ganesh-final internship

8/7/2019 ganesh-final internship

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ABSTRACT

NPA is one of the biggest challenges faced by every bank in economy. It is the result of Non

payment of the loan amount, so rise in NPA reduces the profit margin as it requires provision

too for it. So the bank now a days quite alert regarding increase in NPA amount, so the bankofficial before granting any loan need to check credentials of the borrower & other important

thing. The project NPA management in PSU banks is useful to know about the problem ofNPA faced by the PSU banks & how they overcame to this problem at same time some lights

on the employee efficiency is also given.

Many banks over the period of time either closed down or merged with other bank this is

only because of the high amount of NPA, so it is great challenge for the bank managers to

grant loan to a person who can repay it, so before the granting of loan deep study of

borrowers capacity need to be made.

The project will look to the problem of NPA faced by the bank over period of time, the

reasons behind such default & what are the ill effects on the banking industry. It will help to

know about the previous record of the NPAs so that comparison can be made easily & theproper results can be easily drawn


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ACKNOWLEDGEMENT

I would like to express my sincere thanks to the management ofUNION BANK OF INDIA& Staff Of UNION BANK OF INDIA, Mulund, west Branch, who gave me the

opportunity to work and study in the organization.

I express my sincere gratitude to Mr.Rawal (Assistant General Manager) Union Bank ofIndia, Mulund, west Branch.

I would also express my Sincere thanks to Mr. Prabhakar D Tayade (Accounts Manger)

and Mr. Yogesh V Magodia (Assistant Manger) Union Bank Of India, Mulund, west

Branch.

I also express my gratitude to Ms. Kishore (Manager Credit) who guided me from time to

time in completion of my project.

Last but not the least, I would like to thank all the respondents for giving their precious time,

relevant information and experience, I required, without which the project would have not

been possible.

Ganesh kadam


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Executive summary

The problem that banking industry facing is the Bad debts, borrower never repays the loan to

the bank, so most of the banks find it difficult to come over the problem of npa. This problem

is minimises the income, at the same time the funds which is allotted by the banks goes in

vain. Hence, there is no chance of recovery of loan

The history of banking industry tells about the Indian banking scenario in past how the

number of banks & its branches increased in India

The study gives the basic idea of npa, there are some criteria which when not fulfilled by the

account holder under certain limit of time, the account is treated as npa. The default norms

for individual or corporate sector people are different. The banks has different provision to

minimise the loss due to npa

The study deals with types of npa i.e. gross npa, net npa and the difference between the both

npa, the classification of assets such as standard assets, sub-standard assets, bad loans, loss

assets

The emphasis is given on the main reason behind the npa, its rise and to know whether

default made by the concerned party is by will or inability to repay.

The secondary data used during the study is related to the all banks in India, the problem of

NPA. The data is used to compare the NPAs of PSU banks with private & foreign banks,

and there problems. Some of the examples from PSU banks & private sector are analyzed

to study the ill effects of npa


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4

Introduction to B nking industry

1.1 Introduction to the banking industry:

Fi i l Position of everyone is nott e same. Some time t e people have extra amount of

money with them, so ratherthan keeping same in hand itis betterto keep itin the one oftheinstitute called as bank, so you can earn the interest overit. Atthe same time there are some

people who face the shortage of money for such people the bank provides the loan, as we can

say thatitis a middle man between lender & borrower, only thing is thatitis a legallending

& borrowing where less amount of riskis involved. In India the banks carries there business

underthe guidance ofthe RESERVE BANK OF INDIA (R.B.I).Itis an apex institute in India

which makes the rules & regulation thatis need to be followed by the all banking running

their business in India. Without of prior permission from R.B.I no any bank can expand his

business, it means thatthe permission from RBI is mandatory.

Indian banking sector:

The concept of banking came into India in last decade of 18th

century; the growth of banking

sectorin Indian economy can be explained with the help of some stages such as introduction

stage, First World Warto independence stage, postindependence & then nationalisation,

liberalisation

The first bankin India is GeneralBank of India & bank of Hindustan which started in

1786.both are now not exist. The oldest bankin India is State Bank of India, which isoriginated in bank ofCalcutta in Jan 1806,which is then called as bank ofBengal & there was

anothertwo banks named as bank ofBombay & bank of madras, allthese banks establishedunderthe charter ofthe from British east India company. the all 3banks were merged in 1925

& formed new bank named as imperial bank of India, which afterindependence named asSBI, the Indian merchants formed the union bankin 1839, but failed in 1848, because of

economic crisis of 1848-49.the Allahabad bank established in 1865 in still running its

business & itis oldestjoint stock bankin India at same time foreign banks arrived in India

like HSBC. The Calcutta was most active trading partin India, mainly due to trade ofBritish

& so it became a banking sector.

(THE BANK OF BENGAL WHICH TURNED AS STATE BANK OF INDIA)

In 1895 the Punjab national bankis established at Lahore. During the period of 1906&1911many banks emerged due to the concept of swadeshi movement which inspired many of

businessman & politicalto found bank of India community. So the bank of India, corporation


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bank, Indian bank, bank of Baroda, Canara bank, Central bank of India are some banks whichare established

1.2 First world war to independence:

The period of First World War (1914-1918) & Second World War (1939-1945) & two years

after that the independence of India were challenging for India banking. The year of First

World War very violent as it affected the banking industry on large scale, near about 94banksfailed between 1913-1918

Years Number of

banks failed

1913 12

1914 42

1915 11

1916 13

1917 9

1918 7

Post independence: in 1947 the partition of India affected economy of Punjab & west Bengal,& it has very huge ill effect on banking industry, so the government of India introduced

measures to play active role in economy life of nation & industrial policy resolution adopted

by government of India 1948.

In 1948 the reserve bank of India is formed as an central banking authority & it is owned by

Government of India 1949,the banking resolution act was enacted in order to control the &

inspect the banks in India.

1.3 Nationalisation:

In 1960, for the purpose of development of Indian economy Indian banking industry hasbecame an important tool. Late Mrs. Indira Gandhi that time expressed the intention

regarding nationalisation of banks in their annual conference of all India congress committee,so the response for the same proposal was good, and then government of India issued an

ordinance & nationalised the 14 largest commercial bank from July 1969. In 1980 another 6

banks nationalised in order to have more control on credit delivery, it helped government of

India to control near about 91% banking business in India. In the year 1993, the government

of India merged new bank of India with the Punjab national bank which reduced the number

of nationalised bank to 19 from 20.

1.4 Liberalisation:

In the year 1990, Mr. Narsimha Rao government put an emphasis on liberalisation, whichliberalised the many rules & regulation & licensing a small number of private banks. This is

knows as new generation tech savvy bank, & it includes global trust bank which afterwards

amalgamated with the oriental bank of commerce, The banks like AXIS,ICICI,HDFC is

among the some of the private sector bank which emerged during liberalisation period & nowa days this banks are in great position in India banking industry


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After liberalization the Indian banking sector developed very appreciate. The RBI alsonationalized good amount of commercial banks for proving socio economic services to the

people of the nation. The Public Sector Banks have shown very good performance as far asthe financial operations are concerned.


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B

CHAPTER2

Introduction to Bank.

Organization Profile.

UNION BANK OF INDIA

UNION BANK OF INDIA is a Government of India undertaking. UBI was registered on

November 11, 1919 as a limited company in Mumbai. It was inaugurated by Mahatma

Gandhi. In the year1947 UBI had only 4 branches - 3 in Mumbai and 1 in Saurashtra all

concentrated in key trade centres. In the year 1975 The Government nationalized UBI. After

nationalization, UBI merged in Belgaum Bank, a private sector bank established in

1930.1985 UBI merged in Miraj State Bank, established in 1929.UBI acquired Sikkim

Bankin 1999 in a rescue at the request of the Reserve Bank of India after the discovery of

extensive irregularities at the non-scheduled bank. Sikkim Bank had eight branches located inthe North-east, which was attractive to UBI.

Union Bank of India is firmly committed to consolidating and maintaining its identity as a

leading, innovative commercial Bank, with a proactive approach to the changing needs of the

society. This has resulted in a wide gamut of products and services, made available to its

valuable clientele in catering to the smallest of their needs. Today, with its efficient, value-

added services, sustained growth, consistent profitability and development of new

technologies, Union Bank has ensured complete customer delight, living up to its image of,

GOOD PEOPLE TO BANK WITH. Anticipative banking- the ability to gauge the

customer's needs well ahead of real-time - forms the vital ingredient in value-based services

to effectively reduce the gap between expectations and deliverables. Key to the success of

any organisation is with its people. No wonder, Union Bank's unique family of about 26,000qualified / skilled employees is and ever will be dedicated and delighted to serve the

discerning customer with professionalism and wholeheartedness.

Union Bank is a Public Sector Unit with 55.43% Share Capital held by the Government ofIndia. The Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and Follow

on Public Offer in February 2006. Presently 44.57 % of Share Capital is presently held byInstitutions, Individuals and Others.

Over the years, the Bank has earned the reputation of being a techno-savvy and is a frontrunner among public sector banks in modern-day banking trends. It is one of the pioneer

public sector banks, which launched Core Banking Solution in 2002. Under this solution

umbrella, All Branches of the Bank have been 1135 networked ATMs, with online

Telebanking facility made available to all its Core Banking Customers - individual as well as

corporate. In addition to this, the versatile Internet Banking provides extensive information

pertaining to accounts and facets of banking. Regular banking services apart, the customer

can also avail of a variety of other value-added services like Cash Management Service,

Insurance, Mutual Funds and Demat.


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The bank provides the services like deposits, loans, insurance, demat, rtgs, neft, credit cards& online, nri banking

Product profile.

Government business:

The UBI helps for the payment of government dues & pension payments; the UBI serves

following government business

8% Saving (Taxable) Bonds 2003

Any individual, or on joint basis, or anyone or survivor basis, on behalf of a minor as

father/mother legal guardian, a Hindu Undivided Family, Charitable Institutions may investin this bond.

Public Provident Fund

A PPF account is the most useful tax-saving way for those sunset years, which gives

amazing returns, particularly when we consider that there is no risk at all.

Direct Tax Collection

Collection of Direct Taxes like Income Tax, Corporate Tax, Interest Tax, Expenditure Tax,

Estate Duty Tax and Gift Tax etc.608 branches throughout country are designated to accept

Direct Tax Collection from the assesses.

Central Excise & Service TaxBank accepts collections of Central Excise Duties and Service Tax from the assesses.

Senior Citizen Saving SchemeThis scheme aims to benefit the senior citizens by providing them a simple and high yielding

channel for investing their money. It is governed by the Senior Citizens Saving Scheme

Rules, 2004.

Agriculture - Greening Farm lands

Agriculture Finance is provided for short/medium/long term for various agricultural activities

like crop loan, purchase of tractors, poultry, allied agriculture activities etc.

SMALL ENTERPRISES- Energizing Small Entrepreneurs

Financing to Small Enterprises and other related Schemes.

Other Sectors- Education, Housing or Trade, grow with us for sure

Union Bank provides finance to students, traders, business enterprises, and those aspiring toconstruct/purchase houses or renovate them.

New initiatives - For rural growth and development


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Union Bank has taken big initiatives for establishing village knowledge centres /self-employment training centres etc.

Insurance:

Life Insurance

The union bank provides the insurance facility to borrowers on attractive terms

Union Health Care - Group Mediclaim Floater Policy

UBI is very careful about its customer nd his family,so therefore Bank has introduced Group

Floater Mediclaim Policy for the family up to maximum four persons, at a very competitive

premium.

Mutual Fund

It is good to invest, but it is better if our investments work for us round the clock.UBI

provides investment options in almost all the Asset Management Companies operating in the

country through experienced and certified (from Association of Mutual Fund of India

AMFI) Marketing Personnels.

Union Gold

Gold is a trusted investment and we can avail this time-tested asset from a name that has

inspired trust for more than 88 years. Celebrate special occasions with Union Bank's Gold

Coins. UBIs Gold coins are available in 5gms, 8gms, 10gms and 20 gms at selected centers

with guaranteed purity of 999.99 with a refiners certificate. Union Bank assure uscompetitive market based pricing. :

Credit Cards:

UBI offers VISA International credit card i Union Card -Classic, Silver & Gold

International Debit Card:

Freedom to access your savings or current account at any VISA accredited

Merchant Establishments or ATMs. This card allows you to purchase goods at retail outlets

and withdraw cash from ATMs in India and abroad.

Kisan Atm:

Union Bank takes initiatives to promote ATM culture in rural areas by providing them with

user friendly cash dispensing machine which can read out instruction over voice. KISANATM work on bio-metric authentication like finger print verification, easy to operate and

does not warrant high level of literacy, remembering PINS.


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Union Home Plus:

Union Bank of India now provides complete protection to its home loan borrowers. Nowhome loans from Union Bank of India come with life insurance cover equivalent to the

amount of the outstanding home loan. Insurance cover provided by SBI Life Insurance Co.

Ltd., who alone bears the insurance liability. Union Bank has tied up with SBI Life Insurance

Co. to provide unmatched security to all those who avail of the home loans. It providescomplete security to the family in the event of an unfortunate death of the home loan

borrower. SBI Life assumes the responsibility to repay the balance loan amount in the event

of death.

Union Bullet

Fund Transfer never made so easy. UnderREAL TIME GROSS SETTLEMENT (RTGS) weensure the fastest, efficient and secure mode of fund transfer without making the Demand

Draft.

Demat:

Having a Demat Account is compulsory for share trading in today's scenario but its opening

and maintenance is easy with your own Bank. We are privileged to service more than

1,00,000 Demat Accounts.

Online Trading of Shares

Now you can be active player in Capital Market that too at your convenience. Your bank

introduces convenient trading platform by linking your trading account with your Demat aswell as Bank account.

DGFT: it helps the exporter to pay there license fees online with the help of internet banking

Nonlife insurance:

The UBI provides non life insurance with the New India Assurance Co Ltd

UBI Branches are marketing following traditional policies covering.

Stock in Trade Plant and Machinery

Vehicles Goods in Transit

Buildings Office equipments

Agriculture Machinery & Implements.


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Goals: Good service to the people which deals with the bank

Vision:

To become the bank of first choice in our chosen area By building beneficial & lasting

relationship With customer through process Of continuous improvement

Mission:

To gain market recognition in the chosen areas.To build a sizeable market shares in each of

the chosen areas of business through effective strategies in terms of pricing, product

packaging and promoting the product in the market.

Location:

Head office at Nariman point, Mumbai, and branches all over India Overseas offices locatedat Hongkong, Abu Dhabi, shanghai

Share Holding Pattern

The authorised share capital of the Bank is Rs. 15,000.00 million as per sub-section 2A of

Section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970..

There have been no changes to our authorised share capital since nationalisation on July 19,

1969.

The paid up share capital of the Bank is 505117900 equity shares of Rs. 10/- each. The

Government of India holds 55.43 equity share capital of the Bank.


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Directors:

y SHRI M.V.NAIRChairman & Managing Director

y SHRI T.Y. PRABHUExecutive Director

y SHRI S.RamanExecutive Director

y Government of India NomineeSHRI K.V. EAPEN

y Government of India nominee on the recommendation ofRBI.SHRI K. SIVARAMAN

y Chartered Accountant DirectorK.S. SREENIVASAN

y Director representing Workmen Employees

y SHRI N. SHANKAR

y WORKMEN DIRECTOR

y Director representing Officer EmployeesDEBASIS GHOSH

y Government Nominee Director under General CategorySMT. RANI SATISH

y Government Nominee Director under General Category

y SHRI ASHOK SINGH

y Part-time non-official Director

y Dr. Gulfam Mujibi

y Shareholder DirectorPROF. M.S. SRIRAM

y Shareholder DirectorShri Arun Kumar Nanda

y Shareholder Director

y Shri.S. Ravi

Joint venture: in collaboration with Union bank & Dai ichi insurance company the union

banks started Star union dai ichi insurance company.

Distribution channels:

The UBI is having more than 2400 branches all over India, as it is an PSU bank the number

of customer are more but in order to compete with the other PSU banks the UBI is taking

more efforts, in each & every branch the UBI has appointed the such officer who do themarketing very well at same time the the UBI is having tie up with the union bank so it gives

them exposure of more than 5000 bank all over India so this large network help them for the

distribution of their product.


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Various marketing activity:

The bank is offering Kisan Atm which is help the bank to get the customer from rural regionas these cards are so easy to operate & maximum number of people from the rural region.

The bank recently launched the overdraft salary A/C, with the help of which the account

holder can withdraw the amount even if at nil balance, because this many salary accounts are

opened in UBI. The bank is also doing the marketing Birla sun life mutual fund & Star uniondai ichi life insurance it help the bank to get more customer

Environmental scan:

The bank is among the top 10 leading bank in India, the bank is facing stiff competition fromother PSU banks at same time the private & foreign banks also giving tough competition to

UBI, the bank, the bank is updated with the new technology in the area of banking as themost of branches of UBI is CBS (centralised), the bank is having the branches at international

locations like Shanghai, Abu Dhabi, Hongkong.

Competition:

The bank is facing big competition from many banks which includes banks from private &

government sector too; the leading competitor from government sector is SBI, PNB. These

2banks having more market share than any other banks as the BPLRis very lesser in PNB

only whereas the SBI providing the loan at cheaper rate of interest at early stage. Both of this

two competitor is having brand image in market as both banks are very older in Indian market

& there past records & performance helps them to stick with old customer & attract some

new customer.


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Strategy of the bank

The bank is providing insurance policy with the collaboration with the foreign insuranceplayer, at same time the other investment option is also available by the way of mutual funds

of private sector. The bank is making new innovations in their offerings by introducing new

& different product than the other banks

The banks conduct the meeting with the corporate people at end of each month in every

branch as it helps them to know how was the service & what further improvement they want

but for such meeting only top customer is been called who is having transaction in crores for

each day. For the refreshment of employee the motivational programme hr dept undertakes.

Whatever transactions that did in bank that automatically get saved in software & the RBI

having control over the banks regarding this.


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C

Introduction to the topic:

The accumulation of huge Non-Performing Assets in banks has assumed greatimportance. The depth of the problem of bad debts was first realized only in early 1990s.

The magnitude of NPAs in banks and financial institutions is overRs.1, 50,000 crores. Whilegross NPA reflects the quality of the loans made by banks, net NPA shows the actual burden

of banks. Now it is increasingly evident that the major defaulters are the big borrowerscoming from the non-priority sector. The banks and financial institutions have to take the

initiative to reduce NPAs in a time bound strategic approach.

Public sector banks figure prominently in the debate not only because theydominate the banking industries, but also since they have much larger NPAs compared with

the private sector banks. This raises a concern in the industry and academia because it is

generally felt that NPAs reduce the profitability of banks, weaken its financial health and

erode its solvency.

For the recovery of NPAs a broad framework has evolved for the management

of NPAs under which several options are provided for debt recovery and restructuring.

Banks and FIs have the freedom to design and implement their own policies for recovery and

write-off incorporating compromise and negotiated settlements

The three letters NPA Strike terror in banking sector and business circle today. NPA isshort form of Non Performing Asset. The dreaded NPA rule says simply this: when interest

or other due to a bank remains unpaid for more than 90 days, the entire bank loan

automatically turns a non performing asset. The recovery of loan has always been problem

for banks and financial institution. To come out of these first we need to think is it possible to

avoid NPA, no can not be then left is to look after the factor responsible for it and managing

those factors.

Action for enforcement of security interest can be initiated only if the secured asset is

classified as Nonperforming asset.

Non Performing Asset means an asset or account of borrower ,which has been classified by

bank or financial institution as sub standard , doubtful or loss asset, in accordance with the

direction or guidelines relating to assets classification issued by RBI .

An amount due under any credit facility is treated as past due when it is not been paid

within 30 days from the due date. Due to the improvement in the payment and settlement

system, recovery climate, up gradation of technology in the banking system etc, it was

decided to dispense with past due concept, with effect from March 31, 2001. Accordingly

as from that date, a Non performing asset shell be an advance where


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i. Interest and/or instalment of principal remain overdue for a period of more than 180days in respect of a term loan,

ii. The account remains out of order for a period of more than 180 days ,in respect of

iii. an overdraft/cash credit (OD/CC)

iv. The bill remains overdue for a period of more than 180 days in case of bill purchasedor discounted.

v. Interest and/or principal remains overdue for two harvest season but for a period notexceeding two half years in case of an advance granted for purpose ,and

vi. Any amount to be received remains overdue for a period of more than 180 days inrespect agricultural of other accounts

With a view to moving towards international best practices and to ensure greater

transparency, it has been decided to adopt 90 days overdue norms for identification of

NPAs, From the year ending March 31 2004, a Non Performing Asset shell be a loan or

an advance where;

1. Interest and/or instalment of principal remain overdue for a period of more than 90days in respect of a term loan, The account remains out of order for a period of

more than 90 days ,in respect of an overdraft/cash credit (OD/CC)

2. The bill remains overdue for a period of more than 90 days in case of bill purchasedor discounted.

3. Interest and/or principal remains overdue for two harvest season but for a period notexceeding two half years in case of an advance granted for agricultural purpose ,and

4. Any amount to be received remains overdue for a period of more than 90 days inrespect of other accounts


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CHAPTER4. INTRODUCTION TO THE PROJECT

4.1 NPA management

The function of banking industry is to accept deposits & provide credit accordingly for the

smooth flow of liquidity & to fulfil the needs of needy people. So the bank lends the moneyto people who wish to have it, such money is called as loan/credit given by the bank to the

individual/organisation/partnership firm. So the concerned party to the loan need to repay theloan as per the equated monthly amount to the bank each & every month, so under such

situation some parties to the loan faces the problem to repay the loan. So the banks givesthem certain period to repay the dues, even if within that prescribes period party fails to repay

the loan then such amount is considered as the Non Performing Assets, which never bringsany returns

This term NPA is used in each & every finance department. As far banking industry is

concerned the NPA means the kind of assets over which there is no any kind of returns &

funds of the organisation is blocked. The main functions of any commercial bank is to

accepts the deposits from the public & provide the loans to the individuals, corporate sectoretc.

The depositors deposit the money in the bank from view point of gaining the fare rate ofinterest as well as expecting the effective utilisation of deposits. Banks use the deposited

amount to allot loan to the party interested to obtain the loan.

The banks lend the money to the borrower of the loan & borrower repays the loan with EMI(Equated Monthly Instalment) which contains the sum of the lending amount along with the

interest. Some time borrower fails to pay the EMIs for consistent period of 90 days in case ofcommercial loan whereas same period is extended up to 180 days in case of consumer loan.

For last so many years we have seen that the many of the banks are closed down or either

merged with the other existing bank. It is very difficult to maintain 0% NPA .with an increase

in amount of NPA more amount of fund blocked so it is very difficult to release such amount.

In short we can say that NPA is an amount which remains overdue over the prescribed periodof time.

4.2 Objective of the study

The of the NPA management study is primary & secondary

The primary objective of the study is to know why the NPA is big challenge to banking

industry. Whereas the secondary objective sis to know what are the reasons for increasing

the amount of NPA over the years in banking industry & what are the impacts of NPA & at

same time what are the steps taken by the bank in order to reduce the amount of NPA.

4.3 Significance of the study:

The main aim of any person is the utilization money in the best manner since the India is

country were more than half of the population has problem of running the family in the most

efficient manner. However Indian people faced large number of problem till the development


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of the full-fledged banking sector. The Indian banking sector came into the developing naturemostly after the 1991 government policy. The banking sector has really helped the Indian

people to utilise the single money in the best manner as they want. People now have startedinvesting their money in the banks and banks also provide good returns on the deposited

amount. The people now have at the most understood that banks provide them good security

to their deposits and so excess amounts are invested in the banks. Thus, banks have helped

the people to achieve their socio economic objectives. The banks not only accept the depositsof the people but also provide them credit facility for their development. Indian banking

sector has the nation in developing the business and service sectors. But recently the banks

are facing the problem of credit risk.

The function of banking industry is to accept deposits & provide credit accordingly for thesmooth flow of liquidity & to fulfil the needs of needy people. So the bank lends the money

to people who wish to have it, such money is called as loan/credit given by the bank to theindividual/organisation/partnership firm. So the concerned party to the loan need to repay the

loan as per the equated monthly amount to the bank each & every month, so under such

situation some parties to the loan faces the problem to repay the loan. So the banks gives

them certain period to repay the dues, even if within that prescribes period party fails to repay

the loan then such amount is considered as the Non Performing Assets, which never bringsany returns

4.4 Research methodology:

Before undertaking any task it becomes very essential for anyone to determine the problem of

study. So researcher adopted the following procedure in completing report study.

1. Formulating the problem 2. Research design

3. Determining the data sources 4. Analysing the data

5. Interpretation 6. Preparing research report

1. Formulating the problem:As researcher interested in the banking sector and want to

make my future in the banking sector so decided to prepare research study on the

banking sector. Researcher did the analysis of the factors that are important for the

banking sector and then he came to know that providing credit (loan) facility to the

borrower is one of the important factors/function in banking sector. As per the result

of analysis researcher felt that the important issue right now as far as the creditfacilities are provided by bank is non performing assets. So the researcher started to

know about the base of the NPAs and decided to study on the NPAs management.

2. Research DesignThe research design tells about the mode through which the

entire project is prepared. The research design for this study is mixture of analytical.

As the researcher utilised the data of the Public Sector Banks & the some descriptive

information.


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3. Determining the data sourceThe researcher utilised the secondary data as available in the market

as it is easy to analyse the data rather going for collection of new primary data.

4. Analysing the data:

Researcher analysed the data and edited them and turned them in the

useful tabulations. So, it became useful in report study.

5. Interpretation of the dataWith the help of analysed data researcher managed to prepare his

project report. But the analyzing of data only would not help the study to reach towards

its objectives. The interpretation of the data is required so that for others it is easy to

understand study in simple manner.

6. Project writing

This is the final step in preparing the project report. The objective of the

report writing is to report the findings of the study to the concerned authorities.

4.5 Limitations of the study

The limitations that researcher felt in his study are:

It was critical for me to gather the financial data of the every bank of the PublicSector Banks so the better evaluations of the performance of the banks are not

possible.

Since his study is based on the secondary data, the practical operations as related tothe NPAs are adopted by the banks are not learned.

Since the Indian banking sector is so wide so it was not possible for researcher tocover all the banks of the Indian banking sector.


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Chapter 5

Facts & findings:

After liberalization the Indian banking sector developed very appreciate. The RBI also

nationalized good amount of commercial banks for proving socio economic services to the

people of the nation. The Public Sector Banks have shown very good performance as far as

the financial operations are concerned If we look to the glance of the financial operations, wemay find that deposits of public to the Public Sector Banks have increased from

859,461.95crore to 1,079,393.81crore in 2003, the investments of the Public Sector Bankshave increased from 349,107.81crore to 545,509.00crore, and however the advances have

also been increased to 549,351.16crore from 414,989.36crore in 2003. The total income ofthe public sector banks have also shown good performance since the last few years and

currently it is 128,464.40crore. The Public Sector Banks have also shown comparativelygood result. The gross profits of the Public Sector Banks currently 29,715.26crore which has

been doubled to the last to last year, and the net profit of the Public Sector Banks is

12,295,47crore. However, the only problem of the Public Sector Banks these days are the

increasing level of the non performing assets. The non performing assets of the Public Sector

Banks have been increasing regularly year by year, if we glance on the numbers ofnonperforming assets we may come to know that in the year 1997 the NPAs were

47,300crore and reached to 80,246crore in 2002. The only problem that hampers the possible

financial performance of the Public Sector Banks is the increasing results of the non

performing assets. The Non Performing Assets impacts drastically to the working of the

banks.

The efficiency of a bank is not always reflected only by the size of its balance sheet but by

the level of return on its assets. NPAs do not generate interest income for the banks, but at the

same time banks are required to make provisions for such NPAs from their current profits.

NPAs have a deleterious effect on the return on assets in several ways

They erode current profits through provisioning requirements

It result in reduced interest income

It require higher provisioning requirements affecting profits and accretion to capital fundsand capacity to increase good quality risk assets in future, and

They limit recycling of funds, set in asset-liability mismatches, etc. The RBI has also tried

to develop many schemes and tools to reduce the non performing assets by introducinginternal checks and control scheme, relationship managers as stated by RBI who have

complete knowledge of the borrowers, credit rating system, and early warning system and so

on. The RBI has also tried to improve the securitization Act and SRFAESI Act and other acts

related to the pattern of the borrowings. Though RBI has taken number of measures to reduce

the level of the non performing assets the results is not up to the expectations. To improve

NPAs each bank should be motivated to introduce their own precautionary steps. Before

lending the banks must evaluate the feasible financial and operational prospective results of

the borrowing companies. They must evaluate the business of borrowing companies by

keeping in considerations the overall impacts of all the factors that influence the business


21/46

Page21

For recovery of dues of banks and financial institutions are allowed:

Setting up of Debt Recovery Tribunals providing a mechanism for expeditious loan

recoveries.

Constitution of a High Power Committee under former Justice Shri Eradi to suggest

appropriate foreclosure laws.

An appropriate legal framework for securitisation of assets is engaging the attention of theGovernment, Due to this paradigm shift in the Regulatory framework for banks had achieved

the desired results. The banking sector has shown considerable degree of resilience. (a) Thelevel of capital adequacy of the Indian banks has improved: the CRARof public sector banks

increased from an average of 9.46% as on March 31, 1995 to 11.18% as on March 31, 2001.(b) The public sector banks have also made significant progress in enhancing their asset

quality, enhancing their provisioning levels and improving their profits.

Asset quality and solvency indicators for Indian Public Sector Banks (PSBs)

have improved considerably since 2000-01. Their gross nonperforming assets (NPAs) have

reduced following the improvement in recoveries from existing NPAs, an increase in thelevel of write-offs. Further, gains from trading portfolios, booked when interest rates were ona decline during April2002-March 2004, have helped the banks make higher provisions

against NPAs and thereby improve their Net NPAs and solvency profiles (Net NPAs aspercentage of Net Worth). The reduction in incremental provisions in the subsequent period

has however not lead to any material deterioration in the solvency profiles of the PSBs, asrecoveries from existing NPAs have balanced out the fresh slippages.

The following table indicates about the total advances made by of public sector bank & out of

that how much recovered from the year 1996 to the 2001.

Rs. In Crores.

Year Total

Advances

Gross

NPA

Net

NPA

%-age of

GrossNPA to total

advances

%-age of

NetNPA to net

advances

1996-

97

244214 43577 20285 17.8 % 9.2 %

1997-

98

284971 45563 21232 16.0 % 8.2 %

1998-

99

325328 51710 24211 15.9 % 8.1 %

1999-

00

380077 53033 26188 14.00 % 7.4%

2000-

01

442134 54773 27967 12.39 % 6.74%


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P

The total advances ofthe public sector bank had been increased overthe period of 1996-

2001. Atthe same time the amount ofthe NPA ofthe said advances is less, as itlooks huge infigure abutiflooktowards the comparison between the amount & the NPA it shows thatthe

percentage of NPA to the advances is considerable declining over period oftime

It also indicates that performance ofthe banks is relatively better; the people preferred thePSU banks.

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

1996-97 1997-98 1998-99 1999-2000 2000-2001

Total Advances

Gross NPA

Net NPA


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Page23

Comparison of classification of loan between PSU Banks& Private/Foreign Banks .

AS ON 31 ST MARCH

Rs. In crores

YEARS STANDARD

ASSETS

SUBSTANDARD

ASSETS

DOUBTFUL

AEESTS

PSUBANKS

Amount % Amount % Amount %

1 2 3 4 5 6

2003 523274 90.6 14909 2.6 32340 5.6

2004 610435 92.2 16909 2.6 28756 4.3

2005 824253 94.6 10838 1.2 29988 3.4

2006 1029493 96.1 11394 1.1 24804 2.3

2007 1335175 97.2 14147 1.0 19945 1.5

2008 1656585 97.7 16870 1.0 19617 1.1

PRIVATE

BANKS2003 131620 90.8 3703 2.6 8512 5.9

2004 167076 94.2 3127 1.8 6391 3.6

2005 216448 96.1 2213 1.0 5578 2.5

2006 296020 97.4 2396 0.8 4438 1.5

2007 382628 97.6 4378 1.1 3923 1.0

2008 459369 97.3 7280 1.5 4452 0.9

FORIEGN

BANKS

2003 50851 94.6 994 1.8 944 1.8

2004 59619 95.2 990 1.6 1099 1.8

2005 72963 97.0 714 0.9 974 1.32006 96772 97.9 946 1.0 698 0.7

2007 125415 98.1 1367 1.1 631 0.5

2008 159882 98.1 1963 1.2 768 0.5


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Page2

CLASSIFICATION OF LOAN ASSETS

Rs. In crores

YEARS LOSS ASSETS TOTAL NPAS TOTAL

ADVANCES

PUBLICBANK AMOUNT % AMOUNT %

7 8 9 10 11

3+5+7 4+6+8 1+3+5+7

2003 6840 1.2 54089 9.4 577813

2004 5876 0.9 51541 7.8 661976

2005 5771 0.7 46597 5.4 870850

2006 5181 0.5 41379 3.9 1070872

2007 4510 0.3 38602 2.8 1373777

2008 3712 0.2 39749 2.3 1696334

PRIVATE

BANKS2003 1118 0.8 13333 9.2 144953

2004 825 0.5 10343 5..8 177419

2005 900 0.4 8691 3.9 225139

2006 940 0..3 7774 2.6 303794

2007 941 0.2 9242 2.4 391870

2008 1244 0.3 12976 2.7 472345

FOREIGN

BANKS

2003 954 1.8 2892 5.4 53743

2004 924 1.5 3013 4.8 626322005 569 0.8 2257 3.0 75220

2006 446 0.5 2090 2.1 98862

2007 454 0.4 2452 1.9 127867

2008 387 0.2 3118 1.9 163000

Asset quality in the Public Sector Bank.

The NPA affects the assets quality of the bank, as it declines debtors of the bank i.e. the party

to the loan fails to pay the amount of the borrowed fund, the following table indicates the

improvement in the asset quality of the bank which is the result of the recovery of the dues.


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Improvement in the asset quality.

2000-01 2001-02 2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

Fresh NPA

Generation %

4.12% 2.49% 3.37% 3.46% 2.46% 2.00% 1.77%

Gross NPA % 12.4% 11.1% 9.4% 7.8% 5.5% 3.7% 2.75%Reduction in NPAs 13% 14% 32% 38% 39% 45% 51%

Growth in Net

Advances

17% 16% 14% 23% 27% 29% 31%

The Gross NPA percentage of the PSBs has reduced considerably since 2000-01 following a

consistent reduction in fresh NPA generation and improvement in recoveries. Incremental

fresh NPA generation has declined from over 4% in 2000-01 to less than 2% in 2006-07. PBs

have written off substantial NPAs, which along with strong credit expansion, has also led to a

reduction in the Gross NPA percentage.

The ability of the PSBs to maintain a relatively low fresh NPA generation rate and makestrong recoveries from existing NPAs would have a critical bearing on their asset quality. To

be able to assess their ability to do the same, it is important to go into the reasons for thesignificant decline in their fresh NPA

Generation rate and for the recoveries they have been able to make in recent years.

Improvements in risk management would help the PSBs control asset quality,

Some stress may be visible in their retail as well as corporate portfolios. Currently, about half

the retail portfolios of the PSBs is accounted for by mortgage loans, with a significant

proportion of such loans being at floating rates of interest. Of late, the rates of interest on

such loans have seen a significant increase in the Indian market. Increases in interest rates are

typically passed on to the borrowers either in the form of extended tenures or higher equated

monthly instalments (EMIs). In some cases, PSBs may be forced to resort to the latter

measure, which however has the potential to worsen the debt servicing capability of

borrowers, in case their incomes do not increase by the

Same magnitude as the EMIs does. Besides mortgage, other retail asset classes may also see

an increase in slippage as competition in the retail finance space and change in attitude

towards debt have pushed up the leveraging of certain borrower classes to relatively high

levels. As for the corporate sector, while the overall business environment is expected toremain benign, a moderate

Deterioration in the credit profiles of corporate borrowers is not unlikely. This is so becauseof the following factors:

With corporate borrowers expected to pursue aggressive expansion (including acquisition)

the associated leveraging and project risks (integration related challenges in the case ofacquisitions) are also likely to increase. Besides, high-value acquisitions may also impacttheir cost competitiveness and capital structures adversely.

For borrowers exposed to commodity cycles, deterioration in the global economic

environment may cause some erosion in their credit metrics, especially in a scenario in which

the Indian rupee strengthens against major foreign currencies and duty protection levels are

lowered further. However, this may benefit borrowers in the user industries, especially those

servicing the domestic market.


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Tightening liquidity conditions may translate into enhanced refinancing risks and higherinterest rates in general and thus could bring in stress on borrowers with relatively inferior

credit profiles or those with significant short-term funding mismatches

NPA recovery:

From view point of recovering the at least some amount of loan the settlement scheme started

by banks in which the borrower can pay the amount which he can pay to the bank out of histotal dues, provided that both party agreed to do so i.e. bank & borrower

OTS scheme: one time settlement scheme introduced by RBI in order to recover dues, at

very beginning the ceiling amount is maximum 5crore means the amount up to 5crore can berecovered under this scheme this scheme gave discount to borrower for one time settlement

as it is seen that most of defaulters are having dues less than 5cores after some period theamount of ceiling increased up to 10 crores rupees.

Debt recovery tribunal:

The Debts Recovery Tribunal have been constituted under Section 3 of the Recovery ofDebts Due to Banks and Financial Institutions Act, 1993. The original aim of the Debts

Recovery Tribunal was to receive claim applications from Banks and Financial Institutionsagainst their defaulting borrowers. For this the Debts Recovery Tribunal (Procedure) Rules

1993 were also drafted.

The tribunal appoints recovery officer whereas at same time the creditor of borrower files thecase in court so court appoints the official liquidator but it was found that the recovery officer

revokes the whole amount for bank only because of which workmen & creditor not getanything out of liquidation. so amendment is made in DRT act in 2000 as even after that also

it was not easy for the lender to recover their dues under the burden of NPA of borrower, so

new act came into existence Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interests Act, also called as SRFAESI Act

SARFAESI Act

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their

non-performing assets without the intervention of the Court. The Act provides three

alternative methods for recovery of non-performing assets, namely: -

y Securitisation

y Asset Reconstruction

y Enforcement of Security without the intervention of the Court

The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00

lakhs. NPA loan accounts where the amount is less than 20% of the principal and interest are

not eligible to be dealt with under this Act.


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Page27

Non-performing assets should be backed by securities charged to the Bank by way ofhypothecation or mortgage or assignment.

The Act empowers the Bank:

y To issue demand notice to the defaulting borrower and guarantor, calling upon them

to discharge their dues in full within 60 days from the date of the notice.

y To give notice to any person who has acquired any of the secured assets from the

borrower to surrender the same to the Bank.

y To ask any debtor of the borrower to pay any sum due or becoming due to theborrower.

y Any Security Interest created over Agricultural Land cannot be proceeded with.

If on receipt of demand notice, the borrower makes any representation or raises anyobjection, Authorised Officer shall consider such representation or objection carefully and if

he comes to the conclusion that such representation or objection is not acceptable or tenable,

he shall communicate the reasons for non acceptance WITHIN ONE WEEK of receipt of

such representation or objection.

A borrower / guarantor aggrieved by the action of the Bank can file an appeal with DRT and

then with DRAT, but not with any civil court. The borrower / guarantor have to deposit 50%

of the dues before an appeal with DRAT.

If the borrower fails to comply with the notice, the Bank may take recourse to one or more ofthe following measures:

y Take possession of the security

y Sale or lease or assign the right over the security

y Manage the same or appoint any person to manage the same

BIFR: Board for Industrial & Financial Reconstruction

To identify the sick & loss making unit the & take remedial measures

y BIFRhas been given the power to consider revival and rehabilitation of companiesunder the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA), which

has been repealed by passing of the Sick Industrial Companies (Special Provisions)

Repeal Bill of 2001.

y The board of Directors shall make a reference to BIFRwithin sixty days from the dateof finalization of the duly audited accounts for the financial year at the end of which

the company becomes sick


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y The company making reference to BIFRto prepare a scheme for its revival andrehabilitation and submit the same to BIFRthe procedure is same as laid down under

the CPC.

y The shelter of BIFRmisused by defaulting and dishonest borrowers

y It is a time consuming process

Corporate debt restructuring:

CDRis a non-statutory voluntary mechanism applicable only to standard and sub-standard

assets of banks and financial institutions with high priority given to potentially viable cases

which ensures timely and transparent restructuring of the corporate debts of viable entities

affected by internal and external factors. This restructuring mechanism will apply only to

multiple banking accounts/syndicates/consortium accounts with outstanding exposure ofRs

20 crores and above with banks and financial institutions. Initially, CDRdid not involve

cases under the BIFR, the DRT and other legal entities. Recently, though, BIFRcases with

minimum cut-off limit ofRs 25 crores of aggregate outstanding exposures have been

considered for CDR.


29/46

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6 Analysis & interpretation:Gross NPA:Gross NPAs are the sum total of all loan assets that are classified as NPAs as

perRBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans

made by banks. It consists of all the non standard assets like as sub-standard, doubtful, and

loss assets.Net NPA: Net NPAs are those type of NPAs in which the bank has deducted the provision

regarding NPAs. NetNPA shows the actual burdenof banks. Since in India, bank balancesheets contain a huge amount of NPAs and the process of recovery and write off of loans is

very time consuming, the provisions the banks have to make against the NPAs according tothe central bank guidelines, are quite significant. That is why the difference between gross

and net NPA is quite high.

CCaatteeggoorriieess ooffNNPPAAss

SSttaannddaarrdd AAsssseettss::Standard assets are the ones in which the bank is receiving interest as well as the principal

amount of the loan regularly from the customer. Here it is also very important that in this case

the arrears of interest and the principal amount of loan does not exceed 90 days at the end offinancial year. If asset fails to be in category of standard asset that is amount due more than

90 days then it is NPA and NPAs are further need to classify in sub categories.

Banks are required to classify non-performing assets further into the

following three categories based on the period for which the asset has remained non-

performing and the realisability of the dues:

11..SSuubb--ssttaannddaarrdd AAsssseettss

22.. DDoouubbttffuull AAsssseettss

33.. LLoossss AAsssseettss

(1) Sub-standard Assets:--

With effect from 31 March 2005, a sub standard asset would be one, which has remainedNPA for a period less than or equal to 12 month. The following features are exhibited by substandard assets: the current net worth of the borrowers / guarantor or the current market value

of the security charged is not enough to ensure recovery of the dues to the banks in full; andthe asset has well-defined credit weaknesses that jeopardise the liquidation of the debt and are

characterised by the distinct possibility that the banks will sustain some loss, if deficiencies

are not corrected.

(2) Doubtful Assets:--

A loan classified as doubtful has all the weaknesses inherent in assets that were classified as

sub-standard, 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.

With effect from March 31, 2005, an asset would be classified as doubtful if it

remained in the sub-standard category for 12 months


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Page30

(3) Loss Assets:--A loss asset is one which considered uncollectible and of such little value that its continuance

as a bankable asset is not warranted- although there may be some salvage or recovery value.Also, these assets would have been identified as loss assets by the bank or internal or

external auditors or the RBI inspection but the amount would not have been written-off

wholly.

Provisioning NormsS.No. Categories Days past due Provisioning

requirements

1 Sub standard 10%

2 Doubtful 1) Up to 1year 100% of unsecured +20% of secured

portion

2)1 to 3year 100% of unsecured +

30% of securedportion

3)more than 3years 100% of unsecured +50% of secured

portion

3 Loss 100%

As shown in the table the provision for substandard assets is required to be 10% of the gross

advances. In case of doubtful assets for very first year 100% provision is need to be made onunsecured part of advances & 20% of secured portion, & for 1 to 3

rdyear the percentage of

secured portions provision is increased by 10% & that on unsecured portion remained same100%, if even in 3

rdyear it remain in account of NPA the provision need to be of 100% on

unsecured advances plus 50% on secured advances.In case of loss assets 100% provision need to be made as this amount is not going to be

recovered at any cost.The standard assets is not falls under the above category as the such amount will be recovered

definitely even then also the provision of 0.25% On direct advances to Agriculture and SME ,

Residential Housing loans beyond Rs.20 lakhs 1%, pecific sector advance like personal

loans, Credit Card dues, Loan on Capital Market instrument commercial Real estate Loans &

NBFC. - 2%

All Other advances - 0.40%

The comparison between the NPA of public sector banks & private/foreign sector banks.

The data for the year 1996-97 indicates that the NPA of rs.43577 cores is the 17.8% of the

total advances of rs.244214; in the sub subsequent year 1997-98 the total advances made by

the banks is Rs. 284971 which indicates the increase in the amount of advances by rs.40757at same time the NPA rise from Rs. 20285 to Rs. 21232 which show the increase in NPA by

rs.1986 crores, in the year total advances reached at Rs. 325328 from Rs. 284971,which

indicates the increase in the advances by Rs 40357 crores at same time NPA rose to Rs 51710

from Rs 45563 the net increase is ofRs 6147 crores, which are the near about 15.28% of the

current year net increased advances whereas for the previous year the same percentage was

4% only, it shows that as compared to the year 1997-98 the year 1998-99 was totally bad year

for PSU banks, the data only indicating about the % of gross NPA to net but not about the %

of net increase in advances to the % of net increase in NPA as compared to the previous


31/46

Page31

year. In the year 1999-00 the advances rose to the 380077 from the 325328 which show thenet increase in the total advances is rs.54749crores at same time amount of NPA is also rose

to 53033from 51710 the net increase is 1323 crores which is 2.42% of the net increasedadvances as compared to the year 1998-99 in the year 1999-00 the % of NPA is very less. In

the year 2000-01 the advances reached at Rs 442134 from Rs 380077which show the net

increase in advances by Rs.62057 at same time the amount of NPA rise from Rs 53033 to Rs

54773 show the net increase in NPA by Rs.1740 crores & it is the 2.80% of the net increasedamount of NPA.

At the same time the net advances for the year 1996-97 is Rs.220922 & for 1997-98 it isRs.260640 which shows net increase in net advances is Rs.39718 at the same time the

difference between gross advances of this two years is Rs 40757 which means that the netadvances is near about 97.5% of the difference between gross advances of this two years, in

the year 1998-99 the net advances increased to Rs.297829 from previous years 260640 whichindicate the net difference of Rs 37189 at same time the difference between gross advances

is 40367 crores so the net advances is 92.14% of the gross difference between the advances

of the two years. Subsequently for the year 2000-01 net advances reach at Rs 415328 from

previous years Rs 297829 which indicates the difference Rs 117499 at same time the net

increase in gross advances is Rs.62057,so the net advances is near about double the amountof gross advances. So the efficiency of the banks analysed easily

If the analysis made by this way it show the better performance but the fact is that the amount

of NPA is increasing as increase in the amount of the advances

The table indicates that the preference of the people to the public sector banks in order to

avail loan, the percentage of gross NPA to total advances showing declining trend but the

actual need is that the difference or the net increase in amount of advances & the net increase

in amount of NPA need to be compared which helps to know the progress of the bank as

increase in the proportionate amount of advances to the same of the NPA.

Comparison of loan assets:

In 2003 total advances Rs.577813, out of which Rs 54089 is only NPA which reflects 9.4%

of the total advances whereas the same time the NPA of private bank is 9.2% & that of

foreign bank 5.4%, it show that the PSU banks somewhere lesser as compare to the private

& foreign banks. The result is that the maximum amount of loan lies under the doubtful

category, where the chances of recovery are less i.e. loss for bank. In the subsequent years the

percentage of NPA goes on declining year wise it show the positive impact but if we compare

it with the private sector bank & foreign banks the declining in percentage is nothing, the

performance of private sector bank is better than the PSU banks.


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ANALYSIS & INTERPRETATION

For the purpose of analysis and comparison between private sector and public sector banks,

we take five-five banks in both sectors to compare the non performing assets of banks. For

understanding we further bifurcate the non performing assets in priority sector and non

priority sector, gross NPA and net NPA in percentage as well as in rupees, deposit investment advances.

Deposit Investment Advances is the first in the analysis because due to these we can

understand the where the bank stands in the competitive market. As at end of march 2008, in

private sector ICICI Bank is the highest deposit-investment-advances figures in rupees crore,

second is HDFC Bank and KOTAK Bank has least figures.

In public sector banks Punjab National Bank has highest deposit-investment-advances but

when we look at graph first three means Bank of Baroda and Bank of India are almost the

similar in numbers and Dena Bank is stands for last in public sector bank. When we comparethe private sector banks with public sector banks among these banks, we can understand themore number of people prefer to choose public sector banks for deposit-investment.

But when we compare the private sector bank ICICI Bank with the public sector banks ICICI

Bank is more deposit-investment figures and first in the all banks.

DEPOSIT-INVESTMENT-ADVANCES (RS.CRORE) of both sector banks and

comparison among them, year 2007-08.

BANK DEPOSIT INVESTMENT ADVANCES

AXIS 87626 33705 59661

HDFC 100769 49394 63427

ICICI 244431 111454 225616

KOTAK 16424 9142 15552

INDUSIND 19037 6630 12795

TOTAL 468287 210325 377051


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B DE IT INVE T ENT ADVANCE

B B 152034 43870 106701

B I 150012 41803 113476

DENA 33943 10282 23024

PNB 166457 53992 119502

UBI 103859 33823 74348

T TAL 606305 183770 437051

0

50000

100000

150000

200000

250000

ICICI HDFC AXIS INDUSIND KOTAK

DEPOSIT

INVESTMENT

ADVANCES

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

PNB BOB BOI UBI DENA

DEPOSIT

INVESTMENT

ADVANCES


34/46

P

4

ICICI BANK AND PUNJAB NATIONALBANK :-

BANK DEPOSIT INVEST ENT ADVANCES

ICICI BANK 244431 111454 225616

PNB 166457 53992 119502

There are two concepts related to non-performing assets_ gross and net. Gross refers to all

NPAs on a banks balance sheetirrespective ofthe provisions made. It consists of allthe non

standard assets, vi . sub standard, doubtful, and loss assets. A loan assetis classified as sub

standard ifit remains NPA up to a period of 18 months; doubtful ifit remains NPA formore than 18 months; and loss, without any waiting period, where the dues are considered

not collectible or marginally collectible.

Net NPA is gross NPA less provisions. Since in India, bank balance sheets contains a hugeamount of NPAs and the process of recovery and write off of loans is very time consuming,

the provisions the banks have to make against the NPA according to the central bankguidelines, are quite significant.

0

50000

100000

150000

00000

50000

ICICI PNB

DEPOSIT

INVESTMENT

ADVANCES


35/46

P

YEAR 2006-07

BANK GROSS NPA NET NPA

BOB 1.46 0.35

BOI 1.48 0.45

DENA 2.37 1.16

PNB 2.09 0.45

UBI 1.82 0.59

2007-08


BOB 1.10 0.27

BOI 1.08 0.33

DENA 1.48 0.56

PNB 1.67 0.38

UBI 1.34 0.10

0

0.5

1

1.5

2

2.5

DENA UBI PNB BOI BOB

GROSS NPA

NET NPA


36/46

P

2006-07


AXIS 0.57 0.36

HDFC 0.72 0.22

ICICI 1.20 0.58

KOTAK 1.39 1.09

INDUSIND 1.64 1.31

2007-08


AXIS 0.45 0.23

HDFC 0.68 0.22

ICICI 1.90 0.87

KOTAK 1.55 0.98

INDUSIND 1.69 1.25

0

0.2

0.

0.6

0.8

1

1.2

1.

1.6

1.8

DENA PNB BOI BOB UBI

GROSS NPA

NET NPA

0

0.2

0.

0.6

0.8

1

1.2

1.

1.6

1.8

INDUSIND KOTAK ICICI AXIS HDFC

GROSS NPA

NET NPA


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COMPARISON OF GROSS NPA WITH ALL BANKS FOR THE YEAR 2007-08.

The growing NPAs affectthe health of banks, profitability and efficiency. In the longrun, it eats up the net worth ofthe banks. We can say thatNPA is not a healthy sign

for financialinstitutions. Here we take allthe ten banks gross NPA together for better

understanding. Average ofthese ten banks gross NPAs is 1.29 as percentage oftotal

assets. So if we compare in private sector banks AXIS and HDFC Bank are below

average of all banks and in public sectorBOB and BOI. Average ofthese five private

sector banks gross NPA is 1.25 and average of public sector banks is 1.33. Which is

higherin compare of private sector banks?

GROSS NPA:-

COMPARISON OF NET NPA WITH ALL BANKS FOR THE YEAR 2007-08.Average ofthese ten banks net NPA is 0.56. And in the public sector banks allthese

five banks are below this. Butin private sector banks there are three banks are above

average. The difference between private and public banks average is also vast.Private sector banks net NPA average is 0.71 and in public sector banks itis 0.41 as

percentage oftotal assets. As we know that net NPA shows actual burden of banks.

IndusInd bank has highest net NPA figure and HDFCBank has lowestin comparison.

0

0.2

0.

0.6

0.8

1

1.2

1.

1.6

1.8

2

INDUSIND KOTAK ICICI HDFC AXIS

GROSS NPA

NET NPA

0

0.5

1

1.5

2

ICICIINDUSINDKOTAK HDFC AXIS BOI BOB UBI DENA PNB


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PRIORI Y NON PRIORI Y SEC OR

When we further bifurcate NPA in priority sector and Non priority sector.Agriculture + small + others are priority sector. In private sector banks ICICI Bank

has the highest NPA in both sectors in compare to other private sector banks. Around

72% of NPA is with ICICI Bank with Rs.1359 crore in priority sector and around78% in non priority sector. We can see thatin private sector banks , banks has more

NPA in non priority sectorthan priority sector.

BANK AGRI

( 1 )

SMALL

( 2 )

OTHERS

( 3 )

PRIORIT

SECTOR

( 1+2+3 )

NON-

PRIORIT

AXIS 109.12 14.76 86.71 210.59 275.06

HDFC 36.12 110.56 47.70 194.41 709.23

ICICI 981.85 23.35 354.13 1359.34 6211.12

KOTAK 10.00 33.84 4.04 47.87 405.20

INDUSIND 30.44 3.18 30.02 63.64 328.67

TOTAL 1167.53 185.69 522.60 1875.85 7929.28

BANK PRIORIT SECTOR

(ADVANCED RS.CRORE

)

NPA

BOB 5469 350

BOI 3269 325

DENA 1160 106

PNB 3772 443

UBI 1924 197

0

1000

000

3000

000

000

6000

7000

A I HD C ICICI KOTAK INDUSIND

PRIORITY


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When we talk about public sector banks they are more in priority sector and they given

advanced to weaker sector orindustries. Public sector banks give more loans to Agriculture ,small scale and others units and as a result we see that there are more number of NPA in

public sector banks, than in private sector banks. BOB given more advanced to priority

sectorin 2007-08 than other four banks and Dena Bankis in least.

But when there are comparison between private bank and public sector bank still ICICI Bank

has more NPA in both priority and non priority sector with the comparison of public sector

banks. Large NPA in ICICI Bank because the strategy of bankthat risk-reward attitude andinitiative in each sector. Above we also discuss that ICICI Bank has highest deposit-

investment-advance than other banks.

Now, when we compare the all public sector banks and public sector banks on priority and

non-priority sectorthan the figures are really shocking. Because in compare of private sectorbanks, public sector banks numbers are very large.

SECTOR

PUBLIC SECTOR NE PRIVATE

2006-07 2007-08 2006-07 2007-08

PRIORITY 22954 25287 1468 2080

PUBLIC 490 299 3 0

NON PRT 15158 14163 4800 8339

TOTAL 38602 39749 6271 10419

Here, there is huge difference between private and public sector banks NPA. There is

increase in new private sector banks NPA of Rs.4148 crin 2007-08 which is almost 66% risethan previous year. In public sector banks the numbers are not increased like private sector

banks.

0

1000

2000

3000

000

5000

000

BOB BOI DENA PNB UBI

PRIORITY

NPA


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0

The following are the some of the factors which are responsible for rise inamount of NPA

The banking sector has been facing the problem of NPA, but the problem of NPA is high in

public sector bank as compared to the private & foreign banks as we saw. For such NPA the

internal & external both factors are responsible

The some of the external factor are as follows because of which the big problem of NPA isIndia PSU banks facing

Impact of recovery tribunal: the govt has set of number of recovery tribunals which looks in

to the matter of recovery of unpaid dues but such tribunals is not working effectively so itaffects the profitability & liquidity position of the banks

External factors

y

Default by will:

There are some people in the society who makes the default by their will even they are in

position to pay the amount of dues, so it is better to take a strict & fast action against such

people so that the dues can be recovered easily

y Nature:

Over the many years India is affected by the natural calamities, so the borrowers is not in

position to repay loan for that purpose only banks required to make a good amount of

provision to get secured against such looses. In India most of the farmers takes the loan from

the bank at same time the agriculture sector depend upon the rain , if at any year rain never

came then under such situation the farmer is not able to pay the dues .

y Industrial slowdown:

Some of the industry closed down because of the improper management, improper projecthandling, changes in government policy gives rise to industrial sickness hence the industry is

not in position to pay the loan & such amount remain unrecovered & comes under the NPA,

automatically the bank get affected

Internal factors:

y Faulty lending process:

The banks has to follow certain principles while lending such as principal of safety, liquidity,

profitability

The principal of safety means the position of the borrower to repay the loan & interest. Thepayment of dues depends upon the capacity of the borrower & willingness to pay. Whereas

the capacity to pay means the amount of tangible assets & the growth in business on the otherhand the willingness to pay means the reputation of the borrower in the market.therefroe

before granting loan all such principle must be taken into consideration.


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1

y Lack of swot analysis:

While going through the documents the banks should focus on the not only the strength of theborrower at the same time which are the threats for him in market which can be lead to

slowdown of his business which can result in non payment of dues because poor amount ofprofit

y Visit at the projects:

The banking officials never gives visit to the place or place of business for which borrowers

took loan, because of this it is not so easy to know about the whether the borrower notpaying dues wilfully even he is making growth in business.

Problems of NPA:

The banks lends the money which are deposited by the other customer if the amount of NPA

goes on increasing it is very tough for bank to repay the depositors there savings plus interest.

In order to overcome such kind of problem bank charges high amount of interest on thelending where as they gives the lower interest to the depositor, inversely it affects the

economic growth

Symptoms of NPA:

Financial: when the borrower fails to pay the instalment in case of term loan, cheque bounce,on payment of dues regularly, declining current ratio

y Operational:

Borrower is in the process of winding up of the business, overdue receivables, non payment

of dues other than the load instalment,

y Individual:

Use of fund for investment in shares & in other source of investment, avoiding contact withbank, disputes among partners

Whereas changes in govt policy, death of borrower, competition in market


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2

Impact of NPA

y Profitability:-NPA means booking of money in terms of bad asset, which occurred

due to wrong choice of client. Because of the money getting blocked the prodigalityof bank decreases not only by the amount of NPA but NPA lead to opportunity cost

also as that much of profit invested in some return earning project/asset. So NPAdoesnt affect current profit but also future stream of profit, which may lead to loss of

some long-term beneficial opportunity. Another impact of reduction in profitability islow ROI (return on investment), which adversely affect current earning of bank.

yy Liquidity:-Money is getting blocked, decreased profit lead to lack of enough

cash at hand which lead to borrowing money for shot\rtes period of time which lead to

additional cost to the company. Difficulty in operating the functions of bank is

another cause of NPA due to lack of money. Routine payments and dues.

y Involvement of management:-

Time and efforts of management is another indirect cost which bankhas to bear due to NPA. Time and efforts of management in handling and managing

NPA would have diverted to some fruitful activities, which would have given good

returns. Now days banks have special employees to deal and handle NPAs, which is

additional cost to the bank.

y Credit loss:-Bank is facing problem of NPA then it adversely affect the value of

bank in terms of market credit. It will lose its goodwill and brand image and credit

which have negative impact to the people who are putting their money in the banks .


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3

Conclusion & suggestion:

Conclusion

The NPA is serious problem in front of each & every bank in India, as the bank lendsthe money to the borrower from view point of earning fair amount of interest but

borrowers sometimes never pays the dues so it is not the only problem faced by the

PSU banks but also it is also faced by other than PSU banks also, as compared to

other banks the lending of the PSU banks is more ,so with increase in advances the

NPA is also increased, as the banking sector undertook many measures to controlNPA but then after also it is difficult for them to maintain 0% level of NPA. The bank

officials have to be very efficient while granting loan to any of the applicant, thesettlement schemes are effective but main thing is that

The loss is after all of bank only, every now & then bank have to suffer from this,whatever the act is made in order to protect the interest of the banks from the unpaid

dues, the banks has to compromise with the defaulter in from view point of coveringthe same amount of principal & interest. If such kind of problems remain in the

economy then it is tough for banks to run their business. The amount of fund providedby the bank to the borrower is like investing in the risk, as while granting the loan the

bank official may feel that the project is having some amount of return but if suddenly

market goes on changing the condition of the project may change, if the market is

having positive impact then the borrower can repay & if the condition is totally

opposed then it is very hard for business man to survive so indirectly bank suffers. So

the reason for the NPA is varies as time and condition changes we cant blame the

official for funding to the project which were not having the any kind of return, the

whatever the provision that bank makes in order to reduce the amount of NPA is

indirectly only the fund of bank which replaces the fund of bank which is in the

market, means again the one and same thing the loss belongs to only banks.


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Suggestions:

The following are the some suggestions which can help the banks in order to avoid

future bad debts/loss assets

In case of individual borrower whatever the amount of loan he requires the bank haveto look in to the his future stability of the job, the amount which he has earned till

date, what will be his savings, in case if loose the job what benefits of previous job hewill have, to have new job, on basis of his current job. So that the risk of bad assets

can be minimised by determining the future speculation that may take place in aneconomy, at any point of time. While granting the loan the co-borrower should be

there who is also in productive condition so that in case original borrower fails torepay the co borrower can be with held for repayment of dues

Most of the time it is seen that the many of the individual opt for housing loan frombank or financial institution, at the same the plot which the borrower going to

purchase may have the loans of other bank on it, so there is need to have clearance

certificate about that plot or flat that it is not having any amount of loan over and it isnot mortgaged anywhere from the concerned authority

Over period it is seen that the people gives wrong valuation of the property in order toget more amount of loan, so bank must appoint the staff who will do the valuation,

certificate of private valuer should not be there, so the overvaluation of the property

can be avoided easily

For the corporate borrower the balance sheet is always the way through which thebank official come to know about the stability of business and the future of business

but as per the prediction the market condition may not be the same it may be positive

or may be negative, if it is an negative then the lender suffers not borrower so it isbetter to mortgage whatever the property the borrower have in his business whether it

is movable or immovable, so that in case of default the bank can make an auction of

that in order to cover the dues. While allotting the loan the bank should keep a norm that the every borrower has to

obtain the insurance policy against the loan, so that in case of default the dues can be

recovered with the help of insurance

For the salaried person it is need to made in mandatory to open a salary account inbank, so that whatever the amount of salary he earn will be deposited in bank, so the

bank can easily deduct the amount of its instalment . The fast track court need to be there to give the results as early as possible so that

blocked amount of liquidity get releases


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5

BIBLIOGRAPHY

News papers & journals:

1. Financial Daily from THE HINDU group of publications dated Tuesday,

January 23, 2001,Saturday, Jul 09, 2005

2. Risk management book of JAIIB exam3. Google.com4. RBI official web site


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ANNEXURE

Questionnaire

1. Is there is need to make provision against NPA?2. What is the main reason behind NPA?3. Is NPA is only about lending only?4.

Documents

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