Escolar Documentos
Profissional Documentos
Cultura Documentos
ON
NON PERFORMING
ASSETS
SUBMITTED TO:
UNIVERSITY OF MUMBAI
A project report submitted in the partial
fulfillment of the requirements for the award of
the degree of
Bachelor of commerce Banking and
Insurance.
Prepared By:
T.Y.B.B.I (SEM V)
Under the guidance of
UNIVERSITY OF MUMBAI
(2015 2016)
SUBMITTED
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR
THE AWARD OF DEGREE OF
B.COM BANKING & INSURANCE
BY
ROLL NO T.Y.BBI (SEMESTER V)
CERTIFICATE
This is to certify that, Mr. Of T.Y.B.B.I Semester V
(2015-16), Seat No: . has successfully completed
project work On NON PERFORMING ASSETS Under the
guidance of Prof.
PLACE :- KALYAN
DATE:-
(Signature of Coordinator)
(Signature of External)
GUIDE CERTIFICATE
Seat No
. has
Place: - Kalyan .
.
Date :-
(Signature of
Project Guide)
ACKNOWLEDEMENT
INDEX
Sr
No.
1)
2)
TOPIC
Objective
Chapter1. Introduction to NPA
Page No.
07
8-13
Introduction to NPA
Meaning of NPA
Methodology of NPA
3)
Objectives of study
Chapter 2.- Review of literature
Articles
4)
5)
Books
Chapter 3. NPA Management
Chapter 4. Policies of NPA
14-16
17-24
25-28
6)
29-33
as an NPA
7)
34-38
8)
39-45
9)
46-53
Scope
Structure
Asset classification as per RBI guidelines
10)
11)
12)
74-77
13)
78-81
OBJECTIVES
CHAPTER 1
INTRODUCTION
CHAPTER: 1
INTRODUCTION
1.1)
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 today operations. The main challenge facing the commercial
banks is the disbursement of funds in quality assets (Loans and Advances) or other wise
it leads to Non-performing assets.
ii.
the account remains 'out of order' for a period of more than 180 days, in
respect of an overdraft/ cash Credit(OD/CC),
iii.
The bill remains overdue for a period of more than 180 days in the case of
bills purchased and discounted,
iv.
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 of NPAs, form the year ending March 31, 2004. Accordingly, with
effect form March 31, 2004, a non-performing asset (NPA) shell be a loan or an
advance where;
i.
ii.
The account remains 'out of order' for a period of more than 90 days, in
respect of an overdraft/ cash Credit(OD/CC),
iii.
The bill remains overdue for a period of more than 90 days in the case of
bills purchased and discounted,
iv.
v.
operating account is less than the sanctioned limit/ drawing power, but there are
no credits continuously for six months 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'.
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.
Non-performing Asset (NPA) has emerged since over a decade as an
alarming threat to the banking industry in our country sending distressing signals
on the sustainability and endurability of the affected banks.
10
An asset which ceases to generate income of the bank is called nonperforming asset. The past due amount remaining uncovered for the two quarter
consequently the amount would be classified as NPA for the whole year. It
includes borrowers defaults or delays in interest or principal repayment.
An asset is classified as Non-performing Asset (NPA) if the borrower not
pays due in the form of principal and interest for a period of 180 days. However
with effect from March 2004, default status would be given to a borrower if dues
are not paid for 90 days. If any advance or credit facilities granted by banks to a
borrower becomes non-performing, then the bank will have to treat all the
advances/credit facilities granted to that borrower as non-performing without
having any regard to the fact that there may still exist certain advances / credit
facilities having performing status.
Though the term NPA connotes a financial asset of a commercial bank,
which has stopped earning an expected reasonable return, it is also a reflection
of the productivity of the unit, firm, concern, industry and nation where that asset
is idling.
The definition of NPAs in Indian context is certainly more liberal with two
quarters norm being applied for classification of such assets. The RBI is moving
over to one-quarter norm from 2004 onwards.
1.3) DEFINITION:
Nonperforming asset
Financial definition
A loan or lease that is not meeting its stated principal and interest payments.
Banks usually classify as Non performing assets any commercial loans which are
more than 90 days overdue and any consumer loans which are more than 180
days overdue. More generally, an asset, which is not producing income.
11
NBEsDEFINITION
of the availability of the data. The data available was from the ten years and
needless to say that for such a data a 'Six year Moving average' or an 'Eight year
Moving
Average'
wills
not
workout.
The general objective of this research is to analyze the NPAs in banking sector.
The specific objectives of this research are;
12
CHAPTER: 2
REVIEW OF LITERATURE
The objective of study is to review the available literature on banking business for
finding out the impact on non performing asset in banking sector. The details study of
NPA literature provide useful framework for further research in this direction.
13
14
BOOKS
Non-Performing-Assets in Commercial Banks/Vibha Jain. New
Delhi, Regal Pub., 200xviii, 336 p., tables, charts, $50. ISBN
81-89915-20-7.
Contents: Preface. Abbreviations. 1. Introduction. 2. NPA
Concept and prudential norms. 3. Trends of Non-Performing
15
highlighting the problem of NPAs in other South East Asian countries and the
measures taken by them to solve the issue.
CHAPTER: 3
NPA MANAGEMENT
16
CHAPTER:3
NPA MANAGEMENT
1. Reckoning of NPA :
17
18
Step-2: Close interaction with the borrower, visit to the unit, close and
frequent monitoring of the account, drawing the attention of the borrower
to the irregularity / deterioration in he asset quality / signs of weakness in
the account.
19
Step-5: Report to the next higher authority, the details on the above
aspects and suggesting specific corrective measures in time.
20
(iii)
Legal Formalities:
(iv)
Stock Statements:
Stock audit is to be conducted every year in every NPA account with outstanding
limit of Rs 1 crore and above. However, wherever current assets are depleted or
unit is closed, the stipulation may be exempted.
6. Management of NPA:
The RMs personally verify and ensure that all accounts, especially
high value advances are properly classified into standard, Sub-std. Doubtful or
loss categories strictly as per prudential norms. It will be their responsibility to
finalize and eliminate delay or postponed of identification of NPA.
21
In case of doubts due to any reason, RMs may seek guidance from HO
and settle the matter within one month from the date on which the account would
have been classified as NPA as per norms.
It may be noted that if RBI observes any divergences in asset
classification, especially in high value accounts due to willful non-compliance of
RBI guidelines by any official responsible for classification then RBI may initiate
deterrent action including imposition of monetary penalty.
b) Decreed accounts:
In case of decreed accounts where there is no compromise settlement
amount recovered should be appropriated as per the decretal terms. However, if
there is no specific term as regards appropriation of recovery in the decrial terms,
the recovery should be appropriated first towards Principal and the balance
towards interest.
22
23
CHAPTER: 4
POLICIES OF NPA
CHAPTER: 4
Policies Of Non Performing Asset
24
One of the main causes of NPAs into banking sector is the directed loans
system under which commercial banks are required a prescribed
percentage of their credit (40%) to priority sectors. As of today nearly 7
percent of Gross NPAs are locked up in 'hard-core' doubtful and loss
assets, accumulated over the years.
25
The problem India Faces is not lack of strict prudential norms but
i. The legal impediments and time consuming nature of asset disposal
proposal.
ii. Postponement of problem in order to show higher earnings.
iii. Manipulation of debtors using political influence.
26
CHAPTER: 5
REASON FOR ACCOUNT BECOMING AS AN NPA
27
Chapter: 5
28
External factors:
29
(4)Unwanted Expenses
(5)Over trading
(6)Imbalances of inventories
(7) Lack of proper planning
(8) Dependence on single customers
(9) Lack of expertise
(10) Improper working Capital Mgmt.
(11) Miss management
(12) Diversion of Funds
(13) Poor Quality Management
(14) Heavy borrowings
(15) Poor Credit Collection
(16) Lack of Quality Control
(17) Wrong selection of borrower
(18) Poor Credit appraisal
(19) Unhelpful in supervision
(20) Tough stand on issues
(21) Too inflexible attitude
(22) Systems overloaded
(23) Non inspection of Units
(24) Lack of motivation
(25) Delay in sanction
(26) Lack of trained staff
(27) Lack of delegation of work
(28) Sudden credit squeeze by banks
(29) Lack of commitment to recovery
(30) Lack of technical, personnel & zeal to
(31) Lack of Infrastructure
(32) Fast changing technology
(33) Un helpful attitude of Government
(34) Changes in consumer preferences
30
31
32
CHAPTER: 6
METHODS TO MANAGE THE NPA
6.1)Compromise
6.2)Legal remedies
6.3)Regular Training Program
6.4)Recovery Camps
6.5)Write off
6.6)Spot Visit
6.7)Rehabilitation of potentially viable
6.8)Other Methods
33
CHAPTER: 6
METHODS TO MANAGE THE NPAs:
Compromise
Legal remedies
Regular Training Program
Recovery Camps
Write offs
Spot Visit
Rehabilitation of potentially
viable units
Other Methods
34
General Methods of
6.1) Compromise:
35
36
37
CHAPTER: 7
NPA IN BANKING SECTOR
A. 7.1) Prudential Standard
7.2) Credit Allocation
7.3) Local Currency Funding
7.4) Debt Collection Agency
7.5) Transparency of Local Banking Regulations
7.6) Accounting Standards
7.7) Valuation of Non-Performing Loans
7.8) Awarded Foreclosure Process and Groundless
Appeals
38
Chapter :7
During initial sage the percentage of NPA was higher. This was due to
show ineffective recovery of bank credit, lacuna in credit recovery system,
inadequate legal provision etc. Various steps have been taken by the
government to recover and reduce NPAs.
1.One time settlement / compromise scheme
2.Lokadulate
3.DebtRecoveryTribunals
4. Securitization & reconstruction of financial assets and enforcement
5.Corporate Reconstruction Companies
6.Credit information on defaulters and role of credit information bureaus
39
40
Licenses are not available to qualified restructuring, loan service and asset
management companies, which do a financial institution, not own.
41
whereby a financial institution is forced out of the plan due solely to the
requirement to advance new money.
1) Relation manager credit officerMost of the banks have relationship manager in their credit department
and bankers are of the view tha5 this helps in close monitoring of the
42
2) Know your client profilesome of the banks in India have a system of preparing KYC profiles a
part of KYC system visit are made on clients and their places of business. The
frequency of such visit is not structured and depends on the nature and needs of
relationship. Most of the banks, which do not have at presently in operation also,
have a positive view about the same.
3) Credit rating systemMost banks in India have put in place the system of internal credit
rating by developing their own models a few banks have adopted credit rating
designed by rating agencies. Credit rating models take into account various types
various types risk viz financial industry and management, etc associated with a
borrower unit.. The credit rating system is essentially one point measure and
monitor the credit risk of individual proposal. At the whole bank level credit
rating system enables tracking the health of bank entire credit portfolio.
4. Watch list special mention categoryMost of the banks have a system to put certain borrower accounts under
watch list or special mention category, if performing advances, operating under
adverse business or economic condition, are exhibiting certain distress signals.
These accounts generally exhibit weakness, which are correctable but warrant
bank closure attention.
43
44
CHAPTER: 8
RBI GUIDELINES REGARDING NPA.
8.1) Scope
8.2) Structure
8.3) Asset classification as per RBI guidelines
45
CHAPTER: 8
RBI GUIDELINES
Reserve Bank Guidelines on purchase/ sale of Non Performing
Financial Assets
8.1) SCOPE
1.These guidelines would be applicable to banks, FIs and NBFCs purchasing/
selling non performing financial assets, from/ to other banks/FIs/NBFCs
(excluding
securitisation
companies/
reconstruction
companies).
8.2) STRUCTURE
The guidelines to be followed by banks purchasing/ selling nonperforming financial assets from / to other banks are given below. The
guidelines have been grouped under the following headings:
i) Procedure for purchase/ sale of non-performing financial assets by banks,
including valuation and pricing aspects.
ii) Prudential norms, in the following areas, for banks for purchase/ sale of nonperforming financial assets:
a. Asset classification norms
46
b. provisioning norms
c. Accounting of recoveries
d. Capital adequacy norms
e. Exposure norms
v) The estimated cash flows are normally expected to be realized within a period
of three years and not less than 5% of the estimated cash flows should be
realized in each half year.
vi) A bank may purchase/sell non-performing financial assets from/to other
banks only on 'without recourse' basis,
vii) Banks should ensure that subsequent to sale of the non performing financial
assets to other banks, they do not have any involvement with reference to assets
sold and do not assume operational, legal or any other type of risks relating to
the financial assets sold.
47
vi) Each bank will make its own assessment of the value offered by the
purchasing bank for the financial asset and decide whether to accept or reject the
offer.
viii) A non-performing asset in the books of a bank shall be eligible for sale to
other banks only if it has remained a non-performing asset for at least two years
in the books of the selling bank.
ix) Banks shall sell non-performing financial assets to other banks only on cash
basis. The entire sale consideration should be received upfront and the asset can
be taken out of the books of the selling bank only on receipt of the entire sale
consideration.
xi) Banks are also permitted to sell/buy homogeneous pool within retail nonperforming financial assets, on a portfolio basis provided each of the nonperforming financial assets of the pool has remained as non-performing financial
asset for at least 2 years in the books of the selling bank.
48
xii) The selling bank shall pursue the staff accountability aspects as per the
existing instructions in respect of the non-performing assets sold to other bank
Standard Assets
Standard Asset is one which does not disclose any problems and which
does not carry more than normal risk attached to the business. Such an asset
should not be an NPA.
Sub-standard Assets
(i) With effect from March 31, 2005 an asset would be classified as sub-standard
if it remained NPA for a period less than or equal to 12 months. In such cases,
the current net worth of the borrowers/ guarantors or the current market value of
the security charged is not enough to ensure recovery of the dues to the banks in
full. In other words, such assets will have well defined credit weaknesses that
49
jeopardize the liquidation of the debt and are characterized by the distinct
possibility that the banks will sustain some loss, if deficiencies are not corrected.
(ii) An asset where the terms of the loan agreement regarding interest and
principal have been re-negotiated or rescheduled after commencement of
production, should be classified as substandard and should remain in such
category for at least 12 months of satisfactory performance under the renegotiated or rescheduled terms. In other words, the classification of an asset
should not be upgraded merely as a result of rescheduling, unless there is
satisfactory compliance of this condition.
Doubtful Assets
50
A loss asset is one where loss has been identified by the bank or internal
or external auditors or by the Co-operation Department or by the Reserve Bank
of India inspection but the amount has not been written off, wholly or partly. In
other words, such an asset is considered un-collectible and of such little value
that its continuance as a bankable asset is not warranted although there may be
some salvage or recovery value.
51
52
CHAPTER: 9
Country-wise Analysis
9.1) China
9.2) Thailand
9.3) Korea
9.4) Japan
9.5) Comparison with other Asian Economies
53
CHAPTER:9
Country-Wise analysis
9.1 China
Causes :
1. Moral Hazard:
The SOEs believe that there the government will bail them out in
case of
trouble and so they continue to take high risks and have not really strived to
achieve profitability and to improve operational efficiency
2. Bankruptcy laws favour borrowers and law courts are not reliable
enforcement
54
Measures :
3. The government which bore the financial loss of debt discounting. Debt/equity
swaps were allowed in case a growth opportunity existed.
4. Incentives like tax breaks, exemption from administration fees and clearcut
asset
9.2 Thailand
55
Causes :
2. A legal system that made credit recovery time consuming and difficult.
Measures :
56
9.3 Korea
Causes :
1. Directed credit: Protracted periods of interest rate control and selective credit
allocations gave rise to an inefficient distribution of funds10. The Chaebols focus
on increasing market share and pursuing diversification with little attention to
profitability
caused tremendous stress on the economy.
57
4. Contagion Effects from South East Asia coincided with a period of structural
adjustments as well as a cyclical downturn in Korea.
Measures :
1. Speed of Action - The speedy containment of systemic risk and the domestic
credit crunch problem with the injection of large public funds for bank
recapitalization were critical steps towards normalizing the financial system
58
9.4 Japan
Causes :
1. Investments were made real estate at high prices during the boom. The
recession caused prices to crash and turned a lot of these loans bad.
2. Legal mechanisms to dispose bad loans were time consuming and expensive
and NPAs remained on the balance sheet.
59
Measures :
60
Country
Causes of Problem
India
China
3. Raising of
standards
disclosure
61
Japan
Korea
3. Crony capitalism
2. Use of Corporate
Restructuring Vehicles
(CRVs) and Debt/Equity Swaps
62
4. Extensive use of
securitization
Thailand
1. Privatisation of government
entities
3. Creation of AMCs
4. Government takeover of
banks and FIs
63
CHAPTER: 10
CASE STUDY OF NPA ON ORIENTAL BANK OF COMMERCE
10.1)Introduction
10.2)Our vision
10.3)Our mission
10.4)Oriental Bank of Commerce Fact File
10.5)Working result of OBC
10.6)Profitability of OBC
10.7)Technological implication
64
Chapter 10
10.1) Introduction
Oriental Bank of Commerce India was established in the year 1943 on 19th
February in Lahore. After partition, Oriental Bank of Commerce shifted its
Registered Office from Lahore to Amritsar paying every rupee to it. Oriental Bank
of Commerce was nationalized on 15th April in 1980. Then departing customers
of OBC bank had 307 branches with Rs. 282.61 crores as deposits and as
advance Rs. 152.69.
OBC has formulated the pattern of Bangladesh Grameen Bank with a
unique feature of disbursing small loans ranging from Rs. 75 onwards. The Bank
is providing training to rural people in using locally available raw material to
produce pickles, jams etc. This in return increases self-employment and adds in
increasing the income levels.
65
of corporate governance.
10.3)Our Vision
CRISIL Ratings
66
Most of the commercial banks have substantially reduced their nonperforming assets (NPAs) ranging between 29 per cent and 65 per cent, as they
registered a handsome growth in their retail advances in the fourth quarter of
fiscal 2005-06. Riding on the above 8 per cent growth of economy, the NPAs of
the scheduled commercial banks went down by 44 per cent on an aggregate
1. WORKING RESULTS
Highlights of the working results for the year ended March 2007 are as follows:
67
%) Recovery
of Rs. 750.15 Crore during the Current year. The Net NPA increased to
Rs. 215.66 Crore as on March 2007 from Rs. 162.98 Crore as on March
2006 and remained at 0.49%.
The business figures of Oriental Bank of Commerce India for the last five
years are as under:
Rupees in Lakhs
68
Total Income
204641 267943
302645
351438
383566
Total expenditure
181629 240081
282356
319383
337871
23012
27862
20288
32055
45695
Mar-00
Mar-01
Mar-02
Mar-03
123148 142840
154866
161973
210934
Deposits
1680488 2209521
2468043
2848839
2980909
Advances
770756 932553
1107641
1415787
1567723
Total Assets
1878416 2454120
2707243
3226292
3398763
No. of branches
899
915
932
967
989
No. of employees
14447
14398
13588
13589
13507
10.6)Profitability of OBC
a) Profitability of OBC
The gross profit OBC Bank stood at Rs. 1533 Crore as against Rs. 1163 Crore
last year. After providing for contingencies and more than required provisions
against non performing assets, the Bank has earned a handsome net profit of
Rs. 686 Crore as against Rs. 457 Crore last year, thereby registering a growth of
50 % mainly on account of reduction in cost of deposits, strict control on
expenses, efficient cash management, treasury income and large recoveries in
69
NPA accounts.
b)Dividend of OBC
The Oriental Bank of Commerce has provided for payment of 30% final dividend
to the shareholders in addition to 20% interim dividend already paid during the
financial year 2003-04 making total dividend 50%.
c)Retail Portfolio of OBC
The retail loans of OBC have increased to Rs. 4318 Crores as against Rs. 2779
Crores last year, with a growth of 55.4%. These assets constitute 20.9 % of total
loan assets. Oriental Bank of Commerce Housing loans account for 80% of retail
portfolio.
d) OBC Shareholder's Equity
The Net worth of Oriental Bank of Commerce has improved by Rs.567.46 Crore
and reached a level of Rs. 2676.79 Crore against Rs. 2109.33 Crore last year.
e) The OBC Business
The total business of Oriental Bank of Commerce has gone up to Rs. 56286
Crore from Rs. 46333 Crore last year thus registering a growth of 21.5%, due to
high growth in deposits as well as advances. The deposit growth of OBC has
been to the extent of 19.7 %( previous year 4.63%) while in advances the growth
is 25.5 % (previous year 10.7%).
70
Advice of RBI
Though, the banks have exhibited a remarkable performance in
lowering their NPAs in the fiscal 2005-06, at the same time, the banks
also need to focus on deposit mobilization, as per the RBI advice.
Oriental Bank of Commerce (OBC) has announced that it will move to
100 per cent provisioning cover in the current financial year ending
March 31, 2004. B D Narang disclosed this, chairman and managing
director Oriental Bank during an analyst meet held on Thursday.
Oriental Bank declared a 42.55 per cent growth in net profit for the
fiscal ended March 31, 2003, at Rs 456.95 crore, against Rs 320.55
crore for the fiscal ended March 31, 2002.
A combination of factors including reduction of cost of deposits, strict
control on expenses, efficient cash management and large recoveries
of non-performing assets (NPAs), besides treasury income accounted
for the profit.
Interest expended rose a marginal 1.04 per cent at Rs 2,089.94 crore,
while total expenditure was also up marginally by 2.90 per cent at Rs
2,672.60 crore. Oriental Bank has amortized its VRS expenses over a
71
period of five years. The banks net NPAs reduced to 1.40 per cent
from 3.20 per cent in the previous fiscal.
Treasury operations contributed Rs 481.59 crore (41.41%) to the gross
profit of Rs 1,163.06 crore, while banking operations contributed the
balance Rs 681.47 crore (58.59%).
Total income increased from Rs 3,514.38 crore to Rs 3,835.66 crore
during the fiscal. Gross profit stood at Rs 1,163.06 crore, 26.82 per
cent higher than the previous fiscals Rs 917.09 crore.
The total business of the bank went up to Rs 45,486 crore, a growth of
6.70 per cent compared to Rs 42,974 crore in the previous fiscal. The
capital adequacy ratio went up to 14.04 per cent against 10.99 per
cent.
Business per employee stood at Rs 3.43 crore, while the net worth
grew 30.20 per cent at Rs 2,109 crore. The banks return on assets for
the fiscal stood at 1.30 per cent.
72
CHAPTER: 11
Finding & conclusion
73
Chapter: 11
Finding & conclusion
Non-performing assets of banks on the decline: Report
Group wise movement in
Non performing asset 2003-2004
Position
Scheduled
Bank
Public
sector
bank
Old
private
bank
New
private
sector
bank
Foreign
bank
Gross NPAs
as at end
march 2003
68,698
54,090
4,291
7,492
2,826
Gross NPAs
as at end
march 2004
64789
51538
4392
5963
2894
24867
2547
4335
907
Net NPAs as
at end march
2004
18860
2140
2717
900
24617
Finding
The asset quality of scheduled commercial banks (SCBs) has shown a
remarkable improvement in 2003-04, according to the RBI report on `Trends and
Progress of Banking in India' released on Monday.
74
The central bank has noted that the gross non-performing assets (NPAs)
of SCBs has declined in absolute terms for a second year in succession, despite
the switchover to the 90-day delinquency norm, effective March 2004.
Gross NPAs of scheduled commercial banks declined by 5.6 per cent in
2003-04, against a decline of 3 per cent in 2002-03. Due to significant
provisioning, the net NPAs declined substantially by 24.7 per cent during 2003-04
against a decline of 8 per cent in 2002-03, the report said.
The decline in NPAs is evident across bank groups. During 2003-04,
reductions outpaced additions in the NPAs account. For SCBs, the decline in
NPAs was accompanied by the decline in doubtful and loss assets by 8.8 per
cent and 15 per cent respectively, the central bank has observed.
The ratio of net NPAs to net advances of SCBs declined from 4.4 per cent
in 2002-03 to 2.9 percent in 2003-04. All bank groups witnessed a decline in the
ratio of net NPAs to net advances in 2003-04.
Among bank groups, the old private sector banks had the highest net
NPAs ratio at 3.8 per cent, followed by public sector banks, new private banks
and foreign banks. During 2003-04, the share of NPAs in the priority sector to
total NPAs of public sector banks increased marginally. However, there was a
decline in the share of NPAs of agriculture sector and small-scale industries but
an increase in the share of other priority sectors.
The share of NPAs on account of public sector undertakings declined
while the share of NPA of non-priority sectors increased during 2003-04.
For private sector banks, the share of NPAs on account of agriculture
sector was lower when compared with 2002-03. However, there was an increase
in the shares of NPAs on account of small-scale industries and other priority
sector as well as their overall NPAs for the priority sector.
75
The share of non-priority sector NPAs in total NPAs of private sector banks
was lower than that in 2002-03. According to the report, the gross non-performing
assets ratio of public sector banks has declined to 7.8 per cent in 2003-04 from
23 per cent in 1992-93.
As on June 30, 2004, 27 public sector banks had issued 61,263 notices
involving an outstanding amount of Rs 19,744 crore and had recovered an
amount of Rs 1,748 crore, under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act 2002.
The number of cases and value of assets restructured under CDR
mechanism as on June 30, 2004 stood at 94 and Rs 64,017 crore respectively.
76
CHAPTER: 12
SUGGESTIONS & RECCOMENDATION
NPAs are increasing day by day in the CBE for a multiplicity of reasons.
The following recommendations are suggested to the CBE to control over the
NPAs. The recommendations are classified into three categories, are as follows.
A) General suggestions:
The Bank should adopt the following General strategies for control of NPAs. The
suggestions are as follows:
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Timely sanction and or release of loans by the bank is to avoid time and
cost overruns.
B) Pre-sanction suggestions:
The Credit section should carefully watch the warning signals viz. nonpayment of quarterly interest, dishonor of check etc.
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iii) A non-performing asset in the books of a bank shall be eligible for sale to other
banks only if it has remained a non-performing asset for at least two years in the
books of the selling bank.
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After the relevant data were collected, descriptive analysis was carried
out which was preferred for assessment purposes. Hence for all data
interpretations were made and diagrams and graphs have been used to support
discussions related to findings. Finally, conclusion and recommendations were
made accordingly.
Various studies have been conducted to analysis the reasons for NPA. What ever
may be complete elimination of NPA is impossible. The reasons may be widely
classified in two:
(1) Over hang component
(2) Incremental component
Over hang component is due to the environment reasons, business cycle etc.
Incremental component may be due to internal bank management, credit policy,
terms of credit etc.
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