STUDY ON NPA ASSET OF PRIORITY

SECTOR LENDINDG
MBA (B&F)-Research Project
BY
GANESH DATTATRAYA CHOTHE
Roll Number: 111408010026
GUIDE
External Guide : Dr. Rishikesh PadmanabhaN
Internal Guide : Himkund Mandhare

6/9/16

OBJECTIVES : NPA in Priority sector lending

To know and study about the non-performing
assets in ICICI Bank
Find out Non-Performing Assets under the Priority
Sector lending in ICICI Bank
Make appropriate suggestions to avoid future
NPAs and to manage existing NPAs in ICICI Bank

6/9/16

Definition of NPA : The Non-Performing Asset (NPA) concept is restricted to loans, advances
and investments. As long as an asset generates the income expected from
it and does not disclose any unusual risk other than normal commercial
risk, it is treated as performing asset, and when it fails to generate the
expected income it becomes a Non-Performing Asset.

In other words, a loan asset becomes a Non Performing Asset (NPA)

when it ceases to generate income, i.e. interest, fees, commission or any
other dues for the bank for more than 90 days.
A NPA is an advance where payment of interest or repayment of
installment on principal or both remains unpaid for a period of two
quarters or more and if they have become past due.

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Classification of NPA
Non-performing assets further into the following three categories based on
the period for which the asset has remained non-performing and the
reliability of the dues:
Sub-standard assets: a substandard asset is one which has been classified
as NPA for a period not exceeding 12 months.
Doubtful Assets: a doubtful asset is one which has remained NPA for a
period
exceeding 12 months.
Loss assets: where loss has been identified by the bank, internal or
external auditor or central bank inspectors. But the amount has not been
written off, wholly or partly.
Sub-standard asset is the asset in which bank have to maintain 15% of its
reserves. All those assets which are considered as non-performing for period
of more than 12 months are called as Doubtful Assets. All those assets which
cannot be recovered are called as Loss Assets.
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CATEGORIES OF PRIORITY SECTOR

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Reason of NPA in Priority

Section : Owners do not receive a market return on their capital, In the worst case, if
the bank fails, owners Lose their assets, In modern times, this may affect a
broad pool of shareholders
Depositors do not receive a market return on savings. In the worst case if
the bank fails, Depositors lose their assets or uninsured balance.
Non-Performing loans epitomize bad investment. They misallocate credit
from good projects, which do not receive funding, to failed projects.
When many borrowers fail to pay interest, banks may experience liquidity
shortages. These Shortages can jam payments across the country.
Major portion of bad debts in Indian Banks arose out of lending to the
priority sector at the dictates of politicians and bureaucrats.
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The Problems caused by NPAs

Depositors do not get rightful returns and many times may lose uninsured
deposits. Banks may begin charging higher interest rates on some products
to compensate Non-performing loan losses.
Bank shareholders are adversely affected.
Bad loans imply redirecting of funds from good projects to bad ones.
Hence, the economy suffers due to loss of good projects and failure of bad
investments.
When bank do not get loan repayment or interest payments, liquidity
problems may ensue.
When many borrowers fail to pay interest, banks may experience liquidity
shortages. These shortages can jam payments across the country.
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Credit Process :-

6/9/16

RBI rules and regulations with respect to priority sector

lending

Categories

Domestic commercial banks / Foreign banks with 20 and

above branches

Total Priority Sector (Target)

40%

Total agriculture(Sub-target)

18%

Advances to Weaker Sections

10%

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NPA percentage of Private and Public Sector Bank from 2001 to

2011

Public Sector Bank

YEAR

Private Sector Bank

2001-02

Gross NPAs (%)

11.09

Net NPAs (%)

5.82

Gross NPAs (%)

9.64

Net NPAs (%)

5.73

2002-03

9.36

4.54

8.08

4.95

2003-04

7.8

5.85

2.8

2004-05

5.5

2.7

2005-06

3.6

1.3

4.4

1.7

2006-07

2.7

1.1

3.1

2007-08

2.2

2.3

0.7

2008-09

0.94

2.36

0.9

2009-10

2.2

1.09

2.32

0.82

2010-11

2.4

1.2

1.97

0.53

2011-12

3.3

1.7

1.8

0.6
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10

NPA percentage of Sate Bank of India and ICICI BANK LTD as on

March 2013

Gross

Gross NPAs to Gross Advances Ratio

Gross NPAs

Advances

(%)*

India

511894

10785571

4.75

ICICI Bank Ltd.

96078

2984164

3.22

Bank
State Bank of

Above table it has been found that up to the March 2013 NPA percentage of SBI
is more than ICICI bank

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11

Farm Equipment Delinquency of ICICI Bank in Maharashtra state we

found following result
Buckets

Sum - Total Amount Sum Due

TOT_PRIN_OS

Sum -

PERCENTAGE OF

TOT_INST_OS

NPA

42267241.3

227994923.16

712

18.54

24012474.8

135527828.42

397

17.71

15696606.16

89765383.1

282

17.48

13219737.24

66631368.9

210

19.84

14078348

73778616.5

204

19.08

11022139

56139807.5

149

19.63

19116413.9

46577388.3

259

41.04

10971516.1

27330146.7

144

40.14

5709471.9

12535430.2

69

45.54

10

5394342

11318337.7

64

47.66

11

6311934

15463289.7

78

40.81

12

3888900

9329509.9

46

41.68

13

32984718.62

34991021.2

78

94.26

204673843.02

807383051.280001

3005

25.35

total

If we see in above table total amount overdue in FE product is 20.47 cr. Out of
Total Advances 80.73 cr which is 25 % of total advances. Total Cases in Due
is
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3005.

Maharashtra state we found following result

Bucket
1

Sum - Total Amount Due Sum - TOT_PRIN_OS Sum - TOT_INST_OS

4398738.05000001

50184773.97

percentage

1018

8.7650849093

4236188.77

17205480.6

783

24.621159202

2691839.23

6803832.53

484

39.5635727089

2015526.65

3197982.12

390

63.0249505585

1650157.9

1889786.9

299

87.3197872205

1350750.01

1553692.1

274

86.9380754398

1223119.99

1417313.75

281

86.2984635547

1375781.8

1421407.4

243

96.7901109844

832566.62

662935.77

154

125.587825801

10

682149.75

575681.05

131

118.4943902531

11

522736.8

438590.9

76

119.1855097769

12

556542

434901.05

107

127.9697991072

13

2776273.97

1974549.57

515

140.6029006403

24312371.54

87760927.71

4755

27.7029564003

Total Result

If we see in above table total amount overdue in SHG product is 8.78 cr. Out
of Total Advances 24.32 cr which is 27 % of total advances. Total Cases in Due
6/9/16 13
is 4755.

we found following result

Bucket

Sum - Total Amount Due

Sum - TOT_PRIN_OS

Sum - TOT_INST_OS

PERCENTAGE

3491630.04

10160834.05

136

34.36

3492625

9871914.41

157

35.38

4614066.94

11751258.64

189

39.26

4181215.33

11120604.69

252

37.60

6733052.67

14597650.94

303

46.12

4133977.79

9851972

276

41.96

7581909.06

12155883.3

401

62.37

7620805.59

10868276.69

346

70.12

6154520.3

9634233.29

391

63.88

10

5574774.72

8071894.6

382

69.06

11

7692414.64

10987857.1

358

70.01

12

5789613.28

8680589

365

66.70

13

103296568.48

97099655.46

5773

106.38

Total Result

170357173.84

224852624.17

9329

75.76

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 If we see in above table total amount overdue in ATL product is 17.04 cr.
Out of Total Advances 22.49 cr which is 93 % of total advances. Total
Cases in Due is 9329.

If we observe in Agriculture sector lending of Maharashtra State ATL

loan are in highest deliquency.which May possibility of huge NPA loan in
ATL.

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Agriculture Sector NPAs

Loan and NPAs of Public Sector Banks in Agriculture Sector

Source: RBI, Report on Trend and Progress of Banking in India, various issues

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16


In 2001 the NPAs of public sector banks in Agriculture sector amounted to Rs.
7377 crore and formed 14 percent of loan amount and 14 percent of total
NPAs of PSBs.
In 2001 the percentage of NPA to loan amount was at a high level of 14
percent, which continuously decreased and reached a level of 2 percent in
2009 and then increased to 2 percent and 3 percent in 2010 and 2011
respectively.
The NPAs to agriculture increased by 6 percent from Rs 7377 crore in 2001 to
Rs 7822 crore in 2002 and it was 14 percent to total NPAs. While the growth
rate of NPAs in Agriculture sector was negative from 2003 to 2006, but it was
higher in 2010 and 2011.
The growth rate of loan has increased from 2004-05 to 2005- 06 and for the
same period the growth rate of NPAs was negative. The percentage of
Agriculture sector NPAs to total NPA of Public sector Banks has increased
from 14 percent in 2001 to 20 percent in 2011, while its share to loan amount
has reduced from 14 percent in 2001 to 3 percent in 2011.
This indicates marked improvement in the loan portfolio of Public sector
Banks in Agriculture sector. NPAs in Agriculture sector has declined from
2002-03 to 2005-06 but growth rate of NPAs in Agriculture Sector was higher
in 2009-10 and 2010-11.
The growth rate of loan has increased from 2004-05 to 2005- 06 and at the
6/9/16 17
same period the growth rate of NPAs was negative.

Loan and NPAs of Private Sector Banks in Agriculture Sector

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 It is observed from above table that NPAs of the Private sector banks in
agriculture credit increased continuously year after year.
In 2001 the amount of NPAs in Agriculture Sector of Private Sector banks
amounted to Rs 322 crore against the loan amount of Rs 5394 crore and
formed 6 percent to loan amount and 5 percent to total NPA of Private Sector
banks.
From 2001 to 2010 the amount of loan to Agriculture has increased by Rs
84374 crore while NPAs has increased by Rs 1701 crore.
The percentage of NPAs to loan amount has continuously decreased from
2001 to 2010 In 2007-08 the growth rate of loan was 11 percent while the
growth rate of NPAs was highest at 71 percent and turned negative i.e. -2
percent in 2009.
The percentage of NPAs in Agriculture Sector to total NPAs of private banks
has decreased from 2001 to 2004 and then increased till 2011.

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Recovery of NPA

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20

 Using the new institutions and legal options, banks and financial institutions
accelerated their recovery of NPAs.
The NPAs recovered by scheduled commercial banks through various
channels is presented in above Table .
Between 2003-04 and 2005-06, the total cases referred to various institutions
was 93,2377 which was worth about Rs 70,226 crores. Out of this, around Rs
19,075 crore was recovered.
In terms of cases, the highest number (5,53,042) was referred to the Lok
Adalats and the lowest (15,812) to the DRTs. In terms of the amount involved,
the DRTs recovered the highest amount of around Rs 32,745 crore and Lok
Adalats the least, around Rs 2,965 crore.
In terms of the recovery, 58 per cent of the amount involved was recovered
through one-time settle ment/compromise schemes.
DRTs recovered around 29 per cent and Lok Adalats recovered 25 percent.
22 per cent of the amount was recovered under the SARFAESI Act.
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21

SUGGESTION AND RECOMMENDATION

The incidence of NPAs is more in Priority sector advances. Therefore, ICICI

Bank has to Restrict its advances to Priority Sector to the limit of 40% of
total advances. Simultaneously, ICICI Bank Must take steps to improve
recovery in Priority sector advances.
ICICI Bank Extends more credit to Agricultural. At the same time, the bank
makes good recovery and thus NPAs are restricted. However, ICICI Bank
must take all efforts to prevent fresh NPAs in Agricultural Advances.
ICICI Bank has to do an account wise analysis to identify initial sickness
and prevent from Becoming NPAs.
ICICI Bank has to take appropriate steps to improve recovery in Other
Priority Sector advances. At most care must be taken to ensure prompt
recovery without allowing any fresh NPAs.

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 The incidence of NPAs in weaker section advances is more in ICICI Bank

.Therefore, the bank must take steps to recovery and reduce NPAs. Efforts are
necessary to prevent creation of fresh NPAs.

The study could suggest measures for the banks to avoid future NPAs & to
reduce existing NPAs.
The study may help the government in creating & implementing new
strategies to control NPAs.
The study will help to select appropriate techniques suited to manage the
NPAs and develop a time bound action plan to arrest the growth of NPAs.
Since non-performing assets are critical, bank officials are not willing to part
with all the formation with them.

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CONCLUSION

The Priority sector advances has to analyzed in detail under three major
heads, viz., Agriculture, Small Scale Industries and Other Priority Sector.
Further weaker section advances, which forms part of Priority sector, have
also been studied.
The data which provided helped to have an in-depth analysis about the
participation of ICICI Bank in lending activities to priority sector in
comparison with that of the Public Sector Banks as a whole.
Therefore, the management of ICICI Bank must pay special attention towards
the NPA management and take appropriate steps to arrest the creation of new
NPAs, besides making recoveries in the existing NPAs.
Timely action is essential to ensure future growth of the Bank.
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H
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