Professional Documents
Culture Documents
All over the world, the banking industry acts as a catalyst for the country’s economy and
growth. Banks provide financial assistance to a wide range of sectors such as iron and steel,
automobiles, infrastructure, health care etc. In developing economies, banks play an
important role not only in the economic development but overall development of the
economy which is linked to the upliftment of the weaker sections of the society by providing
loans to priority sectors like agriculture, rural housing etc. Thus, banking fulfills the social
agenda of the government also. However, granting loans indiscriminately without taking into
consideration the credibility of the borrower has harsh consequences for the banks in terms of
generation of NPA’s.
In the past decade or so, the problem of nonperforming assets has been faced by economies
around the world. A high level of NPA’s can adversely affect the economy in various ways
,one of them being the utilization of banking resources towards resolving the loss due to
NPA’s. This makes the banks more vigilant and strict in providing new loans, particularly to
small and medium sized companies which maybe reliable companies but have nothing to
show for their credibility. This ,in turn hampers the development of the country especially
developing countries whose growth depends upon the development of these industries. Thus,
large scale NPA’s ,if left unattended can cause financial and economic degradation of the
country.
Many banks are facing the problem of nonperforming assets which hampers the business of
the banks. Due to NPA the income of the banks is reduced and the banks have to make the
large number of the provisions that would curtail the profit of the banks and due to that the
financial performance of the banks would not show good results The main aim behind
making this report is to know how Public Sector Banks are operating their business and how
NPA play its role to the operations of the Public Sector Banks as well as private sector banks.
The present research work has been presented in various chapters. The summary of each
chapter has been given below.
1|Page
TABLE OF CONTENTS
1. INTRODUCTION TO UBI 4
1.1 HISTORY OF UBI 4-6
1.2 ASSOCIATES OF UBI 7
1.3 FINANCIAL POSITION OF UBI 7-11
1.4 BUSINESS SUMMARY OF UBI 12-15
1.5 TIE-UPS WITH UBI 16
1.6 KEY MILESTONES OF UBI 16-17
1.7 AWARDS/CERTIFICATIONS RECEIVED BY UBI 17
1.8 FUTURE PLANS OF UBI 18
1.9 RECENT DEVELOPMENT IN INDIAN BANKING INDUSTRY 19
1.10 KEY INVESTMENT AND DEVELOPMENT IN INDIA’S BANKING 20
1.11 GOVT. INITIATIVES TOWARDS BANKING SECTOR 20-21
CHAPTER-II
2. OBJECTIVES OF STUDY 22
2.1 SUMMARY 22
2.2 INTRODUCTION TO NPA 22-24
2.3 CATEGORIES OF NPA 24-25
2.4 GUIDELINES FOR CLASSIFICATION OF NPA 25-30
2.5 TYPES OF NPA 30-31
2.6 RESONS FOR RISING NPA 31-32
2.7 INCOME RECOGNITION POLICY 32-33
2.8 NPA MANAGEMENT 34-35
2.9 COMPROMISE SETTLEMENT 36-38
2.10 WILLFUL DEFAULT 38
2.11 LOK ADALAT 38-39
2.12 SETTLEMENT UNDER CGTMSE SCHEME 39-40
2.13 SARFAESI ACT 2002 40-42
2.14 BID POLICY 42-43
2.15 SELF BIDDING UNDER SARFAESI ACT 2002 43-44
2.16 ASSET RECONSTRUCTION COMPANY 44-45
2.17 NATIONAL COMPANY LAW TRIBUNAL 45-46
2.18 INSOVENCY AND BANKRUPTCY BILL 46-50
2.19 CAPITAL INFUSION IN PUBLIC SECTOR BANKS 50
2.20 ASSET QUALITY REVIEW 51
2|Page
2.21 PROMT CORRECTIVE ACTION 51-52
2.22 RECAPITALIZATION OF PUBLIC SECTOR BANKS 53-54
2.23 PUBLIC SECTOR BANK- DEPOSITS 55
2.24 PUBLIC SECTOR BANK-ADVANCES 56
2.25 PUBLIC SECTOR BANKS- DEPOSITS+ADVANCES 57
2.26 GROSS OPERATING PROFIT 58
2.27 GROSS NPA 59
2.28 NET PROFIT/LOSS 60
2.29 NPA PROVISION COVERAGE RATIO 61
2.30 PRESENT SCENERIO ON NPA 62-63
2.31 SWOT ANALYSIS OF UBI 64
CHAPTER-III
3.1 OBJECTIVES OF STUDY 65
CHAPTER-IV
4.1 REVIEW LITERATURE 67-71
CHAPTER-V
5.1 RESEARCH METHODOLOGY 72-74
CHAPTER-VI
6.1 DATA ANALYSIS AND INTERPRETATION 75-85
CHAPTER-VII
7.1 LIMITATIONS OF STUDY 86
7.4 BIBLIOGRAPHY 88
3|Page
CHAPTER- I
After nationalization, the Bank expanded its branch network in a big way and actively
participated in the developmental activities, particularly in the rural and semi-urban areas in
conformity with the objectives of nationalization. In recognition of the role played by the
Bank, it was designated as Lead Bank in several districts and at present it is the Lead Bank in
30 districts in the States of West Bengal, Assam, Manipur and Tripura. The Bank is also the
Convener of the State Level Bankers' Committees (SLBC) for the States of West Bengal and
Tripura.
United Bank of India was constituted under the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970 on July 19, 1969. The Head Office of the Bank was set
up at 4 Clive Ghat Street (presently known as N. C. Dutta Sarani, Kolkata 700 001 which was
shifted to its present location at 11 Hemanta Basu Sarani, Kolkata - 700001 in 1972 for
operational efficiency. United Bank of India is one of the 14 banks which were nationalised
on July 19, 1969. On October 12, 1950, the name of Bengal Central Bank Limited
(established in 1918 as Bengal Central Loan Company Limited) was changed to United Bank
of India Limited for the purpose of amalgamation and on December 18, 1950, Comilla
Banking Corporation Limited (established in 1914), the Comilla Union Bank Limited
(established in 1922), the Hooghly Bank (established 1932) stood amalgamated with the
4|Page
Bank. Subsequently, other banks namely, Cuttack Bank Limited, Tezpur Industrial Bank
Limited, Hindusthan Mercantile Bank Limited and Narang Bank of India Limited were
merged with the Bank. Main Objects of the Bank Section 3(5) of the Bank Acquisition Act
states as follows: "Every corresponding new bank shall carry on and transact the business of
banking as defined in clause (b) of section 5 of the Banking Regulation Act, 1949 (10 of
1949) and may engage in one or more of the other forms of business specified in sub-section
(1) of section 6 of that Act." Section 5(b) of the Banking Regulation Act reads as follows:
"‘banking’ means the accepting, for the purpose of lending or investment, of deposits of
money from the public, repayable on demand or otherwise, and withdrawable by cheque,
draft, order or otherwise." Section 6(1) of the Banking Regulation Act reads as follows:
In addition to the business of banking, a banking company may engage in any one or more of
the following forms of business, namely-
5|Page
Contracting for public and private loans and negotiating and issuing the same.
The effecting, insuring, guaranteeing, underwriting, participating in managing and
carrying out of any issue, public or private, of State, municipal or other loans or of
shares, stock, debentures, or debenture stock of any company, corporation or
association and the lending of money for the purpose of any such issue.
Carrying on and transacting every kind of guarantee and indemnity business.
Managing, selling and releasing any property which may come into the possession of
the company in satisfaction or part satisfaction of any of its claims.
Acquiring and holding and generally dealing with any property or any right, title or
interest in any such property which may form the security or part of the security for
any loans or advances or which may be connected with any such security.
Undertaking and executing trusts.
Undertaking the administration of estates as executor, trustee or otherwise.
Establishing and supporting or aiding in the establishment and support of associations,
institutions, funds, trusts and conveniences calculated to benefit employees or ex-
employees of the company or the dependents or connections of such persons, granting
pensions and allowances and making payments towards insurance; subscribing to or
guaranteeing moneys for charitable or benevolent objects or for any exhibition or for
any public, general or useful object.
The acquisition, construction, maintenance and alteration of any building or works
necessary or convenient for the purposes of the company.
Selling, improving, managing, developing, exchanging, leasing, mortgaging,
disposing of or turning into account or otherwise dealing with all or any part of the
property and rights of the company.
Acquiring and undertaking the whole or any part of the business of any person or
company, when such business is of a nature enumerated or described in this sub-
section.
Doing all such other things as are incidental or conducive to the promotion or
advancement of the business of the company.
Any other form of business which the Government may, by notification in the Official
Gazette, specify as a form of business in which it is lawful for a banking company to
engage.
6|Page
1.2 ASSOCIATES OF UNITED BANK OF INDIA
According to RBI letter DBR NO. BP8756/21.04.048/2017-18 dated April 02,2018, the
provisioning requirement in respect of NCLT accounts is reduced from 50% of secured
portion to 40% of secured portion as at March 31,2018. The Bank has availed the option of
dispensation available and as a result the provision of Rs.249.40 crores has been reduced in
such accounts.
Reserve Bank of India in its vide circular DBR No. BP.BC. 102/21.04.018/2017-18
dated April 02,2018 has granted Banks the option to spread provisioning for Marks to
Market (MTM) losses on investments held in AFS and HFT for the quarters ended December
31,2017 and March 31,2018. The provisioning for each of these quarters may be spread
equally over up to four quarters commencing with the quarter in which the loss is incurred.
Accordingly, the Bank has spread 50% MTM losses for December 2017 quarter and
75%MTM losses for March 2018 quarter amounting to Rs. 115.43 crores and Rs.105.95
crores respectively.
According to the guidelines set by Reserve Bank of India, the Bank has shifted the
securities from HTM to AFS category having face value of Rs.9071.71 crore (Book value
Rs.9278.90 crores) and AFS to HTM category having face value of Rs.5199.58 crore (Book
value Rs. 5470.26 crore) during the first quarter of FY 2017-18.
7|Page
The United Bank of India had received amount of Rs.2634 crore from Government of
India on 29.03.2018 towards capital infusion under the PSB’s recapitalization plan. As on
31.03.2018, Bank as allotted Rs.2620.36 crore by way of preferential allotment to the
Government of India. The balance of Rs. 13.64 crore is lying in the “Share Application
Money pending allotment” as on 31.03.2018. The Bank has considered the same amount as
part of “Common Equity Tier I (CET-1) capital fund as on 31.03.2018.
Bank raises additional Tier 1(AT 1) capital of Rs. 590 crore in two branches i.e Rs.
490 crore on 10.11.2017 and Rs. 100 crore on 27.12.2017 through issuance of Base III
compiled ATI Bonds. Bank also raised Tier 2 capital of Rs. 990 crore in three tranches i.e.
Rs.500 crore on 23.08.2017, Rs.150 crore on 27.09.2017 and Rs.340 crore on 10.11.2017
through issuance of Base-III complied Tier-2 Bonds.
The Bank has recognized net Deferred Tax Assets of Rs. 1492.24 crore during the
year 2017-18 on account of timing differences in accordance with Accounting Standard-22
on “Taxes on Income” issued by the Institute of Chartered Accountants of India and the
guidelines issued by the Reserve Bank of India.
During the year Bank has written back Rs.33.10 crores on account of written back
provision on Food Credit availed by State Government of Punjab as advised by RBI vide
letter dated 08.02.2018, that Banks may write back the provision of 10% on account of (a)
repayment of installments upto 12 months and (b) authorization of the Punjab Government to
RBI to debit its account. Accordingly, Bank has retained 5% provision on outstanding
exposure of Rs.331.67 crore as on 31.03.2018
8|Page
STATEMENT OF ASSETS & LIABILITIES AS ON 31ST MARCH 2018
KOLKATA
Statement of Assets & Liabilities as on 31st March 2018
(Rs. in Lacs)
9|Page
Segment Reporting
Part A: Business Segments: Rs. in Lacs
Quarter ended Quarter ended Quarter ended Year Ended Year Ended
31.03.2018 31.12.2017 31.03.2017 31.03.2018 31.03.2017
1.Segment Revenues (Audited) (Reviewed) (Audited) (Audited) (Audited)
a)Treasury Operations 1,04,583 1,06,464 96,503 4,52,320 4,81,927
b)Corporate/Wholesale 63,575 72,355 67,330 2,85,814 3,87,281
Banking
c)Retail Banking 74,268 62,237 95,509 2,80,551 2,68,668
d)Other Banking Operation 1,936 349 1,268 2,810 1,823
e)Unallocated Income 19,207 6,896 6,678 34,125 21,754
Total 2,63,569 2,48,301 2,67,288 10,55,620 11,61,453
Less: Intersegment Revenue
3.Segment Assets
a)Treasury Operations 64,28,163 61,48,180 59,33,569 64,28,163 59,33,569
b)Corporate/Wholesale 35,35,272 36,20,970 42,56,552 35,35,272 42,86,552
Banking
c)Retail Banking 27,13,748 25,67,688 23,27,378 27,13,748 23,27,378
d)Other Banking Operation 0 0 0 0 0
e)Unallocated Assets 17,97,683 16,85,712 15,57,812 17,97,683 15,57,812
Total Assets 144,74,866 140,22,550 141,05,311 144,74,866 141,05,311
4.Segment Liabilities
a)Treasury Operations 61,81,815 59,53,908 56,78,976 61,81,815 56,78,976
b)Corporate/Wholesale Banking 33,99,114 35,06,072 41,00,594 33,99,114 41,00,594
c)Retail Banking 26,09,888 24,86,585 22,27,598 26,09,888 22,27,598
d)Other Banking Operation 0 0 0 0 0
e)Unallocated Liabilities 14,16,524 14,14,989 13,23,761 14,16,524 13,23,761
Total 136,07,342 133,61,554 133,30,929 136,07,342 133,30,929
5.Other Information
A.Capital Employed
(Segment Assets-Segment Liabilities)
a)Treasury Operations 2,46,347 1,94,272 2,54,593 2,46,347 2,54,593
b)Corporate/Wholesale Banking 1,36,158 1,14,898 1,85,958 1,36,158 1,85,958
c)Retail Banking 1,03,859 81,103 99,780 1,03,859 99,780
d)Other Banking Operation 0 0 0 0 0
e)Unallocated 3,81,159 2,70,724 2,34,051 3,81,159 2,34,051
Total 8,67,524 6,60,996 7,74,382 8,67,524 7,74,382
B. The Bank has only one Geographical Segment i.e. Domestic Segment
10 | P a g e
UNITED BANK OF INDIA
HEAD OFFICE, KOLKATA
AUDITED FINANCIAL RESULTS (REVIEWED) FOR THE QUARTER AND YEAR ENDED
31ST MARCH 2018
Quarter Quarter Quarter Year Ended Year Ended
ended ended ended 31.03.2018 31.03.2017
31.03.2018 31.12.2017 31.03.2017
(Audited)* (Reviewed) (Audited)* (Audited) (Audited)
1. Interest Earned (a+b+c+d) 218800 200464 235158 834163 942791
a)Interest/Discount on advances/bills 119970 117583 146235 506019 603626
b)Interest on Investment 69439 68460 75749 263939 306008
c)Interest on balance with RBI/other 10473 7528 6507 30410 11426
interbank fund
d)Others 18918 6893 6669 33795 21731
2. Other Income 44769 47837 32130 221457 218662
3. Total Income (1+2) 263569 248301 267288 1055620 1161453
4. Interest Expended 167448 165670 184964 684876 750018
5. Operating Expenses (i+ii) 82831 64478 70720 268338 256146
i)Employee Cost 56778 39108 44964 171259 162418
ii)Other Operating Expenses(all items 26053 25370 25756 97079 93728
exceeding interest expenditure may be
shown separately)
6. Total Expenditure (4)+(5) (Excluding 250279 230148 255684 953214 1006164
Provisions and contingencies)
7. Operating Profit before Provisions 13290 18153 11604 102406 155289
and Contingencies (3)-(6)
8. Provisions (Other than Tax)& 138495 107435 105936 397074 246710
Contingencies
(of which Provisions for Non 133341 96407 75083 390616 200178
Performing Assets)
9. Exceptional Items 0 0 0 0 0
10. Profit (+)/Loss (-) from Ordinary 125205 89282 94332 294668 91421
Activities before Tax (7-8-9)
11. Tax Expenses 99143 25529 101688 149224 113372
12. Net Profit (+)/Loss(-)from Ordinary 26062 63753 7356 145444 21951
Activities after tax (10-11)
13. Extraordinary Items (net of Tax 0 0 0 0 0
Expenses)
14. Net Profit(+)/Net Loss(-) for the 26062 63753 7356 145444 21951
period (12-13)
15. Paid-up equity share capital (Face 300000 156182 139436 300000 139436
value of each share Rs.10)
16. Reserves exclude. Revaluation 471475 503042 503042 471475 503042
reserves (As per Balance Sheet of
previous financial year)
17. Analytical Ratios
(i)Percentage of share held by Govt. of 93.13% 86.81% 85.23% 93.13% 85.23%
India
(ii)Capital Adequacy Ratio % (Basel- 12.62% 10.98% 11.14% 12.62% 11.14%
III)
a. CET 1 Ratio 8.39% 6.28% 8.46% 8.39% 8.46%
b. Additional Tier 1 Ratio 1.48% 1.45% 0.48% 1.48% 0.48%
(iii)Earning Per Share (EPS)
a)Basic and diluted EPS before 1.69 4.08 .55 9.65 1.86
Extraordinary items (net of tax
expense) for the period, for the year
to date and for the previous year (not
to be annualized)
b)Basic and diluted EPS after 1.69 4.08 .55 9.65 1.86
Extraordinary items (net of tax
expense) for the period, for the year
to date and the previous year (not to
be annualized)
iv) NPA Ratio
a. Amount of Gross NPAs 1655211 1372069 1095199 1655211 1095199
b. Amount of Net NPAs 1031630 736514 659185 1031630 659185
c. Percentage of Gross NPA 24.10% 20.10% 15.53% 24.10% 15.53%
d. Percentage of Net NPA 16.49% 11.96% 10.02% 16.49% 10.02%
v) Return on Assets (Annualized) (%) -0.75% -1.82% 0.21% -1.04% 0.16%
11 | P a g e
1.4 BUSINESS SUMMARY OF UNITED BANK OF INDIA
The United Bank of India, a scheduled public sector commercial bank in India offering a
wide range of banking and financial products and services to both large and mid-corporates,
micro, small and medium enterprises (“MSME”), retail and agricultural customers. As on
January 31, 2017, UBI had 2,021 branches in 29 States and 5 Union Territories in India (all
of them under Core Banking Solution “CBS” platform) including 180 MSME specialized
branches catering to the specific clientele segment, 24 Retail Hubs, 5 specialised women
branches. As of January 31, 2017, UBI had 2,200 ATMs, 22 E-zones, 36 regional offices, 5
extension counters and 2 representative offices in Bangladesh and Myanmar. As of January
31, 2017, the bank had a customer base of approximately 4.22 crore.
The United Bank of India provide a wide range of products and services aimed at
different kinds of customers and companies across a wide range of sectors of the economy.
The United Bank of India business is principally divided into Retail banking, Agricultural
banking, Corporate banking, International banking, MSME banking, Priority sector lending,
Treasury operations and other financial services such as demat /trading services and merchant
banking services, distribution of third party products such as insurance, mutual fund products,
money transfer services, merchant acquiring services, pension and tax collection services.
12 | P a g e
The United Bank of India retail banking business offers financial products and
services including consumer lending and deposit services to our retail customers. UBI offer a
wide range of consumer credit products, including loans and advances for housing, trade,
automobiles, consumer durables, education, personal loans, mortgage loans and other retail
products. Various deposit products, such as current, savings and term deposits for our
customers. The commercial banking business largely caters to corporate customers, including
large, mid-sized and small businesses and government entities. Loan products include term
loans to finance capital expenditure of assets across various industries as well as short-term
loans, cash credit, export credit and other working capital financing and bill discounting
facilities. UBI also provide credit substitutes, such as letter of credit and letter of guarantee.
The United Bank of India international banking services includes forex services,
international trade finance and NRI services comprising foreign exchange operations,
remittance facilities for resident Indian, foreign currency loans, lending and deposit services
to non-resident Indians. UBI also cater to the financial requirements of Indian exporters and
importers.
The United Bank of India offer products and services for MSME banking to our
customers. The MSME banking business provides a similar range of products and services as
our corporate banking unit with some differentiation following evaluation of each customer’s
profile and dynamics. MSME customers are also important for maintaining our CASA ratio.
UBI offer direct financing to farmers for production and investment, as well as indirect
financing for infrastructure development and credit to suppliers of agricultural inputs. The
United Bank of India also finance tea plantation and rubber plantation. It offer various
products in the rural and semi-urban areas which would also help the Bank to meet its
financial inclusion targets mandated by RBI. For creating awareness among the borrower
farmers about necessity of availing bank finance for agriculture operations and maintaining it
in performing status, the bank have actively taken part in a state government assisted
programme under the banner ‘Bangla Farmers’ Financial Inclusion Fortnight’ in the months
of November and December 2016.
The United Bank of India have also taken adequate and appropriate steps for
extending various benefits to the farming community to protect them from the related
uncertainties and to minimize the financial burden. Those are implementation of crop
insurance scheme under Pradhan Mantri Fasal Bima Yojana (“PMFBY”) and Interest
13 | P a g e
Subvention Scheme from Short Term Production Credit. Our treasury operations being the
interface with the financial markets,consist primarily of statutory reserves management,
liquidity management, investment and trading activities, money market and foreign exchange
related activities. The bank actively trade in major currencies of the world and participate in
the forward market. It also offer fee based products which includes fees and charges for
services such as remittance services, documentary credits, letters of credit and issuance of
guarantees and collect service charges and processing fees on customer advances. Fee-based
income also includes income from commissions on sale of third party products, such as
insurance and mutual funds.
The United Bank of India also offer a wide range of general banking services to our
customers including debit cards, cash management, remittance services and collection
services. In addition, agency function for collection of Central Government Revenue viz.
direct and indirect taxes through physical mode by authorized branches and through e-mode
by all branches of our Bank. UBI also act for various state governments and the Government
of India on numerous matters including the collection of state revenue and taxes, mobilization
of Government deposits under PMJDY, and payment of school teacher’s salary and pension
of Central Government, State Government and different autonomous organizations.
The United Bank of India is one of the 14 banks which were nationalized on July 19,
1969. After nationalization, bank have expanded branch network pan India and actively
participated in the developmental activities, particularly in the rural and semi - urban areas in
conformity with the objectives of nationalization. As of March 31, 2014, March 31, 2015 and
March 31, 2016, the total number of branches of Bank were 2,001, 2,004 and 2,011,
respectively and it was further increased to 2,021 as of January 31, 2017. The total number
of ATMs has also increased from 1,602 as of March 31, 2014, to 1,912 as of March 31, 2015,
to 2,044 as of March 31, 2016, and further increased to 2,200 as of January 31, 2017. As of
January 31, 2017, the domestic branch network of 2,021 branches comprised 772 rural, 411
semi-urban, 477 urban and 361 metropolitan branches. The United Bank of India have been
designated as the lead bank by RBI in 34 districts of the States of West Bengal, Assam,
Manipur and Tripura. The Bank is also the convener of the State Level Bankers' Committees
(“SLBC”) for the States of West Bengal and Tripura. It has been designated as Treasury
Bank in major district of Assam and Tripura by respective state governments. Further, the
President of India and Ministry of Coal have accounts solely with UBI to handle the
government funds. The Bank have intend to leverage our lead bank status and brand recall, to
14 | P a g e
expand our presence across select geographies in India by increasing our branch network and
distribution infrastructure across India.
As of January 31, 2017, the Core Banking Solution (“CBS”), which is a suite of
software applications that facilitate centralized operations through a single data base, has
been implemented in all of our branches and extension counters, covering 100% of our
business. In addition, digital banking channels including mobile banking, internet banking.
The bank have developed micro-payment and branchless banking solutions as well as a
business correspondent network to expand customer reach beyond the traditional branch
service area. It delivers products and services through our branches, extension counters,
ATMs, internet banking and mobile banking. The Bank has adopted technology based
products as a strategy and pioneered in various state of art technology driven products.
As on January 31, 2017, our Bank has installed 2,200 ATMs, 22 E-Zones, Internet
Banking, Mobile Banking, E - Wallet, E- Passbook Services. Our Bank is issuing Rupay and
Visa bonded debit cards including image card on Rupay Platinum Platform. The Bank has
implemented online saving account facility, POS machines, online payment of bills and
taxes. The United Bank of India has also implemented a product wherein instant fund transfer
across bank through beneficiary mobile number. Bank has installed Unified Payment
Interface (“UPI”) from first day of its launch. It is also having direct debit facility for
booking of rail ticket through debit card.
The United Bank of India have played significant role in the spread of banking
services in different parts of the country, especially in the eastern and north eastern and
sponsored four Regional Rural Banks (“RRBs”) in collaboration with the Central
Government and the state governments of West Bengal, Assam, Manipur and Tripura. In
fiscal year 2016, it made a net loss of ₹ 281.96 crore and had a total credit portfolio of ₹
71,412 crore and a net worth of ₹ 4,685 crore. For the nine months ended December 31,
2016, it made a net profit of ₹ 145.94 crore and had a total credit portfolio of ₹ 67,866 crore
and net worth of ₹ 5,473 crore. It has experienced growth in deposits and advances, with
deposits growing at a compounded annual rate of 4.97 % during the last three fiscals, gross
and net advances growing at a compounded annual rate of 0.81% and (0.44)% during the
same period.
15 | P a g e
1.5 TIE-UPS WITH UNITED BANK OF INDIA:
Government of West Bengal on August 8, 2009 for providing housing loans to its
employees.
Dewan Housing Finance Corporation (DHFL) on August 22, 2009 for providing
residential housing finance under an arrangement of syndicated loan structure.
UAE Exchange & Financial Services on May 8, 2008 for providing overseas inward
remittance services through two products, namely XpressMoney and MoneyGram.
XpressMoney deals with the remittances from Gulf countries and MoneyGram deals
with the remittances from other countries.
Housing and Urban Development Corporation (HUDCO) on October 26, 2009 for
implementation of Scheme of Interest Subsidy for Housing the Urban Poor (ISHUP)
and for the purpose of providing housing loans to economically weaker sections and
low income groups.
VE Commercial Vehicle limited (a Volvo Group and Eicher Motors Joint Venture) on
2 February 2009 for financing EICHER brand trucks and buses.
National Small Industries Corporation (NSIC), a Government of India enterprise for
providing finance to entrepreneurs under micro and small enterprise sector sponsored
by NSIC.
1961: The Cuttack Bank Limited and The Tezpur Bank Limited merged with United
Bank of India.
1964 Staff Training college at Kolkata (then Calcutta) was setup.
1969: United Bank of India was nationalized by Government of India.
1970: Mobile branches were set up by United Bank of India.
1973: Hindusthan Mercantile Bank Limited merged with United Bank of India.
1976: Narang Bank of India Limited merged with United Bank of India.
1980: Appointed as convenor of State Level Bankers’ Committee in West Bengal,
Tripura and Manipur.
1993: First branch brought under total branch mechanism.
1995: Crossed business level of Rs. 10,000 crore.
2006: Crossed business level of Rs. 50,000 crore.
16 | P a g e
2007: Rolled out first CBS branch.
2007 Setup of United Bank Socio - Economic Development Foundation Trust in 2007
for rendering assistance to the weaker and under priviledge sections of the society.
2007: The first Rural Development & Self Employment Training Institute to provide
residential training to small farmers and unemployed youth free of cost was setup.
2009: Achieved 100% CBS for all its branches.
2009: Crossed business level of Rs. 100,000 crore.
2006: National Award for the second best performance in financing small scale units
by Ministry of Small Scale Industries, Government of India.
2007: Golden Jubilee Award for the best bank in north east zone for excellence in the
field of khadi and village industries from the Ministry of MSME, Government of
India.
2007-2008: Best Bancassurance partner byTata AIG.
2008: National Award for the best bank for excellence in field of Khadi and village
industries for east and north east zones from the Ministry of MSME, Government of
India.
2008-2009: Pinnacle Partner of the year by Tata AIG.
2008-2009: Highest contibutor to lives insured by Tata AIG.
2009: National Award under Prime Minister Employment Guarantee Programme in
north east zone from the Ministry of MSME, Government of India.
17 | P a g e
1.8 FUTURE PLANS OF UNITED BANK OF INDIA
The United Bank of India plans to raise Rs1,190 crore via Basel III bonds. “The board
of directors of the bank at its meeting approved issue and allotment of Basel III compliant
additional tier I bonds up to Rs1,190 crore.
The United Bank of India expects Rs 3,000 crore recovery from NCLT resolutions.
As on March 31, 2018, the bank's gross non-performing asset stood at over 24 per cent, the
lender's liquidity position was strong enough to meet any kind of liability, as the CASA ratio
was high. United Bank of India is expecting to recover around Rs 3,000 crore out of a total of
Rs 5,951 crore, by way of resolutions through the National Company Law Tribunal (NCLT).
Altogether 40 cases were referred to the NCLT of which Rs 580 crore had already been
recovered by the bank.
The United Bank of India battling swelling NPAs (non-performing assets) aims to
prune them by 10 per cent each year. The public sector lender presently has a gross NPA of
Rs 10,800 crore which is 15.6 per cent of its advances. Its net NPA stands at 10.1 per cent.
The United Bank of India to raise equity capital of Rs 1,500 crore. The bank's
shareholders, at its annual general meeting, approved the proposal to create, offer and allot
equity shares not exceeding Rs 1,500 crore in one or more tranches.
18 | P a g e
1.9 RECENT DEVELOPMENT IN INDIAN BANKING INDUSTRY
Credit off-take has been surging ahead over the past decade, aided by strong
economic growth, rising disposable incomes, increasing consumerism & easier access to
credit
As of Q3 FY18, total credit extended surged to US$ 1,288.1 billion.
Credit to non-food industries increased by 9.53 per cent reaching US$ 1,120.42
billion in January 2018 from US$ 1,022.98 billion during the previous financial year.
Demand has grown for both corporate & retail loans; particularly the services, real
estate, consumer durables & agriculture allied sectors have led the growth in credit.
The digital payments revolution will trigger massive changes in the way credit is
disbursed in India.
19 | P a g e
1.10 KEY INVESTMENTS AND DEVELOPMENTS IN INDIA’S BANKING
A new portal named 'Udyami Mitra' has been launched by the Small Industries
Development Bank of India (SIDBI) with the aim of improving credit availability to
Micro, Small and Medium Enterprises' (MSMEs) in the country.
Mr Arun Jaitley, Minister of Finance, Government of India, introduced 'The Banking
Regulation (Amendment) Bill,2017', which will replace the Banking Regulation
(Amendment) Ordinance, 2017, to allow the Reserve Bank of India (RBI) to guide
banks for resolving the problems of stressed assets.
Under the Union Budget 2018-19, the government has allocated Rs 3 trillion (US$
46.34 billion) towards the Mudra Scheme and Rs 3,794 crore (US$ 586.04 million)
towards credit support, capital and interest subsidy to MSMEs.
In March 2018, the Government of India launched Pradhan Mantri Vaya Vandana
Yojna (PMVVY) to provide elderly people Rs 10,000 (US$ 155.16) pension per
month. This scheme has an investment limit of Rs 15 lakh (US$ 23,273.86).
20 | P a g e
In May 2018, the Government of India provided Rs 6 trillion (US$ 93.1 billion) loans
to 120 million beneficiaries under Mudra scheme.
As on January 4, 2018, the Lok Sabha has approved recapitalisation bonds worth Rs
80,000 crore (US$ 12.62 billion) for public sector banks, which will be accompanied
by a series of reforms.
The government and the regulator have undertaken several measures to strengthen the Indian
banking sector.
A two-year plan to strengthen the public sector banks through reforms and capital
infusion of Rs 2.11 lakh crore (US$ 32.5 billion), has been unveiled by the
Government of India that will enable these banks to play a much larger role in the
financial system and give a boost to the MSME sector. In this regard, the Lok Sabha
has approved recapitalisation bonds worth Rs 80,000 crore (US$ 12.62 billion) for
public sector banks, which will be accompanied by a series of reforms, according to
Mr Arun Jaitley, Minister of Finance, Government of India.
The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been
passed by Rajya Sabha and is expected to strengthen the banking sector.
21 | P a g e
CHAPTER- II
2. OBJECTIVES OF STUDY
i. To understand the meaning of NPA’s.
ii. To study the reasons for growing NPA’s in banks.
iii. To gain a detailed understanding of the ways to prevent the growth of NPA’s
2.1 SUMMARY
All over the world, the banking industry acts as a catalyst for the country’s economy and
growth. Banks provide financial assistance to a wide range of sectors such as iron and steel,
automobiles, infrastructure, health care etc. In developing economies, banks play an
important role not only in the economic development but overall development of the
economy which is linked to the upliftment of the weaker sections of the society by providing
loans to priority sectors like agriculture, rural housing etc. Thus, banking fulfills the social
agenda of the government also. However, granting loans indiscriminately without taking into
consideration the credibility of the borrower has harsh consequences for the banks in terms of
generation of NPA’s.
In the past decade or so, the problem of nonperforming assets has been faced by economies
around the world. A high level of NPA’s can adversely affect the economy in various ways
,one of them being the utilization of banking resources towards resolving the loss due to
NPA’s. This makes the banks more vigilant and strict in providing new loans, particularly to
small and medium sized companies which maybe reliable companies but have nothing to
show for their credibility. This ,in turn hampers the development of the country especially
developing countries whose growth depends upon the development of these industries. Thus,
large scale NPA’s ,if left unattended can cause financial and economic degradation of the
country.
NPA is defined as a leased asset, becomes non-performing when it ceased to generate any
income for the bank whether in the form of interest or principal repayment. As per the
prudential norms suggested by the Reserve Bank of India (RBI), a bank cannot book interest
on an NPA on accrual basis. In other words, such interests can be booked only when it has
been actually received. Therefore, an NPA account not only reduces profitability of banks by
provisioning in the profit and loss account, but their carrying cost is also increased which
22 | P a g e
results in excess & avoidable management attention. Apart from this, a high level of NPA
also puts strain on a bank’s net worth because banks are under pressure to maintain a desired
level of Capital Adequacy and in the absence of comfortable profit level; banks eventually
look towards their internal financial strength to fulfill the norms thereby slowly eroding the
net worth.
23 | P a g e
to cover the interest debited during the same period, these accounts should be treated as 'out
of order'.
Any amount due to the Bank under any credit facility is 'overdue' if it is not paid on the due
date fixed by the bank.
2.3 CATEGORIES OF NPA
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
realizeability of the dues:
i. Substandard Assets
ii. Doubtful Assets
iii. Loss Assets
i. Substandard Assets:
A substandard asset is one, which has remained NPA for a period less than or equal to 12
months. In such cases, the current net worth of the borrower/guarantor or the current market
value of the security charged is not enough to ensure recovery of the dues to the banks in full.
In other words, such an asset will have well defined credit weaknesses that jeopardize the
liquidation of the debt and are characterized by the distinct possibility that the banks will
sustain some loss, if deficiencies are not corrected.
25 | P a g e
2.4.2 ADVANCES AGAINST TERM DEPOSIT:
Advances against Term Deposits, NSCs eligible for surrender, IVPs, KVPs and life policies
need not be treated as NPAs, provided adequate margin is available in the accounts.
Advances against gold ornaments, government securities and all other securities are not
covered by the exemption.
26 | P a g e
2.4.5 ACCOUNTS WITH TEMPORARY DEFICIENCIES:
The classification of an asset as NPA should be based on the record of recovery. Bank should
not classify an advance account as NPA merely due to the existence of some deficiencies
which are temporary in nature such as non-availability of adequate drawing power based on
the latest available stock statement, balance outstanding exceeding the limit temporarily, non-
submission of stock statements and non-renewal of the limits on the due date, etc
27 | P a g e
borrower does not immediately make good the amount disbursed as a result of discounting of
concerned bills, the outstanding bills discounted will immediately be classified as NPA with
effect from the date when the other facilities had been classified as NPA.
iv) The overdue receivables representing positive mark-to-market value of a derivative
contract will be treated as a non-performing asset, if these remain unpaid for 90 days or more.
In case the overdues arising from forward contracts and plain vanilla swaps and options
become NPAs, all other funded facilities granted to the client shall also be classified as non-
performing asset following the principle of borrower-wise classification as per the existing
asset classification norms. Accordingly, any amount, representing positive mark-to-market
value of the foreign exchange derivative contracts (other than forward contract and plain
vanilla swaps and options) that were entered into during the period April 2007 to June 2008,
which has already crystallized or might crystallize in future and is / becomes receivable from
the client, should be parked in a separate account maintained in the name of the client /
counterparty. This amount, even if overdue for a period of 90 days or more, will not make
other funded facilities provided to the client, NPA on account of the principle of borrower-
wise asset classification, though such receivable overdue for 90 days or more shall itself be
classified as NPA, as per the extant IRAC norms. The classification of all other assets of such
clients will, however, continue to be governed by the extant IRAC norms.
ii). If the realisable value of the security, as assessed by the bank/ approved valuers/ RBI is
less than 10 per cent of the outstanding in the borrower accounts, the existence of security
28 | P a g e
should be ignored and the asset should be straightaway classified as loss asset. It may be
either written off or fully provided for by the bank.
2.4.10 ADVANCES TO PACS/FSS CEDED TO COMMERCIAL BANKS:
In respect of agricultural advances as well as advances for other purposes granted by banks to
PACS/FSS under the on-lending system, only that particular credit facility granted to PACS/
FSS which is in default for a period of two crop seasons in case of short duration crops and
one crop season in case of long duration crops, 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.
29 | P a g e
securities would attract asset classification and provisioning norms if interest and/or principal
or any other amount due to the bank remains overdue for more than 90 days.
30 | P a g e
ii. Net NPA: Net NPAs are those type of NPAs in which the bank has deducted the
provision regarding NPAs. Net NPA is obtained by reducing the provisions from
Gross NPAs and 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 on Gross Advances
2.6 REASONS FOR RISING NPA’s
i. Commercial banks are required to give a prescribed percentage of credit (40%) to
priority sectors like agriculture, rural housing etc. Lending to priority sectors, though
beneficial for the economy as a whole in the long run, is a major reason for rising
NPA’s as these sectors lack funds to repay back the loans taken as they are more
susceptible to the recessionary conditions in the market.
ii. Tardy legal procedures in enforcing security rights and lack of proper laws to check
bankruptcy of the borrower is also one of the major reasons for rising bad debts and
NPA’s in banks.
iii. Pressure from politicians and bureaucrats to top management of banks to lend money
to unscrupulous borrowers who have little or no credibility. The case in point being
Vijay Mallya who was given loans despite his companies running into losses and who
now owes loans worth 9000 crores to various Indian banks.
iv. Corporate loans to bigger customers at a very low interest rate of 5-6 % is given on
the basis of their names only, without considering their reasons for taking the loan.
v. Also, most bank officials are not trained or do not have the expertise in handling
lending procedures. In public sector banks, especially, specialization in any particular
division is not encouraged .Hence, there is no batch of trained lending officials.
vi. Using the funds borrowed for a different purpose than what the loan was intended for
as stated in the loan application can result in bad loans. The project may be riskier
than the original project due to which the money remains tied up in the project and
cannot be recovered in the stipulated time period.
vii. Non completion of the project on time will cause a hindrance the repayment of the
loan on time.
31 | P a g e
viii. Failure of the business in which the loan was being used is also a major reason for
NPA.
ix. Fraud, willful defaults by borrowers, disputes of borrower with third parties, all lead
to NPA’s.
However, interest on advances against term deposits, NSC, IVPs, KVPs, and Life
policies may be taken into income account on the due date provided adequate margin
is available in these accounts.
Banks should reverse the interest already charged to NPA accounts but not collected ,
by debiting Profit and Loss account. Further they should stop further application of
interest to these accounts.
Banks may continue to record such accrued interest, but not realized, in a
Memorandum account in their books which should not be taken into account for
computing Gross Advances,
32 | P a g e
Banks are urged to ensure that while granting loans and advances, realistic repayment
schedules may be fixed on the basis of cash flows with borrowers. This would go a long
way to facilitate prompt repayment by the borrowers and thus improve the record of
recovery in advances.
i. The policy of income recognition has to be objective and based on the record of
recovery. Internationally, income from Non Performing Assets (NPA) is not
recognized on accrual basis but is booked as income only when it is actually
received. Therefore, the banks should not charge and take to income account
interest on any NPA.
ii. However, interest on advances against Term Deposits, NSCs, IVPs, KVPs and life
policies may be taken to income account on the due date, provided adequate
margin is available in the accounts.
iii. Fees and commissions earned by the banks as a result of renegotiations or
rescheduling of outstanding debts should be recognized on an accrual basis over
the period of time covered by the renegotiated or rescheduled extension of credit.
iv. If government guaranteed advances become NPA, the interest on such advances
should not be taken to income account unless the interest has been realized.
v. Any additional finance may be treated as 'standard asset' during the specified
period under the approved restructuring package. However, in the case of
accounts where the prerestructuring facilities were classified as 'substandard' and
'doubtful', interest income on the additional finance should be recognized only on
cash basis. If the restructured asset does not qualify for upgradation at the end of
the above specified period, the additional finance should be recognized only on
cash basis. If the restructured asset does not qualify for upgradation at the end of
the above specified period, the additional finance shall be placed in the same asset
classification category as the restructured debt.
33 | P a g e
2.8 NPA MANAGEMENT
2.8.1 Action points for Recovery in NPAs:
i. Personal contacts / follow up for recovery of dues
ii. Adjustment of liquid securities in the NPAs
iii. Sale of assets under SARFAESI Act
iv. Invocation of claim with CGTMSE / ECGC
v. Sale of NPAs to ARCs / ASCs / Banks / FIs / NBFCs
vi. Recovery Agents
vii. Settlement through compromise
34 | P a g e
i. Each Branch has to prepare village wise / area wise list of NPA and technically
written off accounts with outstanding amount and the overdue amount.
ii. List of such defaulters has to be handed over to the respective Panchayat /
Municipality seeking their assistance for recovery of dues.
iii. Demand notice / reminder is to be served at regular intervals.
iv. Endeavour should be made for renewal of documents on regular basis.
v. Regular recovery camps have to be organised on predetermined dates. Recovery
campaign to be made through loud speaker / road shows in the prominent places /
market etc.
vi. In certificate cases, the Tehsildar / Amin is to be contacted regularly and they should
be involved in recovery process.
vii. Recovery issues are to be raised regularly in BLBC / DCC / DLRC / SLBC meetings
and regular follow up measures are to be continued.
viii. The provisions of SARFAESI Act have to be invoked in all eligible cases. Since the
actions under this act are time bound, steps are to be followed one by one and
continuity of steps taken is essential. All Regional Offices are required to monitor the
actions taken under SARFAESI Act in each and every account at every step to bring
forth the desired outcome.
ix. Timely and prompt invocation of guarantee with CGTMSE / ECGC etc.
x. The progress of recovery is to be reviewed branch wise by the respective Regional
Office on weekly basis.
xi. Senior officials of respective Regional Offices should visit the branches regularly to
take stock of the situation and accelerate the process of recovery.
xii. All technically written off account files are to be traced out and scrutinized.
35 | P a g e
2.9 COMPROMISE SETTLEMENTS:
2.9.1 Coverage:
All NPA accounts, including suit filed / decreed / technically written off accounts, will be
eligible for compromise settlement. However, for all suit filed / decreed accounts, a joint
petition for consent decree with default clause should be filed in the respective Court / DRT
after entering into OTS and receipt of settled amount as per terms of sanction. Non
Performing Investments of the bank can also be settled under the policy.
2.9.2 Cut-off Date:
Last date of the preceding quarter end will be considered as the CUT OFF date.
However, an account, irrespective of the outstanding balance, will be considered for entering
into an OTS only after 6 months from its date of slippage to NPA, i.e., the account should
remain in NPA category for a minimum period of 6 months irrespective of the date of NPA.
During these 6 months all efforts should be made for its upgradation and/or all recovery
measures should be taken. The account can be considered for OTS only after the
corresponding date ending the 6th month from the date on which the account was identified as
NPA.
36 | P a g e
debtor(s) of borrower(s) etc.
ii. While considering a compromise proposal, the realizable value of security
available in the account should be assessed for which proper weightage has to be given to
the location, condition, marketability and whether the property is self occupied or
tenanted etc.
iii. Due weightage is to be given to the present activities of the borrower(s) /
guarantor(s), their present net worth etc.
iv. While arriving at a negotiated settlement, cost benefit analysis should be
made, i.e, the advantage available to the Bank from prompt recycling of funds should be
weighed in comparison to the likely recovery by legal or other protracted course of
actions.
v. As per RBI guidelines, generally, the compromise amount should be paid in
bullet payment. If payment is offered in instalments, the net present value of the
settlement amount should not generally be below the net present value of the realizable
value of the securities charged to the bank. However, in appropriate cases, bank can, with
proper justification, accept less than the said minimum acceptable amount.
vi. Reasons for the failure of business / unit, like change in the Government
guidelines and policies, mismanagement and wilful act by the borrower should also be
considered at the time of negotiations with the borrower/guarantor.
vii. If the unit is running and the prospects are good and the Bank has not lost trust
in borrower’s conduct and dealings, it would be worthwhile to consider the possibility of
rehabilitating the unit. If, however, the unit is closed and prospects of revival of the unit
are bleak, it would be better to settle the account and recover the dues to the maximum.
viii. Staff accountability shall be examined expeditiously as per Bank’s extant
guidelines. No settlement should be done without completion of examination of staff
accountability by the competent authority.
ix. There is a system for monthly reporting on exercise of Discretionary Power
for cases disposed off by the different delegatees to the next higher authority within 7th of
the following month in prescribed formats. All compromise settlement proposals entered
into by Branch Heads and RLCCs under their respective DP shall be reported to RLCC /
Recovery Deptt., HO respectively in the prescribed format within 7th of the following
month. If the reporting authority does not submit the Discretionary Power Statement
within 30 days of the end of the reporting month, the Discretionary Power of the
concerned reporting authority will stand automatically withdrawn. The Noting Authority
37 | P a g e
shall complete the process of noting of Discretionary Power exercised by the reporting
authority mandatorily within 60 days.
38 | P a g e
of the same for compromise settlement of the NPAs. Following are the advantages in using
the forum of Lok Adalats by Banks:
i. Its decisions have legal status and are binding.
ii. No Court fee is to be paid when fresh disputes are referred to it.
iii. Refund of 50% of the court fee amount paid by Bank if the case is settled in Lok
Adalat in a state wherever applicable.
iv. If no settlement is arrived at, the parties can continue with Court proceedings.
v. Decrees passed by the Lok Adalats being consent decrees, no appeal can be made
against it.
Any account with outstanding balance below Rs.20.00 lac and eligible for OTS can be
referred to Lok Adalat, subject to the following:
i. No account will be considered for settlement at below MRA.
ii. Any account which does not come within the delegated DP of the
Branch/RLCC concerned should not generally be referred to Lok Adalat for settlement,
viz., fraud, quick mortality, willful defaulter, vigilance referred, staff, staff related, staff
guaranteed accounts. However, in case, the Branch/RLCC concerned decides that any
particular account, which does not come within its delegated DP, should be referred to
Lok Adalat, approval from General Manager (Recovery) must be obtained prior to
referring such account to Lok Adalat.
iii. Moreover, prior to the organization or participation in any Lok Adalat, the
concerned Regional Head or the Branch Head must apprise the Judge presiding
over the Lok Adalat about the
39 | P a g e
iii. CGTMSE covered accounts are to be treated at par with other NPA and technically
written off accounts for compromise settlement. The outstanding ledger balance for
considering compromise settlement proposal in CGTMSE covered accounts will be
running ledger balance plus amount of claim received from CGTMSE and credited in
the account.
iv. Recovery Policy of the Bank well in advance.
40 | P a g e
vii. Security interest under conditional sale, hire purchase or lease and such
transactions. etc
The Bank shall issue notice to the borrower/mortgagor through its Authorized Officer
to discharge his dues to the Bank within 60 days and also notify him that in the event of his
failure to do so, it may exercise the following rights:
- Take possession of the secured assets or
- Takeover the management of secured assets or
- Appoint any person to manage the secured assets, the possession of which has been
taken over or
- Demand the amount in writing from any person who has acquired any of the secured
assets from the borrower and from whom the amount is due.
There is no bar on issuance of notice under Section 13(2) to the
borrower/guarantor in suit filed cases, but every action initiated under this Act shall
be brought to the notice of the Court/DRT
before which suit is pending, otherwise there is possibility of adverse orders being
passed by the Court/DRT against the Bank.
i. Movable Property:
- Draw inventory
41 | P a g e
- Prepare panchnama duly witnessed by two persons
- Give a copy of the panchnama to the borrower or his representative
- Keep the assets in the safe custody duly insured
- Obtain valuation from the valuer approved by the Bank
Publication of possession notice should be done within seven days from the date of
possession in two leading newspapers, of which one is in a vernacular language having
sufficient circulation in the locality.
After serving Demand Notice under Section 13(2) or taking over possession of the charged
assets, if the borrower/guarantor approaches the Bank for regularizing the account by way of
repaying the quantum of default amount in full, a request/consent letter, addressed to the
Bank, must be obtained from the borrower/guarantor in this regard.
42 | P a g e
ii. Instances reveal that in the absence of bidders to the suit properties, Court/DRTs have
indicated to the Bank that such execution petitions would be disposed off as
unfructuous. This would mean that our recourse for recovery is affected.
iii. The defendants form a cartel of prospective buyers with the intention to ensure that
the properties fetch much lower price than their market value and thus succeed in
scuttling Bank’s interest.
43 | P a g e
ii. The acquisition of the property by the Bank is considered beneficial from the
standpoint of (a) itsown use or
(b) good prospect of its salability at a later period due to growing market
demand and the locational advantage of the property.
iii. It should be the onus of the recommending branch and Regional Office to ensure
disposal of the property within the maximum permissible period of 18 months if the
property is not acquired for the purpose of Bank’s own use.
iv. However, this option should not be used by the Bank to bail out the borrower but to
be used judiciously and sparingly based on pragmatic decision. The branches and
Regional Offices must put the justification on record while recommending such cases
to HO. In order to ensure transparency in the process of valuation of the property
where the Bank intends to participate in the bid, it should be got valued by two
independent approved valuers (approved by the Bank’s Board for valuation under
SARFAESI Act, 2002).
44 | P a g e
financial asset and reported as SMA-2 by the Bank / FI to Central Repository for
Information on Large Credit (CRILC).
On 1st June 2016, National Company Law Tribunal and National Company Law Appellate
Tribunal were finally constituted by the Central Government. NCLT has already started
operating in Delhi and it is quite likely that by next month many of the other benches will
start. The first class action case is filed in Mumbai and thus, the action in NCLT begins. This
article tries to delve into the concept, nature and scope of powers of NCLT.
The NCLT or “Tribunal” is a quasi-judicial authority created under the Companies Act,
2013 to handle corporate civil disputes arising under the Act. It is an entity that has powers
and procedures like those vested in a court of law or judge. NCLT is obliged to objectively
determine facts, decide cases in accordance with the principles of natural justice and draw
conclusions from them in the form of orders. Such orders can remedy a situation, correct a
wrong or impose legal penalties/costs and may affect the legal rights, duties or privileges of
the specific parties. The Tribunal is not bound by the strict judicial rules of evidence and
procedure. It can decide cases by following the principles of natural justice.
NCLAT or “Appellate Tribunal” is an authority provided for dealing with appeals arising out
of the decisions of the Tribunal. It is formed for correcting the errors made by the Tribunal. It
is an intermediate appellate forum where the appeals lie after order of the Tribunal. The
decisions of Appellate Tribunal can further be challenged in the Supreme Court. Any party
dissatisfied by any order of the Tribunal may bring an appeal to contest that decision. The
Appellate Tribunal reviews the decisions of the Tribunal and has power to set aside, modify
or confirm it.
BACKGROUND OF NCLT:
NCLT was conceptualized by Eradi Committee. It was initially introduced in Companies Act,
1956 in 2002 but the provisions of Companies (Second Amendment) Act, 2002 were never
45 | P a g e
notified as they got mired in litigation surrounding constitutionality of NCLT. 2013 Act was
enacted and the concept of NCLT was retained. However, the powers and functions of NCLT
under 1956 Act and 2013 Act are different. The constitutionality of NCLT related provisions
were again challenged and this case was finally decided in May 2015. The Apex Court
upheld the constitutionality of the concept of NCLT but some of the provisions on
constitution and selection process were found defective and unconstitutional.
NOTIFICATION OF NCLT:
Provisions for constitution of NCLT and NCLAT were notified on 1st June 2016. In the first
phase powers of CLB are transferred to NCLT. In the next stage the government will move
for second set of notifications by which powers of High Courts and BIFR will also be vested
with NCLT. Along with transfer of powers to NCLT, new powers and functions are also
vested in NCLT.
The Act has set out in detail the procedure to deal with cases which are pending in various
forums in Section 434. The Government has notified 1st June 2016 for transfer of matters
from CLB to NCLT. On that date, all the pending proceedings before CLB will be transferred
to NCLT and Tribunal will dispose of such matters in accordance with the provisions of law.
Tribunal has discretion to take up the pending CLB proceeding from any stage. At its
discretion, it can take up the matter at stage where it was left by CLB or start the proceedings
afresh or from any stage it deems fit.
There are multiple overlapping laws and adjudicating forums dealing with financial failure
and insolvency of companies and individuals in India. The current legal and institutional
framework does not aid lenders in effective and timely recovery or restructuring of defaulted
assets and causes undue strain on the Indian credit system. Recognising that reforms in the
bankruptcy and insolvency regime are critical for improving the business environment and
alleviating distressed credit markets, the Government introduced the Insolvency and
Bankruptcy Code Bill in November 2015, drafted by a specially constituted 'Bankruptcy Law
46 | P a g e
Reforms Committee' (BLRC) under the Ministry of Finance. Trilegal worked with the BLRC
to assist with the drafting of the bill.
THE CODE
One of the fundamental features of the Code is that it allows creditors to assess the viability
of a debtor as a business decision, and agree upon a plan for its revival or a speedy
liquidation. The Code creates a new institutional framework, consisting of a regulator,
insolvency professionals, information utilities and adjudicatory mechanisms, that will
facilitate a formal and time bound insolvency resolution process and liquidation.
KEY HIGHLIGHTS
To initiate an insolvency process for corporate debtors, the default should be at least
INR 100,000 (USD 1495) (which limit may be increased up to INR 10,000,000 (USD
149,500) by the Government). The Code proposes two independent stages:
Insolvency Resolution Process, during which financial creditors assess whether the
debtor's business is viable to continue and the options for its rescue and revival; and
The IRP provides a collective mechanism to lenders to deal with the overall distressed
position of a corporate debtor. This is a significant departure from the existing legal
framework under which the primary onus to initiate a reorganisation process lies with the
debtor, and lenders may pursue distinct actions for recovery, security enforcement and debt
restructuring.
47 | P a g e
The Code envisages the following steps in the IRP:
A financial creditor (for a defaulted financial debt) or an operational creditor (for an unpaid
operational debt) can initiate an IRP against a corporate debtor at the National Company Law
Tribunal (NCLT).
The defaulting corporate debtor, its shareholders or employees, may also initiate voluntary
insolvency proceedings.
Moratorium
The NCLT orders a moratorium on the debtor's operations for the period of the IRP. This
operates as a 'calm period' during which no judicial proceedings for recovery, enforcement of
security interest, sale or transfer of assets, or termination of essential contracts can take place
against the debtor.
Therefore, the thrust of the Code is to allow a shift of control from the defaulting debtor's
management to its creditors, where the creditors drive the business of the debtor with the
Resolution Professional acting as their agent.
The Resolution Professional identifies the financial creditors and constitutes a creditors
committee. Operational creditors above a certain threshold are allowed to attend meetings of
48 | P a g e
the committee but do not have voting power. Each decision of the creditors committee
requires a 75% majority vote. Decisions of the creditors committee are binding on the
corporate debtor and all its creditors.
The creditors committee considers proposals for the revival of the debtor and must decide
whether to proceed with a revival plan or liquidation within a period of 180 days (subject to a
one-time extension by 90 days). Anyone can submit a revival proposal, but it must
necessarily provide for payment of operational debts to the extent of the liquidation waterfall.
The Code does not elaborate on the types of revival plans that may be adopted, which may
include fresh finance, sale of assets, haircuts, change of management etc.
(b) Liquidation
Under the Code, a corporate debtor may be put into liquidation in the following
scenarios:
i. A 75% majority of the creditor's committee resolves to liquidate the corporate debtor
at any time during the insolvency resolution process;
ii. The creditor's committee does not approve a resolution plan within 180 days (or
within the extended 90 days)
iii. The NCLT rejects the resolution plan submitted to it on technical grounds; or
iv. The debtor contravenes the agreed resolution plan and an affected person makes an
application to the NCLT to liquidate the corporate debtor.
For individuals and unlimited partnerships, the Code applies in all cases where the minimum
default amount is INR 1000 (USD 15) and above (the Government may later revise the
minimum amount of default to a higher threshold). The Code envisages two distinct
processes in case of insolvencies: automatic fresh start and insolvency resolution.
49 | P a g e
Under the automatic fresh start process, eligible debtors (basis gross income) can apply to the
Debt Recovery Tribunal (DRT) for discharge from certain debts not exceeding a specified
threshold, allowing them to start afresh.
The insolvency resolution process consists of preparation of a repayment plan by the debtor,
for approval of creditors. If approved, the DRT passes an order binding the debtor and
creditors to the repayment plan. If the plan is rejected or fails, the debtor or creditors may
apply for a bankruptcy order.
Government infuses capital to the nationalized banks to revive its health as and when
necessary Department of Financial Services (DFS) in a communication dated 16th
March,2017, addressed to the CEOs of 10 public sector banks, have asked that in order to get
clearance for capital infusion during financial year 2017, a tripartite bank wise Memorandum
of Understanding(MOU) between the Government, Bank Management and the
Unions/Associations of the concerned banks should be signed. The 10 PSBs are Andhra
Bank, Bank of India, Bank of Maharashtra, Central Bank of India, Dena Bank, Industrial
Development Bank of India, Indian Overseas Bank, United Commercial Bank and United
Bank of India. Later, Union Bank of India was included in the plan. Accordingly, the
management of the Banks and the Unions/Associations have signed the MOU to finalize the
turn around plan. The area of understanding includes-
On 24th October,2017 the Government promises more reforms for banks. On a day it
announced a Rs. 2.11 lakh crore programme to recapitalize state owned lenders. The
programme involves mobilization of capital upto Rs.2.11 lakh crore over the next two years
through budgetary provisions of Rs.18139.00 crore and recapitalization bonds worth Rs.1.35
lakh crore. The balance of Rs.58000.00 crore will raised by banks form the market by
diluting Government equity.
50 | P a g e
2.20 ASSET QUALITY REVIEW
Asset Quality Review (AQR) is a new norm that has been introduced to make banks
vulnerable in terms of profitability. Reserve bank of India conducted the exercise under
which all banks were asked to make at least 50% provisions for the accounts identified as
NPA under AQR in December, 2015 and the next in March,2016 quarter. This has been done
as a drive by RBI to clean up the balance sheet by March 2017. The banks were compelled to
make huge amount of provisioning for modified asset classification. The profitability of the
PSBs is being eroded severly. Even the big banks are being ported with huge losses,
unprecedented in the country in 2015-16 and 2016-17, the operating profits of the
nationalized banks were Rs.1,37,306 crores and Rs. 1,58,982 crores respectively. But
incidently, in both the financial years, the banks had to suffer net loss to the tune of Rs.
17,992 cores and Rs. 11,388 crores respectively. Taking full advantage of the situation,
corporate media is all out to malign the public sector banks with no words to expose the real
culprits.
The Prompt Corrective Action (PCA) frame for banks has since been reviewded and revised
vide circular dt. 13th April,2017. The provision of the revised PCA framework has been given
effect from 1st April,2017 based on the financials of the banks for the year ended 31st March,
2017. The framework would be reviewed after three years. The PCA framework does not
preclude the Reseve Bank of India from taking any other action as it deems fit in addition to
the corrective action prescribed in the framework.
Eleven of India’s 21 listed state-owned Banks are now under the RBI’s watch due to large
bad loans, weak capital levels and low return on assets. Together these banks accounts for
over Rs. 3 laks crore in bad loans of the total Rs. 8.4 lakh crore across India’s listed banks.
Since April, 2017 the banks that have been put under the corrective action framework are
i. Bank of India
ii. Central Bank of India
iii. IDBI Bank
iv. UCO Bank
v. Dena Bank
vi. Oriental Bank of Commerce
51 | P a g e
vii. Indian Overseas Bank
viii. Bank of Maharashtra
ix. United Bank of India
x. Allahabad Bank
United Bank of India was one of the first public sector banks to be subject to RBI's PCA, way
back in 2014. The Kolkata-based lender reported a net loss of Rs 1,238 crore in September-
December 2013, and gross NPA exceeded 10 per cent. By March 2015, PCA was partially
lifted as the bank posted consecutive profits in several quarters. The only restriction which
remained pertained to branch expansion
However, over the last one and half years, the finances of the bank had deteriorated, and in
July this year, as a part of the Memorandum of Understanding (MoU) signed with the
government of India for recapitalisation, the bank had agreed to provide loans only for
entities investments grade ratings and cut operational costs, among other measures. Despite
this, the bank's net loss increased from Rs 211 crore in Q1 to Rs 345 crore in Q2 of the
present financial year. The bank's gross NPA increased to 18.80 per cent in Q2 from 17.70
per cent in Q1 of the present financial year.
At the end of September 2017, United Bank of India's CAR was 10.70 per cent. Banks need
to maintain total capital ratio (CAR) of 11.5 per cent by 2019 and 10.875 per cent by March
2018.
KEY FINANCIALS
52 | P a g e
2.22 RECAPITALIZATION OF PSBs
As per the declaration on 24th October,2017 for infusion of capital in PSBs to the tune of Rs.
2.11 lakh crore, the Government, on 24th January,2018, announced the details of the first
tranche of the Rs.88,139 crore recapitalization for state run banks. Around 11 banks, which
are on the RBI’s critical watch list for corrective action, garnered the lion’s share of Rs.
52,311 crore. Banks under the prompt corrective action are those that have high bad loans
and weak capital adequacy levels.
12000 10610
10000 9032
8000 6507
6000 5158 5158 4694
3751 3173
4000 2634 2187
1500
2000
0
53 | P a g e
OTHER BANKS, NOT UNDER PCA (FIGURES IN Rs. CRORE)
10000 8800
9000
8000
7000
6000 5473 5375
4865 4524
5000
4000 2839
3000 1890
2000 1277
785
1000
0
STATE PUNJAB BANK OF CANARA UNION SYNDICATE ANDHRA VIJAYA PUNJAB &
BANK OF NATIONAL BARODA BANK BANK OF BANK BANK BANK SIND BANK
INDIA BANK INDIA
The recapitalization will be spread over two financial years 2017-2018 and 2018-2019.
Officials, led by the financial services Secretary Mr. Rajib Kumar, said that the regulatory
capital of all PSU banks will be maintained and none will be allowed to fall.
The financial ministry said that the recapitalization bonds will not have any impact on the
financial deficit as they will be cash neutral. These bonds will not have any statutory liquidity
ratio and have tenure of 10-15 years according to the economic affairs secretary Mr. SC
Garg. He again explained that there is no fiscal impact of the bond issues to bank. These will
be swap deals and cash neutral. There is not going to be public issue.
54 | P a g e
2.23 PUBLIC SECTOR BANKS – DEPOSITS RS.
IN CRORES
55 | P a g e
2.24 PUBLIC SECTOR BANKS – ADVANCES RS.
IN CRORES
56 | P a g e
2.25 PUBLIC SECTOR BANKS: DEPOSITS + ADVANCES RS. IN CRORES
57 | P a g e
2.26 GROSS OPERATING PROFIT RS. IN CRORES
58 | P a g e
2.27 GROSS NPA RS. IN CRORES
59 | P a g e
2.28 NET PROFIT/LOSS RS. IN CRORES
60 | P a g e
2.29 NPA PROVISION COVERAGE RATIO
Mar-16
61 | P a g e
2.30 PRESENT SCENERIO ON NPA
Since the beginning of 2015, RBI has been asking banks to reduce their NPA’s. Many
corporate houses like Adani, GVK , Vijay Mallya owned companies are defaulters on interest
payments and recovery of principal is becoming a difficult task. The banks have taken over
most of these companies but the banks neither have the experience nor the resources to
handle these companies and also the sale of the assets of such companies will not help in
recovery as the value of these assets have decreased considerably. Due to this, the banks have
to mandatorily make full disclosures of all the NPA’s or bad loans of corporate firms, thus
showing a weak financial statement. This has resulted in downward evaluation of stock of
most banks. The market capitalization rates of banks like ICICI, Punjab National Bank, Bank
of Baroda have gone down drastically while HDFC bank has survived this downgrading. This
is due to the fact that HDFC bank has strict norms when it comes to lending and also has a
stringent recovery policy. However the redeeming factor for Indian banks is that NPA is
currently equal to only 2.3% of total assets as only 50% of total assets of the banks are given
out as advances. The banks are prudent enough to invest in government securities to protect
their interests.
The Reserve Bank of India has imposed certain restrictions on Bank of India and
United Bank of India due to sharp rise in nonperforming loans and erosion in capital. On
Wednesday, both banks said that RBI triggered prompt corrective action (PCA) wherein the
regulator monitors their performance.
United Bank of India is expecting to recover close to 6,000 crore from its stressed
assets this fiscal.
62 | P a g e
United Bank of India, nearly 4,000 crore would come from the resolution of cases under the
Insolvency and Bankruptcy Code (IBC) and the remaining (2,000 crore) from the sale to asset
reconstruction companies (ARCs).
The bank currently has around 39 accounts at the National Company Law Tribunal
(NCLT), totalling 6,400 crore. Of these, nearly 5,200 crore comes from the 19 accounts that
fall under the list identified by the Reserve Bank of India.
“This financial year United Bank of India is looking at 4,000-crore settlement under the
NCLT window, and another 2,000 crore in the first two quarters of FY20,” The bank has
already received 489 crore from the settlement of one account – Bhushan Steel. While it had
to take a haircut of around 33 per cent on the account, the bank feels that it is the “best
possible settlement” under the NCLT window.
The percentage of gross and net NPAs to total advances stood at 24.1 per cent (15.53
per cent) and 16.49 per cent (10.02 per cent), respectively.
United Bank of India (UBI), one of the lenders to the grounded Kingfisher Airlines,
declared the airlines a wilful defaulter. Other lenders in the bank consortium, including IDBI
Bank and State Bank of India (SBI), which had together lent Rs 7,500 crore to the airline, are
too weighing their options to follow the suit.
United Bank of India has among its big defaulters names such as Lanco Infratech,
Bharati Shipyard, Varun Industries and Electrosteel Integrated.
A list of the top 24 borrowers whose loan accounts have turned bad prepared by the
All India Bank Employees Association shows that these borrowers collectively owe the bank
Rs 2,088 crore.
According to the list, Varun Industries — the Mumbai-based manufacturer and
exporter of stainless steel kitchen utensils, cookware and homeware — is the biggest
defaulter with a loan outstanding of Rs 323.6 crore.
Lanco Infratech owes Rs 112 crore. The others on the list are Electrosteel Integrated
with an outstanding of Rs 218 crore and Bharati Shipyard at Rs 180 crore. Anothe company,
Soma Enterprise owes the bank Rs 174 crore.
63 | P a g e
2.31 SWOT ANALYSIS OF UNITED BANK OF INDIA:
STRENGTH
WEAKNESS
THREATS
i. Economic slowdown
ii. Highly competitive environment
iii. Stringent Banking Norms
iv. Non-Performing Asset (NPA)
v. Weaker Action Towards Defaulters
64 | P a g e
CHAPTER-III
i. Banks have become an indispensable part of our economic system. The banking
institution today forms the heart of the financial structure of the country
ii. Indian banking has made a significant progress after nationalization especially in
three aspects viz., branch expansion, deposit mobilization and loan maximization.
Among these, monitoring of loans took a back seat in an era of mass banking and
social banking.
iii. In the changing scenario of the banking, Non-Performing Assets (NPAs/NPA) have
been the most vexing problem faced by the banks. The Reserve Bank of India (RBI)
and Government of India (GoI) have initiated various measures to curb NPA in the
post financial sector reforms. But PSBs are still unable to solve the problem.
iv. In the liberalized scenario, the continuation of the NPAs is a menace for the survival
of the banks. Over a decade of implementation of financial sector reforms and
prudential norms, there is a need for a systematic analysis of NPAs. In this context,
this study is an investigation of the trends in NPAs, bank group-wise, sector-wise
composition of NPAs, asset quality diagnosis, socio-economic conditions of
borrowers and causes of NPAs from the borrowers’ perception.
v. The importance of this kind of study, which focuses its attention on the commercial
banks in the country in general. A study of this nature is essential at present when
65 | P a g e
banks are facing various challenges in the face of far reaching reforms in the
changing environment.
vi. The study seeks to offer specific suggestions to resolve the problems faced by
commercial banks, which are highlighted in the present study so as to improve their
performance in the country.
66 | P a g e
CHAPTER-IV
Dutta. A (2014): This paper studied the growth of NPA in the public and private sector
banks in India , and analysed sector wise non-performing assets of the commercial banks. For
the purpose of the study data has been collected from secondary sources such as report on
Trend and Progress of Banking in India, RBI, Report on Currency and Finance, RBI
Economic Surveys of India.
Das, S. (2010): In this paper the author has tried to analyse the parameters which are actually
the reasons of NPAs, and those are, market failure, wilful defaults, poor follow-up and
supervision, non-cooperation from banks, poor Legal framework, lack of entrepreneurial
skills, and diversion of funds.
Ahmad, Z., Jegadeeshwaran, M. (2013): The current paper is written on the NPA, and
causes for NPA. Secondary data was collected for a period of five years and analysed by
mean, CAGR, ANOVA and ranking banks. The banks were ranked as per their performance
in managing the NPA‟s. The efficiency in managing the NPA by the nationalised banks was
tested.
Ranjan, R., Dhal, S.C. (2013): This paper explores an empirical approach to the analysis of
the Indian commercial banks' nonperforming loans by regression analysis. The empirical
analysis evaluates as to how the NPLs are influenced by three major sets of economic and
financial factors, i.e., terms of credit, bank size induced risk preferences and macroeconomic
shocks.
67 | P a g e
Reddy, P.K. (2002): This paper deals with the experiences of other Asian countries in
handling of NPAs. It further looks into the effect of the reforms on the level of NPAs and
suggests mechanisms to handle the problem by drawing on experiences from other countries.
Joseph, A. L. (2014): This paper basically deals with the trends of NPA in banking industry,
the internal, external and other factors that mainly contribute to NPA rising in the banking
industry and also provides some suggestions for overcoming the burden of NPA. Kamra,
Patidar, S.,Kataria, A. (2012): The study analyzed the percentage share of NPA as
components of priority sector lending, the comparative study was conducted between SBI
and Associates, Old Private Banks and New Private Banks and Nationalized Banks of the
benchmark category, to find out the significant difference of the NPA and also find out the
significant impact of Priority Sector Lending on the Total NPA of Banks using statistical
tools like regression analysis and ratio analysis.
Arora, N., Ostwal, N. (2014): The present paper analyses the classification and comparison
of loan assets of public and private sector banks. The study concluded that NPAs are still a
threat for the banks and financial institutions and public sector banks have higher level of
NPAs in comparison to Private sector banks.
Rajput, N., Gupta, M., Chauhan, A.K. (2012): This paper provides an empirical approach
to the analysis of profitability indicators on NPA, it also discusses the factors which
contribute towards NPA, and also analyses the solution for the same. All empirical findings
were done by using statistical tools like correlation, regression and data representation
techniques and DEA.
Ibrahim, M.S.,Thangavelu, R. (2014): In this paper, the author has analyzed the concept of
NPAs, components of loan assets in public sector, private sector and other foreign banks, by
an exploratory and diagnostic approach with the help of secondary data.
Srinivas, K.T. (2013): The present paper undertakes to study the reasons for loans and
advances becoming NPA in the Indian Commercial banking Sector and give a suitable
solution to overcome the mentioned problem.
Rai, K. (2012): The paper made an effort to evaluate the operational performance of the
selected commercial banks, and the NPA Trends and issues, also the measures taken for
68 | P a g e
managing the NPAs like reformulation of banks‟ credit appraisal techniques, establishment
of monitoring department, etc.
Satpal (2014): An attempt has been made in this paper to find out the actual definition of
NPA and the factors contributing to the formation NPAs, reasons for high NPAs and their
impact on Indian banking operations.
Rajeev, M., Mahesh, H.P., (2010): This exploratory paper examines the Indian trends of
NPAs from various dimensions and explains how recognition of the problem continuous
monitoring, can reduce it to a greater extent. The paper also discusses the functions of the
joint liability groups or self help groups in enhancing the loan recovery rate.
Yadav, S. (2014): With the help of secondary data, the author in the present paper has tried
to show the recent trends and its preventive measures to control NPAs in Indian banking
industry.
Kumar, M.,Singh, G. (2012): The paper focuses on the most significant factors, which
contribute towards the non-performing assets problem from the view point of the top bankers
of public sector banks and, some foreign banks in India and the measures required for
managing the NPAs
Gupta, J., Jain, S. (2012): The present study deals with performance and the lending
practices of some successful cooperative banks of Delhi, whose customers have taken more
than one type of loans from the bank.
Pradhan, T.K. (2012): The present study is on Odisha, and depends on the mismanagement
or diversion of fund, which are one of the main causes of NPA. The study is based on
primary data which has been analyzed by percentage method. The data was collected from 50
bank officials through a structured questionnaire.
Rajput, N.,Arora, A.P., Kaur, B. (2012): This study focuses on management of non-
performing assets of the public sector banks under stringent asset classification norms. The
study tried to trace the movement of the nonperforming assets present in Indian public sector
banks and also analysed the performance of the banks in managing the NPA.
69 | P a g e
2000. The paper studies 27 public sector banks, and investigates variations within a class that
is homogenous on the ownership dimension and operational efficiency.
Gupta, B. (2012): In this paper, study has been made on SBI and Associates, and public
sector banks, an effort has been made to understand the concept of NPAs, its magnitude and
major causes for increasing NPA and also evaluate the operational performance in managing
NPA.
Rajput, N.,Arora, A.P., Kaur, B. (2011): This study attempts to trace the movement of the
NPAs presence in public sector banks of India, by analyzing the financial performance in
managing NPA.
Ganesan, D., Santhanakrishnan, R. (2013): In this paper, an effort has been made to
evaluate the nonperformance assets of the SBI since 2002.
Stuti, Bansal, S. (2013): In this paper, an effort has been made to evaluate the operational
performance of the Public Sector Banks and Private sector bank in India with the help of
secondary data between 2003-04 and 2007-09, on NPAs Trends and issues. This paper
analyzes how efficiently Public and Private sector banks have been managing NPA.
Pradhan, T.K. (2012): The present study, with the help of secondary data of six years, tried
to analyse how reform measures helped in minimising the NPA in public sector banks, the
data has been analyzed by using percentage method.
Selvarajana, B.,Vadivalagan, G. (2013): The present study has been designed to illustrate
the necessity and the nature of the non-performing assets in Indian Bank, Tamil Nadu. The
study was done on the priority sector loan.
Tripathi, L. K., Parashar, A., Mishra, S. (2014): The present study, with the help of
multiple regression model attempts to investigate the impact of priority sector advances,
unsecured advances and advances made to sensitive sectors by banks like SBI group and
other nationalised banks on Gross NPAs of banks.
Jajashree, Kotnal, R., Ahmed, I.,Naikwadi, M. (n.d.): This study deals with understanding
the concept of NPAs, its magnitude and major causes for an account becoming non-
performing, the study was made on Corporation Bank, Bagalakot and BDCC Bank,
Bagalakot.
70 | P a g e
Kaur, H., Saddy, N.K. (2011): An attempt was made in the paper to know about NPA, the
factors responsible for the contribution towards NPAs, the magnitude and reasons for high
NPAs and their impact on Indian banking operations.
Satpathy, I, Patnaik, B.C.M. (2010): The present paper attempted to examine the causes of
NPAs in home loans of commercial banks. For this borrowers of the loans were surveyed
through questionnaires made for the purpose, and ultimately suggestions given to overcome
the problem.
Chaudhary, K., Sharma, M. (2011): This paper has made an attempt to analyze how
efficiently Public and Private sector banks have been managing NPA. A statistical tool for
projection of trend was used for analysis.
71 | P a g e
CHAPTER-V
The research methodology means the way in which we would complete our
prospected task. Before undertaking any task it becomes very essential for anyone to
determine the problem of study. One can also define research as a scientific topic. Research
can be considered as a movement, a movement from the known to the unknown. In fact,
research is an art of scientific investigation. It's an art for finding new ways in systematic and
scientific ways. According to Clifford woody, "Research comprises defining and redefining
problems formulating hypothesis or suggested solutions, collecting, organizing and
evaluating data, making deductions and reading conclusions, and at last carefully testing the
conclusions to determine whether they fit the formulating hypothesis
In research methodology, research defines systematic ways to solve the problems. In this
study a survey is conducted on banking sector to comparative analysis of NPA and its
methods in recovery of NPAs in both public sector banks and private sector banks.
The nature of this research can be termed as descriptive research and also qualitative
research. Because of, "Descriptive research includes surveys and fact finding enquiries of
different kinds. The major purpose of descriptive research is description of the state of affairs
as it exists at present. The main characteristic of this method is that the researcher has no
control over the variables; researcher can only report what has happened or what is
happening."
72 | P a g e
5.1.3 SCOPE OF THE STUDY
The scope of the study refers to the job that to know about the activities of the organization.
The study means that the analysis of the products of the company on which he/she has to
focus.
For better economical and attractive construction of house, we need a blueprint or the map of
the house well thought out and prepared by an expert architect, similarly, a research design is
must in advance of data-collection and analysis for the research project, keeping in view of
the objective of the research and the availability of effort, time and money.
In this research the researcher has taken public sector banks and private sector banks of
India.
Sampling Technique:
Initially, a questionnaire was prepared keeping in mind the objective of the research.
A pilot study was done in order to know the accuracy of the Questionnaire.
The final Questionnaire was arrived only after certain important changes were done.
Thus my sampling came out to be judgment and convenient
Sampling Unit:
73 | P a g e
The respondent who were asked to fill out questionnaires are the sampling units.
These includes the Managers of the banks i.e. both Public Sector Banks and Private
Sector Banks.
Sample size:
The sample size was restricted only to 13 banks near my locality due to time
constraints.
Sampling Area:
The area of the research was Nalbari District and Baksa District in Assam.
Collection of data is very hard work for any types of research. The kind of data collected and
the methods used to collect the data is a very important aspect of research. There are two
basic means of data collection.
The study is based on primary data that was directly collected from various banks.
Secondary data is published data or unpublished data. Usually published data are from: (a)
various publications of the central, state are local governments; (b) various publications of
foreign governments or of international bodies and their subsidiary organizations; (c)
technical and trade journals; (d) books, magazines and newspapers; (e) reports and
publications of various associations connected with business and industry, banks, stock
exchanges, etc.; (f) reports prepared by research scholars, universities, economists, etc. in
different fields; and (g) public records and statistics, historical documents, and other sources
of published information. The sources of unpublished data are many; they may be found in
diaries, letters, unpublished biographies and autobiographies and also may be available with
scholars and research workers, trade associations, labour bureaus and other public/ private
individuals and organisations.
74 | P a g e
CHAPTER-VI
INTERPRETATION
The above graph indicates that HDFC BANK (NALABARI branch) has highest total advance
portfolio of 110.55 crore, following it BANDHAN BANK is standing on 2nd position. And
75 | P a g e
SYNDICATE BANK has lowest total advance portfolio of 1.33 crore followed by
Corporation Bank Having 1.35 Crore. United Bank Of India (Nalabari Branch) has total
advance Portfolio of 9.76 crore.
PERCENTAGE OF NPA
12
10
8
6
4
2
0 Series1
INTERPRETATION
By above graph we came to know that Central Bank Of India has highest NPA I.e.
12% followed by Assam Gramin Vikash Bank also suffering from higher NPA i.e. 11 % of
their total advances. Where HDFC Bank (Nalabari Branch) is managing their NPA very
76 | P a g e
efficiently with 0.25 % only. And United Bank Of India has also maintained stable rate of
NPA in different branch with 3%.
15 12
10 7
5 4 4 6 4 4
0 0 Series1
Series1
INTEPRETATION
By observing above graph we can say that Central Bank Of India has highest Gross NPA i.e.
12% followed by Assam Gramin Vikash Bank also suffering from higher gross NPA i.e. 11
% of their total advances. Where HDFC Bank (Nalabari Branch) having lowest NPA i.e.
0.27% only state efficient NPA management practices. And United Bank of India has same
stable rate of NPA in different branch that is 3%.
77 | P a g e
PERCENTAGE OF NET NPA
Chart Title
14
12
10
Axis Title
8
6
4
2
0
Axis Title
INTERPRETATION
By above graph we came to know that Central Bank Of India has highest NPA i.e.
12% followed by Assam Gramin Vikash Bank also suffering from higher NPA i.e. 11 % of
their total advances. Where HDFC Bank (Nalbari Branch) is managing their NPA very
efficiently with 0.25 % only. And United Bank of India has also maintained stable rate of
NPA in different branch with 3%.
78 | P a g e
PERCENTAGE COMPOSITION OF NPA
INTERPRETATION
RETAIL CREDIT
The above diagram states that in retail credit segment Assam Garmin Vikash Bank has
highest NPA of 12 %, whereas Punjab National Bank has nil NPA following by Bandhan
Bank & HDFC bank with only 1%. United Bank of India, Syndicate Bank IDBI Bank &
Bank of India has same percentage of NPA i.e. 4%.
MSME
By above graph we came to know that in MSME segment Bank of India has highest NPA of
12 % following by Central Bank of India & Assam Gramin Vikash Bank with 11 %. And
HDFC Bank has Nil NPA in this segment. United Bank of India has 3 % NPA.
OTHER SECTOR
By given graph we can say that United Bank of India(Barama Branch), Bank of India, PNB
& HDFC Bank(Barama Branch) has Nil NPA Following by Bandhan Bank & HDFC bank
(Nalabari Branch) with 1% NPA. And Assam Gramin Vikash Bank has highest NPA of 13 %
followed by Corporation Bank with 12%.
79 | P a g e
PERCENTAGE OF NPA IN SUB-STANDARD CATEGORY
INTERPRETATION
The above diagram indicates that Assam Gramin Vikash Bank has highest NPA with 10%.
Whereas HDFC Bank (Nalmbari Branch) is maintaining very low NPA with 0.27% only
followed by Bank of India with 1 % & HDFC bank (Barama Branch) with 1.5 %. United
Bank of India has 3.5 % in Nalabari Branch & 4% in Barama Branch.
80 | P a g e
11. BANDHAN BANK NALBARI 0 0 0
12. HDFC BANK NALBARI 0 0 0
13. HDFC BANK BARAMA 0 0 0
INTERPRETATION
CAT-1
In category 1 Bank of India, Bandhan Bank & HDFC Bank (Nalabari & Barama) has 0%
NPA. Whereas, Assam Grami Vikash Bank has hhighest NPA of 10 % followed by Canara
Bank with 8%. United Bank of India (Nalbari Branch ) has 4% of NPA.
CAT-2
In category 2, Assam Gramin Vikash Bank has highest NPA of 11.10%, whereas most of
bank like Bandhan Bank, HDFC Bank,United Bank of India (Barama Barnch), Canara
Bank,Corporation Bank has 0% NPA. It states that they are efficiently managing their NPL
Level.
CAT-3
In Category 3, Assam Gramon Vikash Bank & Syndicate Bank has highest NPA of 12 %
followed by United Bank of India(Nalbari Branch) & Central Bank of India with 11 %. . and
Most of bank like PNB, Bank of India Bandhan Bank, United Bank of India(Barama Branch)
& HDFC Bank has 0 % NPA.
81 | P a g e
11. BANDHAN BANK NALBARI 0
12. HDFC BANK NALBARI 1
13. HDFC BANK BARAMA 0
INTERPRETATION
By above graph we came to know that United Bank of India, Corporation Bank, Bank of
India, Bandhan Bank & HDFC Bank has 0% lost in assets. Whereas Central Bank Of india
has highest lost in assets of 11.5 % followed by Assam Gramin Vikash Bank with 9%.
TREND OF NPA
INTERPRETATION
By above graph we can say that the trend of NPA is slowly increasing in most of bank like
United Bank of India, Syndicate Bank, Bank of India HDFC Bank (Nalbari Branch) etc. but
in Assam Gramin Vikas Bank & Bandhan Bank has highly increasing trend. Whereas IDBI
Bank & HDFC Bank (Barama Branch) is showing decreasing & constant trend.
82 | P a g e
PERCENTAGE OF INCREASING OR DECREASING
INTERPRETATION
By above graph we came to know that NPA of only IDBI Bank & Bandhan Bank is
decreasing with 6.2 % & 2.4 % respectively. And rest of bank’s NPA is increasing except
HDFC bank & Bandhan Bank having 0 % increment. United Bank of India has 3.6% of
increasing rate.
83 | P a g e
REASONS FOR ASST BECOMING NPA
INTERPRERATION
By observing above graph we can say that most of banks like United Bank of India, HDFC,
PNB, IDBI etc state that WD & LTA, while only syndicate Bank is suffering from different
reason like WD,LTA,DCAS,LFS,LLF.
ABBREVIATIONS: HRI-high rate of interest, WD- willful default, LTA- lack of timely actions,
DCAS-Deficiency in credit appraisal, LSF- lack of supervision and follow-up, LLS-lack of legal
support
84 | P a g e
STRATEGY FOR NPA RECOVERY
INTERPRETATION
By studying above graph we can say that most of banks are using SAR & CS as strategy for NPA
recovery. Whereas HDFC is more focusing on CS & RA. United Bank Of India is also using SAR &
CS for recovery of NPA.
NOTE: THE ENTIRE SURVEYED BANKS HAVE NOT REFFERED ANY NPA CASES TO
NCLT FOR RESOLUTION.
85 | P a g e
CHAPTER-VII
Every live and non live factor has its own limitation, which restrict the usability of
that factor. Each study cannot be free from limitations. Some limitations likewise, the
limitation of time areas, economic, efforts, scope as well as the method of the study.
Some limitations for present research work as under:
i. Scope of this study is wider but sample size is limited to only to both Public and
Private Sector Banks, excluding Foreign Banks. So, it is very difficult to come proper
conclusion regarding whole banking sector.
ii. The sample size was restricted only to the banks near my locality due to time
constraints and economic conditions
iii. This research study based on primary and secondary data collected directly from
banks, annual reports of various banks and related websites. The limitation of the
study and its finding depend entirely on the accuracy of such data.
iv. The data which is used for his study is based on annual report of the bank and
secondary data collected from published reports from time to time. Therefore the
quality of this research depends a quality and reliability of data published in annual
reports.
7.2 CONCLUSION:
The development of an economy is dependent on its banking sector. The failure of the
banking sector will have a negative impact on the rest of the economy. The Indian banking
sector is facing a serious problem of NPA. The extent of NPA is comparatively higher in
public sectors banks. The rule regarding granting of 40% of bank credit to priority sectors
needs to be checked. Banks need to make it abundantly clear to the borrowers that the
financial resources available with the banks are scarce and thus need to be repaid on time.
These resources should ideally be given to borrowers who have urgent needs and who in
order to maintain their credibility will repay the loans. The major preventive measures to
control the growth of NPA’s include the setting up of Asset Reconstruction Companies that
taken away the burden of handling NPA’s from banks and enable them to focus of their core
business activities and also dependence on Credit Rating agencies to ascertain the credit
worthiness of the borrower. Thus, the right choice of borrowers through proper credit
86 | P a g e
appraisal system, correct end use of funds, stringent procedures for the recovery of loans are
necessary pre-conditions for minimizing the emergence of new NPA’s. It is highly
impossible to have zero percentage NPA. But at least Indian banks can try competing with
foreign banks to maintain international standard.
FINDINGS
For the purpose of analysis and comparison between private sector and public sector
Banks 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.
25% respondent think the bank will always face the problem of npa because of poor
60% of the respondents were think the banks should not only take steps for reducing
present NPAs, but necessary precaution should also be taken to avoid future NPAs .
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.
SUGGESTIONS:
87 | P a g e
iv. Banks should find out the original reasons/purposes of the loan required by the
borrower. Proper identification of the guarantor should be checked by the bank
including scrutiny of his/her wealth.
v. Framing reasonably well documented loan policy and rules.
vi. Sound credit appraisal on well-settled banking norms with emphasis on reduction
in Gross NPAs rather than Net NPAs
vii. Position of overdue accounts is reviewed on a weekly basis to arrest slippage of
fresh account to NPA. Half yearly balance confirmation certificates should be
obtained from the borrowers.
viii. A committee is constituted at Head Office, to review irregular accounts. Based on
the recent trends, banks should emphasize more on priority sector for reducing the
quantum of NPAs. Banks should ensure credibility of the borrower.
ix. Appropriate SWOT analysis should be done before disbursement of the advance.
Banks should ensure that there is no diversion of funds disbursed to the borrower.
x. Bank officials should frequently visit the unit and should assess the physical
conditions of the assets, receivables and stocks therein. While advancing loans,
the three principles of bank lending viz., Principle of Safety, Principle of Liquidity
and principle of Profitability must be adhered to.
xi. The banks should ensure that latest technology is being used by the borrower, to
avoid obsolescence. The banks should ensure that the assets are fully insured.
xii. Recovery competition system should be extended among the staff members. The
recovering highest amount should be felicitated. Adopting market intelligence for
deciding the credibility of the borrowers.
xiii. Creation of a separate “Recovery Department” with Special Recovery Officer.
There surely is a need to distinguish between willful and non willful defaulters. In
case of the latter category of defaulters, the law should not be as harsh as in case
of former category.
xiv. The recovery process is very slow; as such the Government needs to update the
process which is fast and effective.
xv. Bank officers shouldn’t forget the ethics of doing job.
xvi. Last but not the least, the act(s) should be judiciously and selectively applied so
that NPAs should be converted into performing assets.
88 | P a g e
7.4 BIBLIOGRAPHY:
BOOKS
Marketing Research: G.C Brek, Tata Mc Graw-Hill Publishing Company Limited, New Delhi
SITES:
https://www.ibef.org
https://www.rbi.org.in
https://www.bankbazaar.com
https://www.unitedbankofindia.com
https://economictimes.com
https://www.ndtv.com/business/stock/united-bank-of-india_unitedbnk/reports
http://shodhganga.inflibnet.ac.in
http://www.iosrjournals.org/
https://indianexpress.com/
89 | P a g e
7.5 APPENDIX:
BRANCH:
90 | P a g e
a. 1-4%
b. 4-7%
c. 7-10%
d. 10% & above
13. What are the reasons for asset becoming non-performing asset? Please tick
a. Higher rate of interest
b. Willful default
c. Lack of timely actions
d. Deficiency in the credit appraisal standards
e. Lack of supervision and follow-up
f. Lack of legal support
14. What is your strategy in NPA recovery?
a. SARFAESI
b. Lok Adalats
c. Compromise Settlements
d. Debt Recovery Tribunals
e. Recovery Agents
91 | P a g e
15. Do you have similar recovery strategy in all sectors and in all geographical regions?
a. Yes
b. No
(Authorized signatory)
92 | P a g e