chapter-6 recovery of loans and npas -...

Chapter-6

RECOVERY OF LOANS AND NPAS

RECOVERY

Performance analysis of a bank cannot be conducted solely on the basis of

resources mobilised or advances made. Resources mobilisation, deployment of

resources and recycling of resources are three main centres of banking business

operations. Therefore, recovery is equally important activity in banking.

Recovery in co-operative banks is still more important as they are supposed to

meet their social commitments too. Any delay in recovery hampers the recycling of

funds and banks ability to return the loans to higher financial institutions is also

impaired. As a result, good borrowers and prospective members suffer.

Overdue problem is harmful for defaulter borrowers too. When they fail to

return the money, bank charges them penal rate of interest. It burdens them with more

financial liabilities and they could not avail of fresh loans. Any delay in recovery on

the part of co-operative bank management also creates a situation for mis-utilization

of funds at the hands of borrowers as they may spend their borrowings on non-

productive activities.

The advances of co-operative banks are mainly directed towards agriculture,

tiny/small scale industries and small business enterprises. These sectors are

characterised by higher risks and lower returns. These activities can easily succumb to

the vagaries of nature, changes in government policies and other pulls from various

quarters. (Padmanabhan, (1997) found that the following factors have a bearing on

recovery of loans in the agriculture and rural sector:

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- Low production/productivity level in the farms owned by small and marginal

farmers on account of inadequate finance, non-adoption of scientific

agriculture practices, etc;

- Occurrence of natural calamities (drought, flood, pest attack, etc.)

- A large number of small farmers/small units have been facing marketing

problems;

- Crowding of activities leads to non-viability of large number small/tiny

industrial units;

- Lack of managerial expertise and technical competence;

- Imperfect rural markets-farmers/rural entrepreneurs not realising remunerative

prices and exploitation by middlemen;

- Infrastructure constraints-absence of backward and forward linkage;

- The mortality rate is very high in case small borrowers who are not getting

adequate extension support at the appropriate time from various agencies; and

- The recovery climate has been vitiated by waiver of loans and therefore, a part

of borrower community, despite income generation, is unwilling to repay

bank’s dues.

Finding that the recovery of loans is essential for the smooth and efficient

working of co-operative banks, an effort has been made to study the recovery position

of some of these selected banks in Punjab and Haryana.

Absolute amount recovered during a year is important for a bank for its funds

management. It helps the bank to rotate and plough back the funds. On the other hand,

per centage of recovery to total demand of bank (demand means amount to be

recovered during the year/ season) is also an important factor and indicates the

137

efficiency of the bank in recovery management. Therefore both absolute and

relative recovery positions have been studied. Tables 6.1A, 6.3A, 6.5A, 6.7A, 6.9A,

6.11A, 6.13A and 6.15A present total demand of the DCCBs, which are annexured as

annexure I.

PUNJAB DCCBs

HIGH PROFITABILITY DCCBs IN PUNJAB

Trend Analysis

Table 6.1 : Trends in Recovery of Loans in High Profitability DCCBs inPunjab :1999-00 to 2007-08 (` in lakh)

YearShort-term Medium-term Other

LoansTotalLoansAgrl. Non-Agrl. Agrl. Non- Agrl.

1999-00 16048 2066 180 304 18598

2000-01 17426 315 214 992 18947

2001-02 17982 407 218 1107 21 19735

2002-03 20670 254 291 1978 23193

2003-04 21775 959 401 1307 24442

2004-05 24250 2253 552 1644 28699

2005-06 24994 2035 682 2006 2291 32008

2006-07 23658 2672 388 1645 1999 30362

2007-08 35605 2571 176 2134 3146 43632

Average 22489.78 1503.56 344.67 1457.44 1864.25 26624.00

C.V. 26.02 67.08 51.64 40.53 70.90 30.39

C.G.R. 8.55 23.56 8.00 18.76 10.53

t-value 6.76*** 1.78 1.20 3.01** 8.96***

Trend Equation

Constant 12946.76 308.06 203.42 562.19 12920.25

Beta 1908.80 239.10 28.25 179.05 2740.55

t-value 5.26*** 2.26* 1.28 3.94*** 6.56***

Source : Basic Data on Performance of District Central Co-operative Banks,Published by NAFSCOB, Mumbai, 1999-00 to 2007-08

Note : *** Significant at 1% level** Significant at 5 % level*Significant at 10 % level

138

It is clear from Table 6.1 that total recovery increased significantly from

`18598 lakh in 1999-00 to `43632 lakh in 2007-08 at the compound growth rate of

10.53 per cent per annum in high profitability DCCBs, Punjab. Similarly, there was a

significant increase in the recovery of short-term agricultural loans (8.55%) and

medium-term non-agricultural loans (18.76%). Recovery of short-term agricultural

loans increased from `16048 lakh to `35605 lakh from 1999-00 to 2007-08, while

medium-term non-agricultural loans recovery increased from ` 304 lakh to ` 2134

lakh during the same period. Though there was an overall increase in recovery of

short-term non-agricultural loans and medium-term agricultural loans, but the increase

appeared to be non-significant.

Recovery in relation to Demand

A perusal of Table 6.2 provides that on the average the proportionate share of

total recovery out of demand came to be 96.23 per cent in high profitability DCCBs of

Punjab. It was 100.74 per cent of the demand in short-term agricultural loans. It

exceeded 100 per cent in the case of short-term agricultural loans, i.e., 167.16 per cent

recovery of demand during the year 2000-01.

Normally, it may not be more than 100 per cent as recovery cannot be

more than demand. But it was due to advance recovery received in that year.

Recovery as percentage of demand for loan came to be 76.54 percent in the case of

short-term non-agricultural loan, 81.04 per cent in medium-term agricultural loan and

71.18 per cent in medium-term non-agricultural loan. The recovery of other loans

could not be studied due to the absence of demand as well as demand for other loans

in 5 out of 9 years under study. There was a significant decline in recovery of

medium-term non-agricultural loans at the rate of -2.44 per cent compounded

annually.

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Table 6.2 : Recovery in relation to Demand for Loan in High ProfitabilityDCCBs in Punjab 1999-00 to 2007-08 (Percentage)


LoansTotalLoansAgrl. Non-Agrl Agrl. Non- Agrl.

1999-00 91.67 81.69 81.82 83.06 90.19

2000-01 167.16 53.03 88.80 77.80 151.15

2001-02 90.48 55.60 83.52 74.70 6.36 87.02

2002-03 90.94 90.07 89.26 67.51 88.29

2003-04 91.61 74.75 90.93 65.09 87.63

2004-05 91.84 78.42 89.61 67.13 88.73

2005-06 92.68 83.23 89.50 72.05 88.49 90.04

2006-07 94.22 87.18 93.72 70.03 89.88 91.56

2007-08 96.11 84.91 22.22 63.27 90.92 91.47

Average 100.74 76.54 81.04 71.18 68.92 96.23

C.V. 24.78 17.50 27.58 9.01 60.53 21.47

C.G.R. -2.43 3.93 -7.86 -2.44 -2.26

t-value 0.97 1.68 1.53 3.19** 1.02

Trend Equation

Constant 117.06 63.30 98.65 80.20 110.16

Beta -3.26 2.65 -3.52 -1.80 -2.79

t-value 1.01 1.70 1.27 3.19* 1.05


Note : ** Significant at 5 % level*Significant at 10 % level

On an average, medium-term non-agricultural loans were only 10.18 per cent

of total loan outstandings (Table 5.2), hence, their declining recovery per centage

would affect the per centage of total recovery only to a marginal extent. The overall

recovery position in high profitability DCCBs in Punjab seems to be good. High per

centage of recovery may be the reason for stagnation in recovery.

140

AVERAGE PROFITABILITY DCCBs IN PUNJAB

Trend Analysis

Table 6.3 : Trends in Loans Recovery in Average Profitability DCCBs inPunjab: 1999-00 to 2007-08 (` in lakh)



1999-00 18728 1016 556 981 1134 22415

2000-01 21374 1176 435 1120 3460 27565

2001-02 20569 1355 397 1216 4058 27595

2002-03 22260 1826 592 1456 5421 31555

2003-04 27871 2290 173 1958 6067 38359

2004-05 28368 3198 193 2503 6067 40329

2005-06 36056 3731 485 3326 3852 47450

2006-07 36852 3769 652 4013 3764 49050

2007-08 48838 3897 111 5820 5731 64397

Average 28990.67 2473.11 399.33 2488.11 4394.89 38746.11

C.V. 34.21 48.10 49.38 65.48 36.64 34.27

C.G.R. 12.06 21.04 -9.44 25.24 11.89 12.90

t-value 9.70*** 10.84*** 1.32 15.33*** 1.82 15.45***

Trend Equation

Constant 11995.62 354.19 512.00 -287.06 2767.06 15340.37

Beta 3399.27 423.78 -22.53 555.03 325.57 4681.12

t-value 7.20*** 11.74*** 0.87 6.86*** 1.76 9.81***


Note : *** Significant at 1% level

Table 6.3 depicts that recovery increased significantly from ` 22415 lakh in

1999-00 to `64397 lakh in 2007-08 in average profitability DCCBs in Punjab. It is

encouraging to note that the recovery of short-term agricultural loan, short-term non-

agricultural loans and medium-term non-agricultural loans registered a significant

141

increase during the same period. It increased from ` 18728 lakh in 1999-00 to `48838

lakh in 2007-08 in short-term agricultural loans. The increase was from `1016 lakh to

`3897 lakh and from ` 981 lakh to `5820 lakh from 1999-00 to 2007-08

respectively in short-term non- agricultural loans and medium-term non agricultural

loans. Recovery in relation to Demand

Table 6.4 : Recovery in relation to Demand for Loan in Average ProfitabilityDCCBs in Punjab: 1999-00 to 2007-08 (Percentage)



1999-00 93.34 88.35 53.67 91.43 85.52 90.94

2000-01 94.42 86.47 33.75 89.53 94.00 91.22

2001-02 92.30 91.74 46.43 91.02 84.45 89.72

2002-03 89.52 93.50 76.98 88.94 86.89 88.98

2003-04 93.35 93.74 20.26 84.98 88.76 90.70

2004-05 93.45 94.78 21.98 84.25 88.76 90.80

2005-06 93.75 93.98 66.44 78.39 86.35 91.49

2006-07 91.85 91.24 94.08 79.15 84.79 90.08

2007-08 94.43 91.59 80.43 80.43 89.31 92.31

Average 92.94 91.71 54.89 85.35 87.65 90.69

C.V. 1.66 3.01 48.25 6.03 3.39 1.09

C.G.R. 0.06 0.61 7.18 -2.04 -0.12 0.14

t-value 0.27 1.74 0.91 6.71*** 0.25 0.95

Trend Equation

Constant 92.65 88.96 32.13 94.10 88.12 90.08

Beta 0.06 0.55 4.55 -1.75 -0.11 0.12

t-value 0.27 1.72 1.41 6.80*** 0.28 0.96



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A glance at Table 6.4 provides that the proportionate share of total recovery

out of total demand for loans worked out to be 90.69 per cent on the average of 9

years under study. The average proportion of recovery out of demand was the highest

to the tune of 92.94 per cent in the case of short-term agricultural loans, followed by

91.71 per cent in short-term non-agricultural loans, 87.65 per cent against other loans

and 85.35 per cent in the case of medium-term non-agricultural loans.

The recovery as a proportion of demand was found to be the lowest to the tune

of 54.89 per cent in the case of medium-term agricultural loans. The proportionate

recovery of medium-term non-agricultural loans showed a significant decline at the

rate of -2.04 per cent compounded annually. The recovery as percentage of demand of

all types of loans except medium-term non- agricultural loans has shown a stagnant

trend.

LOW PROFITABILITY DCCBs IN PUNJAB

Trend Analysis

It can be observed from Table 6.5 that total recovery of loans increased

significantly from ` 20687 lakh in 1999-00 to ` 49317 lakh in 2007-08 at the

compound growth rate of 12.85 per cent per annum. It is pertinent to note that

recovery of all types of loans, except other loans, increased significantly. The

Compound Growth Rate of recovery was the highest to the order of 63.52 per cent in

the case of medium-term agricultural loans, followed by 35.10 per cent in short-term

non-agricultural loans. Thus, in general terms, recovery of every type of loan

registered a significant increase during the period of study.

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Table 6.5 : Trends in Loans Recovery in Low Profitability DCCBs in Punjab :1999-00 to 2007-08 (` in lakh)



1999-00 20319 6 37 313 12 20687

2000-01 19024 9 3 1124 12 20172

2001-02 21133 15 16 1486 32 22682

2002-03 21909 23 10 1607 17 23566

2003-04 27467 27 75 2199 5 29773

2004-05 29082 30 80 2290 8 31490

2005-06 36566 51 259 2675 59 39610

2006-07 40836 71 288 3312 7 44514

2007-08 45546 59 285 3420 7 49317

Average 29098.00 32.33 117.00 2047.33 17.67 31312.33

C.V. 33.51 70.98 105.46 49.84 99.26 34.64

C.G.R. 12.19 35.10 63.52 26.99 -5.36 12.85

t-value 10.02*** 9.93*** 3.11** 4.53*** 0.52 12.18***

Trend Equation

Constant 12065.18 -7.42 -83.25 209.58 16.83 12202.02

Beta 3406.38 7.95 40.05 367.55 0.17 3822.10

t-value 8.71*** 7.93*** 5.13*** 15.94*** 0.07 9.74***


Note : *** Significant at 1% level** Significant at 5 % level


Table 6.6 reveals that on an average, proportionate share of recovery out of

demand for loan appeared to be 83.05 per cent. The proportion of recovery out of

demand appeared to be the highest to the order of 85.18 per cent in the case of short-

term agricultural loans, followed by 68.50 per cent in medium-term non-agricultural

loans. The proportion of recovery out of demand was found to be the lowest to the

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tune of 23.11 per cent in the case of other loans. The total recovery as a proportion of

total demand remained constant at about 83 per cent, while it increased significantly

in the case of short-term agricultural loans at the rate of 0.59 per cent and 16.33 per

cent compounded annually in medium-term loans.

Table 6.6 : Recovery in relation to Demand for Loan in Low ProfitabilityDCCBs in Punjab: 1999- 00 to 2007-08 (Percentage)



1999-00 84.20 26.09 50.00 77.09 25.00 83.81

2000-01 83.82 29.03 11.54 81.45 3.60 82.45

2001-02 84.12 39.47 41.03 78.21 4.51 81.56

2002-03 82.63 46.00 17.54 70.30 12.23 81.13

2003-04 85.10 48.21 68.18 69.63 5.75 83.43

2004-05 85.83 60.00 55.17 62.48 9.88 83.25

2005-06 87.11 37.23 84.36 59.22 95.16 84.28

2006-07 86.30 45.81 68.74 59.70 25.93 83.26

2007-08 87.54 37.82 66.43 58.38 25.93 84.30

Average 85.18 41.07 51.44 68.50 23.11 83.05

C.V. 1.92 25.15 47.39 13.08 123.66 1.36

C.G.R. 0.59 5.13 16.33 -4.43 22.04 0.24

t-value 3.99*** 1.62 1.90* 8.36*** 1.46 1.46

Trend Equation

Constant 82.68 32.18 21.31 83.99 2.31 82.06

Beta 0.50 1.78 6.03 -3.10 4.16 0.20

t-value 4.04*** 1.42 2.44** 7.78*** 1.15 1.47



*Significant at 10 % level

145

On the other hand, the proportion of recovery out of demand declined

significantly at the rate of -4.43 per cent per annum in the case of medium-term non-

agricultural loans. The proportion of recovery of other loans remained fluctuating

from 4.51 per cent to 95.16 per cent during the period of study. It shows that vast

fluctuations exist in the recovery of other loans in relation to the demand which

hamper the growth of these banks.

Total recovery had registered a significant growth rate in all the

categories of selected DCCBs during the period of study. Average recovery per

centage to demand in total loans during the period of study was 96.23, 90.69 and

83.05 per cent respectively in the high, average and low profitability DCCBs. It

may be inferred that recovery position of the DCCBs had directly affected with

the profitability of the banks. Short-term agricultural loans had recorded the

highest per centage of recovery in all types of selected DCCBs in Punjab.

Expertise of DCCBs staff in handling agricultural customers and immediate re-

availability of the loan may be the important factor for this.

ALL SELECTED DCCBs IN PUNJAB

Trend Analysis

Table 6.7 describes that total recovery of loans increased significantly at the

CGR of 12.22 per cent per annum from ` 61700 lakh in 1999-00 to ` 157346 lakh in

2007-08 in all the selected DCCBs in Punjab. It is encouraging to observe that

recovery of all types of loans, except medium-term agricultural loan, increased

significantly during the period under study.

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Table 6.7 : Trends in Loans Recovery in the Selected DCCBs in Punjab :1999-00 to 2007-08 (` in lakh)



1999-00 55095 3088 773 1598 1146 61700

2000-01 57824 1500 652 3236 3472 66684

2001-02 59684 1777 631 3809 4111 70012

2002-03 64839 2103 893 5041 5438 78314

2003-04 77113 3276 649 5464 6072 92574

2004-05 81700 5481 825 6437 6075 100518

2005-06 97616 5817 1426 8007 6202 119068

2006-07 101346 6512 1328 8970 5770 123926

2007-08 129989 6527 572 11374 8884 157346

Average 80578.44 4009.00 861.00 5992.89 5241.11 96682.44

C.V. 31.11 51.68 36.09 51.07 41.07 32.97

C.G.R. 11.13 19.58 4.22 23.45 19.42 12.22

t-value 11.95*** 3.82*** 0.96 8.78*** 3.54*** 16.78***

Trend Equation

Constant 37003.28 654.83 632.17 484.72 1685.69 40466.36

Beta 8714.45 670.83 45.77 1101.63 711.08 11243.29

t-value 8.23*** 5.08*** 1.17 15.48*** 5.62*** 9.90



Recovery in relation to Total Demand

A perusal of Table 6.8 provides that on an average, the proportion of recovery

out of total demand worked at 88.98 per cent. It was highest to the order of 91.37 per

cent in the case of short- term agricultural loan, followed by 85.43 per cent and 84.39

per cent in short-term non-agricultural loan and other loans respectively. The average

proportion of recovery out of demand came to 75.04 per cent in the case of medium-

147

term non- agricultural loan and 59.68 per cent in medium-term agricultural loan in all

the selected DCCBs in Punjab. The recovery as a per cent of demand was stagnant in

all types of loans except a significant decline at the rate of -2.94 per cent in the case of

medium-term non-agricultural loan.

Table 6.8 : Recovery in relation to Demand for Loan in All the SelectedDCCBs in Punjab : 1999- 00 to 2007-08 (Percentage)



1999-00 89.29 83.41 58.12 86.61 83.41 88.20

2000-01 103.71 75.57 41.90 82.85 86.50 99.21

2001-02 88.71 79.08 54.63 80.73 70.33 86.17

2002-03 87.49 92.04 77.52 73.56 85.26 86.27

2003-04 89.77 86.62 46.19 73.15 83.02 87.44

2004-05 90.13 87.04 50.34 70.85 87.84 87.73

2005-06 90.89 88.78 79.27 69.36 87.20 88.59

2006-07 90.05 88.59 87.02 69.18 86.25 87.84

2007-08 92.32 87.74 42.09 69.07 89.70 89.42

Average 91.37 85.43 59.68 75.04 84.39 88.98

C.V. 5.27 6.08 28.86 8.85 6.72 4.46

C.G.R. -0.35 1.43 2.04 -2.94 1.24 -0.40

t-value 0.52 2.10* 0.53 7.75*** 1.41 0.70

Trend Equation

Constant 93.19 79.53 51.90 86.43 79.33 90.90

Beta -0.36 1.18 1.56 -2.28 1.01 0.38

t-value 0.56 2.10* 0.68 7.22*** 1.48 0.72


Note : *** Significant at 1% level*Significant at 10 % level

148

HARYANA DCCBs

HIGH PROFITABILITY DCCBs IN HARYANA

Trend Analysis

The data presented in Table 6.9 reveals that total recovery of loans increased

significantly from `23622 lakh in 1999-00 to `52293 lakh in 2007-08 at the

compound growth rate of 10.36 per cent per annum.

Table 6.9 : Trends in Loans Recovery in High Profitability DCCBs inHaryana: 1999-00 to 2007- 08 (` in lakh)



1999-00 18810 1585 109 544 2574 23622

2000-01 23139 2036 48 811 1713 27747

2001-02 26558 1987 60 692 3738 33035

2002-03 25438 3688 486 411 6760 36783

2003-04 28953 3541 265 728 5274 38761

2004-05 36058 2364 414 520 11399 50755

2005-06 36842 2061 557 444 7444 47348

2006-07 40052 5682 500 727 1879 48840

2007-08 40105 2791 611 1050 7736 52293

Average 30661.67 2859.44 338.89 658.56 5390.78 39909.33

C.V. 25.49 44.70 65.62 30.69 60.19 26.24

C.G.R. 9.93 8.64 35.48 2.79 11.59 10.36

t-value 9.97*** 1.76 3.38** 0.67 1.25 8.03***

Trend Equation

Constant 16735.81 1643.94 -18.28 543.14 2624.36 21530.26

Beta 2785.12 243.10 71.43 23.08 553.28 3676.02

t-value 11.81*** 1.61 4.90*** 0.87 1.40 9.22***



149

Similarly, the recovery of short-term agricultural loans increased significantly

from `18810 lakh to `40105 lakh during the same period, while recovery of medium-

term agricultural loans increased significantly from `109 lakh in 1999-00 to `611 lakh

in 2007-08. Though an increase was recorded in recovery of all other types of loans

but the wide fluctuations turned the increase non-significant in high profitability

DCCBs in Haryana.


Table 6.10 : Recovery in relation to Demand for Loan in High ProfitabilityDCCBs in Haryana :1999-00 to 2007-08 (Percentage)



1999-00 79.23 67.62 62.64 56.49 98.24 79.16

2000-01 81.69 75.27 41.38 68.38 94.33 81.26

2001-02 79.53 74.70 1.86 61.13 99.36 74.79

2002-03 79.82 81.11 82.37 46.13 99.75 82.33

2003-04 78.11 83.61 74.86 61.18 98.43 80.41

2004-05 83.75 77.58 81.50 52.58 98.95 85.86

2005-06 80.51 76.39 76.83 45.21 97.64 81.93

2006-07 79.53 94.12 71.94 56.58 91.75 80.82

2007-08 77.51 75.23 83.58 55.79 97.59 79.25

Average 79.96 78.40 64.11 55.94 97.34 80.64

C.V. 2.34 9.42 41.81 13.14 2.69 3.68

C.G.R. -0.16 1.85 18.61 -1.80 -0.25 0.36

t-value 0.51 1.72 1.00 1.07 0.70 0.72

Trend Equation

Constant 80.58 71.17 37.07 61.24 98.55 79.24

Beta -0.12 1.45 5.41 -1.06 -0.24 0.28

t-value 0.49 1.68 1.75 1.14 0.70 0.71


150

The analysis of data presented in Table 6.10 highlights that the proportion of

recovery out of total demand for loan emerged to be 80.64 per cent at the average

level in high profitability DCCBs in Haryana. The highest proportion of recovery out

of demand was found to be 97.34 per cent in the case of other loans, while it was

lowest to the tune of 55.94 per cent in medium-term non-agricultural loans. Short-

term and medium-term agricultural loans recorded 79.96 and 64.11 per cent as

average recovery. The proportion of recovery out of demand remained almost

stagnant in all types of loans. This indicated that level of recovery was stagnant in

high profitability DCCBs in Haryana. Thus, there is need to increase the

proportion of recovery, particularly in the case of medium-term agricultural and

non-agricultural loans.

AVERAGE PROFITABILITY DCCBs IN HARYANA

Trend Analysis

It is obvious from Table 6.11 that total recovery increased significantly at a

compound growth rate of 14.82 per cent per annum from ` 17630 lakh in 1999-00 to

` 54108 lakh in 2007-08 in average profitability DCCBs in Haryana. It is encouraging

to note a significant increase in recovery of all types of loans. The compound growth

rate was the highest to the order of 99.27 per cent in the case of other loans, followed

by 48.00 per cent in medium-term agricultural loan. The rate of increase was found to

be the lowest to the tune of 3.27 per cent in the case of medium-term non-agricultural

loan, followed by 12.83 per cent in the case of short-term agricultural loan and 18.39

per cent in recovery of short-term non-agricultural loan in average profitability

DCCBs in Haryana.

151

Table 6.11 : Trends in Loans Recovery in Average Profitability DCCBs inHaryana:1999-00 to 2007-08 (` in lakh)



1999-00 15435 1596 110 486 3 17630

2000-01 17613 1630 94 468 246 20051

2001-02 14762 2331 126 500 10 17729

2002-03 16592 3575 211 516 10 20904

2003-04 24851 4255 969 517 30 30622

2004-05 28702 4461 1140 528 37 34868

2005-06 30813 2433 950 558 600 35354

2006-07 32283 2467 1133 536 1511 37930

2007-08 36136 13628 1455 669 2220 54108

Average 24131.89 4041.78 687.56 530.89 518.56 29910.67

C.V. 34.03 92.63 79.14 10.98 155.69 40.64

C.G.R. 12.83 18.39 48.00 3.27 99.27 14.82

t-value 6.75*** 2.39** 5.22*** 4.30*** 2.44** 7.94***

Trend Equation

Constant 9879.72 -268.97 -235.28 442.22 -637.28 9180.42

Beta 2850.43 862.15 184.57 17.73 231.17 4146.05

t-value 8.11*** 2.15* 6.64*** 3.99*** 3.34*** 6.92***




Table 6.12 brings out that on the average the proportionate share of

recovery out of total demand for loan appeared to be 77.95 per cent. It was highest to

the order of 83.45 per cent in the case of short-term non-agricultural loan and lowest

to the tune of 45.49 per cent in other loans. Average recovery performance in short-

term agricultural loans was 77.54 per cent and it was 78.22 per cent in medium-term

152

agricultural loans. The increase in proportion of recovery out of demand was found

to be significant in the case of short-term non-agricultural loan. The proportion of

recovery of all other types of loans registered almost stagnation in average

profitability DCCBs in Haryana.

Table 6.12 : Recovery in relation to Demand for Loan in Average ProfitabilityDCCBs in Haryana:1999-00 to 2007-08 (Percentage)



1999-00 76.63 73.55 89.43 58.84 100.00 75.792000-01 77.65 74.36 86.24 72.45 80.66 77.312001-02 76.40 77.86 76.36 78.86 13.33 76.452002-03 77.15 81.36 47.10 79.75 13.33 77.222003-04 78.42 87.86 82.26 78.45 7.46 78.982004-05 81.35 89.08 87.42 75.32 8.79 81.632005-06 79.96 84.83 80.30 74.60 40.49 78.892006-07 75.79 85.01 75.43 70.07 69.38 75.952007-08 74.52 97.16 79.46 71.70 76.00 79.33Average 77.54 83.45 78.22 73.34 45.49 77.95C.V. 2.72 9.08 16.15 8.73 80.00 2.45C.G.R. -0.07 3.01 -0.26 0.87 0.43 0.41t-value 0.18 5.33*** 0.10 0.70 0.03 1.39Trend EquationConstant 77.77 71.10 80.23 70.72 52.17 76.33Beta -0.04 2.47 -0.40 0.52 -1.33 0.32t-value 0.15 5.21*** 0.23 0.61 0.27 1.38



LOW PROFITABILITY DCCBs IN HARYANA

Trend Analysis

Table 6.13 shows that total recovery of loans increased significantly at the

growth rate of 7.82 per cent compounded annually from ` 38860 lakh in 1999-00 to `

153

67531 lakh in 2007-08 in low profitability DCCBs in Haryana. Similarly, the recovery

of short-term agricultural loans increased significantly from ` 28402 lakh to ` 59013

lakh during the same period.

Table 6.13: Trends in Loans Recovery in Low Profitability DCCBs in Haryana: 1999-00 to 2007-08 (` in lakh)



1999-00 28402 7832 577 985 1064 38860

2000-01 34178 2762 330 750 2206 40226

2001-02 31223 4739 196 735 12 36905

2002-03 31547 6658 136 330 147 38818

2003-04 39832 5798 741 518 139 47028

2004-05 38673 8691 967 517 169 49017

2005-06 49874 7399 1356 493 200 59322

2006-07 50692 5954 1003 499 344 58492

2007-08 59013 6730 985 547 256 67531

Average 40381.56 6284.78 699.00 597.11 504.11 48466.56

C.V. 26.13 28.08 59.86 32.42 140.35 22.73

C.G.R. 9.14 4.87 20.73 -6.33 -8.77 7.82

t-value 7.36*** 1.07 2.01* 1.89* 0.49 6.64***

Trend Equation

Constant 22346.66 5241.36 132.17 830.61 1205.78 29757.55

Beta 3606.90 208.68 113.37 -46.70 -140.33 3741.92

t-value 7.05*** 0.91 2.93** 2.33* 1.71 6.70***



A slightly significant increase in the recovery of medium-term agricultural

loan (from ` 577 lakh to ` 985 lakh) during the same period was also observed. There

154

was almost stagnation in recovery of short- term non-agricultural loan as indicated by

the non-significant t-value, while abrupt changes in recovery of other loans (these

fluctuated between `12 lakh in 2001-02 and `2206 lakh in 2000-01) turned the

growth rate non-significant. A significant decline in the recovery of medium-term

non-agricultural loan could be observed in low profitability DCCBs in Haryana.


Table 6.14 : Recovery in relation to Demand for Loan in Low ProfitabilityDCCBs in Haryana: 1999-00 to 2007-08 (Percentage)



1999-00 70.25 91.05 86.64 48.12 97.88 73.55

2000-01 69.83 84.00 87.77 39.31 99.10 70.89

2001-02 70.73 86.97 80.99 40.36 85.71 71.43

2002-03 68.55 87.18 47.72 42.91 16.41 69.81

2003-04 75.36 91.51 79.85 31.74 41.62 75.74

2004-05 70.71 94.13 77.17 48.14 15.13 72.76

2005-06 75.68 91.22 89.45 39.57 15.66 76.00

2006-07 67.30 88.29 88.06 36.99 23.39 67.99

2007-08 71.36 91.06 105.80 37.26 15.27 71.71

Average 71.08 89.49 82.60 40.49 45.57 72.21

C.V. 3.94 3.46 18.73 13.07 82.51 3.64

C.G.R. 0.20 0.54 2.51 1.87 -22.43 -0.10

t-value 0.37 1.23 0.86 1.14 4.36*** 0.20

Trend Equation

Constant 70.34 87.13 72.28 44.38 103.82 72.54

Beta 0.15 0.47 2.07 -0.78 -11.65 -0.07

t-value 0.39 1.22 1.04 1.17 4.24*** 0.18



155

Table 6.14 presents that the proportion of recovery out of total demand for

loan came to be 72.21 per cent on the average of 9 years under study. The proportion

of recovery out of demand was the highest to the order of 89.49 per cent in the case of

short- term non-agricultural loan while it was lowest to the tune of 40.49 and 45.57

per cent in the case of medium-term non-agricultural loan and other loans. There was a

significant decline in proportion of recovery out of demand in the case of other

loans. It came down from 97.88 per cent in 1999-00 to only 15.27 per cent in 2007-

08.

The proportion of recovery out of demand in all other types of loans remained

almost stagnant in low profitability DCCBs in Haryana.

On the basis of above analysis it can be inferred that absolute recovery

had registered a significant growth in all the selected DCCBs in Haryana during

the period of study. Average per centage of total recovery to demand during the

period of study was 80.64, 77.54 and 72.72 respectively in high, average and low

profitability DCCBs. Hence, it may be deduced that profitability had direct

correlation with recovery position of DCCBs . Proportionate recovery of short-

term agricultural loan was 79.96, 77.564 and 71.08 per cent respectively in high,

average and low profitability DCCBs.

ALL SELECTED DCCBs IN HARYANA

Trend Analysis

A glance at Table 6.15 provides that total recovery of loans increased

significantly from ` 80112 lakh in 1999-00 to `173932 lakh in 2007-08 in all the

selected DCCBs in Haryana at the compound growth rate of 10.34 per cent per

156

annum. Similarly, there was a significant increase in recovery of short-term

agricultural loans from ` 62647 lakh to `135254 during the same period.

Table 6.15: Trends in Loans Recovery in the Selected DCCBs in Haryana:1999-00 to 2007-08 (` in lakh)



1999-00 62647 11013 796 2015 3641 80112

2000-01 74930 6428 472 2029 4165 88024

2001-02 72543 9057 382 1927 3760 87669

2002-03 73577 13921 833 1257 6917 96505

2003-04 93636 13594 1975 1763 5443 116411

2004-05 103433 15516 2521 1565 11605 134640

2005-06 117529 11893 2863 1495 8244 142024

2006-07 123027 14103 2636 1762 3734 145262

2007-08 135254 23149 3051 2266 10212 173932

Average 95175.11 13186.00 1725.44 1786.56 6413.44 118286.56

C.V. 27.30 35.51 63.53 17.44 47.06 27.47

C.G.R. 10.28 10.48 29.85 -0.40 10.31 10.34

t-value 11.31*** 2.97** 4.09*** 0.16 1.83 13.22***

Trend Equation

Constant 48962.67 6616.33 -121.39 1815.97 3192.86 60467.96

Beta 9242.45 1313.93 369.37 -5.88 644.12 11564.42

t-value 11.45*** 3.18** 6.34*** 0.14 1.91* 11.57***



The increase was also found to be significant in recovery of short-term non-

agricultural loans and medium-term agricultural loans. The recovery of short-term

non-agricultural loans increased from ` 11013 lakh in 1999-00 to `23149 lakh in

157

2007-08 while the recovery of medium-term agricultural loans increased from `796

lakh in 1999-00 to ` 3051 lakh in 2007-08. The abrupt increase in recovery of other

loans in 2007-08 turned the increasing trend non-significant.


Table 6.16 : Recovery in Relation to Demand for Loan in all the SelectedDCCBs in Haryana: 1999- 00 to 2007-08 (Percentage)



1999-00 74.30 83.97 82.66 52.53 98.14 75.62

2000-01 74.96 78.53 78.54 54.25 95.81 75.34

2001-02 74.89 81.57 10.52 53.72 97.64 73.65

2002-03 74.02 83.97 62.96 54.49 89.27 75.78

2003-04 76.99 88.19 80.28 50.65 89.32 78.09

2004-05 77.75 89.75 82.25 56.62 88.87 79.57

2005-06 78.25 86.96 83.62 50.24 79.40 78.61

2006-07 73.11 89.93 79.02 51.84 65.54 73.96

2007-08 73.94 92.12 87.35 52.91 81.54 76.17

Average 75.36 86.11 71.91 53.03 87.28 76.31

C.V. 2.44 5.13 33.38 3.78 11.99 2.68

C.G.R. 0.07 1.63 8.06 -0.34 -3.76 0.25

t-value 0.21 4.34*** 0.84 0.67 3.84*** 0.71

Trend Equation

Constant 75.07 79.16 56.44 53.91 103.46 75.33

Beta 0.06 1.39 3.09 -0.18 -3.23 0.20

t-value 0.22 4.48*** 1.00 0.66 4.21*** 0.72



The analysis given in Table 6.16 shows that on the average of 9 years under

study, the proportion of recovery out of total demand for loans came to be 76.31 per

158

cent. It ranged from as low as 53.03 per cent in the case of medium-term non-

agricultural loan to as high as 87.28 per cent in other loans. There was a significant

increase in the proportion of recovery out of demand for short-term non-agricultural

loan, while in spite of the highest average recovery, the proportion of recovery out of

demand for other loans declined significantly at the rate of -3.76 per cent per annum.

The overall recovery position of loans demands special attention in

certain areas of loans, particularly in the case of other loans where there has

been a declining trend. The stagnation in the proportion of recovery out of

demand for other types of loans is also a cause of concern for the selected DCCBs

in Haryana.

Comparison of Loans Recovery in Punjab and Haryana

Table 6.17: Comparison of Loans Recovery in DCCBs in Punjab and Haryanaduring 1999- 00 to 2007-08 (` in lakh)

RecoveryPunjab Haryana

t-valueMean SD Mean SD

ST-Agrl. 80578 25068 95175 25983 1.21

ST-Non Agrl. 4009 2072 13186 4682 5.38***

MT-Agrl. 861 311 1725 1096 2.28**

MT-Non Agrl. 5993 3061 1787 312 4.10***

Others 5241 2152 6413 3018 0.95

Total 96682 31876 118287 32493 1.42



Table 6.17 presents the comparison of average recovery of different types of

loans in DCCBs in Punjab and Haryana. The total mean recovery came to be ` 96682

159

lakh in Punjab which was statistically at par with `118287 lakh in Haryana as

indicated by the non-significant t-value. However, the mean recovery of short-term

non-agricultural loan and medium-term agricultural loan was significantly higher in

Haryana as compared to that in Punjab. On the other hand, the recovery of medium-

term non-agricultural loan was significantly higher in DCCBs in Punjab as compared

to that in DCCBs in Haryana. Table 6.18 explains that proportion of recovery out of

demand for loan appeared to be 88.98 per cent in DCCBs in Punjab, which was

significantly higher than that in DCCBs in Haryana, i.e., 76.31 per cent. The

proportion of recovery out of demand for short-term agricultural loan and medium-

term non-agricultural loan was also significantly higher in DCCBs in Punjab as

compared to those in DCCBs in Haryana.

Table 6.18 : Comparison of Proportion of Recovery in Demand for Loan inDCCBs in Punjab and Haryana during 1999-00 to 2007-08

Recovery/DemandPunjab Haryana


ST-Agrl. 91.37 4.82 75.36 1.84

ST-Non Agrl. 85.43 5.19 86.11 4.42

MT-Agrl. 59.68 17.22 71.91 24.00

MT-Non Agrl. 75.04 6.64 53.03 2.00

Others 84.39 5.67 87.28 10.46

Total 88.98 3.97 76.31 2.05



160

On the basis of whole analysis, it can be said that the proportion of

recovery out of demand for loan was more encouraging in Punjab as compared

to the fluctuating and unstable trends in DCCBs in Haryana. Therefore, the

recovery management of loans ought to be made efficient in Haryana.

NON - PERFORMING ASSETS IN CO-OPERATIVE BANKS

The Narasimham Committee (1991) on financial system made several

recommendations with regard to reforms in the financial sector. One of the most

important recommendations made by the committee relates to the reflection of actual

financial health of the banks in their Profit & Loss Accounts and Balance-sheets. The

committee recommended that −

1. The prudential norms for income recognition should be objective and based on

actual record of recovery rather than on any subjective consideration.

2. The classification of assets should be done on the basis of objective criteria

which would ensure a uniform and consistent application of norms.

3. The provisioning should be made on the basis of classification of assets into

four categories, viz. standard, substandard, doubtful and loss assets.

While accepting the above recommendations, RBI issued guidelines to

Commercial Banks and the Urban Co-operative Banks to adopt the above system

from the year 1992-93. Regional Rural Banks were advised to implement the norms

of income recognition and asset classification from the year ending 31st March, 1996

(Provisioning to be made from the year ending 31st March, 1997). Further, it was

decided by RBI that the prudential norms of income recognition, asset classification

and provisioning be extended to the State Co-Operative Banks and the Central Co-

161

operative Banks from the year ending 31st March, 1997 (PSCB, 2001). RBI (1996)

guidelines on the subject are summarised below:

(i) INCOME RECOGNITION

a) The State Co-operative Banks and Central Co-operative Banks (SCBs/CCBs)

should not take the unrealised income to Profit and Loss Account. In States

where the SCBs/CCBs are required to take such unrealised income to P and L

A/c as per the relative provisions of the State Act/Rules, those banks will have

to make full provisions for equivalent amount by charging interest to

‘overdue’ loans and if such interest remains unrealised, the same may not be

taken to income account and matching provision be made. Accrued interest

taken into account in the previous year should also be provided in full in cases

where the same has become overdue.

b) Fees, commission and other income may be treated as income only if the

account is classified as ‘Standard’. Besides, a matching provision should be

created in the extent such items were treated as income in the previous year

but not realised in the subsequent year.

c) Fees and commission earned as a result of renegotiation or rescheduling of

outstanding debit should be recognised on an accrual basis over the period of

time covering the renegotiated or rescheduling of credit.

d) In the case of credit facilities guaranteed by government overdue interest can

be taken to profit and loss account only if matching provision is made.

e) The bills purchased /discounted should be treated as overdue if the same

remain unpaid. Interest may be charged to search bills and taken to profit and

loss account only if matching provision is made.

162

(ii) CLASSIFICATION OF ASSETS

As per guidelines of RBI (1996), classification of agricultural and non-

agricultural loans is required to be done into two broad categories:

Performing Assets (Standard Assets)

The borrower accounts which do not disclose any problem and do not carry

more than normal risk attached to business qualify for classification as standard

assets. In other words, all current loans, short-term agriculture loans and non-

agriculture loans which have not become NPAs may be treated as standard assets.

Non-Performing Assets

The Securitization Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 defined non- performing assets (NPAs) as “an asset or

account of a borrower, which has been classified by a bank or financial institution as

sub-standard, doubtful, or loss assets in accordance with the direction or guidelines

relating to assets classification issued by the RBI”.

NPA is defined generally as a credit facility in respect of which interest and/

or principal in arrears have not been received for one quarter or more.

NORMS FOR ASSET CLASSIFICATION

Criteria for Classification of Assets

On the basis of age of overdues, classification of agricultural and non-

agricultural loans is required to be done into the following four categories:

(1) Good/Standard Assets

Standard asset is one which does not disclose any problem and which does not

carry more than normal risk attached to business. Thus, in general, all the current

163

loans, short-term agricultural and non-agricultural loans which have not become

NPAs may be treated as standard assets.

(2) Sub-standard Assets

A non-performing asset may be classified as sub-standard on the basis of the

following criteria:

a) An asset, which has remained overdue for a period not exceeding 3 years in

respect of both agricultural and non-agricultural loans should be treated as

sub-standard.

b) In the case of all types of term loans, where instalments are overdue for a

period not exceeding 3 years, the entire outstanding term loan should be

treated as sub-standard.

c) An asset, where the terms and conditions of the loan regarding the payment

of interest and repayment of principal have been renegotiated or rescheduled

after commencement of production, should be classified as sub-standard and

should remain so in such category for at least two years of satisfactory

performance under 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 the above conditions.

3. Doubtful Asset

A non-performing asset may be classified as doubtful on the basis of following

criteria:

a) An asset which has remained overdue for a period exceeding three years in

respect of both agricultural and non-agricultural loans should be treated as

doubtful.

164

b) In the case of all types of term loans, where instalments are overdue for more

than three years, the entire outstandings in term loans should be treated as

doubtful.

4. Loss Assets

Loss assets are those where loss is identified by the bank/auditors/RBI/

NABARD inspectors but the amount has not been written off wholly or partly. In

other words an asset,which is considered unrealisable and/or of such little value that

its continuance as a doubtful asset is not worthwhile, should be treated as loss asset.

Such loss assets will include overdue loans in which cases (a) decree or execution

petitions have been time barred or documents are lost or no other legal proof is

available to claim the debt, (b) where the members and their sureties are declared

insolvent or have died leaving no tangible assets, (c) where the members have left the

areas of operation of the society leaving no property, their sureties have also no means

to pay the dues, (d) where the loan is fictitious or when gross misutilisation is

noticed, and (e) amounts, which cannot be recovered in case of liquidated societies.

(iii) PROVISIONING NORMS ON THE BASIS OF ASSETSCLASSIFICATION

Provisioning is necessary, considering the erosion in the value of security

charged to the banks over a period of time. Therefore, after the assets of

DCCBs/SCBs are classified into various categories (standard, sub-standard, doubtful

and loss assets) necessary provision has to be made for the same. The details of

provisioning requirements in respect of various categories of assets are mentioned

below (RBI, 1996).

165

1. Standard Asset

Provision is required to be made as follows:

(a) On direct advances to agriculture and SME sectors : 0.25%

(b) On all other types of advances : 0.40%

2. Sub-standard Asset

A general provision of 10% of the total outstandings in this category may be

made.

3. Doubtful Assets

(a) 100% is to be made of the extent to which the advance is not covered by

realisable value of securities to which the bank has a valid recourse and the

realisable value is estimated on a realisation basis

(b) Over and above item (a), provision is to be made depending upon the period

for which an asset has remained overdue/NPA, 20% to 100% of the secured

portion (i.e., estimated realisable value of the outstandings on the following

basis:

Criteria % Provision

Overdues above 3 years and up to 4 years 20%

Overdues over 4 years, but not exceeding 6 years 30%

Overdues exceeding 6 years 100%

IV. Loss Asset

1. The entire loss asset should be written off. If the assets are permitted to retain

in the books for any reason, 100% of the outstanding thereof should be fully

provided for.

166

2. The following aspects, however, may be kept in view while making provisions

(RBI, 1996).

(i) All agricultural loans may be treated as fully secured as the same are disbursed

against charge on land as provided in the respective State Co-operative

Societies Acts/Rules.

(ii) Liability towards Provident Fund and gratuity should be estimated on actuarial

basis and full provided for

(iii) Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs

and life policies are exempted from provisioning. Therefore, the above

accounts may not be classified as NPAs/Overdue.

(iv) Advances against gold ornaments, government securities and all other kinds of

securities are not exempted from provisioning requirements.

(v) The investment portfolio of a bank would normally consist of both approved

securities (Predominately Government Securities) and “Other” (shares,

debentures and bonds of co-operative and other institutions). Investments in

approved securities should be bifurcated into “permanent” and “current”

investments. Permanent investments are those which banks intend to hold till

maturity and current investments are those which banks intend to deal in, i.e.,

buy and sell on a day-to-day basis. Banks should keep not more than 50% of

their investments in permanent category. While the depreciation in respect of

permanent investments is not likely to affect their realisable value on maturity,

depreciation need not be provided for investments in the permanent category.

Investments under ‘current’ category should be carried at lower of cost value

167

of market value, on a consistent basis. Depreciation in the current investments, if

any, should thereof be fully provided for. Banks following a more prudent

method of valuation (e.g., all the investments marked to market) should

continue to do so and there should not be slip back in their case.

Investments should be shown in the balance-sheet net of depreciation. It is,

however, open to banks to show the book value of investments, the depreciation there

against and net amount of investments separately.

As regards valuation of securities other than approved securities these should

be valued at lower of cost price or market value. Investment in the shares of co-

operative institutions, however, may be valued at carrying cost price.

NON-PERFORMING ASSETS IN DCCBs

Non-performing assets are a very serious problem in financial institutions.

NPAs have been the single most vexing problem faced by the banks. It resulted in

deteriorating the process of resources mobilization in terms of non-recovery of loans,

loss of interest thereof and the provisions made to accommodate these non-recovered

loans. This affects business activity very badly, particularly in terms of re-advancing

the loans and hence, earning interest. Banks that have been identified as weak are

mainly so because of loss of their income, high carrying cost of NPAs, both in terms

of their funding as well as provisioning and general stagnation of operations caused

by NPAs in their books. In DCCBs, this problem is more acute due to political

interference and subsidized finance (Sabina, 2008).

Therefore, it is very much relevant here to study the trends in non-performing

assets.

PUNJAB DCCBs

168

HIGH PROFITABILITY DCCBs IN PUNJAB

Table 6.19: Trends in NPAs in High Profitability DCCBs in Punjab : 1999-00to 2007-08 (` in lakh)

YearTotalNPAs

ProvisionsMade

LoansOutstanding

% of NPAsto Loans

Outstanding

1999-00 1135.90 456.80 16361 6.94

2000-01 1375.61 516.67 24329 5.65

2001-02 1996.57 692.19 30013 6.65

2002-03 2758.85 659.43 34445 8.01

2003-04 2605.77 834.42 34615 7.53

2004-05 3054.75 965.61 35286 8.66

2005-06 3045.79 1228.25 39564 7.70

2006-07 3203.91 1924.88 32986 9.71

2007-08 3506.93 2197.57 43632 8.04

Average 2520.45 1052.87 32359.00 7.65

C.V. 33.10 58.98 24.99 15.35

C.G.R. 14.25 21.65 2.06

t-value 5.64*** 11.03*** 0.62

Trend Equation

Constant 1073.51 5.70 8.47

Beta 289.39 209.43 0.16

t-value 8.05*** 6.38 0.57

Projections

2014-15 5703.75 3356.58 11.03

2019-20 7150.70 4403.73 11.83

% Change Over 2007-08

2014-15 62.64 52.74 37.23

2019-20 103.90 100.39 47.18



169

A cursory look at Table 6.19 reveals that NPAs increased from ` 1135.90 lakh

in 1999-00 to ` 3506.93 lakh in 2007-08, registering a significant growth at the rate of

14.25 per cent compounded annually. The provisions made also depict a significantly

increasing trend from `456.80 lakh to `2197.57 lakh during the same period in high

profit DCCBs in Punjab. The rate of increase was higher in provisions (21.65%) as

compared to NPAs (14.25%). It shows that these DCCBs had failed to recover

their old NPAs and due to ageing of the NPAs provisions had to be made as a

higher rate. Hence, recovery of old NPAs is essential for these banks. Trend

equation shows that NPAs would increase by 62.64 per cent in 2014-15 and further to

103.90 per cent in 2019-20 over those during 2007-08, if this trend is not checked.

The further trend is similar in the case of provisions made against NPAs. The

proportion of NPAs in outstanding loans fluctuated between a minimum of 5.65 per

cent in 2000-01 to a maximum of 9.71 per cent in 2006-07 with an overall average of

7.65 per cent during the period of study. Compound growth rate of percentage of

NPAs to loans outstanding was recorded at 2.06 per annum.

AVERAGE PROFITABILITY DCCBs IN PUNJAB

The analysis given in Table 6.20 indicates that the NPAs increased from `

711.48 lakh in 1999-00 to `2993.76 lakh in 2007-08 registering a significant

compound growth rate of 21.26 per cent per annum. The provisions made against

NPAs also showed significant increase during this period. This shows that average

profitability DCCBs in Punjab used to make proportionate provisions to accommodate

NPAs. It can be said that the NPAs would increase by 72.36 per cent in 2014-2015

and 123.83 per cent in 2019-20 over 2007-08 in the average profitability DCCBs in

170

Punjab, if present trend is not checked. The provisions against NPAs would increase

by 45.34 and 91.11 per cent in 2014-15 and 2019-20 respectively.

Table 6.20: Trends in NPAs in Average Profitability DCCBs in Punjab: 1999-00 to 2007-08 (` in lakh)

YearTotalNPAs

ProvisionsMade

LoansOutstanding

% of NPAsto Loans Outstanding

1999-00 711.48 224.82 25220 2.82

2000-01 704.67 248.26 33004 2.14

2001-02 1288.7 301.73 43510 2.96

2002-03 1433.98 377.98 58001 2.47

2003-04 1504.33 452.33 55941 2.69

2004-05 1864.2 665.75 50197 3.71

2005-06 2659.97 710.88 46960 5.66

2006-07 2767.75 802.7 52659 5.26

2007-08 2993.76 1253.66 64397 4.65

Average 1769.87 559.79 3.60

C.V. 48.79 59.75 35.96

C.G.R. 21.26 23.52 5.92

t-value 9.81*** 16.49*** 1.97*

Trend Equation

Constant 228.94 -13.94 3.14

Beta 308.19 114.75 0.23

t-value 12.25*** 7.26*** 1.99*

Projections

2014-15 5159.98 1822.06 6.82

2019-20 6700.93 2395.81 7.97


2014-15 72.36 45.34 46.70

2019-20 123.83 91.11 71.44



171

The proportion of NPAs in total outstanding loans indicated a significant

increase from 2.82 per cent in 1999-00 to 5.66 in 2005-06 but declined to 4.65 per

cent in the last year of study. The overall growth rate came to be 5.92 per cent

compounded annually. The NPAs as a per cent of outstanding loans would be 6.82 per

cent in 2014-15 and 7.97 per cent in 2019-20 in average profitability DCCBs in

Punjab. Higher compound growth rate of provisioning (23.52 per cent) as compared

to CGR of NPAs (21.26 per cent) is a cause of concern for these banks.

LOW PROFITABILITY DCCBs IN PUNJAB

The data provided contained in Table 6.21 reveals that NPAs increased from

`1597.83 lakh in 1999-00 to ` 7076.64 lakh in 2007-08, showing a significant growth

rate of 20.78 per cent compounded annually in low profitability DCCBs in Punjab.

The provisions made against NPAs also increased from ` 742.93 lakh to ` 2596.02

lakh during the same period with a significant growth rate of 17.90 per cent

compounded annually. This showed that NPAs and provisions went hand in hand in

low profitability DCCBs in Punjab. The NPAs as a proportion of outstanding loans

increased from 6.67 per cent in 1999-00 to 24.79 per cent in 2005-06 which declined

to 14.35 per cent in 2007-08, but over the period it increased significantly at a

compound growth rate of 5.89 per cent. Though NPAs had increased in these banks

but the compound growth rate of provisions (17.90 per cent) is less than CGR of

NPAs (20.78 per cent) during the period of study. It shows that these banks had

succeeded in recovering their old NPAs, which speaks about their good

management practices.

172

Table 6.21 : Trends in NPAs in Low Profitability DCCBs in Punjab : 1999-00to 2007-08 (` in lakh)

YearTotalNPAs

ProvisionsMade

LoansOutstanding

% of NPAsto Loans

Outstanding

1999-00 1597.83 742.93 23941 6.67

2000-01 1917.46 780.9 26078 7.35

2001-02 2835.66 812.67 30843 9.19

2002-03 3613.76 935.93 35893 10.07

2003-04 4668.14 1103.04 39711 11.76

2004-05 5286.05 1435.38 41058 12.87

2005-06 5934.12 1439.35 23941 24.79

2006-07 6194.24 2347.69 52361 11.83

2007-08 7076.64 2596.02 49317 14.35

Average 4347.10 1354.88 12.10

C.V. 45.03 50.71 44.45

C.G.R. 20.78 17.90 5.89

t-value 9.46*** 9.10*** 1.99*

Trend Equation

Constant 795.86 199.42 10.05

Beta 710.25 231.09 0.63

t-value 23.54*** 6.26*** 1.84

Projections

2014-15 12159.86 3896.86 20.13

2019-20 15711.11 5052.31 23.28


2014-15 71.83 50.11 40.29

2019-20 122.01 94.62 62.24



173

The trend equation indicates that NPAs would be higher by 71.83 per cent in

2014-15 and further to 122.01 per cent in 2019-20 over 2007-08, while provisions

made against NPAs would be 50.11 and 94.62 per cent higher in 2014-15 and 2019-

20 respectively over those in 2007-08, if this trend of NPAs is not checked. The

proportion of NPAs in outstanding loans would be 20.13 per cent in 2014-15 and

23.28 per cent in 2019-20.

Increased NPAs would result in loss of principal amount, loss of interest

income and higher incidence of provisioning. Therefore, reduction in NPAs is of

utmost importance for low profitability DCCBs in Punjab to improve their

profitability and financial position.

ALL SELECTED DCCBs IN PUNJAB

Table 6.22 indicates that NPAs increased significantly from ` 3445.21 lakh in

1999-00 to ` 13577.33 lakh in 2007-08 at a compound growth rate of 18.88 per cent

per annum. Similarly, provisions made against NPAs also registered a significant

increase from `1424.55 lakh to ` 6047.25 lakh during the same period at the rate of

20.21 per cent compounded annually. The trend equations revealed that NPAs would

increase by 69.57 and 117.73 per cent in 2014-15 and 2019-20 respectively over

2007-08, if this trend continues. Similarly, provisions would be 50.08 per cent higher

in 2014-15 and 95.99 per cent in 2019-20 over those in 2007-08.

Table 6.7A shows that demand of the bank for recovery had constantly

increased from ` 69954 lakh in 1999-00 to `175965 lakh in 2007-08. Recovery as a

percentage of total loan had remained almost constant (between 86.0 per cent to 89.0

per cent in these years) except for 2000-01 when it was 99.21 per cent. As a result,

absolute amount of overdues and NPAs had increased during the period of study.

174

Table 6.22: Trends in NPAs Recovery in the Selected DCCBs in Punjab: 1999-00 to 2007-08 (` in lakh)

YearTotalNPAs

ProvisionsMade

LoansOutstanding

% of NPAsto Loans

Outstanding

1999-00 3445.21 1424.55 65522 5.26

2000-01 3997.74 1545.83 83411 4.79

2001-02 6120.93 1806.59 104366 5.86

2002-03 7806.59 1973.34 128339 6.08

2003-04 8778.24 2389.79 130267 6.74

2004-05 10205 3066.74 126541 8.06

2005-06 11639.88 3378.48 110465 10.54

2006-07 12165.9 5075.27 138006 8.82

2007-08 13577.33 6047.25 157346 8.63

Average 8637.42 2967.54 7.20

C.V. 41.71 54.83 26.61

C.G.R. 18.88 20.21 4.62

t-value 9.06*** 12.97*** 1.62

Trend Equation

Constant 2098.32 191.18 6.85

Beta 1307.82 555.27 0.33

t-value 24.17*** 6.95*** 1.55

Projections

2014-15 23023.44 9075.50 12.13

2019-20 29562.54 11851.85 13.78


2014-15 69.57 50.08 40.57

2019-20 117.73 95.99 59.69



NPAs in absolute terms had shown a significant growth in all the selected

DCCBs in Punjab during the period of study. CGR of NPAs was 14.25, 21.26 and

175

20.78 per cent in high, average and low profitability DCCBs respectively. NPAs

as proportion of outstanding loans remained constant in the selected DCCBs in

Punjab. This shows that banks were unable to recover old NPAs and/or some per

centage of new loans advanced also became NPAs.

Tables 6.19, 6.20 and 6.21 indicate that NPAs as a per centage of total

loan outstandings on the average were 7.65 per cent, 3.60 per cent and 12.10 per

cent respectively in high, average and low profitability DCCBs.

HARYANA DCCBs

HIGH PROFITABILITY DCCBs IN HARYANA

Table 6.23 demonstrates that NPAs increased from `631.80 lakh in 1999-00 to

` 4007.99 lakh in 2007-08, registering a significant rate of increase of 22.75 per cent

compounded annually. Similarly, the provisions made against NPAs increased

significantly from `532.05 lakh to `1599.30 lakh during the same period in high

profitability DCCBs in Haryana. A significant increase in the proportion of NPAs in

outstanding loans was also observed. It increased from 2.67 per cent in 1999-00 to

8.64 per cent in 2007-08 with overall compound growth rate of 12.13 per cent. These

are the only DCCBs under study in which compound growth rate of percentage NPAs

to loans outstanding, i.e., 12.13 per cent is more than compound growth rate of loans

outstanding, i.e., 9.41 per cent. This shows that NPAs increased faster than

outstanding loans. Compound growth rate of provisioning (17.38 per cent) which

was lower than compound growth rate of NPAs (22.75 per cent), indicates that

management of these DCCBs had succeeded in recovering old NPAs to some

extent. But increasing trend of NPAs with 12.13 CGR (more than CGR of total loan

outstandings) is a cause of serious concern for the management.

176

Table 6.23 : Trends in NPAs in High Profitability DCCBs in Haryana : 1999-00to 2007-08 (` in lakh)

YearTotalNPAs

ProvisionsMade

LoansOutstanding

% of NPAsto Loans

Outstanding

1999-00 631.80 532.05 23622 2.67

2000-01 910.19 553.19 22641 4.02

2001-02 1212.78 635.19 30194 4.02

2002-03 1581.21 693.61 33120 4.77

2003-04 3517.74 1093.24 37210 9.45

2004-05 2801.75 1142.44 38149 7.34

2005-06 3003.11 1473.64 40266 7.46

2006-07 2110.21 1518.0 43813 4.82

2007-08 4007.99 1599.30 46401 8.64

Average 2197.42 1026.74 5.91

C.V. 54.56 42.45 39.93

C.G.R. 22.75 17.38 12.13

t-value 4.32*** 10.34*** 2.76**

Trend Equation

Constant 371.92 252.64 2.52

beta 365.10 154.82 0.56

t-value 4.00*** 11.09*** 2.37**

Projections

2014-15 6213.52 2729.76 11.48

2019-20 8039.02 3503.86 14.28


2014-15 55.03 70.68 32.91

2019-20 100.57 119.09 65.32



177

Keeping in view the trend equations, it can be predicted that NPAs would

increase by 55.03 per cent in 2014-15 and further by 100.57 per cent in 2019-20 over

those in 2007-08 in high profitability DCCBs in Haryana, if this trend is not checked.

Similarly, the provisions would be 70.68 and 119.09 per cent higher as compared to

those in 2007-08. It is discouraging to note that NPAs as proportion of outstanding

loans would increase to 11.48 per cent in 2014-15 and 14.28 per cent in 2019-20 in

high profitability DCCBs in Haryana.

AVERAGE PROFITABILITY DCCBs IN HARYANA

Table 6.24 brings out that NPAs increased from ` 2518.64 lakh in 1999-00 to

`5328.30 lakh in 2007-08 at a significant compound growth rate of 8.26 per cent per

annum in average profitability DCCBs in Haryana. Similarly, the provisions made to

accommodate the NPAs were `917.95 lakh in 1999-00, which significantly increased

to `1870.38 lakh in 2007-08 at the growth rate of 9.27 per cent compounded annually.

NPAs proportion in outstanding loans was fluctuating throughout the study but

it always remained more than 9.47 per cent with overall average of 12.56 per cent.

The trend needs to be checked. If the trend is not checked NPAs in absolute terms

would be higher by 33.21 per cent in 2014-15 and 60.98 per cent in 2019-20 over

those in 2007-08 in average profitability DCCBs in Haryana. Similarly, provisions

would increase by 37.35 per cent in 2014-15 and by 68.54 per cent in 2019-20 over

2007-08.

178

Table 6.24 : Trends in NPAs in Average Profitability DCCBs in Haryana :1999-00 to 2007-08 (` in lakh)

YearTotalNPAs

ProvisionsMade

LoansOutstanding

% of NPAsto Loans

Outstanding

1999-00 2518.64 917.95 17165 14.67

2000-01 3049.84 1112.27 31045 9.82

2001-02 3014.77 924.3 23736 12.70

2002-03 4403.44 1058.46 26036 16.91

2003-04 3685.55 1158.36 29067 12.68

2004-05 3559.89 1279.38 31967 11.14

2005-06 4527.80 1580.4 34928 12.96

2006-07 4494.70 1665.33 47448 9.47

2007-08 5328.30 1870.38 41973 12.69

Average 3842.55 1285.20 12.56

C.V. 23.62 26.62 18.39

C.G.R. 8.26 9.27 -4.10

t-value 5.17*** 6.98*** 1.68

Trend Equation

Constant 2362.90 701.70 17.11

beta 295.93 116.70 -0.60

t-value 5.25** 6.92*** 1.51

Projections

2014-15 7097.78 2568.90 7.51

2019-20 8577.43 3152.40 4.51


2014-15 33.21 37.35 -40.84

2019-20 60.98 68.54 -64.47



** Significant at 5 % level

179

LOW PROFITABILITY DCCBs IN HARYANA

Table 6.25 : Trends in NPAs in low profitability DCCBs in Haryana : 1999-00to 2007- 08 (` in lakh)

YearTotalNPAs

ProvisionsMade

LoansOutstanding

% of NPAsto Loans

Outstanding

1999-00 1358.16 293.65 46839 2.90

2000-01 1494.07 342.25 52740 2.83

2001-02 1744.79 393.25 40201 4.34

2002-03 1883.46 539.91 47449 3.97

2003-04 1688.71 657.7 50902 3.32

2004-05 2187.05 863.62 56098 3.90

2005-06 2540.75 1086.11 64368 3.95

2006-07 2167.24 1196.25 72017 3.01

2007-08 1943.36 1212.33 78940 2.46

Average 1889.73 731.67 3.41

C.V. 19.56 50.45 19.03

C.G.R. 5.92 21.99 -2.78

t-value 3.44** 14.72*** 1.08

Trend Equation

Constant 1368.41 69.50 4.38

beta 104.26 132.44 -0.09

t-value 3.22** 13.95*** 0.94

Projections

2014-15 3036.57 2188.54 2.94

2019-20 3557.87 2850.74 2.49


2014-15 56.25 80.52 19.42

2019-20 83.08 135.15 1.14



180

Table 6.25 indicates that NPAs increased from ` 1358.16 lakh to ` 1943.36

lakh from 1999-00 to 2007-08 at a significant growth rate of 5.92 per cent

compounded annually in low profitability DCCBs in Haryana. The provisions made

against NPAs increased from ` 293.65 lakh in 1999-00 to ` 1212.33 lakh in 2019-20,

registering a compound growth rate of 21.99 per cent per annum. The provisions

made against NPAs increased at a much faster rate than NPAs itself. The compound

growth rate of provisioning, i.e., 21.99 per cent was much higher than 5.92 per cent

CGR of total NPAs. The proportion of NPAs total loan outstanding was almost

stagnant. It establishes that management of these DCCBs had not been able to

recover old NPAs and ageing NPAs had increased provisioning requirements, it

needs to be checked. The NPAs would be higher by 56.25 per cent in 2014-15 and

83.08 per cent in 2019-20 as compared to those in 2007-08 in low profitability

DCCBs in Haryana, if present trend is not checked.

The proportion of NPAs in outstanding loans was 4.34 per cent in 2001-02 and

2.46 in 2007-08. In all other years during the study period, it remained almost

stagnant between 3 per cent and 4 per cent.

It is pertinent to note that NPAs as a per centage of total loans outstanding

were the lowest, i.e., 3.41 per cent (Table 6.25) in low profitability DCCBs as

compared to high profitability DCCBs (5.91 per cent, Table 6.23) and average

profitability DCCBs (12.56 per cent, Table 6.24). It may be inferred that profitability

of DCCBs is not affected by NPAs alone.

181

ALL SELECTED DCCBs IN HARYANA

Table 6.26 : Trends in NPAs in the Selected DCCBs in Haryana : 1999-00 to2007-08 (` in lakh)

YearTotalNPAs

ProvisionsMade

LoansOutstanding

% of NPAsto Loans

Outstanding

1999-00 4508.60 1743.65 87626 5.15

2000-01 5454.10 2007.71 106426 5.12

2001-02 5972.34 1952.74 94131 6.34

2002-03 7868.11 2291.98 106605 7.38

2003-04 8892 2909.30 117179 7.59

2004-05 8548.69 3285.44 126214 6.77

2005-06 10071.66 4140.15 139562 7.22

2006-07 8772.15 4379.58 163278 5.37

2007-08 11279.65 4682.01 167314 6.74

Average 7929.70 3043.62 6.41

C.V. 28.02 37.22 15.16

C.G.R. 10.93 14.56 0.79

t-value 6.69*** 13.45*** 0.50

Trend Equation

Constant 4103.24 1023.84 6.51

Beta 765.29 403.96 0.05

t-value 7.51*** 12.01*** 0.42

Projections

2014-15 16347.88 7487.20 7.31

2019-20 20174.33 9507.00 7.56


2014-15 44.93 59.91 8.43

2019-20 78.86 103.05 12.14


Note :*** Significant at 1% level

182

The analysis presented in Table 6.26 shows that NPAs increased from `

4508.60 lakh in 1999-00 to `11279.65 lakh in 2007-08 at a significant growth rate of

10.93 per cent compounded annually. The provisions made against NPAs also showed a

significant increase at the rate of 14.56 per cent compounded annually. These

increased from `1743.65 lakh to `4682.01 lakh during the same period. This showed

that rate of increase in provisions was higher than that in NPAs in all the selected

DCCBs in Haryana. Trend equation shows that in future also the increase in

provisions would be 44.93 per cent in 2014-15 and 78.86 per cent in 2019-20, while

the increase would be 59.91 per cent in 2014-15 and 103.05 per cent in provisions

over that in 2007-2008.

Absolute NPAs in DCCBs in Haryana also had registered a significant

growth. Annual CGR of high, average and low profitability DCCBs was 22.75,

8.26 and 5.92 respectively. The NPAs as proportion of outstanding loans

remained constant despite increase in loan outstandings. It shows that new loans

advanced had also become NPAs, at already prevailing rate of NPAs which needs

to be checked.

As revealed by Tables 6.23, 6.24 and 6.25, NPAs as a proportion of loans

outstanding registered a significant increasing trend in high profitability DCCBs,

while in average and low profitability DCCBs it was constant.

Comparison of NPAs in DCCBs of Punjab and Haryana

The analysis given in Table 6.27 shows that average NPAs in DCCBs in

Punjab were ` 8637.42 lakh which appeared to be statistically at par with `7929.70

lakh in DCCBs in Haryana. Similarly, the provisions made against NPAs were at par

183

in both the states. However, the NPAs as per centage of outstanding loans were

significantly higher in DCCBs in Punjab, i.e., 7.20 per cent as compared to those in

DCCBs in Haryana, i.e., 6.41 per cent.

Table 6.27 : Comparison of NPAs in DCCBs in Punjab and Haryana during1999-00 to 2007-08

ParticularsPunjab Haryana


NPAs 8637.42 3602.72 7929.70 2221.90 0.51

Provisions 2967.54 1627.10 3043.62 1132.84 0.12

Loans O/S 116029.22 123148.33

%NPAs to 7.20 6.41 0.57

loans O/S


On the basis of whole analysis, it can be said that the position of NPAs in

DCCBs of both the states was not satisfactory. They were increasing and would

increase in future, if not checked. However, the NPAs as proportion of

outstanding loans, by and large, remained stagnant except in high profitability

DCCBs in Haryana despite increase in loan outstandings.

This shows that the recovery efforts of these banks failed to yield the

desired results as some per centage of new loans had also become NPAs, which

need to be curtailed.

184

REFERENCES

Narasimham, M.(1991), Report of Committee on Financial System, Govt. of India.

Padmanabhan, K.S.(1997), Management of Non- Performing Assets, Inter-faculty

note, BIRD, Lucknow.

PSCB (2001), Guidelines on Income Recognition and Asset Classification and

Provisioning, An Internal Publication of the Bank.

RBI (June 1996), Income Recognition, Asset Classification, Provisioning and Other

related Matters. Circular No. B.C. 155/07.37.02/ 95-96.

Sabina, Kumar (2008), Management of Non- performing Advances: A Study of

District Central Co-operative Banks of Punjab, An Unpublished Ph.D. Thesis,

Submitted to H.P. University Shimla, p.306.

185

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