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A STUDY ON MANAGMENET OF NON PERFORMING ASEST
A project report prepared in partial fulfillment of the award of the degree of
BACHELOR OF BUSINESS MANAGEMENT OF MANAGMENET OF BANGLAORE
SUBMITTED BY
R. ANURADHA
(Reg No. 11780470)
Under the guidance of
Dr. D. Govindappa
Maharani’s Arts Commerce & Management College for Women,
Sheshadri Road, Bangalore – 560001
2013‐14
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ACKNOWLEDGEMENT
It’s my duty to render my sincere gratitude to our Principal Mr. Our
esteemed HOD Dr. & Coordinator Dr. Govindappa, Maharani’s Arts
Commerce & Management College for Women, for their support extended
thought out the course.
My sincere thanks to my guide Dr. Govindappa. Coordinator in Maharani’s
Arts Commerce & Management College for Women, for spending their
timely advice and suggestion for completion of this project.
I would like to extend my profound gratitude to Sri Hanumanthappa
Manager of Bashaveshwara co‐operative Bank for his enthusiastic
encouragement and courtesy for the help they rendered me for the help
they rendered me for the successful completion of the Project.
Finally, I am grateful to My beloved Parents who have constantly supported me
and inspired me in this project, It is my for most duty to thank all my
respondents who helped me to complete my filed work without which this
project.
Place: Bangalore R. Anuradha
Date: (Reg No. 11780470)
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DECLARATION
I R. Anuradha declare that this project report entitled “Management of
Non‐performing Assets’” has been Prepared during the year 2013‐2014, It
is my original work done under the guidance of Dr. Govindappa.,
Coordinator of Maharani’s Arts Commerce & Management College for
Women, Bangalore
I also hereby declare that this project report has not been submitted to any
other university or college for the award of any degree of diploma.
Place: Bangalore
Date: R. Anuradha
(Reg. No. 11780470) )
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GUIDE CERTIFICATE
It is certified that the dissertation on the title “Management of Non‐
Performing Assets’ is based on an original project study conducted by
Ms. R. Anuradha under my guidance she has attended the required
guidance sessions held.
This authentic report is prepared & presented in partial fulfillment for
award of the degree of “Master of Business management from Karnataka
State Open University”.
This Project report has not been previously formed the basis for the award
to the candidate of any Degree, Diploma, Associate‐Ship, Fellowship or
similar title in this University or in any other University.
Date:15.1.2013
Place: Bangalore (Dr. Govindappa)
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LIST OF CONTENETS
Chapter No Chapter Name Page No.
Chapter ‐1 Introduction 1‐17
Chapter ‐2 Research Design 18‐27
Chapter ‐3 Profile 28‐55
Chapter ‐4 Analysis &Interpretation 56‐86
Chapter ‐5 Findings, Conclusions & 87‐91
Suggestions
BIBILOGRAPHY
ANNEXURES
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LIST OF TABLES
Sl.no. Title Page
1. Amount of Total Loans and Advance 57
2. Composition of Loan Assets 59
3. Composition of Non‐Performing Assets 61
4. Total NPA to Total Advances 63
5. NPA Sub Classes to Total Advances 65
6. Total NPA to Total Assets 67
7. Total NPA to Net Profits 69
8. Sector Wise Loans and Advances 71
9. NPA ceiling and Achievements 73
10. Incremental Gross NPA 75
11. Incremental Ratio of Gross NPA to Gross Advances and
Assets 77
12. Classification of Loan Assets 79
13. Classification of Risk Assets 81
14. Quality of Loan Assets Sartorial Analysis 83
15. Advances to priority Sector 85
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LIST OF CHARTS
Sl.No. Title Page
1. Amount of Total Loans and Advances 57
2. Composition of Loan Assets 58
3. Composition of Non‐performing Assets 60
4. Total NPA to Total Advances 62
5. NPA Sub Classes to Total Advances 64
6. Total NPA to Total Assets 66
7. Total NPA to Net Profits 68
8. Sector Wise Loans and Advances 70
9. NPA Ceiling and Achievements 72
10. Incremental Gross NPA 74
11. Incremental Ratio of Gross NPA to Gross
Advances and Total Assets 76
12. Classification of Loan Assets 78
13. Classification of Risk Assets 80
14. Quality of Loan Assets Sartorial Analysis 82
15. Advances to Priority Sector 84
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Introduction
The Banking Sector and the Financial System are undergoing
metamorphic changes following the process of liberalization,
privatization and globalization. The underlying principle behind every
reform process measures ‐ reorientation of monetary policy
techniques, introduction of new money market instruments and
institutions, adaptation of stricter prudential norms and
strengthening of regulatory arrangements – has been made to make
the system more competitive, efficient and profitable. Profitability of
the banking industry has witnessed a steady improvement. The banks
have begun to focus on minimizing their asset‐liability mismatches
and on Risk Management by developing sound financial system.
HISTORICAL PERSPECTIVE
Bank of Hindustan set up in 1876 was the earliest Indian Bank.
Banking in India on modern lines started with the establishment of
the Presidency banks under Presidency Bank Act 1876 i.e., Bank of
Calcutta, Bank of Bombay and Bank of Madras. IN 1921, all
Presidency Banks were amalgamated for forming the Imperial Bank
of India. Imperial Bank performed all the central banking functions
prior to establishment of RBI.
RBI Act was passed in 1934 and RBI was constituted as a apex bank
without major government ownership.
With the enactment of RBI Act the bank was bought under
Government control. Later under the act, the bank got wide ranging
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powers for supervision and control of banks. The act also vested
licensing Prowers and authority to conduct inspection of banks in
India. In 1955, RBI acquired control of Imperial Bank of India, Which
was renamed as State Bank of India. In 1959, State of India took
control of 8 private banks floated in the erstwhile princely states,
making them as its 100% subsidiary.
RBI was empowered in 1960 to force compulsory merger of weak
banks with strong banks. The total number of banks was then
reduced from 566 in 1951 to 85 in 1969. In July 1969, the
government Nationalized 14 banks, having deposits of 50 crores and
above. In 1980, government added 6 more banks with deposit of
more than 200 crores. Nationalization of banks was to make the
banks play the role of a catalyst agent for economic growth of the
country. The Narasimhan Committee in 1992, suggested wide range
of reforms for banking sector to meet with international best
practices. With the amendment of Banking Regulation Act, the
banking industry witnessed the entry of new private banks.
DEVELOPMENTS IN COMERCIAL BANKING
The Indian banking system continued to respond pro‐actively to the
challenges in its operating environment during the year 2007‐08.
There was a significant improvement in the performance of the
commercial banking system, measured in terms of both operating as
well as net profits. As at end March 2008, 97 commercial banks, 196
Regional Rural Banks, 52 scheduled urban co‐operative banks were
operating in India as scheduled banks.
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Simultaneously, in view of the growing concerns about financial
stability, prudential norms have been gradually tightened on par with
international best practices. Banks have been also accorded greater
operational flexibility in conducting their business. As part of the process,
commercial banks have adopted several initiatives to strengthen their
business practices including among others, greater product sophistication,
increased customer orientation, improved risk‐management particularly
credit risk management techniques, updating management information
systems, greater focus on electronic banking channels and diversification
into new business areas.
REFORMS PHASES IN THE BANKING SECTOR
There have been renewed efforts after Asian economic crises to make
financial systems more efficient and stable in emerging market. In India, the
blueprint for financial sector reform has been provided by the Narasimhan
Committees I and II.
The first phase of reforms in the banking sector has concentrated on
lowering of statutory pre‐emption, deregulation of deposit and lending
rates, initiation of prudential norms, infusion of competition, greater
disclosure, strengthening and rationalization of the regulatory and
supervisory systems. The licensing of new private sector banks and the
expansion in the number of foreign bank branches has introduced a new
competitive culture in the banking system. Simultaneously, the RBI has
taken on the responsibility of development deep, liquid and transparent
market.
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The reform agenda in the second half of the nineties has focused on
structural issues such as diversification of ownership of public sector banks,
strengthening weak banks and corporate governance.
There has been a number of beneficial impacts of the reform process in
terms of a large and diversified institutional base, better price discovery,
larger availability of funds, new infusion of technology and diversification of
banking services and greater transparency. More important profitability of
public sector banks has increased while the Indian banking system has
shown resilience and avoided the contagion effects of the global crises. The
introduction of better prudential norms has induced banks to reduce the
proportion of NPAs in the banking system. The RBI has been making efforts
continuously to ensure the convergence of its supervisory norms and
practices with international best practices.
SCHEDULED BANKING STRUCTURE IN INDIA
Note: Figures in the brackets indicate number of banks in each group
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PART‐B
GENERAL INTRUCTION TO THE ROPIC
NON‐PERFORMING ASSETS
The high level of NPAs in banks and financial institutions has been a
matter of grave concern to the public, as bank credit is the catalyst to the
economic growth of the country. Any bottleneck in the smooth flow of
credit, one cause for which is the mounting NPAs, is bound to create
adverse repercussions in the economy.
NPA surfaced suddenly in the Indian Banking scenario around the eighties,
in the midst of turbulent structural changes overtaking the international
banking institutions, and when the global financial markets were undergoing
sweeping changes. After it had emerged, the problem of NPAs kept hidden
and gradually kept swelling unnoticed and unperceived, in the maze of
defective accounting standards and opaque balance sheets. Over a decade,
NPAs has posed an alarming threat to the Indian banking industry, sending
distressing signals on the sustainability and endurability of the affected banks.
The ill effects of this surging threat have neutralized the positive results of the
chain of measures affected under banking reforms by the Government of India
and RBI in terms of the two Narasimhan Committee Reports in this
contemporary period. Despite various corrective steps administered to solve
and end this problem, concrete results are eluding. Thus NPAs has become a
sweeping and all pervasive virus, confronting universally on banking and
financial institutions.
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CONCEPT OF NON PERFORMING ASSETS
The critical factor that decides the performance of the banks and financial
institutions now days is the spotting of non‐performing assets. Banks are now
required to recognize such loans periodically and then classify the assets.
Banks are not allowed to book any income from NPAs. Also, they have to
make provision for the NPAS, which impacts profitability adversely. The
concept of classification of bank advances in several categories started in late
1980’s but at that time the terminology of NPA did not exist. It was in the early
1990’s when Anglo‐American models, which had several blocks of
categorizations of banks assets, the concept of asset classification, came into
existence. Prior to the introduction of asset classification, banks in India had a
system of their own. However, this accounting system is not in conformity
with international standards.
Non‐performing assets are a part of banking system throughout the world.
It is peculiar to public sector banks and financial institutions in India. Incidence
of NPAs is higher in public sector banks in comparison to private banks and
foreign banks in India.
TRADITIONAL CONCEPT OF NPA
Earlier in 1991, there was no such word as NPA in Indian Financial System.
Before 1991, the Indian Financial System followed tradition way of accounting
procedures in respect of various accounts strictly or otherwise. The system
pertaining to payment of principal amount and periodical interest are as
under.
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First the bank or financial institution used to credit the interest account
and debit the borrowers account on a particular date or a given pre‐
specified period (monthly / quarterly, half years / yearly), irrespective of
whether the borrower paid the interest or not.
There was no prompt action during those days for recovery of principal
and the interest. Recovery action for interest and principal amount
normally initiated were either at the end of the financial year or at the end
of expiry of the loan documents. The standards set by the concerned
authority are also not up to the level of international standards. All
borrower accounts were treated in the same manner till recovery
procedures were initiated like filing the suits for recovery of outstanding
interest and loan installments. Once the recovery case/suit are filed, the
advances were categorized as:
Protestant Bills accounts (here Protestant Bill means all the loans where
the suits are filed for recovery). Due to this it becomes very difficult to find
out the actual amount realized by the way of interest or principal for a
given period of time. Another problem in the traditional concept was
limitation period i.e. debt instrument once in 3 years. If timely actions are
not taken, the financial institutions and banks have to incur the losses.
Traditionally, concept of asset classification was absent before 1991 and as
a result it affected the health of the financial institution and the banks.
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MODERN CONCEPT OF NPA
Non‐performing assets came into the Indian Financial System consequent
to the introduction of prudential accounting norms. An era of taking profits
was changed for providing for expected losses. Days of ‘counting the chickens
before the eggs hatch’ are over.
From the financial year 1991‐92, new system for accounting for the
classification of loan and interest came into effect. The financial institutions
and the banks adopted income recognition rules. RBI also took keen interest in
this regard and laid the requisite guidelines. As a result the method of ‘Asset
Classification’ came into force. While introducing these guidelines,
international accepted standards of Basle Committee Recommendations were
also taken into consideration. As per the laid norms, the standard income was
recognized only in respect of standard loans.
Steps were taken to debit the borrower account only when the borrower
pays the outstanding interest and the installment. Actions and initiatives are
taken to recover as and when the interest and the installment became due.
This became mandatory for banks and financial institutions. Due to all these
efforts the assets were classified as ‘Performing Assets’ and ‘Non Performing
Assets’.
By this method of asset classification, the concept of NPA came into
existence and now it has become the buzzword in the banking system. So it is
very clear that many steps were taken towards effective and efficient
functioning of financial institutions and banks for reducing the level of NPAs.
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ASSET CYCLE
Asset cycle depicts how an asset moves to different position depending
upon the recovery, security and risk associated with it. Laxman Rekha of
NPA denotes the boundary line / dividing line between performing zone
and non performing zone of loan assets. If the due amount is recovered
before the next balance sheet date, it remains in the performing zone
otherwise it crosses the Laxman Rekha of NPA and slips into the Non
performing zone as on the balance sheet date.
FIGURE SHOWING ASSET CYCLE
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PRUDENTIAL ACCOUNTING NORMS
In line with the International practices and as per the recommendations
made by the committee on the financial system (Chairman Shri. M.
Narasimhan) the RBI has implemented Prudential Accounting Norms since
financial year 1992‐93 (Circular No. BP.BC. 179/21‐043‐92, dated April 27,
1992).
The prudential accounting norm is based on the NPA concept. Non‐
Performing Assets leads to NPA i.e. N ‐ No income, P – Provisioning and A –
Asset Classification. The prudential accounting norms comprises of the
following three:
1. Income recognition
2. Asset Classification.
3. Provisioning.
INCOME RECOGNITION
1. For the purpose of income recognition, banks are required to classify
their loan accounts into two categories – Performing Assets and Non‐
Performing Assets.
2. If the asset is ‘Performing’, income can be recognized even on
accrual basis. If the assets is ‘non performing’, interest thereon can
be recognized only on cash basis i.e. when it is actually realized.
3. In case of NPAs where interest income has ceased to accrue; the
fees, commission and similar income should not be debited and
taken into income account. It should be reversed or provided for to
the extend to which it is collected.
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4. If government guaranteed advances become ‘past due’ and thereby
NPA, the interest on such advances should not be taken to income
account unless the interest has become realized.
5. Any amount recovered even partially towards interest in case of a
NPA amount, it can be recognized as income, provided such credit in
the account towards interest are not out of fresh / additional facility
sanctioned.
6. In case of re‐scheduling or negotiating of a loan, the fees, interest,
commission etc, should be recognized on accrual basis over the
period of time covered by the renegotiated or re‐scheduled
extension of credit.
IMPACT OF NPA ON BANKS PROFITS 7 LENDING PROWESS
The efficiency of a bank is not always reflected only by the size of its
balance sheet but also by the level of return on its assets. NPAs do not
generate interest income for the banks, but at the same time banks are
required to make provisions for such NPAs from their current profits.
NPAs have a deleterious effect on the return on assets in several ways
They erode current profits through provisioning requirements.
They result in reduced interest income
They require higher provisioning requirements affecting profits,
accretion to capital funds and capacity to increase good quality
risk assets in future.
They limit recycling of funds and set in asset‐liability mismatches.
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In the context of crippling effect on a bank’s operations in all
spheres, asset quality has been placed as one of the most
important parameters in the measurement of a bank’s
performance under the CAMELS supervisory rating system of RBI.
OTHER IMPLICATIONS
The most important business implication of the NPA’s is that it
leads to the credit risk Management assuming priority over other
aspects of bank’s functioning. The bank’s whole machinery would
thus be preoccupied with recovery procedures rather than
concentrating on expanding business.
Bank with high level of NPAs would be forced to incur carrying
costs on a non‐income yielding assets. Other consequences would
be reduction in interest income, high level of provisioning, stress
on profitability and capital adequacy, gradual decline in ability to
meet steady increase in cost, increased pressure on Net Interest
Margin (NIM) thereby reducing competitiveness, steady erosion
of capital resources and increased difficulty in augmenting capital
resources.
The lesser‐appreciated implications are reputation risks arising
out of greater disclosures on quantum and movement of NPAs,
their provisions etc. The non‐quantifiable implications can be
psychological like ‘play safe’ attitude and risk aversion, lower
morale and disinclination to take decisions at all levels of staff in
the bank.
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STRATERGIES 7 MIS FOR EFFECTIVE MANAGEMENT
OF NON PERFORMING ASSETS
In the present scenario, NPAs are at the core of the financial problems of
the banks and hence ceaseless efforts have to be made to improve the
recovery rate. The task is of twofold: one relates to the realization of
existing bad advances and the other relates to improve the recovery
performance on new lending. Advances which are not NPAs but on the
threshold, should be given special attention because otherwise, these may
become NPAs sooner or later. For the operating functionaries the line of
action can be summarized as under.
1. A) Data Bank of NPA
Amount wise Account wise
Age wise
Security wise
After setting up the database, the next step is to prioritize the
types of NPAs to be considered for recovery. Initially the bank may
take up NPAs with large credit outstanding. Similarly the NPAs with a
fair chance of settlement compromise should be considered on
apriority basis.
B) Evolve suitable methods most appropriate for each NPA.
C) Draw a time bond action plan involving all concerned officials.
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D) Monitor implementation of action plan till a particular NPA is
extinguished.
As regards to new lending, banks have to be more alert and circumvent
so as to bring only good quality assets in their books. In the competitive
environment of today, the task is not easy. Banks have to constantly upgrade
their credit evaluation skills and system in order to successfully manage their
assets.
2. CREDIT AND NPA MANAGEMENT POLICY
A comprehensive NPA management policy should be put in place with the
view of preventing emergence of NPAs. In the era of LPG (liberalization,
privatization and globalization) the policy should be visionary, progressive and
pre‐active. The bank should formulate a suitable Credit Dispensation and
Recovery Management Policy depending upon the size and complexity of the
existing credit business, risk philosophy, existing NPA level and capital. The
main emphasis is that the policy should be on the measures to be taken at pre
NPA level. The branch to the controllers should submit action plan for each
potential sick unit, for taking decision in a time bound decisions.
3. FOCUS ON HIGH VALUE NPA ACCOUNT
High value NPA accounts need pointed endeavors for up gradation /
recovery to bring down NPA level sizably. At the same time it has to be
recognized that we are facing the problem of adverse selection. Improving the
asset quality of our credit appraisals and prompt action on credit audit reports
assume great significance. Similarly effective Human Resource Development
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intervention is necessary for upgrading the skills of operating functionaries in
credit and NPA management areas.
CREDIT MARKETING
Effective credit marketing is a important tool for preventing of NPAs. In
credit marketing as the bankers are required to go to the market to locate the
prospective borrowers and finance them for productive activities, there is less
incidence of advances becoming NPA. Thus the banks are required to develop
in ‐ house expertise for developing and marketing of such credit products at a
competitive price with a minimum risk.
STRATEGIES FOR RECOVERY OF ADVANCES
Which the norms are basically an accounting treatment for recognizing NPA
and providing for them, the banks interested in the recovery and recycling of
funds has to go beyond that. The strategies that may be adopted for
improving the recovery on a step by step basis is highlighted and that these
are not in substitution to the well laid procedure of the bank for recovery but
as an aid in that direction.
1. Establish contact with the borrower or chief representative. Understand
the reason for the irregularity and his not coming to you earlier.
Do not start with repayment. Understand the problem. It could be
with the unit including the industry to which it belongs or it could
be with the individual. It could be or temporary nature or a
prolonged one.
Do something to mitigate the problem. It need not be financial
but could be technical or marketing or something else.
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Make the borrower come out with his problem openly that help
you to device suitable strategy to regularize the account.
Do not loss contact, ask him to give in writing the problem faced
by him and the help he needs from the bank well accepting his
liability.
They to get a fresh report about his business outside
commitments, borrowing from other sources etc.
Ensure the availability of the security and the value to cover the
indebtedness
2. When the contacts with the borrowers do not yield any results, the
next best practice is to have influence strategy (subject to the
requirement of secrecy) This may be through the person who
introduced the account or the guarantor who is responsible for
repayment and other person of locality who commands respect.
3. If this also fails, further grant of time will be harmful to the bank. The
advances can be recalled, giving specific time to regularize the account.
When there is no response from the borrower, the legal right available
to the bank should be used to enforce its right against the security
available.
4. Compromise and settlement can be resorted subject to the
guidelines when the other alternative for recovery has failed.
5. Rehabilitation of sick units under BIFR schemes or otherwise to be
resorted to only when warranted, based on the laid down parameters.
6. Finally where there is no chance of recovery write off is resorted as
the last measure.
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RECOVERY THROUGH COMPROMISE SETTLEMENT
A compromise can be defined as a negotiated settlement in which the
borrower agrees to pay a certain amount to the bank after getting
certain concessions and which will ensure to recover the banks dues to
the maximum extend possible at a minimum sacrifice.
CASES / CIRCUMSTANCES FOR COMPROMISE
1. There is inadequate security or deterioration in the quality
of security.
2. The net worth of the borrower and / or guarantor is meager.
3. There is a difficulty in the disposal of security.
4. Chances of recovery through the legal process are remote due to
defective document, legal entanglements etc.
5. Loans assets have been classified under doubtful and loss categories.
6. The bank has already provided for the sacrificial amount.
7. The borrower is not willful defaulter and the default is due to
problems beyond his control and there is less chance for revival.
8. The borrower is sincere in liquidation of loan through reasonable
compromise.
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Chapter‐II
DESIGN OF THE STUDY
INTRODUCTION
The besetting sin of NPA has become a great peril to the creditability of
banking industry. The Indian banking industry too has been threatened by the
NPA menace. Among the various NPA causative factors, defective legal
systems as well as ineffective NPA management are the two prime factors.
Only the Government can bring effective legal system but it will take a long
time. Whereas the bankers can themselves bring about effective management
of NPAs and it does not take time. But that requires a clear understanding of
every aspect of NPA management and its implementation in true spirit.
Continuously increase in absolute NPA in the banking industry indicates that
there is lack of NPA management skills at the filed level.
RESEARCH DESIGN USED
A descriptive and analytical research design has been used to identify the quality,
quantum of loan assets and the techniques for arresting NPAs. The study is
based on Projective Techniques and Depth Interviews.
To analysis the objective, case study could have been undertaken but due
to time constraint Depth Interview and Personal Discussion have been
adopted. The population for the depth interview includes professional experts
and groups handling the cases of NPAs. The methods of research utilized for
the evaluation and analysis includes comparative statements, ratio analysis,
flow charts and trend analysis.
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TITLE OF THE PROJECT
“MANAGEMENT OF NON PERFORMING ASSETS’’
AT DENA BANK
The study has been undertaken on “Management of Non‐Performing
Assets” at DENA BANK. The objective of this study envisages on NPA
management on the loan portfolio of the bank. Also an attempt has been
make to identify the techniques and suggest strategies for arresting the
existing NPAs’ and prevent the re‐emergence of fresh NPAs at the bank.
STATEMENT OF THE PROBLEM
One of the crucial factors that decide the performance of banks is to spot
and arrest NPAs. They have to make a provision for NPAs, which impacts
profitability adversely. Therefore better understanding and effective
monitoring of NPA is necessary. Further the presence of NPA in the books
of the banks would mean erosion in the capital base, which affects the
profitability and net worth of the organization. Therefore a study has been
undertaken at DENA BANK to ascertain the Management of Non‐
performing Assets and ways for arresting them.
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SCOPE OF THE STUDY
1. The study is exclusively conducted for DENA BANK, Branch patrenahalli,
2. The study is conducted for the bank mentioned on the basis of records of
last 4 years only.
3. The study focuses attention mainly on the level and the quality of loan
assets and various measures for arresting NPAs at the bank.
The trend indicated may differ from year to year due to the changes in the
prudential norms as specified by Reserve Bank of India and other regulatory
authorities.
OBJECTIVES OF THE STUDY
Primary objective
The primary objective of this study is to suggest techniques and strategies that
may be used to reduce the existing NPAs and prevent the re‐emergence of
fresh NPAs.
Secondary objectives
1. To measure the magnitude of NPAs at the bank. 2. To study the impact of NPAs on the banks profitability. 3. To ascertain the techniques and understand their effectiveness for arresting NPAs at the bank. 4. To compare the NPA status over the last 4 years. 5. In general, the secondary objective of the study is to analysis the
dimensions of NPAs for the last 4 years and with special reference to the
current financial year i.e., 2009‐10, for first three quarters.
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OPERATIONAL DEFINITION OF THE CONCEPTS
NON‐PERFORMING ASSETS
An asset including a leased asset becomes a NPA when it ceases
to generate any income to the bank. NPA has been 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.
PAST DUE
An amount is treated as ‘past due’ when it remains outstanding or unpaid for
30 days beyond the due date. Due to the improvement in payment and
settlement system, recovery climate, up gradation of technology in banking
system, it has been decided by RBI to dispense the past due concept with
effect from March 31, 2001. Hence to all the concepts to become NPA, cut off
date is September 30th of the year under audit.
OUT OF ORDER
An account will 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 the credits are not enough to cover the
interest debited during the same period, these account is to be treated as “out
of order”
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OVER DUE
Any amount due to the bank under credit facility is overdue if it is not paid
on the due date fixed by the bank.
SUB‐STANDARD ASSET
A sub‐standards asset is one that is classified as NPA for a period not
exceeding 2 years.
DOUBTFUL ASSET:
A doubtful asset one which has remained NPA for a period exceeding 2
years.
DOUBTFUL – 1 STAGE:
If NPA exist for more than 2 years but does not exceed 3 years than the
asset is said to be doubtful – 1 stage.
DOUBTFUL – 2 STAGE:
If NPA exist for more than 3 years but unto 5 years then the asset is said to
be doubtful – 2 stage
DOUBTFUL – 3 STAGE:
If NPA exist for more than 5 years then asset is said to be in doubtful – 3
stage.
LOSS ASSET
A loss asset is one where the bank or internal or external auditors or the RBI
inspection has identified loss but the amount has not been written off wholly.
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CREDIT RISK
It is the risk of the borrower not adhering to the terms of repayment that
leads to delayed payment or no payment.
LIQUIDITY RISK
The variation in net income and market value of banks equity caused by the
banks difficulty in obtaining immediate funds, either by borrowing or selling
assets.
INSOLVENCY RISK
Also know as bankruptcy, it is the risk that the debtor will be unable to pay
its debts.
DERVATIVE
A contract or convertible security that changes in value with and / or obtains
much of its value from price movements in a related or underlying security,
future or other instruments or index.
CRITICAL DUE AMOUNT
It is the minimum amount due in a standard asset, which if not recovered
before 31st March of the current financial year, will result in the asset
becoming NPA.
POTENTIAL NPA
It is a loan asset which is going to be declared / classified as NPA as on the
coming balance sheet date due to lacy of recovery of capital adequacy
amount.
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CAPITAL ADEQUACY RATIO
It is the ratio of the capital of the bank to its risk weighted assets. It indicates the capacity of the bank capital to absorb unanticipated losses that may arise on account of the risks the bank is exposed to.
METHODOLOGY
In this report, an analysis is made for knowing the position of NPAs. Movement of NPAs, quality of loan assets, risk weightage for NPAs and sectorial deployment of loan assets.
The following are the techniques used for the said purpose.
1. Trend analysis.
2. Comparative statement analysis.
3. Flow chart analysis.
4. Ratio analysis.
SOURCES OF DATA
Primary data
Depth Interview and Personal Discussion with bank personnel and statutory loan monitoring group (SLMG) formed the main sources of primary data.
Secondary data
Internal Secondary data:
Accounting records like NPA registers; annual records formed the sources for internal secondary data.
External secondary data:
RBI circulars, manuals, journals and magazines, libraries and Internet are the main sources of secondary data.
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REFERENCE PERIOD
For the analysis the reference period is four years i.e. from 2006‐2007, 2007‐2008, 2008‐09, & 2009‐10.
LIMTATIONS OF THE STUDY
1. Owing to the confidentiality enforced by the bank, variousprecise information could not be obtained.
2. The current trend may be slightly affected due to changes in financial flexibilities.
3. Time constraint is also one of the major limitations, further constraints due to financial year ending.
4.
PLAN OF ANALYSIS
The data collected was compiled, classified and tabulated for the purpose of the study. This data is analyzed and is represented in the forms of tables and graphs, making use of statistical techniques such as averages and percentage for a better understanding. Based on the analysis and the findings there from, suggestions and recommendations are provided to the bank for arresting existing NPAs and prevent re‐emergence of fresh NPAs.
The external factors such as fiscal policy, bank rate, government policy etc., are as applicable to previous years and this impact is to be professionally changed.
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OVERVIEW OF THE CHAPTER SCHEME
The study report will be presented in five chapters as indicated below:
CHAPTER ‐1
Introduction to credit management:
Part‐A
It deals with the Introduction, Historical perspective, Development in
Commercial Banking, Reforms Phases in the banking Sector, Schedule banking
Structure.
Part‐B
It deals with the General introduction to NPA, Concepts of NPA, Asset Cycle,
Prudential Accounting Norms, Income recognition, Impact of NPA, Other
implications, Strategies & MIS for NPA Management, Strategies for recovery of
advances…
CHAPTER ‐2
Research Design:
It deals with design of the study, statement of the problem, scope of the
study, objectives of the study, operational definition to content, methodology,
sources of data collection, limitations of the study, plan of analysis & an
overview of chapter scheme.
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CHAPTER – 3
Profile of the Company:
It deals with the profile of the Nalanda credit Co‐operative society limited.
History, Mission vision, Bank functions business performance of bank,
Introduction of Branch, Major advances of branch, asset classification, branch
profitability model, NPA categories, NPA causative factors, NPA management.
CHAPTER ‐ 4
Analysis and Interpretation of the data:
It deals with the analysis and interpretation of data collected from bank.
CHAPTER ‐5
Summary of findings, conclusion and suggestions:
It presents the summary of all findings, conclusion and, suggestions.
BIBLOGRAPHY
ANNEXURE
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Chapter‐III
NALANDA CREDIT CO‐OPERATIVE SOCIETY PROFILE
HISTORY
Nalanda Co‐operative society is one of the leading co‐operative societies in
Bangalore. It was started in the year 1995 by Shri M. Kyathaiah. It has been
registered in the co‐operative register office, Chamarajpet, Bangalore.
First it was stated in a small area by paying Rs. 600 rent per month with
344 members and a Share Amout of Rs. 2,61,900. Over the years, the
Society has been developing, at present they leave in their own building.
The purpose of Nalanda Co‐operative society is to develop the SC/ST
category, handicapped people by providing loans which are given for the
domestic purpose like marriages, Children,’s education, Loan deposits,
vehicle, surety loan, Business improvement loan etc.
It initial stage, the society was given the permission to operate in only 6
selected areas i.e. Basveshwaranager, Mahalakshimi Layout, Peena, and
Vijanagar & Rajajinagar. At. Present they have got permission to include
members from the whole Bangalore city from 12.2.2004.
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BOARD OF DIRECTORS
1. President : Chennidevaiah
2. Vice President : C. Honnapa
3. Director : M. Kyathaiah
4. Director : B.S. Keerthikumar
5. Director : Annadanaiah
6. Director : Basavaraju
7. Director : H.M. Jayakumar
8. Director : Dr. M.K. Siddapa
9. Director : M. Veerabhadraiah
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Milestones
One among six Public Sectors Banks selected by the World Bank for sanctioning a loan of Rs. 72.3 crores for augmentation of Tier‐II Capital under Financial Sector Developmental project in the year 1995.
One among the few Banks to receive the World Bank loan for technological up gradation and training.
Launched a Bond Issue of Rs. 92.13 crores in Nov. 1996
Maiden Public Issue of Rs. 180 crores in Nov. 1996.
Introduced Tele banking facility of selected metropolitan centers.
Nalanda Bank has been the first Bank to introduces:
Minor Savings Scheme.
Credit card in rural India known as Nalanda Credit Co‐operative Bank
Customer rating system for rating the bank Services.
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Types of Account Non Resident External Rupee Account (NRE) Accounts can be opened by NRI’s as Savings Bank and Term
Deposit accounts. The remittances for the account have to be
received in foreign currency and would be converted into Indian
Rupees before being credited to the account at the prevailing
exchange rate. The balances in the account are repatriable in foreign
currency at the exchange rates prevailing at the time of repayment.
Non Resident Ordinary Accounts (NRO)
NRI’s can open NRO accounts for the purpose of putting through
bonafied transactions denominated in Indian Rupees. NRO account
may be opened/maintained in the form of current, Saving, Recurring
or Fixed deposit account. The requirements laid down in the
directives issue by Reserve Bank of India in regard to resident
account shall apply to NRO accounts.
Foreign Currency Non – Resident Account (FCNR)
Under FCNR accounts, term deposits are accepted from NRIs in any
of the five designated currencies ‐US Dollar, Pound, Sterling, EURO,
Australian Dollar and Canadian Dolor.
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Branch Computerization
100% Branches are computerized
All Metro and Urban Branches are computerized.
All 6 services branches are fully computerized
All branches handling Government business viz. Director Taxes etc.
are computerized.
88 TBC branches have bilingual data processing capabilities.
Kiosks at various branches providing the following facilities: Passbook
printing, accounts details inquiry, inquiry about Bank’s different etc,
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Networking
Bank has set up its own network “Nalanda” using 470 leased lines, 116
VSATs., dial‐up lines and 216 ISDN backup for ATMs connecting more than
1035 branches and 34 offices spread over 100 centers.
ATM Installations
More than 90 ATMs have been installed by Bank all over Karnataka.
All ATMs are connected through Nalanda Net and Electra ATM switch
enabling cardholders of any of these ATMS to transact through other
ATMS in the network., which in turn is connected to other domestic
and international ATM networks.
Bank has tied up with Corporation Bank, Cash Tree group of Banks, Cash
net groups of Banks, National Financial switch and SBI & its associates
for ATM sharing arrangement.
Bank’s ATM switch is connected to VISA network, thus enabling through
Visa Electron Debit Card issued by the Bank.
ATM/DEBIT Cards
At Present more than 120 branches (including ATM branches and non‐
atm branches) covering more than 115 ATM centers are technologically
enabled to issue ATM & Debit Cards
More than 2.25 Lac ATM and Visa electron Debit cards have been issued
to the customers so far.
Network based Services & Applications
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Data Transfer
The Nalanda net is extensively used for transfer of data from regions to HO
and from branches to regions.
Remote Support
Nalanda Net is also used for the purpose of troubleshooting form a remote
location thus utilizing the skilled manpower more effectively and optimally.
RTGS
Bank is participating in Real Time Gross Settlement (RTGS) system for
interbank and customer funds transfer.
Nalanda Billpay
Nalanda Billpay has been pilot launched in Bangalore in 15 branches. It is an
extremely convenient service that enable you to pay your various bills directly
from your Nalanda account without the need for standing in long queues.
The service provides for three convenient payment modes:
Autopay – which acts as a standing instruction to debit the account
up to a ceiling.
Phone Pay – wherein the customer gets SMS alert for bills and issue
payment instructions.
Internet – Where the customer gets alert on E‐mail and schedules
/confirms payment.
The Service is absolutely Free.
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Nalanda m‐banking
Nalanda m‐banking offers customers an easy, hassle free means to access
banking information with the help of Mobile phones 24 hours a day, 7 day s
a week. Now our customer can get the required information regarding their
bank account by using SMS facility from their mobile phones. Presently m‐
banking provides facilities like.
a. Balance Inquiry, b. Mini Statement of accounts
C. Status of the cheques issued.
Presently this service is operational in more than 30 branches.
Any Branch Banking (ABB)
Any Branch Banking facility enables customers to access their accounts from
different centers as per their needs. A customer can now get a statement of
his last 5 transaction, make balance inquires, cash deposits and cash
withdrawals, transfer funds, Cash Management Services, Multi City Check
from his account to another account through more than 139 branches.
Nalanda Internet Banking
Nalanda Internet Banking offers you an easy, hassle free means to access
banking information by a few key strokes on your keyboard.
Multi‐city cheque facility.: By a availing this facility, the customer will get
the AT PAR cheque books wherein cheques can be drawn at par on any of
the ABB branches.
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Investor Relations
Investor relations Centre
Nalanda Bank is amongst the first nationalized bank to enter equity
market in Nov. 1996. Today, out of the equity capital of Rs. 186.82. crores.
22.19% is held by the Govt of India. The share of the Bank are listed with
National stock Exchange, Mubai stock Exchange, Ahemadabad and Delhi
Stock Exchanges. The Shareholder of the Bank have approved the
resolution for delisting of equity share from Delhi & Ahmedabad stock
Exchanges at the Extraordinary General Meeting held on 16th March, 2010.
Accordingly, the bank has filed delisting applications to Ahmedabad and
Delhi Stock Exchanges in the last week of March 2010.
Investor Relations Centre has been set up by the Bank at its Nalanda
Corporate Centre at Bangalore to cater to the any assistance to our
shareholders and Bondholders. The Department is well equipped for any
assistance for dematerialization of share, share transfers, transmission,
changes of address, non‐receipt of dividend, duplicate / missing share
certificates and other matters pertaining to the shares and Bonds.
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BUSINESS OF THE PERFORMANCE OF THE BANK
TOTAL BUSINESS MIX
During the Financial year 2009‐10, the Bank achieved Business Mix of
Rs.38371 crore as on March 31, 2010, as compared to the Business Mix of
Rs. 32762 crore as on March 31, 2009 registering a growth of 17.12%.
The deposite of the Bank ;have grown increased to Rs. 14748 crore as on
March 31, 2010 as compared tp Rs. 11,865 as on March 31, 2009
registering a growth of 13.05% over the previous year’s level.
The Gross Advanes of the Bank have increased ro Rs. 14748 crore as on
March 31, 2010 as compared to Rs. 11,865 crore as on March 31, 2009,
indicating an increase of 24.30%.
The composition of Total Business Mix of the Bank for the last two years is
as under:
31st March 31st March( Rupeesnin crore)
Business Mix as at 2009 2010
Total Deposit* 20897 23623
Total Advance 11865 14748
Total Business Mix 32762 38371
(*) Figures regrouped
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DEPOSITE MOBILISATION
The Deposites of the Bank stood at 23623 crore as on March 31, 2010 as
compared to Rs. 20897 crore as on March 31, registering an increase of
13.05%. The composition of Deposits os as under:
As on March 31, 2009 As on March 31, 2010
Deposit
Category
(Rupees in
crore)
Share in
Total
Deposits
(Rupees in
crore)
Share in
Total
Current 2123.61 10.16% 10.08% 2380.57
Saving 6660.06 31.87% 33.57% 7930.63
Term* 12112.88 57.97% 56.35% 13311.86
Total
Deposits
20896.55 100.00% 100.00% 23623.06
NET PROFIT:
After making a total provision of Rs. 547.33 crores for NPAs, Depreciation
on Investment, etc.(Rs. 321.18 crore during previous year), the Bank posted
a net profit of Rs. 72.99 crore for the year 2009‐10 against Rs. 61 crore for
2008‐09. The increase in Net Profit of 19.66% was achieved deposits man
increase by 70.41% in provisions made during the year.
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A comparison of income, expenses and provisions and contingencies of the
Bank during 2009‐2010 and 2008‐2009 is mgiven hereunder:
Particulars 2008‐2009 2009‐2010
Interest Income 1725.18 1760.13
Non Interest Income 311.18 458.99
Total Income 2036.36 2219.12
Interest Expended 1038.58 1037.46
Operating Expenses 615.56 561.34
Total Expenses 1654.14 1598.80
Operating Profit 382.22 620.32
Provisions
Contingencies
321.18 547.33
Net Profit 61.00 72.99
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BRANCH NETWORK:
During the year 2009‐10, a branch (Metro Sector) was merged with a
nearby branch. 13 loss making branches were converted into Satellite
Offices. The Bank also opened one Extension counter at Hyderabad.
The Sector –wise breakup of branch network of the Bank as on 31st March
2010 is as under:
Sector No. of branches Percent to total
Rural 491* 43.76%
Semi Urban 191 17.02%
Urban 236 21.03%
Metro 204 18.18*
Total 1122 100.00%
*include 98 Satellite Offices
ASSET QUALITY & RECOVERY MANAGEMENT:
The Bank continued its vigorous efforts for improvement in asset qualities
with distinct reduction in non‐performing assets (NPAs). The Bank has put
in place couple of initiative to arrest fresh slippages on one hand and to
reduce level of NPA on other hand. Aggressive actions were taken with
defaulters for settlement/payment of their dues under Bank’s One time
compromise settlement scheme. Contacts with individual borrowers were
made in person for recovery/regularization of their NPA accounts.
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NPA Recovery Cells have been constituted at all the Regional Offices. The
committees meet on weekly basis, to identify and pursue the potential
accounts for compromised settlements.
The level of Gross NPAs were reduced to Rs. 949.40 crores as on 31st March
2010 as compared to Rs.591.00 crores as of 31st March 2009. Thus, the
Bank slashed its Gross NPAs to 6.44% and Net NPAs to 3.04% during the
year under review.
The reduction in Gross NPAs was facilitate by the Bank’s focus on cash
recoveries (including recovery of Rs. 77.38.
Crore in written off accounts of impaired accounts. During the year 2009‐
10, total cash recoveries were effected to the extent of Rs. 304.46 crores
while in the corresponding year total recoveries were made to the tune of
Rs. 252.71 crores. Further, there was cash recoveries in written off NPAs of
Rs. 77.38 crores increased from Rs. 26.89 crores in previous year.
The Bank has made provisions for NPAs amounting to Rs. 236.91 crores
during financial year 2009‐10 in comparison to Rs. 275.57 crores during
previous financial year. The total provisions for NPAs stood at Rs. 499.46
crores as on 31st March, 2010. The NPA coverage ratio which was at 46.72%
as on 31st March, 2009 has improved to 52.61% as on 31st March 2010.
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The Comparative position of Gross and Net NPAs is given below.
Rs. In crores
March 2008 March 2009 March 2010
Gross Advances 10011.45 11865.13 14747.79
Gross NPAs 1484.01 1147.54 949.40
Gross NPA to Gross Advances
14.82% 9.67% 6.44%
Net Advances 9411.79 11308.59 14231.24
Net NPAs 884.35 591.00 432.85
Net NPA to Net Advances
9.40% 5.23% 3.04%
Provisions Cover 39.05% 46.72% 52.61%
VISION 2010:
The Bank during 2009‐2010 embarked on an ambitions programme for
vision 2010. The Vision 2010 has recast the Bank’s Mission (recognizing that
customers are the very rationale of the Bank’s existence), Vision, Core
values and Guiding Principles for the entire staff of the Bank. The Vision
has identified key drivers of growth as Earning assets with focus on
Agriculture, SME and Retail segments, non interest income, liabilities with
emphasis on low cost deposits, containing impairment in assets, recoveries
in impaired and written‐off assets, containing operating expenses and
enhancement of customer service at all levels. The Vision 2010 was
simultaneously launched by all offices of the Bank on 15th Feb. 2010.
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INTRODUCTION TO PATRENHALLI BRANCH
The Dena Bank, Patrenahalli Branch. It was started in 1980. This
branch has come into existence to meet the demand of customers in
PATRENAHALLI and the surroundings areas, which is major business center
to traders and jewelry merchants. The Corporate Office has extended its
service by establishing the Branch. The Branch except treasury operations
handles almost all the banking operations.
In the changing scenario this branch is providing the entire fund and non‐
fund facilities. Especially the non‐fund business are increasing in the recent
years in this branch.
MAJOR ADVANCES OF THE BRANCH
1. PRIORITY SECTOR ADVANCES
These are mainly concerned with the priority sector of our economy.
These are the important sectors, which are essential for the
development of our nation. Such advances are
Loans to agriculture.
Loans to small‐scale industries (SSIs)
Loans to professional and self employed.
It also includes other loans, which are prescribed by the RBI according to
current year directives.
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2. NON PRIORITY SECTOR ADVANCES This constitutes a most important source of revenue to the modern
banking system. This is because only 40 percent of total advances are
meant for priority sector and the remaining 60 per cent can be used for
non‐priority sectors. Even the interest rates are very high in the case of
non‐priority sector compared to the priority sector. This sector comprises
of:
Gold loans
Educational loans
Housing loans
Staff loans
Other loans.
ASSET CLASSIFICATION
Loan assets of a bank are broadly classified as Performing Assets and
Non Performing Assets. The Non Performing Assets are further divided into
sub‐standard assets, doubtful assets and loss assets.
STANDARD ASSETS
This is a performing asset. It does not disclose any problem and does not carry more than normal risk.
SUB‐STANDARD ASSET
This is a NPA for a period of less than or equal to 18 months. In such cases, the current network of the borrower/guarantor or the current market value of the recovery of dues to the bank is full.
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DOUBTFUL ASSET This is a NPA for a period exceeding 18 months. For the purpose of provisioning, a doubtful asset is again classified into the following three sub categories.
Category Status of Doubtful asset Status of NPA
Doubtful‐1(DF‐1) Upto 1 year Upto 3 years
Doubtful ‐2(DF‐2) More than1 ‐3 years More than3 ‐5 years
Doubtfulo‐3(DF‐3) More than 3 years More than 5 years
LOSS ASSET
This is a NPA, which has been identified as a loss asset by the bank or
internal or external auditors, or RBI inspectors, but the amount has not
been written off wholly.
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IDENTIFICATIONS OF NPAs AS ON MARCH 31
Cash Credit/
Over Draft
Term Loan Bills purchased
& Discounted
Other
Accounts
Interest due up
to September
30th Not
collected before
March 31ist of
year under
audit. The
account remains
out‐of‐order for
more than 180
days.
Installment
and / or
interest due up
to September
30th Not
collected
before March
31st of the year
under audit
Bills due up to
September 30th
Not collected
Before March
31st
Of the year
under
Audit.
Installment
and/ or
interest due up
to September
30th Not
collected
before March
31st of the year
under audit.
Note: Adaptation of 90 days norms for asset classification. With a view of
moving towards international best practices and to ensure greater
transparency, it has now been decided by RBI to adopt 90 days norms to
classify a loan as NPA as against 180 days from the year ending 31 March
2008.
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ASSET PROVISIONING
Asset category Provision to be made
Standard Assets
Sub‐Standard Assets
(18 Months)
Doubtful Assets
1. On secured portion of doubtful
assets up to 1 year (Non‐
performing 18‐30 months
excluding) – D1
2. 1 year to 3 years
(30‐54 months excluding)D2
3. Over 3 years
Loss Assets and
unsecured portion of
Doubtful assets
0.25%
10%
20%
30%
50%
100%
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Before calculating provision the following amount is to be deducted
from the balance outstanding.
1) Interest debited and collected during the year.
2) Unrealized interest of the corresponding previous year in case of new
NPA account identified during the year.
3) DICGE/ECGC cover available in the case of doubtful and loss assets.
4) Interest suspense account if any.
Source: NPA‐Prudential norms for Banks and NBFCs pp.22.v.Venugopal
BRANCH PROFITABILITY MODEL
The profitability model guides the staff and management to move in
the right direction. The model is depending on the two terms called:
a) Burden
b) Spread
Burden is the difference on non‐interest income and non‐interest
expenditure. Spread is the difference of yield on advances and cost of
deposits.
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NPA CATEGORIES
Depending upon the chance of up gradation, NPA can be grouped under
the following two categories.
a) Fresh NPAs.
b) Hardcore/chronic NPAs.
FRESH NPAs
The characteristics of fresh NPA s are
1) These NPAs can be bought back to the standard category by recovering
certain critical amount.
2) Their status as NPAs is more than 3 years.
3) There is no fraud but sufficient security is available in the amount.
4) There is a better change of up gradation of these assets.
5) Substandard and doubtful‐I asset will come under this category.
CHRONIC NPAs
The characteristics of chronic NPAs are
1) These NPAs can be back to standard category by recovering a major
portion of the NPA amount.
2) Their status as NPA is more than 3 years.
3) There is less chance of up gradation of these assets.
4) Doubtful‐2 (D‐2), Doubtful‐3 (D‐3) and loss assets will come under this
category.
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NPA CAUSATIVE FACTORS
NPA causative factors can be grouped under the following three broad
categories on the basis of problem sources and t he controllability from
the banker’s point of view.
EXTERNAL FACTORS
1) Natural calamities and climatic conditions.
2) Vagaries in government policies and socio‐political pressures.
3) Lack of conductive legal system for loan recovery.
4) Change in commercial laws and practices.
5) Adverse exchange rate, recession and non‐payment in other
countries.
6) Impact of LPG (liberalization), privatization, and globalization) on
industries.
BORROWAL FACTORS
1) Improper choice of project/activities.
2) Inefficient management.
3) Adaptation of inappropriate/absolute technology.
4) Attitude of default willfully.
5) Resource crunch.
6) Strained labor relations.
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INTERNATIONAL FACTORS
1) Improper selection of the borrower.
2) Lack of credit appraisal as well as NPA management skills.
3) Under financing as wee as over financing.
4) Lack of proper follow‐up /post sanction supervision and
ineffective MIS.
5) Lack of professional credit personnel.
6) Lack of transparency in credit delivery and recovery.
7) Malfeasance in credit delivery.
8) Directed lending under subsidy schemes without proper
delivery stream, infrastructure etc.
9) “Stitch in time saves time” time support or help may save a
genuine unit. Have a “head and heart” together for a human
approach.
IMPLICATIONS OF NPAs
1. Hamper ability to recycle funds – credit creation.
2. Affects the profitability of the financial institution.
3. Time / effort / money wasted.
4. Affects viability of few financial institutions eroding capital and reserves.
5. Affects investor’s confidence.
6. Natural loss of approximately 3% of GDP.
7. Higher level of NPA affects confidence level of staff and management.
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NPA MANAGEMENT
NPA management means managing the loan assets of a bank / financial
institution in such a manner that the quantum of NPAs are contained at the
bare minimum or at least at the international prescribed level of 5% of
grow NPA and 2.5% of net NPA.
Objectives of NPA management may be
To make more assets performing
To reduce quantum of NPAs
To minimize the amount of provisioning requirement.
The said objectives can be achieved by:
Firstly by arresting slippage of performing assets.
Secondly by up gradation of non‐performing assets.
Thirdly by liquidating of non‐performing assets.
INCEPTION NPA
Sensitivity to picking up of early signals of sickness and putting them
under close scrutiny / monitoring.
Strictly abide by system, procedures and develop “professionalism”
in handling risk assets.
Periodically undertake SWOT analysis and timely remedial measures
on was footing.
Early rehabilitation is got sanctioned and implemented if potentially
viable.
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In BIFR reffered accounts if bank is convinced package can be
implemented with “mutual consent” and reported to BIFR.
If “non‐viable”, “fastest exist route” to be undertaken.
EXISTING NPAs
Initiate early legal action but in majority cases “compromises saves
both alike.
Today’s worth is more than tomorrow’s fortune. Early compromises
saves both alike.
However there should be let up in the following:
Physical verification of mortgaged properties, seized stocks /
machinery and estimate the present realizable value.
Immediate disposal of pledged / hypothecated stocks.
“Scout” for other tangible undisclosed assets, “attach” them to
build “pressure”.
Contact the party for compromise.
For small loans make use of “ Lok Adalats” particularly in rural
areas.
Do not hesitate “write off” in all eligible cases.
Many banks set up specialized ARM branches with skilled
specialist officers / executives.
Government has proposed setting up of Asset Reconstruction
Companies to take up weak banks.
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ANALYSIS AND INTERPRETATION
In this chapter the data collected keeping in mind the objective of the study
is analyzed and interpreted so as to arrive at a conclusion. The main
objective is to suggest strategies and techniques for arresting existing NPAs
and prevent re‐emergence of fresh NPAs.
The data collected is analyzed and presented in the form of tables and
graphs making use of statistical techniques such as averages, percentages
and ratios. For the purpose of collecting primary data, depth interview and
personal discussion was held with professional experts and bank officials.
For the purpose of collecting secondary data annual reports, circulars etc
were used.
The first eleven tables and graphs involves the analysis the various
dimensions of NPAs for last 4 years. The rest four tables and graphs involve
analysis for the current financial year i.e. 2006‐07 divided into three
quarters for a clear understanding of NPAs during that period.
The following pages will now take us through the analysis of the study
undertaken for a clear understanding of NPA Management at Nalanda
Bank.
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TABLE 1
TABLE SHOWING AMOUNT OF TOTAL
LOANS AND ADVANCES
YEAR AMOUNT % TO BASE
YEAR
% TO
PREVIOUS
YEAR
2006‐07 102.76 100.00 ‐
2007‐08 106.92 104.05 4.05
2008‐09 111.11 108.12 4.07
2009‐10 100.76 98.05 ‐10.07
INTERPRETATION
The above table portrays the amount of advances made by Nalanda
Bank. For the last 4 years, i.e. 2007‐2010. Keeping 2007 as the base year
and comparing the previous respective year, we can find the per cent
change in advances made.
From 100 per cent 2006‐07, the quantum of loans sanctioned has
increased to 104.05 percent, 108.12 per cent and 98.05 per cent for the
year 2008, 2009 and 2010 respectively.
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CHART NO. 1
CHART SHOWING AMOUNT OF TOTAL LOANS AND ADVANCES
Source: Table No1.
Inference:
There has been normal jump in advances during 2008‐09 i.e. 4.07 per cent
as against 4.05 per cent in 2007‐08 However in the following subsequent
year i.e. 2009‐10, the percentage advances has reduced to‐10.07.
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TABLE ‐2
TABLE SHOWING COMPOSITION OF LOAN ASSETS
YEAR P.A. % TO
BASE
YEAR
% TO
PREVIOUS
YEAR
N.P.A. % TO
BASE
YEAR
% TO
PREVIOUS
YEAR
2006‐07 94.53 100.00 ‐ 8.23 100.00 ‐
2007‐08 95.15 100.67 0.67 11.76 142.89 42.89
2008‐09 98.33 104.02 3.35 12.78 155.28 12.39
2009‐10 92.20 97.53 ‐6.49 8.56 104.00 ‐51.28
INTERPRETATION
The above table shows the composition of loan assets as performing assets
and non‐performing assets.
Considering 2006‐07 as the base year, we can observe that the percentage
of performing assets is showing an increasing trend i.e. 100.67 percent,
104.02 percent and 97.53 percent for the year 2008, 2009 and 155.28
percent in the year 2010 which is quite significant.
Loan assets in terms of percentage when compared to respective previous
year, we can observe that there has been decline i.e. 42.19 percent, 12.39
percent and ‐51.28 for 2008, 2009 and 2010 respectively.
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CHARTNO: 2
CHART SHOWING THE COMPOSITION OF LOAN ASSETS
Source: Table No: 2
Inference: We can infer that the bank has succeeded in arresting the level
of NPA from 2008‐09 onwards very effectively.
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TABLE 3
TABLE SHOWING COMPOSITION OF NON‐PERFORMING ASSETS
YEAR SUB.
STD
% TO
PREVIOUS
YEAR
DOUBTFUL %TO
PREVIOUS
YEAR
LOSS
% TO
PREVIOUS YEAR
2006‐07 1.65 ‐ 3.70 ‐ 2.88 ‐
2007‐08 2.35 142.42 5.29 142.97 4.12 143.05
2008‐09 2.56 155.15 5.75 155.40 4.47 155.21
2009‐10 1.71 103.64 ‐3.85 ‐104.05 3.00 ‐104.17
INTERPRETATION:
The above table shows the composition of NPA i.e. Sub‐Standard, doubtful
and loss Assets.
Taking the respective previous years as the base year we can find that per
cent change in NPAs. We can observe that NPA in Sub‐Standard category
has shown a increase of 142.42 per cent in 2007‐08 and 155.15 per cent in
2008‐09. Thereafter the trend is decreasing i.e. ‐103.64 percent for the
year 2009‐10 respectively. The NPA in Doubtful category the bank has
shown a declining trend of 143.05 per cent, 155.21 per cent and ‐104.17
per cent in 2008, 2009 and 2010 respectively.
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CHART NO: 3
CHART SHOWING THE COMPOSITION OF
NON‐PERFORMING ASSETS
Source: Table No: 3.
Inference: Overall the NPA is showing a decreasing trend due to rigorous
follow‐up action taken by the bank at the field level.
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TABLE 4
TABLE SHOWING TOTAL NPA TO TOTAL ADVANCES
YEAR TOTAL
ADVANCES
TOTAL N P A
AMOUNT
PERCENT
2006‐07 100.76 8.23 8.00
2007‐08 106.92 11.76 11.00
2008‐09 111.11 12.78 11.5
2009‐10 100.76 8.56 8.5
INTERPRETATIONS
The above table shows non‐performing assets as percentage to total
advances. The percentage to total advances is showing a declining trend
over the last 4 years i.e. 8.00 per cent, 11.00 per cent and 8.5 per cent for
the year 2007, 2008, 2009 and 2010 respectively.
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TABLE 4
CHART SHOWING THE TOTAL NPAs TO TOTAL ADVANCES
Source: Table No.4
Inference:
From the analyzed data we can infer that the strategies adopted by the
bank for arresting non‐performing assets are working effectively.
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TABLE 5
TABLE SHOWING NPA SUB CLASSESTO TOTAL ADVANCES
NPA SUB CLASSES
YEAR TOTAL
ADVANCES
SUB
STD
SUB
STD%
DOUBTFUL
DOUBTFUL
%
LOSS
LOSS %
2006‐07 100.76 1.65 0.016 3.70 0.036 2.88 0.028
2007‐08 106.92 2.35 0.022 5.29 0.049 4.12 0.038
2008‐09 111.11 2.56 0.023 5.75 0.052 4.47 0.040
2009‐10 100.76 1.71 0.017 3.85 0.038 3.00 0.030
INTERPRETATION
The above table shows the NPA sub‐classes percentage terms i.e. sub‐
standard, doubtful and loss assets to total advances. This gives us a clear
picture as to which of NPA bear a major portion of burden on the bank.
From the above table we can observe that Doubtful category holds a major
portion of NPAs. In 2007, doubtful assets stood at 0.036 per cent as against
0.016 per cent of sub‐standard and 0.028 of loss assets. In the year 2010,
doubtful assets accounted for 0.038 per cent as against 0.017 per cent of
sub‐standard and 0.030 per cent of loss assets.
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CHART 5
CART SHOWINGTHE NPAs SUB CLASSES TO TOAL ADVANCES
Source: Table No. 5
Inference:
We can infer that the bank has to taken necessary steps for curtailing NPA in doubtful category. It should prevent doubtful assets from becoming has assets and take necessary measures for their up gradation.
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TABLE 6
TABLE SHOWING TOTAL NPA TO TOTAL ASSETS
TOTAL NPA
YEAR TOTAL ASSETS AMOUNT PERENTAGE 2006‐07 118.17 8.23 6.96 2007‐08 128.30 11.76 9.17 2008‐09 131.10 12.78 9.76 2009‐10 120.91 8.56 7.08
INTERPRETATION
The above table helps us to determine the impact of NPA on total assets of the bank.
In the year 2007, the bank's total assets are affected by 6.96 per cent. Similarly in the year 2008, 2009 and 2010 the bank assets are affected by 9.17 per cent, and 7.08 per cent respectively.
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CHART NO.6
CHART SHOWING THE PERCENTAGE OF TOTAL NPAs TO TOTAL ASSETS
Source Table No.6
Inference:
The table thus portrays that though the NPA are increasing & decreasing but which is a good sign, in 2010 the total assets are showing a decreasing trend and thus needs a cautious approach.
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TABLE 7
TABLE SHOWING TOTAL NPA TO NET PROFITS
TOTAL N.P.A
YEAR NET PROFIT AMOUNT PERCENTAGE
2006‐07 14.14 8.23 58.20
2007‐08 14.87 11.76 79.08
2008‐09 15.20 12.78 84.07
2009‐10 14.84 8.56 57.68
INTERPRETATION
The above table helps us to determine the impact of NPA on the Net profit of the bank. In 2007 the banks profit is affected by 58.20 per cent due to a considerable amount of NPAs. In the year 2009 the bank profit is adversely affected, as total NPA to net profit stand at 84.07 per cent due to a very high level of NPAs.
In the year 2009 we can see a decrease in the level of NPA to Rs. 12.78 lakhs and increase in the net profit to Rs.15.20 lakhs as against 79.08 per cent of the previous year.
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CHART NO.7
CHART SHOWING THE PERCENTAGE OF
TOTAL NPA'S TO NET PROFITS
Source: Table no 7
Inference:
We can see that there is a quantum jump in net profit and a considerable low level NPAs, as a result of which the percentage of NPA to Net Profit stand at 57.68 per cent.
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TABLE 8
TABLE SHOWING SECTOR WISE LOANS AND ADVANCES
YEAR PRIORITY SECTOR N0N PRIORITY SECTOR
2006‐07 90.85 11.91
2007‐08 79.32 27.6
2008‐09 81.95 29.16
2009‐10 89.30 11.46
Total 341.42 80.03
INTERPRETATION
The above table shows sector‐wise loans and advances made by the bank in the last 4 years.
The total loans and advances made by the bank in last 4 year to Priority Sector stand at Rs. 341.42 lakhs which is 1/3 of total advances and the remaining 2/3 of total advances are made towards Non Priority sector.
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CHART NO.8
CHART SHOWING SECTOR WISE LOANS AND ADVANCES
Source: Table No.8
Inference:
From the above data we conclude that sector wise loans and advances has been fluctuating from year to year.
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TABLE 9
TABLE SHOWING NPA CEILING AND ACHIEVEMENTS
Half Year
ceiling
Achievement Amount
% ofCeiling Amount
Amount % of
AchievementAmount
31.03.09 7.5 2.56 7.4
2.52
30.09.09 7.5 2.55 7.2 2.4531.03.10 7.0 2.74 6.8 2.66
INTERPRETATION
The above table gives the details of ceiling laid and achievements made by
the bank for the year ended 31st March, 2010. As against ceiling limit of
2.56 per cent, 2.55 per cent and 2.74 per cent, the banks achievements
stand at 2.52 per cent, 2.45 per cent and 2.66 per cent respectively.
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CHART NO.9
CHART SHOWING THE NPA CELING AND ACHIEVEMENTS
Source Table NO.9
Inference:
From the above we can conclude that the NPA ceiling and achievement has
been growing year to year.
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TABLE 10
TABLE SHOWING INCREMENTAL GROSS NPA
YEAR N P A INCREMENTAL N P A
2006‐07 8.23 ‐
2007‐08 11.76 3.53
2008‐09 12.78 1.02
2009‐10 8.56 ‐4.22
INTERPRETATION
From the above table we can observe that the Gross NPA has declined
considerably. The NPA which stood at 3.53 in 2007, 1.02 in the year 2008,
2009 and further has drastically decreased to ‐4.22 in the year 2010.
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CHART NO 10
CHART SHOWING INCREMENTAL GROSS NPA
Source: Table No 10
Inference:
By observing the above data we conclude that the gross NPA has been declined
from year to year.
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TABLE 11
TABLE SHOWING INCREMENTAL RATIO OF GROSS NPA TO
GROSS ADVANCES AND TOTAL ASSETS
YEAR
INCREMENTAL INCREMENTAL RATIO
OF NPA ASSETS
N.P.A Advances Assets Advances Assets
2006‐2007 ‐ ‐ ‐ ‐ ‐
2007‐2008 3.53 4.16 5.97 0.85 0.59
2008‐2009 1.02 4.19 ‐1.39 0.24 ‐0.73
2009‐2010 ‐4.22 ‐10.35 0.16 ‐0.41 ‐26.37
INTERPRETATION
The incremental Gross NPAs as percentage to Gross Advances of
Nalanda Bank has decreased from 0. 85 to ‐0.24 in the year 2007
and then further decreased to ‐0.41 per cent in the year 2008.
Incremental NPA to total assets in percentage terms stand at 0.59
and then remained ‐0.73 & ‐ 26.37 for the subsequent years.\
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CHART NO.11
CHART SHOWING INCREMENTAL RATIO OF
NPA TO ADVANCES & TOTAL ASSETS
Source: Table no.11
Inference:
From the above data we came to conclude that the gross NPA as
percentage to Gross Advances of Nalanda bank has decreased from year to
year.
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TABLE‐12
TABLE SHOWING CLASSIFICATION OF LOAN ASSETS
PARTICULARS 1ST QUARTER 2ND QUARTER 3RD QUARTER
Performing assets 93.14 92.26 95.37
Standard assets 93.14 92.26 95.37
Non performing assets 8.38 10.14 10.97
Sub standard assets 1.68 2.03 2.19
Doubtful assets 3.78 4.56 4.93
Loss assets 2.93 3.55 3.84
INTERPRETATION
The above table shows the classification of assets during 2010 for
three‐quarters.
We can observer that the standard assets are reducing over the two
quarters i.e. Rs. 93.14 lakhs, Rs. 92.26 lakhs and int he third quarter it
has increased to Rs. 2189.00 lakhs respectively. In contrast we can
also observe that the amount of NPA classes are increasing over the
past three quarters which is a symptom of loans going bad.
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CHART NO. 12
CHARTER SHOWING THE CLASSIFCATION OF LOAN ASSETS
Source: Table No. 12
Inference:
From the above, we can infer that while performing assets are
decreasing, the non‐performing asset is showing a increase in the
respective quarter which needs a cautious approach and rigorous follow up.
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TABLE 13
TABLE SHOWING CLASSIFICATION OF RISK ASSETS
Risk
Category
First Quarter Second Quarter
o/s
Amount
% of
Total
Provision
For loss
Net
NPA
o/s
amount
% of
Total
Provision
For loss
Net
NPA
Standard
assets
93.14 91.74 ‐ ‐ 92.16 90.09 ‐ ‐
Sub
Standard
Assets
1.68 1.65 0.34 1.34 2.03 1.98 0.41 1.62
Doubtful
assets
3.78 3.73 1.70 2.08 4.56 4.45 2.05 2.51
Loss Assets 2.93 2.88 2.93 ‐ 3.55 3.47 3.55 ‐
Total 101.53 100.00 4.97 3.42 102.3 100.00 6.01 4.13
INTERPRETATION
The table shows the classification of risk assets by the degree of risk and value
impairment. In the first quarter, we can observe that in the NPA category, doubtful
assets constitute a major risk of total outstanding amount of Rs. 3.78 lakhs for which a
provision of Rs. 1.70 lakhs is made and for loss assets which stand at 2.93 lakhs a full
provision is provided.
In the second quarter, we can see that the loan assets constitute a major portion of
NPA for which a provision of Rs. 3.55 lakhs is made, followed by doubtful assets for
which a provision of Rs. 2.05 lakhs has been made.
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S
In
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b
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ource: Tab
nference:
rom the ab
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o year.
HART SHO
ble no. 13
bove statis
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OWING C
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and value
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CLASSFICA
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ATION OF
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of risk asse
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ets
ear
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TABLE 14
TABLE SHOWING QUALITY OF LOAN ASSETS ‐ SECTORIAL ANALYSIS
Sector First Quarter
Amount
Second quarter
Amount
Priority sector 67.54 67.52
Non priority sector 11.68 12.27
All other sectors ‐ ‐
Total loan assets 101.53 102.3
INTERPRETATION
The above table shows sector‐wise analysis of quality of loan assets for
first two quarters for the year ended 2009‐10.
The total loans made by the bank in the first quarter stand at Rs. 101.53
lakhs of which priority Sector amount to Rs. 6754 Lakhs which is 66.52
per cent of total advances. Similarly int he second quarter a Pirority
Sector amounts to Rs. 67.52 lakhs of total loans of Rs. 102.3 lakhs which
stand at 66.00 per cent.
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Source
Inferen
We ca
amount t
C
e: Table N
nce:
an inter o
to two thir
CHART S
ANALYS
No. 14
ut of tota
rd of total
CHART
HOWING
SIS OF LO
al loan as
loan assets
T 14
G SECTO
OAN ASS
ssets adva
s.
ORIAL
SETS
ances to PPriority Seector
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TABLOE 15
TABLE SHOWING ADVANCES TO PRIORITY SECTOR
Priority
Sector
advances
First quarter Second Quarter Third Quarter
Limit sanctioned
Amount
Outstanding
Limitsanctioned
Amount
Outstanding
Limit sanctioned
Amount
Outstanding
Agriculture 60 54.91 65 54.02 70 60.37
Small scale
industries
15 13.47 18 13.50 20 9.58
Other
priority
sectors
30 22.46 35 22.50 35 23.22
Total Priority Sector Advances
105 89.84 118 90.02 125 92.87
INTERPRETATION
The above table shows the advances to Priority Sector during the year 2006‐07 for three quarters.
In the first quarter, out of total limit sanctioned of Rs. 105 lakhs, amount outstanding stand at Rs. 89.84 lakhs, which is 85.56 per cent of total limit sanctioned.
In the second quarter, out of total limit sanctioned of Rs. 118 lakhs amount outstanding stand at Rs. 90.02 lakhs, which is 76.28 per cent of total sanctioned amount.
In the third quarter out of the total amount sanctikoned of Rs. 125 lakhs amount outstanding amounted to Rs. 92.87 lakhs, which is 74 29. per cent of total amount sanctioned.
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C
Source: T
Inference
We camounte
HART SH
Table No 1
e:
can infer thed for three
C
OWING A
15
hat in all the fourth of
CHART N
ADVANCE
he quarterf the sanct
O 15
ES TO PR
rs the amotioned limit
IORITY SE
unt outstat.
ECTOR
anding
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SUMMARY OF FINDING, CONCLUSION & SUGGESTIONS
FINDINGS
In this chapter findings of this study are highlighted. These findings are
noted keeping in view the below said objectives, these are:
To measure the magnitude of NPAs
To ascertain the asset quality
To study the impact of NPAs on banks profit
To compare the NPA status over the past 4 years
To analysis the various dimensions of NPAs for the last 4 years
To study the technique and understand their effectiveness for
arresting NPAs and suggest necessary strategies for the same.
We can find out that the quantum of loans and advances made
during the last 3 years is showing a decreasing tread in percentage.
In the compositions of loan assets, we can find out that the
performing assets is showing an increase.
We can find that the Doubtful Assets hold a majority portion of NPAs.
However, the bank has been successful in arresting further NPAs
from becoming Doubtful and thus showing a dramatic decrease for
the last four years.
The percentage of NPA to Total Advances we can find that there is a
declining trend
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The percentage of NPA subclasses to Total advances we find in
absolute terms that assets in the Doubtful category form a major
part of NPAs.
NPA to Total advances beginning from 2007, We can find that there
has been an increase and decrease respectively.
The percentage of NPA to Net Profit for the past 4 years it has been
fluctuating in every year.
There is a steady increase in loans and advances in both priority
Sector and Non‐Priority Sector.
In the Ceiling and Achievements figures, we can find out that the
banks achievement against ceiling for the year ended 2009‐2010.
We can find that the Incremental Gross NPA is showing a declining
trend respectively.
The Gross NPA as a percentage of Incremental Gross Advances is
showing a declining trend whereas Gross NPA as a percentage of
Incremental Total Assets has increased.
The Non Performing assets is showing a increasing trend due to
recession in the economy and severe competition in the market.
We can find the Classification of Risk Assets based on the degree of
rsk and value impairment. A loss asset holds a major portion of Risk,
both in 1st and 2nd quarters.
We can find out the quality of loan assets sector wise for 2 quarter in
the year 2006‐07
Against the limit sanctioned the amount outstanding in the entire
three‐quarters stand at 3/4th of the sanctioned limit
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CONCLUSION:
Several initiatives have already been taken both at the policy formulation
tier as well as at the functional tiers of the bank, by the regulatory
authorities to curb the alarming growth in the absolute NPA figures. Some
of the policies and regulations are still in process of implementation and
require several modifications in the existing framework. These initiatives
have produced impressive result in short span of time. The absolute figures
of NPAs have increased over the years. Hence, it is important for the banks
and financial institutions to understand the causes of NPAs, strategies for
arresting NPAs and adopt appropriate measures to prevent them. For
reducing the NPAs and curbing its growth further, one must recover old
NPAs, at least partially and adopted practices for preventing reemergence
of fresh NPAs.
Only a strong legal framework, effective prudential norms, establishment
of Asset Management Company, loan securitization, debt recovery
tribunals, setting advisory committees and a strict recovery policy at the
strategic level of banking system can achieve these objectives. Further in
the era of LPC i.e. liberalization, privatization and globalization, adaptation
of an appropriate Management information System and Human Resource
Management for better credit appraisal, higher differential and
specialization in credit aspect is of prime importance. All these actions can
lead to decline in NPAs to meet international standards.
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SUGGESTIONS:
During the course of this project it was clear that NPAs have visible impact
on the loan portfolio of the Bank affecting their balance sheet, which
ultimately affects their profits. But it is also seen that bank is trying its best
to reduce the percentage of NPAs.
A Humber effort has been made to provide few suggestions to DENA
Bank. These are as follows:
DENA BANK needs to strengthen internal system of risk judgment to
eliminate the tendency of delay or postpone the identification of
NPAs, especially in respect of high value accounts. The bank may fix a
minimum cut off point to decide what would constitute a high value
account depending upon their business level.
The bank should strengthen the system for credit risk
evaluation/judgment and fine‐tune their norms of debt equity,
current ratio to improve the borrower’s stake for facing cyclical ups
and downs.
Primitive interaction with the borrowers with relatively large dues
should be held at various levels to ascertain their true financial
position and to take necessary corrective action.
Bank should substantially upgrade their existing Management
Information System for collecting data on loans where the interest
and/or principal installments remain overdue.
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Timely review/renewal of borrowed account to be given prominence
so that these are undertaken before the expiry of their respective
accounts. Full provisioning towards already impaired assets needs to
be a priority goal.
The loan review mechanism is to be strengthened, as a tool to bring
about improvement in credit administration. Officials should visit
personally the borrower’s premises not only for the recovery of loans
but also for guiding and counseling the borrowers for smooth
operations of business.
Segregate the NPA account into fresh as well as chronic NPAs and
make branch level task force/committee. In case of fresh NPAs,
identify past due/overdue amount in each case and recover the same
by vigorous follow up In case of genuine fresh NPAs,
rephrase/reschedule of loan repayment facility be provided.
Additional security / securities be obtained to strengthen the loan
asset and to reduce the provision requirements.
The bad debts, which are unrecoverable, should be written off from
the bank balance sheet because maintenance of the dead weight in
the long run is very expensive. For them 100 percent provisioning is
providing.
Go for loan securitization, to raise capital from the market if the valuation
of the script is too low and if the bank is not in the position to raise Tier II
capital. This has two fold benefits: one the bank will generate incremental
profits and the second the borrowers will save on cost.
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BIBELOGRAPHY
REFERENCES:
1) Banks drowned in liquidity ‐ Dr. Satish PP. 23.30 (Chartered Financial
Analyst Magazine, Oct. 2010)
2) Let the weak banks die: Sevan Commandants – pp. 18‐20 (Business
Standard Annual Banking, Feb 2007)
3) Banking theory & Practice K.D. Basava, P. No. 16.2, 12the edition year of
Publication 2009, Vidya Vahini, Hubli
4) Money, Banking and Finance – Special Statistics – pp. 831‐848
(Economical and Political Weekly, Feb 22.2007)
5) ICRA (2202 “Rating of Structured Obligations” Indian Credit Rating
Agency 2002 http://icraindia.com/services/rating/structurer.htm.
6) RBI (2010c) “Financial Institutions” http://www.rbi.org.in, 2010
7) Canara bank Credit plan of 2008‐09 & 2009‐10
8) Journal of Indian Institute Bankers – ‘Banking Present & Future’
Dr. Rakesh Mohan, Deputy governor – Reserve Bank of India
9) www.Denabank.com
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ANNEXURE
BALANCE SHEET AS AT 31ST MARCH 2010
Rs.000s, Omitted
CAPITAL AND LIABILITES CAPITAL RESERVES AND SURPLUS DEPOSITS BORROWINGS OTHER LIABILITES AND PROVISIONS
TOTAL
ASSETS CASH AND BALANCE WITH RESERVE BANK OF INDIA BALACES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE INVESTMENTS ADVANCES FIXED ASSETS OTHER ASSETS
TOTAL CONTENGENT LIABILITIES BELLS FOR COLLECTION Significant Accounting Policies Notes forming Part of Accounts
SCHEDULE
1 2 3 4 5 6 7 8 9 10 11
12
17 18
As at 31.03.2010
Rs.
2868232 10524155
236230589 9934
15820423
26543333
16864496
8171347
85706682 142312370
4605276 7793162
265453333
71410477
20632133
As at 31.03.2009
Rs.
28682328169166
2089655283349823
16933123
240285872
14900440
2919375
96969519113085870
29327229477946
240285872
63877966
17468962
Schedules referred to above form an integral part of Balance sheet
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SCHEDULES FORMING PART OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010
Rs.000s, Omitted
Schedule 13 INTERST EARNED
I. Interest / Discount on Advance/Bills
II. Income on Investments III. Interest on Balance with
Reserve Bank of India and other inter‐Bank funds
IV. others
TOTAL SCHEDULE ‐14 –OTHER INCOME I.Commission, Exchange and Brokerage II Profit on sale of Investments less loss on sale of investments III. Profit on Sale of land Buildings And other assets IV .Profit on Foreign Exchange Transactions(net) V. Income Earned by way of Dividends etc From subsidiaries/companies and / or Joint ventures abroad/ in India VI. Miscellaneous Income
Total
SCHEDULE ‐15 –INTEREST EXPENDED I. Interest on Deposit II. Interest on reserve bank
of India/Inter Bank borrowings
III. Others
Total
1256007‐2708
Year ended 31.03.2010
Rs.
9848462
7140941
874431
1253299
563221
252610
159991630358
4589918
9733828
172785
467946
10374559
1177998
0
Year ended 31.03.2009
Rs.
8563667
8109949208965528
452458125684
17251758
858661
848661
1177998
‐1316
239891
31764814806
311804
9795027
89158
501600
10385785
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SCHEDULE ‐16 –OPERATING EXPENSES
I. PAYMENTS TO AND PROVISIONS FOR EMPLOYEES 3542506 4204129
II.RENT, TAXES AND LIGHTING 455609 421212
III. PRINTING AND STATIONERY 84518 73171
IV.ADVERTISEMENT AND PUBLICITY 127663 116587
V.DEPRECIATIN ON BANKS PROPERTY 324108 310170
VI.DIRECTORS FEES ALLOWANCES AND EXPENSES 6088 5053
VII.AUDITORS FEES AND EXPENSES (INCLUDING BR. AUDITORS) 53746 45063
VIII.LAW CHARGES 24037 32457
IX. POSTAGE , TELEGRAMS, TELEPHONES ETC., 94522 105242
X.REPAIRS AND MAINTENANCE 172951 153021 XI.INSURANCE 249795 191757 XII. OTHER EXPENDITURE 477880 498146 TOTAL 5613423 6156008
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