Presentation on

Management of NPA in PNB

Parvinder kumar MBA IV, 46

Objectives of study
The basic idea behind undertaking the Grand Project on NPA is : To know about the concept of NPA To understand the causes & effects of NPA To study the past trends of NPA . To evaluate NPAs (Gross and Net) in PNB and other public sector banks, Pvt. Sector banks & foreign banks operating in INDIA. To see whether INDIAN banking industry is following international norms regarding NPA or not.

Indian banking history

Started with the establishment of General bank of India in 1786 Presidency banks (Bank of Bengal, Bank of Bombay, Bank of madras established in 1809,1840,1843 respectively ) PNB was the first Indian bank established in 1894. Imperial bank of India now SBI in 1921 1949: Enactment of Banking Regulation Act. 1969: Nationalization of 14 major banks with deposits over 50 crore. 1980: Nationalization of seven banks with deposits over 200 crore.

PNB
Established in 1894 Total branches 5674 (as on march 2012) Circle office 65 Employees 60,000(approx) Revenue 31,206 crore (2011) Net income 4,574 crore (2011) Total assets 3,73,786 crore (2011) fortune India 500 Ranking #26 in 2011 Forbes global ranking #1243 in 2000

Management (PNB)
Board of Directors Shri. K.R.Kamath Chairman & Managing Director and Dy. Chairman of Indian Banks Association Shri. Rakesh Sethi Executive Director Smt. Usha Ananthasubramanian Executive Director

product
Saving fund Fixed deposit scheme Credit scheme Current account Card Insurance Gold Mutual fund

NPA
Concept of NPA was introduced in 1991 A loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as non performing assets ,all loans which are more than 90 days overdue. More generally an asset which is not producing income after a stated period is called NPA

Classification of assets
Standard Assets Sub-standard Assets (less than 12 months) Doubtful Assets (more than 12 months) Loss Assets (declared loss in auditing)

Provision for NPAs

Standard Assets (0.25% ) Sub-standard Assets( 10% ) Doubtful Assets(20 to 100% ) Loss Assets( 100% )

Causes of NPA
External
Ineffective recovery tribunal Willful Defaults Natural calamities Industrial sickness Lack of demand Change on Govt. policies

Internal
Defective Lending process Improper SWOT analysis Inappropriate technology Poor credit appraisal system Managerial deficiencies Absence of regular industrial visit Re-loaning process

Effects of NPA
Reduce profitability Reduce liquidity Involvement of Management Credit loss Impact on economy

Types of NPA
Gross NPA
Gross NPA reflects the quality of the loans made by banks (standard, sub-standard, doubtful & losses)

Net NPA Net NPA shows the actual

burden of banks and is received after deducting the provision

gross NPA--provision Gross NPA

Net NPA ratio== ------------------------------gross advances--provision

Gross NPA ratio == ----------------Gross advances

Tools to recover NPA

Recovery Compromise/negotiable settlement Establishment of Asset Recovery Branches Lok adalat & debt recovery tribunal

Research methodology
Research can simply be defined as search for knowledge; it is an art of scientific investigation. In this project report a research has been conducted to know about NPA of PSB , PNB organization and PNB branch INDORA, reasons of NPA and branch policies to recover NPAs.

Research design (descriptive study) DATA

Both primary and secondary data has been used in the project.

Data analysis
Data analysis part covers the data of Public sector banks Pvt. Sector banks & foreign banks

(A) NPA of public sector banks (in crore)

PSB
s. n o 1 2 3 4 5 6

GROSS NPA
2009 2010 2011

NET NPA 2009

10,869

2010
12,830

2011
14,791

SBI & associates PNB

18,447

23,533

30,393

2,507

3,214 2,401

4,379 3,153

78 449

117 602

238 791

Bank of Baroda
1,843

Bank of India
2,471 4,883
2,458 1,222

4,812
2,394 1,648

628
1,063 422

2,207
727 470

1,945
847 736

Central bank of India Allahabad bank

2,317 1,078

Net NPA
16,000 14,000

12,000

SBI & associates PNB Bank of Baroda Bank of India Central bank of India Allahabad bank

10,000

8,000

6,000

4,000

2,000

0
1 2 3

(B) NPA of Pvt. sector banks (in crore)

s.no

Pvt. Bank

Net NPA to NET Advances (in percentage) 2009

2010 2011

1 Axis Bank Ltd. 0.40 0.63 2.09 1.14 2.39 0.33

0.40 0.31 2.12 0.50 1.73 0.06

0.29 0.19 1.11 0.28 0.72 0.03

2
HDFC Bank Ltd. 3 ICICI Bank Ltd. 4 Indusind Bank Ltd. 5 6 YES Bank Kotak Mahindra Bank Ltd.

Net NPA to advances in %

3 2.5

Axis Bank Ltd. HDFC Bank Ltd. ICICI Bank Ltd. Indusind Bank Ltd. Kotak Mahindra Bank Ltd.

1.5

YES Bank

0.5

0 1 2 3

(C ) NPA of foreign banks (in crore)

s.no Foreign bank .

Net NPA

2009
1
2 3

2010
391
366 514 1,051
543

2011
249

HSBC Bank Ltd.

The Royal Bank of Scotland NV Standard Chartered Bank

261

174

580

132

4 5

Citibank
784 493

American Express Banking Corporation

30

14

16

Net NPA of foreign banks

1200 1000

800

HSBC Bank Ltd. The Royal Bank of Scotland NV Standard Chartered Bank Citibank American Express Banking Corporation

600

400

200

0 1 2 3

PNB

Advances
Year deposit advances 2007 1,39,860 96,597

V deposits of PNB
2008 1,66,457 1,19,502

(figures in crore)
2010 2,49,330 1,86,601 2011 3,12,,899 2,42,107

2009
2,09,760 1,54,703

350000

300000

250000

200000

deposit

150000

advances

100000

50000

0 1 2 3 4 5

CD ratio
year deposit credit
2007 139860 96597 2008 166457 119502 2009 209760 154703 2010 249330 186601 2011 312899 242107

ratio

69.06

71.79

73.75

74.84

77.37

CD ratio
78 76 74 72

ratio

70
68 66 64 1 2 3 4 5

Gross NPA & % to advances

year advance Gross NPA percentage 2007 96597 3391 3.51 2008 119502 3319 2.77 2009 154703 2767 1.78 2010 186601 3645 1.95 2011 242107 4379 1.80

percentage of gross NPA to advances

4 3.5 3 2.5 2

1.5
1 0.5 0 1 2 3 4 5

percentage of gross NPA to advances

Net NPA ratio

year ratio 2007 0.76 2008 0.64 2009 0.17 2010 0.53 2011 0.85

Net NPA ratio

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 1 2 3 4 5

Net NPA ratio

Sectoral segmentation
Sector
Priority sector Of which agriculture Of which MSME Other Non priority sector

amount
2742 1171 1349 222 1637

Priority sector

Non priority sector

PNB Branch indora

Established in 1971

Deposit V advances
Year Deposit Advances March 2010 34.18 10.23 March 2011 41.72 12.43 Feb 2012 49.20 15.03

50
45 40 35 30 25 20 15 10 5 0 1 2 3

Deposit Advances

CD ratio of PNB indora

year deposit credit ratio March 2010 34.18 10.23 29.92 March 2011 41.72 12.43 29.79 Feb 2012 49.20 15.03 30.54

CD ratio
30.6 30.4

30.2
30 29.8

CD ratio

29.6
29.4 1 2 3

% of gross NPA to advances

year advances Gross NPA March 2010 10.23 53.12 lac March 2011 12.43 25.60 lac Feb 2012 15.03 65.28 lac

percentage

5.19

2.05

4.34

% of NPA to advances
6 5 4 3 2 1 0 1 2 3

% of NPA to advances

% of indora branch to NPA of PNB

year Gross NPA of PNB Gross NPA of indora branch (in lac) percentage 2010 2767 53.12 .019 2011 3645 25.60 .0071 2012 4379 65.28 .014

Percentage
0.02 0.018 0.016

0.014
0.012 0.01 0.008 0.006 0.004 0.002

Percentage

0
1 2 3

findings
I found that the advances of the bank are increasing continuously which leads to increase in the profits also. The CD ratio of the bank is good which makes it position strong. The recovery system of the bank needs to be stronger which can help the bank to make its position better. The fluctuations in the amount of NPA were due to various reasons (internal & external). Various bank loans are not utilized for the same purpose for which they are granted specially in agricultural sector. NPA of PNB has been reduced to 2 % which is very good and showing the strong position of the bank. Since PNB is the second largest Indian public sector bank and has a great opportunity of growth but various times due to some factors bank uses conservative measures which hindrance for the bank to grab the opportunity.

recommendations
Each bank should have its own independence credit rating agency which should evaluate the financial capacity and credit history of the borrower. There should be proper monitoring of the restructuring accounts because there is every possibility of the loan slipping into NPAs

Willful default of bank loans should be made a criminal offence. Settlement procedure should be more strict and faster. Strong laws need to be enacted to deal with the problem of NPA. Proper training is important to the staff of the banks at the appropriate level so that they should deal with the problem of NPAs No loan is to be given to a group whose one or the other undertaking became a defaulter. The overall banking environment should be improved through reduction of govt. intervention in credit mgmt.

Limitations
It was critical for me to gather the financial data of the bank so the better evaluation of the performance of the bank is not possible. Since my study is based more on the secondary data, the practical operations as related to the NPAs are adopted by the bank are not learned. Since the Indian banking sector is so wide, so it was not possible for me to cover all the banks of the Indian banking sector. There is also variation in figures available at different sources which creates confusion. The RBI norms for the classification of assets / NPAs are available on a pay site & not publicly available through any source.

conclusion
As NPA is big threat to profitability of all banks and need to be managed effectively NPA of PSB is much more than Pvt. Sector banks and foreign banks. As for as PNB is concerned have less amount of NPA as compare to other PSB. However with the introduction of SARFAECI ACT (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) banks can issue notices to defaulters to repay their loans. Also, the Supreme Court has given the banks the freedom to sell mortgage assets of the borrowers, if they do not respond to the legal proceedings initiated by lender. This enables banks to get rid of sticky loans thereby improving their bottom lines. Various steps have been taken by government to reduce the NPA. It is highly impossible to have zero percentage NPA. But at least Indian banks can try competing with foreign banks to maintain international standard.