A STUDY ON NON PERFORMING ASSESTS WITH SPECIAL

REFRENCES TO SBI BANKS

A PROJECT SUBMITTED TO

UNIVERSITY OF MUMBAI FOR PARTIAL COMPLETION THE DEGREE

OF

BACHELOR IN COMMERCE (ACCOUNTING AND FINANCE) UNDER THE

FACULTY OF COMMERCE

BY

NEHA RAVINDRA SINGH

UNDER THE GUIDANCE OF

ASST. PROF. VISHAL SHINGARE

MUMBAI UNIVERSITY

S.I.C.E. SOCIETY’S

DEGREE COLLEGE OF ARTS, SCIENCE & COMMERCE

JAMBHUL PHATA, CHIKHLOLI,

AMBERNATH (WEST), THANE – 421505

2019-2020
 S.I.C.E. SOCIETY’S

DEGREE COLLEGE OF ARTS, SCIENCE & COMMERCE

JAMBHUL PHATA, CHIKHLOLI,

AMBERNATH (WEST), THANE – 421505

CERTIFICATE

This is to certify that MISS. NEHA RAVINDRA SINGH has worked and duly
completed his Project Work for the degree of Bachelor in Commerce (Accounting
and Finance) under the Faculty of Commerce in the subject of FINANCIAL and
his project is entitled, “A STUDY ON NON PERFORMING ASSESTS WITH
SPECIAL REFRENCES TO SBI BANK” under my supervision.

I further certify that that the entire work has been done by the learner under my
guidance and that no part of it has been previously for any Degree or Diploma of
any University.

It is his own work and facts reported by his personal findings and Investigations.

ASST. PROF. VISHAL SHINGARE

Date of Submission
 DECLARATION BY LEARNER

I the undersigned MR.NEHA RAVINDRA SINGH here by, declare that the work

embodied in this project work titled “A STUDY ON NON PERFORMING ASSETS

WITH SPECIAL REFRENCES TO SBI BANKS ”, forms my own contribution to

the research work carried under the guidance of ASST. PROF. VISHAL SHINGARE is a
result of my own research work and has not been previously submitted to any other University
for any other Degree/Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly indicated as
such as included in the bibliography.

I, here by further declare that all information of this document has been obtained and presented
in accordance with academic rules and ethical conduct.

NEHA RAVINDRA SINGH

Certified by

ASST. PROF. VISHAL SHINGARE

 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions in
the completion of this project.

I take this opportunity to thank the UNIVERSITY OF MUMBAI forgiving me chance to do

this project.

I would like to thank my Principal, DR. HARSHAL M. BACHHAV SIR for providing the
necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator ASST. PROF. VISHAL SHINGARE SIR, for
her moral support and guidance.

I would also like to express my sincere gratitude towards my project guide ASST. PROF.
VISHAL SHINGARE whose guidance and care made the project successful.

I would like to thank my COLLEGE LIBRARY, for having provided various reference books
and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of project especially my PARENTS AND PEERS who supported me throughout my
project.
CHAPTER PARTICULARS PAGES
NO. NO.
Certificate
Declaration
Acknowledgement
1 Introduction
1.1 Introduction of Non performing asset
1.2 Selection and relevance of problem
1.3 History of NPA in SBI BANKS
1.4 Brief profile of the study
1.5 Definitions of related topic
1.6 Characteristic of NPA
2 Research Methodology
2.1 Objectives of the study
2.2 Hypothesis of the study
2.3 Future scope of the study
2.4 Limitation of the study
2.5 Significance of the study
2.6 Selection of the problems
2.7 Sample size of the study
2.8 Collection of data
2.9 Tabulation of data
2.10 Research design
3 Review of literature
4 Data Analysis, Interpretation & Presentation
5 Findings, Suggestions & Conclusions
Appendix-1 : Bibliography
Appendix-2 : Questionnaire
.
1.1 ITRODUCTION ON NON PERFORMING
ASSETS

What is a Non-Performing Asset (NPA)?

 You may note that for a bank, the loans given by the bank is considered
as its assets. So if the principle or the interest or both the components of
a loan is not being serviced to the lender (bank), then it would be
considered as a Non-Performing Asset (NPA).
 Any asset which stops giving returns to its investors for a specified period
of time is known as Non-Performing Asset (NPA).
Generally, that specified period of time is 90 days in most of the
countries and across the various lending institutions. However, it is
not a thumb rule and it may vary with the terms and conditions agreed
upon by the financial institution and the borrower

A non performing assets (NPA) do not earn interest income and repayment of loan to
bank does not take place according to repayment schedule affecting income of the
bank and their by profitability . …. The term Non Performing Assets figured in the
Indian banking sector after introduction of financial sector reforms in 1992.
The banks are commercial organization and the main business of banking is
to collect the deposits from the public and lend it to the individuals, business concerns,
institution etc.
The lending business is associated with risk. One of the risks in lending is the
possibility of account becoming nonperforming assets. Non-performing assets (NPAs)
do not earn interest income and repayment of loan to bank does not take place
according to repayment schedule affecting income of the bank and their by
profitability. The non- performing assets do not generate interest but at the same time
require banks to make provision for such non- performing assets out of their current
profit.
The term Non-Performing Assets figured in the Indian banking sector after
introduction of financial sector reforms in 1992. The prudential norms on income
recognition, assets classification and provisioning thereon are implemented from the
financial year 1992-93, as per the recommendation of the committee on the Financial
System ( Narsimha Committee). These norms have brought in quantification and
objectivity into the assessment and provisioning for NPAs. Reserve Bank of India
constantly endeavors to ensure that prescriptions in this regard are close to
international norms. The efficiency of a bank is not always reflected only by the size of
its balance sheet but by the level of return on its assets. NPAs do not generate interest
income for the banks, but at the same time banks are required to make provision for
such NPAs from their current output. NPAs have an adverse effect on the return on
assets in several ways-
• They erode current profits through provisioning requirements
• They result in reduced income.
• They require higher provisioning requirements affecting profits and accretion to
capital funds and capacity to increase good quality risk assets in future.
• They limit recycling of funds, set in asset liability mismatch. 2 The banks as per the
directives of RBI classified their credit portfolio and made provisions to the quality of
the assets
 NON PERFORMING ASSETS
For Eg.
A Mortgage in default would be considered non performing . After a prolonged period
of Non Payment , the lender will force the borrowers to liquidate any assets that were
pledged as part of the debt agreement.

For example, Company XYZ has taken a loan of $100 million from Bank ADCB on
which it needs to pay $10,000 of interest every month for 5 years.
z
SBI, Union Bank to sell NPAs of Rs 2,836 crore this
month
UPDATED ON 2 JAN 2020

Banking in India originated in the last decades of the 18th century. The first banks were Bank of
Hindustan (1770-1829) and The General Bank of India, established 1786 and since defunct. The
largest bank, and the oldest still in existence, is the State Bank of India, which originated in the
Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was
one of the three presidency banks, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East India
Company. The three banks merged in 1921 to form the Imperial Bank of India, which, upon
India's independence, became the State Bank of India in 1955. For many years the presidency
banks acted as quasi-central banks, as did their successors, until the Reserve Bank of India was
established in 1935. The State Bank of India word mark usually has one Pursuant to the
provisions of the State Bank of India Act of 1955, the Reserve Bank of India, which is India's
central bank, acquired a controlling interest in the Imperial Bank of India. On 1 July 1955, the
Imperial Bank of India became the State Bank of India. In 2008 the government of India
acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest
because the RBI is the country's banking regulatory authority. In 1959, the government passed
the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI..
1.2 SELECTION AND RELEVANCE OF PROBLEM

To know about the banking sector as per financial instruments help

the customers by passing the loan and interest earned as per the
customer pay installment at a proper time.

1.3 HISTORY BACKGROUND OF THE PROBLEM.

The NPA crisis has been long in making and its genesis can be traced to events that
happened in the past couple of decades especially the onset of the economic and
financial market boom in the mid-2000s. In confluence with global trends, Indian
economy entered the exuberant phase with economic growth surging to the 9%-10%
range.

DISADVANTAGES OF NON PERFORMING ASSETS

1. REDUCED INCOME: Interest Income is the first account that gets hit whenever
an assets is declared Non Performing . Lending companies such as banks are
primarily in the business of earning income from interest paid by category has not
yielded interest for at least 90 days. Any decreases in interest payments will
translate into a decrease in net income. A company’s income level falls as the
amount of Non Performing assets climb.

2. UNRECOVERABLE PRINCIPAL: The principal, or money used by banks to

finance loans, comes largely from the banks depositor’s . Banks borrow the
money deposited by account holders and loan it to their customers. It is
imperative for the banks money in the first place. When a borrower defaults on
loan. A bank is unable to recover the principal amount . Unrecoverable principal
must be replaced by the banks its depositor’s fund intact.

3. REDUCED CASH FLOW : Companies react to high levels of Non Performing

Assets by tightening credit policies . Unrecoverable income and a decrease in
interest collections translate into cash less floating around . Lending companies
 tend to resort to tighter credit policies. The outcomes can slow down economics
growth, because some business won’t be able to obtain a loan.

4. NEGATIVE INDICATORS : Non Performing Assets can be used as indicators of

a lender’s ability to manage its loan portfolio efficiently. The efficiency of lending
companies in recovering their principal and earning interest can be measured by
comparing their Non performing assets ratio against those of per companies.
Dividing the amount of non Performing assets by the gross loans will yield this
ratio. A lending company’s efficiency rating deteriorates as the ratio increases.

Accordingly to RBI, with effect from March 31, 2004, a

Non-Performing Asset (NPA) shall be a loan or an advance
where;

(1). Interest and/ or installment of principal remain overdue for a period of

more than 90 days in respect of a term loan.

(2). The account remains ‘out of order’ for a period of more than 90 days, in
respect of an (3).Overdraft/Cash Credit.
(3). The bill remains overdue for a period of more than 90 days in the case
of bills purchased and discounted.

(4). Interest and/or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half years in the case of an
advance granted for agricultural purposes.

(5). Any amount to be received remains overdue for a period of more than
90 days in respect of other accounts.
 1.4 BRIEF PROFILE OF THE STUDY AREA .

Non-Performing Assets (NPA):

When the borrower stops paying interest or principal on a loan, the lender will
lose money. Such a loan is known as Non-Performing Asset (NPA). Indian
Banking industry is seriously affected by Non-Performing Assets.

In the best interest of our readers, we have come up with a comprehensive

post on NPAs, in which analyze the entire issue in detail. We will also list out
the entire steps taken by Government and RBI to counter the situation.

An example of NPA:
Suppose the State Bank of India (SBI) gives a loan of Rs. 10 crores to a
company

(Eg: Kingfisher Airlines). Consider that they agreed upon for an interest rate
of say 10% per annum. Now suppose that initially everything was good and
the market forces were working in support to the airline industry, therefore,
Kingfisher was able to service the interest amount. Later, due to
administrative, technical or corporate reasons suppose the company is not
able to pay the interest rates for 90 days. In that case, a loan given to the
Kingfisher Airlines is a good case for the consideration as NPA.

NPAs definition by Reserve Bank of India (RBI)

 An asset, including a leased asset, becomes nonperforming when it

ceases to generate income for the bank.

AMBERNATH MAP :

IN AMBERNATH ,,

Many of the temple and bank is located in Ambernath city. Ambernath, It

is one of the oldest city in Thane District. The city has been named from
the ancient Shiv-Mandir ‘Ambreshwar ’

History Says that, this temple was built nearly 1000 years ago and is a
unique example of Hemadpanthi sort of architectures. And again it is
included in the konkan region. The Shiv mandir of Ambernath is a
historical 11th- century Hindu temple. Still use at Ambernath near
Mumbai, in Maharashtra . It is situated in the bank of vadavan
(Waldhuni) river 2 km away from Ambernath station.
LIST OF BANK IN AMBERNATH, MUMBAI

1. BANK OF BARODA
2. JAI HIND CORPORATIONS BANK LTD .
3. ICICI BANK
4. AXIS BANK
5. SINDHUDURG SAHAKARI PATHPEDI
6. UNION BANK
7. DHANLAXMI BANK
8. PUNJAB NATIONAL BANK
9. CENTRAL BANK INDIA
10. HDFC BANK
11. TJSB BANK
12. INDIAN BANK
13. SBI BANK
1.5 DEFINITION OF RELATED TOPIC

Definition:

1. A non-performing asset (NPA) is a loan or advance for which the principal or interest
payment remained overdue for a period of 90 days.

2. A nonperforming asset (NPA) ………..

refers to a classification for loans or advances that are in default or in arrears. A loan is in arrears
when principal or interest payments are late or missed. A loan is in default when the lender
considers the loan agreement to be broken and the debtor is unable to meet his obligations.

3. Non-performing asset (NPA) is defined as a credit facility in respect of which the interest
and/or installment of principal has remained 'past due' for a specified period of time. In simple terms,
an asset is tagged as non performing when it ceases to generate income for the lender.
 1.6 CHARACTERISTICS OF NPA

NPA’S can be classified as a substandard assets , doubtful asset , or loss

asset , depending on the length of time overdue and probability of repayment. Lenders
have options to recover their losses, including taking possessions of any collateral or
selling off the loan at a significiant discount to a collection agency.

Non Performing assets ,, refers to that classification of loans and advance in the
books of a lender in which the there is no payment of interest and principal have
been received and are “past due”.. more than 90 days where payment is due on the
bank’s loans and advance move to no performing assets

Technical definition by RBI on NPA on different cases

NPA is a loan or an advance where…

 Interest and/ or installment of principal remain overdue for a period of

more than 90 days in respect of a term loan.
 The account remains ‘out of order’ in respect of an Overdraft/Cash
Credit (OD/CC).
 The bill remains overdue for a period of more than 90 days in the case of
bills purchased and discounted.
 The installment of principal or interest thereon remains overdue for two
crop seasons for short duration crops.
 The installment of principal or interest thereon remains overdue for one
crop season for long duration crops.
 The amount of liquidity facility remains outstanding for more than 90
days, in respect of a securitisation transaction undertaken in terms of
guidelines on securitisation dated February 1, 2006.
 In respect of derivative transactions, the overdue receivables
representing positive mark-to-market value of a derivative contract, if
these remain unpaid for a period of 90 days from the specified due date
for payment.
 Categories of Non-Performing Assets (NPAs)

Based upon the period to which a loan has remained as NPA, it is classified
into 3 types:

Categories of NPAs Criteria

An asset which remains as NPAs for less than or

Substandard Assets
equal to 12 months.

An asset which remained in the above category

Doubtful Assets
for 12 months.

Asset where loss has been identified by the bank

or the RBI, however, there may be some value

Loss Assets
remaining in it. Therefore loan has not been not

completely written off.

 More than Rs. 7 lakh crore worth loans are classified as Non-Performing
Loans in India. This is a huge amount.
 The figure roughly translates to near 10% of all loans given.
  This means that about 10% of loans are never paid back, resulting in
substantial loss of money to the banks.
 When restructured and unrecognised assets are added the total stress
would be 15-20% of total loans.
 NPA crisis in India is set to worsen.
 Restructuring norms are being misused.
 This bad performance is not a good sign and can result in crashing of
banks as happened in the sub-prime crisis of 2008 in the United States
of America.
 Also, the NPA problem in India is worst when comparing other emerging
economies in BRICS.

What can be the possible reasons for NPAs?

 Diversification of funds to unrelated business/fraud.

 Lapses due to diligence.
 Business losses due to changes in business/regulatory environment.
 Lack of morale, particularly after government schemes which had written
off loans.
 Global, regional or national financial crisis which results in erosion of
margins and profits of companies, therefore, stressing their balance
sheet which finally results into non-servicing of interest and loan
payments. (For example, the 2008 global financial crisis).
 The general slowdown of entire economy for example after 2011 there
was a slowdown in the Indian economy which resulted in the faster
growth of NPAs.
  The slowdown in a specific industrial segment, therefore, companies
in that area bear the heat and some may become NPAs.
 Unplanned expansion of corporate houses during the boom period and
loan taken at low rates later being serviced at high rates, therefore,
resulting in NPAs.
 Due to mal-administration by the corporate , for example, willful
defaulters.
 Due to mis-governance and policy paralysis which hampers the timeline
and speed of projects, therefore, loans become NPAs. For example the
Infrastructure Sector.
 Severe competition in any particular market segment. For example the
Telecom sector in India.
 Delay in land acquisition due to social, political, cultural and
environmental reasons.
 A bad lending practice which is a non-transparent way of giving loans.
 Due to natural reasons such as floods, droughts, disease outbreak,
earthquakes, tsunami etc.
 Cheap import due to dumping leads to business loss of domestic
companies. For example the Steel sector in India.

What is the impact of NPAs?

 Lenders suffer a lowering of profit margins.

 Stress in banking sector causes less money available to fund other
projects, therefore, negative impact on the larger national economy.
 Higher interest rates by the banks to maintain the profit margin.
 Redirecting funds from the good projects to the bad ones.
 As investments got stuck, it may result in it may result in unemployment.
 In the case of public sector banks, the bad health of banks means a bad
return for a shareholder which means that the government of India gets
less money as a dividend. Therefore it may impact easy deployment of
money for social and infrastructure development and results in social
and political cost.
 Investors do not get rightful returns.
 Balance sheet syndrome of Indian characteristics that is both the banks
and the corporate sector have stressed balance sheet and causes
halting of the investment-led development process.
 NPAs related cases add more pressure to already pending cases with
the judiciary
What are the various steps taken to tackle NPAs?

NPAs story is not new in India and there have been several steps taken by the
GOI on legal, financial, policy level reforms. In the year 1991, Narsimham
committee recommended many reforms to tackle NPAs. Some of them were
implemented.

The Debt Recovery Tribunals (DRTs) – 1993

To decrease the time required for settling cases. They are governed by the
provisions of the Recovery of Debt Due to Banks and Financial Institutions
Act, 1993. However, their number is not sufficient therefore they also suffer
from time lag and cases are pending for more than 2-3 years in many areas.

Credit Information Bureau – 2000

A good information system is required to prevent loan falling into bad hands
and therefore prevention of NPAs. It helps banks by maintaining and sharing
data of individual defaulters and willful defaulters.

Lok Adalats – 2001

They are helpful in tackling and recovery of small loans however they are
limited up to 5 lakh rupees loans only by the RBI guidelines issued in 2001.
They are positive in the sense that they avoid more cases into the legal
system.

Joint Lenders Forum – 2014

It was created by the inclusion of all PSBs whose loans have become
stressed. It is present so as to avoid loan to the same individual or company
from different banks. It is formulated to prevent the instances where one
person takes a loan from one bank to give a loan of the other bank.

Mission Indradhanush – 2015

The Indradhanush framework for transforming the PSBs represents the most
comprehensive reform effort undertaken since banking nationalization in the
year 1970 to revamp the Public Sector Banks (PSBs) and improve their
overall performance by ABCDEFG.
A-Appointments: Based upon global best practices and as per the guidelines
in the companies act, separate post of Chairman and Managing Director and
the CEO will get the designation of MD & CEO and there would be another
person who would be appointed as non-Executive Chairman of PSBs.

B-Bank Board Bureau: The BBB will be a body of eminent professionals and
officials, which will replace the Appointments Board for the appointment of
Whole-time Directors as well as non-Executive Chairman of PSBs

C-Capitalization: As per finance ministry, the capital requirement of extra

capital for the next four years up to FY 2019 is likely to be about Rs.1,80,000
crore out of which 70000 crores will be provided by the GOI and the rest PSBs
will have to raise from the market.

D-Destressing: PSBs and strengthening risk control measures and NPAs

disclosure.

E-Employment: GOI has said there will be no interference from Government

and Banks are encouraged to take independent decisions keeping in mind the
commercial the organizational interests.

F-Framework of Accountability: New KPI(key performance indicators)

which would be linked with performance and also the consideration of ESOPs
for top management PSBs.

G-Governance Reforms: For Example, Gyan Sangam, a conclave of PSBs

and financial institutions. Bank board Bureau for transparent and meritorious
appointments in PSBs.
 IMPACT OF NON PERFORMING ASSETS IN BANKS

The bank plays an important role in the economy of a country by performing it’s the most
important function known as credit creation.
The bank creates credit in various forms such as loans and advances, cash credit; bank over draft
etc. in this manner the bank creates money supply into the market.
The banks give these loans and advances, cash credit, bank over draft to the individuals, firms,
companies, government, etc. in this sense the bank plays role of a lender of money and all these
parties play the role of borrower.
Unfortunately the credit provided by the bank doesn’t come back to the bank. This creates bad
debts, which is known as Non Performing Assets (NPA) in the terminology of bank. For the last
a few years the NPA of banks is increasing tremendously.

Several steps have been undertaken by the RBI and the government
of India to curb the increasing NPA of Indian banks, but these steps have not been proved to be
successful. Majority of banks are suffering from the problem of NPA and it has attracted intense
debate and attention across banking industries in the corporate finance. The reports and review of
literature reveals that increasing NPA worsens the efficiency of the bank and in turn the
profitability decreases.

 Now a day the increasing NPA has become the burning issue in banking sector. This problem is
more critical in nationalized banks. Under this section of the research, the researcher has made
efforts to check impact of NPAs on profitability of the banks.

 LIQUIDITY POSITION
If the bank evaluates less capital the future business concern, which affects the
position of banks and creating a mismatch between the assets and liability and they
force the bank to raise the resources at a high rate. So, there will be an impact on the
profitability of banks, were they not able to recover the amount from the borrower the
level of profits will come down.
 UNDERMINE BANK’S IMAGE
Increase in non-performing assets which shadows the domestic markets and global
level markets, on that situation the bank profitability decreases which lead to the bad
image to banks.
 EFFECT ON FUNDING
Increase in non-performing assets leads to scarcity in funding to other borrowers. As
well as the Indian capital market also get affected. And then there will be only a few
banking institutions lend money.
 HIGHER COST OF CAPITAL
It shall result in increasing the cost of capital as banks will now have to keep aside more
funds for smooth operations.
 HIGH RISK
High on non-performing assets, low profitability, high risk in business and work against
the bank and may take the two circumstances survival of the bank. And it affects the
risk-bearing capacity of the bank.
 BANK PROFITABILITY
The which makes low profits have lower capital adequacy ratio and the low capital ratio
which limits the further creation of assets. Such kind of banks face difficulties in their
growth, expansion, and plans and there they need not wherewithal to march boldly on
these fronts. In these growth failures in the expansion, the only consequences and
stagnation and negative growth.
They reduce net interest income as they do not charge the interest to these accounts.
Servicing non-performing assets need to be prudentially provided for. This will again
lead to reduced profitability.
 Corporate governance: A consultative group has been set up by Dr. A.S. Ganguly by
the reserve bank to review all the banks and financial institution and obtain compliance,
transparency, and records and making regarding recommendations for the board of
directors with a view to minimizing the risks. The group is now finalizing the guidelines
and supervise the effective control on boards over non-performing assets.

CAUSES FOR RISING NON-PERFORMING ASSETS IN INDIA

The banking sector is the pillar for the economy. Through the banking sector, only the
country can check the accountability which likely to cause hinder of the economy. To
reduce the non-performing assets bank must work efficiently and must have the
reasons to forecast the reasons to cause the non-performing assets on bad loans. The
problems for rising of non-performing divided into three categories, first Is on the initial
performance of internal banking, second the causes arise from the accountability of
borrowers were on the borrowers tend to consider as the main cause for the rise of
NPA, third other causes which happens outside the circumstances of the banking
system.
 CAUSES RESPONSIBLE TO BANKS
The Reserve bank of India has said that poor credit appraisal skills to lenders have
resulted in a high level of stress over resulting in bad loans over the last five years. One
of the major hinders the non-performing assets management of bank which is
inadequate credit appraisal capacities were the banks that know the only consulting firm
and a few other desks in the selective bank (1). A loan may be bad because of the
selection of wrong borrowers. The lender may not have the full and true disclose
material facts about the borrower since the data which is not systematically distributed
by the financial system. That’s why the potential borrower has more information than
other to exploit the lender with less information. The borrowers tend to give misleading
information to the lender which make even worse to take a decision by the lender. So,
the challenge faced by the bank is on choosing the right borrower. In that situation, the
 bank needs to reject the wrong borrower through better investigation. At the same time,
honest borrowers must be distinguished from the wrong borrowers. Such borrower
engages in high risk of activities which turn the loan into default loan causing problems
to the bank (2). Moreover, the management does not have enough capacity on its
lending facilities.
 CAUSES RESPONSIBLE TO BORROWER
Longer gestation time is held between the transaction with the bank, were the bank
according to its transaction the importance is not equally distributed and hence there is
a lack of management in banks over borrowers. Apart from that the diversion of funds to
unrelated business or fraud lapses in initial borrowers due to the due diligence and
inefficiencies in the monitoring process for the reasons of bad loans in the bank (3). And
there is an inadequate research and development over the borrower.
 OTHER CAUSES
Political warfare comes to the picture were in the present mode government that which
made a discussion in parliament that non-performing assets have gone up to 10lakh
crore Indian rupee till March 2018 and its now 12lakh crore Indian rupee. About 9.57
lakh crore non-performing were on Modi government. Through many criticisms made by
politician and activists over the government that put the bank in the insecure situation.
And many parliamentary debates were going to reduce and regulations to control the
non-performing assets (4). The RBI direction on referring companies to the national
company law tribunal could push the non-performing assets to clean up the process to
end its game, this process has been already initiated for few cases. An estimated more
than 70%of cases to be restructured in upcoming periods (5).
IMPACT OF NPA ON BANKS
 LIQUIDITY POSITION
If the bank evaluates less capital the future business concern, which affects the
position of banks and creating a mismatch between the assets and liability and they
force the bank to raise the resources at a high rate. So, there will be an impact on the
profitability of banks, were they not able to recover the amount from the borrower the
level of profits will come down.
 UNDERMINE BANK’S IMAGE
Increase in non-performing assets which shadows the domestic markets and global
level markets, on that situation the bank profitability decreases which lead to the bad
image to banks.
 EFFECT ON FUNDING
Increase in non-performing assets leads to scarcity in funding to other borrowers. As
well as the Indian capital market also get affected. And then there will be only a few
banking institutions lend money.
 HIGHER COST OF CAPITAL
It shall result in increasing the cost of capital as banks will now have to keep aside more
funds for smooth operations.
 HIGH RISK
 High on non-performing assets, low profitability, high risk in business and work against
the bank and may take the two circumstances survival of the bank. And it affects the
risk-bearing capacity of the bank.
 BANK PROFITABILITY
The which makes low profits have lower capital adequacy ratio and the low capital ratio
which limits the further creation of assets. Such kind of banks face difficulties in their
growth, expansion, and plans and there they need not wherewithal to march boldly on
these fronts. In these growth failures in the expansion, the only consequences and
stagnation and negative growth.
They reduce net interest income as they do not charge the interest to these accounts.
Servicing non-performing assets need to be prudentially provided for. This will again
lead to reduced profitability.

 Corporate governance: A consultative group has been set up by Dr. A.S. Ganguly by
the reserve bank to review all the banks and financial institution and obtain compliance,
transparency, and records and making regarding recommendations for the board of
directors with a view to minimizing the risks. The group is now finalizing the guidelines
and supervise the effective control on boards over non-performing asset
2. RESEARCH METHODOLOGY

 WHAT IS RESEARCH ?

Research is the process of finding solutions to a problem after a thorough

study and analysis of the situational factors.

Managers in organization constantly engage themselves in studying and

analysis issues and hence , are involved in some form of research activity
as they make decisions at the workplace

Sometimes management makes good decisions and the problem gets

solved .

Sometimes managers make poor decisions and the problem persists .

The difference between making good decisions and poor decisions , lies in
how managers go to about the decisions making process.

2.1. OBJECTIVES :

 To study the status of Non Performing Assets SBI BANKS in AMBERNATH.

 To study the impact of NPA’S on banks.

 To know the recovery of NPA’A through various channels.

 To make appropriate suggestions to avoid future NPA’S and to manage existing NPA’S
in banking.

 To identify the factors responsible for NPAs in SBI BANK by analysing the perceptions
of the defaulting borrowers .

 To offer suggestions for policy issues in dealing with the problem of NPAs.
Chapter.5 conclusion and suggestion

CONCLUSION
The increase of non-performing assets is always a problem to the banks and it has a direct impact
on the profitability of banks. The bank and government must take steps to effect the process of
recovery from bad loans and other problems related to bad loans.
This paper reflects about the causes and impact of non-performing assets, and this article
picturizes the comparative analysis between private sector banks and public sector banks with
regard to gross NPA.
The banks and government must adopt a various adequate policy to reduce the NPA. The banks
must take precautionary measures before the borrower obtain a loan, which the borrower can
affect to create a bad loan to banks.
 The author concludes by the suggestion to reduce NPA and formal methods to control the NPA.
The bank must provide loans to those who have better creditworthiness so if then only the bad
loans can prevent.

SUGGESTIONS TO NPA IN BANKS

 Debt recovery tribunals: According to Narasimhan committee report (1991) suggested

setting up tribunals to reduce set up for cases. There are only 22 debt recovery tribunals
and debt recovery appellate tribunals not sufficient to solve problems. So, setting up
more tribunals will the solution to reduce the problems of NPA to banks.

 Securitization Act 2002: Securitization and reconstruction Act 2002. In this act enables
the bank to issue notice for defaulters for the recovery of money within 60 days. The
notice contains that the property will not sell or dispose of without the consent of the
lender. The securitization Act empowers more powers to the bank to take over the
possession of the assets of the management of the company. The lenders can recover
the property after the debt amount is recovered by the bank and the property can be
discharged by the lender. And enables to acquire the non-performing According to the
provisions of the Act, Asset Reconstruction Company of India Ltd. with eight
shareholders and an initial capital of Rs. 10 crores have been set up. The eight
shareholders are HDFC, HDFC Bank, IDBI, IDBI Bank, SBI, ICICI, Federal Bank and
South Indian Bank (6).

 Lok Adalats: lok adalats is the best way to recover the loans. According to the RBI
guidelines issues in 2001 were they cover up NPA about 5laks rupees, the suit filed and
non-filed will be covered.

 Compromise settlements: It is the simplest way to recover non-performing assets. The

compromise settlements scheme will applicable advances under 10crore rupees. It
covers the cases which are filed and pending in debt tribunal tribunals and debt
recovery appellate tribunal. Cases which obtained by fraud and wilful distress will be
excluded.

 Credit information bureau: the information is necessary to prevent turning from loans
to non-performing assets. If there is a defaulter in one bank and the information about
the defaulter should be delivered to all banks. So, that the bad loans can be set aside.
The credit information bureau can help to maintain the record which can be assessed
by other financial institutions.
 Corporate governance: A consultative group has been set up by Dr. A.S. Ganguly by
the reserve bank to review all the banks and financial institution and obtain compliance,
transparency, and records and making regarding recommendations for the board of
directors with a view to minimizing the risks. The group is now finalizing the guidelines
and supervise the effective control on boards over non-performing assets.