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A
PROJECT REPORT
ON
MANAGEMENT OF NPA IN PNB
Submitted in partial fulfillment of the requirements of the award of
degree of
MASTER OF BUSINESS ADMINISTRATION
FROM

ARNI SCHOOL OF BUSINESS MANAGEMENT

MARCH 2012

Submitted to: ASBM, ARNI UNIVERSITY

KATHGARH (INDORA), KANGRA (H.P)
www.arni.in

Submitted By: PARVINDER KUMAR SAHOTRA

(AEMB0046A/10)
MBA -4th SEM.
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DECLARATION
I, Parvinder Kumar Sahotra Roll No/ID _AEMB0046A/10 M.B.A. Final year (semester IV) of Arni
School of Business Management hereby declare that the final project Report entitled
“MANAGEMENT OF NPA IN PNB” is an original work and the same has not been submitted to
any other University/Organization for the award of any other degree.

Countersigned
Director/Dean/Coordinator

(PARVINDER KUMAR SAHOTRA)

CERTIFICATE BY THE GUIDE

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This is to certify that Parvinder Kumar Sahotra, student of M.B.A. 4th semester at ARNI
UNIVERSITY has completed his project entitled “MANAGEMENT OF NPA IN PNB” Under my
supervision. To the best of my knowledge and belief, this is his original work and this wholly or
partly has not been submitted for any degree of this or any other university. I appreciate his
efforts during his project and wish him Best of Luck for the future. The contents of this report
have been verified and up to date.

Dr. Ravikant Swami

Project guide

ACKNOWLEDGEMENTS
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I would like to express my gratitude to all those who gave me the opportunity to Complete this
project. I would like to thank my institute authorities and my Internal guide Dr. Ravikant Swami
first for providing me the opportunity to work with one of the prestigious organization like PNB
and all faculty members.

I would like to say thanks the Senior Manager Mr. Rakesh Kumar Verma, Manager Subhash
kumar and other Staff members who helped and encouraged me to go ahead with my project
while proving their valuable suggestions.

I am deeply indebted to my faculty whose constant help, stimulating suggestions and

encouragement helped me in giving the final shape to this project.

I would like to give my special thanks to my parents & my friends their constant
support enabled me to complete their project work.

(PARVINDER KUMAR SAHOTRA)

AEMB0046A/10

MBA-3 rd

CONTENTS
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Declaration
Certificate by guide
Acknowledgements

Chapter 1
Introduction to project (1)
 Abstract (2)
 Literature Review (3)
 Objective of study (5)

Chapter 2
Banking Industry (6)
 Indian Banking System (7)
 Nationalization of banks (9)
 India banking structure (13)
 Role of banks & FIs in economy (17)

Chapter 3
PNB (22)
 History (22)
 Vision & mission (22)
 Management (23)
 Subsidiaries and joint ventures (26)
 Important facts about PNB (28)
 Product (29)
 SWOT analysis (29)

Chapter 4
NPA (31)
 Meaning and definition (32)
 Credit risk and NPA (34)
 Types of NPA (35)
 Impact of NPA on banks and economy (35)
 Factors for rise in NPA (37)
 Problems due to NPA (41)
 Tools for recovery (42)

Chapter 5
Research methodology (47)
 Objective & scope of study (48)
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 Research Process (48)

Chapter 6
Data analysis and interpretation (50)
 Deposits of public sector banks (52)
 Advance of public sector banks (53)
 Gross NPA of public sector banks (54)
 Net NPA of public sector banks (55)
 NPA of Pvt. sector Banks (percentage of Net NPA to advances) (56)
 Gross and Net NPA of Foreign Banks in INDIA (57)
 Data Analysis of PNB organization (59)
 Data Analysis of PNB Branch Indora (66)

Chapter 7
Findings & recommendations (72)
 Findings (73)
 Recommendations (74)

Chapter 8
Limitations (76)

Chapter 9
Conclusion (78)

Chapter 10
References (81)
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Chapter 1
INTRODUCTION

o Abstract
o Literature review
o Objective of the study

ABSTRACT
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Strong banking system of India helped a lot to survive in slowdowns and economic meltdowns.
As India is a developing nation it needs more resources and infrastructure to speed up its
growth in all sectors.

Banking sector is an emerging sector now a days, providing lot of jobs, helping in development
by accepting deposits, extending credits, and also offering various other important financial
services.

While making lot of profits, the accumulation of huge non-performing assets on the other hand
in banks has assumed great importance. The depth of the problem of bad debts was first
realized only in early 1990s. The magnitude of NPAs in banks and financial institutions is over
Rs.1, 50,000 crore.

While gross NPA reflects the quality of the loans made by banks, net NPA shows the actual
burden of banks. Now it is increasingly evident that the major defaulters are the big borrowers
coming from the non-priority sector. The banks and financial institutions have to take the
initiative to reduce NPAs in a time bound strategic approach.

Public sector banks figure prominently in the debate not only because they dominate the
banking industries, but also since they have much larger NPAs compared with the private sector
banks. This raises a concern in the industry and academia because it is generally felt that NPAs
reduce the profitability of a bank, weaken its financial health and erode its solvency.

For the recovery of NPAs a broad framework has evolved for the management of NPAs under
which several options are provided for debt recovery and restructuring. Banks and FIs have the
freedom to design and implement their own policies for recovery and write-off incorporating
compromise and negotiated settlements.

LITERATURE REVIEW
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Magazine name – CAPITAL MARKET Dec. 2009 issue

The article taken for reference from this magazine and the article is named “Short term pains,
long-term gain” on Pg.-4. It discusses about the rising NPAs, increase in provision coverage,
sluggish credit off take and dwindling treasury income. It states that these measures are going
to set ways for better valuations. It tells about how the BSE Bankex has outperformed the BSE
Sensex by recording robust returns of 174%. It discusses about various banks namely

Bank of India, Union Bank of India, State Bank of India, Bank of Baroda, Punjab National Bank
and IndusInd Bank have reached their all time high during Oct. – Nov. 2009 period. It discusses
about the preparedness of various banks for reducing NPAs i.e. by improving capital adequacy
ratio, increasing the minimum provision coverage ratio, introducing new policies for broader
interest rate regime, creating more transparent system and extending banking reach. It also
discusses about the benchmark prime lending rate (BPLR) concept of RBI which helps to ensure
appropriate pricing of loans.

Magazine name – BUSINESS TODAY Dec. 2009 issue

The magazine gives us the data about the various commercial banks operating in India and
Ranks them according to four group’s namely large banks, Mid–size banks, Small banks and
Very Small banks. From the data given in the magazine done by BT-KPMG study is clear that
despite the global credit crisis continues to take its toll- last month the 100th US bank collapsed
since Lehman Brothers the Indian Banks continue to do business as usual and the result is given
in numbers through this survey.

Research Paper – “A comparative study of Non Performance Assets in India” by Prashanth K

Reddy, IIM- Ahmadabad

This article discusses about the financial sector reform in India which has progressed rapidly on
aspects like interest rate deregulation, reduction in reserve requirements, barriers to entry,
prudential norms and risk based supervision but the progress on the structural-institutional
aspects has been much slower and is a cause for concern. It tells about what changes are
required to tackle the NPA problem. This paper also deals with the experiences of other Asian
countries in handling of NPAs. It also suggests mechanisms to handle the problem by drawing
on experiences from other countries

Report on “Maximizing Value of Non-Performing Assets” by Organization for Co-Operation

and Development (OECD)

This report deals with the changing dynamics in Asian Non Performing Loans and the
sociological reflections on Insolvency reforms in East Asia. But more importantly it mentions
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different country reports of Asian region. In case of India “Sumant Batra” discusses the
developments in India. It tells us about what is NPA and gives an overview of non performing
assets in India. It also discusses about the factors contributing to NPAs and its impact on the
working of commercial banks. The legal reforms and the RBI guidelines for NPAs are discussed.

Research Paper on “Rooting Out Non-Performing Assets” by Nachiket Mor, ICICI research
centre The paper attempts to highlight some major micro-level issues that are at the root of
why unsustainable performance levels are being observed within Banks. The authors argue that
unless the micro level issues are dealt with, even after the systemic issues are resolved, the
problem of NPAs or other failures of the intermediation process may resurface with greater
intensity. The manner in which banks manage the three phases in the life cycle of an asset
(creation, monitoring and recovery) determines the quality of the intermediation process
within a bank. In this paper, the need for internally consistent business models to guide the
behavior of a bank in each of these three phases is discussed.

OBJECTIVES OF THE STUDY

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The basic idea behind undertaking the Grand Project on NPA was to:

• To know about the concept of NPA

• To understand the causes & effects of NPA
• To study the past trends of NPA.
• To evaluate NPAs (Gross and Net) in PNB and other public sector banks, Pvt. Sector
banks & foreign banks operating in INDIA.
• To see whether INDIAN banking industry is following international norms regarding NPA
or not.
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Chapter 2
INDUSTRY PROFILE

o Indian banking system

o History
o Nationalization of banks
o Indian banking structure
o Role of banks and financial institutions in economy

INDIAN BANKING SYSTEM

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History

The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian Banking System can be segregated into three distinct phases. They are as
mentioned below:

 Early phase from 1786 to 1969 of Indian Banks

 Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
 New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.

Phase(1)

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These
three banks were amalgamated in 1920 and Imperial Bank of India was established which
started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National
Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of
India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore
were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline
the functioning and activities of commercial banks, the Government of India came up with The
Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per
amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive
powers for the supervision of banking in India as the Central Banking Authority.

During those day’s public has lesser confidence in the banks. As an aftermath deposit
mobilization was slow. Abreast of it the savings bank facility provided by the Postal department
was comparatively safer. Moreover, funds were largely given to traders.

Phase(2)

Government took major steps in this Indian Banking Sector Reform after independence. In
1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale
especially in rural and semi-urban areas. It formed State Bank of India to act as the principal
agent of RBI and to handle banking transactions of the Union and State Governments all over
 P a g e | 15

the country.

Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July,
1969, major process of nationalization was carried out. It was the effort of the then Prime
Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were
nationalized.

Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under Government
ownership. 

The following are the steps taken by the Government of India to Regulate Banking Institutions
in the Country:

 1949: Enactment of Banking Regulation Act.

 1955: Nationalization of State Bank of India.
 1959: Nationalization of SBI subsidiaries.
 1969: Nationalization of 14 major banks with deposits over 50 crore.
 1971: Creation of credit guarantee corporation.
 1975: Creation of regional rural banks.
 1980: Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and immense
confidence about the sustainability of these institutions.

Phase(3)

This phase has introduced many more products and facilities in the banking sector in its reforms
measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his
name which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking and net banking is introduced. The entire
system became more convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis
triggered by any external macroeconomics shock as other East Asian Countries suffered. This is
all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is
 P a g e | 16

not yet fully convertible, and banks and their customers have limited foreign exchange
exposure.

Nationalization of banks

In order to have more control over the banks 14 large commercial banks whose reserves were
more than Rs. 50 crore each was nationalized on July 19, 1969. The banks were:

1. Central bank of India

2. Bank of India
3. Punjab national bank
4. Canara bank
5. United commercial bank
6. Syndicate bank
7. Bank of broad
8. United bank of India
9. Union bank of India
10. Dena bank
11. Allahabad bank
12. Indian bank
13. Indian overseas bank
14. Bank of Maharashtra

On April 15, 1980 those private sector banks whose reserves were more than rs. 200 cr. Each
was nationalized. These banks were:

1. Andhra bank
2. Punjab & sindh bank
3. New bank of India
4. Vijaya bank
5. Corporation bank
6. Oriental bank of commerce

In September 1993 the New bank of India was merged with Punjab National Bank.
These nationalized banks with regional rural banks (RRBs), come under the category of public
sector commercial banks. Other kind of commercial banks are private sector commercial banks.
At present there are 20 nationalized banks beside the RBI.

Indian Banking: A Paradigm shift-A regulatory point of view

The decade gone by witnessed a wide range of financial sector reforms, with many of them still
in the process of implementation. Some of the recently initiated measures by the RBI for risk
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management systems, anti money laundering safeguards and corporate governance in banks,
and regulatory framework for non bank financial companies, urban cooperative banks,
government debt market and forex clearing and payment systems are aimed at streamlining
the functioning of these instrumentalities besides cleansing the aberrations in these areas.
Further, one or two all India development financial institutions have already commenced the
process of migration towards universal banking set up. The banking sector has to respond to
these changes, consolidate and realign their business strategies and reach out for technology
support to survive emerging competition. Perhaps taking note of these changes in domestic as
well as international arena All of we will agree that regulatory framework for banks was one
area which has seen a sea-change after the financial sector reforms and economic liberalization
and globalization measures were introduced in 1992-93. These reforms followed broadly the
approaches suggested by the two Expert Committees both set up under the chairmanship of
Shri M. Narasimham in 1991 and 1998, the recommendations of which are by now well known.
The underlying theme of both the Committees was to enhance the competitive efficiency and
operational flexibility of our banks which would enable them to meet the global competition as
well as respond in a better way to the regulatory and supervisory demand arising out of such
liberalization of the financial sector. Most of the recommendations made by the two Expert
Committees which continued to be subject matter of close monitoring by the Government of
India as well as RBI have been implemented. Government of India and RBI has taken several
steps to:-

(a) Strengthen the banking sector,

(b) Provide more operational flexibility to banks,
(c) Enhance the competitive efficiency of banks, and
(d) Strengthen the legal framework governing operations of banks.

Regulatory measures taken to strengthen the Indian Banking sectors

The important measures taken to strengthen the banking sector are briefly, the
Following:
• Introduction of capital adequacy standards on the lines of the Basel norms,
• Prudential norms on asset classification, income recognition and provisioning,
• Introduction of valuation norms and capital for market risk for investments
• Enhancing transparency and disclosure requirements for published accounts,
• Aligning exposure norms – single borrower and group-borrower ceiling – with
Inter-national best practices

• Introduction of off-site monitoring system and strengthening of the supervisory

Framework for banks.

(A) Some of the important measures introduced to provide more operational flexibility to
banks are:
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• Besides deregulation of interest rate, the boards of banks have been given the authority to fix
their prime lending rates. Banks also have the freedom to offer variable rates of interest on
deposits, keeping in view their overall cost of funds.
• Statutory reserve requirements have significantly been brought down.
• The quantitative firm-specific and industry-specific credit controls were abolished and banks
were given the freedom to deploy credit, based on their commercial judgment, as per the policy
approved by their Boards.
• The banks were given the freedom to recruit specialist staff as per their requirements,
• The degree of autonomy to the Board of Directors of banks was substantially enhanced.
• Banks were given autonomy in the areas of business strategy such as, opening of branches /
administrative offices, introduction of new products and certain other operational areas.

(B) Some of the important measures taken to increase the competitive efficiency of banks
are the following:

• Opening up the banking sector for the private sector participation.

• Scaling down the shareholding of the Government of India in nationalized banks and of the
Reserve Bank of India in State Bank of India.

(C) Measures taken by the Government of India to provide a more conducive legal
environment for recovery of dues of banks and financial institutions are:

• Setting up of Debt Recovery Tribunals providing a mechanism for expeditious loan recoveries.
• Constitution of a High Power Committee under former Justice Shri Eradi to suggest
appropriate foreclosure laws.
• An appropriate legal framework for securitization of assets is engaging the attention of the
Government.

Due to this paradigm shift in the regulatory framework for banks had achieved the desired
results. The banking sector has shown considerable degree of resilience.

(a) The level of capital adequacy of the Indian banks has improved: the CRAR of public sector
banks increased from an average of 9.46% as on March 31, 1995 to11.18% as on March 31,
2001.

(b) The public sector banks have also made significant progress in enhancing their asset quality,
enhancing their provisioning levels and improving their profits.
• The gross and net NPAs of public sector banks declined sharply from 23.2% and 14.5% in
1992-93 to 12.40% and 6.7% respectively, in 2000-01.
• Similarly, in regard to profitability, while 8 banks in the public sector recorded operating and
net losses in 1992-93, all the 27 banks in the public sector showed operating profits and only
two banks posted net losses for the year ended March31, 2001.
• The operating profit of the public sector banks increased from Rs.5628 crore as on March 31,
1995 to Rs.13,793 crore as on March 31, 2001.
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• The net profit of public sector banks increased from Rs.1116 crore to Rs.4317crore during the
same period, despite tightening of prudential norms on provisioning against loan losses and
investment valuation. The accounting treatment for impaired assets is now closer to the
international best practices and the final accounts of banks are transparent and more amenable
to meaningful interpretation of their performance.

INDIAN BANKING STRUCTURE

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RBI

The central bank of the country is the Reserve Bank of India (RBI). It was established in April
1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton
Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which
was entirely owned by private shareholders in the beginning. The Government held shares of
nominalvalueofRs.2,20,000.

Reserve Bank of India was nationalized in the year 1949. The general superintendence and
direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor
and four Deputy Governors, one Government official from the Ministry of Finance, ten
nominated Directors by the Government to give representation to important elements in the
economic life of the country, and four nominated Directors by the Central Government to
represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New
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Delhi. Local Boards consist of five members each Central Government appointed for a term of
four years to represent territorial and economic interests and the interests of co-operative and
indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934)
provides the statutory basis of the functioning of the Bank.

1. Issue of notes
2. Banker to banks
3. Banker to government
4. Custodian of foreign reserves
5. Controller of credit
6. Supervisory functions
7. Promotional functions

Scheduled Banks

A scheduled bank is a bank that is listed under the second schedule of the RBI Act, 1934. In
order to be included under this schedule of the RBI Act, banks have to fulfill certain conditions
such as having a paid up capital and reserves of at least 0.5 million and satisfying the Reserve
Bank that its affairs are not being conducted in a manner prejudicial to the interests of its
depositors. Scheduled banks are further classified into commercial and cooperative banks. The
basic difference between scheduled commercial banks and scheduled cooperative banks is in
their holding pattern. Scheduled cooperative banks are cooperative credit institutions that are
registered under the Cooperative Societies Act. These banks work according to the cooperative
principles of mutual assistance.

Scheduled Commercial Banks (SCBs):

Scheduled commercial banks (SCBs) account for a major proportion of the business of the
scheduled banks. As at end-March, 2009, 80 SCBs were operational in India. SCBs in India are
categorized into the five groups based on their ownership and/or their nature of operations.
State Bank of India and its associates are recognized as a separate category of SCBs, because of
the distinct statutes (SBI Act, 1955 and SBI Subsidiary Banks Act, 1959) that govern them.
Nationalized banks (19) and SBI and associates (7), together form the public sector banks
group and control around 70% of the total credit and deposits businesses in India. IDBI ltd. has
been included in the nationalized banks group since December 2004. Private sector banks
include the old private sector banks and the new generation private sector banks- which were
incorporated according to the revised guidelines issued by the RBI regarding the entry of
private sector banks in 1993. As at end-March 2009, there were 15 old and 7 new generation
private sector banks operating in India.
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Foreign banks are present in the country either through complete branch/subsidiary route
presence or through their representative offices. At end-June 2009, 32 foreign banks were
operating in India with 293 branches. Besides, 43 foreign banks were also operating in India
through representative offices.

Regional Rural Banks (RRBs) were set up in September 1975 in order to develop the rural
economy by providing banking services in such areas by combining the cooperative specialty of
local orientation and the sound resource base which is the characteristic of commercial banks.
RRBs have a unique structure, in the sense that their equity holding is jointly held by the
central government, the concerned state government and the sponsor bank (in the ratio
50:15:35), which is responsible for assisting the RRB by providing financial, managerial and
training aid and also subscribing to its share capital.

Between 1975 and 1987, 196 RRBs were established. RRBs have grown in geographical
coverage, reaching out to increasing number of rural clientele. At the end of June 2008, they
covered 585 out of the 622 districts of the country. Despite growing in geographical coverage,
the number of RRBs operational in the country has been declining over the past five years due
to rapid consolidation among them. As a result of state wise amalgamation of RRBs sponsored
by the same sponsor bank, the number of RRBs fell to 86 by end March 2009.

Scheduled Cooperative Banks:

Scheduled cooperative banks in India can be broadly classified into urban credit cooperative
institutions and rural cooperative credit institutions. Rural cooperative banks undertake long
term as well as short term lending. Credit cooperatives in most states have a three tier
structure (primary, district and state level).

Non-Scheduled Banks

Non-scheduled banks also function in the Indian banking space, in the form of Local Area
Banks (LAB). As at end-March 2009 there were only 4 LABs operating in India. Local area banks
are banks that are set up under the scheme announced by the government of India in 1996,
for the establishment of new private banks of a local nature; with jurisdiction over a maximum
of three contiguous districts. LABs aid in the mobilization of funds of rural and semi urban
districts. Six LABs were originally licensed, but the license of one of them was cancelled due to
irregularities in operations, and the other was amalgamated with Bank of Baroda in 2004 due
to its weak financial position.

All India Financial Institution

National Bank for Agriculture and Rural Development (NABARD)

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is an apex development bank in India having headquarters based in Mumbai (Maharashtra) and

other branches are all over the country. NABARD was established on the recommendations of
Shivaraman Committee, by an act of Parliament on 12 July 1982 to implement the National
Bank for Agriculture and Rural Development Act 1981, and its main focus was to uplift rural
India by increasing the credit flow for elevation of agriculture & rural non farm sector and
completed its 25 years on 12 July 2007.It has been accredited with "matters concerning policy,
planning and operations in the field of credit for agriculture and other economic activities in
rural areas in India". RBI sold its stake in NABARD to the Government of India, which now holds
99% stake.

Small Industries Development Bank of India (SIDBI)

SIDBI is an independent financial institution aimed to aid the growth and development of
micro, small and medium-scale enterprises in India. Set up on April 2, 1990 through an act of
parliament, it was incorporated initially as a wholly owned subsidiary of Industrial Development
Bank of India. Current shareholding is widely spread among various state-owned banks,
insurance companies and financial institutions. Beginning as a refinancing agency to banks and
state level financial institutions for their credit to small industries, it has expanded its activities,
including direct credit to the SME through 100 branches in all major industrial clusters in India.
Besides, it has been playing the development role in several ways such as support to micro-
finance institutions for capacity building and on lending. Recently it has opened seven branches
christened as Micro Finance branches, aimed especially at dispensing loans up to Rs. 5.00 lakh.

Export-Import Bank of India (EXIM)

EXIM is the premier export finance institution of the country, established in 1982 under the
Export-Import Bank of India Act 1981 to provide financial assistance to industrial enterprises

Industrial development bank (IDBI)

IDBI is an Indian financial service company headquartered Mumbai, India. RBI categorized IDBI
as an "other public sector bank". It was established in 1964 by an Act of Parliament to provide
credit and other facilities for the development of the fledgling Indian industry. It is currently
10th largest development bank in the world in terms of reach with 1514 ATMs, 923 branches
including one overseas branch at DIFC, Dubai and 621 centers including two overseas centers at
Singapore & Beijing. Some of the institutions built by IDBI are the Securities and Exchange
Board of India (SEBI), National Stock Exchange of India (NSE), the National Securities Depository
Limited (NSDL), the Stock Holding Corporation of India Limited (SHCIL), the Credit Analysis &
Research Ltd, the Exim Bank (India)(Exim Bank), the Small Industries Development Bank of
India(SIDBI), the Entrepreneurship, and IDBI BANK, which is owned by the Indian Government.
IDBI Bank is on a par with nationalized banks and the SBI Group as far as government
ownership is concerned. It is one among the 26 commercial banks owned by the Government of
India.
 P a g e | 24

ROLE OF BANKS AND FINANCIAL INSTITUTIONS IN INDIAN ECONOMY

In India, as in many developing countries, the commercial banking sector has been the
Dominant element in the country’s financial system. The sector has performed the key
functions of providing liquidity and payment services to the real sector and has accounted for
the Bulk of the financial intermediation process. Besides institutionalizing savings, the banking
sector has contributed to the process of economic development by serving as a major source of
credit to households, government, and business and to weaker sectors of the economy like
village and small scale industries and agriculture. Over the years, over 30-40% of gross
household savings have been in the form of bank deposits and around 60% of the assets of all
financial institutions accounted for by commercial banks. An important landmark in the
development of banking sector in recent years has been the initiation if reforms following the
recommendations of the first Narasimham Committee on Financial System. In reviewing the
strengths and weaknesses of these banks, the Committee suggested several measures to
transform the Indian banking sector from a highly regulated to amore market oriented system
and to enable it to compete effectively in an increasingly globalised environment. Many of
the recommendations of the Committee especially those pertaining to Interest rate, an
institution of prudential regulation and transparent accounting norms were inline with banking
policy reforms implemented by a host of developing countries since 1970‟s.

Modern Day Role 

Banking system and the Financial Institutions play very significant role in the economy. First and
foremost is in the form of catering to the need of credit for all the sections of society. The
modern economies in the world have developed primarily by making best use of the credit
availability in their systems. An efficient banking system must cater to the needs of high end
investors by making available high amounts of capital for big projects in the industrial,
infrastructure and service sectors. At the same time, the medium and small ventures must also
have credit available to them for new investment and expansion of the existing units. Rural
sector in a country like India can grow only if cheaper credit is available to the farmers for their
short and medium term needs.
 
Credit availability for infrastructure sector is also extremely important. The success of any
financial system can be fathomed by finding out the availability of reliable and adequate credit
for infrastructure projects. Fortunately, during the past about one decade there has been
increased participation of the private sector in infrastructure projects.
 
The banks and the financial institutions also cater to another important need of the society i.e.
mopping up small savings at reasonable rates with several options. The common man has the
 P a g e | 25

option to park his savings under a few alternatives, including the small savings schemes
introduced by the government from time to time and in bank deposits in the form of savings
accounts, recurring deposits and time deposits. Another option is to invest in the stocks or
mutual funds.
 
In addition to the above traditional role, the banks and the financial institutions also perform
certain new-age functions which could not be thought of a couple of decades ago. The facility of
internet banking enables a consumer to access and operate his bank account without actually
visiting the bank premises. The facility of ATMs and the credit/debit cards has revolutionized
the choices available with the customers. The banks also serve as alternative gateways for
making payments on account of income tax and online payment of various bills like the
telephone, electricity and tax. The bank customers can also invest their funds in various stocks
or mutual funds straight from their bank accounts. In the modern day economy, where people
have no time to make these payments by standing in queue, the service provided by the banks
is commendable.
 
While the commercial banks cater to the banking needs of the people in the cities and towns,
there is another category of banks that looks after the credit and banking needs of the people
living in the rural areas, particularly the farmers. Regional Rural Banks (RRBs) have been
sponsored by many commercial banks in several States. These banks, along with the
cooperative banks, take care of the farmer-specific needs of credit and other banking facilities.

 
Future
Till a few years ago, the government largely patronized the small savings schemes in which not
only the interest rates were higher, but the income tax rebates and incentives were also in
plenty. The bank deposits, on the other hand, did not entail such benefits. As a result, the small
savings were the first choice of the investors. But for the last few years the trend has been
reversed. The small savings, the bank deposits and the mutual funds have been brought at par
for the purpose of incentives under the income tax. Moreover, the interest rates in the small
savings schemes are no longer higher than those offered by the banks.
 
Banks today are free to determine their interest rates within the given limits prescribed by the
RBI. It is now easier for the banks to open new branches. But the banking sector reforms are
still not complete. A lot more is required to be done to revamp the public sector banks. Mergers
and amalgamation is the next measure on the agenda of the government. The government is
also preparing to disinvest some of its equity from the PSU banks. The option of allowing
foreign direct investment beyond 50 per cent in the Indian banking sector has also been under
consideration.
 
Banks and financial intuitions have played major role in the economic development of the
country and most of the credit- related schemes of the government to uplift the poorer and the
under-privileged sections have been implemented through the banking sector. The role of the
banks has been important, but it is going to be even more important in the future.   
 P a g e | 26

A proper financial sector is of special importance for the economic growth of developing and
underdeveloped countries. The commercial banking sector which forms one of the backbones
of the financial sector should be well organized and efficient for the growth dynamics of
a growing economy. No underdeveloped country can progress without first setting up a sound
system of commercial banking. The importance of a sound system of commercial banking for a
developing country may be depicted as follows:

Capital Formation
The rate of saving is generally low in an underdeveloped economy due to the existence of deep-
rooted poverty among the people. Even the potential savings of the country cannot be realized
due to lack of adequate banking facilities in the country. To mobilize dormant savings and to
make them available to the entrepreneurs for productive purposes, the development of a
sound system of commercial banking is essential for a developing economy.

Monetization
An underdeveloped economy is characterized by the existence of a large no monetized sector,
particularly, in the backward and inaccessible areas of the country. The existence of this non
monetized sector is a hindrance in the economic development of the country. The banks, by
opening branches in rural and backward areas, can promote the process of monetization in the
economy.

Innovations
Innovations are an essential prerequisite for economic progress. These innovations are mostly
financed by bank credit in the developed countries. But the entrepreneurs in underdeveloped
countries cannot bring about these innovations for lack of bank credit in an adequate measure.
The banks should, therefore, pay special attention to the financing of business innovations by
providing adequate and cheap credit to entrepreneurs.

Finance for Priority Sectors

The commercial banks in underdeveloped countries generally hesitate in extending financial
accommodation to such sectors as agriculture and small scale industries, on account of the risks
involved there in. They mostly extend credit to trade and commerce where the risk involved is
far less .But for the development of these countries it is essential that the banks take risk in
extending credit facilities to the priority sectors, such as agriculture and small scale industries.

Provision for Medium and Long term Finance

The commercial banks in underdeveloped countries invariably give loans and advances for a
short period of time. They generally hesitate to extend medium and long term loans to
businessmen. As is well known, the new business need medium and long term loans for their
proper establishment. The commercial banks should, therefore, change their policies in favor
of granting medium and long term accommodation to business and industry.

Cheap Money Policy

 P a g e | 27

The commercial banks in an underdeveloped economy should follow cheap money policy to
stimulate economic activity or to meet the threat of business recession. In fact, cheap money
policy is the only policy which can help promote the economic growth of an underdeveloped
country. It is heartening to note that recently the commercial banks have reduced their lending
interest rates considerably.

Need for a Sound Banking System

A sound system of commercial banking is an essential prerequisite for the economic
development of a backward country
 P a g e | 28

Chapter 3
COMPANY PROFILE

o PNB History
o Vision & mission
o Management
o Subsidiaries & joint ventures
o Important facts about PNB
o SWOT analysis

PNB
 P a g e | 29

Punjab National Bank (PNB) is an Indian financial services company based in New Delhi, India.
PNB is the third largest bank in India by assets. It was founded in 1894 and is currently the
second largest state-owned commercial bank in India ahead of Bank of Baroda with about 5000
branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th
biggest bank in the world by the Bankers Almanac, London. The bank's total assets for financial
year 2007 were about US$60 billion. PNB has a banking subsidiary in the UK, as well as
branches in Hong Kong, Dubai and Kabul, and representative offices in Almaty, Dubai, Oslo,
and Shanghai.

HISTORY
Punjab National Bank was registered on 19 May 1894 under the Indian Companies Act with its
office in Anarkali Bazaar Lahore. The founding board was drawn from different parts of India
professing different faiths and a varied back-ground with, however, the common objective of
providing country with a truly national bank which would further the economic interest of the
country. PNB's founders included several leaders of the Swadeshi movement such as Dyal Singh
Majithia and Lala HarKishen Lal, Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri
Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Rai was actively associated
with the management of the Bank in its early years. The board first met on 23 May 1894.PNB
has the distinction of being the first Indian bank to have been started solely with Indian capital
that has survived to the present.

VISION

"To be a Leading Global Bank with Pan India footprints and become a household brand in the
Indo-Gangetic Plains providing entire range of financial products and services under one roof"

MISSION

"Banking for the unbanked"

MANAGEMENT
 P a g e | 30

Board of Directors

o Shri. K.R.Kamath
Chairman & Managing Director
and Dy. Chairman of Indian Banks Association

o Shri. Rakesh Sethi

Executive Director

o Smt. Usha Ananthasubramanian

Executive Director

Directors

o Shri. Anurag Jain

Govt. of India Nominee Director

o Shri. Jasbir Singh

Reserve Bank of India Nominee Director

o Shri. M P Singh
Workmen Employees Director

o Shri. Pradeep Kumar

Officer Director

o Shri. M A Antulay
Part-time non-official Director

o Shri. B B Chaudhry
Part-time non-official Director
 P a g e | 31

PROFILE

With over 60 million satisfied customers and more than 5100 offices including 5 overseas
branches, PNB has continued to retain its leadership position amongst the nationalized banks.
The bank enjoys strong fundamentals, large franchise value and good brand image. Besides
being ranked as one of India's top service brands, PNB has remained fully committed to its
guiding principles of sound and prudent banking. Apart from offering banking products, the
bank has also entered the credit card, debit card; bullion business; life and non-life insurance;
Gold coins & asset management business, etc. PNB has earned many awards and accolades
during the year in appreciation of excellence in services, Corporate Social Responsibility (CSR)
practices, transparent governance structure, best use of technology and good human resource
management.
 
Since its humble beginning in 1895 with the distinction of being the first Swadeshi Bank to have
been started with Indian capital, PNB has achieved significant growth in business which at the
end of March 2011 amounted to Rs 5,55,005 crore. PNB is ranked as the 2nd largest bank in the
country after SBI in terms of branch network, business and many other parameters. During the
FY 2010-11, with 39.16% share of CASA to domestic deposits, the Bank achieved a net profit of
Rs 4433 crore. Bank has a strong capital base with capital adequacy ratio of 12.42% as on
Mar’11 as per Basel II with Tier I and Tier II capital ratio at 8.44% and 3.98% respectively. As on
March’11, the Bank has the Gross and Net NPA ratio of 1.79% and 0.85% respectively. During
the FY 2010-11, its ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40.67% &
Agriculture Credit to Adjusted Net Bank Credit at 19.30% was also higher than the stipulated
requirement of 40% & 18% respectively.
 
The Bank has been able to maintain its stakeholders’ interest by posting an improved NIM of
3.96% in Mar’11 (3.57% Mar’10). The Earning per Share improved to Rs 140.60 (Rs 123.86
Mar’10) while the Book value per share improved to Rs 661.20 (Rs 514.77 Mar’10). Punjab
National Bank continues to maintain its frontline position in the Indian banking industry. In
particular, the bank has retained its NUMBER ONE position among the nationalized banks in
terms of number of branches, Deposit, Advances, total Business, Assets, Operating and Net
profit in the year 2010-11. The impressive operational and financial performance has been
brought about by Bank’s focus on customer based business with thrust on CASA deposits,
Retail, SME & Agri Advances and with more inclusive approach to banking; better asset liability
management; improved margin management, thrust on recovery and increased efficiency in
core operations of the Bank. The performance highlights of the bank in terms of business and
profit are shown below:

Rs. In Crore
 P a g e | 32

Parameters Mar'09 Mar'10 Mar'11 CAGR (%)

Operating Profit 5690 7326 9056 26.16
Net Profit 3091 3905 4433 19.76
Deposit 209760 249330 312899 22.14
Advance 154703 186601 242107 25.10
Total Business 364463 435931 555005 23.40

Bank always looked at technology as a key facilitator to provide better customer service and
ensured that its ‘IT strategy’ follows the ‘Business strategy’ so as to arrive at “Best Fit”. The
Bank has made rapid strides in this direction. All branches of the Bank are under Core Banking
Solution (CBS) since Dec’08, thus covering 100% of its business and providing ‘Anytime
Anywhere’ banking facility to all customers including customers of more than 3200 rural & semi
urban branches. The Bank has also been offering Internet banking services to its customers
which also enables on line booking of rail tickets, payment of utilities bills, purchase of airline
tickets, etc. Towards developing a cost effective alternative channels of delivery, the Bank with
5050 ATMs has the largest ATM network amongst Nationalized Banks.
 
With the help of advanced technology, the Bank has been a frontrunner in the industry so far as
the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth, the Bank’s
mission is “Banking for Unbanked”. The Bank has launched a drive for biometric smart card
based technology enabled Financial Inclusion with the help of Business
Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer. The
Bank has started several innovative initiatives for marginal groups like rickshaw pullers,
vegetable vendors, dairy farmers, construction workers, etc. Bank has launched a welfare
scheme of adoption of village viz., “PNB VIKAS”. Under the scheme, Bank has selected 117
villages (60 in lead districts and 57 in non lead district) in different circles for all-round
improvement in the living standards of the villagers. Besides, Bank has formed “PNB PRERNA”,
an association of the wives of the Bank’s senior management. The association through its
voluntary initiatives has undertaken activities like distribution of food to the poor and needy,
provision of computers, books, stationary items to poor girl students at various orphanages and
schools etc.
 
Backed by strong domestic performance, the Bank is planning to realize its global aspirations.
Bank has opened one branch each at Kabul and Dubai, two branches at Hong Kong and an Off
Shore Banking Unit at Mumbai. In addition to the above, Bank has Representative offices at
Almaty, Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK with 7 branches and a
subsidiary each in Kazakhstan & Bhutan, and  joint venture with Everest Bank Ltd. Nepal. 
During the year, Bank acquired majority equity stake of 63.64% in Dana Bank of Kazakhstan.

SUBSIDIARIES AND JOINT VENTURES

 P a g e | 33

Overseas

Punjab National Bank (International) Limited (PNBIL) is a wholly owned UK

subsidiary of Punjab National Bank, India. PNBIL was incorporated in UK on
13th April 2006 and registered with the Companies House in England  & Wales
under No. 5781326. PNBIL was authorised by the Financial Services Authority
(FSA) on 13th April 2007 to conduct Banking Business in UK under Registration
No. 459701. PNBIL started banking operations in UK on 10th of May 2007 from
two locations. The corporate office of PNBIL is at 87, Gresham Street, London
EC2V 7NQ (UK). Presently PNBIL has 7 Branches as under:
1.     At 87, Gresham Street, London EC2V 7NQ(UK)
2.     At 90, South Road, Southall, Middlesex UB1 1RD (UK)
3.     At 160 Belgrave Road, Leicester LE4 5AU (UK)
4.     At 290 Soho Road, Birmingham B21 9LZ (UK)
5.     At 47, Crane book Road, Ilford, Essex, London(UK)
6.    At 188 Ealing Road, Wembley HA0 4QD (UK)
7.    At 502-504 Dudley Road, Wolverhampton, WV2 3AA  
 
DRUK PNB Bank Ltd
Druk PNB Bank Ltd. (DPNBL) is our Joint Venture Subsidiary in Bhutan with our
Equity participation to the extent of 51%. It started operations on 27 th January,
2010 and has three branches- one each at Thimphu, Phentsholing and
Wangduephodrang.
Sh N.K. Arora, DGM is the CEO.
Contact details of Sh. N.K. Arora are :
Phone No. 00975- 17116440
E Mail id : nk_arora@pnb.co.in
  

JSC (SB) PNB Kazakhstan

Our bank has acquired 80.95% stake in JSC (SB) PNB, Kazakhstan. The bank has
its head quarters in Almaty. It has five branches at Almaty, Pavlador, Karganda,
Astana & Taraz.

Everest Bank Ltd, Kathmandu, Nepal

Everest Bank Limited (EBL) is our joint venture in Nepal with equity
participation to the extent of 20%. Under a Technical Services Agreement, our
Bank is providing Top Management Support. The operations of EBL with
Management Support from our Bank started in January, 1997. EBL presently
has a network of 44 branches in Nepal. EBL has started ‘Financial Inclusion’
concept in Nepal.
 P a g e | 34

Domestic Subsidiaries
 
1. PNB GILTS LTD.
PNB Gilts Ltd., a subsidiary of the Bank, is engaged in the business of trading in
Govt. securities, treasury bills and Non SLR Investments. It is also engaged in
dealing in Money Market Instruments (Call/Notice/Term Money, Repo /Reverse
Repo, Inter-corporate Deposits, Commercial Paper, Certificate of Deposit) and 
Mutual Funds Distribution. The company is listed at NSE and BSE.
 
 2. PNB HOUSING FINANCE LTD
PNB Housing Finance Ltd. is engaged in providing housing loans for purchase,
construction and upgradation of a dwelling unit. The company offers Loans for
construction or for purchase of house/flat from development authorities and
also from private builders/ group housing societies as well as for renovation/
repairs. Company also provides finance for construction of residential projects.
Loans to NRIs are also provided for purchase/ construction of house/ flat along
with a resident/ non-resident co-borrower.
 
3. PNB INVESTMENT SERVICES LTD
PNB Investment Services Ltd, a wholly owned subsidiary, has been set up by the
Bank for carrying out Merchant Banking Business. It provides services for
Project Appraisal, Loan Syndication, Debt Placement and to executes
IPOs/FPO/QIPs. PNBISL is registered with SEBI as a Category- I Merchant
Banker.
  
 

4. PNB INSURANCE BROKING Pvt. Ltd.

5. PNB LIFE INSURANCE Co. Ltd.

The Bank is holding majority stake in above two companies, jointly with Vijaya
Bank, minor shareholder.

Domestic Joint Ventures

The Bank has the following Joint Ventures:
1.     Principal PNB Asset Management Company Pvt. Ltd
2.     Principal Trustee Company Pvt. Ltd
3.     Assets Care Enterprises Ltd.
4.     India Factoring & Finance Solutions Pvt. Ltd.
 P a g e | 35

 
AWARDS (recent)

PNB Awarded “Overall Best Corporate Social Responsibility” Awards 2012

PNB Awarded SKOCH Award on Financial Inclusion 2012
PNB bags Most Socially Responsive Bank Award 2011 
PNB receives Best Bank Award-2011
PNB Bags Most Productive Public Sector Bank Award
PNB Bags MSME National Awards

 
PNB Awarded Golden Peacock HR Excellence Award-2011
PNB Awarded "IT for Internal Effectiveness" Awards
PNB Awarded Rajbhasha Awards
PNB adjudged Best Managed Bank by SCOPE
Wind Power India 2011 Awards
PNB Awarded SKOCH Challenger Award 2011 on Financial Inclusion
PNB Awarded Best Technology Bank 2010

SOME IMPORTANT FACTS ABOUT PNB (as on march 2012)

o Total branches 5674

o Circle office 65

o Employees 60000(approx)

o Revenue 31206 crore (2011)

o Net income 4574 crore (2011)

o Total assets 373786 crore (2011)

o fortune India 500 Ranking #26 in 2011

o Forbes global ranking #1243 in 2000

 P a g e | 36

PRODUCTS OFFERED

o Saving fund
o Fixed deposit scheme
o Credit scheme
o Current account
o Card
o Insurance
o Gold
o Mutual fund

SWOT ANALYSIS OF BANK

STRENGTHS:
o Strong growth in business
o Good branch network
o Highest CASA among PSU
o Highest NIMs compared to peers
o Fine growth in fee income last year
o De-risked investment portfolio
o Adequate Capital
o Proactive on technology front.

WEAKNESS:
o Higher Delinquencies
o Higher provisions deterring growth in net profits
o No development on insurance venture
 P a g e | 37

o Slower growth on international front

o Slow-down in treasury profits
o Its subsidiaries PNB Housing Finance & PNB Gilts are not impressive

OPPORTUNITIES:
o Expansion on international front
o Ample opportunity to expand business, as the economy is doing well.
o Growth in Insurance and Mutual Fund business

THREATS:
o Entry of foreign banks
o Sharp rise in interest rates can hamper economic growth
o Regulatory amendments
o Implementation of Basel II requires higher capital
o Downturn in Agriculture growth
 P a g e | 38

Chapter 4
NPA

o Meaning & definition

o Credit risk and NPA
o Types of NPA
o Impact on banking and economy
o Factors for rise in NPA
o Problems due to NPA
o Tool for recovery
 P a g e | 39

NPA

The three letters Strike terror in banking sector and business circle today. NPA is short form of
“Non Performing Asset”. The dreaded NPA rule says simply this: when interest or other due to a
bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non
performing asset. The recovery of loan has always been problem for banks and financial
institution. To come out of these first we need to think is it possible to avoid NPA, no cannot be
then left is to look after the factor responsible for it and managing those factors.

A loan or lease that is not meeting its stated principal and interest payments. Banks usually
classify as non performing assets as any commercial loans which are more than 90 days
overdue and Consumer loan which is more than 180 days overdue
More generally an asset which is not producing income after a stated period is called NPA.
Borrower has to deposit a certain amount of money in to his loan a/c for up gradation to make
his a/c non-NPA.
Definitions:
An asset, including a leased asset, becomes non-performing when it ceases to generate income
for the bank.
A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest
and/ or installment of principal has remained ‘past due’ for a specified period of time.

With a view to moving towards international best practices and to ensure greater transparency,
it has been decided to adopt the ‘90 days’ overdue’ norm for identification of NPAs, from the
year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing
asset (NPA) shall be a loan or an advance where;

o Interest and/ or installment of principal remain overdue for a period of more than
90 days in respect of a term loan,

o The account remains ‘out of order’ for a period of more than 90 days, in respect of
an Overdraft/Cash Credit (OD/CC),

o The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,

o 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.
 P a g e | 40

As a facilitating measure for smooth transition to 90 days norm, banks have been advised to
move over to charging of interest at monthly rests, by April 1, 2002. However, the date of
classification of an advance as NPA should not be changed on account of charging of interest at
monthly rests. Banks should, therefore, continue to classify an account as NPA only if the
interest charged during any quarter is not serviced fully within 180 days from the end of the
quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from
March 31, 2004.

Classification of assets into the following broad groups, viz.

1. Standard Assets
2. Sub-standard Assets
3. Doubtful Assets
4. Loss Assets

Standard Assets

Standard Asset is one which does not disclose any problems and which does not carry more
than normal risk attached to the business. Such an asset should not be an NPA.

Sub-standard Assets

1. With effect from March 31, 2005 an asset would be classified as sub-standard if it
remained NPA for a period less than or equal to 12 months. In such cases, the current
net worth of the borrowers/ guarantors 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 assets 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
2. An asset where the terms of the loan agreement regarding interest and principal have
been re-negotiated or rescheduled after commencement of production, should be
classified as sub-standard and should remain in such category for at least 12 months of
satisfactory performance under the re-negotiated or rescheduled terms. In other words,
the classification of an asset should not be upgraded merely as a result of rescheduling,
unless there is satisfactory compliance of this condition.

Doubtful Assets
 P a g e | 41

With effect from March 31, 2005, an asset is required to be classified as doubtful, if it has
remained NPA for more than 12 months. For Tier I banks, the 12-month period of classification
of a substandard asset in doubtful category is effective from April 1, 2009. As in the case of sub-
standard assets, rescheduling does not entitle the bank to upgrade the quality of an advance
automatically. A loan classified as doubtful has all the weaknesses inherent as that classified as
sub-standard, with the added characteristic that the weaknesses make collection or liquidation
in full, on the basis of currently known facts, conditions and values, highly questionable and
improbable.
Note: Consequent to change in asset classification norms w.e.f. March 31, 2005 banks are
permitted to phase the consequent additional provisioning over a five year period commencing
from the year ended March 31, 2005, with a minimum of 10 % of the required provision in each
of the first two years and the balance in equal installments over the subsequent three years.

Loss Assets

A loss asset is one where loss has been identified by the bank or internal or external auditors or
by the Co-operation Department or by the Reserve Bank of India inspection but the amount has
not been written off, wholly or partly. In other words, such an asset is considered un-collectible
and of such little value that its continuance as a bankable asset is not warranted although there
may be some salvage or recovery value.

CREDIT RISK AND NPAs

Quite often credit risk management (CRM) is confused with managing non-performing assets
(NPAs). However there is an appreciable difference between the two. NPAs are a result of past
action whose effects are realized in the present i.e. they represent credit risk that has already
materialized and default has already taken place.

On the other hand managing credit risk is a much more forward-looking approach and is mainly
concerned with managing the quality of credit portfolio before default takes place. In other
words, an attempt is made to avoid possible default by properly managing credit risk.

Considering the current global recession and unreliable inforn1ation in finaI1cial statements,
there is high credit risk in the banking and lending business.

To create a defense against such uncertainty, bankers are expected to develop an effective
internal credit risk models for the purpose of credit risk management.
 P a g e | 42

TYPES OF NPA

A] Gross NPA
B] Net NPA

A] Gross NPA:
Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines
as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It
consists of all the non-standard assets like as sub-standard, doubtful, and loss assets.
It can be calculated with the help of following ratio:

Gross NPAs Ratio = Gross NPAs

Gross Advances

B] Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs.
Net NPA shows the actual burden of banks. Since in India, bank balance sheets contain a huge
amount of NPAs and the process of recovery and write off of loans is very time consuming, the
provisions the banks have to make against the NPAs according to the central bank guidelines,
are quite significant. That is why the difference between gross and net NPA is quite high.
It can be calculated by following

Net NPAs = Gross NPAs – Provisions

Gross Advances - Provisions

IMPACT OF NPA ON BANKS AND FIs IN INDIA

To start with, performance in terms of profitability is a benchmark for any business enterprise
including the banking industry. However, increasing NPAs have a direct impact on banks
profitability as legally banks are not allowed to book income on such accounts and at the
sometime are forced to make provision on such assets as per the Reserve Bank of India (RBI)
guidelines. Also, with increasing deposits made by the public in the banking system, the banking
 P a g e | 43

industry cannot afford defaults by borrower s since NPAs affects the repayment capacity of
banks.

Further, Reserve Bank of India (RBI) successfully creates excess liquidity in the system through
various rate cuts and banks fail to utilize this benefit to its advantage due to the tear of
burgeoning non-performing assets.

Followings are the impact of NPA on banks

Profitability:
NPA means booking of money in terms of bad asset, which occurred due to wrong choice of
client. Because of the money getting blocked the prodigality of bank decreases not only by the
amount of NPA but NPA lead to opportunity cost also as that much of profit invested in   some
return earning project/asset. So NPA doesn’t affect current profit but also future stream of
profit, which may lead to loss of some long-term beneficial opportunity. Another impact of
reduction in profitability is low ROI (return on investment), which adversely affect current
earning of bank.

Liquidity:
Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to
borrowing money for shot\rtes period of time which lead to additional cost to the company.
Difficulty in operating the functions of bank is another cause of NPA due to lack of money.

Involvement of management:
Time and efforts of management is another indirect cost which bank has to bear due to NPA.
Time and efforts of management in handling and managing NPA would have diverted to some
fruitful activities, which would have given good returns. Now day’s banks have special
employees to deal and handle NPAs, which is additional cost to the bank.

Credit loss:
Bank is facing problem of NPA then it adversely affect the value of bank in terms of market
credit. It will lose its goodwill and brand image and credit which have negative impact to the
people who are putting their money in the banks.

Not only banks get hit due to rising NPA but our economy also getting a big jolt from the same.
As India is a developing nation and need fund for the infrastructure and development, So NPA
needs to be managed. Deficit financing is not a good method to cover all losses & increased
need of fund because it makes an adverse impact on economy as well.

INDIAN ECONOMY AND NPAs

 P a g e | 44

Undoubtedly the world economy has slowed down, recession is at its peak, globally stock
markets have tumbled and business itself is getting hard to do. The Indian economy has been
much affected due to high fiscal deficit, poor infrastructure facilities, sticky legal system, cutting
of exposures to emerging markets by FIs, etc.

Further, international rating agencies like, Standard & Poor have lowered India’s credit rating
to sub-investment grade. Such negative aspects have often outweighed positives such as
increasing forex reserves and a manageable inflation rate.

Under such a situation, it goes without saying that banks are no exception and are bound to
face the heat of a global downturn. One would be surprised to know that the banks and
financial institution in India hold nonperforming assets worth Rs. 110000 crores Bankers have
realized that unless the level of NPAs is reduced drastically, they will find it difficult to survive.

GLOBAL DEVELOPMENTS AND NPAs

The core banking business is of mobilizing the deposits and utilizing it for lending to industry.
Lending business is generally encouraged because it has the effect of funds being transferred
from the system to productive purposes, which results into economic growth.

However lending also carries credit risk, which arises from the failure of borrower to fulfill its
contractual obligations either during the course of a transaction or on a future obligation.

A question that arises is how much risk can a bank afford to take? Recent happenings in the
business world -Enron, WorldCom, Xerox, Global Crossing do not give much confidence to
banks. In case after case, these giant corporate becan1e bankrupt and failed to provide
investors with clearer and more complete information thereby introducing a degree of risk that
many investors could neither anticipate nor welcome. The history of financial institutions also
reveals the fact that the biggest banking failures were due to credit risk. Due to this, banks are
restricting their lending operations to secured avenues only with adequate collateral on which
to fall back upon in a situation of default.

FACTORS FOR RISE IN NPAs

The banking sector has been facing the serious problems of the rising NPAs. But the problem of
NPAs is more in public sector banks when compared to private sector banks and foreign banks.
The NPAs in PSB are growing due to external as well as internal factors.

EXTERNAL FACTORS

(A) Ineffective recovery tribunal

 P a g e | 45

The Govt. has set numbers of recovery tribunals, which works for recovery of loans and
advances. Due to their negligence and ineffectiveness in their work the bank suffers the
consequence of non-recover, thereby reducing their profitability and liquidity.

(B) Willful Defaults

There are borrowers who are able to pay back loans but are intentionally withdrawing it. These
groups of people should be identified and proper measures should be taken in order to get back
the money extended to them as advances and loans.

(C) Natural calamities

This is the major factor, which is creating alarming rise in NPAs of the PSBs. every now and
then India is hit by major natural calamities thus making the borrowers unable to pay back
there loans. Thus the bank has to make large amount of provisions in order to compensate
those loans, hence end up the fiscal with a reduced profit.

Mainly ours farmers depends on rain fall for cropping. Due to irregularities of rain fall the
farmers are not to achieve the production level thus they are not repaying the loans.

(D) Industrial sickness

Improper project handling , ineffective management , lack of adequate resources , lack of
advance technology , day to day changing govt. Policies give birth to industrial sickness. Hence
the banks that finance those industries ultimately end up with a low recovery of their loans
reducing their profit and liquidity.

(E) Lack of demand

Entrepreneurs in India could not foresee their product demand and starts production which
ultimately piles up their product thus making them unable to pay back the money they borrow
to operate these activities. The banks recover the amount by selling of their assets, which
covers a minimum label. Thus the bank records the non-recovered part as NPAs and has to
make provision for it.

(F) Change on Govt. policies

With every new govt. banking sector gets new policies for its operation. Thus it has to cope with
the changing principles and policies for the regulation of the rising of NPAs.

The fallout of handloom sector is continuing as most of the weavers Co-operative societies have
become defunct largely due to withdrawal of state patronage. The rehabilitation plan worked
out by the Central government to revive the handloom sector has not yet been implemented.
So the over dues due to the handloom sectors are becoming NPAs.
 P a g e | 46

INTERNAL FACTORS

(A) Defective Lending process

There are three cardinal principles of bank lending that have been followed by the
commercial banks since long.
i. Principles of safety
ii. Principle of liquidity
iii. Principles of profitability

i. Principles of safety :-

By safety it means that the borrower is in a position to repay the loan both principal
and interest. The repayment of loan depends upon the borrowers:

a) Capacity to pay depends upon:

1. Tangible assets
2. Success in business
b) Willingness to pay depends on:
1. Character
2. Honest
3. Reputation of borrower

The banker should, therefore take utmost care in ensuring that the enterprise or
business for which a loan is sought is a sound one and the borrower is capable of
carrying it out successfully .He should be a person of integrity and good character.

(B) Inappropriate technology

Due to inappropriate technology and management information system, market driven
decisions on real time basis cannot be taken. Proper MIS and financial accounting
system is not implemented in the banks, which leads to poor credit collection, thus NPA.
All the branches of the bank should be computerized.

(C) Improper SWOT analysis

The improper strength, weakness, opportunity and threat analysis is another reason for
rise in NPAs. While providing unsecured advances the banks depend more on the
honesty, integrity, and financial soundness and credit worthiness of the borrower.

 Banks should consider the borrowers own capital investment.

 it should collect credit information of the borrowers from_
a. From bankers.
 P a g e | 47

b. Enquiry from market/segment of trade, industry, business.

c. From external credit rating agencies.
 Analyze the balance sheet.
True picture of business will be revealed on analysis of profit/loss a/c and
balance sheet.
 Purpose of the loan
When bankers give loan, he should analyze the purpose of the loan. To ensure
safety and liquidity, banks should grant loan for productive purpose only. Bank
should analyze the profitability, viability, long term acceptability of the project
while financing.

(D) Poor credit appraisal system

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal
the bank gives advances to those who are not able to repay it back. They should use
good credit appraisal to decrease the NPAs.

(E) Managerial deficiencies

The banker should always select the borrower very carefully and should take tangible
assets as security to safe guard its interests. When accepting securities banks should
consider the_

1. Marketability
2. Acceptability
3. Safety
4. Transferability.

The banker should follow the principle of diversification of risk based on the
famous maxim “do not keep all the eggs in one basket”; it means that the banker should
not grant advances to a few big farms only or to concentrate them in few industries or
in a few cities. If a new big customer meets misfortune or certain traders or industries
affected adversely, the overall position of the bank will not be affected.
Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand loom industries. The
biggest defaulters of OSCB are the OTM (117.77lakhs), and the handloom sector Orissa
hand loom WCS ltd (2439.60lakhs).

(F) Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of
bank officials to the customer point decreases the collection of interest and principals
on the loan. The NPAs due to willful defaulters can be collected by regular visits.

(G) Re loaning process

 P a g e | 48

Non remittance of recoveries to higher financing agencies and re loaning of the same
have already affected the smooth operation of the credit cycle. Due to re loaning to the
defaulters and CCBs and PACs, the NPAs of OSCB is increasing day by day.

PROBLEMS DUE TO NPA

1. Owners do not receive a market return on their capital .in the worst case, if the banks
fails, owners lose their assets. In modern times this may affect a broad pool of
shareholders.

2. Depositors do not receive a market return on saving. In the worst case if the bank fails,
depositors lose their assets or uninsured balance.

3. Banks redistribute losses to other borrowers by charging higher interest rates, lower
deposit rates and higher lending rates repress saving and financial market, which
hamper economic growth.

4. Nonperforming loans epitomize bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital, and by extension, labor and natural resources.

Nonperforming asset may spill over the banking system and contract the money stock, which
may lead to economic contraction. This spillover effect can channelize through liquidity or bank
insolvency:

a) When many borrowers fail to pay interest, banks may experience liquidity shortage. This
can jam payment across the country.

b) Illiquidity constraints bank in paying depositors

c) Undercapitalized banks exceed the bank’s capital base.

'Out of Order' status:

An account should be treated as 'out of order' if the outstanding balance remains

continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding
balance in the principal operating account is less than the sanctioned limit/drawing power, but
there are no credits continuously for six months as on the date of Balance Sheet or credits are
not enough to cover the interest debited during the same period, these accounts should be
treated as 'out of order'.
 P a g e | 49

‘Overdue’:
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on
the due date fixed by the bank.

TOOLS FOR RECOVERY OF NPA

Once NPA occurred, one must come out of it or it should be managed in most efficient manner.
Legal ways and means are there to overcome and manage NPAs. We will look into each one of
it.

1 Willful Default:-

A] Lok Adalat and Debt Recovery Tribunal

B] Securitization Act
C] Asset Reconstruction

Lok Adalat:
Lok Adalat institutions help banks to settle disputes involving account in “doubtful” and “loss”
category, with outstanding balance of Rs.5 lakh for compromise settlement under Lok Adalat.
Debt recovery tribunals have been empowered to organize Lok Adalat to decide on cases of
NPAs of Rs. 10 lakh and above. This mechanism has proved to be quite effective for speedy
justice and recovery of small loans. The progress through this channel is expected to pick up in
the coming years.

Debt Recovery Tribunals (DRT):

The recovery of debts due to banks and financial institution passed in March 2000 has helped in
strengthening the function of DRTs. Provision for placement of more than one recovery officer,
power to attach defendant’s property/assets before judgment, penal provision for
disobedience of tribunal’s order or for breach of any terms of order and appointment of
receiver with power of realization, management, protection and preservation of property are
expected to provide necessary teeth to the DRTs and speed up the recovery of NPAs in the
times to come. DRTs which have been set up by
the Government to facilitate speedy recovery by banks/DFIs, have not been able make much
impact on loan recovery due to variety of reasons like inadequate number, lack of
infrastructure, under staffing and frequent adjournment of cases. It is essential that DRT
mechanism is strengthened and vested with a proper enforcement mechanism to enforce their
orders. On observation of any order passed by the tribunal should amount to contempt of
court, the DRT should have right to initiate contempt proceedings. The DRT should empowered
to sell asset of the debtor companies and forward the proceed to the winding – up court for
distribution among the lenders.
 P a g e | 50

2 Inabilities to Pay

Consortium arrangements:
Asset classification of accounts under consortium should be based on the record of recovery of
the individual member banks and other aspects having a bearing on the recoverability of the
advances. Where the remittances by the borrower under consortium lending arrangements are
pooled with one bank and/or where the bank receiving remittances is not parting with the
share of other member banks, the account will be treated as not serviced in the books of the
other member banks and therefore, be treated as NPA. The banks participating in the
consortium should, therefore, arrange to get their share of recovery transferred from the lead
bank or get an express consent from the lead bank for the transfer of their share of recovery, to
ensure proper asset classification in their respective books.

3 Restructuring / Rescheduling of Loans

A standard asset where the terms of the loan agreement regarding Interest and principal have
been renegotiated or rescheduled after commencement of production should be classified as
sub-standard and should remain in such category for at least one year of satisfactory
performance under the renegotiated or rescheduled terms. In the case of sub-standard and
doubtful assets also, rescheduling does not entitle a bank to upgrade the quality of advance
automatically unless there is satisfactory performance under the rescheduled / renegotiated
terms. Following representations from banks that the foregoing stipulations deter the banks
from restructuring of standard and sub-standard loan assets even though the modification of
terms might not jeopardize the assurance of repayment of dues from the borrower, the norms
relating to restructuring of standard and sub-standard assets were reviewed in March2001. In
the context of restructuring of the accounts, the following stages at which the restructuring /
rescheduling / renegotiation of the terms of
Loan agreement could take place, can be identified:

1) Before commencement of commercial production;

2) After commencement of commercial production but before the asset has been classified as
substandard,
3) After commencement of commercial production and after the asset has been classified as
substandard.

In each of the foregoing three stages, the rescheduling, etc., of principal and/or of interest
could take place, with or without sacrifice, as part of the restructuring package evolved.

4 Treatments of Restructured Standard Accounts:

A rescheduling of the installments of principal alone, at any of the aforesaid first two stages
would not cause a standard asset to be classified in the substandard category provided the
loan/credit facility is fully secured.
 P a g e | 51

A rescheduling of interest element at any of the foregoing first two stages would not cause an
asset to be downgraded to substandard category subject to the condition that the amount of
sacrifice, if any, in the element of interest, measured in present value terms, is either written
off or provision is made to the extent of the sacrifice involved. For the purpose, the future
interest due as per the original loan agreement in respect of an account should be discounted
to the present value at a rate appropriate to the risk category of the borrower (i.e., current
PLR+ the appropriate credit risk premium for the borrower-category) and compared with the
present value of the dues expected to be received under the restructuring package, discounted
on the same basis.
In case there is a sacrifice involved in the amount of interest in present value terms, as at (b)
above, the amount of sacrifice should either be written off or provision made to the extent of
the sacrifice involved.

5 Treatment of restructured sub-standard accounts:

A rescheduling of the installments of principal alone would render a sub-standard asset eligible
to be continued in the sub-standard category for the specified period, provided the loan/credit
facility is fully secured.

A rescheduling of interest element would render a sub-standard asset eligible to be continued

to be classified in substandard category for the specified period subject to the condition that
the amount of sacrifice, if any, in the element of interest, measured in present value terms, is
either written off or provision is made to the extent of the sacrifice involved. For the purpose,
the future interest due as per the original loan agreement in respect of an account should be
discounted to the present value at a rate appropriate to the risk category of the borrower (i.e.,
current PLR + the appropriate credit risk premium for the borrower category) and compared
with the present value of the dues expected to be received under the restructuring package,
discounted on the same basis.

In case there is a sacrifice involved in the amount of interest in present value terms, as at (b)
above, the amount of sacrifice should either be written off or provision made to the extent of
the sacrifice involved. Even in cases where the sacrifice is by way of write off of the past
interest dues, the asset should continue to be treated as sub-standard.

6 Up gradation of restructured accounts:

The sub-standard accounts which have been subjected to restructuring etc., whether in respect
of principal installment or interest amount, by whatever modality, would be eligible to be
upgraded to the standard category only after the specified period i.e., a period of one year after
the date when first payment of interest or of principal, whichever is earlier, falls due, subject to
satisfactory performance during the period. The amount of provision made earlier, net of the
amount provided for the sacrifice in the interest amount in present value terms as aforesaid,
could also be reversed after the one year period. During this one-year period, the sub-standard
asset will not deteriorate in its classification if satisfactory performance of the account is
demonstrated during the period. In case, however, the satisfactory performance during the
 P a g e | 52

one-year period is not evidenced, the asset classification of the restructured account would be
governed as per the applicable prudential norms with reference to the pre-restructuring
payment schedule.

7 General:
These instructions would be applicable to all type of credit facilities including working capital
limits, extended to industrial units, provided they are fully covered by tangible securities.

As trading involves only buying and selling of commodities and the problems associated with
manufacturing units such as bottleneck in commercial production, time and cost escalation etc.
are not applicable to them, these guidelines should not be applied to restructuring/
rescheduling of credit facilities extended to traders.

While assessing the extent of security cover available to the credit facilities, which are being
restructured/ rescheduled, collateral security would also be reckoned, provided such collateral
is a tangible security properly charged to the bank and is not in the intangible form like
guarantee etc. of the promoter/ others.

8 Income recognition

There will be no change in the existing instructions on income recognition. Consequently, banks
should not recognize income on accrual basis in respect of the projects even though the asset is
classified as a standard asset if the asset is a "non performing asset" in terms of the extant
instructions. In other words, while the accounts of the project maybe classified as a standard
asset, banks shall recognize income in such accounts only on realization on cash basis if the
asset has otherwise become ‘non performing’ as per the extant delinquency norm of 180 days.
The delinquency norm would become 90 days with effect from 31 March2004.

Consequently, banks, which have wrongly recognized income in the past, should reverse the
interest if it was recognized as income during the current year or make a provision for an
equivalent amount if it was recognized as income in the previous year(s). As regards the
regulatory treatment of income recognized as ‘funded interest’ and ‘conversion into equity,
debentures or any other instrument’ banks should adopt the following:

9 Funded Interests:

Income recognition in respect of the NPAs, regardless of whether these are or are not
subjected to restructuring/rescheduling/ renegotiation of terms of the loan agreement, should
be done strictly on cash basis, only on realization and not if the amount of interest overdue has
been funded. If, however, the amount of funded interest is recognized as income, a provision
for an equal amount should also be made simultaneously. In other words, any funding of
interest in respect of NPAs, if recognized as income, should be fully provided for.
 P a g e | 53

9.1. Conversion into equity, debentures or any other instrument:

The amount outstanding converted into other instruments would normally comprise principal
and the interest components. If the amount of interest dues is converted into equity or any
other instrument, and income is recognized in consequence, full provision should be made for
the amount of income so recognized to offset the effect of such income recognition. Such
provision would be in addition to the amount of provision that may be necessary for the
depreciation in the value of the equity or other instruments, as per the investment valuation
norms. However, if the conversion of interest is into equity, which is quoted, interest income
can be recognized at market value of equity, as on the date of conversion, not exceeding the
amount of interest converted to equity. Such equity must thereafter be classified in the
"available for sale" category and valued at lower of cost or market value. In case of conversion
of principal and /or interest in respect of NPAs into debentures, such debentures should be
treated as NPA, ab initio, in the same asset classification as was applicable to loan just before
conversion and provision made as per norms. This norm would also apply to zero coupon bonds
or other
Instruments which seek to defer the liability of the issuer. On such debentures, income should
be recognized only on realization basis. The income in respect of unrealized interest, which is
converted into debentures or any other fixed maturity instrument, should be recognized only
on redemption of such instrument. Subject to the above, the equity shares or other
instruments arising from conversion of the principal amount of loan would also be subject to
the usual prudential valuation norms as applicable to such instruments.

9.2. Provisioning

While there will be no change in the extant norms on provisioning for NPAs, banks which are
already holding provisions against some of the accounts, which may now be classified as
‘standard’, shall continue to hold the provisions and shall not reverse the same.
 P a g e | 54

Chapter 5
RESEARCH METHODOLOGY

o Objectives
o Scope
o Research process
 P a g e | 55

RESEARCH METHODOLOGY

Research can simply be defined as search for knowledge; it is an art of scientific investigation.
In this project report a research has been conducted to know about NPA of PNB organization
and PNB branch INDORA, reasons of NPA and branch policies to recover NPAs.
In this report descriptive research has been used.

OBJECTIVES

o To understand the concept of NPA in Indian Banking industry.

o To understand the causes & effects of NPA
o To analyze the past trends of NPA of banks in different sector.
o To analyze NPA in PNB

SCOPE OF THE STUDY:

o NPA ,Indian banking sector, Indian economy & world

o PNB indora branch
o Tools to deal with NPA

RESEARCH PROCESS

1. Define research problem and objective: - first of all we need to define research problem
with out which we can not proceed. In our study our research problem and Objectives is to
know about NPA in PNB & its reasons

2. Define the information needed: - here we need to define the information actually required
for our study. In the offered project information is needed about

o Indian banking sector

o NPA its reasons and impact
o Total NPA in PNB and indora branch
 P a g e | 56

o Methods to deal with NPA

3. Research design: - A research design is a framework or conceptual structure with in

which research would be conducted and also helps us to collect maximum
information with minimal expenditure of effort, time and money. In this project
Descriptive Research (in which researcher has no control over variables) is designed.

4. Collection of data: - In this project primary as well as secondary data has been used
and the same is collected from various sources like PNB indora branch, internet,
books etc.

5. Analysis of data: - After collection of data analysis is done to make it understandable

and to draw a conclusion.
 P a g e | 57

Chapter 6
DATA ANALYSIS AND INTERPRETATION

o Deposit of Public Sector Banks

o Advances of Public Sector Banks
o Gross NPA of Public Sector Banks
o Net NPA of Public Sector Banks
o NPA of Pvt. sector Banks (percentage of Net NPA to advances)
o Gross and Net NPA of Foreign Banks in INDIA
o Data Analysis of PNB organization
o Data Analysis of PNB Branch Indora
 P a g e | 58

DATA ANALYSIS AND INTERPRETATION

After collection of data analysis is done to make it understandable and to draw a conclusion.
For the purpose of analysis I have included total deposit, advances, gross NPA, net NPA of
public sector banks. This report also has NPA of Pvt. Sector banks and foreign banks operating
in India

While analyzing the data of PNB organization I found that the organization getting its position
good continuously.
I also have also included data of PNB branch Indora which was established in 1971 and is the
oldest branch in our region.
 P a g e | 59

(1) Table shows the DEPOSIT of public sector banks

As on fig. in crore
march PUBLIC SECTOR BANK :
31 DEPOSITS

S.No. BANKS Deposits

I NATIONALISED BANKS 2009 2010 2011
         
1 Allahabad Bank 84,972 106,056 131,887
2 Andhra Bank 59,390 77,688 92,156
3 Bank of Baroda 192,397 241,262 305,439
4 Bank of India 189,708 229,762 298,886
5 Bank of Maharashtra 52,255 63,304 66,845
6 Canara Bank 186,893 234,651 293,973
7 Central Bank of India 131,272 162,107 179,356
8 Corporation Bank 73,984 92,734 116,747
9 Dena Bank 43,051 51,344 64,210
10 Indian Bank 72,582 88,228 105,804
11 Indian Overseas Bank 100,116 110,795 145,229
12 Oriental Bank of Commerce 98,369 120,258 139,054
13 Punjab & Sind Bank 34,676 49,155 59,723
14 Punjab National Bank 209,760 249,330 312,899
15 Syndicate Bank 115,885 117,026 135,596
16 UCO Bank 100,222 122,416 145,278
17 Union Bank of India 138,703 170,040 202,461
18 United Bank of India 54,536 68,180 77,845
19 Vijaya Bank 54,535 61,932 73,248
TOTAL OF 19
1,993,305 2,416,267 2,946,636
  NATIONALISED BANKS
II State Bank of India (SBI) 742,073 804,116 933,933
  TOTAL OF ASSOCIATES 264,968 303,969 311,930
TOTAL OF STATE BANK
1,007,041 1,108,086 1,245,862
  GROUP
IV Other Public Sector Bank      
1 IDBI Ltd. 112,401 167,667 180,486
TOTAL OF PUBLIC SECTOR
3,112,747 3,692,019 4,372,985
  BANKS[I+II+III+IV]

The above data shows the total deposit of public sector banks which shows an increasing
trend.SBI the largest bank is leader in deposits followed by PNB, Bank of Baroda, Bank of India
 P a g e | 60

and Bank of Maharashtra is the last player in the list.

(2) Table shows the ADVANCES of public sector banks
Public sector bank :ADVANCES    
As on
March 31     fig. in Crore)
Advances
S.No. BANKS
I NATIONALISED BANKS 2009 2010 2011
         
1 Allahabad Bank 58,802 71,605 93,625
2 Andhra Bank 44,139 56,114 71,435
3 Bank of Baroda 143,251 175,035 228,676
4 Bank of India 142,909 168,491 213,096
5 Bank of Maharashtra 34,291 40,315 46,881
6 Canara Bank 138,219 169,335 212,467
7 Central Bank of India 85,483 105,383 129,725
8 Corporation Bank 48,512 63,203 86,850
9 Dena Bank 28,878 35,462 44,828
10 Indian Bank 51,396 62,146 75,250
11 Indian Overseas Bank 74,885 78,999 111,833
12 Oriental Bank of Commerce 69,065 83,489 95,908
13 Punjab & Sind Bank 24,615 32,639 42,638
14 Punjab National Bank 154,703 186,601 242,107
15 Syndicate Bank 81,532 90,406 106,782
16 UCO Bank 68,804 82,505 99,071
17 Union Bank of India 96,534 119,315 150,986
18 United Bank of India 35,394 42,330 53,502
19 Vijaya Bank 35,468 41,507 48,719
TOTAL OF 19 NATIONALISED
1,416,881 1,704,880 2,154,380
  BANKS
II State Bank of India (SBI) 542,503 631,914 756,719
III ASSOCIATES OF SBI      
  TOTAL OF ASSOCIATES 196,947 226,023 237,434
  TOTAL OF STATE BANK GROUP 739,450 857,937 994,154
IV Other Public Sector Bank      
1 IDBI Ltd. 103,428 138,202 157,098
TOTAL OF PUBLIC SECTOR
2,259,759 2,701,019 3,305,632
  BANKS[I+II+III+IV]

Above data shows the credits extended by the bank. Here SBI also leads in the same followed
by second largest bank PNB, BOB is at third place and last in the list is bank of Maharashtra.
 P a g e | 61

(3) Table shows the GROSS NPA of public sector banks

Public Sector Banks : Gross NPA

As on March 31
Gross NPA
S.No. BANKS
I NATIONALISED BANKS   2009 2010 2011
           
1 Allahabad Bank   1,078 1,222 1,648
2 Andhra Bank   368 488 996
3 Bank of Baroda   1,843 2,401 3,153
4 Bank of India   2,471 4,883 4,812
5 Bank of Maharashtra   798 1,210 1,174
6 Canara Bank   2,168 2,590 3,089
7 Central Bank of India   2,317 2,458 2,394
8 Corporation Bank   559 651 790
9 Dena Bank   621 642 842
10 Indian Bank   459 510 740
11 Indian Overseas Bank   1,923 3,611 3,090
12 Oriental Bank of Commerce   1,058 1,469 1,921
13 Punjab & Sind Bank   161 206 424
14 Punjab National Bank   2,507 3,214 4,379
15 Syndicate Bank   1,595 2,007 2,599
16 UCO Bank   1,540 1,666 3,150
17 Union Bank of India   1,923 2,671 3,623
18 United Bank of India   1,020 1,372 1,356
19 Vijaya Bank   699 994 125
  TOTAL OF 19 NATIONALISED BANKS   25,108 34,265 40,304
II State Bank of India (SBI)   15,714 19,535 25,326
III ASSOCIATES OF SBI        
  TOTAL OF ASSOCIATES   2,733 3,998 5,066
  TOTAL OF STATE BANK GROUP   18,447 23,533 30,393
IV Other Public Sector Banks        
1 IDBI Ltd   1,436 2,129 2,785
TOTAL OF PUBLIC SECTOR
    44,991 59,927 73,481
BANKS[I+II+III+IV]

Above table shows the gross NPA of Indian Banks. All banks are having the problem .Amount of
NPA shows the efficiency of bank operations and the same need to be managed carefully. And
here PNB shows its good position and having least amount of NPA.

(4) Table shows the NET NPA of public sector banks

 P a g e | 62

Public Sector Banks : Net NPA    

As on March 31   ( ` Crore)
S.No Net NPA
. BANKS
I NATIONALISED BANKS   2009 2010 2011
           
1 Allahabad Bank   422 470 736
2 Andhra Bank   79 96 274
3 Bank of Baroda   449 602 791
4 Bank of India   628 2,207 1,945
5 Bank of Maharashtra   272 662 619
6 Canara Bank   1,507 1,800 2,347
7 Central Bank of India   1,063 727 847
8 Corporation Bank   138 197 398
9 Dena Bank   313 428 549
10 Indian Bank   94 145 398
11 Indian Overseas Bank   999 1,995 1,328
12 Oriental Bank of Commerce   442 724 939
13 Punjab & Sind Bank   78 117 238
14 Punjab National Bank   264 982 2,039
15 Syndicate Bank   632 963 1,031
16 UCO Bank   813 966 1,825
17 Union Bank of India   326 965 1,803
18 United Bank of India   525 779 757
19 Vijaya Bank   292 582 741
TOTAL OF 19 NATIONALISED
    9,337 15,407 19,605
BANKS
II State Bank of India (SBI)   9,677 10,870 12,347
III ASSOCIATES OF SBI        
  TOTAL OF ASSOCIATES   1,192 1,960 2,444
  TOTAL OF STATE BANK GROUP   10,869 12,830 14,791
IV Other Public Sector Banks        
1 IDBI Ltd   949 1,406 1,678
TOTAL OF PUBLIC SECTOR
    21,155 29,644 36,074
BANKS[I+II+III+IV]

All banks are having the provision for the NPA .after deducting the provision from Gross NPA
we get net NPA. Above table shows the net NPA of public sector banks.
(5) Percentage of net NPA to advances in Pvt. Sector banks
 P a g e | 63

Private Sector Banks

  As on March 31
Net NPA to Net Advances
S.No. BANKS (in %)
I   2009 2010 2011
       
1 City Union Bank Ltd. 1.08 0.58 0.52
2 ING Vysya Bank Ltd. 1.20 1.20 0.39
SBI Commercial & International
3 Bank Ltd.* 0.00 0.00 0.00
4 Tamilnad Mercantile Bank Ltd. 0.34 0.24 0.27
5 The Bank of Rajasthan Ltd. 0.73 1.60 0.00
6 The Catholic Syrian Bank Ltd. 2.39 1.58 1.74
7 The Dhanalakshmi Bank Ltd. 0.88 0.84 0.30
8 The Federal Bank Ltd. 0.30 0.48 0.60
The Jammu & Kashmir Bank
9 Ltd. 1.37 0.28 0.20
10 The Karnataka Bank Ltd. 0.98 1.31 1.62
11 The Karur Vysya Bank Ltd. 0.25 0.23 0.07
12 The Lakshmi Vilas Bank Ltd. 1.24 4.11 0.90
13 Nainital Bank Ltd. 0.00 0.00 0.00
14 The Ratnakar Bank Ltd. 0.68 0.97 0.36
15 The South Indian Bank Ltd. 1.13 0.39 0.29
I AVERAGE OF 15 PVT BANKS [I] 0.90 0.83 0.61
II NEW PRIVATE SECTOR BANKS      
16 Axis Bank Ltd. 0.40 0.40 0.29
17 Development Credit Bank Ltd. 3.88 3.11 0.97
18 HDFC Bank Ltd. 0.63 0.31 0.19
19 ICICI Bank Ltd. 2.09 2.12 1.11
20 Indusind Bank Ltd. 1.14 0.50 0.28
21 Kotak Mahindra Bank Ltd. 2.39 1.73 0.72
22 YES Bank 0.33 0.06 0.03
AVERAGE OF 7 NEW PVT
II BANKS [II] 1.40 1.09 0.56
AVERAGE OF 22 PVT BANKS
III [I+II] 1.29 1.03 0.57

This table shows the net NPA in percentage to net advances of Pvt. Sector banks in India.

(6) Table shows the Gross & net NPA of foreign banks in INDIA
 P a g e | 64

Foreign Banks :Gross NPA/Net NPA  

(Crore
As on March 31           )
Gross NPA Net NPA
S.No
Name of the Bank   2009 2010 2011 2009 2010 2011
                 
1 AB Bank Ltd.   3 3 3 2 1 0
Abu Dhabi Commercial Bank
2 Limited   14 14 13 0 0 5
American Express Banking
3 Corporation   45 17 20 30 14 16
4 Antwerp Diamond Bank N.V. - 26 100 100 23 64 18
5 Bank Internasional Indonesia #   0 0 0 0 0 0
6 Bank of America NA   1 1 1 - - -
Bank of Bahrain and Kuwait
7 B.S.C.   12 11 10 0 8 2
8 Bank of Ceylon   5 2 2 - - -
1,42
9 Barclays Bank PLC   1,048 2 781 485 389 122
10 BNP Paribas   68 68 11 32 0 0
11 Chinatrust Commercial Bank   0 3 3 - 3 3
1,27 1,05
12 Citibank N.A..   1,806 5 839 1 784 493
Commonwealth Bank of
13 Australia     0 0   0 0
Credit Agricole Corporate &
14 Investment Bank   1 277 199 0 138 0
15 Credit Suisse AG       0     0
16 DBS Bank Ltd.   31 76 83 15 40 23
17 Deutsche Bank AG   243 261 179 77 102 33
18 FirstRand Bank Ltd. - - 0 0 - 0 0
19 JPMorgan Chase Bank   61 95 27 9 29 0
20 JSC VTB Bank - 0 -- -- 0 -- --
Krung Thai Bank Public
21 Company Limited   0 0 0 0 0 0
22 Mashreqbank psc   0 0 0 0 0 0
23 MIZUHO Corporate Bank Ltd.   6 6 6 0 0 0
Oman International Bank
24 S.A.O.G.   0 0 0 0 0 0
25 Sberbank       0     0
26 Shinhan Bank   0 0 0 0 0 0
27 Societe Generale   0 1 1 0 0 0
 P a g e | 65

28 Sonali Bank #   1 1 1 0 0 0
1,09 1,14
29 Standard Chartered Bank   928 6 8 514 580 132
30 State Bank of Mauritius Ltd.   0 19 18 0 17 13
31 The Bank of Nova Scotia   2 10 10 0 0 0
The Bank of Tokyo-Mitsubishi
32 UFJ Ltd.   8 7 7 1 1 1
1,68
33 HSBC Ltd   1,316 3 996 391 543 249
34 The Royal Bank of Scotland NV   819 685 614 366 261 174
35 UBS AG   0 0 0 0 0 0
36 United Overseas Bank Ltd.     0 0   0 0
7,13 5,07 2,99 2,97
  Total of Foreign Banks in India   6,445 4 1 7 6 1,283

Foreign banks are also operating in India. The above table is all about NPA (gross & net) of
foreign banks.
 P a g e | 66

DATA ANALYSIS OF PNB ORGANIZATION

(Figures in crore)

The following data is about PNB its deposit, Advances, gross NPA, CD Ratio, net NPA Ratio,
Capital Adequacy Ratio and sectoral NPA of the organization.

1. Deposit of PNB organization

year 2007 2008 2009 2010 2011

deposit 139860 166457 209760 249330 312899

deposit
350000

300000

250000
deposit
200000

150000

100000

50000

0
1 2 3 4 5

From the above table and diagram we can see that the total deposit of PNB organization has
been increasing year by year. It shows the increasing trend in the business of PNB which is
second largest public sector bank of INDIA.
The deposit shown here is the total deposit of PNB under all the schemes and services being
provided by the bank.
 P a g e | 67

2. Advances of PNB organization

year 2007 2008 2009 2010 2011

Advances 96597 119502 154703 186601 242107

Advances
250000

200000

150000 Advances

100000

50000

0
1 2 3 4 5

We know all commercial banks exist for the purpose of profit & main source of there earning is
the interest from loans and advances.
From the above diagram we can see the increasing trend of total advances of bank year by
year which lead to the increase in the income of the bank.

3. Deposit V advances

year 2007 2008 2009 2010 2011

deposit 139860 166457 209760 249330 312899
advances 96597 119502 154703 186601 242107
 P a g e | 68

350000

300000

250000

200000
deposit
150000 advances

100000

50000

0
1 2 3 4 5

Here we can see the increasing trend in the business of bank. Both deposit and advances of the
organization is increasing year by year. In the year 2011deposite of bank was 312899 cr. And
advances were 242107 cr.

4. Credit to Deposit ratio of PNB

year 2007 2008 2009 2010 2011

deposit 139860 166457 209760 249330 312899
advances 96597 119502 154703 186601 242107
CD ratio 69.06 71.79 73.75 74.84 77.37
 P a g e | 69

CD ratio
78
76
74
ratio
72
70
68
66
64
1 2 3 4 5

CD ratio is an index of the health of banking system in terms of demand for credit in proportion
to total deposit growth in the banking sector. A declining CD ratio implies that banking sector
was flush with funds without any corresponding demand for credit affecting the bank's
profitability in the long run as they have to pay interest to depositors without corresponding
income from the credit outflow.

The above table and diagram shows the credit deposit ratio of the bank. It is the ratio of total
credit to the total deposit of the bank. CD ratio should be near about 75 % .bank can extend
credit less than its deposits, so PNB is having good CD ratio.

5. Gross NPA of PNB

year 2007 2008 2009 2010 2011

Gross NPA 3391 3319 2767 3645 4379
 P a g e | 70

Gross NPA
4500
4000
3500
3000
Gross NPA
2500
2000
1500
1000
500
0
1 2 3 4 5

Diagram shows the gross NPA of PNB

6. Percentage of gross NPA to advances

Year 2007 2008 2009 2010 2011

Advances 96597 119502 154703 186601 242107
Gross NPA 3391 3319 2767 3645 4379
percentage 3.51 2.77 1.78 1.95 1.80
 P a g e | 71

percentage of gross NPA to advances

4
3.5
3
2.5 percentage of gross NPA to
advances
2
1.5
1
0.5
0
1 2 3 4 5

The table shows the increasing advances of PNB year by year which indicates its increasing
business capabilities and growth on the same time organization reduced its NPA percentage to
near about 2 from 3.5 which shows the efficiency of the bank.

7. Net NPA ratio of PNB

Year 2007 2008 2009 2010 2011

Net NPA ratio 0.76 0.64 0.17 0.53 0.85

Net NPA ratio

0.9
0.8
0.7
0.6 Net NPA ratio
0.5
0.4
0.3
0.2
0.1
0
1 2 3 4 5
 P a g e | 72

The net NPA ratio of the PNB is fluctuating. It was reduced to 0.17% from 0.76% in 2009
but it rises again in 2011 to 0.85%

8. Sectoral segmentation of NPA of PNB as on March 2011

Sector Amount
Priority sector 2742
Of which agriculture 1171
Of which MSME 1349
Other 222
Non priority sector 1637

Priority sector
Non priority sector

Banks in India are required to reserve a part of their lending for the priority sector broadly this comprises
the sub-sector such as Agriculture, Small scale Industries, and other activities such as small business, retail
trade, small transport operators, professional and self employed persons, education loans etc.

The above table and diagram depicts the NPA of the PNB is more in priority sector as
compare to non priority sector.

9. Capital adequacy ratio of PNB

year 2007 2008 2009 2010 2011

CRAR 12.29 13.46 14.03 14.16 12.42

A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures and
should be less than equal to 10 %.
 P a g e | 73

Tier I capital + tier II capital

CAR = -------------------------------------
Risk weighted assets

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

This ratio is used to protect depositors and promote the stability and efficiency of financial systems
around the world. 

Two types of capital are measured: tier one capital, which can absorb losses without a bank being
required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and
so provides a lesser degree of protection to depositors.

Tier I capital is core capital; this includes equity capital and disclosed reserves.

Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss
reserves, subordinated term debt, and more.

CRAR
14.5
14
13.5
CRAR
13
12.5
12
11.5
11
1 2 3 4 5

DATA ANALYSIS OF PNB BRANCH INDORA

(Figures in crore)

1. Deposit of PNB indora branch

Year March 2010 March 2011 Feb 2012

Deposit 34.18 41.72 49.20
 P a g e | 74

deposit

50
45
40
35 deposit
30
25
20
15
10
5
0
1 2 3

Banks manages liquidity in economy and they do their business on their deposits.
Above table shows the increasing trend in deposit of the PNB indora (scale 3) branch which is
near 50 cr. In February 2012 showing good business.

2. Advances of PNB indora branch

Year March 2010 March 2011 Feb 2012

Advances 10.23 12.43 15.03
 P a g e | 75

Advances

16
14
12
10 Advances

8
6
4
2
0
1 2 3

With the increasing deposit of the branch advances are also increasing which help in gearing
investment and consumption and same is helpful in development of the area.

3. Deposit V advances of branch

Year March 2010 March 2011 Feb 2012

Deposit 34.18 41.72 49.20
Advances 10.23 12.43 15.03

50
45
40
35
30
Deposit
25
Advances
20
15
10
5
0
1 2 3
 P a g e | 76

The table and diagram shows the figures of deposit and advances of the branch. Here
Deposit is 49.20 cr. And advances are15.03 cr. Both are increasing year by year.

4. CD ratio of branch

Year March 2010 March 2011 Feb 2012

Deposit 34.18 41.72 49.20
Advances 10.23 12.43 15.03
CD ratio 29.92 29.79 30.54

CD ratio

30.6

30.4

30.2 CD ratio

30

29.8

29.6

29.4
1 2 3

Table shows the credit deposit ratio of the Indora branch which is increased to 30.54 in 2012
from 29.92 in 2010.
 P a g e | 77

5. Gross NPA of Indora branch

Year March 2010 March 2011 Feb 2012

Deposit 34.18 41.72 49.20
advances 10.23 12.43 15.03
Gross NPA 53.12 lac 25.60 lac 65.28 lac

50
45
40
35
30
Deposit
25 advances
20 Gross NPA

15
10
5
0
Jul-05 Jul-05 Jul-05
2010 2011 2012

This diagram shows the relation between deposit, advances and gross NPA of the
indora branch

6. Percentage of NPA to advances

Year March 2010 March 2011 Feb 2012

advances 10.23 12.43 15.03
Gross NPA 53.12 lac 25.60 lac 65.28 lac
Percentage of NPA 5.19 2.05 4.34
 P a g e | 78

% of NPA to advances
6

4
% of NPA to advances
3

0
1 2 3

Above table and diagram shows the percentage of NPA to the advances extended by the
branch .it shows percentage was 5.19 in 2010, 2.05 in 2011 and 4.34 in 2012 which is
below 5% now.
 P a g e | 79

7. Percentage of indora branch NPA to total NPA of PNB organization

Year 2010 2011 2012

Gross NPA of PNB 2767 3645 4379
(in crore)
Gross NPA of 53.12 25.60 65.28
Indora branch (in
lac)
Percentage .019 .0071 .014

Percentage

0.02

0.02 Percentage

0.01

0.01

0
1 2 3

Above table shows the contribution of the indora branch in the total NPA of PNB in different
years from 2010 to 2012.
 P a g e | 80

Chapter 7
FINDINGS AND RECOMMENDATIONS

o Findings
o Recommendations
 P a g e | 81

FINDINGS AND RECOMMENDATIONS

On an overall, in comparison to the gross NPA portfolio of the financial sector in India for the
year ended March 31, 2011 approximately Rs 952 billion from the total gross NPAs of Indian
banking sectors

o Public Sector Banks cover 55% of gross NPAs

o Private Sector banks cover 11% of gross NPAs
o Foreign Sector banks cover 3.02% and
o Financial Institutions cover 29%

FINDINGS

Working on a project is a challenging task for a person who undertakes the same. While
working on the presented project I Have learned a lot about the topic.
Various new facts came to my knowledge during the work.

o I found that the advances of the bank are increasing continuously which leads to
increase in the profits also.

o The CD ratio of the bank is good which makes it position strong.

o NPA has been reduced to 2 % which is very good and showing the strong position
of the bank.

o The recovery system of the bank needs to be stronger which can help the bank
to make its position better.

o The fluctuations in the amount of NPA were due to various reasons (internal &
external).

o Various bank loans are not utilized for the same purpose for which they are
granted specially in agricultural sector.
 P a g e | 82

o Since PNB is the second largest Indian public sector bank and has a great
opportunity of growth but various times due to some factors bank uses
conservative measures which hindrance for the bank to grab the opportunity.

RECOMMENDATIONS

As we know due to inflation and increasing population worldwide more infrastructure and
funds are required and banks and financial institutions play very important role in the same.

During global slowdown in 2009 India was not much affected due to its strong banking system
and also during the phase of euro zone crises India was partially affected.

Through RBI has introduced number of measures to reduce the problem of increasing NPAs of
the bank such as CDR mechanism, one time settlement schemes, enacted of SRFAESI ACT etc. A
lot of measures desired in terms of effectiveness of these measures. What I should suggest for
introducing. The evolutions of the NPAs of public sector banks as under:--

o Each bank should have its own independence credit rating agency which should
evaluate the financial capacity and credit history of the borrower before extending
credit facility.

o The credit rating agencies should regularly evaluate the financial condition of the clients.

o Special accounts should be made of the clients where monthly loan concentration
report should be made.

o Bank should evaluate the SWOT analysis of the borrower to know how they would face
the environmental threats and opportunities with the use of their strength and
weakness, and what will be their possible future growth in concerned to financial and
operation performance.

o There should be proper monitoring of the restructuring accounts because there is every
possibility of the loan slipping into NPAs category again.

o Proper training is important to the staff of the banks at the appropriate level so that
they should deal with the problem of NPAs and what continues steps should take to
reduce the NPAs.
 P a g e | 83

o Willful default of bank loans should be made a criminal offence.

o Strong laws need to be enacted to deal with the problem of NPA.

o No loan is to be given to a group whose one or the other undertaking became a

defaulter.

o Settlement procedure should be more strict and faster.

o A careful appraisal of the bank assets quality in relation to financial situation need to be
made on regular basis which will keep a check on the NPA as the level of doubtful assets
is increasing continuously.

o The overall banking environment should be improved through reduction of govt.

intervention in credit mgmt.
 P a g e | 84

Chapter 8
LIMITATIONS
 P a g e | 85

LIMITATIONS OF THE STUDY

Nothing in the world is complete and my presented work is not an exception to this saying.
Since banking is a very vast topic to cover, it includes a lot of things and NPA is also a very big
affair. The limitations that I felt in my study are:

o It was critical for me to gather the financial data of the bank so the better evaluation of
the performance of the bank is not possible.
o Since my study is based on the secondary data, the practical operations as related to the
NPAs are adopted by the bank are not learned.
o Since the Indian banking sector is so wide so it was not possible for me to cover all the
banks of the Indian banking sector.
o There is also variation in figures available at different sources which create confusion.
o Provision for the classification of the Assets / NPA’s differs within each public sector
bank & this information is not available publicly.
o The RBI norms for the classification of assets / NPA’s are available on a pay site & not
publicly available through any source.
 P a g e | 86

Chapter 9
CONCLUSION
 P a g e | 87

CONCLUSION

A report is not said to be completed unless and until the conclusion is given to the reports. A
conclusion reveals the explanations about what the report has covered and what is the essence
of the study. What my project report cover is concluded below.

The problem on which I focused my study is NPAs the big challenge before the public sector
banks .The Indian Banking sector is the important service sector that helps the people of the
India to achieve the socio economic objective. The Indian banking sector is developing with
good appreciate as compared to the global benchmark banks. The Indian banking system is
classified into schedule and non schedule banks. The public sector banks play very important
role in developing the nation in terms of providing good financial service. The public sector
banks have also shown good performance in the last few years.

The only problem is that the public sector banks are facing today is the problem of
nonperforming assets. The non performing assets means those assets which are classified as
bad assets which are not possibly by return back to the banks by the borrowers. If the proper
management of the NPAs is not undertaken it would be hampers the business of the banks. The
NPAs would as try the current profit, interest income due to large provisions of the NPAs and
would affect the smooth functioning of the recycling of the funds.

If we analyze the past years data, we may come to know that the NPAs have increased very
drastically after 2001, in 1997 the gross NPAs of the Indian banking sector was47,300 crore
where as in 2001 the fig was63,883 and which increase at faster rate in 2003 with 94,905 crore.
The public sector banks involve its nearly 50% of share in the NPAs .The RBI has been trying to
take number of measures but the ratio of NPAs is not decreasing of the banks. The banks must
find out the measures to reduce the evolving problem of the NPAs. If the concept of NPAs is
taken very lightly it would be dangerous for the Indian banking sector. The reduction of the
NPAs would help the banks to boost up their profits, smooth recycling of funds in the nation.
This would help the nation to develop more banking branches and developing the economy by
providing the better financial services to the nation.

The Punjab National Bank or PNB is one of the well known commercial and banking institutions
in India. It is the second largest government owned and regulated commercial bank in the
country and offers specialized solutions and financial services in a number of sectors. Around 37
million customers are served by the bank on an average basis. The customized facilities and
services make it a trusted name in the domain of banking. Its deposit has touched 312899 crore
and advances 242107 crore in 2011 and aims Rs 10 lakh crore turnover by 2013.
 P a g e | 88

PNB in March 2012 plans to undertake capital infusion to the tune of Rs 2,360 crore to maintain
the financial strength of the bank. While the bank would go for capital infusion of Rs 1,075
crore from LIC of India, an amount of Rs 1,285 crore has been sought from the government,

The performance of the bank during the first nine months of the current fiscal total business of
the bank crossed Rs 6,00,000 crore milestone to reach Rs 6,19,122 crore, recording a growth of
21.4%.

PNB's net profit for nine months ended December, 2011, stood at Rs 3,460 crore, registering a
year-on-year growth of 7%, adding net profit of the bank for the third quarter of 2011-12
recorded a growth of 5.5% to reach Rs 1,150 crore but it also has to take more measure to deal
with NPAs which can increase its profitability.

• As NPA is big threat to profitability of all banks and need to be managed effectively

• NPA of PSB is much more than Pvt. Sector banks and foreign banks.

• As for as PNB is concerned have less amount of NPA as compare to other PSB.

• However with the introduction of SARFAECI ACT (The Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002)
banks can issue notices to defaulters to repay their loans. Also, the Supreme Court has
given the banks the freedom to sell mortgage assets of the borrowers, if they do not
respond to the legal proceedings initiated by lender. This enables banks to get rid of
sticky loans thereby improving their bottom lines.

• Various steps have been taken by government to reduce the NPA. It is highly
impossible to have zero percentage NPA. But at least Indian banks can try competing
with foreign banks to maintain international standard.
 P a g e | 89

Chapter 10
REFERENCES
 P a g e | 90

REFERENCES

Books

1.Goyal Tarun, General knowledge 2011, Arihant Publications (I) Pvt. Ltd, Meerut, p 59-60

2.Rajeev Kumar, Indian Economy and development 2010, Embassy Books, Mumbai, p 73-74

3.Bhole, L. M., Financial Institutions and Markets, Tata McGraw Hills, New Delhi, p 4.26-

4.27

Magazine
o Economic and political weekly, January 16, 2012, CARLTON PEREIRA, “INVESTING IN
NPAs”.
o Pratiyogita Darpan monthly, November 2011/869,”impact of NPA in INDIAN banking
system”

Web
o www.google.com
o www.projectsformba.com
o www.rbi.org.in
o www.iba.com
P a g e | 91