study of npa by ajinkya (3)final
TRANSCRIPT
Study of Non-Performing Asset
A
Project Report
On
“A study on NPAs in Co-op banking sector”
OF
“The Seva Vikas Co-op Bank LTD
Bysssssssssssss
Under the Guidance ofsssssssssss
Submitted To
University of Pune
In partial fulfillment of the requirement for the award of theDegree of
Master of Business Administration (MBA)
ssssssssssssssssssPune
ACKNOWLEDGEMENT
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First and foremost I would like to thank Seva Vikas co-op bank, kothrud branch and Staff
Training College, Pune for giving me an opportunity to work as a summer trainee.
I would also thank Mrs Adtiee Huprikar, Staff Training College and Mrs Shilpa
Dhameja, Faculty, Staff Training College, Seva Vikas Co-op bank, my project guide
from Seva vikas co-op bank for sharing their expertise in banking. I am grateful to them
for giving me the project idea and providing never-ending motivation.
I take this opportunity to express my sincere gratitude towards internal project guide
Mr Deepak Artwani for his invaluable guidance and support during the course of
development of this project. Without his cooperation and constant encouragement this
project would not have materialized.
I also thank Mr Promod Jogdeov, Executive Direrctor, SBS, for playing the ideal mentor
and being a constant source of inspiration throughout.
Lastly, I also thank to the innumerable sources of information and many direct & indirect
helping hands without which this project work would not have been possible.
DECLARATION
I MR AJINKYA RANJIT GHOLE .Student of Sankalp business School ,Pune
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Hereby Declare That The Project Report Submitted By Me Is An Orignal Work
Conducted By Me For Partial Fulfillment Of Degree Of MASTERS OF BUSIN –
-ESS ADMINISTRATION And Same Has Not Been Submitted By Me For Any
Other Examination Of This University Or Any Other University.
AJINKYA RANJIT GHOLE.
EXECUTIVE SUMMARY
The main basis of banking is granting of credit facilities for economic activities. Apart
from raising funds through fresh deposits, borrowings, etc. recycling of funds received
back from borrowers constitutes a major part of funding credit dispensation activity.
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Non-recovery of principal along with the interest on the loan portfolio wipes out the
effectiveness of the process of credit cycle. Non-recovery also affects the profitability of
banks besides being required to maintain more owned funds by way of capital and
creation of reserves and provisions to act as cushion for the loan losses. Avoiding loan
losses is one of the major concerns of management of banks. While complete elimination
of such losses is not possible, bank managements aim to keep the losses at a low level. In
fact, it is the level of Non-Performing Assets (hereafter known as NPA), which, to a great
extent, differentiates between a healthy and weak banking business.
In India, the Non Performing Assets, which are considered to be at higher levels than
those in other countries, have attracted the attention of public as also of International
Financial Institutions. This has gained further importance in the wake of transparency and
disclosure measures initiated by Reserve Bank of India during recent years. These
developments have prompted me to undertake a study of NPA’s in banks, to understand
the problem, its genesis and influence on the banking industry.
The project consists of identifying the causes of non-recovery, impact of NPAs on the
financial position of the bank, study of Income Recognition and Asset Classification
norms and understanding NPA management through a case study.
Index
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Sr.No. Topic Page No.
Chapter I Introduction To Study
Chapter II Company profile 2
Chapter III Research methodology 6
Chapter IV Theoretical Background 7
Chapter V Data Analysis And Interpretation 8
Chapter VI Finding And Conclusion 20
Chapter VII Recommendation 61
Chapter VIII Bibliography 88
Chapter IX Annexure 96
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Chart Index
Sr No. Topics Page NO
Chapter I Deposites
Chapter II Loans And Advances
Chapter III Profit
Chapter IV Gross And Net NPA
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INTRODUCTION
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Introduction To Study Of NPA
Non Performing asset (NPA) is defined as a credit facility in respect of which the
interest and/or installments of principal has remained over due for a specified period of
time i.e. more than 90 days.
Before coming to the main topic of Non-Performing-Assets it is important to
acknowledgement the relationship of credit and risk associated with lending. The Bank
of international settlement Basel, Switzerland, states, “Granting credit involves accepting
risks as well as producing profits”. This statement clearly goes out to show that how
important credits are to the banks and how it affects profits. The risk perception implies
admission of the fact that some risk is inherent in all credit transactions irrespective of the
fact that securities and other precautions are in place. It is also true that for the sake of
risk aversion alone, the bank can’t stop credit expansion, since the remedy to the problem
does not lie there at all. The fact that credit forms nearly 70% of the total assets of the
bank and thus cannot be ignored. In all it can be summed up to say that banks can’t do
without credit and credit cannot be without risk.
For study of non-performing assets study of Income recognition, asset
classification and provisioning is important. Income Recognition means an eligibility of
any account to debit the interest and credit the same to Profit and Loss account. Income
can be recognized only if the account is classified as standard asset. Interest accrued but
not recovered in specified period cannot be recognized for profit. Generally earlier to
1992 there was a method of the bank used to charged interest on loan and show as
income irrespective of whether it was actually received or not. Naturally there was a rosy
picture of profit and loss account.
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To avoid such practice it was felt necessary to apply NPA concepts and following
it methodically.
Assets are classified as follows
1. Standard Assets
2. Sub-standard assets
3. Doubtful assets
4. Loss assets
The asset classification depends on the performance of the account. For these assets
classification there are some guidelines and provisioning norms given by RBI.
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OBJECTIVES OF THE STUDY
1. To study Non Performing Assets of SEVA VIKAS CO –OPP BANK
2. Identify the Causes of Non Performing Assets and their Impact on
Banks
3. Study the Prudential Norms with respect to Income Recognition,
Asset Classification and Provisioning.
4. Study the case about restructuring of loan .
5 Recovery of Non-Performing Assets
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Scope Of Study
Concept of NPA can be studied in each and every bank .therefore the scope of this subject is wide ; but the scope of the study is limited to the study of Seva Vikas Co –Op Bank.
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COMPANY PROFILE
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COMPANY PROFILE – SEVA VIKAS CO-OP BANK
HISTORY-
Known as a serving common man’s, bank since inception, seva vikas co-op bank was
registered on 23th april 1971 with an authorized capital of 11.00 lakh and commenced its
business on 25 th june.1971.
Its initial help to small units gave birth to many of today’s industrial houses. The Bank
expanded rapidly. It now has 13 branches (as on 31.03.2011) all over pune. The bank has
largest network of branches by any public sector bank in the state of Maharashtra.
Believing in the philosophy of technology with personal touch, seva vikas bank aims to
cater all types of need of the entire family, in the whole country. Its dream is “SEVA +
VIKAS, AND HUGE DEVELOPMENT”.
IT help in giving more and more services with simplified procedures without
intervention of Government.
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VISION-
To be a vibrant, forward looking, techno-savvy, customer centric bank serving diverse
sections of the society, enhancing shareholders and employees value while moving
towards global present
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MISSION-
To ensure quick and efficient response to customer expectation.
To innovate products and services to cater to diverse sections of society.
To adopt latest technology on a continuous basis.
To build proactive, professional and involved work force.
To enhance the shareholders wealth through best practices and corporate
governance.
To enter international arena through branch network.
THE EMBLEM-
The Diya in Hand
The hands indicates support to society. And people
Diya indicates ujala in the society, and in life of commam people .
ATTRIBUTES OF THE BANK
The Bank has rolled out 13 branches under Core Banking Solution.
The Bank is going to soft launched multiple delivery channels like Internet
Banking, Phone Banking and Mobile Banking.
Real Time Gross Settlement (RTGS) scheme is implemented at 13
branches. Instant Remit facility is made available on RTGS platform at these 13
branches. National Electronic Funds Transfer (NEFT) is also made available at
these 13 branches.
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Lockers facilites,safe deposite,stamp franking,SWIFT,ABB anywhere branch bankiang ,sms facility for account status.
VISION 2011-
To cross the Business Level of Rs.500/- Crore by March 2011.
Increaseing of Growth rate of Savings Bank Deposits and average Saving Deposits .
Increaseing Growth rate in Current Deposits and average Current Deposit.
Systematic approach for reducing Net NPA level to 0.0%.
6 Branches proposed to be opened at new business centers and 3 extension counters
to be converted into full-fledged branches. .
ATM network to be increased
Biometric ATMs to be introduced at selected branches.
Introduction of Internet banking, Mobile banking and Phone banking.
SHGs with special reference to agriculture to be promoted and financing be
implemented so as to increase financing to small and marginal farmers.
Financial Inclusion to the unbanked section of the population.
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RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the problems. It may be
understood to study how research is done scientifically. In this, we study various steps
that are generally adopted by the researcher in studying research problems along with the
logic behind them, to understand why we are using particular method or technique so that
the research results are capable of being evaluated.
During my project work, I have used a lot of data to understand the concept of NPA. The
data collected was interpreted and then used as information in project work.
Data collection –
The data collected for the project was in the form of written as well as verbal information
regarding the loan indication.
1) Primary data- The information about the bank is gathered from the discussion
with the employees/staff. And from case study
2) Secondary data- The secondary data was collected from
Summary reports about classification of advances, movement of NPAs etc.
Circulars and notifications of RBI concerning NPAs and credit management.
Annual reports of the bank.
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DATA ANALYSIS-
The data thus obtained is analyzed by using following methods:
a) Analysis of financial statements
b) Ratio analysis
FINANCIAL HIGHLIGHTS:
(All figures in lacs of Rs. except ratios)
Parameter Mar-08 Mar-09 Mar-10
Working Capital 28898.68 30884.30 42055.96
Investments 11780.80 11341.76 15481.49
Share Capital 125.94 147.61 153.60
Reserves 2877.69 3443.75 4328.08
Deposites 21665.15 23675.14 31707.86
Loans and Advances 15150.43 16872.07 21152.84
Profit Before Tax 904.50 1293.37 1345.36
Profit After Tax 584.50 903.37 970.36
Gross NPAs 3.62 2.50 1.75
Net NPAs 0.00 0.00 0.00
CRAR 15.49 18.57 16.24
Audit Classification A A A
RBI Grade -------- I I
Table no 5.1
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PAST PERFORMANCE OF THE BANK :
Asset Quality (All figures are in crores of Rs. except ratios)
Sr. No. Particulars 2008-09 2009-10
Increase %
Rise
1 Reserves 2877.69 3443.75 566.06 19.67
2 Deposits 21665.15 23675.14 2009.99 9.28
3 Loans And Advances 15150.42 16872.07 1721.65 11.36
4 Profit Before Tax 904.50 1293.37 388.87 42.99
5 Net Profit After Tax 584.50 903.37 318.87 54.55
6 Share Capital 125.94 147.61 21.67 17.21
Sr.No. Particulars 2008-09 2009-10
Increase %
Rise
1 Reserves 3443.75 4328.08 884.33 25.68
2 Deposits 23675.14 31707.86 8032.72 33.93
3 Loans And Advances 16872.07 21157.84 4280.77 25.37
4 Profit Before Tax 1293.37 1345.36 51.99 4.02
5 Net Profit After Tax 903.37 970.36 66.93 7.41
6 Share Captial 147.61 153.60 5.99 4.06
Table no 5.2
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BUSINESS RATIOS:
Sr.
No. Particulars
31.03.200
9
31.03.201
0
1 Capital Adequacy ratio 18.57% 16.24%
2 N.P.A At The End Of The Year 422.59 lac 370.88 lac
3 Percentage Of NPA To Total Loans & Advances 2.50% 1.75%
4 Percentage Of Net NPA To Net Loans & Advances 0.00 0.00
5 Interest Income as Percentage To Working Fund 9.94% 8.20%
6
Non Interest Income As Percentage To Working
Fund 0.93% 0.87%
7 Non Interest Income as Percentage to total Income 8.55% 9.61%
8 Cost Of Fund (Percentage) 5.62% 5.28%
9 Percentage Of Management Cost To Working Fund 2.15% 1.84
10 Operating Profit As Percentage To Working Fund 4.41% 3.20%
11 Percentage Of Net Profit To Working Fund 2.92% 2.31%
12 Business Per Employee
275.83
Lac
354.77
Lac
13 NET Earning Per Employee (Productivity) 6.15 Lac 6.51 Lac
Table no 5.3
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Deposits
Chart no 5.1
Loans And Avances
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Chart no 5.2
Profit
Chart no 5.3
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NPA In Percentage(%)
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Chart no 5.4
Bank/Year 2001-2011
SevaVikas Co.Op. Bank 0.85%
Sarswat Bank 3.25%
Shamrao Vitthal Bank 2.88%
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Bank/Year 2001-2011
SevaVikas Co.Op. Bank 4.37%
Sarswat Bank
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0.00%Shamrao Vitthal Bank 0.00%
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Theoretical Background
CONCEPT OF NPA
NPA means Non Performing Assets. An asset, including a leased asset, becomes non-
performing when it ceases to generate income for bank, As per RBI Guidelines a Non
Performing Asset is a loan or advance where:
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1. Interest and/ or installment of principal remains overdue for a period of more than 90
days in respect of term loan.
2. The account remains ‘out of order’ in respect of an Overdraft/ Cash Credit (OD/CC)
for more than 90 days.
3. The bill remains overdue for the period of more than 90 days in the case of bills
purchased and discounted.
An asset is classified as non-performing asset (NPAs) if the borrower does not pay dues
in form of principle and interest for a period of 90 days. If any advance or credit facilities
granted by bank to borrower becomes non performing, then the bank will have to treat all
the advances/ credit facilities granted to a borrower as non performing without having
any regard to the fact that there may still exists certain advances / credit facilities having
performing status.
Ninety-day norm
From April 2004, all bank dues pending for more than 90 days are declared bad or non-
performing and appropriate action will follow to recover the dues. In preparation for the
implementation of the 90-day norm, Indian banks had been directed to shift, since April
2002, to a system of charging of interest on a monthly basis instead of the practice of
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charging interest on quarterly basis. Interest has to be calculated on a monthly basis under
the new system because borrowers are required to pay the interest for every month before
the 10th day of the subsequent month or, in any case, before the next payment of interest
is due. Failure to service interest every month will attract penal interest besides recall of
the loan after three months.
Introduction of the 90-day norm was a part of the banking reforms aimed at ushering in
an efficient, business and customer friendly banking system, which can conform to
international standards. The 90-day norm makes the banks follow up on every loan from
the very first month after disbursement. This has greatly help the banks to detect signs of
sickness in time and start the recovery process before the default swells up or the assets
financed by the loans deteriorate in value. Seen from the borrowers’ angle, the new norm
imparts them with a much needed credit discipline to manage their finances properly.
Eventually the new norm has lead to a comfortable 90-day cycle of payment in the
organized sector, which meets the needs of liquidity and business growth in a competitive
economy. Banks have a key role to play here in educating the various sections of the
borrowers on the banking reforms, in general, and the 90-day norm in particular.
4. Appropriation of recovery in NPAs
Interest realized on NPAs may be taken to income account provided the credits in the
accounts towards interest are not out of fresh/ additional credit facilities sanctioned to the
borrower concerned.
In the absence of a clear agreement between the bank and the borrower for the purpose of
appropriation of recoveries in NPAs (i.e. towards principal or interest due), banks should
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adopt an accounting principle and exercise the right of appropriation of recoveries in a
uniform and consistent manner.
5. Interest Application
There is no objection to the banks using their own discretion in debiting interest to an
NPA account taking the same to Interest Suspense Account or maintaining only a record
of such interest in proforma accounts.
ASSET CLASSIFICATION
Categories of NPAs
Banks are required to classify non-performing assets further into the following three
categories based on the period for which the asset remains non-performing and the
realization of the dues:
a) Substandard Assets
b) Doubtful Assets
c) Loss Assets
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Substandard Assets
With effect from 31 March 2005, a substandard asset would be one, which has remained
NPA for a period less than or equal to 12 months, such an asset will have well defined
credit weaknesses that 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.
Doubtful Assets
With effect from March 31, 2005, an asset would be classified as doubtful if it has
remained in the substandard category for a period of 12 months. A loan classified as
doubtful has all the weaknesses inherent in assets that were classified as substandard,
with the added characteristic that the weaknesses make collection or liquidation in full, –
on the basis of currently known facts, conditions and values – highly questionable and
improbable.
Loss Assets
A loss asset is one where the bank or internal or external auditors have identified loss or
the RBI inspection but the amount has not been written off wholly. In other words, such
an asset is considered uncollectable and of such little value that its continuance as a
bankable asset is not warranted although there may be some salvage or recovery value.
Guidelines for classification of assets
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Broadly speaking, classification of assets into above categories should be done taking
into account the financial institution of well-defined credit weaknesses and the extent of
dependence on collateral security for realization of dues.
Banks should establish appropriate internal systems to eliminate the tendency to delay or
postpone the identification of NPAs, especially in respect of high value accounts. The
banks may fix a minimum cut off point to decide what would constitute a high value
account depending upon their respective business levels.
The cut off point should be valid for the entire accounting year. Responsibility and
validation levels for ensuring proper asset classification may be fixed by the banks. The
system should ensure that doubts in asset classification due to any reason are settled
through specified internal channels within one month from the date on which the account
would have been classified as NPA as per extant guidelines.
Accounts with temporary deficiencies
The classification of an asset as NPA is based on the record of recovery. Bank does not
classify an advance account as NPA merely due to the existence of some deficiencies
which are temporary in nature such as non-availability of adequate drawing power based
on the latest available stock statement, balance outstanding exceeding the limit
temporarily, non-submission of stock statements and non-renewal of the limits on the due
date, etc. In the matter of classification of accounts with such deficiencies banks follow
the following guidelines:
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(a) Banks ensure that drawings in the working capital accounts are covered by the
adequacy of current assets, since current assets are first appropriated in times of distress.
Drawing power is required to be arrived at based on the stock statement, which is current.
However, considering the difficulties of large borrowers, stock statements for
determining drawing power should not be older than three months. The outstanding in the
account based on drawing power calculated from stock statements older than three
months, would be deemed as irregular.
A working capital borrower account will become NPA if such irregular drawings are
permitted in the account for a continuous period of 90 days even though the unit may be
working or the borrower's financial position is satisfactory.
(b) Regular and ad hoc credit limits need to be reviewed/ regularized not later than three
months from the due date/date of ad hoc sanction. In case of constraints such as non-
availability of financial statements and other data from the borrowers, the branch should
furnish evidence to show that renewal/ review of credit limits is already on and would be
completed soon. In any case, delay beyond six months is not considered desirable as a
general discipline. Hence, an account where the regular/ ad hoc credit limits have not
been reviewed/renewed within 180 days from the due date/ date of ad hoc sanction is
treated as NPA.
Upgrading of loan accounts classified as NPAs
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If the borrower in the case of loan accounts classified as NPAs pays arrears of interest
and principal, the account is no longer treated as non-performing and is be classified as
‘standard’ account.
Accounts regularized near about the balance sheet date
The asset classification of borroweraccounts where a solitary or a few credits are
recorded before the balance sheet date should be handled with care and without scope for
subjectivity. Where the account indicates inherent weakness on the basis of the data
available, the account should be deemed as a NPA. In other genuine cases, the banks has
to furnish satisfactory evidence to the Statutory Auditors/Inspecting Officers about the
manner of regularization of the account to eliminate doubts on their performing status.
Asset Classification to be borrower-wise and not facility-wise
a) It is difficult to envisage a situation when only one facility to a borrower/one
investment in any of the securities issued by the borrower becomes a problem
credit/investment and not others. Therefore, all the facilities granted by a bank to a
borrower and investment in all the securities issued by the borrower will have to be
treated as NPA/NPI and not the particular facility/investment or part thereof which has
become irregular.
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b) If the debits arising out of devolvement of letters of credit or invoked guarantees are
parked in a separate account, the balance outstanding in that account also should be
treated as a part of the borrower’s principal operating account for the purpose of
application of prudential norms on income recognition, asset classification and
provisioning.
Advances under consortium arrangements
Asset classification of accounts under consortium should be based on the record of
recovery of the individual banks and other aspects having a bearing on the recoverability
of the advances. Where the remittances by the borrower under consortium lending
arrangements are pooled with one bank and/or where the bank receiving remittances is
not parting with the share of other member banks, the account will be treated as not
serviced in the books of the other member banks and therefore, be treated as NPA. The
banks participating in the consortium should, therefore, arrange to get their share of
recovery transferred from the lead bank or get an express consent from the lead bank for
the transfer of their share of recovery, to ensure proper asset classification in their
respective books
Advances to PACS/FSS ceded to Commercial Banks
In respect of agricultural advances as well as advances for other purposes granted by
banks to PACS/ FSS under the on-lending system, only that particular credit facility
granted to PACS/ FSS which is in default for a period of two crop seasons in case of
short duration crops and one crop season in case of long duration crops, as the case may
be, after it has become due will be classified as NPA and not all the credit facilities
sanctioned to a PACS/ FSS. The other direct loans & advances, if any, granted by the
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bank to the member borrower of a PACS/ FSS outside the on-lending arrangement will
become NPA even if one of the credit facilities granted to the same borrower becomes
NPA.
Advances against Term Deposits, NSCs, KVP/IVP, etc
Advances against term deposits, NSCs (National Savings Certificate) eligible for
surrender, IVPs (Indira Vikas Patra), KVPs (Krishi Vikas Patra) and life policies need not
be treated as NPAs provided there is sufficient margin available. Advances against gold
ornaments, government securities and all other securities are not covered by this
exemption.
Asset classification status
During the specified one-year period, the asset classification status of rescheduled
accounts will not deteriorate if satisfactory performance of the account is demonstrated
during the period. In case, however, the satisfactory performance during the one-year
period is not evident, the asset classification of the restructured account would be
governed as per the applicable prudential norms with reference to the pre- restructuring
payment schedule. The asset classification would be bank specific, based on record of
recovery of each bank, as per the existing prudential norms applicable to banks.
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INTERNAL CAUSES:
They are those which are within the control of the bank management or the borrower and
attributable to them.
Due to fault of the borrower:
1. Willful default:
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There have been a number of borrowers who have strategically defaulted on their
debt service obligations realizing that the legal recourse available to creditors is
slow in achieving results.
2. Diversion of funds:
Sometimes the borrower may take a loan for a particular purpose and use the loan
amount for some other purpose. The borrower may engage in activities that may
be personally beneficial to him but may increase the probability of default and
thus harm the lender. The borrower may invest in unprofitable projects, in
projects with higher risk, in which the borrower profits if the project succeeds but
the lender bears most of the loss if the project fails. In many cases, the borrower,
instead of using the loan amount for the required purpose, uses it mostly for
expansion, diversification, and modernization of the existing plant. Short-term
funds are invested in long term, non-productive purposes due to this the project
for which the loan is taken does not materialize and the loan turns bad.
3. Incorrect financial information:
In many cases borrowers submit incorrect financial statements, stock statements,
security etc. to get their loans sanctioned. Even during business visits, the
borrower is able to show a good picture. The bank is unaware of the actual facts
and grants the loan on the basis of documents. Many borrowers borrow and start
industries/activities for purpose of getting subsidies and do not have any interest
in the activity. These loans ultimately become bad.
4. Inefficient management:
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Many borrowers do not have the business acumen to do business effectively. In
spite of the other factors being present like adequate finance the project does not
yield adequate returns because of mismanagement on the part of the promoters.
Such promoters do not have effective marketing or financial skills due to which
the project fails. This leads to loss to the bank as their advances get stuck in the
process.
Due to fault of the bank:
1. Poor credit appraisal:
Irrespective of the size of the project, almost 70-75 percent of the investment is
financed by banks and financial institutions and 25-30 percent comes from the
promoters as their contribution in form of capital. In other words, banks and
financial institutions finance major part of the investment in all the projects. It is
thus the job of the banker to properly scrutinize the projects and stay away from
unviable ones. He should screen the potential projects to determine expected risk
and return. Future growth prospects of the project and that of the industry, effects
of various government policies, environment etc. should also be considered.
There may be situations where many borrowers hide information while borrowing
and once the loans are granted they default. Adverse selection of the borrowers
and projects without properly scrutinizing their viability leads to substantial
accumulation of NPA in the banks.
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2. Poor credit monitoring:
Once lending decisions are made, ongoing monitoring needs to be done with a
view to prevent moral hazard or otherwise in order to assure the maximum
possibility of repayment. A very strong credit monitoring system needs to be in
place to do the post sanction follow up. It can identify in advance whether a loan
is turning bad. However many banks fail in this aspect. They fail to do the post
sanction follow up. Unless a close watch is kept on, the accounts irregularities
cannot be detected. This is also a major reason for rising level of NPAs in banks.
3. Lack of organizational learning in the bank - repeated lending to the same
person or group of persons with similar dubious characteristics:
Organizational learning on the part of the bank is very important in controlling the
growth of NPA. It is obvious that with the experience of repeated lending over a
period of time to varieties of borrowers, a bank can identify a particular type of
borrower who is more likely to default. But in practice it fails to learn from the
past. Due to several constraints, whether internal or external, like political
interference, it cannot bar these potential defaulters. For instance, loans have been
extended to,
Industries in the negative list circulated by IDBI, department of industries and
RBI.
Existing accounts, which have gone irregular.
A party, which is irregular on existing accounts in a different branch of the
same bank.
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Several projects with promoters or directors with doubtful integrity.
4. Improper repayment schedule:
The repayment schedule should be decided according to the project and the ability
of the borrower. It should be such that it does not adversely affect the cash flows
of the project. Inefficient decisions have resulted in many newly born projects
turning sick or closing down. There are instances in which installments and
interest have become due before the commencement of commercial production.
This poses a financial burden on the borrower and at times he may borrow more
at higher cost to service the debt in the initial stages. Thus further repayment of
loan becomes a problem.
5. Contagious Default:
When a borrower cannot pay back the due because of the fact that his venture
failed and he escapes any form of penalty, this induces another to default, even
when he has the capacity to pay back. In such a scenario, occurrence of NPA
leads to creation of additional NPA, a phenomenon called contagious default.
6. Forced lending:
Banks are not free from this problem. They are forced either by the government in
case of public sector banks or by the top management in case of private banks to
extend loans to borrowers irrespective of requirement, usage of the money,
credibility or ability to repay. While devising such programs no methods are
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Study of Non-Performing Asset
devised for recovering loans in case of default. This leads to the formation of
NPA.
7. Targeted lending:
Targets are set for lending under certain schemes. Credit is disbursed just to meet
the target and potential of the borrower is not taken into consideration. Proper
credit appraisal is not done before lending. Such accounts in many cases turn bad.
Though loans of small amount are granted under such schemes, the number of
accounts becomes unmanageable for follow-up and recovery.
8. Adverse selection of borrowers:
In many cases it so happens that because of high level of NPAs the profitability of
the bank gets affected. Thus they are forced to increase their interest rates on
loans. Due to this the genuine borrowers shift to other banks, which offer lower
interest rates. In such a case the bank is forced to grant loans to risky borrowers.
This increases the risk of further NPAs. The bank gets into a trap where due to
existing high NPAs, the chance of further NPAs increases.
9. Timing of loan:
It has been generally observed that the timing of loan may not be proper. This has
been true in the case of agriculturists and small borrowers. The loan amount is not
given to them immediately at the time of requirement but only after a few days
because of the procedural delays. This forces them to borrow at a higher interest
rate from the moneylenders and then they use the bank money to repay them. The
loan amount is not used for the purpose for which it was granted but for servicing
debt. This problem is also a cause of NPA.
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10. Inadequacy of trained staff:
The bank needs to have highly trained and knowledgeable staff, which can
appraise the loans properly. Absence of these will cause more NPAs. It is the
responsibility of the bank to train its staff properly so that they can carry out
functions like risk assessment, credit appraisal and monitoring.
EXTERNAL CAUSES:
The external factors are those which are attributable to reason, which are beyond the
control of the banks and thus, the banks cannot be held responsible for the defaults
caused by these factors. Some external causes are:
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1. Natural calamities like floods and accidents:
Due to natural calamities the manufacturing units, factories etc get destroyed and
the borrowers are left with no means to repay the loans. The bank cannot enforce
the security on the loan as that also gets destroyed. Thus the advance given for the
projects becomes bad.
2. Change in Government policies:
Government policies are responsible to some extent for adding to the volume of
NPAs of banks. Projects are undertaken keeping in mind current policies. But
when the policies are changed the prospects of certain projects gets affected, as
the new policy may be different from the earlier one. At this stage the project
cannot be reversed, thus leading to its failure. Thus the funding for that project
becomes NPA.
Example: The steel sector has been affected to a large extent because of change in
the government’s policies.
3. Change in technology:
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Study of Non-Performing Asset
Sometimes projects are started keeping in mind that the plant will run on a
particular technology. But the technology may change over time making the old
technology totally obsolete. Due to these factors the cost of the project increases
thereby affecting the profitability of the unit and the repayment of the loan.
4. Labour issues, non-availability and price escalations of raw materials, power
shortage:
For smooth functioning of the project it is very essential that the operational
aspects like raw material, power, labour etc are available on time. If these are
not available on time the prospects of the project fail. Manufacturing gets
delayed and profitability gets affected. Ultimately the loan turns bad.
5. Liberalization:
It is a major cause of NPA in India. Some industries due to lack of professional
management were not able to cope up with the growing competition from MNCs.
This adversely affected their profitability and also the chances of repayment of
loans.
6. Loan waiver schemes of the government:
The government in many cases grants various incentives, concessions and waivers
to the loans to people in the rural areas. Due to this people develop an attitude that
they can take benefit of concessions and so they don’t repay the loans. Also those
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Study of Non-Performing Asset
who pay before such waivers are announced feel frustrated and default on the
subsequent loans that they take.
7. Use of bank as an instrument of public policy:
A number of examples may be cited in order to show that PSBs have been used as
an instrument of public policy, which has helped accumulation of NPAs. Lending
under populist schemes like loan melas, directed lending to certain sectors like
mini-steel, mini-paper, mini-cement units, sugar and cotton spinning co-
operatives are examples.
8. Defaulter favored legal system:
The legal system in India does not permit early recovery of dues. It is more
sympathetic towards borrowers. These legal procedures are a drain on resources
and are highly time consuming as the matters get invariably delayed with law
courts granting adjournments one after another for any small reason. More money
is spent than is expected to be recovered by pursuing these cases in the courts of
law. There may be a tendency to write off a small amount of advances in the face
of prohibitive legal and administrative cost and inordinate delay in final
settlement.
9. Tax benefits:
Our tax policies are such that they encourage debt more than equity. Through debt
financing, the borrower gets a tax shield, which reduces his tax burden. This
encourages the businessmen to take more debt and a situation arises when the
debt becomes unmanageable because of the rising interest and installments. Thus
the borrower defaults on payment and the account becomes an NPA.
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IMPACT OF NON PERFORMING ASSETS
At the macro level, NPAs have affected the supply line of Credit of the potential lenders
thereby having a deleterious effect on capital formulation and arresting the economic
activity in the country.
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At the micro level, unsustainable level of NPAs has eroded current profits of banks. They
have led to reduction in interest income and increase in provisions and have restricted
recycling of funds.
NPAs not only affect the profitability of the bank but also have other serious impacts.
1. Impact on Profitability:
Performance in terms of profitability is a benchmark for any business enterprise
including the banking industry. However, increasing NPAs have a direct impact
on banks profitability as legally banks are not allowed to book income on such
accounts and at the same time banks are forced to make provision on such assets
as per the Reserve Bank of India (RBI) guidelines. The enormous provisioning of
NPA together with the holding cost of such non-productive assets over the years
has acted as a severe drain on the profitability of the PSBs. The minimum cost of
holding NPAs is around 7% p.a. (reckoning average cost of funds at 6% plus 1%
service charge).
Also due to the advance becoming bad, interest is not received on it and hence the
income reduces to that extent. They are not merely non-remunerative but also cost
absorbing and profit eroding.
2. Excessive Capital requirement:
Writing off of loans requires capital and the banks have to maintain capital
adequacy even on NPAs. The capital adequacy ratio (CAR) is directly related to
the quality of loan assets of the Bank. A bank can make losses and requires capital
to write it off. Since these losses are written off against capital, fresh capital is
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Study of Non-Performing Asset
required whenever any advance is written off. Thus any increase in defaults will
require increase in capital whenever they are written off.
Every bank has to maintain some amount of capital in the books on the basis of its
risk-weighted average of assets. If an advance turns bad, it continues to be a part
of the assets thus requiring the bank to maintain that much amount of capital in
the books. No interest is earned on the advance but still the bank has to maintain
capital on assets, which are not yielding any income.
3. Excessive focus on credit risk management:
The most important business implication of NPAs is that it leads to credit risk
management assuming priority over the other aspects of bank’s functioning. The
bank’s whole machinery would thus be pre-occupied with recovery procedures
rather than concentrating on expanding business.
4. High cost of funds due to NPAs:
Banks are profit-making organizations. They lend money after charging a desired
spread, which is the gap between the deposit rate and the lending rate. On account
of the burden of heavy NPAs, banks are forced to increase the spread on the loans
given to other borrowers to maintain their profitability. Thus genuine borrowers
face the difficulties in raising funds from banks due to mounting NPAs. Either the
bank is reluctant in providing the requisite funds to the genuine borrowers or if
the funds are provided, they come at a very high cost to compensate the lender’s
losses caused due to high level of NPAs.
Example
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Study of Non-Performing Asset
Assume that under competitive market conditions, the interest
rate is 10% and the total amount of bank debt transacted is
Rs.100. If there were no defaulters the bank would earn Rs.10
from every Rs.100 lent. However there are bound to be some
defaulters and to cover their losses, the bank would need to build
in a cushion against risk of default and charge a rate above the
normal rate of 10% in this example. Assuming that 25% of the
borrowers will default on the loan, then on a loan of Rs.100 the
bank can expect to get back Rs.75 plus interest. Therefore if the
bank has to earn the perfect market return of Rs.110, it will have
to charge its good borrowers a higher rate of interest than 10%.
In this example the rate that the bank will need to charge to fully
recover its advance works out to be 14.67% (i.e. 110/75*10)
instead of 10%. Therefore, the presence of bad loans on their
books pushes up interest rates charged by banks.
5. Attitude of bankers towards credit delivery:
The fear of NPAs has affected the psychology of the bank managers in
entertaining new projects for credit expansion. Today the psychology of the banks
loaded with NPA’s is to insulate them with zero percent risk and turn lukewarm to
fresh credit. This has adversely affected credit growth compared to growth of
deposits, resulting into a low C/D Ratio. The fear psychosis has also lead to
excessive security-consciousness in the approach towards lending to the small and
medium sized credit customers.
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6. Slow recycling of funds:
The advances that are repaid and the interest on them that a bank gets are recycled
to give further advances. Now if an account turns bad funds are not received thus
slowing down the process. Supply of funds gets reduced which affects credit
expansion. Thus there is slow recycling if funds and the bank cannot lend money
for productive activities to improve earnings.
7. Reputation risk:
The credit rating of a bank may get affected due to disclosures on quantum and
movement of NPAs, provisions etc. The risk perception of the depositors towards
the bank may increase and the bank may not be able to mobilize enough deposits
even at a higher rate of interest. This would affect the competitiveness of the
bank.
8. Impact on staff morale:
High level of NPAs affects the staff morale. There may be a conflict among the
different departments as to who is responsible for the high level of NPA. It may
also lead to low productivity because the staff gets involved in the recovery
process and they do not get time to do their normal developmental work.
11. Impact on the banking activities:
Large level of NPAs may affect the functioning of the banks and hence the main
function of the bank of accepting deposits and lending money may get affected.
Inadequacy of funds will adversely affect the success of the real sector.
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CASE STUDY
Introduction to Case-
Mr ABC borrowed a mortgage loan of Rs 2,50,000/-(Rupees Two Lakhs Fifty Thousand
Only) from Seva Vikas Co-operative Bank Ltd.by mortgaging two flats (hereinafter
referred to as the said flats) owned by him in favour of the Bank .A document was
executed between the Bank and Mr ABC which was duly registered in the Office of Sub-
Registrar, Pune. Mr. ABC failed to pay the monthly installments as was agreed, in
consequence of which the Recovery Officers of the Bank visted Mr ABC and gave a
reminder to pay the installments. Thereafter also Mr ABC continued to commit deafults
in payment of the installments and hence notice was issued in name of Mr ABC
regarding the same.
Being repeatedly informed about the defaults and still failing to pay the installments, the
Recovery Officers went to the residence of Mr ABC and it came to the knowledge of the
recovery officers that Mr ABC had executed a Power of Attorney in favour of a relative
who on acting on the Power of Attorney sold the said flats morgaged to the bank to a
third party. Later Bank approached the parties to whom the flats were sold informed them
about the Mortgage with the Bank ,the parties then lodged a Police Complaint against the
Public Relations Officers(PR Officers) of the Bank ,due to the complaint lodged the PR
Officers were put to a Police Custody for a night.
The case was not taken care of for a few years until an Branch Manager was appointed in
the branch who did a brief study of the case. While the case study the officer found the
receipt of the Mortgage deed executed between the Seva Vikas Co-operative Bank Ltd.
and Mr.ABC. The said Branch Manager then brought the copy of the mortgage deed from
the office of the Sub-Registrar in which it was duly registered and a case was filed in the
Court against the third party.
During the suit the third party approached the Bank to compromise the case on the terms
that the third party would pay the Bank Rs 2,00,000/- (Rupees Two Lakhs Only)against
the said flats .The said Bank agreed to the terms of the compromise with the third party
and thereafter the case was closed.
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Study of Non-Performing Asset
Security for the bank-
1. All the outstanding facilities are secured by the second charge on fixed assets of
the company. Working capital assets and FD margins secure working capital
facility.
2. A financial institution has second charge on fixed assets and exclusive first
charge on equipments procured out of the financial institution loan.
3. Term loan has been repaid for which Bank of Maharashtra had first charge on the
fixed assets.
4. Bank outstanding including WCTL and the financial institution now has pari
passu first charge on fixed assets of the company except exclusive charge granted
to the financial institution.
5. After the financial institution issues No-dues certificate, Bank will have first
charge on all assets of the company.
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Study of Non-Performing Asset
Analysis of annual report for year 2006-07:
SUGGESTIONS FOR MANAGING NPAs
The magnitude of the problem and the reasons behind it call for
immediate corrective steps in the recovery processes so that the
problem is contained. The recovery plan should take long-term
measures to dig out the roots of this problem. But the impact of the
problem on the current scenario should not be totally neglected. The
weak banking system is also contributing to the current crises. Thus,
some immediate measures should also be taken.
LONG-TERM MEASURES
1) Sub prime debt:
There have been few instances at some banks extending credit to sub prime debtors and
getting kickbacks for the same. Sub prime debtors are one who does not have capacity to
repay or who does not create sufficient assets which will provide security to the bank
Ineffective Legal mechanisms and inadequate internal control mechanisms have made
this problem grow – quick action has to be taken on both counts so that both the
defaulters and the authorizing officer are punished heavily. Without this, all the other
mechanisms suggested may prove to be ineffective.
2) Proper Credit and Risk Assessment Mechanism:
Lasting solution to the problem of NPAs can be achieved with proper
credit assessment and risk management mechanisms. For instance, in
the situation of liquidity overhang, the enthusiasm of the banking
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Study of Non-Performing Asset
system to increase lending could compromise on asset quality, raising
concern about adverse selection, and potential danger of addition to
the stock of NPAs. It is, therefore, necessary that the banking system is
equipped with prudential norms to minimize, if not completely avoid
the problem. RBI is taking the necessary steps in this direction.
3) Redefining Priority Sector:
In many countries directed credit gave rise to large NPAs adversely
affecting the viability of the banks. As discussed above, in India also,
it’s the same case. But directed credit cannot be totally erased
because of development concerns of certain core sectors. However, its
scope can be limited and relaxation given to the priority sector can be
reduced. This would bring in a sense of responsibility in the priority
sector units and improve their financial viability. Thus, considering the
basic merit of social banking vis-à-vis ensuring sound banking
practices, the priority sector should be redefined.
4) Sick companies:
Companies declaring themselves sick under SICA can still stall recovery procedures.
Once the Board has prima facie accepted the fact of their sickness for Industrial and
Financial Reconstruction (BIFR), there is nothing a DRT can do till the case is disposed
of by the BIFR. This issue must be addressed if the proceedings of the DRT are to be
speeded up.
5) Effectiveness of ARCs:
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Study of Non-Performing Asset
ARCs should focus on the larger borrowers. Further, there is a need for private sector and
foreign participation in the ARC. Private parties will look to active resolution of the
problem and not merely regard it as a book transaction. Moving NPAs to an ARC doesn't
get rid of the problem. In China, potential investors are still worried about the risks of
non-enforcement of ownership rights of the assets they purchase from the ARCs. Actions
and measures have to be taken to build investor confidence.
6) Well -Developed Capital Markets
Numerous papers have stressed the criticality of a well-developed capital market in the
restructuring process. A capital market brings liquidity and a mechanism for write off of
loans. Without this a bank may seek to postpone the NPA problem for fear of capital
adequacy problems and resort to tactics like ever greening. Monitoring by bondholders is
better as they have no motive to sustain uneconomic activity. Further, the banks can
manage credit risk better as it is easier to sell or securitize loans and negotiate credit
derivatives.
7) Contextual Decision-making
Regulations must incorporate a contextual perspective (like temporary cash flow
problems) and clients should be handled in a manner, which reflects true value of their
assets and future potential to pay. The top management should delegate authority and
back decisions of this kind taken by middle level managers.
8) Securitisation
This has been used extensively in China, Japan and Korea and has attracted international
participants due to lower liquidity risks. The Resolution Trust Corporation has helped
develop the securitization market in Asia and has taken over around $ 460 billion as bad
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assets from over 750 failed banks. Its highly standardized product appeals to a broad
investor base. Securitisation in India is still in a nascent stage but has potential in areas
like mortgage backed securitisation. But it should be kept in mind that this method can
be used for willful defaulters only.
9) Effects of Capital Norm tightening
There is a fear that disposal through the provision of excessive reserves may result in a
deflationary spiral. A thorough provision of reserves will have no negative impact on the
long-term dividends paid to shareholders. Firstly, it helps restore credibility in the
financial system. Further, an adjustment mechanism can be created by which the capital
gains and future profits that will result from the disposal of NPAs will pass back to the
creditors and taxpayers who incurred the losses today.
10) Realignment of Performance metrics
Traditional performance measures like ROE and NPA Ratio are not really indicative of
performance - A high volume of bad lending today will impact positively on ROE, asset
growth and NPA Ratio and only show up 5 years later as NPAs. The complexity of the
balance sheet makes it impossible to disaggregate the impact of these actions even if
stricter disclosure norms are put in place.
Economic Value of Equity (EVE) (or market value) and Economic Value of Equity at
Risk (EVER) are useful mechanisms to handle this problem. EVE is the value of the firm
if its assets are instantaneously liquidated (assuming the availability of liquid markets).
Book Value vis-à-vis EVE comparisons give an idea of whether the ‘fair’ value is being
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reflected. EVER can be computed by using ‘what if’ scenarios like downgrading the
ratings of assets or changing interest rates. Now, at every stage banks can check if their
actions are consistent with the goal of maximizing EVE, subject to an acceptable level of
EVER.
INTERNAL MEASURES
1) Data base:
The bank should develop a strong database, which should be updated on a continuous
base. The classification of the NPAs of the bank should be done on the basis of Accounts
(amount of the NPA), Assets (Sub – Standard, Doubtful and Loss), sectors (Priority
Sector, Non Priority Sector) and locations (Rural, Semi – Urban, Urban and Metro). Such
a database would help the manager in analyzing the NPAs as well as in the process of
appraisals of loans.
2) Meetings with the borrowers:
Frequent meetings with the borrowers whose accounts are NPAs or are likely to be NPAs
should be held for initiating timely remedial measures. Discussions of such meetings
should be recorded and decisions taken should be closely followed up for their
implementation. Effect of macro environment of the company i.e. of the overall economy
as such should also be studied. This may be helpful to understand the problems which
may arise in future and which will affect repayment capacity of the borrower.
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3) Early alert systems:
Borderline cases having irregularity / default in the accounts which are likely to slip to
NPA category should be listed out for close monitoring, so as to ensure their immediate
regulation and to prevent their slippage to NPA category. Sub – standard category within
NPA should be given the topmost attention as there is a scope for their up gradation into
performing category by maintaining close follow – up.
Possibility of recovery in NPA through compromise / negotiated settlement should be
also explored depending upon the merits of individual cases. Effective steps should be
initiated to strengthen the pre – sanction appraisal and utilize the services of trained staff
at potential offices to improve the quality of credit.
To strengthen post–sanction monitoring and follow–up of accounts for detecting warning
signals at incipient stage, for initiating corrective action. In accounts where no security or
attachable assets are available, and all other remedial measures have been exhausted
proposal for write offs may be considered. The write off proposal should contain all the
required details giving the jurisdiction for the write – off, including the officer’s visit
report.
4) Finally… Don’t Eliminate – Manage!
Studies have shown that management of NPAs rather than elimination is prudent. India’s
growth rate and bank spreads are higher than western nations. As a result we can support
a level of NPAs, which balances the risk vis-à-vis return appropriate to the Indian
context.
The current organizational competencies, regulatory framework, quality of disclosures
and incentive structure take the Bank to an unsustainable performance level. Micro level
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issues will have to be addressed in order to root out the problem. Processes at every stage
of an assets life impact the overall quality of the intermediation process and so a
consistent set of procedures are necessary to handle the problem.
FINDING & CONCLUSION
1. The company s, management performing very accurate and in correct manner.
2. The management is taking right decision ,at right time at right place. This is fact that
the company is with full time management leadership for a long time
3. That’s why NPA is .zero for last five consecutive years ,the reason for this is,provision
made for NPA is more than the actual NPA .eg NPA is Rs10,00,000 and provision is
12,00,000.
4. The company is keeping proper record of its current assets (especially non moving
inventories and debtors) and it still have a proper record which is clearly mentioned by
the auditor’s of the company in its annual report . So the consortium easy to calculated ,
company’s drawing power and how it calculated company’s working capital limits.
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5.
6.
BIBLIOGRAPHY
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Annexure
YEAR 2008 -2009 CAPITAL AND LIABLITIES 15,90,48,043.57 YEAR 2009 -2010
1,50,00,0001.Capital (Authorized capital) 12,00,000shares of rs 25/- Each 3,00,00,000
11,02,00,000
1,47,60,825Subscribed and Paid up capital .6,14,392 shares of 25/- Each 1,53,59,800
3,66,596.17
34,43,74,835.88 2.Reserves Funds and other Reserves 43,28,08,221.91
6,35,00,000
1,2,86,00,218.06 statutory Reserve
3,27,37,198.44
8,52,00,000 Building fund
6,69,56,383,73
2,33,132.15 Dividend Equalization Fund
3,85,00,000 Bad and Doubtful Debts Res.
2,69,00,198.44 Investment Fluctuation Res.
38,52,75,164
6,49,41,287.23 Other funds and Res
236,75,14,332.16 3.Deposites and Other Accounts 3,17,07,86,390.0
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5
(A)Fixed deposits
(I)Individuals
272,66,49,993.04 TOTAL Carried Forward 95,77,63,045.173,61,89,54,441.96
272,66,49,993.04 Brought forward3,61,89,54,441.96
(II)Central CO-op banks
(III)others Societies
(B) saving Bank deposits
72,11,78,545.07 (I)Individuals
39,35,90,650.26
(II)Central Co-op Banks
(III)Other Societies
c. Current deposits
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1,43,41,57,530.62
28,55,60,422.05 (I) Individuals & Firms
(II)Central Co-op Banks
(III)Other Socities
1,11,05,00,517.04 (D) Others Deposits
272,66,49,993.04 TOTAL Carried Forward 3,618,954,411.96
272,66,49,993.04 Brought Forward 3,618,954,411.96
39,68,906.16 4.Bills For Collection Being Bills 44,22,605.50
(Receivable as per contra )
5.Branch adjustment A/c 6,13,837.31
6.Borrowings
3,56,44,668.00
5,79,83,857.00 7.overdue interest Suspense -Contra 5,97,05,485.00
2,65,70,898.00
16,16,816.00 8.Provision For Overdue Interest 14,43,325.00
5,17,06,488.00
11,39,22,054.00 9.Provision For Bad & Doubtful
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4,06,42,613.00 A.Provision.for bad & Doubtful Debts
2,65,70,898.00 b.Provision.for standard Assets
4,67,08,543.00 c. Excess Prov. On N.P.A.
2,90,41,41,626.20 TOTAL Carried Forward3,79,90,61,718.7
7
2,90,41,41,626.20 Brought Forward3,79,90,61,718.77
13,45,36,406.86
2,24,67,140.48 10.Interest Payable 1,84,42,593.30
3,75,00,000.00
13,34,37,659.73 11.other Liabilities 21,10,14,827.07
9,03,36,951.97 12.PROFIT & LOSS (After Tax) 9,70,36,406.86
AMOUNT
12,93,36,951.97 Profit Before Tax
3,90,00,000.00 Less -Income Tax Provision
2008 -2009 PROPERTY AND ASSET 2009 -2010
4,76,94,935.44 1 Cash in Hand 2,10,43,398.72
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7,08,22,270.65 Balances with Others Bank 18,90,31,369.39
a. Current Deposites
b. Saving Bank Deposits
431,251,549.00
c. Fix Deposits
240,382,888.02
3.Money At Call And Short Notice
16,029,890
113,41,76,424.00 4. Investments1,53,21,19,606.00
39,45,89,465.00 a.Central And State Govt.(HTM) 655,604,547.00
16,95,34,062.00 b.Central And State Govt.(AFS)
1,95,57,662.00 Less: Depreciation 5,067,500.00
Face Value ,65,35,00,000.00 5,000.00
54,45,65,865.00
871,442,559.00
Market Value 57,75,13,300.00
50,67,500.00 C.Other Trustee Securities
500 d.Shares with PDCC
58,45,42,559,00 Other Investments
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125,26,93,630.09 Total Carried Forward 69,82,02,077.001,74,21,94,374.11
125,26,93,630.09 Brought Forward 69,82,02,0771,74,21,94,374.11
168,72,07,326.22 5.Loans And Advances 69,82,02,077.002,11,52,84,077.90
a. Short Term Loans 92,74,000.00
55,85,71,553.40 1.Over Draft
92,77,000.00
5,58,571,553.40 b.Againts Other Tangible Securities
1,32,41,54,855,.75
55,85,71,553.40 c.Due From Individuals and Firms
1,32,36,93,344.75
1,11,29,000.00 d.Of Wich Over dues
1,32,36,93,344.75
1,11,30,254.00 e.Considered Bad Debts Recovery
1,02,73,81,450.40 b.Medium Term Loan
1,39,17,000.00
810,239.00 a.Againts Other Tangible Securities
1,53,44,000.00
1,02,65,71,211,.40 b.Againts Other Tangible Securities
1,0,273,81,450.40 c.Due From Individuals And Firms
1,50,10,000.00 d.Of Wich Over dues
33,97,026.00
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1,61,97,292.00 e.Considered Bad Debts Recovery
33,97,206.00
293,99,00,956.31 Total Carried Forward 3,857,478,452.01
293,99,00,956.31 Bought Froward3,85,74,78,452.01
38,02,802.56 c.Unsecured Short Term
8,95,30,119.15
38,02,802.56 a. Due From Individuals And Firm
8,95,30,119.15
2,54,000.00 b.Of Which Over dues
1,11,25,000.00
2,54,118.00 c.Considered Bad Debts For Recovry
1,24,67,000.00
9,74,51,519.98 d.Unsecured Medium Term
9,74,51,519.86 a. Due From Individuals
2,19,82,700.11
1,25,06,000.00 b.Of Which Over dues
77,98,277.00
1,46,77,765.00 c.Considered Bad Debts For Recovry
2,39,70,188.00 6.Interest Receivable 2,97,80,977.11
1,75,85,359.00 i.Investments
63,84,829.00 ii.Interest Receivable on Loans
296,387,71,144.31 Total Carried Forward 3,88,72,59,429.1
68
Study of Non-Performing Asset
2
296,387,71,144.31 Brought Forward3,88,72,59,429.12
11,87,515.24
39,68,906.16 Bills Receivable 44,22,56,490.22
1,44,71,077.46 9.Fix Asset 2,22,56,490.22
6,10,182.00
1,227,107 i.Premises 12,77,107.24
99,547.00 Less: Depreciation 89,592.00
11,032.00 ii.vechicle 6,60,417.00
1,655.00 Less: Depreciation 50,235.00
1,33,40,208.273.Furniture And fixtures 1,31,84,593
2,04,58,792.98
25,22,196.00Additions During Year 1,13,26,649.66
1,11,262.05 Less :Loss on Sale Of Asset
Less: Sale Of Dead Stock 7,582.46
25,66,549.00Depreciation 40,44,867.44
10,86,09,723.00 12.Other Asset 15,10,38,088.47
2009 -2010
69
Study of Non-Performing Asset
57,983,857 13.Overdue Interest 5,97,05,485.00
16,72,58,224.10
9,59,543.94 14.Stock Of Printing And Stationary 1,97,804.00 8,73,447.69
4,32,82,379.00
315,03,83,378.38 TOTAL 1,29,76,862.304,12,55,55,546.00
4,99,890.00
2008 -2009 Expenditure 7,18,683.54
10,90,242.00
13,10,18,702.99 To Interest On Deposits 41,85,452.44
20,25,536.10 To Interest On Borrowings 18,66,249.00
3,89,65,252 To Salaries And Allowances 11,04,330.40
1,03,82,676 To Rent Taxes, Insurance 10,02,861.52
5,22,629.00 To Legal Charges 2,22,284.40
6,50,522.63 To Postages ,Telegrams, Telephone 12,076.00
7,41,354.15 To Audit Fees 1,76,032.94
26,67,900.00 To Depreciation 47,500.00
18,29,539 To VDDS Agents Commission
7,14,354.15 To Repairs And Maintenance 30,000.00
6,83,130.39 To Stationery And Printing 1,01,67,065.75
3,20,195.00 To Advertisements Expenses 3,96,94,230.00
1,46,772.00 To Fringe Benefit Tax 9,70,36,408.86
81,047.00 To AGM Expenses
47,500.00 To Members Contribution
69,35,616.00 To Bad Debts 2009 -2010
30,000.00 To Education Fund
69,35,616.00 To Other Expenses 23,56,76,639.02
3,90,00,000.00 To Income Tax Provision/Paid 10,92,14,927.96
9,03,36,951.97 To Net Profit For The Year 76,31,583.29
70
Study of Non-Performing Asset
1,46,17,642.70
6,13,611.15
2008 -2009 Income 20,87,471.00
99,72,471.74
21,88,72,287.92 By Interest on Advances 45
8,82,41,134.12 By Interest on Investments 17,57,182.00
58,13,504.84 By Commission Exchange
90,42,421.19 By Bank Services Rendered 38,15,71,573.86
8,82,093.09 By Recovery Charges Received 15,90,48,043.57
10,13,539.00 By Legal Notice Charges Recovered
45,59,462.73 By Other Receipts
95 By Dividend on PDCC Shares 11,02,00,000
73,95,938.00 By Depreciation
3,66,596.17
33,58,20,475.89 TOTAL
6,35,00,000
Year 2005 2006 2007 2008 2009 2010Working Capital 21,929.23 24,741 24,28,898.68 28,898.68 30,884.30 420,55.96Investment 10,760.68 12,200.85 10,671.84 11,780.80 11,341.76 154,81.49Share Capital 122.46 123.03 124.99 125.94 147.61 1,53.60Reserves 20,31.77 22,11.27 26,02.94 28,77.69 34,43.75 43,28.08Deposites 17,292.48 18,410.61 18,652.99 21,665.15 23,675.14 317,07.86Loans & Advances 9,748.61 11,456.61 12,941.50 15,150.43 16,872.07 211,52.84Profit Before Tax 266.36 409.86 432.90 904.50 12,93.37 3,345.36Profit After Tax ---- ---- 292.30 584.50 903,37 9,70.36Gross NPA In % 12.54 7.86 5.90 3.62 2.5 1.75Net NPA IN % 0.00 0 0.00 0 0
71
Study of Non-Performing Asset
CRAR 17.67 17.60 15.14 15.49 18.57 16.24Audit Classification A A A A A ARBI Grade ---- ---- ---- ---- I I
72