ANALYSIS ON NON PERFORMING ASSETS OF PUNJAB AND SIND BANK

ANALYSIS ON NON PERFORMING ASSETS OF PUNJAB AND SIND BANK

Submitted by:- Shivli Chhabra MBA Sem-III (finance)Objectives of the reportTo study the recovery procedures of Punjab and Sind bank .To examine how far the bank has been successful in reducing the NPA level.To suggest measures for efficient management of NPAs.To bring out an explorative & descriptive report on Analysis of NPA in banks, with special reference to Punjab and Sind bank , Lucknow.To analyze the NPA level of Punjab and Sind bank.

Brief introduction to bank It was in the year 1908,The bank was founded on the principle of social commitment to help the weaker section of the society in their economic endeavours to raise their standard of life by Bhai Vir Singh, Sir Sunder Singh Majitha and Sardar Tarlochan Singh.MISSION & VISIONCORPORATE VISIONWe envision to emerge as a strong vibrant Bank through synchronization of the human, financial and technological resources.CORPORATE MISSIONTo put in place the effective risk management and internal control system.To adopt and operationalize high-level technology standards.To strive to achieve excellence in customer service.To achieve the highest standards of transparency and accountability in the conduct of banking business.REVIEW OF LITERATURECaprio & Klingebiel (1996), studied the Bank insolvency is more costly in the developing world, where losses represent a greater share of income.Lawrence Sez (2001), analyzes the important process about financial reform in the area of bank illiquidity in low-income emerging markets.Milind Sathye(2001), measured the productive efficiency of banks in a developing country, that is, India. The measurement of efficiency is done using data envelopment analysis.Reddy Prashanth K. (2002), studied financial sector reform in India has progressed rapidly on aspects like interest rate deregulation, reduction in reserve requirements, barriers to entry, prudential norms and risk-based supervision.Reddy, Mohan (2003, 2004),examined that several studies have underscored the role of banks lending policy and terms of credit, which include cost, maturity and collateral in influencing the movement of non-performing assets of banks.Satish Kumar B. (2005), analyzed that in liberalizing economy, banking and financial sector get high priority. Dhanuskodi R. (2006), studied the Non-Performing Assets (NPAs) in Commercial Bank of Ethiopia. He, Dong (2008), reviewed the nature of NPAs in the Indian banking system and discusses the key design features that would be important for the (asset reconstruction company) ARCs to play an effective role in resolving NPAs.

Methodology and analysis RESEARCH METHODOLOGY Research Design is considered as blueprint for research purpose, therefore I opted for the objective research design that is through direct interviews . The main aim of my research was to explore the short coming of the present services provided by the bank and these questionnaires helped me a lot to know about the real picture and to understand the perception of our customers.METHODOLOGY OF STUDY

The research methodology adopted for carrying out the study were:

In this project Descriptive research methodologies were use.At the first stage theoretical study is attempted.At the second stage Historical study is attempted.At the Third stage Comparative study of NPA is undertaken.

SAMPLING TECHNIQUE

Sampling refers to selecting a part of the population to represent the characteristics of the population. . However, in this study, Finance Manager of the bank is the source of data and therefore, since he is the only one source of information, there is no question of any sampling. Both primary and secondary data were collected & used for drawing conclusions for the study:-

Primary data:- were collected using Inventory schedule & also through interview, held with the Finance Manager in presence of the other officials of Punjab and Sind bank . Secondary data:- were collected from the published annual reports of the Bank and other sources. Such data collected were analyzed for some kind of a trend and its impact on the profit of the bank.

SAMPLING & DATA COLLECTIONTools used for the study The data collected were analyzed with the help of statistical tools like frequency, percentage and trend analysis. Tables are used to represent the consolidated data. Graphical representation is also used for better comprehension & presentation.

SCOPE OF THE STUDY

The study was conducted in the Punjab and Sind bank , Lucknow . The following are the main scope of the study:

Scope of this study is limited to the organization selected. Present a picture of the movement of NPA in Punjab and Sind bank.This study will help to know the drawbacks of the present recovery strategies.This study will help them to think about new innovative recovery strategy.For this purpose I have covered officials of the bank from various departmentLimitations of the studyThe major limitation of the study was the paucity of time. Even then, maximum care has been taken to arrive at appropriate conclusion. Following are the limitations of the study:For the purpose of collecting vital information, Finance Manager of the bank is only contacted & interviewed. Since he is an individual, his biases may have crept into the data given.Data pertains to NPA from 2008-09 to 2013 14 only.Due to time constraint depth analysis could not be made.Some of the information is considered confidential and not available for the study. NPA AND PROVISIONING Definitions:An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A non-performing asset (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained past due for a specified period of time.

IDENTIFICATION OF NPAs

Identification of an account as NPA depends upon the nature of borrowable account whether it is:- a) Operative-A cash credit / over draft account will have to be treated as NPA if account remains out of order for more than 180 days. b) Non operative-If interest / installment of principal remain overdue for a period of more than 180 days . c) Bills-A bill purchased / discounted / negotiated becomes NPA, if it remains overdue and unpaid for two quarters or more d) Agricultural advances-Agricultural advances where interest and or installments of principal remains unpaid after it has become past due for two harvest season but for a period exceeding to half years should be treated as NPA.e) or any other miscellaneous accounts-Any other credit facility or account should be treated as NPA if any amount to be received in respect of that facility or amount remains unrealized / uncovered for a period of two quarters..

TYPES OF NPAA] Gross NPA: Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of all the non standard assets like as sub-standard, doubtful, and loss assets.B] Net NPA:Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net NPA shows the actual burden of banksIMPACT OF NPA Profitability:-NPA doesnt affect current profit but also future stream of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in profitability is low ROI (return on investment), which adversely affect current earning of bank. Liquidity:-decreased profit lead to lack of enough cash at hand which lead to borrowing money for shorter period of time which lead to additional cost to the company. Difficulty in operating the functions of bank is another cause of NPA due to lack of money, Routine payments and dues

Contd. Involvement of management:-Time and efforts of management is another indirect cost which bank has to bear due to NPA,would have diverted to some fruitful activities, which would have given good returns. Now days banks have special employees to deal and handle NPAs, which is additional cost to the bank. Credit loss:-It will lose its goodwill and brand image and credit which have negative impact to the people who are putting their money in the banks.

REASONS FOR NPA

Reasons can be divided in to two broad categories:-[ A ] Internal Factors:-Internal Factors are those, which are internal to the bank and are controllable by banksPoor lending decisionNon-Compliance to lending normsLack of post credit supervisionFailure to appreciate good payersExcessive overdraft lendingNon Transparent accounting policy [ B ] External Factors:-External factors are those, which are external to banks they are not controllable by banks. Socio political pressureChange in industry environment: Natural calamitiesIndustrial sicknessDiversion of funds and wilful defaultsTime/ cost overrun in project implementationLabor problems of borrowed firmEndangers macroeconomic disturbances Business failureInefficient managementObsolete technologyProduct obsolete

Early symptoms to recognize a performing asset turning in to NPAFour categories of early symptoms:-(1) Financial:Non-payment of the very first instalment in case of term loan.Bouncing of cheque due to insufficient balance in the accounts.Irregularity in instalmentIrregularity of operations in the accounts.Unpaid overdue bills.Declining Current Ratio.Payment which does not cover the interest and principal amount of that instalmentWhile monitoring the accounts it is found that partial amount is diverted to sister concern or parent company.

(2) Operational and Physical:If information is received that the borrower has either initiated the process of winding up or are not doing the business.Overdue receivables.Stock statement not submitted on time.External non-controllable factor like natural calamities in the city where borrower conduct his business.Frequent changes in plan.Non payment of wages.( 3 ) Attitudinal Changes:Use for personal comfort, stocks and shares by borrower.Avoidance of contact with bank. Problem between partners.(4) Others:Changes in Government policies.Death of borrower.Competition in the market.PREVENTIVE MEASURES FOR NPA

Early Recognition of the ProblemIdentifying Borrowers with Genuine IntentTimeliness and Adequacy of responseFocus on Cash FlowsManagement Effectiveness

MEASURES INITIATED BY RBI AND GOI FOR REDUCTION OF NPAs

Compromise settlement schemesLok Adalats Debt Recovery Tribunals Circulation of information on defaultersRecovery action against large NPAsAsset Reconstruction Company:Legal ReformsCorporate Debt Restructuring (CDR) Credit Information BureauCorporate Governance

DATA ANALYSIS AND INTERPRETATION NET NPA FIGURES OF PUNJAB AND SIND BANK(FROM 2008-09 TO 2013-14)In crores

PARTICULARS:

NET NPA993.3890.84781.94727.70984.69799.85Year2008-092009-102010-112011-122012-132013-14NET NPA993.3890.84781.94727.70984.69799.85

ANALYSIS &INTERPRETATIONANALYSES

The aggregate net non-performing asset of the bank is at decreasing trend. But taking on a yearly basis, not much trend could be identified out of the six years of data considered for analysis, net non-performing asset, has decreased from year 2009 to 2012 but has increased in year 2013 .

INTERPRETATION

It can be seen from the trend that net NPA is decreasing from year 2009 to 2012. So from data analyzed above, it can be assumed that the bank has taken stringent steps to reduce the NPA or it might not have given more advances during that year.NET ADVANCES OF PSB(FROM 2008-09 TO 2013-14)In crores

Year2008-092009-102010-112011-122012-132013-14

Net Advances39567.3340834.7148271.6056810.8184868.2266648.85

PARTICULARS:

ANALYSIS & INTERPRETATIONANALYSISThe advances of the bank show an upward trend through the period 2008-09 to 20012-13 but has decreased during year 2014. This can be seen from the data regarding the advances of the bank during this period .The decrease in advances in the year 2014 due to increase in NPAs as compared to last year as NPA is directly related to amount of loan advanced.INTERPRETATIONNon-performing assets being a direct result of advances, it may have resulted from increase in the net advances. While increasing advances may be necessary for the survival & progress of the bank itself, it should not mean increase justification for the higher incidence of non-performing assets. If recovery were good, perhaps, NPA could have been reduced. In other words, increased NPA can be directly attributed to non-recovery advances made to borrowers, in time.

NET NON PERFORMING ASSETS OF PSB AS A PERCENTAGE OF NET ADVANCES(FROM 2008-09 TO 2013-14)

PARTICULARS:

Year2008-092009-102010-112011-122012-132013-14 Net NPA to Net Advances2.512.181.621.281.161.20

ANALYSIS & INTERPRETATION ANALYSISTo understand the real impact of non-performing assets, the chart is drawn taking the net non-performing assets of the bank as a percentage of the net advances. From such chart, what can be seen is that the said percentage (the net non performing assets as percentage of net advances) is nearly constant from year 2010 to 2014. INTERPRETATION Even though there was a sharp increase in the advances given by the bank in the year 2013, it can be seen that Net NPA has maintained a constant level in that year. From this we can assume that bank must have taken up fruitful efforts to recover money from the willful defaulters. During the year 2008-09 to 2013-14, there has been steady and considerable decrease in percentage of net NPA to net Advances. The trend line also show that there is a decreasing trend and net NPAs over subsequent years would decrease consideration.THE DEPOSITS OF PUNJAB AND SIND BANK(FROM 08-09 TO 13-14)Amount in crores

YearDeposits of the bank(Rs)Increase / Decrease over the previous years figure2008-0911844.02---2009-1012591.506.312010-1113877.0610.202011-1215656.4612.812012-1319351.2623.602013-1422939.5618.54

ANALYSIS & INTERPRETIONANALYSISThe aggregate deposits of the bank has increased from 11844.02 crores to 22939.56 crores during the period 2008-09 to 2013-14. On analyzing the trend of such increase in the deposits over the period we can clearly see that it is increasing at a increasing rate. The modest growth especially during the last three years is mainly due to a conscious decision on to shed the highest cost deposits. With focus on bringing down the cost of deposit, field function areas have been constantly exhorted to step up the share of low cost of deposit.INTERPERTATIONThe bank has recognized the up gradation of deposits from year 2008-09 to 2013-14.The reason behind the upgradtion is the higher rate of interest as compared to other banks on deposits especially on fixed deposits .The accounts like saving bank account, recurring deposit account, current account, term deposit account ,lockers account, also have the higher interest rate as compared to other banksNET PROFIT AND PROVISION TOWARDS NON-PERFORMING ASSETS OF PUNJAB AND SIND BANK (FROM 2008-09 TO 2013-14)

PARTICULARS:

Year2008-092009-102010-112011-122012-132013-14Provision towards NPAN.A637.24632.58642.65669.26697.01Net profit during the year295.3262.43237.26103.65117.3675.54

ANALYSIS & INTERPRETATIONANALYSISOn analyzing profit and loss account of the bank, it could be seen that provisions and contingencies is one herd, which has a negative impact on the net profit of the banks, and provisions made towards non-performing assets, being item contributing to such head.On going through the figures of the PSCB relating to net profit and provision made towards non-performing assets, a increase can be seen in the provision made towards non -performing assets in subsequent years, which could be explained by the tightening of provision norms which made it compulsory for banks to keep a provision of .25% even on their standard assets.INTERPRETATIONProfit is the most important parameter for evaluating the performance of a bank. In the present day scenario profit is not just an accounting concept of excess of income over the expenditure, but is surely more which ensures survival and growth in the future.NET RECOVERY OF PUNJAB AND SIND BANK (FROM 2008-09 TO 2013-14)

Year2008-092009-102010-112011-122012-132013-14

PARTICULARS:RECOVERY ASa% OF GROSS NPAs6.257.4588.16.455.8

ANALYSIS & INTERPRETATIONANALYSIS The net recovery during the year 2008-09 was 6.25% of gross non performing assets, while it was 7.45% and 8% in the following two years i.e., in 2009-10 and 2010-11 respectively, i.e., the net recovery is increasing over time and has declined in year 2013, serious efforts were taken to set it right.INTERPRETATIONThe above analysis reflects that the Banks recovery strategy is effective .So we can conclude that banks NPA has decreased perhaps because of efficient recovery strategy. While the strategy for recovery may have been good, the banks recovery in-charge officials may not have taken the necessary Herculean efforts towards the same in order to save the bank from the declining trend in year 2009.COST OF DEPOSIT OF PUNJAB AND SIND BANK(FROM 08-09 TO 13-14Amount in crores

YearPercentage of costIncrease / Decrease over the previous year2008-096.06---2009-105.67(0.39)2010-115.680.012011-127.381.72012-137.840.462013-146.95(0.89)NET PROFIT OF PUNJAB AND SIND BANK(FROM 08-09 TO 13-14)Amount in crores

YearNet Profit of the BankIncrease / Decrease over the previous years figure% Increase / decrease over the previous years figure2008-09295.31------2009-10262.43(33.88)(11.2)2010-11237.26(24.43)(9.35)2011-12103.65(134.61)(56.51) 2012-13117.3613.7113.50 2013-1475.54(41.82)(35.57)STAFF PRODUCTIVITY OF PUNJAB AND SIND BANK(FROM 08-09 TO 13-14)

YearProductivity / Business per employeeIncrease / Decrease over the previous years figure% Increase / decrease over the previous years figure2008-09571.47------2009-10670.1898.7117.22010-11723.8453.6682011-12914.25190.41262012-131238.76324.5135.42013-141374.74135.9810.97RECOVERY PROCEDURECOMPLIANCE ADVICE FOR BRANCH FUNCTIONARIES

The bank as its recovery policy follows the measures like ;Conduct over recovery melas Offer compromise proposal orFiling suits

FACTS & FINDINGSNet advances is increasing at increasing rate over the period under study. The decrease in advances in the year 2010 due to increase in NPAs as compared to last year as NPA is directly related to amount of loan advanced.The aggregate net NPAs of the bank are showing decreasing trend.Staff productivity of the bank is increasing, which indicates efficient recovery measures.The net result, the recovery is showing increasing trend.

SUGGESTION FOR MANAGEMENT OF NPAs

PREVENTIVE FRAMEWORKMaintenance and regular upgradation of client profile.Credit rating of clients.Computerization of loan accounts.Strong inter-department management information system among loans, operations and recovery departments.To establish a system of early warning for potentially weak loan accounts.Observance of limitation period.Timely extension of period of limitation

Contd.FOLLOW-UP OF DEBT RECOVERY TRIBUNAL (DRT) CASES.COMPROMISE AND ONE TIME SETTLEMENTWRITE OFFSHUMAN RESOURCE DEVOLOPMENTIDENTIFICATION OF PROBLEM LOANRECOVERY CAMP REHABILITATIONNARROW BANKINGBANK SHOULD REDUCE DEPENDENCE ON INTEREST INCOMEGENERAL STRATEGIES

Limitations of the research Sample size was considerably small in size.Sample comprised of existing customers of Punjab and Sind bank only.Lack of interaction with Proprietors / Directors of the various concerns due to non-co-operation of the company management.Customers of Punjab and Sind bank are situated in far-flung areas that are why approach to all was a cumbersome task.

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