19mba069 Bhimesh B Ganiger

KLE SOCIETY’S
INSTITUTE OF MANAGEMENT STUDIES
AND RESEARCH,
VIDYANAGAR, HUBLI - 580 031.
(Affiliated to Karnatak University, Dharwad & Recognized by AICTE, New Delhi)
A PROJECT REPORT ON
A STUDY ON NON-PERFORMING ASSETS

TOWARDS THE MUTHOOT FINANCE LIMITED
Undertaken at The MUTHOOT FINANCE LIMITED
SUBMITTED TO KARNATAK UNIVERSITY, DHARWAD FOR

PARTIAL FULFILLMENT FOR REQUIREMENTS OF THE
AWARD OF MASTER OF BUSINESS
ADMINISTRATION IN THE ACADEMIC YEAR 2019-20
Submitted by
BHIMESH B GANIGER
MBA II Semester
Reg. No: 19MBA069
Prof. Saptarshi Mukherjee

Faculty,
KLE SOCIETY’S IMSR, HUBLI
ACKNOWLEDGEMENT
It is a matter of great pleasure to acknowledge those personalities who have inspired, guided and
contributed immensely in bringing out this Project Report.
I express my sincere thanks to our Director Dr. P. B. Roodagi KLES’s IMSR, Hubli for giving
me an opportunity for learning.
I wish to take this opportunity to express my deep sense of gratitude to Prof. Saptarshi
Mukherjee for his valuable guidance in this Endeavour. He has been a constant source of
inspiration. I sincerely thank him for his suggestions and his help in successfully completing my
project report.
I would like to thank to my parents, my teaching and non-teaching faculties, my friends and all
those who have helped me directly or indirectly for the completion of this project work.
DATE: 04/08/2020 BHIMESH B GANIGER
PLACE: HUBLI MBA IInd SEMESTER

DECLARATION
I, Mr. BHIMESH B GANIGER, hereby declare that this project report entitled “A study on
Non-performing assets on Muthoot Finance Limited” has been prepared by me during the
year 2019-2020, under the guidance of Prof. Saptarshi Mukherjee, Faculty, KLE Society’s
Institute of Management Studies and Research, Hubli. The project is towards partial fulfillment
of requirement for the award of Master of Business Administration Karnatak University,
Dharwad.
I, confirm that this report truly represents my work undertaken as a part of my Summer In-plant
Project (SIP) this work is not a replication of work done previously by any other person. I also
confirm that the contents of the report and the views contained therein have been collected and
presented by me.
DATE: 04/08/2020 BHIMESH B GANIGER
PLACE: HUBLI (19MBA069)

THE MUTHOOT FINANCE LIMITED
INDEX
TABLE OF CONTENTS
SL.NO PARTICULARS PAGE. NO
1 EXECUTIVE SUMMARY 2-6
2 INDUSTRY PROFILE 7-25
3 COMPANY PROFILE 26-35
4 INTRODUCTION TO STUDY 36-52

AND LITERATURE REVIEW
5 RESEARCH METHODOLOGY 53-55
6 DATA ANALYSIS AND 56-74

INTERPRETATION
7 FINDINGS 75-77
8 SUGGESTIONS 78-79
9 CONCLUSIONS 80-81
10 ANNEXURE 82-85
11 BIBLIOGRAPHY 86-87
KLE Society’s Institute of Management Studies and Research, Hubli Page 1

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY
A. INTRODUCTION TO THE STUDY

A Study on Non Performing Assets towards THE MUTHOOT FINANCE LIMITED.
The type of research used for collection and analysis of the data. The main source of data for this
study is the past records prepared by the bank. It is to determine that the NPA‟s of the bank since
its inception and to identify the ways in which the performance especially the non- performing
assets of THE MUTHOOT FINANCE LIMITED can be improved.
NON-PERFORMING ASSETS
An asset is classified as Non-performing asset if dues in the form of principal and interest are not
paid by the borrower for a period of 180 days. However, with effect from March 2004, default is
given to the borrower if the dues are not paid for 90 days.
Defination: As per the Reserve Bank of India: 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. An amount due under any credit facility is
treated as "past due" when it has not been paid within 30 days from the due date. Due to the
improvements in the payment and settlement systems, recovery climate, up gradation of
technology in the banking system, etc., it was decided to dispense with ‘past due’ concept, with
effect from March 31, 2001.
B. TITLE
A Study on Non Performing Assets towards THE MUTHOOT FINANCE LIMITED.
C. OBJECTIVES
 To understand the meaning and classification of Non-Performing Assets.
 To analyse sector wise Non-Performing Assets.
 To study the RBI norms on Non-Performing Assets.

 To study about the performance and future challenges of THE MUTOHOOT

FINANCE LIMITED.
 To understand the causes of Non-Performing Assets.
 To know the trend of NPA’s over the year.
D. NEED OF THE STUDY

 The project or study has been conducted to fulfill the partial requirements in
completing the course of Master of Business Administration.
 To understand the concept of NPA, its effect on the banks profitability.
 To understand the movement of NPA at Muthoot Finance Limited.
E. SCOPE OF THE STUDY

 As per this study is concerned to the only The Muthoot Finance LIMITED.
 The study covers to find out the strategy required to reduce the NPAs.
 The data is purely based on the secondary data and collected from website and
journal.
 The concentration is given only in understanding the NPAs growth with the reference
of The Muthoot Finance LIMITED.
F. RESEARCH METHODOLOGY
Introduction
The quality of the project work depends on the methodology adapted for the study and also
it depends upon the nature of the project work. Use proper way of research methodology is very
essential part of any research. In order to conduct a study scientifically, suitable methods and
measures are to be followed.
Research Design
The type of research used for collection and analysis of the data is “Historical Research
Method”. The main source of data for this particular study is the past records prepared by the
bank. The main focus of this study is to determine the non-performing assets of the bank since its
inception and to identify the ways in which the performance especially the non- performing

assets of The Muthoot Finance Ltd can be improved. The data regarding bank history and profile
are collected through “Exploratory Design” particularly through the study of secondary sources
and discussions with individuals.
DATA COLLECTION METHOD
Primary data- Nil
A primary data source is an original data source, that is, one in which the data are collected
firsthand by the researcher for a specific research purpose or project.
Secondary Data
Published data and the data collected in the past or other party is called secondary data. The
secondary data is collected from the published books, magazines, annual report of the bank and
bank website has been used to collect the data.
G. IMPORTANT FINDINGS
 The promoters share decreased in the recent years, when SBI took 49% stake in the
bank. This improved the quality of banks financials and the share prices also
increased by almost 31% which in turn bought back the investors trust and the
goodwill was built back.
 It is found that cash and balances with RBI was 11,42,57,489 in the year 2018 and
decreased to 10,79,77,369 in the current year by 5.50%. The reason being that
Muthoot Finance Limited increased its loanable funds to provide loans to industry
and businesses. If the cash balances with RBI reduces than the bank has more money
left for its disposal or to lend it to their customers.
H. IMPORTANT SUGGESTIONS
The bank should continuously monitor loans to identify accounts that have potential to
become non-performing. The Muthoot Finance Limited should offer rescheduling of loans of
those borrowers who were struggling with high interest rate. The Muthoot Finance Limited
should concentrate more on credit appraisal, monitoring, credit risk management and recoveries.
Muthoot Finance Limited must also keep enough provisions to meet further contingencies,

I. CONCLUSION
Preventing fresh flow of NPAs is an important as the recovery of the existing heavy stock of
NPAs. There cannot be can quick fix or small solution to solve the NPA problem once the
recovery reforms are carried out, market for stressed assets are developed, this Securitization Act
will surely help the banks in the reduction of NPAs to the great extent.
Exchange of credit information among banks would be of immense help to avoid possible NPAs.
The banking system ought to be so geared that a defaulter at one place is recognized as a
defaulter by the system. The system have to provide a mechanism to ensure that the
unscrupulous borrower are unable to play one bank against the other.

INDUSTRY PROFILE

INDUSTRY PROFILE

INTRODUCTION
The Reserve Bank Of India has defined NBFC as the Companies which are registered under the
Companies Act, 1956 and are engaged in the business of loans and advances, acquisition of
shares/ stocks/ bonds/ debentures/ securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business
but they does not include any institution whose principal business is that of agriculture activity,
industrial activity, purchase or sale of any goods (other than securities) or providing any services
related to it and sale/purchase/construction of immovable property are known as Non-Banking
Financial Company.
The main functions of the banking sector are as follows:
It provides liquidity for economic growth of a country.
It offers safety for the depositors who want to deposit their savings in the bank.
It helps to manage all the financial transactions between different parties.
It act as the main pillars of the financial system.
It provides credit or loans to dealers, households, small as well as large business houses.
It offers liquidity for the borrowers both on short and long-term basis based on their need.
It provides sector was developed during the British era. British East India Company established
three banks,
Bank of Bengal- 1809
Bank of Bombay-1840
Bank of Madras-1843
These three banks were later amalgamated and called Imperial Bank,which was taken over by
SBI in 1955.The Reserve Bank of India was established in 1935,followed by the Punjab National
Bank, Bank of India, Canara Bank and Indian Bank.
In 1969,14 major banks were nationalized and in 1980,6 major private sector banks were taken
over by the government.
Indian banking system, over the years, has gone through various phases.
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 I
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 European 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 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 System.
During those days 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 II
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 Specially
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 government all over 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 to be 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.
1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crores.
After the nationalization of banks, the branches of the public-sector bank India raised to
approximately 800% in deposits and advances took a huge jump by 11000%. Banking in the
sunshine of Government ownership gave the public implicit faith and immense confidence about
the sustainability of these institutions.
Phase III
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 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 not
yet fully convertible, and banks and their customers have limited foreign exchange exposure.
Banking in India originated in the first decade of l8lb century with The General Bank Of
India coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks
are now defunct. The oldest bank in existence in India is the State Bank of India being
established as “The Bank Of Calcutta" in Calcutta in June 1806. Couple of Decades later, foreign
Banks like HSBC and Credit Lyonnais Started their Calcutta operations in 18508. At that point
of time, Calcutta was the most active trading port, mainly due to the trade of British Empire and
due to which banking actively took roots there and prospered. The first fully Indian owned bank
was the Allahabad Bank set up in 1865.
By 1900, the market expanded with the establishment of banks like Punjab National Bank in
1895 in Lahore; Bank of India in 1906 in Mumbai-both of which were founded under private
ownership. Indian Banking Sector was formally regulated by Reserve Bank Of India from 1935.
After India‟s independence in 1947, the Reserve Bank was nationalized and given broader
powers.
INTRODUCTION
The Reserve Bank Of India has defined NBFC as the Companies which are registered under the
Companies Act, 1956 and are engaged in the business of loans and advances, acquisition of
shares/ stocks/ bonds/ debentures/ securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business
but they does not include any institution whose principal business is that of agriculture activity,
industrial activity, purchase or sale of any goods (other than securities) or providing any services
related to it and sale/purchase/construction of immovable property are known as Non-Banking
Financial Company.
The Reserve Bank has been given the powers under the RBI Act 1934 to register, lay down
policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs that
meet the 50-50 criteria of principal business. The Reserve Bank can penalize NBFCs for
violating the provisions of the RBI Act or the directions or orders issued by RBI under RBI Act.
The penal action can also result in RBI cancelling the Certificate of Registration issued to the

NBFC, or prohibiting them from accepting deposits and alienating their assets or filing a winding
up petition.
If companies that are required to be registered with the Reserve Bank as NBFCs, are found to be
conducting non-banking financial activity, such as, lending, investment or deposit acceptance as
their principal business, without seeking registration, the Reserve Bank can impose penalty or
fine on them or can even prosecute them in a court of law. If members of public come across any
entity which does non-banking financial activity but does not figure in the list of authorized
NBFC on RBI website, they should inform the nearest Regional Office of the Reserve Bank, for
appropriate action to be taken for contravention of the provisions of the RBI Act, 1934.
As per extant guidelines NBFCs with asset size of ₹ 1,000 cr and above are permitted to
participate in IRF as trading members. While, trading members of stock exchanges are permitted
to execute trades on their own account as well as on account of their clients, banks and PDs have
been allowed to deal in IRF for both hedging and trading on own account and not on client’s
account. Similarly, NBFCs as trading members are permitted to execute their proprietary trades
and not to undertake transactions on behalf of clients.
Different types of banking institutions are:

1. Commercial Banks.
2. Industrial Banks.
3. Land development Banks.
4. Exchange Banks.
5. Co-operative Banks.
HISTORY OF NON BANKING FINANCIAL CORPORATION (NBFC)

NBFCs in India made a humble beginning way back in the 1960’s to serve the need of the
savers and investors whose financial requirements were not sufficiently covered by the existing
banking system in India. The NBFCs began to invite fixed deposit from investors and work out
leasing deal for big industrial firms. Initially, they operated on a limited scale and could not
make a significant impact on the financial system.

During the first stages of their development, this business of financing was regulated by the
Companies Act. At that time a need was felt that due to the unique and complex nature of
operations and also financial companies acting as financial intermediaries, there should be a
separate regulatory mechanism.
Accordingly Chapter III B was included in the Reserve Bank of India Act, 1934, assigning
limited authorities to the Bank to regulate deposit taking companies. The RBI has since initiated
measures to bring the NBFC sector within the realm of its regulation.
The RBI accepted and implemented the key recommendations of James S. Raj Study Group
formed in 1975 that financial companies be allowed to gearing often times. As per the salient
features of the Directions, the hire purchase and leasing companies could accept deposits to the
extent of their net owned funds. The Directions also required the Companies to maintain liquid
assets in the form of unencumbered approved government securities.
COMMERCIAL BANKS
Commercial banks form a significant part of the country’s Financial Institution System.
Commercial Banks are those profit seeking institutions which accept deposits from general
public and advance money to individuals like household, entrepreneurs, businessmen etc. with
the prime objective of earning profit in the form of interest, commission etc. The operations of
all these banks are regulated by the Reserve Bank of India, which is the central bank and
supreme financial authority in India. The main source of income of a commercial bank is the
difference between these two rates which they charge to borrowers and pay to depositers.
Examples of commercial banks – ICICI Bank, State Bank of India, Axis Bank, and HDFC Bank.
Commercial banks mobilise savings of general public and make them available to large
and small industrial and trading units mainly for working capital requirements.
Commercial banks in India are largely Indian-public sector and private sector with a few
foreign banks. The public sector banks account for more than 92 percent of the entire banking
business in India—occupying a dominant position in the commercial banking. The State Bank of
India and its 7 associate banks along with another 19 banks are the public sector banks.

Meaning of NBFC:
Non-Banking Financial Company (NBFC) engaged in financial activities, they are registered
under the Companies Act, 1956. NBFCs deal with the business of lending, investments in share
market, debentures or bonds, leasing, hire purchase, insurance and chit business.
Irrespective of their financial activities they do not possess a banking license. NBFC cannot
accept demand deposits or issue cheques. Unlike banks, the deposits in NBFC are not insured.
As per RBI Act, 1934, a company cannot function as an NBFC without a certificate of
registration and without having net owned funds worth Rs. 2 crores. Section 3 of the Companies
Act also states about the same requirement.
Net owned funds is the balance of “owned funds” minus the amount of investment in shares of
subsidiaries, companies in the same group and all other NBFCs, book value of debentures,
bonds, outstanding loans and advances including hire purchase and lease finance made to and
deposits with subsidiaries and companies in the same group.
Registration of NBFCs is done according to the Companies Act 2013 and RBI Act, 1934. They
play a vital role in executing financial functions in the economy. They help to face demand that
the banking system fails to fulfil in a short processing time.
An NBFC helps us by providing both secured and unsecured loans to the takers based on the
alternative lending models. The government has also started promoting NBFCs so that the
unorganized money lenders can run financial services.
Functions of NBFC
NBFCs lend and make investments and hence their activities are akin to that of banks; however
there are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself;
iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.
Types of NBFC
NBFCs are categorized a) in terms of the type of liabilities into Deposit and Non-Deposit
accepting NBFCs, b) non deposit taking NBFCs by their size into systemically important and

other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and c) by the kind of
activity they conduct. Within this broad categorization the different types of NBFCs are as
follows:
I. Asset Finance Company (AFC) : An AFC is a company which is a financial institution
carrying on as its principal business the financing of physical assets supporting
productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth
moving and material handling equipments, moving on own power and general purpose industrial
machines. Principal business for this purpose is defined as aggregate of financing real/physical
assets supporting economic activity and income arising therefrom is not less than 60% of its total
assets and total income respectively.
II. Investment Company (IC) : IC means any company which is a financial institution carrying
on as its principal business the acquisition of securities,
III. Loan Company (LC): LC means any company which is a financial institution carrying on as
its principal business the providing of finance whether by making loans or advances or otherwise
for any activity other than its own but does not include an Asset Finance Company.
IV. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which
deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net
Owned Funds of ₹ 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR
of 15%.
V. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC
carrying on the business of acquisition of shares and securities which satisfies the following
conditions:-
(a) it holds not less than 90% of its Total Assets in the form of investment in equity shares,
preference shares, debt or loans in group companies;
(b) its investments in the equity shares (including instruments compulsorily convertible into
equity shares within a period not exceeding 10 years from the date of issue) in group companies
constitutes not less than 60% of its Total Assets;
(c) it does not trade in its investments in shares, debt or loans in group companies except through
block sale for the purpose of dilution or disinvestment;
(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the
RBI act, 1934 except investment in bank deposits, money market instruments, government

securities, loans to and investments in debt issuances of group companies or guarantees issued on
behalf of group companies.
(e) Its asset size is ₹ 100 crore or above and
(f) It accepts public funds
VI. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a
company registered as NBFC to facilitate the flow of long term debt into infrastructure projects.
IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5
year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
VII. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a
non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets
which satisfy the following criteria:
a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not
exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000;
b. loan amount does not exceed ₹ 50,000 in the first cycle and ₹ 1,00,000 in subsequent cycles;
c. total indebtedness of the borrower does not exceed ₹ 1,00,000;
d. tenure of the loan not to be less than 24 months for loan amount in excess of ₹ 15,000 with
prepayment without penalty;
e. loan to be extended without collateral;
f. aggregate amount of loans, given for income generation, is not less than 50 per cent of the total
loans given by the MFIs;
g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
VIII. Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-
deposit taking NBFC engaged in the principal business of factoring. The financial assets in the
factoring business should constitute at least 50 percent of its total assets and its income derived
from factoring business should not be less than 50 percent of its gross income.
IX. Mortgage Guarantee Companies (MGC) - MGC are financial institutions for which at least
90% of the business turnover is mortgage guarantee business or at least 90% of the gross income
is from mortgage guarantee business and net owned fund is ₹ 100 crore.
X. NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution through
which promoter / promoter groups will be permitted to set up a new bank .It’s a wholly-owned
Non-Operative Financial Holding Company (NOFHC) which will hold the bank as well as all

other financial services companies regulated by RBI or other financial sector regulators, to the
extent permissible under the applicable regulatory prescriptions.
Advantages of NBFC
NBFCs are slowing becoming popular between the institutional investors because they provide
semi-rural and rural India with access to credit. Following are the advantages of NBFCs in India-
Provides loans and credit facilities based on the alternative credit scoring model to assess the
loan application.
 Support investment in property
 Help in trading money market instruments
 Fund private education
 Provides retirement planning
 They give advice companies in merger and acquisition
 Wealth management
 Prepare a feasibility, market or industry studies for companies.
 They create a balance by addressing the financial needs of the country.
FUTURE CHALLENGES OF NBFC

Even though the NBFC has been capturing market shares and making rapid progress than from
commercial banks, a few prominent players have largely dominated the NBFC market. Small
NBFCs are struggling to ramp-up their operations and lend sustainably.
There are several factors due to which NBFCs struggle. Some of the major challenges and issues
in the way of starting an NBFC in India are as follows:
a) Funding issue due to the absence of refinancing option
Banks in India have several options for refinancing such as RBI, NABARD, EXIM Bank, and
SIDBI. Likewise, Housing Financing Companies (HFCs) also have the refinancing alternative,
and it refinances from NHB (National Housing Bank), the regulator of HFCs.
However, NBFCs have to hinge on banks, competitors, or the capital markets for raising
resources every time. In turn, this could be unfavorable to the sustainability of the NBFCs
growth like in the case of distress. Furthermore, the flow of funds from these sources could dry
up without much notice.

b) Complication in obtaining NBFC License

The process of procuring an NBFC license is quite difficult. The reasons for the same are the
complicated documentation and approval required from the Reserve Bank of India. RBI governs
the process of NBFC registration and has set several standards for obtaining the same.
Apart from the documentation, there are several criteria that an NBFC applicant must satisfy.
They are-
Composition of the Board of Directors: It means at least one of the directors of the company
should an experienced person with a financial background. For example, he/she must have
worked in the Bank.
Quality of Capital: A net worth of Rs. 2 crores is mandatory to start an NBFC in India which is
quite high. However, the most important thing to consider is the quality of capital. Whether it is
white money or black. Therefore, thorough verification is done on the source of capital applicant
brings.
No Conviction: Another most important thing and the challenge in starting an NBFC in India.
The director must not be convicted of any charge. If he/she is, then the person can’t be the
director of the company.
c) Difficult compliances for NBFC in India
Once you have incorporated your NBFC, you need to follow its compliances strictly. There are a
number of NBFC compliances for different types of NBFCs which they have to file quarterly,
half-yearly, and annually.
Therefore, if you are running a company of loan and advances, etc., then it becomes quite tough
to look at all the things at own. Furthermore, it becomes really difficult to figure out how and
when to file the prescribed returns.
d) Absence of flexibility in the classification of loan NPAs
For large corporates, the NPA (Non-Performing Assets) norms are quite relevant. However,
businesses with irregular cash flow have a cascading impact regarding all the delays in
payments.
Although, in the revised categorization, assets are re-categorized; therefore, classification under
NPA and greater flexibility, w.r.t scheduling is much required. The classification of NPA norms
must be based on the assets financed instead and the borrowers’ profile or uniform system of
asset classification.

e) Lack of statutory recovery tool

After the asset classification norms are revised, something which still lacks is the recovery tool at
par with banks. However, NBFCs today lack statutory recovery tool available.
f) Limited leverage ratio for NBFCs-ND with assets sizes less than Rs. 500 crores
Small NBFCs are exempted from the maintenance of the Capital Adequacy Ratio (CRAR). But
they can’t exceed the leverage ratio beyond 7 which is quite restrictive. Furthermore, such
NBFCs borrow largely from financial institutions and banks which in turn carry out due
diligence on the NBFCs that borrow.
g) Several representative bodies
The NBFC sector is at the development stage. Therefore, in the interest of developing its various
segments in a harmony, setting a single representative body could be a better alternative.
However, one must always ensure that every segment is represented adequately in such an apex
body that promotes the balanced growth of the NBFC sector without any inner conflicts.
However, in the present situation, there are a number of representative bodies. For instance, the
Finance Industry Development Council for AFCs, Association of Gold Loan Companies for
Gold Loan NBFCs, etc.
h) Requirement of capacity building
NBFCs need to work on creating a receptive ecosystem for capacity building on both a collective
and individual basis. And that’s what NBFCs are nowadays lacking and need to work up on.
i) Disparate tax treatment
It’s a well-known fact that there exists a big inequality in the tax structures for Banks vs. NBFCs.
For example, TDS (Tax deduction at Source), Dual taxation on lease/hire purchase, and income
recognition on NPAs. However, the current legal framework for NBFCs doesn’t allow a tax
deduction for the non-performing assets.
j) Scarcity of defaulter database
NBFC doesn’t get defaulter lists from Banks. In turn, this leaves NBFCs susceptible to credit
risk on account of the lack of crucial information. Moreover, there is a requirement for bringing
the essential legislative amendments so that these companies can leverage the utility payments
database in the credit assessment process.
k) Removal of Priority Sector Status to Bank Lending to NBFCs
It’s one of the biggest issues that NBFCs face. The Priority Sector status to Bank Lending to

NBFCs must be stored. Hence, the collaboration model “wholesaler/retailer” between the
NBFCs and Banks ensures the credit flow to under-served sections of the society. This, in turn,
helps NBFCs in creating assets and wealth in semi-urban and rural parts of the country.
However, RBI could specify a cap to route a maximum of a fixed percentage of the total bank
lending priority sector through NBFC.
l) Minimum mandatory credit rating for deposit-taking NBFC
As per the revised regulatory framework, it is obligatory for NBFCs accepting deposits to get
investment-grade credit. This will make them eligible for accepting public deposits from any of
these six rating agencies- CARE, CRISIL, FITCH Ratings India Pvt. Ltd, ICRA, SMERA, and
Brickwork Ratings India Pvt. Ltd.
In case the rating of any NBFC is downgraded to below the minimum investment grade rating,
then it can’t accept public deposits. Further, it must report the RBI regarding its position within
fifteen working days.
SWOT ANALYSIS
STRENGTHS
 Consistent highest return stock over Five years Nifty-500.
 Company with high TTM EPS Growth
 Good quarterly growth in the recent results
 Growth in quarterly Net Profit with increasing Net Margin
 Increasing Revenue every quarter for the past 3 quarters
 Annual Net Profit improving for last 2 years
 Company with Zero promoter pledge
 Stock gained more than 20% in one month
 Strong momentum: Price above short, medium, and long term moving averages
WEAKNESS
 Companies with growing costs for long term projects
 Decreasing their shareholding last quarter
 Decline in Net Profit

 Decline in Net Profit with falling Profit Margin

 Companies with high debt
 Declining profit every quarter for the past 2 quarters
 Promoters decreasing their shareholding
OPPORTUNITIES
 Broker price upgrades in last month
 Undervalued growth stocks
 Brokers upgraded recommendation or target price in last 3 months
 High momentum scores
 High recovery from 52 week low
 Decrease in provision in recent results
 RSI indicating price strength
 Raising delivery percentage compared to previous day
THREATS
 Companies with high market cap, lower public shareholding
 Stock with expensive valuation According to the Trendlyne valuation score

Porters Five Forces Model
1. Threat of new entrants

This force determines how easy (or not) it is to enter a particular industry. If an industry
is profitable and there are few barriers to enter, rivalry soon intensifies. When more
organizations compete for the same market share, profits start to fall. It is essential for
existing organizations to create high barriers to enter to deter new entrants. Threat of new
entrants is high when:
 Low amount of capital is required to enter a market.
 Existing companies can do little to retaliate.
 Existing firms do not possess patents, trademarks or do not have established brand
reputation.

 There is no government regulation.

 Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to
other industries).
 There is low customer loyalty.
 Products are nearly identical.
 Economies of scale can be easily achieved.

2. Bargaining power of suppliers
Strong bargaining power allows suppliers to sell higher priced or low quality raw
materials to their buyers. This directly affects the buying firms’ profits because it has to
pay more for materials. Suppliers have strong bargaining power when:
 There are few suppliers but many buyers.
 Suppliers are large and threaten to forward integrate.
 Few substitute raw materials exist.
 Suppliers hold scarce resources.
 Cost of switching raw materials is especially high.
3. Bargaining power of buyers

Buyers have the power to demand lower price or higher product quality from industry
producers when their bargaining power is strong. Lower price means lower revenues for
the producer, while higher quality products usually raise production costs. Both scenarios
result in lower profits for producers. Buyers exert strong bargaining power when:
 Buying in large quantities or control many access points to the final customer;
 Only few buyers exist.
 Switching costs to other supplier are low.
 They threaten to backward integrate.
 There are many substitutes.
 Buyers are price sensitive.

4. Threat of substitutes
This force is especially threatening when buyers can easily find substitute products with
attractive prices or better quality and when buyers can switch from one product or service
to another with little cost. For example, to switch from coffee to tea doesn’t cost
anything, unlike switching from car to bicycle.
5. Rivalry among existing competitors

This force is the major determinant on how competitive and profitable an industry is. In
competitive industry, firms have to compete aggressively for a market share, which
results in low profits. Rivalry among competitors is intense when:
 There are many competitors.
 Exit barriers are high.
 Industry of growth is slow or negative.
 Products are not differentiated and can be easily substituted.
 Competitors are of equal size.
 Low customer loyalty.

COMPANY PROFILE

ORGANISATION PROFILE
THE MUTHOOT FINANCE LTD

The “MUTHOOT FINANCE”, was established on 1939 under the leadership of M G George the
chairman of muthoot finance. Muthoot Finance Ltd. is an Indian financial corporation. It is
known as the largest gold financing company in the world. In addition to financing gold
transactions, the company offers foreign exchange services, money transfers, wealth
management services, travel and tourism services, and sells gold coins at Muthoot Finance
Branches.
The company's headquarters are located in Kerala, India, and it operates over 4,400 branches
throughout the country. Outside India, Muthoot Finance is established in the UK, the US, and
the United Arab Emirates. While the company falls under the brand umbrella of
the Muthoot Group, its stocks are listed on the Bombay Stock Exchange (BSE) and NSE. As of
March 2012, revenue (after expenditure) stood at more than Rs. 23,000 crore ($4.2 billion). The
target market of Muthoot Finance includes small businesses, vendors, farmers, traders, SME
business owners, and salaried individuals.
The company runs the Kochi Chapter of the "Horn Not Ok Please" initiative, which raises
awareness on the harmful effects of vehicular noise pollution. The company has also launched a
Centre for Promoting/Creating Road Traffic Awareness at the office of the Asst. Commissioner
of Police in Kochi to help raise awareness about road safety and the prevention of traffic
accidents.
In 2012, the Muthoot Group launched the first Paul George Memorial Tournament, which was
aimed at Government School Children in the Delhi NCR region. The winners of the tournament
were given scholarships.
Muthoot Group has a very long history, being founded in 1887 in Kerala. The group pioneered
gold loan financing in 1939.
As of 2019, Muthoot Finance Ltd is India’s largest gold financing company in terms of loan
portfolio. They have a market share of close to 18% in the Gold loan Financing followed by
Indian Bank, IOB and Manappuram Finance Ltd as in FY18.
The company lends out loan to customers that are primarily those individuals who do not have
access to formal credit sources or can’t access formal credit within a reasonable time but possess
gold jewelry. In the last 5 years, the company has been trying to diversify into other lending

businesses such as microfinance, housing finance, vehicle & equipment finance. These
businesses contributed 12% of Asset of management in 2019 while gold business still contribute
the lion’s share of 88%.
Muthoot Finance Ltd had 4480 branches as of 31st March 2019.(61% in South India, 17% in
North, 16% in west & remaining 6% in East India).North India and West India
collectively possess 45% of India’s gold stock with minimal credit penetration. This market
provides a high potential for the rise in gold loans in future.
Muthoot Finance had 173T of gold jewelry kept as security as compared to RBI’s reserve of
618.2T.
The management maintains that the NPA is more of a just technical term to them as they would
anyway recover the loan amount by auctioning the security kept with them. But anyway they are
trying to keep the NPA % numbers low by improving the collection efficiency.
Information about the MUTHOOT FINANCE LTD

Name : The Muhoot Finance Ltd
Headquarters : Kochi
Founded : 1887, Kerala
Founder : M George Muthoot
Customer service : 1800 313 1212
No of employees : 30,000
No of branches : 3600
Stock price : MUTHOOTFIN (NSE) ₹1,144.00 -2.35 (-0.20%)
Subsidiaries : Belstar Microfinance Limited, MORE
CIN : L65910KL1997PLC011300
Registration Date : 14/03/199
Adress : Opposite Saritha Theatre Complex, Banerji Road, Kerala
Town / City : Ernakulam -682018
State : Kerala
Country Name : India
Telephone : 0484 2394712
Fax Number : 0484 2396506
Email Address : cs@muthootgroup.com

Website, if any : www.muthootfinance.com

Whether listed company : Yes
THE SALIENT FEATURES OF THE BANK ARE:

 Swift loan sanction in 48 hours*
 Online account access
 Floating rate options available
 No hidden charges
 High loan-to-value ratio of up to 90%
SHARE CAPITAL
The authorized share capital of the bank shall be 71.75 lakhs and it is fixed by the general body
from time to time. Each share value 100. The full value of share shall be paid in one lump sum
along with the application. A member can hold number of shares and can claim interest in the
share actually held by him in the bank.
FUNDS: Raising funds:

The funds for carrying out all or any of the objectives may be raised by the following ways:
 Issue of shares
 Accepting deposits of various kinds.
 Obtaining cash/overdrafts or other loans From Karnataka co-operative bank district
central co-operative bank and with the prior approval of register from any of the
nationalized commercial bank.
Donations:
Accepting subscription from members for member death relief fund/ members welfare funds.
Any other means permitted under the act.
RESERVE FUND:
The reserve fund consists of:
1. The amount annually credited to the fund in accordance with bye-laws.
2. The value of dividend shall be considered as reserve fund.

List of Present Directors

1) Chairman : M.G. George Muthoot
2) Managing Director : George Alexander Muthoot
3) Joint managing Director : George Jacob Muthoot
4) Joint managing Director : George Thomas Muthoot
5) Deputy Managing Director : Alexander George Muthoot
6) Independent Director : Ms Pamela Anna Mathew
7) Independent Director : Mr. Ravindra Pisharody
8) Independent Director : Mr. V.A. George
9) Independent Director : Mr. Pratip Chaudhuri
10) Independent Director : Jacob Benjamin Koshy
11) Independent Director : Jose Mathew
TYPES OF DEPOSITS:
The banks receive various types of deposit:
1) Fixed deposits (FD)
2) Savings deposits (SB)
3) Current deposits (CD)
4) Recurring deposit (RD)
In addition, the bank has the following deposits.
1) Pigmy deposit
2) Pigmy agent‟s security deposit
3) Provident fund
TYPES OF ADVANCES/LOANS
1) Mortgage Loan:
This loan is gives on pledging the valuable things. The minimum of loan 25000 and the
maximum amount depend upon the value of the mortgage. The extent of limit is 40% to
50% of market price of the mortgage property.

2) Gold Loan:
This loan is provided against gold and golden ornaments. The limit of the loan is 75% of
the market due. Gold Loans are loans availed by pledging your gold ornaments with a
bank. Muthoot gold loan can be taken for meeting urgent personal expenses like children
education, marriage and other financial emergencies in the family as well as for business
purposes.
3) Personal Loan:
Muthoot Finance offers both secured and unsecured personal loans to select categories of
the applicants. You can avail a personal loan for an amount as low as Rs. 50,000 with
minimal documentation and quick disbursal from Muthoot Finance. Moreover, Muthoot
Finance personal loan comes with end use flexibility. You can use the funds to meet a
variety of expenses, including vacation and wedding expenses or a medical emergency.
4) Home Loan:
The rate of interest offered by Muthoot finance home loan is linked to the retail prime
depends on the type of loan and the amount availed. It starts at 12.5% onwards.
5) Hire Purchase Loan:
This loan is provided for personal and transportation purposes. The loan is paid for the
purchases of TV, Vehicles like Two wheelers, four wheelers and other purchases. The
limit of the loan is 75% of the price. Normal repayment period is 12 months to 5 years on
monthly installment.
6) Cash Credits:
It is an an arrangement under which borrower is allowed to borrow money up to a certain
limit against a bond of credit. The borrower has to provide one or more securities or
certain securities.
7) Government Security Loan:
The loan is provided to those who forward government securities as security th the bank
like National Savings Certificate ( NSC), Indian Vikas Patra (IVP), Kisan Vikas Patra
(KVP), Act, LIC policy. The limit of loan is 75% of the face value.
8) Surety Loan:
Without forwarding any tangible security a person can avail loan by providing securities
of repute.

9) Fixed Loan:
This loan is given on the strength of fixed deposit. The period of loan depends on the
period of fixed deposit.
10) Pigmy Deposit Loan:
The period of pigmy is the basis for sanctioning of the loan.
11) Warehouse Receipt Loan:
This loan provided on warehouse receipt after the storage of the goods in the warehouse.
State warehouse receipt and central warehouse receipt can be forward as security.
12) Cash Credit On Fixed Deposit:
Cash credit facility is given to those who provided fixed deposit receipt security. The
borrower need not withdraw the whole amount of the credit so granted.
Specialties of Bank
1) Quick Service.
2) Issuing Demand Draft at Concessional rate or low rate.
3) Spot or immediate loan on national security bonds warehouse receipt vehicle purchase,
LIC Bonds etc.
4) Tax exemption for withdrawals.
Vision
To be the most trusted financial service provider at the door step of the common man satisfy him
immediately with easy and simple products. Be the most trusted, globally diversified institution
enriching lives of the masses while contributing back to the society.
Mission
Provide home loan to low-income informal sector households across urban/ semi-urban India,
through a service strongly differentiated on trust and convenience. To build leading customer-
centric business enabled by technology, maintaining the highest standards of corporate
governance and uncompromising values.

SWOT ANALYSIS
STRENGTHS
 Consistent highest return stock over Five years Nifty-500.
 Company with high TTM EPS Growth
 Good quarterly growth in the recent results
 Growth in quarterly Net Profit with increasing Net Margin
 Increasing Revenue every quarter for the past 3 quarters
 Annual Net Profit improving for last 2 years
 Company with Zero promoter pledge
 Stock gained more than 20% in one month
 Strong momentum: Price above short, medium, and long term moving averages
WEAKNESS
 Companies with growing costs for long term projects
 Decreasing their shareholding last quarter
 Decline in Net Profit
 Decline in Net Profit with falling Profit Margin
 Companies with high debt
 Declining profit every quarter for the past 2 quarters
 Promoters decreasing their shareholding
OPPORTUNITIES
 Broker price upgrades in last month
 Undervalued growth stocks
 Brokers upgraded recommendation or target price in last 3 months
 High momentum scores
 High recovery from 52 week low
 Decrease in provision in recent results
 RSI indicating price strength
 Raising delivery percentage compared to previous day

THREATS
 Companies with high market cap, lower public shareholding
 Stock with expensive valuation According to the Trendlyne valuation score
McKinsey 7s Model
1. Strategy
Strategy is a plan developed by a firm to achieve sustained competitive advantage and
successfully compete in the market. In general, a sound strategy is the one that’s clearly
articulated, is long-term, helps to achieve competitive advantage and is reinforced by
strong vision, mission and values. But it’s hard to tell if such strategy is well-aligned with
other elements when analyzed alone.

2. Structure
Structure represents is the way business divisions and units are organized and includes
the information of who is accountable to whom. In other words, structure is the
organizational chart of the firm. It is also one of the most visible and easy to change
elements of the framework.
3. Systems
Systems are the processes and procedures of the company, while reveal business daily
activities and hoe decisions are made. Systems are the area of the firm that determines
how business is done and it should be the main focus for managers during organizational
change.
4. Skills
Skills are the abilities that firms employees perform very well. They also include
capabilities and competences. During organizational change, the question often arises of
what skills the company will really need to reinforce its new strategy or new structure.
5. Staff
Staff element is concerned with what type and how many employees an organization will
need and how they will be recruited, trained, motivated and rewarded.
6. Style
Style represents the way the company is managed by Top-level managers, how they
interact, what actions do they take and their symbolic value. In other words, it is the
management style of company’s leaders.
7. Shared Values
Shared values are the core of McKinsey 7s model. They are the norms and standards that
guide employee behavior and company actions and thus, are the foundation of every
organization.

INTRODUCTION TO STUDY AND

LITERATURE REVIEW

INTRODUCTION TO THE STUDY
A Study on Non Performing Assets of THE MUTHOOT FINANCE LTD.

The type of research used for collection and analysis of the data. The main source of data for this
study is the past records prepared by the bank. It is to determine that the NPA‟s of the bank since
its inception and to identify the ways in which the performance especially the non- performing
assets of THE MUTHOOT FINANCE LTD can be improved.
Title of the Project:
“ A STUDY ON NON-PERFORMING ASSETS OF THE MUTHOOT FINANCE
LTD.
An asset is classified as Non-performing asset (NPA) if dues in the form of principal and interest
are not paid by the borrower for a period of 180 days. However with effect from March
2004,default would be given to a borrower if dues are not paid for 90 days.
If any advance or credit facilities granted by a bank to a borrower becomes non-performing, then
the bank will have to treat all the advances/credit facilities granted to that borrower as non-
performing without having any regard to the fact that there may still exit certain advances/credit
facilities having performing status.
An amount due under any credit facility is treated as “Past Due” when it has not been paid within
30 days from the due date. Due to the improvement in the payment and settlement systems,
recovery climate, up gradation of technology in the banking system etc., it was decided to
dispense with „past due‟ concept, with effect from March 31,2001.
Any amount due to the bank under any credit facility, if not paid by the due date fixed by the
bank becomes overdue. “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 90 days or credits are not enough to
cover the interest debited during the same period, these accounts should be treated as „out of
order”.

NON-PERFORMING ASSETS
An asset is classified as Non-performing asset (NPA) if dues in the form of principal and interest
are not paid by the borrower for a period of 180 days. However with effect from March
2004,default would be given to a borrower if dues are not paid for 90 days.
If any advance or credit facilities granted by a bank to a borrower becomes non-performing, then
the bank will have to treat all the advances/credit facilities granted to that borrower as non-
performing without having any regard to the fact that there may still exit certain advances/credit
facilities having performing status.
An amount due under any credit facility is treated as “Past Due” when it has not been paid within
30 days from the due date. Due to the improvement in the payment and settlement systems,
recovery climate, up gradation of technology in the banking system etc., it was decided to
dispense with „past due‟ concept, with effect from March 31,2001.
Accordingly, as from that date, a Non performing asset (NPA) shall be an advance where;
 Interest and / or installment of principal remain overdue for a period of more than 90 days
in respect of a Term Loan.
 The account remains „Out of order‟ @ for a period of more than 90 days, in respect of
an Overdraft / Cash Credit (OD/CC).
 Agricultural advances whose interest or principal installment payments remain overdue
for two crop/harvest seasons for short duration crops.
 The bill remains overdue for a period of more than 90 days in the case of bill purchased
and discounted.
 Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.
Any amount due to the bank under any credit facility, if not paid by the due date fixed by the
bank becomes overdue. “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 90 days or credits are not enough to
cover the interest debited during the same period, these accounts should be treated as „out of
order”.

MEANING:
A non performing assets (NPA) refers to a classification for loans and advances that are in
default or in arrears on scheduled payments of principal or interest.
Debt is classified as non- performing when loan payments have not been made for a period of 90
days. While 90 days of nonpayment is standard, the amount of elapsed time may be short or long
depending upon the terms and conditions of each loan.
DEFINITION:
A „non-performing asset‟ (NPA) was defined as credit in respect of which interest and / or
installment of principal has remained „past due‟ for a specific period of time.
NATURE OF ADVANCES
Bank provide advance to their customer in various form of cash credit, term loans, overdraft and
purchase or discounting of bills.
 Cash credit
Cash credit facility is provided to mainly to individuals on enterprise engaged in
manufacturing and trading activities to enable them to carry on their activities. The
amount of cash credit facility to be sanctioned to a unit need based and is worked as per
well defined parameters in each bank. The cash credit facility is generally granted against
the security of stock of goods standing crops and bill/book debts representing genuine
against sales all belonging to the barrower. These assets are “primary” security for the
advance. In addition to the primary security, banks generally obtained collateral security.
The most common form of collateral security is immovable properties. These following
are some other securities, which may be obtained as collateral securities.
Movable fixed assets like Machinery, Vehicle.
Receipt, gilt edged securities, NCS’s.
 Guarantees
It is common practice among banks to obtain guarantee for repayment cash credit
facilities. The guarantees for may be with directly connected with borrowing entity or
they may be independent person ( individual or companies ) who are “considered goods”
for the guarantor at the time of stipulating their guarantees and update these report
periodically annually on at the time of review of the credit facility.

 Loans
Loans are repayable in installment spread over a period of time. However if there is
default in meeting the commitments by the barrower the bank has right to demand
repayment of the entire loan outstanding including the installment which have not yet
fallen due for payment. The amount and periodically of repayment is fixed at the time of
sanction duly resolved in the loan document. The term / demand loan are generally
extended for the following purpose. For acquisition of fixed assets like land and building,
plant and machinery, furniture, vehicles, Implements, houses, consumer durables etc.
- For meeting expenses on education / medical treatment of self / dependents.
- For meeting personal expenses.
 Overdraft
Overdraft facility is granted to a current account holder the arrangement the customer can
draw up to an agreed sum in addition to this credit balance in the account. The overdraft
facility may be either secured or clean ( without securities ) and does not generally carry
a payment schedule.
 Bills
While the cash credit finance against stock intended to be used for financing the pre
stages i.e. procurement of raw materials. There processing and concession in to finished
goods to bring them in to salable condition as well as to reasonable qualities of these
goods lying in various stages the finance against bill is meant to finance the actual sale
transaction.
TREATMENT OF ACCOUNTS AS NPAS:

 Record of Recovery:
i. The treatment of an asset as NPA should be based on the record recovery. Banks
should not treat an advance as NPA merely due to existence of some deficiencies
which are of temporary in nature such as non-availability of adequate drawing
power, balance outstanding exceeding the limit, non-submission of stock statements
and non-renewal of the limits on the due date, etc. where there is a threats of loss, or
the recoverability of the advances is in doubt, the asset should be treated as NPA.

ii. In such cases, it should, however, be ensured that the accounts remain in order
subsequently and a solitary credit entry made in an account on or before the balance
sheet date which extinguishes the overdue amount of interest or installment of
principal is not reckoned as the sole criteria for treatment of the account as a
standard asset.
 Treatment of NPAs – Borrower – wise and not Facility – wise
i. In respect of a borrower having more than one facility with a bank, all the facilities
granted by the bank will have to be treated as NPA and not the particular facility or part
thereof which has become irregular.
ii. However, in respect of consortium advances or financing under multiple banking
arrangements, each bank may classify the borrowal accounts according to its own record
of recovery and other aspects having a bearing on the recoverability of the advances.
 Agricultural Advances – Default in repayment due to Natural Calamities:
i. Where natural calamities impair the repaying capacity of agricultural borrowers, as a
relief measure, banks may decide on their own to:
a. Convert the short - term production loan into a term loan or re-schedule the repayment
period, and
b. Sanction fresh short-term loans
ii. In such cases of conversion or re-schedulement, the term loan as well as fresh short- term
loan may be treated as current dues and need not be classified as non- performing
asset(NPA). The asset classification of these loan would, therefore, be governed by the
revised terms and conditions and these would be treated as NPA under the extant norms
applicable for classifying agricultural advances as NPAs.
 Housing loan to Staff:
In the case of housing loan or similar advances granted to staff members where
interest is payable after recovery of principal, interest need not be considered as overdue
from the first quarter onwards. Such loans / advances should be classified as NPA only
when there is a default in repayment of installment of principal or payment of interest on
the respective due dates.

 Credit facilities Guaranteed by Central / State Government:

i. The credit facilities backed by guarantee of the Central Government through overdue
should not be treated as NPA
ii. This exemption from classification of government guaranteed advances as NPA is not for
the purpose of recognition of income.
iii. From the year ended March 31, 2006, State Government guaranteed advance and
investment in State Government guaranteed securities would attract asset classification
and provisioning norms, if interest and or principal or any other amount due to the bank
remains overdue for more than 90 days irrespective of the fact whether the guarantee
have been invoked or not.
TYPES OF NPA
 Gross NPA:
Gross NPAs are the sum total of all loan assets are classified as NPA as per RBI
guidelines as on balance sheet date. Gross NPA reflects the quality of the loans made by
the banks. It consists of non-standard assets like as sub-standard, doubtful, loss assets. It
can be calculated with the help of following ratio:
Gross NPAs Ratio = Gross NPA
Gross Advance
 Net NPA:
These are those type of NPAs in which the bank has deducted the provision
regarding NPAs. Net NPAs and the process of recovery and write off loans is very
time consuming, the provisions the banks have to make against the NPAs according
to the central banks guidelines are significant. That is why the difference between
Gross NPA and Net NPA is quite high. It can be calculated by following.
Net NPAs Ratio = Gross NPA-Provision

Gross Advance

CATEGORIES OF NPAs:
Banks are required to classify non-performing assets further into the following four categories
based on the period for which the asset has remained non-performing and the reliability of the
dues.
1. Standard Assets
2. Substandard Assets
3. Doubtful Assets
4. Loss Assets
Standard Assets
Such an asset is not a non-performing asset. In other words, it carries not more than normal
risk attached to the business. Which has remained NPA for a period of less than or equal to 12
months.
Substandard Assets
With effect from March 31, 2005 a substandard asset would be one, which has remained
NPA for period less than or equal to 12 months. In such cases, the current net worth of the
borrower/ guarantor or the current market value of the security charged is not enough to ensure
recovery of the dues to the banks in full. In other words, such an asset will have well defined
credit weakness 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.
Doubtful Assets
With the effect from March 31, 2005 an asset would be classified as doubtful if it has
remained in the substandard category for a period of 12 months. A loan classified as doubtful has
all the weakness inherent in assets that were classified as substandard, with the added
characteristics that the weaknesses make collection or liquidation in full.
Loss Assets
A loss asset is one where the banks or internal or external auditors have loss has identified
loss or the RBI inspection but the amount has not been written of 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.

HOW THEY ARE BAD FOR ECONOMY?

NPAs constitute a real economic cost to the nation in that they reflect the application of scare
capital and credit funds to unproductive uses the money locked up in NPAs are not available for
productive use and to the extent that banks seek, to make provision for NPAs or to write off, it is
a charge on their profits.
To be able to do so, banks have to charge their productive and diligent customers a higher rate of
interest. It thus becomes a tax on efficiency. It is the customer who uses the credit efficiency that
subsidizes the inefficiency represented by NPAs. This also raises the transaction costs in the
system thus denying the diligent credit customers the benefit of lower rates, which would help
them to be more efficient and competitive. NPAs, in short are not just a problem for the banks.
They are bad for the economy.
RBI GUIDELINES:
i. State Government guaranteed Advances:
From the year ended March 31, 2006,State Government guaranteed Advance and
investment in State Government guaranteed securities would attract extant provisioning
norms, if interest and / or principal or any other amount due to the bank remains overdue
for more than 90 days irrespective of the fact whether the guarantee have been invoked or
not.
ii. Advance granted under Rehabilitation Packages approved by BIFR Term Lending
Institutions:
a) The existing credit facilities sanctioned to a unit under rehabilitation package approved
by BIFR / term lending institutions should continue to be classified as substandard or
doubtful asset as the case may be.
b) However, the additional facilities sanctioned as pre package finalized by BIFR or term
lending institutions, the income recognition and asset classification norms will become
applicable after a period of one year from the date of disbursement.
c) In respect of additional credit facilities granted to SSI units which are identified as sick
and where rehabilitation packages / nursing programmers have been done by the banks
themselves or under consortium arrangements, no provision need be made for a period of
one year.

iii. Advance against fixed/term deposit, NSCs eligible for surrender, IVPs, KVPs, and
life policies are exempted from provisioning requirements.
iv. Advances against gold ornaments, government securities and all other kinds of
securities are not exempted from provisioning requirements.
v. Advances covered by ECGC Guarantee

In the case of advances guaranteed by ECGC, provision should be made only for the
balance in excess of the amount guaranteed by the Corporation. Further, while arriving at
the provision required to be made for Doubtful Assets, realizable value of the securities
should first be deducted from the outstanding balance in respect of the amount
guaranteed by the Corporation.
vi. Advances covered by Credit Risk Guarantee Fund Trust for Low Income Housing
(CRGFTLIH)
In case the advance covered by CRGFTLIH guarantee becomes non-performing, no
provisions need to be made towards the guaranteed portion of the housing loan. The
amount outstanding excess of the guaranteed portion should be provided for as per
the extant guidelines on provisioning for non-performing advances.
IMPACT OF NPA
 Owners do not receive a market return on their capital in the worst case, if the banks fails,
owners loss their assets. In modern times this may affect a broad pool of shareholders.
 Deposits do not receive a market return on savings. In the worst case if the bank fails,
depositor lose their assets or uninsured balance.
 Non-Performing Assets are drag on profitability of banks because besides provisioning
banks are also required to meet the cost of funding these unproductive assets.
 Banks redistributes losses to other borrowers by charging higher interests rates, lower
deposit rate and higher lending rates repress saving and financial market, which hamper
economic growth.

 The most notable impact of NPA is change bankers sentiments which may hinder
credit expansion to productive purpose. Banks may inclines towards may risk-free
investments to avoid and reduce riskiness, which is not conductive for the economy.
If the level of NPAs is not controlled timely they will:
o Reduce the earning capacity of assets and badly affect the ROI
o The cost of capital will go up
o The assets and liability mismatch will widen
o NPAs causes to decrease the value of share sometimes even below their
book value in the capital market
o The economic value addition (EVA) by banks get upset because EVA is
equal to the net operating profit minus cost of capital
o NPAs affect the risk facing ability of banks
o Higher provisioning requirement of mounting NPAs adversely affect capital
adequacy ratio and banks profitability.
NPA MANAGEMENT INVOLVES THE FOLLOWING ASPECTS:

 Identification of NPA‟s
 Prevention of NPA‟s
 Liquidation of chronic NPA‟s
 Formulation of comprehensive NPA management policy/strategies
 Understanding of NPA amount
 Proper NPA accounting system
 Use of MIS and IT in NPA management
GUIDELINES FOR CLASSIFICATION OF ASSETS:
Basic considerations:
 Broadly speaking, classification of assets into above categories should be done taking
into account the degree of well defined credit weaknesses and extent of dependence on
collateral security for realization of dues.
 In respect of accounts where there are potential threats to recovery on account of erosion
in the value of security, it will not be prudent for the banks to classify them first as the

sub-standard and then as doubtful aster expiry of 12 months from the date the account has
become NPA. Such accounts should be straight away classified as doubtful asset or loss
asset, as appropriate, irrespective of the period for which it has remained as NPA
Internal System for Classification of Assets as NPA

 Banks should establish appropriate internal systems to eliminate the tendency to delay or
postpone the identification of NPAs, especially in respect of high value accounts. The
banks may fix a minimum cut-off point to decide what would constitute a high value
account depending upon their respective business levels. The cut-off point should be
valid for the entire accounting year.
 Responsibility and validation levels for ensuring proper asset classification may be fixed
by the bank
 The system should ensure that doubts in asset classification due to any reason are settled
through specified internal channels within one month from the date on which the account
would have been classified as NPA as per extant guidelines.
 RBI would continue to identify the divergences arising due to non-compliance, for fixing
accountability. Where there is willful non-compliance by the official responsible for
classification and is well documented, RBI would initiate deterrent action including
imposition of monetary penalties.
Advances Granted under Rehabilitation Packages Approved by /BIFR/Term

Lending Institutions
 Bank are not permitted to upgrade the classification of any advance in respect of which
the terms have been re-negotiated unless the package of re-negotiated terms has worked
satisfactorily for a period of one year. While existing credit facilities sanctioned to a
united under rehabilitation packages approved by BIFR/ term lending institution will
continue to be classified as sub standard are doubtful as the case may be in respect of
additional facilities sanctioned under the rehabilitation packages the income recognition
and asset classification norms will become applicable after a period of one year from the
date of disbursement.

PROVISIONING NORMS:
Types of assets Provisions
1. Standard assets 0.25% for all types Standard Assets
2. Sub-Standard Assets 10% for all types of Standard Assets
3. Doubtful Assets
- up to one year 100% of Unsecured Advances and 20% of Secured Advance
- one to three year 100% of Unsecured Advances and 30% of Secured Advance
- more than 100% of Unsecured Advances and 100% of Secured

three year Advance
4 Loan Assets 100% of Unsecured Advances and 100% of Secured Advance
i) Provision On Standard Assets

a) From the year ended March 31, 2000, the banks should make a general provision of a
minimum of 0.25 per cent on standard assets.
b) However, Tier II banks (as defined in Circular dated May 6, 2009) will be subjected to
higher provisioning norms standard assets as under:
The general provisioning requirement for all types of „standard advances‟ shall be 0.40
per cent. However, direct advances to agricultural and SME sectors which are standard
assets, would attract a uniform provisioning requirement of 0.25 per cent of the funded
outstanding on a portfolio basis, as hitherto.
Further, with effect from Dec 8, 2009, all UCBs (both Tier I & Tier II) are required to
make a provision of 1.00per cent in respect of advances to Commercial Real Estate sector
classified as „standard assets‟.

UCBs were advised to carve out Commercial Real Estate-Residential Housing Sector
(CRE- RH) from existing CRE sector and were allowed to make lower standard asset
provision for loans and advances under this sector.
The standard asset provisioning requirements for all UCBs are summarized as under:
Category of Standard Asset Rate of Provisioning
Tier II Tier II
Direct advances to Agriculture and SME sectors

0.25% 0.25%
Commercial Real Estate Sector
1.00% 1.00%
Commercial Real Estate-Residential Housing Sector(CRE-
RH)
0.75% 0.75%
All other loans advances not included in (a) and (b) above
0.45% 0.25%
 The provisions towards “standard assets” need not be netted from gross advances but
shown separately as “Contingent Provision against Standard Assets” under “Other Funds
and Reserves” in the Balance Sheet.
 If due to changes in the regulatory requirements on provisions to be maintained by banks,
the provisions held by banks exceed what is required to be held by banks, such excess
provisions should not be reversed. In future, if by applying the revised provisioning
norms, any provisions are required over and above the level of provisions currently held
for the standard category assets; these should be duly provided for.
 In case banks are already maintaining excess provision than what is required / prescribed
by Statutory Auditor / RBI Inspection for impaired credits under Bad and Doubtful Debt
Reserve, additional provision required for Standard Assets may be segregated from bad

and Doubtful Debt Reserve and the same may be parked under the head “Contingent
Provisions against Standard Assets” with the approval of their Board of Directors.
Shortfall if any, on this account may be made good in the normal course.
 The above contingent provision will be eligible for inclusion in Tier II capital.
ii) Sub-standard Assets

A general provision of 10 per cent on total outstanding should be made without making
any allowance for ECGC guarantee cover and securities available.
iii) Doubtful Assets

 Provision should be for 100 percent of the extent to which the advance is covered by the
realizable value of the security to which the bank has a valid recourse should be made
and the realizable value is estimated on a realistic basis.
 In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 per cent to 100 percent of the secured portion depending upon the
period for which the asset has remained doubtful.
Period for which the advance has remained Provision Requirement
in, doubtful‟ category
Up to one year 20 per cent
One to three years 30 per cent
Advances classified as „doubtful for more than three

Years on or after April, 2010 100 per cent

iv) Loss Assets

 The entire assets should be written off after obtaining necessary approval from the
competent authority and as per the provisions of the Co-operative Societies Act/ Rules. If
the assets are permitted to remain in the books for any reason, 100 per cent of the
outstanding should be provided for.
 In respect of an asset identified as a loss asset, full provision at 100 percent should be
made if the expected salvage value of the security is negligible.
PROBLEM IN LOAN IDENTIFICATION

IDENTIFICATION OF ACCOUNT:
 Term loan if interest /installments are overdue for 4 months and above.
 Check on overdue, cash credit amount if it is out of order continuous for 4 months.
GENERAL REASONS FOR ASSETS BECOMING NPAs

A multiplicity of factor is responsible forever increasing size of NPAs in banks. A few prominent
reasons for assets becoming NPAs are as under.
 Lack of proper monitoring.
 Poor credit appraisal system.
 Change in economic policies/ environment.
 Lack of coordination between banks.
 There is no lack of corporate culture in the bank. In adequate legal provisions on
foreclosure and bankruptcy.
 Reckless advances to achieve the budgetary targets.
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.

Asset Type Percentage of Provision
Sub standard (age up to 18 months) 10%
Doubtful 1 (age up to 2.5 years) 20%
Doubtful 2 (age 4.5 years) 30%
Doubtful 3 (age above 4.5 years) 50%
Loss Asset 100%
INCOME RECOGNITION POLICY

The policy of income recognition has to be objective and based on the record of
recovery. Internationally income from NPAs is not recognized on accrual bases but is booked as
income only when it is actually received. Therefore, the bank should not charge and take to
income account interest on any NPA.
However, interest on advance against loan deposits, NSCs, VIPs, KVPs, Life Policies
may be taken to income account on the due date, provided adequate margin is available in the
accounts.
Fees and commission earned by the banks as a result of re-negotiations or rescheduling
of outstanding debts should be recognized on an accrual basis over a period of time covered by
the re-negotiated extension of credit. If Government guaranteed advances become NPA, the
interest on such advances should not be taken to income account unless the interest has been
realized.
REVERSAL OF INCOME
In any advances, including bills purchased and discounted, becomes NPA as at the close
of any year, interest accrued and credited to income account in the corresponding previous year,
should be reversed or provided for if the same is not realized. This will apply to Government
guaranteed accounts also. In respect of NPAs, fees, commissions and similar income that have
accrued should cease to accrue in the current period and should be reversed provided for with
respect to past records, if uncollected.

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY
A. NEED OF THE STUDY
 To understand the cause and impact of NPA at Muthoot Finance Limited.
 To suggest the bank regarding NPA management techniques.
 To evaluate the financial health of Muthoot Finance Limited by considering movements
of NPA at Muthoot Finance Limited using ratio analysis.
B. OBJECTIVES OF THE STUDY

 To understand the meaning and classification of Non-Performing Assets.
 To analyse sector wise Non-Performing Assets.
 To study the RBI norms on Non-Performing Assets.
 To study about the performance and future challenges of THE MUTOHOOT FINANCE
LTD.
 To understand the causes of Non-Performing Assets.
 To know the trend of NPA’s over the year.
C. RESEARCH DESIGN
Introduction
The quality of the project work depends on the methodology adapted for the study and also it
depends upon the nature of the project work. Use proper way of research methodology is very
essential part of any research. In order to conduct a study scientifically, suitable methods and
measures are to be followed.
Research Design
The type of research used for collection and analysis of the data is “Historical Research
Method”. The main source of data for this particular study is the past records prepared by the
bank. The main focus of this study is to determine the non-performing assets of the bank since its
inception and to identify the ways in which the performance especially the non- performing
assets of The Muthoot Finance Ltd can be improved. The data regarding bank history and profile
are collected through “Exploratory Design” particularly through the study of secondary sources
and discussions with individuals.

Types of Research:-
 Historical research method
Secondary data: Secondary data is research data that has previously been gathered and
can be accessed by researchers.
Data collection Tools:-

 Annual Reports of Bank, Websites and Journals.
D. TIME DURATION
 60 days, i., 1st June to 30th July
E. LIMITATIONS OF THE STUDY

 The data given might be false which leads to false interpretation.
 The data is historical which does not serve the purpose accurately due to the changes in
price.
 Ratios alone are not adequate for proper calculations.
 The study was just limited for 60 days.
 The study is only based on secondary data, which makes it efficient based on the
reliability of source of the data collected.

DATA ANALYSIS AND

INTERPRETATION

FINANCIAL POSITION OF THE MUTHOOT FINANCE LIMITED.,
2018-19 (in millions)

Key Parameters For the year ended Growth %
31-3-2018 31-3-2019
Share capital 4000.41 4006.61 0.15
Reserves and surplus 73603.69 79869.53 8.51
Long-term borrowings 45115.95 93920.58 108.17
Other long-term liabilities 2782.92 4287.20 54.05
Long-term provisions 171.72 319.79 86.22
Short-term borrowings 141877.82 184174.79 29.81
Contingent Liabilities 222.21 316.49 42.42
Trade payables & other current 37304.84 12002.30 -67.82

liabilities
Short-term provisions 8959.18 2106.20 -76.49
Total 314038.74 381003.49 21.32
Tangible Assets 1922.35 1866.58 -2.90
Intangible Assets 82.32 58.97 -28.36
Capital work-in-progress 57.37 228.30 297.94
Non-current investments 3827.07 1079.02 -71.80
Deferred tax Assets 339.96 175.15 -48.47
Long-term loans and advances 3492.79 769.02 77.98
Trade receivables 9610.87 9825.56 2.23
Cash and Bank Balance 4867.97 17134.85 251.99
Contingent Assets 222.21 316.49 42.42
Short-term loans and advances 289502.75 349329.32 20.66

Other current Assets 113.08 220.23 94.75
Total 314038.74 381003.49 21.32
 Total Share capital increased from Rs. 4000.41 million as at March 31, 2018 to
Rs. 4006.61 million as at March 31, 2019 registered growth of 0.15%.
 Total Reserves and surplus increased from Rs. 73603.69 million as at

March 31, 2018 to Rs. 79869.53 million as at March 31, 2019 registered growth of 8.51%
 Total Long-term Borrowings increased from Rs. 45115.95 million as at March 31, 2018
to Rs. 93920.58 million at March 31, 2019 registered growth of 108.17%.
 Total Other long-term liabilities increased from Rs. 2782.92million as at March 31, 2018
 Total Long-term provisions increased from Rs. 171.72 million as at March 31, 2018 to
Rs. 319.79 million at March 31, 2019 registered growth of 86.22%.
 Total Short-term borrowings increased from Rs. 141877.82 million as at March 31, 2018
 Total Contingent Liabilities increased from Rs. 222.21 million as at March 31, 2018 to
Rs.316.49 million at March 31, 2019 registered growth of 42.42%.
 Total Trade payables & other current liabilities increased from Rs. 37304.84 million at
March 31, 2018 to Rs. 12002.30 million at March 31, 2019 registered growth of -67.82%
 Total Short-term provisions increased from Rs. 8959.18 million as at March 31, 2018 to
Rs. 2106.20 million at March 31, 2019 registered growth of -76.49%.

 Total Tangible Assets increased from Rs. 1922.35 million at March 31, 2018 to
 Total Intangible Assets increased from Rs. 82.32 million at March 31, 2018 to Rs. 58.97
million at march 31, 2019 registered growth of -28.36%.
 Total Capital work-in-progress increased from Rs. 57.37 million at March 31, 2018 to
Rs. 228.30 million at March 31, 2019 registered growth of 297.94%.
 Total Non-current investments increased from Rs. 3827.07million at March 31, 2018 to
 Total Deferred tax Assets increased from Rs. 339.96 million at March 31, 2018 to
 Total Long-term loans and advances increased from Rs. 3492.79 million at March 31,
2018 to Rs. 769.02 million at March 31, 2019 registered growth of 77.98%.
 Total Trade receivables increased from Rs. 9610.87 million at March 31, 2018 to
Rs. 9825.56 at March 31, 2019 registered growth of 2.23%.
 Total Cash and Bank Balance increased from Rs. 4867.97 million at March 31, 2018 to
 Total Contingent Assets increased from Rs. 222.21 million at March 31, 2018 to
 Total Short-term loans and advances increased from Rs. 289502.75 million at March 31,
2018 to Rs. 349329.32 at March 31, 2019 registered growth of 20.66%.
 Total Other current Assets increased from Rs. 113.08 million at March 31, 2018 to

BALANCE SHEET OF THE MUTHOOT FINANCE LIMITED.,
(Rs in millions)
Particulars 2013 2014 2015 2016 2017 2018 2019
I. Liability
Share 3717.12 3717.12 3979.66 3990.02 3994.75 4000.41 4006.61
capital
Reserves and 33638.52 38928.65 46855.39 52202.48 61169.65 73603.69 79869.53
surplus
Long-term 79529.41 69046.03 67125.58 52762.58 42311.91 45115.95 93920.58
borrowings
Other long- 5633.84 8975.08 12078.10 11268.29 6719.69 2782.92 4287.20
term liabilities
Long-term 2.41 18.73 7.50 2.39 5.28 171.72 319.79
provisions
Short-term 94802.40 60642.86 77606.48 83635.16 127549.09 141877.82 184174.79
borrowings
Contingent 83.87 93.69 165.19 199.94 228.69 222.21 316.49
Liabilities
Trade payables 73155.95 72431.87 57051.79 61500.24 58871.29 37304.84 12002.3
&other current
liabilities
Short-term 3683.00 2178.39 2988.01 5126.16 6509.05 8959.18 2106.20
provisions
Total 294246.52 256032.42 267857.70 270687.26 307359.40 314038.74 381003.49

Particulars 2013 2014 2015 2016 2017 2018 2019

II. Assets
Tangible 2888.08 3119.74 2518.51 2138.11 2021.78 1922.35 1866.58
Assets
Intangible 5.69 6.06 54.53 46.70 60.52 82.32 58.97
Assets
Capital work- 136.39 144.04 68.64 88.90 99.74 57.37 228.30
in-progress
Non-current 75.04 46.75 384.89 982.63 2091.15 3827.07 1079.02
Investments
Deferred tax 195.44 210.47 348.39 519.73 560.23 339.96 175.15
Assets
Long-term 1045.25 1019.48 984.24 1002.97 1134.48 3492.79 769.02
loans and
advances
Trade 12231.79 11946.69 11538.96 14672.64 12705.09 9610.87 9825.56
receivables
Cash and Bank 13419.98 20489.26 17366.16 6791.09 15340.45 4867.97 17134.85
Balance
Contingent 83.87 93.69 165.19 199.94 228.69 222.21 316.49
Assets
Short-term 264131.08 218944.89 234405.00 244237.68 273110.65 289502.75 349329.32
loans and
advances
Other current 33.91 11.35 23.19 6.87 6.62 113.08 220.23
Assets

Total 294246.52 256032.42 267857.70 270687.26 307359.40 314038.74 381003.49
COMPARATIVE STUDY OF NPA POSITION

Position of Gross NPA / Net NPA
SL No Particulars 2019 2018 2017 2016 2015 2014 2013
1 Gross 337321.73 287594.44 273328.13 245127.39 234304.10 219523.46 207232.15

Advance
2 Gross NPAs 9326.00 12871.59 5621.29 7024.61 5116.66 4160.51 3782.27
3 Gross NPAs 2.76% 4.47% 2.05% 2.86% 2.18% 1.89% 1.82%

% to Gross
Advances
4 Total - - - - - - -
Deductions
5 Total 1294.96 1900.96 1019.26 1019.26 725.38 725.38 637.38

Provisions
held(BDRR
Bal)
6 Net NPAs 8031.04 10970.63 4602.02 6005.06 4391.28 3435.13 2768.37
7 Net 336026.77 285693.48 272308.87 244108.13 233578.72 218798.08 206594.77

Advances
8 Net NPAs as 2.39% 3.84% 1.69% 2.46% 1.88% 1.57% 1.34%

% of net
Advances

ANALYSIS OF NPAs
STANDARD ASSET RATIO

If the borrower regularly pays his dues regularly and on time; bank will call such loan as its
“standard assets”. The ratio is calculated as
Formula
Standard Assets= Total Standard Assets * 100

Gross NPAs
STANDARD ASSETS
YEAR STANDARD GROSS NPAs PERCENTAGE

ASSETS (Rs in
millions)
2012-13 2586.17 3782.27 68.37
2013-14 2144.54 4160.51 51.54
2014-15 2289.69 5116.66 44.74
2015-16 2367.64 7024.61 33.70
2016-17 2671.64 5621.29 47.52
2017-18 2710.55 12871.59 21.05
2018-19 2837.46 9326.00 30.42
Source: Annual Reports

PERCENTAGE
80
70
60
50
40
30 PERCENTAGE
20
10
0
INTERPRETATION
In the data analysis represents from the above table and graph shows the NPAs ratio of the
2012-13 is 3782.27, it increase in the year 2013-14 is 4160.51, in the year 2014-15 is 5116.66
and in the year 2015-16 is 7024.61.There was decrease in the year 2016-17 is 5621.29.In the year
2017-18 it is increase to 12871.59.In the present year 2018-19 it is decreased by 9326.00.
SUB – STANDARD ASSETS RATIO

The sub standard assets ratio will help to understand the portion of fresh NPAs in the gross
NPAs. Further this ratio will help the banks administration to evolve a useful strategy to
minimize NPAs at the shortest possible time with less expense. The ratio is calculated as
Formula
Sub-standard Assets= Total sub-standard Assets *100

Gross NPAs

SUB-STANDARD ASSETS
YEAR SUB-STANDARD GROSS NPAs PERCENTAGE

ASSETS (Rs in
millions)
2012-13 5129.73 3782.27 135.62
2013-14 4017.54 4160.51 96.56
2014-15 4884.57 5116.66 95.46
2015-16 6668.31 7024.61 94.93
2016-17 4967.75 5621.29 88.37
2017-18 19521.56 12871.59 151.66
2018-19 8756.67 9326.00 93.89
PERCENTAGE
160
140
120
100
80
60 PERCENTAGE
40
20
0

INTERPRETATION
In this graph the highest sub-standard assets are in 2012-13 and other one is 2017-18 the both are
highest in the sub-standard assets involving in bank. The reduction in the percentage of standard
assets indicates less addition of fresh NPA. But, another inference derived is in, more standard
assets slipped into doubtful and loss category of assets.
DOUBTFUL ASSETS RATIO

Doubtful assets are sticky loans where the recovery of both interest and installments is difficult.
“When adequate care or follow up is not done in upgrading the standard assets, they used to slip
down to doubtful assets. In case of doubtful assets, the immediate action to be taken by the bank
is to protect the securities offered, assets created both immovable as well as the collateral
securities”. The Doubtful Assets is calculated as:
Formula
Doubtful Assets= Total Doubtful Assets *100

Gross NPAs
DOUBTFUL ASSETS
YEAR DOUBTFUL GROSS NPAs PERCENTAGE
ASSETS (Rs in
Millions)
2012-13 1205.74 3782.27 31.87
2013-14 1429.69 4160.51 34.36
2014-15 2320.91 5116.66 45.35
2015-16 3563.02 7024.61 50.72
2016-17 6535.38 5621.29 116.26
2017-18 8074.91 12871.59 62.73
2018-19 8742.65 9326.00 93.74

PERCENTAGE
140
120
100
80
60
PERCENTAGE
40
20
0
INTERPRETATION
This is shows the highest doubtful assets in the year 2016-17. But it is not well to the bank
earnings so lowest in the present year while compared to 2016-17.There was huge decrease in
the year 2012-13, 31.87.
COMPARATIVE NPAs RATIO‟S OF THE MUTHOOT FINANCE LIMITED., 2018-19.
GROSS NPA (%)

Gross NPA percentage denotes the percentage of advances which have turned into NPA as
against the total outstanding loan book. The ratio is calculated as
Formula
Gross NPA Ratio (%) = Gross NPAs *100

Gross Advances

NET NPA (%)

Net NPA percentage denotes the proportion of advances which turned in to NPA after adjusting
for the provisions already made by the bank/ financial institutions. The ratio is calculated as
Formula
Net NPA Ratio (%) = Net NPAs *100

Net Advances
COMPARATIVE NPAs RATIOS
YEAR GROSS NPA % NET NPA %

2012-13 1.82 1.34
2013-14 1.89 1.57
2014-15 2.18 1.88
2015-16 2.86 2.46
2016-17 2.05 1.69
2017-18 4.47 3.84
2018-19 2.76 2.39

5
4.5
4
3.5
3
2.5
GROSS NPA %
2
NET NPA %
1.5
1
0.5
0
INTERPRETATION
In the data analysis represents from the above table and graph shows the NPA ratio of 2013 to
2019 of The MUTHOOT FINANCE LIMITED. NPA‟s is decreasing every year. This shows
that Efficiency of the bank recovery management and to improve the efficiency and profitability
of banks the NPA need to be reduced and controlled.
PROBLEM ASSETS RATIO

A ratio in the banking industry that denotes the percentage of problem assets to sound ones. In
the banking and credit markets, a problem assets is one of two things; it can be a commercial
loan that is at least 90 days past due, or a consumer loan that it at least 180 days past due. This
type of assets is also referred to as a nonperforming asset (loan). The problem assets ratio is
ultimately a measure of the health of the banking and lending industries and the economy. A
higher ratio means a greater number of problem loans and vice-versa.
Formula
Problem Assets Ratio = Total Assets

Gross NPAs

PROBLEM ASSETS RATIO
YEAR TOTAL GROSS NPAs PERCENTAGE

ASSETS (Rs in
Millions)
2012-13 294246.52 3782.27 77.79
2013-14 256032.42 4160.51 61.53
2014-15 267857.70 5116.66 52.35
2015-16 270687.26 7024.61 38.53
2016-17 307359.40 5621.29 54.67
2017-18 314038.74 12871.59 24.39
2018-19 381003.49 9326.00 40.85
PERCENTAGE
90
80
70
60
50
40
30 PERCENTAGE
20
10
0

INTERPRETATION
This is shows the highest Problem assets in the year 2012-13. But it is not well to the bank
the year 2017-18, 24.39.
SHAREHOLDERS RISK RATIO

The shareholder risk ratio indicates how much of a company's assets have been generated by
issuing equity shares rather than by taking on debt. The lower the ratio result, the more debt a
company has used to pay for its assets. The ratio, expressed as a percentage, is calculated by
dividing Net NPA by the total assets of the company. The result represents the amount of the
assets on which shareholders have a residual claim.
Formula
Shareholders Risk Ratio = Net NPAs *100

Total capital and free reserves
SHAREHOLDERS RISK RATIO

YEAR NET NPAs Total capital PERCENTAGE
and free
reserves ( in
millions)
2012-13 2768.37 13687.64 20.22
2013-14 3435.13 9901.77 34.69
2014-15 4391.28 8736.98 50.26
2015-16 6005.06 8824.09 68.05
2016-17 4602.02 10559.82 43.58
2017-18 10970.63 14496.78 75.67
2018-19 8031.04 11479.68 69.95

PERCENTAGE
80
70
60
50
40
30 PERCENTAGE
20
10
0
INTERPRETATION
This is shows the highest Shareholders risk in the year 2017-18. But it is not well to the bank
the year 2012-13, 20.22.
TOTAL PROVISION RATIO

The Total provision ratio gives an indication of the provision made against bad loans from the
profit generated. A higher ratio means the bank can withstand future losses better, including
unexpected losses beyond the loan loss provision.
Formula
Total Provision Ratio = Total Provisions *100

Gross NPAs

TOTAL PROVISION RATIO
YEAR Total GROSS NPAs PERCENTAGE

Provisions
2012-13 637.38 3782.27 16.85
2013-14 725.38 4160.51 17.43
2014-15 725.38 5116.66 14.17
2015-16 1019.26 7024.61 14.50
2016-17 1019.26 5621.29 18.13
2017-18 1900.96 12871.59 14.76
2018-19 1294.96 9326.00 13.88
PERCENTAGE
20
18
16
14
12
10
8 PERCENTAGE
6
4
2
0

INTERPRETATION
This is shows the highest Total provision ratio in the year 2016-17. But it is not well to the bank
the year 2018-19, 13.88.

FINDINGS OF THE STUDY

FINDINGS:-
 From the sub standard assets ratio of the bank in 2016-17 is 88.37%. Which suddenly
increases in 2017-18 is 151.66%.which is very bad for the bank. It has increased because
bank has not taken due care towards sub standard assets.
 Doubtful asset ratio in 2015-16 is 50.72% it increases in 2016-17 is 116.26% and also
decrease in 2017-18 is 62.73% and also increases in 2018-19 is 93.74% in bank ratio is
increases its ratio in each year. Which will be more bad effects from the bank.
 From the gross NPA ratio of the bank in 2012-13 is Rs 3782.27 which increases in the
year 2018-19 is Rs 9326.00.Which is bad for the bank. But in decrease in 2014-15 is
Rs 4160.51. It is good for the bank. Some of the factors leading to the increased
occurrence of NPAs are external, such as decreases in global commodity prices leading to
slower exports. Some are more intrinsic to the Indian banking sector.
 In the NPA ratio in the year 2012-13 to 2018-19 of The Muthoot finance Limited. NPA is
decreasing every year. Efficiency of the bank recovery management. To improve the
efficiency and profitability of banks the NPA need to be reduced and controlled by the
bank.
 In the above graph shows the banks Net NPA % is increased in year 2014-15 is 1.88%
While in the year 2016-2017 the Net NPA % has been come down to 1.69%.Bank need to
reduced the NPA as much as possible.
 The bank has also adopting to the various strategies for reducing or minimizing the NPAs
through various modes.
 Preventing fresh standard account in their NPA.
 In the year 2018-19 reduction of NPAs through legal action, settlement etc.
 NPA play a major role in assessing the performance of the bank as it involves
profitability.

 The NPAs provision is very useful technique of the bank for managing the level of Net
NPAs.

SUGGESTIONS

SUGGESTIONS:-
 The bank must focus on recovery from those borrowers who have the capacity to repay
but are not repaying initiation of coercive action a few borrows may help.
 Identifying reasons for turning of each account of a branch in to NPA is the most
important factor for upgrading the asset quality, as that would help initiate suitable steps
to upgrade the account.
 The recovery machinery of the bank has to be streamlined, targets should be fixed for
field officers / supervisors not only for recovery in general but also in terms of upgrading
number of existing NPAs.
 Increase the advances, which is beneficial for the bank to meet cash requirements from
the outside.
 The bank will positive result it is always preferable to write off bad advances at the
earliest to avail of tax deduction, rather than carry them forward.

CONCLUSION

CONCLUSION:-
The bank has been following well established systems, policies and procedures with respect to
NPAs and recovery. The bank should adopt some additional procedures for the recovering the
NPAs with respect some additional strategies and policies to face the challenges of the
competitors to improve quality of services of lending and recovery. In some the present, NPA
assigned has been very useful in getting firsthand experience with respect to the management of
NPA in the banks, with an insight into one of the important segment of recovery.
Preventing fresh flow of NPAs is an important as the recovery of the existing heavy stock of
NPAs. There cannot be can quick fix or small solution to solve the NPA problem once the
recovery reforms are carried out, market for stressed assets are developed, this Securitization Act
will surely help the banks in the reduction of NPAs to the great extent.
Exchange of credit information among banks would be of immense help to avoid possible NPAs.
The banking system ought to be so geared that a defaulter at one place is recognized as a
defaulter by the system. The system have to provide a mechanism to ensure that the
unscrupulous borrower are unable to play one bank against the other.
NPAs are one of the most important threatening issue faced by banking sector in the current
scenario. Through an efficient monetary mechanism and controlling measures we can reduce the
level of NPAs. The objective of our study is to find out the sector in which has higher NPAs
(public / private sector banks), causes and control measures for rising NPAs. The articles from
2010-17 is used for the study of NPAs in banking sector of India. Majority of the articles deals
with the level and controlling measures of the level of NPAs is higher in public sector banks.3%
of articles dealing with the study of causes of Non Performing Assets(NPAs), 14% of article
focused on the controlling measures of NPAs, 12% of articles deals with the study of both
analysis of level and causes of NPAs in commercial banks, 28% of articles deals with the
focused on both cause and control measures of NPAs, 36% of articles deals with the study of
both level and control measures of NPAs, 7% of articles deals with all the three components like
( level, cause and control ). The root of the issue of rising NPAs lies in the nature of overseeing
credit chance by the banks and willful defaulters.

ANNEXURE

ANNEXURE
BALANCE SHEET OF THE MUTHOOT FINANCE LIMITED.,

Particulars 2017 2018 2019
I. Liability
Share capital 3994.75 4000.41 4006.61
Reserves and surplus 61169.65 73603.69 79869.53
Long-term borrowings 42311.91 45115.95 93920.58
Other long-term liabilities 6719.69 2782.92 4287.20
Long-term provisions 5.28 171.72 319.79
Short-term borrowings 127549.09 141877.82 184174.79
Contingent Liabilities 228.69 222.21 316.49
Trade payables &other 58871.29 37304.84 12002.3
current liabilities
Short-term provisions 6509.05 8959.18 2106.20
Total 307359.40 314038.74 381003.49

Particulars 2017 2018 2019

II. Assets
Tangible Assets 2021.78 1922.35 1866.58
Intangible Assets 60.52 82.32 58.97
Capital work-in-progress 99.74 57.37 228.30
Non-current Investments 2091.15 3827.07 1079.02
Deferred tax Assets 560.23 339.96 175.15
Long-term loans and 1134.48 3492.79 769.02
advances
Trade receivables 12705.09 9610.87 9825.56
Cash and Bank Balance 15340.45 4867.97 17134.85
Contingent Assets 228.69 222.21 316.49
Short-term loans and 273110.65 289502.75 349329.32
advances
Other current Assets 6.62 113.08 220.23
Total 307359.40 314038.74 381003.49

COMPARATIVE STUDY OF NPA POSITION

Position of Gross NPA / Net NPA
SL No Particulars 2019 2018 2017

1 Gross Advance 337321.73 287594.44 273328.13
2 Gross NPAs 9326.00 12871.59 5621.29
3 Gross NPAs 2.76% 4.47% 2.05%

% to Gross Advances
4 Total Deductions - - -
5 Total Provisions held(BDRR 1294.96 1900.96 1019.26

Bal)
6 Net NPAs 8031.04 10970.63 4602.02
7 Net Advances 336026.77 285693.48 272308.87
8 Net NPAs as % to 2.39% 3.84% 1.69%

Net Advances

BIBLIOGRAPHY

BIBLIOGRAPHY
Book Referred:
 Financial Management – M Y Khan and P K Jain Tata McGraw Hill Education (India)
Private Limited New Delhi.
 Financial Markets and Institutions – Dr. S Gurusamy Vijay Nicole Imprints Private
Limited Chennai.
Journals:
 Annual Report of THE MUTHOOT FINANCE LIMITED.
 Annual Report Prospects of THE MUTHOOT FINANCE LIMITED.
Websites:
 www.muthootfinance.com
 www.nbfc.com
 www.nseindia.com
 www.bseindia.com

19mba069 Bhimesh B Ganiger

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KLE SOCIETY’S

INSTITUTE OF MANAGEMENT STUDIES

(Affiliated to Karnatak University, Dharwad & Recognized by AICTE, New Delhi)

A STUDY ON NON-PERFORMING ASSETS

Undertaken at The MUTHOOT FINANCE LIMITED

SUBMITTED TO KARNATAK UNIVERSITY, DHARWAD FOR

ADMINISTRATION IN THE ACADEMIC YEAR 2019-20

Prof. Saptarshi Mukherjee

DATE: 04/08/2020 BHIMESH B GANIGER

PLACE: HUBLI MBA IInd SEMESTER

DATE: 04/08/2020 BHIMESH B GANIGER

PLACE: HUBLI (19MBA069)

SL.NO PARTICULARS PAGE. NO

1 EXECUTIVE SUMMARY 2-6

2 INDUSTRY PROFILE 7-25

3 COMPANY PROFILE 26-35

4 INTRODUCTION TO STUDY 36-52

5 RESEARCH METHODOLOGY 53-55

6 DATA ANALYSIS AND 56-74

KLE Society’s Institute of Management Studies and Research, Hubli Page 1

KLE Society’s Institute of Management Studies and Research, Hubli Page 2

A. INTRODUCTION TO THE STUDY

KLE Society’s Institute of Management Studies and Research, Hubli Page 3

 To study about the performance and future challenges of THE MUTOHOOT

D. NEED OF THE STUDY

E. SCOPE OF THE STUDY

KLE Society’s Institute of Management Studies and Research, Hubli Page 4

KLE Society’s Institute of Management Studies and Research, Hubli Page 5

KLE Society’s Institute of Management Studies and Research, Hubli Page 6

KLE Society’s Institute of Management Studies and Research, Hubli Page 7

KLE Society’s Institute of Management Studies and Research, Hubli Page 8

KLE Society’s Institute of Management Studies and Research, Hubli Page 9

Early phase from 1786 to 1969 of Indian Banks.

KLE Society’s Institute of Management Studies and Research, Hubli Page 10

KLE Society’s Institute of Management Studies and Research, Hubli Page 11

KLE Society’s Institute of Management Studies and Research, Hubli Page 12

Different types of banking institutions are:

3. Land development Banks.

HISTORY OF NON BANKING FINANCIAL CORPORATION (NBFC)

KLE Society’s Institute of Management Studies and Research, Hubli Page 13

KLE Society’s Institute of Management Studies and Research, Hubli Page 14

KLE Society’s Institute of Management Studies and Research, Hubli Page 15

KLE Society’s Institute of Management Studies and Research, Hubli Page 16

KLE Society’s Institute of Management Studies and Research, Hubli Page 17

FUTURE CHALLENGES OF NBFC

KLE Society’s Institute of Management Studies and Research, Hubli Page 18

b) Complication in obtaining NBFC License

KLE Society’s Institute of Management Studies and Research, Hubli Page 19

e) Lack of statutory recovery tool

KLE Society’s Institute of Management Studies and Research, Hubli Page 20

KLE Society’s Institute of Management Studies and Research, Hubli Page 21

 Decline in Net Profit with falling Profit Margin

KLE Society’s Institute of Management Studies and Research, Hubli Page 22

Porters Five Forces Model

1. Threat of new entrants

KLE Society’s Institute of Management Studies and Research, Hubli Page 23

 There is no government regulation.

3. Bargaining power of buyers

KLE Society’s Institute of Management Studies and Research, Hubli Page 24

5. Rivalry among existing competitors

KLE Society’s Institute of Management Studies and Research, Hubli Page 25

KLE Society’s Institute of Management Studies and Research, Hubli Page 26