Project report on

NPA 2018-19

[ANALYSIS OF NPA
WITH REFERENCE TO
SBI AND OTHER PUBLIC
BANKS ]

SUBMITTED TO- DEPARTMENT OF

COMMERCE
GUIDED BY- DR. PREETI SHARMA
SUBMITTED BY- SHUBHAM VERMA
- ROLL NO- 1664
-M.COM(H), (5 SEMESTER)
NPA is defined as a loan or an advance in
respect of which the interest &/or installment
of principal remains “overdue” for a period of
more than 90 days in respect of a term loan or
remains “out of order” for a period of more
than 90 days in respect of an Overdraft /Cash
Credit.

Gross and Net NPA

Gross NPA 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, i.e. sub-
standard, doubtful & loss assets.
If Gross NPA of any Co-operative Bank is more
than 10%of Gross Advances in any year, it
comes under Supervisory Action Framework of
RBI.
Net NPA = Gross NPA – Provision for BDDR

Classification of NPA: -

Standard Assets: - Advance account which

does not disclose any problem & does not carry
more than normal business risk.
Substandard Assets – Which has remained NPA
for a period less than or equal to 12 months.
Doubtful Asset – Which has remained NPA for
a period more than 12 months?
Loss Assets – where loss has been identified by
the bank or internal or external auditors or the
RBI inspection, salvage value of security is
negligible & the entire asset is proposed to be
w/off after necessary approvals.
BORROWER WISE & NOT FACILITY WIS
•When a loan a/c of a borrower is treated as
NPA, all the other loan a/c of the borrower,
even if they are otherwise regular, should be
treated as NPA as NPA classification should be
borrower wise & not facility wise.
•When various advance a/c of a borrower are
in different categories of NPA, then the
provisioning shall be as per the lowest category
applicable
Provisioning Norms: -

Asset Particulars Provision

Classification Required
%

Standard Direct Advances to Agriculture & SME 0.25

Sectors

Commercial Real Estate Advances 1.00

All other Loans & Advances not 0.40

included in above

Sub- Secured Exposure 15

standard

Unsecured Exposure for Escrow A/cuss 20

available in case of Infrastructure
lending, infrastructure loan accounts

Other Unsecured Exposure 25

Provisioning Norms: -

Asset Particulars Provision Required %

Classification

Doubtful - Secured Unsecured

D1 (Upton 1 year) 25 100

D2 (One to Three years) 40 100

D3 (More than 3 years) 100 100

Loss Loss Asset 100

Why Loan Accounts go bad

• BORROWER-SIDE
1) Lack of Planning
2) Diversion of Funds
3) Disputes within
4) No contribution
5) No modernization
6) Improper monitoring
7) Industrial Relations
8) Natural Calamities

• BANKER – SIDE

1) Defective Sanction
2) No post-sanction supervision, ET
3) Delay in releases
4) Directed lending
5) Slow decision making process
 Details of Causes of NPA

Defaulters - One of the main reasons behind

NPA is default by borrowers.

Economic conditions - The Economic condition

of a region affected by natural calamities or
any other reason may cause NPA.

No more proper risk management -

Speculation is one of the major reasons behind
default. Sometimes banks provide loans to
borrowers with bad credit history. There is a
high probability of default in these cases.
Miss-management - Often ill-minded
borrowers bribe bank officials to get loans with
an intention of default.

Diversion of funds - Many times borrowers

divert the borrowed funds to purposes other
than mentioned in loan documents. It is very
hard to recover from this kind of borrowers.

• Problems caused by NPAs

NPAs do not just reflect badly in a bank’s
account books, they adversely impact the
national economy. Following are some of the
repercussions of NPAs:
1) Depositors do not get rightful returns
and many times may lose uninsured
 deposits. Banks may begin charging higher
interest rates on some products to
compensate NPL losses.
2) Bank shareholders are adversely
affected.
3) Bad loans imply redirecting of funds
from good projects to bad ones. Hence, the
economy suffers due to loss of good
projects and failure of bad investments.
4) When bank do not get loan repayment
or interest payments, liquidity problems
may ensue.

• Reasons for occurrence of NPAs result

from what are termed “Bad Loans” or NPL.
Default, in the financial parlance, is the
failure to meet financial obligations, say
 non-payment of a loan installment. These
loans can occur due to the following
reasons: -

a. Usual banking operations /Bad lending

practices.
b. A banking crisis (as happened in USA, South
Asia and Japan).

c.Overhang component (due to

environmental reasons, natural calamities,
business cycle, Disease Occurrence, etc...).
d. Incremental component (due to internal
bank management, like credit policy, terms
of credit, etc...).
Bad Loans/NPA in India - Public Sector
banks versus Private Sector banks
Distribution
TOP 10 COUNTRIES IN NPAs

NPA DATA SECTOR WISE -

 2014-15 ASSTES QUALITY
REVIEW (AQR) BY RBI
Typically, Reserve Bank of India
(RBI) inspectors check bank books
every year as part of its annual
financial inspection (AFI) process.
However, a special inspection was
conducted in 2015-16 in the August-
November period. This was named as
Asset Quality Review (AQR). In a
routine AFI, a small sample of loans
is inspected to check if asset
classification was in line with the loan
repayment and if banks have made
provisions adequately.
 However, in the AQR, the sample
size was much bigger and in fact,
most of the large borrower accounts
were inspected to check if
classification was in line with
prudential norms. Some reports
suggest that a list of close to 200
accounts was identified, which the
banks were asked to treat as non-
performing. Banks were given two
quarters, October-December and
January-March of 2016 to complete
the asset classification.
THE FOLLOWING TABULAR FORMAT CAN
SHOW YOU THE DRASTIC CHANGE IN BAD
LONS OF BANKS AFTER RBI AQR.
Following Figures Npa Situation Among Banks
Steps Are Taken To Resolve the Nap Problem in
India
 LOK ADALATS
 DEBT RECOVERY TRIBUNALS (DRT)
 SARFAESI ACT, 2002
 ASSET RECOVERY CONSTRUCTION INDUSTRY
LIMITED (ARCIL)
 CORPORATE DEBT RESTRUCTURING (CDR)

Look Adalats
 To settle disputes involving
account in “doubtful” and “loss” category.
 Outstanding balance of Rs.5 laths for
compromise settlement
 Proved to be quite effective for speedy
justice and recovery of small loans.

 Progress through this channel is expected
to pick up in the coming years
DEBT RECOVERY TRIBUNALS (DRT)
 To recover their bad Debt quickly and
efficiently.
 33 Debt Recovery Tribunal and 5 Debt
Recovery Appellate Tribunal
 It is the special court established by
central government for the purpose of bank or
any financial institutions recovery.
 The judges of this court are the retired
judges of high court.
 In this court only the recovery cases of
Rs.10 lacks and above can be filed.
Sarasin ACT (2002) this act is established
in 2002 to overcome the rising NPA
situation in India the Act provides three
alternative methods for
Recovery of non-performing assets, namely: -
Securitization Asset reconstruction
Enforcement of Security without the
Intervention of the Court.


 NPA loans with outstanding above Rs.

1.00 lack.
 NPA loan accounts where the amount is less
than20% of the principal and interest are not
eligible to be dealt with under this Act
This Act empower the Bank: To issue demand
notice to the defaulting borrower and guarantor,
calling upon them to discharge their dues in full
within 60 days from the date of the notice.
 To give notice to any person who has
acquired any of the secured assets from the
borrower to surrender the same to the Bank.
 To ask any debtor of the borrower to pay
any sum due or becoming due to the borrower.
 Any Security Interest created over
Agricultural Land cannot be proceeded with
 ARCIL : stands for assets reconstruction
industry limited
A company which is set up with the objective
of taking over distressed assets (NPA) from banks
or financial institutions and the reconstruct or re-
pack these assets to make those assets saleable.
To buy out troubled loans from banks and
make special efforts at recovering value from the
assets, if necessary by special legislation, with
special powers for recovery.
Restructuring of weak banks to divest the bad
loan portfolio.
India s first ARC with an initial equity of Rs.10
core with ICICI bank, IDBI and SBI.
Incorporated as a public limited company on
February11, 200.
  Objectives: the following are the objective
of assets reconstruction company (ACR) given
below.
Unlocking capital for the banking system and
the economy
Creating a vibrant market for distressed debt
assets/securities in India offering a trading
platform for Lenders
To evolve and create significant capacity in the
system for quicker resolution of NPAs by deploying
the assets optimally

 Corporate debt reconstruction

For the revival of the corporate as well as for
the safety of the money lent by the banks and FI.
Based on the experience in other countries like
the U.K., Thailand ,Korea ,etc.
Objective was to ensure timely and
transparent mechanism for restructuring of the
corporate debts
CDR mechanism will be a voluntary system
based on debtor creditor agreement and inter
creditor agreement

 CDR mechanism will cover only multiple

banking accounts / syndication / consortium
accounts .

 An outstanding exposure of Rs.20 core and

above by banks and institutions.