant
’s pr
oper
ty/
asset
s bef
orej
udgment
,penal
pr
ovi
sionf
ordi
sobedi
enceoft
ri
bunal

sor
derorf
orbr
eachofanyt
ermsof
or
derandappoi
ntmentofr
ecei
verwi
thpowerofr
eal
i
zat
ion,management
,

31
pr
otect
ionandpr
eser
vat
ionofpr
oper
tyar
eexpect
edt
opr
ovi
denecessar
y
t
eet
htot
heDRTsandspeedupt
her
ecov
eryofNPAsi
nthet
imest
ocome.
DRTswhi
ch hav
ebeen setup byt
heGov
ernmentt
ofaci
l
itat
espeedy
r
ecov
erybybanks/
DFI
s,hav
enotbeenabl
emakemuchi
mpactonl
oan
r
ecov
ery due t
ovar
iet
y ofr
easons l
i
ke i
nadequat
e number
,lack of
i
nfr
ast
ruct
ure,underst
aff
ing and f
requentadj
our
nmentofcases.I
tis
essent
ialt
hatDRTmechani
sm i
sst
rengt
henedandv
est
edwi
thapr
oper
enf
orcementmechani
sm t
oenf
orcet
hei
ror
der
s.Nonobser
vat
ionofany
or
derpassedbyt
het
ri
bunalshoul
damountt
ocont
emptofcour
t,t
heDRT
shoul
d hav
eri
ghtt
oini
ti
ate cont
emptpr
oceedi
ngs.The DRT shoul
d
empower
edt
osel
lassetoft
hedebt
orcompani
esandf
orwar
dthepr
oceed
t
othewi
ndi
ng–upcour
tfordi
str
ibut
ionamongt
hel
ender
s

I
nabi
l
ityt
oPay

Consor
ti
um ar
rangement
s:
Assetcl
assi
fi
cat
ionofaccount
sunderconsor
ti
um shoul
dbebased
ont
her
ecor
dofr
ecov
eryoft
hei
ndi
vi
dualmemberbanksandot
heraspect
shav
ingabear
ingont
he
r
ecov
erabi
l
ity oft
he adv
ances.Wher
ethe r
emi
tt
ances by t
he bor
rowerunderconsor
ti
um l
endi
ng
ar
rangement
sar
epool
edwi
thonebankand/
orwher
ethebankr
ecei
vi
ngr
emi
tt
ancesi
snotpar
ti
ngwi
th
t
heshar
eofot
hermemberbanks,t
heaccountwi
l
lbet
reat
edasnotser
vicedi
nthebooksoft
heot
her
memberbanksandt
her
efor
e,bet
reat
edasNPA.Thebankspar
ti
cipat
ingi
ntheconsor
ti
um shoul
d,
t
her
efor
e,ar
ranget
ogett
hei
rshar
eofr
ecov
eryt
ransf
err
edf
rom t
hel
eadbankorgetanexpr
essconsent
f
rom t
hel
eadbankf
ort
het
ransf
eroft
hei
rshar
eofr
ecov
ery
,toensur
epr
operassetcl
assi
fi
cat
ioni
nthei
r
r
espect
ivebooks.

32
Cor
por
atedebtRest
ruct
uri
ng(
CDR)
:

Backgr
ound
I
n spi
teoft
hei
rbestef
for
tsand i
ntent
ions,somet
imescor
por
atef
ind
t
hemsel
vesi
nfi
nanci
aldi
ff
icul
tybecauseoff
act
orsbey
ondt
hei
rcont
rol
andal
soduet
ocer
tai
nint
ernalr
easons.Fort
her
evi
valoft
hecor
por
ateas
wel
lasf
ort
hesaf
etyoft
hemoneyl
entbyt
hebanksandFI
s,t
imel
ysuppor
t
t
hrough r
est
ruct
uri
ng i
n genui
necasesi
scal
l
ed f
or.Howev
er,del
ayi
n
agr
eementamongstdi
ff
erentl
endi
ngi
nst
it
uti
onsof
tencomesi
nthewayof
suchendeav
our
s.

Basedont
heexper
iencei
not
hercount
ri
esl
i
ket
heU.
K.,Thai
l
and,
Kor
ea,et
c.ofput
ti
ngi
npl
acei
nst
it
uti
onalmechani
sm f
orr
est
ruct
uri
ngof
cor
por
atedebtandneedf
orasi
mil
armechani
sm i
nIndi
a,aCor
por
ateDebt
Rest
ruct
uri
ngSy
stem hasbeenev
olv
ed,
asunder:

Obj
ect
ive
Theobj
ect
iveoft
heCor
por
ateDebtRest
ruct
uri
ng(
CDR)f
ramewor
kis
t
o ensur
eti
mel
y and t
ranspar
entmechani
sm f
orr
est
ruct
uri
ng oft
he
cor
por
atedebt
sofv
iabl
eent
it
iesf
aci
ngpr
obl
ems,out
sidet
hepur
view of
BI
FR,DRTandot
herl
egalpr
oceedi
ngs,f
ort
hebenef
itofal
lconcer
ned.I
n
par
ti
cul
ar,t
hef
ramewor
kwi
l
lai
m atpr
eser
vingv
iabl
ecor
por
atet
hatar
e
af
fect
edbycer
tai
nint
ernalandext
ernalf
act
orsandmi
nimi
zet
hel
ossest
o
t
hecr
edi
tor
sandot
herst
akehol
der
sthr
oughanor
der
lyandcoor
dinat
ed
r
est
ruct
uri
ngpr
ogr
amme.

33
RESEARCH

METHODOLOGY

34
RESEARCHMETHODOLOGY

Resear
ch met
hodol
ogy i
s a way t
o sy
stemat
ical
l
y sol
vet
he r
esear
ch

pr
obl
em.Resear
chmet
hodol
ogyconst
it
utesofr
esear
chmet
hods,
sel
ect
ion

cr
it
eri
on ofr
esear
ch met
hods,used i
n cont
extofr
esear
ch st
udyand

expl
anat
ionofusi
ngofapar
ti
cul
armet
hodort
echni
quesot
hatr
esear
ch

r
esul
tsar
ecapabl
eofbei
ngev
aluat
edei
therbyr
esear
cherhi
msel
forby

ot
her
s

TI
TLE:


PROCEDURETOREDUCENON-
PERFORMI
NGASSETSI
NBANKS”
.

OBJECTI
VESOFTHESTUDY

Thebasi
cideabehi
ndunder
taki
ngt
heGr
andPr
ojectonNPAwast
o:
 ToKnowt
heConceptofNonPer
for
mingAsset

 ToknowPr
event
iveMeasur
es

 Toev
aluat
eNPAs(
GrossandNet
)indi
ff
erentbanks.

 Toanal
yzef
inanci
alper
for
manceofbanksatdi
ff
erentl
evel
ofNPA

 ToKnowt
heI
mpactofNPAs

 ToKnowt
heReasonsf
orNPAs

35
SI
GNI
FICANCEOFTHESTUDY

Thi
sisal
i
mit
edst
udywhi
cht
akesi
ntoconsi
der
ati
ont
her
esponsesof100

peopl
e.Thi
sdat
acanbeexpor
tedt
otakei
nthet
rendsacr
osst
hei
ndust
ry.

Thesi
gni
fi
cancef
ort
hei
ndust
ryl
i
esi
nst
udy
ingt
heset
rendst
hatemer
ge

f
rom t
hest
udy
.Iti
sar
api
dlychangi
ngandev
olv
ingsect
or.Peopl
ear
eonl
y

begi
nni
ngt
owakeupt
oit
’sv
astpossi
bil
i
ties.Ast
udyl
i
ket
hiscanat
tempt

t
ogui
det
hef
utur
eoft
hei
ndust
rybasedoncur
rentt
rends.

SCOPEOFTHESTUDY

Thescopeoft
hest
udyr
efer
stot
hej
obt
hatt
oknowaboutt
heact
ivi
ti
esof
t
heor
gani
zat
ion.Thest
udymeanst
hatt
heanal
ysi
soft
hepr
oduct
soft
he
companyonwhi
chhe/
shehast
ofocus.
Scopeoft
heSt
udy
 ConceptofNonPer
for
mingAsset
 Gui
del
i
nes
I
mpactofNPAs
 Reasonsf
orNPAs
 Pr
event
iveMeasur
es
 Tool
stomanageNPAs

36
Dur
ingt
hesummert
rai
ningt
hev
olunt
eerneedt
ofi
ndoutt
hecor
por
ate
st
rat
egi
esoft
her
unni
ngcompanyandThemi
l
est
onewhi
cht
hecompany
hascov
ereddur
ingi
tsj
our
ney
.Int
hesummert
rai
ning,i
tisnecessar
yfor
t
he st
udentt
hathe /
she i
nvol
ve wi
tht
he exper
ience guy
sto gett
he
knowl
edgeaboutt
hecompany
.Thati
show t
hecompanyhasgott
he
success,
Ori
fiti
sgoi
ngi
nthel
oss,
why
.

RESEARCHDESI
GN

 NON-
PROBABI
LITY

 EXPLORATORY&DI
SCRI
PTI
VEEXPERI
MENTALRESEARCH

Ther
esear
chi
spr
imar
il
ybot
hexpl
orat
oryaswel
lasdescr
ipt
ivei
nnat
ure.

Thesour
cesofi
nfor
mat
ionar
ebot
hpr
imar
y&secondar
y.

Pr
imar
yDat
a:

Pr
imar
ydat
aisbasi
cal
l
ythel
i
vedat
awhi
chIcol
l
ect
edonf
iel
dwhi
l
e

doi
ngcol
dcal
l
swi
tht
heDi
str
ibut
orandshopkeeper
,cust
omer
s,Ishown

t
hem l
i
stofquest
ionf
orwhi
chIhadr
equi
redt
hei
rresponses.I
nsome

casesIgotnor
esponsef
ormt
hei
rsi
deandt
hanont
hebasi
sofmy

pr
evi
ousexper
iencesIf
il
ledt
hosef
iel
ds.

Sour
ce:Mai
n sour
ce f
or t
he pr
imar
y dat
afor t
he pr
oject was

quest
ionnai
reswhi
chIgotf
il
ledbyt
hecust
omer
sorsomet
imesf
il
led

my
sel
font
hebasi
sofdi
scussi
onwi
tht
hecust
omer
s.

Secondar
yDat
a:

37
1 I
nter
net,
2 Books
3 Jour
nal
s,
4 Newspaper
,
5 Annual
repor
t,
6 Dat
abaseav
ail
abl
eint
hel
i
brar
y,
7 Cat
aloguesandpr
esent
ati
ons.
Tool
sandTechni
ques:

Asnost
udycoul
dbesuccessf
ull
ycompl
etedwi
thoutpr
opert
ool
sand

t
echni
ques,samewi
thmypr
oject
.Fort
hebet
terpr
esent
ati
onandr
ight

expl
anat
ionIusedt
ool
sofst
ati
sti
csandcomput
erv
eryf
requent
ly.AndIam

v
eryt
hankf
ult
oal
lthoset
ool
sforhel
pingmeal
ot.Basi
ctool
swhi
chIused

f
orpr
ojectf
rom st
ati
sti
csar
e-

-BarChar
ts

-Pi
echar
ts

-Tabl
es

barchar
tsandpi
echar
tsar
ereal
l
yusef
ult
ool
sforev
eryr
esear
cht
oshow

t
her
esul
tinawel
lcl
ear
,easeandsi
mpl
eway
.BecauseIusedbarchar
ts

andpi
echar
tsi
npr
ojectf
orshowi
ngdat
ainasy
stemat
icway
,soi
tneed

notnecessar
yforanyobser
vert
oreadal
lthet
heor
eti
caldet
ail
,si
mpl
eon

seei
ngt
hechar
tsanybodycoul
dknowt
hatwhati
sbei
ngsai
d.

Technol
ogi
cal
Tool
s

Ms-
Access

Ms-
Wor
d

38
Abov
eappl
i
cat
ionsof
twar
eofMi
crosof
thel
pedmeal
oti
nmaki
ngpr
oject

mor
eint
eract
iveandpr
oduct
ive.

Mi
crosof
t-
Excelhadagr
eatr
olei
nmypr
oject
,itcr
eat
edf
ormeasi
tuat
ion

of“
yousi
tandget
”.Ipr
ovi
dedi
tsi
mpl
yal
lthedet
ailofdat
aandi
nret
urni
t

gi
venmeal
lther
elev
anti
nfor
mat
ion.
.

SAMPLI
NGMETHODOLOGY

Sampl
i
ngTechni
que:

I
nit
ial
l
y,ar
oughdr
aftwaspr
epar
edkeepi
ngi
nmi
ndt
heobj
ect
iveoft
he

r
esear
ch.A pi
l
otst
udywasdonei
nor
dert
oknow t
heaccur
acyoft
he

Quest
ionnai
re.

Thef
inalQuest
ionnai
rewasar
ri
vedonl
yaf
tercer
tai
nimpor
tantchanges

wer
edone.Thusmysampl
i
ngcameoutt
obej
udgmentandconv
eni
ent

Sampl
i
ngUni
t:

Ther
espondentwhower
easkedt
ofi
l
loutquest
ionnai
resar
ethesampl
i
ng

uni
ts.These compr
ise ofempl
oyees ofMNC,Gov
t.Empl
oyees,Sel
f

Empl
oyedet
c.

Sampl
esi
ze:

Thesampl
esi
zewasr
est
ri
ctedt
oonl
y100,whi
chcompr
isedofmai
nly

peopl
esf
rom di
ff
erentr
egi
onsofBHOPALduet
oti
meconst
rai
nts.

39
Sampl
i
ngAr
ea:

Thear
eaoft
her
esear
chwasBhopal
.

DATAANALYSI
S
&
I
NTERPRETATI
ON
40
Gender
:
Cl
assi
fi
cat
ionofCust
omer
sBasedOnSex
Sex No.ofr
espondent
s Per
cent
age%

Mal
e 35 35
Femal
e 65 65
t
otal 100 100

41
I
nter
pret
ati
on:
35% oft
her
espondent
sar
emal
eand65% oft
her
espondent
sar
e
f
emal
e.Fr
om t
heabov
etabl
ewecanconcl
udet
hat
,themaj
ori
tyoft
he
r
espondent
swer
ebel
ongst
ofemal
egr
oup.

Occupat
ion:
Anal
ysi
sofOccupat
ionoft
heRespondent
s

Occupat
ion No.of
.respondent
s Per
cent
age
%
Busi
ness 20 20
Empl
oyee 10 10

42
Housewi
fe 65 65
Ot
her
s 05 05
Tot
al 100 100

I
nter
pret
ati
on:
20% oft
her
espondent
sar
ebusi
ness,10% oft
her
espondent
sar
e
empl
oyees,and 65% oft
he r
espondent
sar
e house wi
ves,05% oft
he
r
espondent
sar
eot
her
sgr
oup.

I
ncome:
Anal
ysi
sofMont
hlyI
ncomeoft
heRespondent
s

43
Mont
hlyi
ncome No.ofr
espondent
s Per
cent
age%

Bel
ow5000 38 38
5001-
10000 30 30
10001-
15000 21 21
15001&abov
e 11 11
Tot
al 100 100

I
nter
pret
ati
on:
Aspert
hedat
a38%oft
her
espondent
sear
npermont
hbel
ow5000,
30%of
t
her
espondent
sear
n5001t
o10000,21% oft
her
espondent
sear
nabov
e
10001t
o15000.11% oft
her
espondent
sear
n15000&abov
e.Fr
om t
he
abov
etabl
ewecanconcl
udet
hatmaj
ori
tyoft
her
espondent
s’mont
hly
i
ncomegr
oupofbel
ow5000andmor
ethan5000t
o10000.

1.DOYOUKNOW THENONPERFORMI
NGASSETSOFBANK

Opi
nions No.ofRespondent
s Per
cent
age(
%)

44
Yes 10 10
No 90 90
Tot
al 100 100

I
nter
pret
ati
on:
Onl
y 10% oft
he r
espondent
s sai
dthatt
hey know aboutNON
PERFORMI
NG ASSETS whi
l
e90% don’
tknow aboutNON PERFORMI
NG
ASSETS

2.I
TIS POSSI
BLETOELI
MINATETOTALLYTHENPASI
NTHEBANKI
NG
BUSI
NESS

45
Anal
ysi
sofRecommendat
ions
Recommended No.ofRespondent
s Per
cent
age(
%)
Yes 95 95
No 05 05
Tot
al 100 100

I
nter
pret
ati
on:
Outof100r
espondent,
95%oft
her
espondent
swer
erecommendedI
t
i
spossi
blet
oel
i
minat
etot
all
ythenpasi
nthebanki
ngbusi
nesswhi
l
eonl
y
5%t
oldI
tisnot

3.EFFECTI
VEI
NSPECTI
ONSYSTEM SHOULDBEI
MPLEMENTED

46
Opt
ion Per
cent
ageofr
espondent
s

Yes 64

No 36

I
NTERPRETATI
ON

Outof100respondent64%respondentweresati
sfi
edwithef
fect
ive
i
nspect
ionsystem shoul
dbeimplementedwhil
e36%t ol
dno.

4.DOYOUTHI
NKOPERATINGSTAFFSHOULDSCRUTI
NIZETHELEVELOF
I
NVENTORI
ES/
RECEI
VABLESREGULARLY

Opt
ion Per
cent
ageofr
espondent
s

47
Yes 78

No 22

I
NTERPRETATI
ON

Outof100r espondent78%r espondentaresat


isf
iedwiththestatement
that
operati
ngstaffshoul
dscrut
inizethelev
elofi
nvent
ories/
recei
vables
regular
ly
whileonly22%wer enotsat
isfi
ed.

5.DOYOUTHINKLARGEEXPOSUREONBI
GCORPORATEORSI
NGLE
PROJECTSHOULDBEAVOIDED

48
Opt
ion Per
cent
ageofr
espondent
s

Yes 24

No 76

I
NTERPRETATI
ON

Outof100respondentonl
y24% thi
nkl
argeexposur
eonbi
gcor
por
ateor
si
nglepr
ojectshouldbeavoi
ded
Whil
e76%don’ tthi
nkaboutt
hat.

6.UNEVENSCALEOFREPAYMENTSCHEDULEWITHHI
GHERREPAYMENT
I
NTHEI NI
TIALYEARSNORMALLYI
SPREFERRED

49
RESPONSE NO.OF SHARE(
%)
RESPONDENTS

Sat
isf
ied 45 45%

Notsat
isf
ied 55 55%

NotResponded 0 0.
0%

Tot
al 100 100%

I
NTERPRETATI
ON

45%ofther
espondent
saresat
isf
iedwi
thunevenscal
eofrepayment
schedul
ewi
thhi
gherrepay
mentinthei
nit
ial
year
snormal
l
yi spr
efer
red
55%oft
her
espondent
sar
enotsat
isf
iedwi
tht
hatst
atement
.

7.ARE YOU SATISFIED WITH STATEMENT THEBANKS SHOULD NOT


ONLY TAKE STEPS FOR REDUCING PRESENT NPAS,BUT NECESSARY
PRECAUTI
ONSHOULDALSOBETAKENTOAVOI DFUTURENPAS

50
RESPONSE NO.OF SHARE(
%)
RESPONDENTS

Sat
isf
ied 60 60%

Notsat
isf
ied 40 40%

NotResponded 0 0.
0%

Tot
al 100 100%

I
NTERPRETATI
ON

60%oft herespondent
swerethinkthebanksshoul
dnotonl
ytakest
epsfor
reducingpr esentNPAs,butnecessar
yprecauti
onshoul
dalsobetakento
avoidf utur
eNPAs.40% oft herespondent
sar enotsat
isf
iedwit
hthat
statement .

51
8.DOYOUTHI
NKTHATNECESSARYPRECAUTI
ONSHOULDALSOBE
TAKENTOAVOI
DFUTURENPAS?

RESPONSE NO.OF SHARE(


%)
RESPONDENTS

Yes 70 70%

No 30 30%

Tot
al 100 100%

I
NTERPRETATI
ON

OutOft
hesampl
esi
zeof100sur
vey
edr
espondent
s70%oft
he
r
espondent
sthi
nkt
hatnecessar
ypr
ecaut
ionshoul
dal
sobet
akent
oav
oid
f
utur
eNPA30%don’
tthi
nkt
hat
.

9.
DOYOUTHI
NKTHEREI
SSI
GNI
FICANTRELATI
ONSHI
PBETWEENGROSS

52
NPAOFABANKTOI
TSOPERATI
NGPROFI
T?

RESPONSE NO.OF SHARE(


%)
RESPONDENTS

Yes 87 87%

no 13 13%

Tot
al 100 100%

I
NTERPRETATI
ON

Outof100respondent87%t hi
nkther
eissigni
fi
cantr
elati
onshi
pbet ween
gr
ossNPAofabankt oit
soperati
ngprofi
tonly13%don’tthi
nkthereis
si
gni
fi
cantr
elati
onshi
pbet weengrossnpaofabanktoitsoperati
ngprofi
t.

10.DOYOUTHI
NKTHEBANKWI LLALWAYSFACETHEPROBLEM OFNPA
BECAUSEOFPOORRECOVERYOFADVANCESGRANTEDBYTHEBANK

53
RESPONSE NO.OF SHARE(
%)
RESPONDENTS

YES 45 45%

NO 55 55%

NotResponded 0 0.
0%

Tot
al 100 100%

I
NTERPRETATI
ON

Outof100respondent55%respondentthi
nkt
hebankwillal
waysf
acethe
pr
oblem ofnpabecauseofpoorrecover
yofadvancesgr
antedbyt
hebank
whil
e45%don’tthi
nk.

ANALYSI
S

Fort
hepur
poseofanal
ysi
sandcompar
isonbet
weenpr
ivat
esect
orand
publ
i
csect
orbanks,wet
akef
ive-
fi
vebanksi
nbot
hsect
ort
ocompar
ethe
nonper
for
mingasset
sofbanks.Forunder
standi
ngwef
urt
herbi
fur
cat
ethe

54
nonper
for
mingasset
sinpr
ior
it
ysect
orandnonpr
ior
it
ysect
or,gr
ossNPA
andnetNPAi
nper
cent
ageaswel
lasi
nrupees,deposi
t–i
nvest
ment–
adv
ances.

Deposi
t–I
nvest
ment–Adv
ancesi
sthef
ir
sti
ntheanal
ysi
sbecauseduet
o
t
hesewecanunder
standt
hewher
ethebankst
andsi
nthecompet
it
ive
mar
ket
.Asatendofmar
ch2008,
inpr
ivat
esect
orI
CICIBanki
sthehi
ghest
deposi
t-
inv
est
ment
-adv
ancesf
igur
esi
nrupeescr
ore,secondi
sHDFCBank
andKOTAKBankhasl
eastf
igur
es.
I
npubl
i
csect
orbanksPunj
abNat
ionalBankhashi
ghestdeposi
t-
inv
est
ment
-
adv
ancesbutwhenwel
ookatgr
aphf
ir
stt
hreemeansBankofBar
odaand
BankofI
ndi
aar
eal
mostt
hesi
mil
ari
nnumber
sandDenaBanki
sst
andsf
or
l
asti
npubl
i
csect
orbank.Whenwecompar
ethepr
ivat
esect
orbankswi
th
publ
i
csect
orbanksamong t
hesebanks,wecan under
stand t
hemor
e
numberofpeopl
e pr
efert
o choose publ
i
c sect
orbanks f
ordeposi
t-
i
nvest
ment
.

Butwhenwecompar
ethepr
ivat
esect
orbankI
CICIBankwi
tht
hepubl
i
c
sect
orbanksI
CICIBanki
smor
edeposi
t-
inv
est
mentf
igur
esandf
ir
sti
nthe
al
lbanks.

DEPOSI
T-I
NVESTMENT-
ADVANCES(RS.
CRORE)ofbot
hsect
orbanksand

55
compar
isonamongt
hem,
year2007-
08.

BANK DEPOSI
T I
NVESTMENT ADVANCES
AXI
S 87626 33705 59661
HDFC 100769 49394 63427
I
CICI 244431 111454 225616
KOTAK 16424 9142 15552
I
NDUSI
ND 19037 6630 12795
TOTAL 468287 210325 377051

56
BANK DEPOSI
T I
NVESTMENT ADVANCES
BOB 152034 43870 106701
BOI 150012 41803 113476
DENA 33943 10282 23024
PNB 166457 53992 119502
UBI 103859 33823 74348
TOTAL 606305 183770 437051

57
I
CICIBANKANDPUNJABNATI
ONALBANK:
-

BANK DEPOSI
T I
NVESTMENT ADVANCES
I
CICIBANK 244431 111454 225616
PNB 166457 53992 119502

Ther
ear
etwoconcept
srel
atedt
onon-
per
for
mingasset
s_gr
ossandnet
.
Gr
ossr
efer
stoal
lNPAsonabank’
sbal
ancesheeti
rr
espect
iveoft
he
pr
ovi
sionsmade. I
tconsi
stsofal
lthenonst
andar
dasset
s,v
iz. sub
st
andar
d,doubt
ful
,andl
ossasset
s. A l
oanasseti
scl
assi
fi
edas‘sub
st
andar
d”i
fitr
emai
nsNPAupt
oaper
iodof18mont
hs;“doubt
ful
”ifi
t
r
emai
nsNPAf
or mor
ethan18mont
hs;andl
oss,wi
thoutanywai
ti
ng
per
iod,wher
ethe dues ar
e consi
der
ed notcol
l
ect
ibl
e ormar
ginal
l
y
col
l
ect
ibl
e.

58
NetNPAi
sgr
ossNPAl
esspr
ovi
sions. Si
ncei
nIndi
a,bankbal
ancesheet
s
cont
ainsahugeamountofNPAsandt
hepr
ocessofr
ecov
eryandwr
it
eof
f
ofl
oansi
sver
yti
meconsumi
ng,t
hepr
ovi
si
onst
hebankshav
etomake
agai
nstt
he NPA accor
ding t
othe cent
ralbank gui
del
i
nes,ar
e qui
te
si
gni
fi
cant
.

Her
e,wecanseet
hatt
her
ear
ehugedi
ff
erencebet
weengr
ossandnetNPA.
Whi
l
egr
ossNPAr
efl
ect
sthequal
i
tyoft
hel
oansmadebybanks,netNPA
showst
heact
ual
bur
denofbanks.Ther
equi
rement
sforpr
ovi
si
onsar
e:
 100%f
orl
ossasset
s
 100% oft
heunsecur
edpor
ti
onpl
us20-
50% oft
hesecur
edpor
ti
on,
dependi
ngont
heper
iodf
orwhi
cht
heaccounthasr
emai
nedi
nthe
doubt
ful
cat
egor
y
 10% gener
alpr
ovi
sion on t
heout
standi
ng bal
anceundert
hesub
st
andar
dcat
egor
y.

Her
e,t
her
ear
egr
ossandnetNPAdat
afor2006-
07and2007-
08wet
aken
f
orcompar
isonamongbanks.Thesedat
aar
eNPAASPERCENTAGEOF
TOTALASSETS.Aswedi
scussear
li
ert
hatgr
ossNPAr
efl
ect
sthequal
i
tyof
t
hel
oansmadebybanks.Amongal
lthet
enbanksDenaBankshashi
ghest
gr
ossNPAasaper
cent
ageoft
otalasset
sint
hey
ear2006-
07andal
sonet
NPA.Punj
abNat
ionalBankshowsv
astdi
ff
erencebet
weengr
ossandnet
NPA.Ther
eisal
mostsamef
igur
esbet
weenBOIandBOB.

59
YEAR2007-
08

BANK GROSSNPA NETNPA

BOB 1.
46 0.
35
BOI 1.
48 0.
45
DENA 2.
37 1.
16
PNB 2.
09 0.
45
UBI 1.
82 0.
59

60
2007-
08

BANK GROSSNPA NETNPA

BOB 1.
10 0.
27
BOI 1.
08 0.
33
DENA 1.
48 0.
56
PNB 1.
67 0.
38
UBI 1.
34 0.
10

2006-
07

BANK GROSSNPA NETNPA

AXI
S 0.
57 0.
36
HDFC 0.
72 0.
22
I
CICI 1.
20 0.
58
KOTAK 1.
39 1.
09
I
NDUSI
ND 1.
64 1.
31

61
2007-
08

BANK GROSSNPA NETNPA

AXI
S 0.
45 0.
23
HDFC 0.
68 0.
22
I
CICI 1.
90 0.
87
KOTAK 1.
55 0.
98
I
NDUSI
ND 1.
69 1.
25

62
 COMPARI
SONOFGROSSNPAWI
THALLBANKSFORTHEYEAR2007
-
08.Thegr
owi
ngNPAsaf
fect
stheheal
thofbanks,pr
ofi
tabi
l
ityand
ef
fi
ciency
.Int
hel
ongr
un,i
teat
supt
henetwor
thoft
hebanks.We
cansayt
hatNPAi
snotaheal
thysi
gnf
orf
inanci
ali
nst
it
uti
ons.Her
e
wet
akeal
lthet
enbanksgr
ossNPAt
oget
herf
orbet
terunder
standi
ng.
Av
erageoft
heset
enbanksgr
ossNPAsi
s1.
29asper
cent
ageoft
otal
asset
s. Soi
fwecompar
einpr
ivat
esect
orbanksAXI
SandHDFC
Bankar
ebel
owav
erageofal
lbanksandi
npubl
i
csect
orBOBandBOI
.
Av
erageoft
hesef
ivepr
ivat
esect
orbanksgr
ossNPA i
s1.
25and
av
erageofpubl
i
csect
orbanksi
s1.
33.Whi
chi
shi
gheri
ncompar
eof
pr
ivat
esect
orbanks.

GROSSNPA:
-

 COMPARI
SONOFNETNPAWI
THALLBANKSFORTHEYEAR2007-
08.
Av
erageoft
heset
enbank’
snetNPAi
s0.
56.Andi
nthepubl
i
csect
or
banksal
lthesef
ivebanksar
ebel
owt
his.Buti
npr
ivat
esect
orbanks
t
her
ear
ethr
eebanksar
eabov
eav
erage. Thedi
ff
erencebet
ween
pr
ivat
eandpubl
i
cbanksav
eragei
sal
sov
ast
.Pr
ivat
esect
orbanks
netNPA av
eragei
s0.
71and i
npubl
i
csect
orbanksi
tis0.
41as
per
cent
ageoft
otalasset
s.Asweknow t
hatnetNPAshowsact
ual
bur
denofbanks.I
ndusI
ndbankhashi
ghestnetNPAf
igur
eandHDFC
Bankhasl
owesti
ncompar
ison.

63
NETNPAofbanks:
-

PRI
ORI
TY–NONPRI
ORI
TYSECTOR
Whenwef
urt
herbi
fur
cat
eNPAi
npr
ior
it
ysect
orandNonpr
ior
it
ysect
or.
Agr
icul
tur
e+smal
l+ot
her
sar
epr
ior
it
ysect
or.I
npr
ivat
esect
orbanksI
CICI
Bankhast
hehi
ghestNPAi
nbot
hsect
ori
ncompar
etoot
herpr
ivat
esect
or
banks.Ar
ound72%ofNPAi
swi
thI
CICIBankwi
thRs.
1359cr
orei
npr
ior
it
y
sect
orandar
ound78% i
nnonpr
ior
it
ysect
or.Wecanseet
hati
npr
ivat
e
sect
orbanks,
bankshasmor
eNPAi
nnonpr
ior
it
ysect
ort
hanpr
ior
it
ysect
or.

BANK AGRI SMALL OTHERS PRI


ORI
TY NON-
(1) (2) (3) SECTOR PRI
ORI
TY
(1+2+3)
AXI
S 109.
12 14.
76 86.
71 210.
59 275.
06
HDFC 36.
12 110.
56 47.
70 194.
41 709.
23
I
CICI 981.
85 23.
35 354.
13 1359.
34 6211.
12
KOTAK 10.
00 33.
84 4.
04 47.
87 405.
20
I
NDUSI
ND 30.
44 3.
18 30.
02 63.
64 328.
67
TOTAL 1167.
53 185.
69 522.
60 1875.
85 7929.
28

64
BANK PRI
ORI
TYSECTOR NPA
(
ADVANCED
RS.
CRORE)
BOB 5469 350
BOI 3269 325
DENA 1160 106
PNB 3772 443
UBI 1924 197

Whenwet
alkaboutpubl
i
csect
orbankst
heyar
emor
einpr
ior
it
ysect
orand
t
heygi
venadv
ancedt
oweakersect
orori
ndust
ri
es.Publ
i
csect
orbanks
gi
vemor
eloanst
oAgr
icul
tur
e,smal
lscal
eandot
her
suni
tsandasar
esul
t
weseet
hatt
her
ear
emor
enumberofNPAi
npubl
i
csect
orbankst
hani
n

65
pr
ivat
esect
orbanks.BOBgi
venmor
eadv
ancedt
opr
ior
it
ysect
ori
n2007-
08t
hanot
herf
ourbanksandDenaBanki
sinl
east
.

Butwhent
her
ear
ecompar
isonbet
weenpr
ivat
ebankandpubl
i
csect
or
bankst
il
lICI
CIBankhasmor
eNPAi
nbot
hpr
ior
it
yandnonpr
ior
it
ysect
or
wi
tht
hecompar
isonofpubl
i
csect
orbanks. Lar
geNPA i
nICI
CIBank
becauset
hest
rat
egyofbankt
hatr
isk-
rewar
dat
ti
tudeandi
nit
iat
ivei
neach
sect
or. Abov
e we al
so di
scuss t
hatI
CICIBank has hi
ghestdeposi
t-
i
nvest
ment
-adv
ancet
hanot
herbanks.

Now,
whenwecompar
etheal
lpubl
i
csect
orbanksandpubl
i
csect
orbanks
on pr
ior
it
yand non-
pri
ori
tysect
ort
han t
hef
igur
esar
ereal
l
yshocki
ng.
Becausei
ncompar
eofpr
ivat
esect
orbanks,publ
i
csect
orbanksnumber
s
ar
ever
ylar
ge.

PUBLI
CSECTOR NEW PRI
VATE
SECTOR 2006-
07 2007-
08 2006-
07 2007-
08
PRI
ORI
TY 22954 25287 1468 2080
PUBLI
C 490 299 3 0
NONPRT 15158 14163 4800 8339
TOTAL 38602 39749 6271 10419

Her
e,t
her
ear
ehugedi
ff
erencebet
weenpr
ivat
eandpubl
i
csect
orbanks
NPA.Ther
eisi
ncr
easei
nnew pr
ivat
esect
orbanksNPAofRs.
4148cri
n
2007-
08whi
chi
sal
most66%r
iset
hanpr
evi
ousy
ear
.Inpubl
i
csect
orbanks
t
henumber
sar
enoti
ncr
easedl
i
kepr
ivat
esect
orbanks.

66
FI
NDING
SUGGESTI
ON
CONCLUSI
ON

67
FI
NDI
NG

Fort
hepur
poseofanal
ysi
sandcompar
isonbet
weenpr
ivat
esect
orand
publ
i
csect
orbanks,wet
akef
ive-
fi
vebanksi
nbot
hsect
ort
ocompar
ethe
nonper
for
mingasset
sofbanks.Forunder
standi
ngwef
urt
herbi
fur
cat
ethe
nonper
for
mingasset
sinpr
ior
it
ysect
orandnonpr
ior
it
ysect
or,gr
ossNPA
andnetNPAi
nper
cent
ageaswel
lasi
nrupees,deposi
t–i
nvest
ment–
adv
ances.
55%r
espondentt
hinkt
hebankwi
l
lal
way
sfacet
hepr
obl
em ofnpabecause
ofpoorr
ecov
eryofadv
ancesgr
ant
edbyt
hebankwhi
l
e45%don’
tthi
nk.
45%oft
her
espondent
sar
esat
isf
iedwi
thunev
enscal
eofr
epay
ment
schedul
ewi
thhi
gherr
epay
menti
nthei
nit
ial
year
snor
mal
l
yispr
efer
red
55%oft
her
espondent
sar
enotsat
isf
iedwi
tht
hatst
atement

60%oft
her
espondent
swer
ethi
nkt
hebanksshoul
dnotonl
ytakest
epsf
or
r
educi
ngpr
esentNPAs,butnecessar
ypr
ecaut
ionshoul
dal
sobet
akent
o
av
oidf
utur
eNPAs.40% oft
her
espondent
sar
enotsat
isf
iedwi
tht
hat
st
atement
.

Deposi
t–I
nvest
ment–Adv
ancesi
sthef
ir
sti
ntheanal
ysi
sbecauseduet
o
t
hesewecanunder
standt
hewher
ethebankst
andsi
nthecompet
it
ive
mar
ket
.Asatendofmar
ch2008,
inpr
ivat
esect
orI
CICIBanki
sthehi
ghest
deposi
t-
inv
est
ment
-adv
ancesf
igur
esi
nrupeescr
ore,secondi
sHDFCBank
andKOTAKBankhasl
eastf
igur
es.
I
npubl
i
csect
orbanksPunj
abNat
ionalBankhashi
ghestdeposi
t-
inv
est
ment
-
adv
ancesbutwhenwel
ookatgr
aphf
ir
stt
hreemeansBankofBar
odaand
BankofI
ndi
aar
eal
mostt
hesi
mil
ari
nnumber
sandDenaBanki
sst
andsf
or
l
asti
npubl
i
csect
orbank.Whenwecompar
ethepr
ivat
esect
orbankswi
th
publ
i
csect
orbanksamong t
hesebanks,wecan under
stand t
hemor
e

68
numberofpeopl
e pr
efert
o choose publ
i
c sect
orbanks f
ordeposi
t-
i
nvest
ment
.compar
isonofnetnpawi
thal
lbanksf
ort
hey
ear2007-
08.
Av
erageoft
heset
enbank’
snetNPAi
s0.
56.Andi
nthepubl
i
csect
orbanks
al
lthesef
ivebanksar
ebel
ow t
his.Buti
npr
ivat
esect
orbankst
her
ear
e
t
hreebanksar
eabov
eav
erage
SUGGESTI
ON

 Ef
fect
ivei
nspect
ionsy
stem shoul
dbei
mpl
ement
ed.

 Oper
ati
ngst
affshoul
dscr
uti
nizet
hel
evel
ofi
nvent
ori
es/
recei
vabl
es
r
egul
arl
y.

 Lar
geexposur
eonbi
gcor
por
ateorsi
ngl
epr
ojectshoul
dbeav
oided.

 Unevenscal
eofrepay
mentschedul
ewi
thhi
gherr
epay
menti
nthe
i
nit
ialy
earsnor
mallyi
spr
efer
red.

 Lar
geexposur
eonbi
gcor
por
ateorsi
ngl
epr
ojectshoul
dbeav
oided

69
CONCLUSI
ON

Iti
snotpossibl
etoel i
mi nat
etotal
lyt
heNPAsi nthebanki
ngbusiness
butcanonlybemi nimized.I
tisalwayswiseitf
oll
owtheproperpol
icy
apprai
sal
,super
visionandf oll
ow-upofadvancestoavoi
dNPAs.
 
 Thebanksshouldnotonlyt
akestepsforr
educi
ngpresentNPAs,
but
necessar
yprecaut
ionshoul
dalsobetakentoavoi
dfutur
eNPAs.

 Thebankhasachievedi
tst
argetbecauset
henetpr
ofi
tisalso
i
ncreasedandther
eisadecreasei
nNPAs.Soitisi
nbetterposi
ti
on
comparedtolasty
ear

70
BI
BLI
OGRAPHY

71
BI
BLI
OGRAPHY

Mar
ket
ingManagementPhi
l
ipKot
ler
,TheMi
l
lenni
um Edi
ti
on,Pr
ent
iceHal
l
OfI
ndi
aPr
ivat
eLi
mit
ed,
NewDel
hi.

Mar
ket
ingResear
ch: G.
C Br
ek,Tat
a McGr
aw-
Hil
lPubl
i
shi
ng Company
Li
mit
ed,
NewDel
hi

Per
iodi
cal
: Busi
nessWor
d

Resear
chMet
hodol
ogy
: C.
R.Kot
har
i,2ndedi
ti
on.
S.
NMur
tyandUBhoj
anna

Websi
teAddr
ess:
www.
hdf
cbank.
com
www.
scr
ibed.
com
www.
googl
esear
ch.
com

72
QUESTI
ONNAI
RE

73
QUESTI
ONNI
RE

Iam st
udentoff
ir
sty
earMBAoft
he G.
G.I
.T.
M.Bhopal
,Iam doi
ng pr
oject
on

Procedur
etor
educenonper
for
mingasset
sinbanks”asapar
tofst
udy
.I
r
equesty
out
opr
ovi
det
her
equi
redi
nfor
mat
ionf
ort
hecompl
eti
onofmy
st
udy
.
Pr
omi
set
hatt
hei
nfor
mat
ioni
susedexcl
usi
vel
yforacademi
cpur
poseonl
y.

1.per
sonal
prof
il
e: A.Name:
B.Addr
ess:

C: Sex:Mal
e: [ ]Femal
e[ ]
G:Age:[ ]

1.
DOYOUKNOW THENONPERFORMI
NGASSETSOFBANK

1) YES 2) NO

2.
ITI
SPOSSI
BLETOELI
MINATETOTALLYTHENPASI
NTHEBANKI
NG
BUSI
NESS

74
1) YES 2) NO

3.
EFFECTI
VEI
NSPECTI
ONSYSTEM SHOULDBEI
MPLEMENTED.

1) YES 2) NO

4.
DOYOUTHINKOPERATINGSTAFFSHOULDSCRUTI
NIZETHELEVELOF
I
NVENTORI
ES/RECEI
VABLESREGULARLY

1) YES 2) NO

5.
DOYOUTHINKLARGEEXPOSUREONBI
GCORPORATEORSI
NGLE
PROJECTSHOULDBEAVOI
DED

1) YES 2) NO

6.
UNEVENSCALEOFREPAYMENTSCHEDULEWITHHI
GHERREPAYMENT
I
NTHEINITI
ALYEARSNORMALLYI
SPREFERRED

1) YES 2) NO

7.
DOYOUTHINKTHEBANKSSHOULDNOTONLYTAKESTEPSFOR
REDUCI
NGPRESENTNPAS,BUTNECESSARYPRECAUTI
ONSHOULDALSO
BETAKENTOAVOIDFUTURENPAS

1) YES 2) NO

8.
NECESSARYPRECAUTI
ONSHOULDALSOBETAKENTOAVOI
DFUTURE
NPAS.

1) YES 2) NO

9.
DOYOUTHI
NKTHEREI
SSIGNI
FICANTRELATI
ONSHI
PBETWEENGROSS
NPAOFABANKTOI
TSOPERATI
NGPROFIT.

1) YES 2) NO

10.
THEBANKWILLALWAYSFACETHEPROBLEM OFNPABECAUSEOF
POORRECOVERYOFADVANCESGRANTEDBYTHEBANK

1) YES 2) NO

75
11.
NONPERFORMI
NGASSETSAREMOREI
N

1)PRI
ORI
TYSECTOR
2)NONPRIORI
TYSECTOR

12.
WHATARETHEMETHODSADOPTEDBYTHEBANKTOLOOKAFTER
NPAMANAGEMENT

……………………………………………………………………………………………………………………………………
……………………………………………….
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.

13.
WHATISTHECRITERI
ATORECOVERTHEADVANCESFROM THEBANK
……………………………………………………………………………………………………………………………………
……………………………………………………………………….
..
.

76

Related Interests