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CHAPTER V NON-PERFORMING ASSETS OF KCCB The high rise in gross and NPA of the cooperative banking in the

recent past is at an exponential rate and it indicates a heavy toll on

cooperative credit discipline. This is further supported by recovery

climate, legal system, approach of the lenders towards lending and many

other factors. Despite myriad problems and the existing set up, the

cooperative banks have to perform well and achieve the target for NPA

reduction affixed as per the RBI norms. In order to achieve the target, a

professional approach is required in dealing with the NPA. The following

proactive steps would help the cooperative bankers in sharpening their

professional skills, who particularly deal with managing NPA.

1. Potential NPA accounts are to be monitored continuously. The

critical overdue amount is to be recovered. In the accounts where

there is temporary cash flow problem, the account is to be

restructured/rescheduled well before the account slips to NPA.

2. Powers for scarifies have been given down the line up to senior

level officers in various banks. The powers have to be judiciously

utilized to cover bona fied and genuine defaulters either for writing

off or settling the account through bullet payment.

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3. One time settlement of NPA –special scheme for marginal farmers

with outstanding balance upto Rs. 50,000/- announced by RBI is

operative with modifications. Serious steps should be taken to

cover more and more accounts under the scheme.

4. Compromise policy guidelines may be arrived at on the lines of

commercial banks.

5. The guidelines for considering compromise proposal through the

forum of LOK Adalat ars to be followed for effecting recovery.

6. The branch is also authorized to refer the suit filed cases involving

outstanding of Rs.10 lakhs and above to conciliation proceeding of

DRT as and when they are held. Such cases are to be considered

under bank’s compromise policy guidelines.

7. The recovery efforts can be expedited by conducting recovery

camps and periodical visits to the borrowers.

8. The farmer’s club, PMRY clubs, NABARD Mitra mandalis and

many other such forums are exploited for recovery of dues.

9. Maintaining close rapport with the borrower, eliciting

relevant/required information, ensuring end utilization, monitoring

through stock statements, inspection report, unit visit report, etc.

164

forms part of follow up measures, which have a major impact on

the reduction of NPA.

The cooperative credit institutions hither to protected and

nourished by the government machinery in the area of rural development

are now exposed to open market operations. The introduction of

prudential norms had a direct bearing on the balance sheet of the

cooperative banks. The introduction of new accounting procedures

namely, income recognition, asset classification and provisioning have

affected the working of the cooperative bank and also their profitability.

The capital can be strengthened only through accumulated earning and

their retention. Managing these aspects in the competitive environment is

a big challenge to cooperative banks. This situation warrants an effective

credit and recovery management and a good performance in funds

management.

The prudential norms of accounting were introduced in cooperative

bank three years later in the commercial banks. The RBI had already

introduced 90 days overdue norms for identification of NPAs both for

commercial and cooperative banks and was given effect from 31st March,

2004. The cooperative banks have to overhaul the administration and

branch management, particularly in the lending and recovery area to

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check the creation of NPA and take steps to recover NPAs. Recovery of

loans in cooperative banks had taken a back seat in view of the inherent

advertisement.

Assets Classification

A bank’s assets portfolio is basically classified into performing and

non-performing assets. The cooperative banks started classifying their

assets as per the new prudential norms introduced by the RBI in 1996-97.

The classification of advances is under four broad categories, i.e.,

standard, sub-standard. Doubtful and loss instead of the old health- code

system. Substandard, doubtful and loss assets are individually and

collectively known as NPAs.

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Performing Asset

Performing assets are the loans and advances which generate

periodical income and repayments, as and when due or within the

minimum lag of one quarter.

Non- performing asset

A non-performing asset is one where interest and/or repayment of

instalment has not been paid within six months from its due date. The

effect of an asset turning out to be a NPA is the advance indication of that

asset slipping into bad and doubtful category. At present, a loan asset will

become NPA if the due amount is not paid within one quarter instead of

two quarters except agricultural advances. The four types of assets as per

the RBI norms are as follows:

1. Standard assets:

A standard asset is a performing asset. The standard asset continues

to generate income flow, and repayments are received as and when they

fall due. It also includes loans and advances where default for payment

does not exceed one quarter.

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2. Sub-standard assets:

These are the loans and advances which are classified as NPA for

a period not exceeding 18 months by March 2005 as per RBI guidelines:

3. Doubtful assets :

These are NAPs that remain in sub-standard category for a period

exceeding 18 months.

4. Loss assets:

Loss assets are those assets which are classified as bad and non-

recoverable by the concerned bank or by statutory auditors or by RBI

inspectors. The loss assets may be some loans and advances not being

serviced by borrowers for a long time or it may be a loan in the category

of doubtful asset but in the opinion of bank or auditors, it may not be a

recoverable sum. Unless and until these sums are written off from the

balance sheet, they will continue to appear in the balance sheet but under

the heading “loss asset”.

Provision for NPA

Assets classification is done to identify non-performing assets and

segregate them into three categories as sub-standard, doubtful and loss

based on the recovery prospects. Provisioning is the allocation of money

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every year to meet a possible future loss. The performance of business

may not be the same every year. It depends upon various political,

economic and business factors. If there is serious failure of business in a

row of years, then many business-borrowers may fail to payback their

loans to banks. When the banks write off such loans in a year or two, it

will result in huge losses depending upon the size of loans written off.

This will not only distort the performance of the bank for that year but

also comparative performance with previous years becomes difficult.

More so, in banking industry a big loss in a year for a bank may lead to a

run on the bank affecting its own survival itself. Hence, banks are advised

to evaluate their various loan accounts on balance sheet date into the four

categories mentioned above. The annual provisioning acts as shock

absorber and obviates the need for writing off big amounts in a year or so.

Reasons for Assets becoming NPAs

A number of factors are responsible for the ever increasing size of

NPAs in the central cooperative banks. The central cooperative banks

have higher percentage of NAPs compared to public and private sector

banks10. A few prominent reasons for assets becoming NPA are as under:

� Poor credit appraisal system. Lack of vision/foresightedness while

sanctioning, reviewing or enhancing credit limits.

� Lack of proper monitoring.

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� Inadequate legal support.

� Change in economic policies/environment.

� Non-transparent accounting policy and poor auditing practices.

� Directed/schematic lending to certain sectors.

� Government policy in waiver of interest, write off, etc.

Effects of NPAs

� The NPAs drag on profitability of the cooperative banks because

besides provisioning, banks are also required to meet the cost of

funding these unproductive assets.

� The NPAs reduce earning capacity of assets. Return on assets also

gets affected. The NPAs carry risk weights of 100 per cent. (to the

extent it is uncovered ). Hence, they block capital for maintaining

capital adequacy.

� As NPAs do not earn any income, they adversely affect the Capital

Adequacy Ratio.

� Recycling of funds is affected.

� Carrying NPAs required incurrence of cost of capital adequacy

and cost of funds blocked in NPAs.

� NPAs demoralize the operating staff11.

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Various parameters for rating of NPA management are discussed

below.

Gross NPA Ratio

Gross NPA is the total of all loan assets that are classified as NPA

as per the RBI guidelines as on a balance sheet date. Gross NPA ratio is

the ratio of gross NPA to gross advances of the KCCB. When it is

expressed in percentage, it is known as gross NPA percentage.

Gross NPAs Gross NPA Ratio = ------------------------- X 100 Gross Advances

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TABLE : 5.1 Gross NPA to Gross Advances

(Rs. in lakhs)

Year Gross NPA (Rs.)

Gross Advances

(Rs.)

Gross NPA Ratio

1998-99 3990.75 24157.19 16.52

1999-00 4190.60 24091.08 17.39

2000-01 4504.20 25078.70 17.96

2001-02 5313.30 26762.23 19.85

2002-03 5606.17 30636.70 18.30

2003-04 10293.04 29621.21 34.75

2004-05 5158.75 32496.90 15.87

2005-06 6422.59 36267.71 17.71

2006-07 5285.63 30831.40 17.14

2007-08 5788.19 40835.73 14.17

Source : Compiled from annual reports of the KCCB.

It indicates the quality of credit portfolio of the KCCB. High gross

NPA ratio indicates low quality credit portfolio of the bank and vice

versa. The gross NPA ratio should be determined for different categories

of loans to know the contributing factor for high NPA in a bank. It will

172

help to take remedial course as well as to review the disbursement of

loans category wise.Table 5.1 provides the gross NPA ratio for the

KCCB.

The table shows the least percentage of gross NPA to gross

advance in 2007-08. The percentage of NPA and quantum of NPA both

had an increasing trend from the base year of 1998-09 to 2001-02.

Thereafter it came down for 2002-03. In the subsequent year, it increased

at peak stage during the whole study period. Afterwards, it suddenly

decreased in 2004-05. During the year 2005-06 and 2006-07 both gross

NPA and gross advances slowly increased in comparison with the

previous years. The average NPA of the KCCB during the study period is

18.96 percent. By increasing gross advance, the ratio is brought down

even though the gross NPA is not reduced substantially.

Net NPA Ratio

Net NPA is worked out by subtracting the provisions held in

respect of the non performing assets as well as bad and doubtful debts

from the figure of gross NPAs i.e., the net NPA is simply worked out as

the gross NPA minus provisions held for NPA accounts. Net advances are

arrived at by deducting the provisions from gross advances. The net NPA

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percentage is the ratio of the net advances expressed in terms of

percentage:

TABLE 5.2 Net NPA to Net Assets

(Rs. In lakhs)

Year Net NPAs (Rs.)

Net Advances (Rs.)

Ratio (%)

1998-99 3155.89 23322.33 13.53

1999-00 3282.43 23182.91 14.16

2000-01 3338.99 23925.87 13.96

2001-02 4029.40 25478.33 15.82

2002-03 3493.70 28524.23 12.25

2003-04 6416.23 25744.40 24.92

2004-05 2498.55 29836.70 8.37

2005-06 2245.18 29845.12 7.52

2006-07 990.54 25545.77 3.88

2007-08 693.47 35047.54 1.98

Source : Compiled from annual reports of the KCCB.

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Net NPA Net NPA Ratio = ----------------------------- X 100

Net Advances It indicates the degree of risk prevailing in the credit portfolio of

the bank. High net NPA ratio indicates the high quantity of risky assets in

the bank for which no provision has been made. Table 5.2 shows the net

NPA ratio of KCCB.

The net NPA ratio was the least in the year 2007-08 i.e., 1.98

percent and the highest percentage of net NPA ratio was in the year 2003-

04 i.e., 24.92 percent. When the provisions for NPA increased, the net

NPA might come down provided there was no addition of fresh NPAs.

The net NPA ratio steeply reduced from 24.92 percent in the year 2003-

04 because of increased provisioning.

From the analysis of the table, it is suggested that the KCCB has to

plunge into action immediately to recover the NPAs in all possible ways.

Recovery of NPAs will help the KCCB.

Problem Asset Ratio

The total asset is taken as total of all assets including cash but

discounting the loss and contra items. Among the total assets, the non-

performing assets are identified as problem assets because,

1. these are non performing

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2. managing NPA is costly

3. they attract provisioning i.e., they eat away a portion of

a. income of the bank.

4. existence of NPA affects the morale of the staff of the bank

5. follow up of NPA is time consuming and

6. the NPA borrowers corrupt the honest borrowers

The ratio of gross NPA to total assets is termed as problem asset ratio.

Gross NPAs Problem Asset Ratio = ------------------------- X 100 Total Assets

It has direct bearing on return on asset as well as the liquidity risk

management of the bank. High problem asset ratio means high illiquid.

The gross NPAs beyond a certain percentage of total assets will cripple

the total business performance of the bank. The existence of NPA in a

bank is like a parasite which will not only eat away the income of the

bank, but also develop problem in all functions of the bank. To minimise

the finance problem in the bank, the problem ratio must be brought to the

manageable minimum.

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TABLE : 5.3 Gross NPA to Total Assets

(Rs. In lakhs)

Year Gross NPA (Rs.)

Total Assets (Rs.)

Problem Assets Ratio

1998-99 3990.75 34033.80 11.73

1999-00 4190.60 35382.14 11.84

2000-01 4504.20 38997.07 11.55

2001-02 5313.30 42352.63 12.55

2002-03 5606.17 47429.89 11.82

2003-04 10293.04 48271.45 21.32

2004-05 5158.75 46554.07 11.08

2005-06 6422.59 52039.38 12.34

2006-07 5285.63 50037.58 10.56

2007-08 5788.19 61683.77 9.38

Source : Compiled from annual reports of the KCCB.

Table 5.3 brings out the problem asset ratio. The KCCB had this

ratio at a minimum of 9.38 percent in the year 2007-08 and highest of

21.32 percent in the year 2003-04. The table clearly brings out the fact

that the KCCB has not paid adequate attention to the reduction of NPA

and hence problem ratio is not controlled. It is suggested that KCCB Ltd.

must deploy its effective personnel to deal with the NPA with a powerful

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recovery strategy. The reduction of NPA and arresting of the creation of

new NPA are the solutions to control the problem assets ratio. The gross

NPA to gross advance may be higher in a bank, but its gross NPA to total

assets may be lower because of the higher amount of the denominator.

Depositors’ Safety Ratio

It is also known as standard assets to total outside liabilities ratio.

Here, standard assets mean total of standard loan assets and investments;

outside liabilities are total liabilities minus capital and reserves.

Depositors’ Safety Ratio is the ratio of Standard Assets to total outside

liabilities.

Total Standard Assets Depositors’ Safety Ratio = ------------------------------------ x 100 Total Outside Liabilities

It indicates the degree of safety of the depositors’ money. High

ratio means high safety to the depositors. Further this spells out the

percentage of quality assets ( Standard assets) created out of the borrowed

funds, namely the total outside liability which mainly includes the

deposits. Higher the percentage of performing assets (Standard assets) to

the total outside liabilities elicits higher safety to the depositors.

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TABLE : 5.4 Depositors' Safety Ratio

(Rs. in lakhs)

Year Standard Assets

(Rs.)

Total Outside Liabilities

(Rs.)

Standard assets to Outside Liability

Ratio

1998-99 20166.44 30999.74 65.05

1999-00 19900.49 32120.48 61.96

2000-01 20573.90 35381.74 58.15

2001-02 21448.93 38495.28 55.72

2002-03 25030.56 41288.92 60.62

2003-04 19328.17 41549.25 46.52

2004-05 27338.15 40853.16 66.92

2005-06 29845.12 44663.05 66.82

2006-07 25545.77 41119.78 62.13

2007-08 35047.54 50686.00 69.15

Source : Compiled from annual reports of the KCCB.

Table 5.4 gives the depositors’ safety ratio of the KCCB. The

standard assets and percentage of NPA to outside liability has fluctuated

during the study period. The average ratio is arrived at 61.30 percent for

the ten years though it is ranging between 46.52 percent and 69.14

percent. Therefore it is suggested the KCCB has to practice

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professionalized credit management in order to maintain and increase the

standard assets i.e., performing assets.

Shareholders’ Risk Ratio

NPA is a burden to the bank management because of its non

performing nature as well as its costly management. Under the new

prudential norms, banks have to maintain the prescribed level of capital

with reference to the risk weighted assets. Strengthening the capital is

possible by addition of share capital and ploughing back the profits. The

accumulation of NPA directly affects the net profit because of the

provisioning norms. The loss incurred by the banks due to increased NPA

weakens the capital position of the bank and thereby affects the capital

adequacy ratio. The reduction in the profit or incurring loss affects the

interest of the shareholders.

Shareholders’ Risk Ratio is the ratio of net NPAs to the share

holders’ net worth of the bank.

Net NPAs

Shareholders’ Risk Ratio = ---------------------------------- X 100 Total Capital & Reserves

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TABLE : 5.5 Gross NPA to Share Holders Fund

(Rs. in lakhs)

Source : Compiled from annual reports of the KCCB.

Table 5.5 shows the shareholders’ risk ratio of the KCCB. During the

study periods, three years ratio only showed more than 100 percent, ie.,

104.02 percent, 100.65 percent and 104.46 percent in 1998-99 , 1999-00

and 2001-02 respectively. The average ratio of net NPA to total capital

and reserves for the 10 years arrived at is 64.55 percent. Increase in this

ratio increases the shareholders’ risk, as a result shareholders will be

Year Net NPA

(Rs.)

Share Holders Net Worth

(Rs.)

NPA to Shareholders

Fund

1998-99 3155.89 3034.06 104.02

1999-00 3282.43 3261.66 100.64

2000-01 3338.99 3615.33 92.36

2001-02

4029.40 3857.35 104.46

2002-03 3493.70 6140.97 56.89

2003-04 6416.16 6722.2 95.45

2004-05 2498.55 5700.91 43.83

2005-06 2245.18 7376.33 30.44

2006-07 990.54 8917.8 11.11

2007-08 693.47 10997.8 6.31

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reluctant to deal with the bank because of its weak capital structure and

increased NPA position. To strengthen the capital in order to achieve the

required CAR, the KCCB must concentrate more on NPA management.

Provision Ratio

Under the new prudential norms, the KCCB classifies the assets to

identify the NPAs. Provisioning norms were applied to substandard,

doubtful and loss categories of assets only. But now provisioning norms

have been extended to the standard assets also taking into account the

possibility of slippage to substandard category. The provisioning for NPA

is made to the debit of profit and loss account of the bank, which affects

the income and in turn the profits. More NPAs attract more provisioning.

The transparency in the identification of NPA and its proper classification

will provide a clean picture of the quality of assets of the bank.

Provision ratio is the ratio of the total provisions held in respect of

non- performing assets to gross NPAs of the bank.

182

Total Provisions Provision Ratio = --------------------------------- X 100 Gross NPAs

It indicates the degree of safety measures adopted by the banks. It

has direct bearing on profitability, dividend and safety of the

shareholders’ fund. If the provision ratio is less, it indicates that the banks

have made under-provision. Lesser provisioning is possible only by

identifying lesser NPAs. Lesser NPA must be due to more recovery. But

at times banks do window-dressing and camouflage certain NPAs under

the pretext of security coverage.

183

TABLE- 5.6 Total Provisions to Gross NPA

(Rs.in lakhs)

Year Total

Provisions (Rs.)

Gross NPA (Rs.)

Provisions to NPA Ratio

1998-99 768.12 3990.75 19.25

1999-00 908.17

4190.60 21.67

2000-01 1165.21

4504.20 25.87

2001-02 1283.90

5313.30 24.16

2002-03 2112.47

5606.17 37.68

2003-04 3876.81

10293.04 37.66

2004-05 2660.20

5158.75 51.57

2005-06 4177.41

6422.59 65.04

2006-07 4295.09

5285.63 81.26

2007-08 5094.72

5788.19 88.02

Source : Compiled from annual reports of the KCCB.

Table 5.6 exhibits the provision ratio of the KCCB. The ratio

slowly increased from 20.92 percent in 1998-99 to 88.02 percent in 2007-

08. The average ratio of the provisions to gross NPA for the decade is

45.39 percent. Proper classification of NPA and provisioning as per

norms are very much necessary for the KCCB to know its factual

financial position. The awareness of the factual financial position will

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help the KCCB to formulate its future financial planning in order to

reduce NPA, thereby reduce provisions, which will result in profitability.

Substandard Asset Ratio

Out of the Total NPAs, substandard assets are fresh NPAs. If they

are not attended to immediately, they will slip to doubtful or loss assets.

By recovering the defaulted interest and investment, bank can upgrade

the substandard assets to standard assets and thereby avoid higher

percentage of provisioning. Also the NPA level will come down. This

ratio will help to understand the fresh addition of NPAs. It is the ratio of

substandard assets to gross NPA of the bank.

Sub-standard Assets Substandard Asset Ratio = -------------------------------- X 100 Gross NPAs

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TABLE - 5.7 Sub-Standard Assets Ratio

(Rs.in lakhs)

Source : Compiled from annual reports of the KCCB.

It indicates the scope of up gradation/ improvement in NPA. Table

5.7 presents the substandard assets ratio of the KCCB. The ratio slowly

decreased from 75.12 percent in 1998-99 to 38.09 percent in 2002.03

afterwards it increased to 47.13 percent in 2003-04 and 48 percent in

2004-05. In the subsequent years, it decreased to 19.24 percent, 4.24

percent and 3.41 percent in 2005-06, 2006-07 and 2007-08 respectively.

Substandard asset is due to non-recovery of interest and investmentfor

two quarters (presently it is one quarter). They are fresh NPAs. Efforts

taken to upgrade these assets to standard assets will yield good results

Year

Sub-standard

Assets (Rs.)

Gross NPA (Rs.)

Sub-standard

Assets Ratio

1998-99 2997.86 3990.75 75.12

1999-00 2903.75 4190.60 69.29

2000-01 1989.35 4504.20 44.17

2001-02 2967.77 5313.30 55.86

2002-03 2135.32 5606.17 38.09

2003-04 4850.76 10293.04 47.13

2004-05 2476.20 5158.75 48.00

2005-06 1235.47 6422.59 19.24

2006-07 224.37 5285.63 4.24

2007-08 197.43 5788.19 3.41

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when compared to the efforts taken on other categories of assets, namely

doubtful and loss assets.

Doubtful Asset Ratio

When adequate care or follow-up is not done in upgrading the

substandard assets, they slip down to doubtful assets. In case of doubtful

assets, the immediate action to be taken by the bank is to protect the

securities offered and assets created, both immovable and movables and

collateral securities. In case of doubtful assets, provisioning is done based

on the secured and unsecured portion of the loan assets. For unsecured

portion, the provision is made at 100 percent. Hence, the securities taken

by the bank are to be protected on priority basis. It is the ratio of total

doubtful assets to gross NPAs of the bank.

Total Doubtful Assets Doubtful Asset Ratio = ---------------------------------- x 100

Gross NPAs

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TABLE- 5.8 Doubtful Assets Ratio

(Rs. in lakhs)

Source : Compiled from annual reports of the KCCB.

It indicates scope for compromise settlement to reduce NPAs.

Table 5.8 shows the doubtful assets ratio of the KCCB. The ratio slowly

increased from 7.66 percent in 1998-99 to 87.48 percent in 2007-08. The

average ratio of doubtful assets to gross NPA for the decade is 47.98

percent.

The doubtful assets are those assets which are very difficult to

recover. They are prone to become loss assets if the bank does not take

hard steps to recover employing legal steps or through compromise

Year

Doubtful Assets (Rs.)

Gross NPAs (Rs.)

Doubtful Assets

Ratio

1998-99 305.55 3990.75 7.66

1999-00 616.29 4190.60 14.71

2000-01 1865.65 4504.20 41.42

2001-02 1699.11 5313.30 31.98

2002-03 2887.44 5606.17 51.50

2003-04 4592.36 10293.04 44.62

2004-05 2269.85 5158.75 44.00

2005-06 4538.95 6422.59 70.67

2006-07 4533.94 5285.63 85.78

2007-08 5063.72 5788.19 87.48

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settlement. The charges created by the bank on the loan assets as well as

collateral securities are to be ensured and strengthened. The bank has to

take all efforts to cover the entire outstanding by way of securities

charged under hypothecation, pledge or mortgage. While taking steps to

recover the dues, priority may be given to cover the unsecured portion if

any by any type of securities. This will enable the bank to minimise its

provisions, which in turn improve profitability.

Loss Asset Ratio

For a bank, loss assets should not exist in the balance sheet. It

should be wiped out either by recovery or by write off. Existence of loss

assets is a burden on provisioning and on capital adequacy ratio. Further

it is a burden to the bank which attracts unwanted service cost. The bank

can employ The RBI’s compromise schemes for one time settlements to

wipe out the loss assets from the balance sheet.

It is the ratio of total loss assets to gross NPA of the bank. IT

indicates the proportion of bad loans in the bank.

Total Loss Assets Loss Asset Ratio = -------------------------------- x 100 Gross NPAs

189

TABLE - 5.9 Loss Assets Ratio

(Rs. in lakhs)

Year Total

Loss Assets (Rs.)

Gross NPA (Rs.)

LossAssets Ratio

1998-99 687.34 3990.75 17.22

1999-00 670.56 4190.60 16.00

2000-01 649.20 4504.20 14.41

2001-02 646.42 5313.30 12.17

2002-03 583.41 5606.17 10.41

2003-04 849.92 10293.04 8.26

2004-05 412.70 5158.75 8.00

2005-06 648.17 6422.59 10.09

2006-07 527.32 5285.63 9.98

2007-08 527.04 5788.19 9.11 Source : Compiled from annual reports of the KCCB.

Table 5.9 provides the loss assets ratio of the KCCB. The ratio of

loss assets decreased from 17.22 percent in 1998-99 to 9.11 percent in

2007-08. The average ratio arrived at is 11.57 percent during the study

period. Therefore the KCCB must note to tighten its credit management

as well as recovery policy to avoid slippage to loss assets. With several

decades of rich experience, it manages to exist in the banking business

and also prepares to compete with the aggressive commercial banking.

Among the challenges faced by the cooperative banking, the crucial one

is the phenomenon of NPA.

190

Regarding NPA problems, proper identification of the causes and

taking steps to rectify them are important for the KCCB. While every

effort is being made by KCCB in reducing the NPA, the creation of fresh

NPA poses threat to the bank. Higher incidence of fresh NPAs nullifies

the efforts made by the KCCB towards recovery of existing NPAs. The

incremental NPA results in higher provisioning and consequently leads

the bank to slow down its credit expansion. Declined growth in credit

expansion affects the business performance of the KCCB.

191

TABLE 5.10 Profile of Non-performing Assets of KCCB Ltd.

(Rs. In lakhs)

Particulars 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Loans Outstanding (Rs.)

24157.19 24091.08 25078.70 26762.23 30636.70 29621.21 32496.90 36267.71 30831.40 40835.73

Standard Assets (Rs.)

20166.44 19900.49 20573.90 21448.93 25030.56 19328.17 27338.15 29845.12 25545.77 35047.54

Sub-standard Assets (Rs.)

2997.86 2903.75 1989.35 2967.77 2135.32 4850.76 2476.20 1235.47 224.37 197.43

Doubtful Assets (Rs.)

305.55 616.29 1865.65 1699.11 2887.44 4592.36 2269.85 4538.95 4533.94 5063.72

Loss Assets (Rs.) 687.34 670.56 649.20 646.42 583.41 849.92 412.70 648.17 527.32 527.04

Gross NPA (Rs.) 3990.75 4190.60 4504.20 5313.30 5606.17 10293.04 5158.75 6422.59 5285.63 5788.19

Percentage of NPA to Loans outstanding

16.52 17.39 17.96 19.85 18.30 34.75 15.87 17.71 17.14 14.17

Source : Compiled from annual reports of the KCCB

192

193

References

1. Mistra T.P. (2003) Managing Non-performing Assets – A

Professional Approach, IBA Bulletin, January – P.14.

2. Ibid.

3. Ibid., P.15.

4. Ibid.

5. Ibid., PP. 18-19.

6. Dash N.K.(1997), A Practical Guide for Urban Cooperative Banks

on Income Recognition: Asset Classification Norms and Reduction

of NPAs, Cooperative Perspective, July – September, P.1.

7. Natarajen S. and Parameawaran R. (2004), Indian Banking,

S.Chand And Company Ltd., New Delhi, P.85.

8. Ibid.

9. Ibid., P.86.

10. Sood R.K. (2001), Non-Performing Assets in Public Sector Banks:

An Analysis of Causes and Solutions Thereof. IBA Bulletin,P.18.

11. Ibid.

12. Dass N.K. Op. cit., P.19.

13. Sudhakar V.K. (1998), Policies and Persepectives of NPA

Reduction in Banks, IBA Bulletin, November, P.9.

14. Ibid.

15. Sood R.K. Op.cit., P.19.

16. Adivarahan V. (2000), Reduction of NPA- Whether an Insue

mountable Task ? IBA Bulletin, January, P.16.

17. Ibid.

18. Ibid.

19. Sambasivsrao S. (2002), A primer for NPA Management, IBA

Bulletin June, P.23.

194

20. Ibid.

21. Ibid.

22. Ibid.