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Transcript of NPA
APROJECT REPORT
ONMANAGEMENT OF
NON-PERFORMING ASSETS
ATBANK OF MAHARASHTRA
(PUNE CITY REGION)
BYNITESH .A. SALUNKE
(FINANCE)
UNDER GUIDANCE OFMRS. PURVI SHAH
SUBMITTED TOUNIVERSITY OF PUNE
IN PARTIAL FULLFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION FOR THE
YEAR-2006-2008
THROUGHINDIRA INSTITUTE OF MANAGEMENT
PUNE-33
1
ACKNOWLEDGEMENT.
With much gratitude, I would like to thank all those who supported to complete this
project. First of all, I would like to thank BANK OF MAHARASHTRA and concerned
people for their support from approval of all the correspondence during the project.
A special thanks to the Director of the institute, Mrs. Prachee Javadekar and my
internal guide Mrs. Purvi Shah for providing me helpful advice, and guidance, in all
stages for completing project. Many thanks especially to my project guide in the
organization, Mr. N.V.Pujari, Principal Staff College, Bank Of Maharashtra & Mr.
M.L. Kalamkar for giving me the opportunity, direction and support which have made
my report viable and helping me in preparing this report.
Last but not the least; I would like to thank my parents who have scarified their “Today”
for my better “Feature” for supporting me & constantly encouraging me during the tenure
of the course.
Nitesh A. Salunke
2
INDEX
CHAPTER NO.
CONTENTS PAGE NO.
1 Executive Summary
2 Introduction
3 Objective
4 Company Profile
5 Literature Survey
6 Research Design
6.1 Introduction of Research
6.2 Type of Research
6.3 Data Collection
6.4 Data Classification & Tabulation
7 Data Analysis & Interpretations
8 Findings
9 Conclusion
10 Recommendations
11 Bibliography
12 Annexure
3
List of Tables
Sr.no. List of Tables Page. No.
1 General Methods of Management of NPAs. 53
2 Recovery Performance. 58
3 Closing Level of NPAs. 59
4 Recovery in Ledger Balance. 61
5 Upgradation of NPAs. 63
6 Write off A/c. 65
7 Fresh Additions during the Year. 67
4
List of Graphs
Sr.no. List of Graphs Page. No.
1 Closing Level of NPAs. 60
2 Recovery in Ledger Balance. 62
3 Upgradation of NPAs. 64
4 Write off A/c. 66
5 Fresh Additions during the Year. 68
5
EXECUTIVE SUMMARY
6
EXECUTIVE SUMMARY
Overview of Project
Report is prepared on the topic ‘Management of Non-performing Assets’ at Bank of
Maharashtra. The purpose behind preparing this report is to study the present situation of
NPAs and to provide suggestions to reduce it. Initially the information was collected
about the topic from the organization.
The concept of Non-Performing Assets was introduced for the first time in the
Narasimham Committee report that was tabled in parliament on Dec.17 1991.The
Committee Studied the prevailing financial system, identified its short comings and
weakness and made various recommendations with regard to non-performing assets, their
identification, disclosure and the extent of provisioning same. The need was felt because
the prevalent accounting and disclosure practices did not always reflect the true state of
affairs of banks and Financial Institutions.
NPA is an important concept in the Banking industry. The financially bank has less NPA.
The concept of NPA can be understood by the rules and regulations provided by the RBI
which are studied in while preparing this project. The banks have to follow RBI norms
and guidelines being published by RBI in this regard constantly.
In the theoretical aspects some of the General reasons of assets becoming NPAs, Causes
of NPAs, Some of the indicators suggesting slippages to NPAs and General methods of
management of NPAs has been given in the p roject.
7
Objective
The Objective behind the project is, to study the concept of Non-Performing Assets,
study present status of NPAs in Pune City Region of Bank of Maharashtra, comparative
study of NPA of the Region for 4 Years, Remedial steps taken by the Region in order to
reduce the NPA, to find out the effect of NPA on the financial health of the Region, to
make the suggestions to overcome the problems of NPA in Pune City Region of Bank of
Maharashtra.
Research Methodology
Exploratory / Formulative Research:-
Exploratory research is a preliminary study of the subject matter. It aims to delve into the
nuances of the problem. It is usually a preliminary study and is followed by descriptive,
experimental research. It does not have a formal and rigid design as the researcher may
have to change his focus or direction, depending on the availability of new ideas and
relationships among variables. It attempts to see what is there, rather than trying to
predict the underlying relationships. An exploratory study usually involves three steps- a
review of pertinent literature, an experience survey, and an analysis of insight stimulating
cases.
Data Collection
The secondary data has been used during the project for collection of data (information)
the companies’ internal records were explored as well as the external sources like
8
electronic media (web sites) were used. The Exploratory Type of Research has used in
this project.
Interpreting the Data:-
The data which was analyzed with various Graphs thereafter it have been Interpreted with
various techniques by taking into consideration the ups & downs of the Graphs.
Mapping potential of the Company:-
The data which was interpreted with various techniques, thereafter it has been given
various suggestions for mapping the potential of the company.
Data Analysis
With the help of Annual Report of the Bank of Maharashtra & figures made available for
Pune City Region the present NPA of the Pune City Region are studied and analysis has
been made in the project. On the basis of that analysis some Findings and Suggestions are
given at the end of the project.
Conclusion
However, the conclusion behind the project is, Bank has to keep tab on fresh additions by
increasing quality advances and monitoring them. Critical care has to be taken of stressed
accounts to keep control on fresh additions. Bank has to gear up efforts for upgrading
S.S.A and recovery in D.A & Loss Assets. Staff in Bank of Maharashtra has gained good
experience to fight the menace of NPAs.
Finally with the help of some Reference Books and Secondary Data the report is
finalized.
9
INTRODUCTION
10
Introduction
“A Man without money is like a bird without wings”, the Rumanian proverb insists the
importance of the money. A bank is an establishment, which deals with money. The basic
functions of commercial banks are the accepting of all kinds of deposits and lending of
money. In general there are several challenges confronting the commercial banks in its
day-to-day operations. The main challenges facing the commercial banks is the
disbursement of funds in quality assets (Loans and Advances) or other wise it leads to
Non-performing assets.
Since the dawn of independence, Indian financial sector in general and banking in
particular has leaped giant strides into a systematized growth environment. Indian Banks
have consolidated their growth year after year. Measures like setting up of Reserve Bank
of India as the regulator, bank nationalization and other reforms have worked as catalyst
in the development drive. There was always a need to have regulated, uniform and
prudent accounting policies for the banks with special reference to the credit risk
involved in lending activities so that the significant growth in the business volumes of
banks was ably supported by a well set regulatory norms.
As per the traditional frame of mind, banks tended to lean towards security-oriented
approach in assessment of credit proposal as also subsequent classification of the assets
in their books. Overemphasizing the security interest and other charges debited to a
11
borrower’s account was taken into income on the basis of accrual irrespective of the fact
whether such interest and charges accrued earlier were actually realized or not. Such
income was taken to Profit & Loss Account and dividend was declared on the basis of
profits so arrived at. Loans were treated as realizable without actually looking into the
record of recovery. All these resulted in overstating of profit and distorted depiction of
the state of affairs of the banks in their books of accounts.
The business of banking eventually is mobilization of low cost deposits and investment
and making loans, advances and investments at higher rates of interest to generate
surplus. Deposits are Liabilities and loans and advances are the assets of the bank.
Interest on deposits is required to be paid by bank in regular period; hence, the assets of
the bank must also generate a regular income by way of interest earnings. If an asset does
not generate income at fixed intervals quarterly or half yearly, it becomes a Non-
Performing asset. The asset is deemed to be performing only if it yields timely returns
because time is essence in maintaining the liquidity, which enables the bank to make
timely payment of interest on deposits. It is of poor consolation to know that the asset is
fully secured as the availability of security does not mitigates the liquidity risk. The
imbalance is cash flows due to irregular income may necessitate temporary market
borrowings at high rate of interest cutting in to business profits.
12
PERFORMING ASSETS:-
An assets can be considered as a performing asset if,
Prompt realization of interest debited to the advance account at periodical
intervals.
Prompt realization of installments pertaining to the principal amount of the
advance.
MEANING:-
An asset that ceases to generate income for the bank is called Non-Performing Asset.
NON-PERFORMING ASSETS:-
NPA are advances that have ceased to perform. An advance asset will cease to be a
“Performing” asset and will be deemed to have become a “Non-Performing” asset when
there is,
A default in the payment of interest amounts, which are debited to the advance
account.
A default in the repayment of the installments pertaining to the principal amount
of the advance.
In initial stages of Income recognition, Assets Classification Guidelines,
13
a amount due under any credit facility was treated as “Past Due” when it has not been
paid within 30 days from the due date. Due to the improvement in the payment and
settlement systems, recovery climate, up gradation of technology in the banking system,
etc., it was decided to dispense with “Past Due” concept, with effect from March 31,
2001. Accordingly, a from that date, a Non-Performing Asset shell be an advance where,
(i) Interest and / or installment of principal remain overdue for a period of more
than 180 days in respect of a Term Loan,
(ii) The account remains ‘out of order for a period of more than 180 Days, in
respect of an Overdraft / Cash Credit,
(iii) The bill remains overdue for a period of more than 180 days in the case of
Bills Purchased and Discounted,
(iv) Interest and / or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half in the case of an advance
granted for agriculture purpose, and
(v) Any amount to be received remains overdue for a period of more than 180
days in respect of other accounts.
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the ’90 days Overdue’ norm for identification
14
of NPAs, form the year ending March 31, 2004. Accordingly with effect form March 31,
2004, a Non-Performing Asset shell be a loan or an advance where;
(i) Interest and / or installment of principal remain overdue for a period of more
than 90 days in respect of a Term Loan,
(ii) The account remains ‘out of order for a period of more than 90 Days, in
respect of an Overdraft / Cash Credit,
(iii) The bill remains overdue for a period of more than 90 days in the case of Bills
Purchased and Discounted,
(iv) In case of direct agricultural advances, the overdue norms specified below are
applicable;
(a) Loan granted for short duration crops will be treated as NPA, if installment of
principal or interest thereon remains outstanding for two crop seasons.
(b) Loan granted for long duration crops will be treated as NPA, if installment of
principal or interest thereon remains outstanding for one crop seasons.
(c) For Agriculture term loans, the norms would depend on type & crop
cultivated by Agriculturist.
(v) Any amount to be received remains overdue for a period of more than 90
days in respect of other accounts
15
OUT OF ORDER:-
An account should be treated as 'out of order' if the outstanding balance remains
continuously in excess of the sanctioned limit/ drawing power. In case where the
outstanding balance in the principal operating account is less than the sanctioned limit/
drawing power, but there are no credits continuously for 90 Days as on the date of
balance sheet or credits are not enough to cover the interest debited during the same
period, these account should be treated as 'Out of Order'.
If the stock statement is not received within 6 months of its due date, the account is
classified as NPA.
OVERDUE: -
Any amount due to the bank under any credit facility is 'Overdue' if it is not paid on the
due date fixed by the bank.
16
OBJECTIVE
17
OBJECTIVE
Study the concept of Non-Performing Assets.
Study present status of NPAs in Pune City Region of Bank of Maharashtra.
Comparative Study of NPA of the Region for 4 Years.
Remedial steps taken by the Region in order to reduce the NPA.
To find out the effect of NPA on the financial health of the Region.
To make the suggestions to overcome the problems of NPA in Pune City Region
of Bank of Maharashtra.
18
COMPANY PROFILE
19
BANK OF MAHARASHTRA
Philosophy
TECHNOLOGY WITH PERSONAL TOUCH
It is this philosophy that enables Bank of Maharashtra to reach out to its customers and
cater to the needs of the classes and masses.
EMBLEM
The Deepmal- With it’s many lights rising to greater heights.
The Pillar- Our institution- symbolizing strength.
The Diyas- Our branches-Symbolizing services.
3M’s
MOBILISATION OF MONEY
MOTIVATION
MODERNISATION
AIM
The bank wishes to cater all types of needs of the entire family, in the whole country. Its
motto is “One Family, One Bank, Maha Bank.”
20
NAME DESIGNATION
Shri M. D. Mallya Chairman and Managing Director
Shri Rajiv Madhok Executive Director
Shri Tarun Bajaj Director,Department of Economic Affairs, Banking Division Govt of India,Ministry of Finance
Shri S.K. Gogia Director
Shri P. N. Deshpande Officer Director
Shri Tuljapurkar Devidas Ramchandra
Workmen Director
Shri Anand Kamalnayan Pandit Director
Shri Subhash Chandra Bhargava Director(Representing Life Insurance Corporation of India)
Shri Avinash Laxmikant Patil Director
Shri A. Ali Azizi Director
Shri Rajeev K Deshpande Director
Bank of Maharashtra, established on 16th September, 1935. It is a Public Sector Bank. It
came into commencement on 8th February 1936. First branch was opened at Bajirao
Road, Pune, on 6th February, 1936. Thereafter it was shifted to new corporate office at
LOKMANGAL, Shivaji Nagar, Pune in 1978. At today’s date Bank of Maharashtra has
21
1345 Branches and 13 extension counter spread over 22 States and 2 Union territories.
The Bank of Maharashtra has a network of 302 ATM’s with VISA connectivity.
Bank of Maharashtra provides facilities in area like Agriculture High Tech, Overseas,
Industrial financing, V Sat facility, Remote access, Query terminal, Tele banking facility
and ATM, etc. Bank of Maharashtra also provides banking and other financial services to
corporate and private customers. The Bank offers personal banking, cash management,
retail loans and other financial services. These services include deposits, savings/current
bank account, vehicle loans, personal loans, retail trade finance, global banking, lending
to priority sector and small scale sector, foreign exchange and export finance, corporate
loans and equipment loans. Bank of Maharashtra has full-fledged Training College,
Information Technology Training Institute and Staff Training Centers.
The objectives behind establishing Bank of Maharashtra were to mobilize the savings of
household and extend financial support to persons of small means who were then not
considered for credit facilities by banks. In a nutshell, the philosophy of founder fathers
of the Bank was something more than what has been emphasized about the role of Public
Sector Banks in the economic upliftment of rural poor and neglected segments of the
society.
The bank has fine tuned its services to cater to the needs of the common man and
incorporated the latest technology in banking offering a variety of customized services.
The Aim for Bank is to cater to all types of needs of the entire family, in the whole
22
country. Its dream is "One Family, One Bank, Maharashtra Bank". The 3 M’s of the
Bank are, Mobilization of Money, Modernization of Methods and Motivation of Staff.
Company Profile: Bank Of MaharashtraExchanges: BOM
Total Deposits: 33919.34 CroresTotal Advances: 23462.00 CroresMajor Industry: Financial Sector
Sub Industry: Commercial BanksCountry: INDIA
Employees: 13893
Special Services: -
All India help line numbers are 1800-222-340 & 1800-220-888.
Credit card and Visa Debit Card facilities, keeping the pace with the market
conditions. Maharashtra Bank has tied up with Master card International and Visa
Card to impart plastic money facility to the customers.
The Maharashtra executor trustees company (METCO) performs business ranging
from investment management to consultancy and managing various trusts
efficiently.
23
ATM facility, Tele banking, Depository services, Touch screen facility and
Mobile Van information center facility for rural areas.
Bank has established its own corporate Networking “MAHANET” connecting
562 locations i.e. 524 branches, 32 regional offices, 5 circle offices, training
colleges, training centers and central offices.
Bank is establishing its own Data Center at IT Park, Kharadi, and Pune.
583 Rural and semi urban branches are to be computerized with small TBA
solutions up to march 2007.
Bank has implemented Real Time Gross Settlement (RTGS) system for customer
transactions and inters bank payments in 368 branches.
Maharashtra Bank has full-fledged Training College, Information Technology
Training Institute and 3 Staff Training Centers.
Cheque Truncation System is run on pilot basis and will be implementing as RBI
time schedule.
Bank of Maharashtra is now working as corporate agent for life and non life
insurance products of LIC of India and United India Insurance Company.
24
Bank has entered in to agreement with Mrs. TCS for providing Core Banking
Solution "BANCS" and has appointed Mrs. Ernst & Young as consultants for
implementation of CBS in 600 branches.
The Bank has established Rural Development Centers at Hadpsar & Bhigwan. It
has also established MESETI at Pune, Aurangabad and Nagpur Centers for
training the new entrepreneurs. Gramin Mahila VA BAL Vikas Mandal is
established at Pune for the development of the women and children in rural areas
and forming Self Help Groups.
Bank of Maharashtra acts as Lead Banker in 6 Districts and works as State Level
convener of Banker's committee for Maharashtra State.
Bank of Maharashtra has sponsored 3 regional rural Banks, Marathwada Gramin
Bank, Aurangabad-Jalna Gramin Bank, and Thane Gramin Bank.
Future Plans: -
Systematic approach for reducing Net NPA level to below .05%.
Consolidation of Regional Rural Banks sponsored by Bank of Maharashtra.
25
Establishing ATM network of more than 345 ATMs with on-line connectivity
across the country.
Extensive use of Wide Area Network-MAHANET inter-connectivity of branches
by providing more customer-centric applications like Any Branch Banking
Service, Demat etc.
Extending RTGS facility to 368 branches.
Moving towards Core Banking Solution (CBS) by implementing in 600 branches.
SHGs with special reference to agriculture to be promoted and financing be
implemented so as to increase financing to small and marginal farmers.
26
LITERATURE SURVEY
Literature Survey
The concept of Non-Performing Assets was introduced for the first time in the
Narasimham Committee report that was tabled in parliament on Dec.17 1991.The
27
Committee Studied the prevailing financial system, identified its short comings and
weakness and made various recommendations with regard to non-performing assets, their
identification, disclosure and the extent of provisioning same. The need was felt because
the prevalent accounting and disclosure practices did not always reflect the true state of
affairs of banks and Financial Institutions. Based on the Narasimham Committee
recommendations, RBI has implemented the prudential norms for improving the financial
heath of commercial banks and the quality of their loan portfolio.
28
Research Design
6.1 Introduction of Research
Research is an ORGANIZED and SYSTEMATIC way of FINDING ANSWERS to
QUESTIONS.
29
SYSTEMATIC : - Systematic because there is a definite set of procedures and
steps which you will follow. There are certain things in the research process
which are always done in order to get the most accurate results.
ORGANIZED : - Organized in that there is a structure or method in going about
doing research. It is a planned procedure, not a spontaneous one. It is focused and
limited to a specific scope.
FINDING ANSWERS : - Finding Answers is the end of all research. Whether it
is the answer to a hypothesis or even a simple question, research is successful
when we find answers. Sometimes the answer is no, but it is still an answer.
QUESTIONS :-Questions are central to research. If there is no question, then the
answer is of no use. Research is focused on relevant, useful, and important
questions. Without a question, research has no focus, drive, or purpose.
Research Methodology:-
Research Methodology is the systematic design, collection, analysis & reporting of data
& findings, relevant to appraisal specific situation facing the company. The Research was
an exploratory type, which aims at finding the true potential of the organization and also
a qualitative analysis regarding the Recovery Performance of NPA of a Pune City Region
of Bank of Maharashtra.
6.2 Type of Research
Exploratory / Formulative Research:-
30
Exploratory research is a preliminary study of the subject matter. It aims to delve into the
nuances of the problem. It is usually a preliminary study and is followed by descriptive,
experimental research. It does not have a formal and rigid design as the researcher may
have to change his focus or direction, depending on the availability of new ideas and
relationships among variables. It attempts to see what is there, rather than trying to
predict the underlying relationships. An exploratory study usually involves three steps- a
review of pertinent literature, an experience survey, and an analysis of insight stimulating
cases.
Learning the Theoretical aspects:-
Various books on Non-Performing Assets have been collected from Bank of Maharashtra
(Library) and the theoretical aspects have been understood.
Analyzing the Data:-
The data of Recovery Performance of Pune City Region of Bank of Maharashtra was
collected and analyzed with various Graphs.
6.3 Data Collection
Primary Data : -
31
Primary Data is one, which is collected by the investigator himself for the purpose
of a specific inquiry or study. Such data is original in character and is generated
by surveys conducted by individuals or research institution. In this research there
is no need of primary data.
Secondary Data :-
When an investigator uses the data, which has been already collected by others,
such data is called secondary data. Secondary sources of data provide wealth of
information to the researcher.
Collecting the Data:-
Collecting sources of data is of two types, i.e. Primary Data & Secondary Data. Data used
in this project is Secondary Data, which is collected from Pune City Region of Bank of
Maharashtra. Various articles like Annual Report, Reference Books have been collected.
During this project for the collection of data (information) the companies internal
records were explored as well as the external sources like electronic media (web
sites) were used.
6.4 Data Classification & Tabulation
32
The Narasimham Committee gave a thought that income recognition should be done on
scientific basis. The screening should be done to expose the bad and doubtful assets. This
would help in preventing further deterioration in the value of asset. The
Recommendations of Narasimham Committee were divided in to Three parts which are
as follows:-
(1) INCOME RECOGNITION:-
The policy of Income Recognition should be objective and based on record of recovery
rather than any subjective considerations like availability of security, net worth of
borrower / guarantor etc.
Income accounting in case of NPA is, therefore, based on actual realization.
Government Guaranteed Advances:-
If any income with respect to advances guaranteed by Governments remain overdue for
specified period and thereby advance becomes NPA, interest on such advances should
not be taken to income account, unless the same is realized.
Renegotiated / Rescheduled Advances:-
Fees and Commission earned by the banks due to renegotiation or rescheduling of
outstanding advances should be recognized on accrual basis over the period of time
covered by the renegotiated or rescheduled extension of credit.
Appropriation of recovery in NPAs:-
33
Interest realized on NPAs may be taken to income account provided the credits in the
accounts towards interest are not out of fresh / additional credit facilities sanctioned to the
borrower concerned.
In the absence of a clear agreement between the bank and the borrower for the purpose of
appropriation of recoveries in NPAs, banks should adopt an accounting principle and
exercise the right of appropriation of recoveries in a uniform and consistent manner.
Reporting of NPAs:-
Banks are required to furnish a report on NPAs as on 31st March each year after
completion of audit. The NPAs would relate to the banks global portfolio, including the
advances at the foreign branches.
While reporting NPA figures to RBI, the amount held in interest suspense account,
should be shown as a deduction from gross NPAs as well as gross advances while
arriving at the net NPAs. Banks which do not maintain Interest Suspense Account for
parking interest due on non-performing advance accounts, may furnish the amount of
interest receivable on NPAs as a foot note to the Report.
Whenever NPAs are reported to RBI, the amount of technical write off, if any, should be
reduced from the outstanding gross advances and gross NPAs to eliminate any distortion
in the quantum of NPAs being reported.
(2) ASSETS CLASSIFICATION:-
34
Classification of Assets should be done on the basis of objective criteria with uniform and
consistent application of norms duly ensured. There are generally three ways of
classification of assets, which are given as under:
Assets classification under Health Code System:-
Under the Health Code system, bank are required to classify the advances under any one
of the heads depending upon the status of the account, dealings, availability of security
cover, etc.
Asset Classification for Final Accounts:-
Banks are required to prepare their final accounts as per Third Schedule to the Banking
Regulation act, 1949 which bankers / auditors are well conversant with.
Assets Classification under Prudential Norms :-
Under the prudential norms of asset classification, banks are now required to classify
their advances in the following four broad groups:-
(a) Standard Assets:-
These are assets which are ‘Performing’ and do not disclose any weakness and do not
carry more than normal business risk.
(b) Sub-Standard Assets:-
These are assets which have ceased to ‘Perform’ but which have not completed a period
of 18 months (now 12 Months) after getting classified as Non-performing and there is no
35
threat to recovery on account of erosion in the realizable value of security or due to non-
availability of security or due to other factors, to the extent that the account is to be
classified either as Doubtful Assets or as Loss Assets. With effect from 31st March,
2005, a sub-standard asset would be one, which has remained NPA for a period less
than or equal to 12 months.
(c) Doubtful Asset:-
These are accounts which have completed a period of 18months (now 12 Months) after
getting classified as Sub-standard Assets. A loan classified as doubtful has all the
weakness inherent in assets that were classified as sub-standard, with the added
characteristic that the weakness make collection or liquidation in full on the basis of
currently known facts, conditions and values-highly questionable and improbable. With
effect from March 31st, 2005, an asset would be classified as doubtful if remained in
the sub-standard category 12 months.
(d) Loss Assets:-
A Borrower account in which a loss has been identified by the internal or external
auditors or by the RBI inspectors. The releasable value of security in the accounts is very
little.
36
Guidelines for Classification of Assets:-
Classification of Assets in to above categories should be done taking into account the
degree of well-defined credit weakness and the extent of dependence on collateral
security for realization of dues.
Banks should establish appropriate internal systems to eliminate the tendency to delay or
postpone the identification of NPAs, especially in respect of high value accounts. The
banks may fix a minimum cut off point to decide what would constitute a high value
account depending upon their respective business level. The cut of point should be valid
for the entire accounting year. Responsibility and validation levels for ensuring proper
asset classification may be fixed by the banks. The system should ensure that doubts in
asset classification due to any reason are settled through specified internal channels
within one month from the date on which the account would have been classified as NPA
as per extant guidelines.
Upgradation of Loan Accounts classified as NPAs:-.
If arrears of interest and principal are paid by the borrower in the case of loan accounts
classified as NPAs, the account should no longer be treated as non-performing and may
be classified as ‘standard’ accounts.
Accounts regularized near about the balance date:-
The asset classification of borrowal account where a solitary or a few credits are recorded
before the balance sheet date should be handled with care and without scope for
37
subjectivity. Where the account indicates inherent weakness on the basis of the data
available, the account should be deemed as a NPA. In other genuine cases, the banks
must furnish satisfactory evidence to the Statutory Auditors / Inspecting Officers about
the manner of regularization of the account to eliminate doubts on their performing
status.
Asset Classification to be borrower-wise and not facility-wise:-
It is difficult to envisage a situation when only one facility to a borrower becomes a
problem credit and not others. Therefore, all the facilities granted by a bank to a borrower
will have to be treated as NPA and not the particular facility or part thereof which has
become irregular.
If the debits arising out of devolvement of letters of credit or invoked guarantees are
parked in a separate account, the balance outstanding in that account also should be
treated as a part of the borrower’s principal operating account for the purpose of
application of prudential norms on income recognition, asset classification and
provisioning.
Government guaranteed Advances:-
The credit facilities backed by guarantee of the Central Government though overdue may
be treated as NPA only when the Government repudiates its guarantee when invoked.
This exemption from classification of Government guaranteed advances as NPA is not
for the purpose of recognition of income. With effect from 1st, April, 2000, advances
38
sanctioned against State Government Guarantees should be classified as NPA in the
normal course, if the guarantee is invoked and remains in default for more than two
quarters. With effect from March 31st, 2001 the period of default is revised as more than
180 days and with effect from March 31st, 2004 the period of default would be revised as
more than 90 days.
Advances under rehabilitation approved by BIFR / TLI:-
Banks are not permitted to upgrade the classification of any advance in respect of which
the terms have been renegotiated unless the package of re-negotiated terms has worked
satisfactorily for a period of one year. While the existing credit facilities sanctioned to a
unit under rehabilitation packages approved by BIFR / Term Lending Institutions will
continue to be classified as sub-standard or doubtful as the case may be, in respect of
additional facilities sanctioned under the rehabilitation packages, the Income
Recognition, Asset Classification norms will become applicable after a period of one year
from the date of disbursement.
39
(3) PROVISIONING NORMS:-
In order to narrow down the divergences and adequate provisioning by banks, it was
suggested that bank’s statutory auditors, if they so desire, could have a dialogue with
RBIs Regional Office / Inspectors who arrived out for bank’s inspection during the
previous year with regard to the accounts contributing to the difference.
Pursuant to this, regional offices were advised to forward a list of individual advances,
where the variance in the provisioning requirements between the RBI and the bank is
above certain cut off levels so that the bank and the statutory auditors take into account
the assessment of the RBI while making provisions for loan loss, etc.
The primary responsibility for making adequate provision for any diminution in the value
of loan assets, investment of other assets is that of the bank managements and the
statutory auditors The assessment made by the inspecting officer of the RBI is furnished
to the bank to assist the bank management and the statutory auditors in taking a decision
in regard to making adequate and necessary provisions in terms of prudential guidelines.
In conformity with the prudential norms, provisions should be made on the non-
performing assets on the basis of classification of assets into prescribed categories as
detailed above. Taking into account the time lag between an account becoming doubtful
of recovery, its recognition as such, the realization of the security and the erosion over
time in the value of security charged to the bank, the banks should make provision
against loss assets, doubtful assets and sub-standard assets as below:
40
(a) Loss Assets:-
The entire assets should be written off after obtaining necessary approval from the
competent authority. If the assets are permitted to remain in the books for any reason,
100 per cent of the outstanding should be provided.
In respect of an asset identified as a loss asset, full provision at 100 per cent should be
made if the expected salvage value of the security is negligible.
(b) Sub-standard Assets:-
A general provision of 10 per cent on Total Outstanding should be made without making
any allowance for DICGC / ECGC guarantee cover and securities available.
20% provision in case of advances where there was no security/clean form at the time of
sanction.
(c) Standard Assets:-
Banks are providing for Standard Assets @ 0.25% till 2006. Now the provisions are as
under with effect from 2006-07.
(1) Direct Advances to agriculture & SME sectors: 0.25%
(2) Residential housing loans beyond 20 Lakhs: 0.40%
(3) Personal Loans, Advances qualifying as capital market 2.00%
Exposures & Commercial real estate loans:
(4) Other standard advances: 0.40%
41
(d) Doubtful Assets:-
100 per cent of the extent to which the advance is not covered by the realizable value of
the security to which the bank has a valid recourse should be made and the realizable
value is estimated on a realistic basis.
In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 per cent to 100 per cent of the secured portion depending upon the
period for which the asset has remained doubtful:
Period for which the advance has been
considered as Doubtful ‘Category’.
Provision Requirement Percentage.
Up to One Year 20% of secured portion + 100% for
unsecured portion.
One to Three Years 30% of secured portion + 100% for
unsecured portion.
More Than Three Years 50% as on March, 31, 2004 of secured
portion + 100% for unsecured portion
(1) Outstanding stock of NPAs as on
March, 31, 2004.
(2) Advances Classified as ‘Doubtful”
for more than three years on or
After April, 1, 2004.
--- 60% with effect from March,
31, 2005. of secured portion + 100% for
unsecured portion
--- 75% with effect from March,
31, 2006. of secured portion + 100% for
unsecured portion
--- 100% with effect from March,
31, 2007. of secured portion + for
unsecured portion
--- 100%
Floating Provisions:-
42
Some of the banks made a “floating provision” over and above the specific provisions
made in respect of accounts identified as NPAs. The floating provisions, wherever
available, could be set off against provisions required to be made as per above stated
provisioning guidelines. Considering that higher loan loss provisioning adds to the
overall financial strength of the banks and the stability of the financial sector, banks are
urged to voluntarily set apart provisions much above the minimum prudential levels as a
desirable practice.
Provisions on Leased Assets:-
Sub-Standard Assets:-
(1) 10 percent of ‘net book value’.
(2) As per the ‘Guidance Note on Accounting for Leases’ issued by the
ICAI, ‘Gross book value’ of a fixed asset is its historical cost or other amount substituted
for historical cost in the books of account of financial statements. Statutory depreciation
should be shown separately in the profit and loss Account. Accumulated depreciation
should be deducted from the Gross Book Value of the leased asset in the balance sheet of
the lessor to arrive at the ‘net book value’.
(3) Also, balance standing in ‘Lease Adjustment Account’ should be adjusted in the
‘net book value’ of the leased assets. The amount of adjustment in respect of each class
of fixed assets may be shown either in the main balance sheet or in the Fixed Assets
Schedule as a separate column in the section related to leased assets.
Doubtful Assets:-
43
100 percent of the extent to which the finance is not secured by the realizable value of
the leased assets. Realizable value to be estimated on a realistic basis. In addition to
the above provision, the following provision on the net book value of the secured
portion should be made, depending upon the period for which the asset has been
doubtful.
Loss Assets:-
The entire asset should be written off. If for any reasons, an asset is allowed to remain
in books, 100 percent of the ‘net book value’ should be provided for.
Write Off of NPAs:-
In terms of Section 43(D) of the Income Tax Act, 1961, income by way of u\interest
in relation to such categories of bad and doubtful debts as may be prescribed having
regard to the guidelines issued by the RBI in relation to such debts, shall be
chargeable to tax in the previous year in which it is credited to the bank’s profit and
loss account or received, whichever is earlier. This stipulation is not applicable to
provisioning required to be made as indicated above. In other words, amounts set
aside for making provision for NPAs as above are not eligible for tax deductions.
Therefore, the banks should either make full provision as per the guidelines or write
off such advances and claim such tax benefits as are applicable, by evolving
appropriate methodology in consultation with their auditors/ tax consultant.
Recoveries made in such accounts should be offered for tax purposes as per the rules.
GENERAL REASONS FOR ASSETS BECOMING NPAs:-
44
A multiplicity of factor is responsible forever increasing size of NPAs in banks. A few
prominent reasons for assets becoming NPAs are as under.
Poor credit appraisal system.
Lack of proper monitoring.
Reckless advances to achieve the budgetary targets.
Change in economic policies/ environment.
No transparent accounting policy and poor auditing practices.
Lack of coordination between banks.
Directed lending to certain sectors.
There is no or lack of corporate culture in the Bank. In adequate legal provisions
on foreclosure and bankruptcy.
CAUSES OF NPA:-
45
There are many causes for performing assets becoming Non-performing. The following
are some of the general causes which Contribute to creation of NPAs and the same can be
categorized under three Classes:-
(1) Causes attributable to the Promoter / Borrower:-
Bad intention of securing wrongful gains from banks by availing advances by
misrepresentation of facts.
Financial indiscipline—diversion of funds for unapproved purposes.
Mismanagement of Units / Projects---willful or otherwise.
Lack of professional management.
Death / disability of the chief promoter / person behind the show.
Inability to tie up the funds required as margin (promoters’ contribution) as per
the projection furnished.
Problems due to adverse exchange fluctuations faced by exporters/ importers.
Inadequate control / supervision resulting in time and cost overrun.
Low priority to technology upgradation and inadequate attention to research and
development, quality control etc.
Differences / disputes amongst promoters---family splits, lack of co-ordination
among partners, groupings among the directors of the company etc.
Huge deviation in the demand
(2) Causes attributable to the Bank:-
46
Delay in decision making and sanction of credit facilities.
Defective / deficient monitoring and supervision of advance accounts.
Improper /poor credit appraisal due to lack of expertise and scales required for
critical pre-sanction scrutiny of loan proposals.
Non-availability of reliable market and industry relevant data on demand / supply
scenario.
Compromise on project viability with overemphasis on security while assessing
the loan proposals.
Disbursement of advance facilities before compliance of terms ad condition of
sanction and incomplete / defective documentation.
Delayed and / or non detection / diagnosis of warning signals and inaction in the
initiation of the remedial measures.
Long pending judicial proceedings and protracted legal battles in courts act more
as a cover to the defaulting borrowers.
Lack of government support and apathy of public to bank’s recovery efforts.
Non observance of bank’s well laid down norms and systems and of preventive /
precautionary measures facilitating perpetration of frauds by insiders / outsiders.
(3) Causes beyond the control of banks and borrowers:-
47
Political uncertainties.
Frauds committed by outsiders, with or without the collusion of outsiders.
Inadequate infrastructure facilities such as supply of power and other essential
inputs.
Debt Relief Schemes introduced by some states for political mileage have vitiated
the repayment culture and has resulted in a large number of willful defaulters.
Inconsistency in judicial verdicts as a result of improper presentation of facts.
Outdated laws, labour unrest / lockouts / strikes, riots etc.
Law and order problems affecting commercial and industrial activity in certain
parts of the country.
Natural calamities like earthquakes, draughts and floods, etc., resulting in large-
scale destruction of properties and life.
SOME OF THE INDICATORS SUGGESTING SLIPPAGES TO NPA:-
48
A borrower account will not become NPA overnight. Like a major disease to human
body, it does give symptoms beforehand. It is only up to the banker to take sight of these
symptoms and initiate timely remedial measures to prevent the account from actually
slipping in to NPA.
On the basis of auditors’ experience of banks, the following notable indications would be
available in different types of borrower’s accounts:-
(1) Cash Credit / Overdraft:-
Increasing number of goods returned by the clients.
Increasing number of unrecoccilied book debts.
Increasing number of incidences of debit / credit notes in the books of accounts.
Self Cheques presented through some other bank.
Huge cash withdrawals without proper explanation.
Frequent requests for temporary overdrawing.
Frequent requests for release / exchange of securities.
Increase in transactions in personal accounts of proprietor / partner / directors.
Unexplained delay in submission of financial statements and tax returns.
(2) Bills Discounted / Purchased:-
Incidences of accommodation bills.
Gradual increase in realization period.
Frequent incidences of partial realization of bills.
49
Gradual increase in dishour of bills discounted and return of bills purchased. As
guidance, dishonor / return of bills in excess of 5% of bills may be taken as the
danger signal.
Frequent requests for discount / purchase of bills draw on parties outside the list
of drawers approved by the bank.
Requests for meeting the amount of dishonored / returned bills from out of
discount / purchase of fresh bills.
(3) Letter of Credits / Bank Guarantees:-
Invocation of Bank Guarantees / development of Letter of Credit.
Non receipt of original LC / BGs bonds after expiry and several reminders.
(4) Term Loans:-
Misconception of the project.
Undue and unreported delay in project implementation.
Non-introduction of margin from time to time and mis-utilisation of loan
proceeds.
Default in payment of installments / interest.
Frequent breakdowns in plant and machinery.
Drastic fluctuations in operational efficiency and capacity utilization.
Labour unrest in the plant.
Disposal / replacement of vital plant and machineries without the consent of the
bank and without putting an effective alternative arrangement in place.
50
(5) Foreign Exchange Finance:-
Incidences of accommodation and kite flying.
Frequent overdue in PCL without genuine reasons.
Frequent cancellation of orders by the overseas buyers.
Increasing delay in realization of export bills.
Huge uncovered Foreign Exchange position.
Frequent return of goods.
Drastic changes in the economic / political atmosphere in the importer’s country.
Serious violation of FEMA / RBI Guidelines by the exporter’s attracting penal
action.
(6) Other General Warning Signals:-
Opening of bank accounts with other banks without the consent of the lending
banker.
Unrecoccilied branch accounts where borrowers have branches elsewhere.
Unexplained swing in the behavioral pattern of the borrower.
Noticeable reduction in ancillary business like DDs, TTs, etc.
Notice by partner / director of the borrowing firm / company of irregularities.
Death of key person in the conduct of business of the borrower’s.
Suits filed against the borrowers other than in normal course of business.
Issuance of notices to the borrowers from the respective body for not meeting
statutory dues like Income Tax, Sales tax, Excise, ESIC etc
51
Receipt of attachment orders as a result of non payment of any of the above
duties.
Material changes in the demand / supply scenario and supply of raw material
potent enough to pose serious threat to the economic viability of the project /
business.
The above list is not exhaustive and each case of advance may require special attention
depending on each case. As the saying goes, a stitch in time saves nine. It is the
alertness and constant vigil exercised at the operational levels along with quality
monitoring and timely follow-up of borrower accounts that will prevent fresh slippages
from performing to non-performing. The practical banker should develop necessary skill
to take note of the warning signals and initiate necessary corrective action.
In order to build-up and maintain a portfolio of quality advances, it is essential to
meticulously follow the good and time-tested systems and procedures. The best way to
tackle NPA menace is to prevent fresh additions to this undesirable club and, at the
same time, putting vigorous efforts to reduce the size of existing NPA segment.
GENERAL METHODS OF MANAGEMENT OF NPAs:-
52
The management of NPA is the difficult task in practice. Management of NPAs means,
how to settle the NPAs account in the books. In simple it focuses on the methods of
settlement of NPAs account. The methods are differs from bank to bank. The following
paragraph explains some general methods of Management of NPAs by the bank. The
same information is given in the chart.
(1) Compromise:-
53
General Methods of Management of NPAs
Compromise
Legal remedies
Regular Training Program
Recovery Camps
Write offs
Spot Visit
Rehabilitation of potentially viable units
Other Methods
The dictionary meaning of the term compromise is settlement of dispute reached by
mutual concessions. The following are the detailed guidelines for compromise/negotiated
settlements of NPAs.
The compromise should be a negotiated settlement under which the bank should
ensure recovery of its dues to the maximum extent possible of minimum
expenses.
Proper distinction should be made between willful defaulters and borrowers
defaulting in repayments due to circumstances beyond their control.
Where security is available for assessing the realizable value, proper weight age
should be given to the location, condition and marketable title and possession of
such security.
An advantage in settlement cases is that banks can promptly recycle the funds
instead of resorting to expensive recovery proceedings spread over a long period.
All compromise proposals approved by any functionary should be promptly
reported to the next higher authority for post facto scrutiny.
Proposal for write off/ compromise should be first by a committee of senior
executives of the bank.
(2) Legal remedies:-
54
The legal remedies are one of the methods of management of NPAs. The banks observed
that the borrower is making willful default; no more time should be lost instituting
appropriate recovery proceedings. The legal remedies are:
Filing civil suits.
Filing criminal suits under sec.138.
Filing suits in DRT.
Use of SARFAESI Act for quick recovery.
Putting cases to Lokadalat.
(3) Regular Training Program:-
The all levels of Staff, Officers should undergo the regular training program on credit and
NPA management. It is very useful and helpful to the Staff, Officers & Executives for
dealing with proper appraisal of advances & using correct techniques for NPA recovery
& reduction.
(4) Recovery Camps:-
The banks should conduct the regular or periodical recovery camps in the bank premises
or some other common places; such type of recovery camps reduces the level of NPAs in
the Banks.
(5) Write offs:-
55
Write offs is also one of the common management techniques of NPAs. The assets are
treated as loss assets, when the bank writes off the balances. The ultimate aim of the write
off is to clean the Balance sheet.
(6) Spot Visit:-
The bank officials should visit to the borrower’s business place or borrowers field
regularly or periodically & should have continuous meaningful dialogue, it will help in
proper diagnosis of reasons and deciding correct course of action for recovery. It is also
help full to the bank to control or reduce the NPAs limit.
(7) Rehabilitation of potentially viable units:-
Technically feasible & economically viable NPA units can be rehabilated through
rescheduling, rephrasing, additional financial support, interest rebate, etc. This will help
the units to come back on the track & start generating income to banks overdue & come
out of NPA status.
(8) Other Methods:-
Persistent phone calls.
Media announcement.
Help of recovery agents.
Help of advocates for speedy disposals.
Upgradation of account through recovery of overdue amount.
56
Data Analysis & Interpretation
RECOVERY PERFORMANCE OF PUNE CITY REGION
57
HAVING 66 BRANCHES
(Rs. In Crores)YEAR 2004 2005 2006 2007
Opening NPA 133.47 156.05 188.23 194.60
Reduction in Ledger Balance
Due to Recovery
19.72 20.21 17.75 32.49
Up gradation 3.35 2.37 0.49 0.57
Written off 2.40 5.25 9.59 27.82
Total Reduction 25.47 27.83 27.83 60.88
Sub total 108.00 128 160 135
Fresh Additions 48.05 60.01 34.20 13.08
Closing NPAs 156.05 188.23 194.60 147.74
CLOSING LEVEL OF NPAs
58
(Rs. in Crores)
YEAR CLOSING NPA AMT
TOTAL ADVANCES
IN %
2004 156.05 1399.90 11.14
2005 188.23 1650.92 11.40
2006 194.6 2280.67 8.53
2007 147.74 3180.94 4.64
Interpretation:-
The above table is giving information about closing NPA level for the year 2004, 2005,
2006 & 2007.
It is observed on the basis of above table that the closing NPA level has increased
continuously for three years and finally reduced by good margin in 2007. It is very
important to keep NPA level much low & have a reducing graph. Recovery department
plays a vital role for keeping the NPA level low by negotiating to various recovery
techniques.
Most important ways to keep the graph coming down is as under.
(1) Acquiring quality assets only through proper selection of borrowers.
(2) Acquiring quality assets through proper technical, commercial, financial, managerial,
organizational, legal, environmental, economical, social and risk appraisal.
(3) Continue pre and post sanction visits by different officers where by any deteriation
in health of account can be spotted by either of them.
59
(4) Immediate timely steps for support in deserving cases.
(5) Immediate timely steps for recovery may be by way of criminal, legal, compromise
Lokadalat, SARAFAESI act etc.
(6) Help of various government organization & authorities NGOS, farmers clubs, SHGS
deployment of recovery agents, and incentives to advocates for early execution may
also help in recovery NPAs & put a tab on closing NPAs.
RECOVERY IN LEDGER BALANCE
(Rs. in Crores)
60
YEAR RECOVERY AMT
OPENING NPAs IN %
2004 19.72 133.47 14.77
2005 20.21 156.05 12.95
2006 17.75 188.23 9.42
2007 32.49 194.60 16.69
Interpretation:-
The above table is giving information about recovery in ledger balance.
It is observed that on the basis of above figures that the recovery from opening NPAs in
the year 2004 was 14.77%, in 2005 it was 12.95%, but in the year 2006 it was 9.42%.
However, in the year 2007 recovery was improved and it was 16.69%. Thus the target is
achieved professionally only because of good recovery techniques. It is also seen that the
total NPAs increased because of fresh additions in respective years.
The recovery in NPAs can help Bank to use such amount for better earning by giving
credit to quality borrowers. Recovery helps in getting write back in provisions already
made which helps in improving the bottom line of the bank. Good recovery gives moral
boost to the staff to work more for enhanced recovery in remaining NPA account.
61
RECOVERY IN LEDGER BALANCE
14.7712.95
9.42
16.69
024681012141618
2004 2005 2006 2007
YEAR
IN %
UPGRADATION OF NPA
62
(Rs. In Crores)
YEAR UP GRADATION
AMT
TOTAL NPAs IN %
2004 3.35 156.05 2.14
2005 2.37 188.28 1.25
2006 0.49 194.60 0.49
2007 0.57 147.74 0.38
Interpretation:-
Above table is giving information about up gradation of NPA.
The up gradation means to recover overdue amount due in given NPA account. If
regularized it is withdrawn from NPA category. This account is then classified as a
standard account for balance amount.
In the above table it is observed that in year 2004 up gradation amount was in percentage
2.14%, but in year 2005 to2007 is much less as compares to previous year. Just with
small recovery in the NPA amount, total outstanding amount is removed from NPA
category and is classified as standard assets. Especially sub-standard assets if are
followed for amount, bank can substantially reduce NPAs by up gradation and get write
back in provisions.
Immediate steps for recovery in hard cases like legal use of SARFAESI act may prove to
be stitch in time. The figures must show improvements every year.
63
WRITE OFF A/C
UPGRADATION OF NPAs
2.14
1.25
0.49 0.38
0
0.5
1
1.5
2
2.5
2004 2005 2006 2007
YEAR
IN
%
64
(Rs. In Crores)
YEAR WRITE OFF AMT
TOTAL NPAs IN %
2004 2.4 156.05 1.53
2005 5.25 188.28 2.78
2006 9.59 194.60 4.92
2007 27.82 147.74 18.83
Interpretation:-
The above table is giving information about write off figure.
The write off means taking away the non- performing assets from balance sheet. It is
cleaning of the balance sheet.
With the help of figures, we can observe that every year the write off is increasing and
year 2007 it is in percentage 18.83% which also shows sustained growth in profit
allowing higher write off. Regarding to write off the loss account for full amount as
Banks has made 100% provision for loss accounts unless recoverable there is no need to
continue such loss assets in the books of banks. Thus number of account will reduce and
the recovery officer may concentrate on other NPA accounts.
However, branches should concentrate on recovery in write off account as such recovery
amounts to 100% additions to profit of the banks. Various techniques especially
compromise in write off; can help a long way to recover in write off accounts.
65
FRESH ADDITIONS DURING THE YEAR
WRITE OFF NPAs
1.532.78
4.92
18.83
0
5
10
15
20
2004 2005 2006 2007
YEAR
IN %
66
(Rs. In Crores)
YEAR FRESH NPAs AMT
TOTAL ADVANCES
IN %
2004 48.04 1399.90 3.43
2005 60.01 1650.92 3.63
2006 34.2 2280.67 1.49
2007 13.08 3180.94 0.41
Interpretation:-
The above table is giving information about additional fresh NPA during the year.
Bank must concentrate on reduction of fresh additions to NPA which should be
minimized as compared to previous years. In above table we can see that in year 2004
fresh additions are in percentage 3.43% which were quit high, but in year 2005 fresh
additions were in percentage 3.63% however, in the year 2006 it decreased and in year
2007 fresh additions had been quite low as compared to previous years.
So, Branches must concentrate more on following of such stressed account which can slip
down to NPAs. Improving appraisal techniques and financing for only quality credit is
the better solution to reduce fresh slippages. Control of fresh slippages is the real control
on NPA assets.
67
FRESH NPAs
3.43 3.63
1.49
0.41
00.5
11.5
2
2.5
3
3.5
4
2004 2005 2006 2007
YEAR
IN
%
68
FINDINGS
69
FINDINGS
(1) Absolute NPAs increased in 2005 over 2004 and again in 2006 over 2005.
(2) Due to increase in amount of total advances the % NPA had been around the same
in 2005 over 2004. In 2006 because of quantum jump in advances the NPAs %
came down to 8.53% inspite of increase in absolute NPAs.
(3) In 2007 Pune city Region did exceptionally well in reducing Gross NPAs as well as
a big leap in advances amount. The result has been fabulous reduction in NPA % to
4.64% which is Banking Industry average.
(4) If the trend of Gross reduction in NPAs and increase in quantum of quality advances
is continued, the Pune City Region would be an example to follow for other
Regions of the Bank and also other Banks.
(Refer to graph 1)
(5) The Region has done exceptionally well in recovery in NPA in 2007 over 2006. The
recovery from opening NPAs in the year 2004 was 14.77%, in 2005 it was 12.95%,
but in the year 2006 it was 9.42%. However, in the year 2007 recovery was
improved and it was 16.69%. Thus the target is achieved professionally only
because of good recovery techniques. It is also seen that the total NPAs increased
because of fresh additions in respective years.
(Refer to graph 2)
70
(6) The Region has little to its credit as regards efforts in up gradation of NPA accounts.
This area needs special attention.
(Refer to graph 3)
(7) The Write off amount has increased every year. Reduction of NPA is due to heavy
write off which is not a good sign of real achievement. However, recovery in write
off will help in increasing profits.
(Refer to graph 4)
(8) Fresh Additions are controlled in 2006 over 2005 and there is repeat performance in
2007 over 2006. This is a very positive sign of restricting NPAs.
(Refer to graph 5)
71
CONCLUSION
72
CONCLUSION
NPA is a double-edged weapon, which affects bank profitability due to interest income
not being recognized on NPA accounts and creation of provision from hard earned
profit amount. The bank must adopt structured NPAs management policy for elimination
or reducing the NPAs in the Bank. Bank of Maharashtra has adopted very good
techniques to control the NPAs.
Bank of Maharashtra was facing a problem of NPA in 1992 to 2000.Thereafter the bank
has taken over the problem & achieved remarkable success in containing the NPAs.
There has been consistent recovery on NPA for many years but the problem was fresh
additions. Now Bank has turned almost the corners in fresh additions also. The
Percentage of Gross NPAs & Net NPAs is much in line with other Nationalized Banks &
especially peer group. The recovery in 2007 has been the highest for last many years.
However Bank has to keep tab on fresh additions by increasing quality advances and
monitoring them. Critical care has to be taken of stressed accounts to keep control on
fresh additions. Bank has to gear up efforts for upgrading S.S.A and recovery in D.A &
Loss Assets. Staff in Bank of Maharashtra has gained good experience to fight the
menace of NPAs.
73
.
RECOMMENDATIONS
74
RECOMMENDATIONS
Monitoring Officers should be assigned the responsibility of monitoring the A/c
with special efforts to maintain and upgrade the asset quality.
Identify critical branches for recovery.
Fix target for recovery and draw time bound action plan.
Proper appraisal of new proposals so that credit quality is given more importance.
Proper selection of borrowers so that real entrepreneurs can be provided credit
and willful defaulters can be avoided.
Training of staff for improving credit appraisal abilities, improving techniques in
recovery, negotiations, understanding legal formalities.
Forming recovery teams at the branch or team of staff pooled from branches with
in the city.
75
Distribution of accounts for monitoring & NPA recovery within all staff members
so that they feel that monitoring an NPA recovery is a job of all staff members.
Weekly meeting of staff to take stock of recovery made in each account and
deciding fresh strategies for achieving planned targets.
Uses of Lokadalat facility so that legal expenses can be reduced and further
appeals are stopped.
Use of SARFAESI Act so that recovery can be done without intervention of
courts and time is saved.
Resorting to criminal actions in misuse cases and also under sec.138 by obtaining
post-dated Cheques.
Early disposals of legal suits pending in courts & effective execution of decrees.
Rephasing & rescheduling in NPA account so that they can be upgraded within
one year from first repayment installment date.
Compromise in suitable cases with immediate decision.
Incentive to staff doing good work in NPA recovery.
76
NPA free branches Target be Set up.
BIBLIOGRAPHY
77
BIBLIOGRAPHY
Banker’s guide to Non-Performing Advances: By S. D. Yardi.
V. S. Prabhu.
Management of Non-Performing Assets: By N. P. Agarwal.
S. C. Jain.
Web site of Bank of Maharashtra: www.maharashtrabank.com
Web site of Reserve Bank of India: www.rbi.org.in
78