Welcome

On

NON PERFORMING ASSET MANAGMENT

At

Submitted By

Waghmode Mangesh BhagawanRoll no.-123

Submitted to

Garware Institute of Career Education & Development Vidyanagari, Santacruz

(East) Mumbai.Under Guidance

Mr.Govande.A

Objectives of study

To Know the Concept of Non Performing Asset . To know the reasons for an asset becoming Non-Performing Asset.

To understand the impacts of NPAs on the operations of the Bank. To study the procedure and tools used for management of NPAs.

What is NPA ?

An asset which ceases to generate income for the bank is called Non-Performing Asset. An asset is classified as non-performing asset (NPAs) if dues in the form of principal and interest are not paid by the borrower for '90 days from the year ending March 31, 2005.

Interest and/or installment of principal remain overdue for a period of more than 90 days 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,

  A loan granted for short duration crop will be treated as NPA, if the installment of

principal and / or interest thereon remains overdue for two crop seasons, beyond due date.

  A loan granted for long duration crops will be treated as NPA, if the installment of

principal and / or interest thereon remains overdue for one crop season, beyond due date.

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

Introduction

Role of banks in economic development.

What is loan.

NPAs: An Issue for banks and FIs in India.

Institutional credit to agriculture.

Factors behind rise in NPAsExternal factors

Willful Defaults

Natural calamities

Lack of demand

Lower price for agro product

Change on Govt. policies

Improper functioning of Debt Recovery Tribunals

Diversion of Funds: -

Ineffective legal system: -

Business failure:-

Industrial sickness

Internal factors

Defective Lending process:-

Inappropriate technology

Improper SWOT analysis

Poor credit appraisal system

Managerial deficiencies

Absence of regular industrial visit

Re loaning process

Promoter-banker nexus

Asset classification

Categories of NPAs:-

Standard Assets

Sub-standard Assets

Doubtful Assets

Loss Assets

Impact of NPAs on banks

Profitability

Liquidity

Involvement of management

Credit loss

Symptoms of NPAs Four categories of early symptoms:-

Financial

Operational and Physical

Attitudinal Changes

Others

Financial

Non-payment of the very first installment in case of term loan. Irregularity in installment. Irregularity of operations in the accounts. Unpaid over due bills. Declining Current Ratio. Payment which does not cover the interest and principal amount of that installment. While monitoring the accounts it is found that partial amount is diverted to sister concern or parent company

Operational and Physical: If information is received that the borrower has either initiated the process of winding up or are not doing the business. Stock statement not submitted on time. External non-controllable factor like natural calamities in the city where borrower conduct his business. Frequent changes in plan. Non payment of wages.

Attitudinal Changes: Use for personal comfort, stocks and shares by borrower. Avoidance of contact with bank. Problem between partners.

Others: Changes in Government policies. Death of borrower. Competition in the market.

Preventative measure to reduce NPAs

Recovery Acts, Interest Rate De-regulations & Other Incentives

Suggested strategies for effective management of NPAs

Technological Innovations

Agriculture Insurance

Increase lending through Self help group

Formulation and appraisal of projectProper identification of the borrowerMeaningful pre-sanction inspectionProper assessment of his requirementsUnder / over financing should be avoidedFinding out the technical feasibility and economic viability of the project.Timely delivery of creditFixation of proper repayment schedule is essential to recover loans in Agriculture SegmentCompliance of all the terms of sanction before release of the loanCompromise settlement

Various steps to be taken from sanctioning to recovery of the loan

This is sequel to an objective appraisal of farm credit proposals and procedure and formalities followed in the processing of loans. Following is the standard processing procedure explained.

• INTERVIEW WITH FARMER• SUBMISSION OF APPLICATION

• SRUTINY OF RECORDS• FIELD VISIT

• CRITERIA FOR ELIGIBILITY• SANCTION OF LOAN

• SUBMISSION OF DOCUMENTS• DISBURSEMENT OF LOAN

• FOLLOW UP MEASURES• RECOVERY OF LOAN

Recovery tools

Compromise/Negotiable Settlement

Debt Recovery Tribunals (DRT) The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ACT)

Lokadalats

Asset Reconstruction Company Rephasement of loan Merger/ Acquisition/ Amalgamation

Recovery through recovery camps

Establishment of Asset Recovery Branches

Research operation Research objective:

To know reasons for an asset becoming Nonperforming at Sangli District.

To understand how Non- Performing Asset affect the performance of the all branches of the Union bank of India at sangli district

To know total advances & NPAs observed in each types of loan.

To know recovery tools taken by all the branches of UBI at Sangli District.

To understand the extent to which all the branches of Union Bank of India at Sangli District has been successful cutting down its Non-performing Asset level.

To understand the extent to which profitability affected by NPAs in branches of UBI at Sangli District.

Sampling plan

Population Size:

The population size is the managers of the branches of Union bank of India at sangli district.Sample Size:10 branches of Union bank of India at Sangli District.Sample Method:Random Sampling is used for all branches of Union bank of India at Sangli District.

Limitations of the study The limitations that I felt in my study are: The study is confined to only one company that is Union Bank of India .

The scope of this study is limited only to the study of non performing asset management in Union Bank of India at Sangli district.

Since the branches of Union Bank of India is so wide so it was not possible for me to cover all the branches of Union Bank of India.

Due to time constraint depth analysis could not be made.

The data taken for interpretation is for a limited period.

Graph -1 showing the types of branches.

Urban Semi-Urban Rural0

10

20

30

40

50

60

30

50

20

Graph -1 showing the types of branches.

Percentage

Per

cent

age

Branches

Graph- 2 Showing period of functioning of branch

24-25 28-29 29-30 >300

10

20

30

40

50

6050

20

10

20 Column2

Years

Per

cent

age

Graph -2 Showing period of functioning of branch

Graph -3 Showing presence of NPAs

10 18 18-19 19-20 >200

5

10

15

20

25

30

35

40

45

30

10

40

20

Graph -3 Showing presence of NPAs

Percentage

Years

Per

cent

age

Graph -4 Showing Approximate Value ofNPAs in Branches

0-5 15-20 20-25 25-30 >300

5

10

15

20

25

30

35

20

10

20

30

20

Graph -4 Showing Approximate Value ofNPAs in Branches

Percentage

Amount in Lakhs

Per

cent

age

Graph -5 showing the value of agriculture NPAs.

0-5 15-20 >200

5

10

15

20

25

30

35

40

4540

30

10

20

Graph -5 showing the value of agriculture NPAs.

Percentage

Amount in lakh

Per

cent

age

5-10

Chart -6 showing agriculture advances Vs total advances and agriculture NPA Vs total NPAs of the branches.

1 2 3 4 5 6 7 8 9 100

10

20

30

40

50

60

70

80

% of agri to total advances

4.2

3

0

45.1

2

52.7

9

66.6

5

0.4

185

17.7

1

27.0

1

51.8

3

28.9

3

50.6

6

53.2

6

27.6

6

0

71.1

4

65.3

3

56.7

4

57.7

5

15.6

1

0.2

4

Per

cent

age

Branch code

Chart -6 showing agriculture advances and agriculture NPA in the branches1-Civil hospital (U)

2-Kameri (S)

3-Kasbe digraj (S)

4-Madhavnagar (S)

5-Miraj (U)

6-Peth (R)

7-Sangli main (U)

8-Soni (R)

9-Tasgaon (S)

10-Vita (S)

Graph-7 Showing Age of NPA.

0-2 2 5 5 8 >80

0.5

1

1.5

2

2.5

3

3.5

2.55

3.2

2.57 2.6

Series 3

Age of NPA (Year)

Wei

ghte

d A

vera

ge

Graph -7 Showing Age of NPA.

Graph -8 Showing NPA level Controllable

Definitely Yes Yes Cant Say No Definitely No0

10

20

30

40

50

60

70

80

20

70

0 0

10

Graph-8 Showing NPA level Controllable

Percentage

Respondents Response

Perc

en

tag

e

Graph -9 Showing Advances and NPA observed in different sectors

Priority Sector Non- Priority Sector0

10

20

30

40

50

60

70

80

90

100

77.85

22.14

93.1

6.89

AdvancesNPAP

erce

nta

ge

Graph -9 Showing Advances and NPA observed in different sectors

Graph -10 Showing Advances and NPA observed in each types of loan.

Personal loan Vehical loan Housing loan0

10

20

30

40

50

60

70

80

1.31

24.3

74.38

40.23

9.94

49.82

AdvancesNPA

Per

cen

tag

e

Loan borrowed

Graph -10 Showing Advances and NPA observed in each types of loan.

Graph-11 showing the main causes of NPA.

1 2 3 4 5 6 7 8 90

1

2

3

4

5

6

7

8

9

4.3

2.13

2.78

7.2

7.7

5.34

6.7

5.27

3.8

Graph -11 showing the main causes of NPA.

Weighted Average

Weig

hte

d A

vera

ge

Causes ( Serial No.)

1-Improper selection of borrowers

2 -Deficiency in processing (sanctioning and realizing the fund).

3-Improper appraisal of assets.

4-Natural calamities.

5-Willful default of the Borrowers.

6-Demand Recession.

7-Business Failure.

8-Diversion of fund.

9-Cost Over Run

Chart -12 showing the causes for repayment failure from the farmers.

Will

fuln

ess.

Crop

dam

age.

Lower

pric

e of

agr

o-pr

oduc

t.

Natur

al cal

amiti

es.

Inad

equa

te S

urpl

us G

ener

atio

n.

Diver

sion

.

Lack

of S

uper

vision

.

Polit

ical

pre

ssur

e.0

1

2

3

4

5

6

7

5.78 6

5.25

6.23

5.1

4.25

2.52

Weighted average

Wei

ghte

d av

erag

e

Causes

Chart - 12 showing the causes for repayment failure from the farmers.

Graph-13 showing effective measure to reduce the NPAs

Recovery agent

SARFAESI Act

Lok adalats DRT Recovery camp

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5 4.6

3.5

4.23 4.13 44.2

Graph -13 showing effective measure to reduce the NPAs

Weighted average

Wei

ghte

d av

erag

e

Recovery tools

Constantdialoguewith borrowers

Chart-14 showing NPA reduced in each recovery tools

Constant dialogue with bor-

rower

Recovery agent

SARFAESI Act

Lok adalats

DRT Recovery camp

0

0.5

1

1.5

2

2.5

1.671.5

2

1.2

1.67 1.63

0

Chart -14 showing NPA reduced in each recovery tools

Weighted average

Wei

ghte

d av

erag

e

Recovery tools

Graph -15 showing the extent to which profitability affected by NPAs

0-5 >200

10

20

30

40

50

60

50

30

10 10

Percentage

Profitability affected by NPA in %

Per

cent

age

Graph -15 showing the extent to which profitability affected by NPAs

5-10 10-20

Chart -16 showing purpose for farmers have been taken loan from the bank

Agriculture House Education Other0

0.5

1

1.5

2

2.5

3

3.5

43.78

2.8

1.45

2.2

Weighted average

Wei

ghte

d av

erag

e

Purpose

Chart -16 showing purpose for farmers have been taken loan from the bank

Graph -17 showing categories of the farmers have taken loan from the bank.

Marginal Small Other0

0.5

1

1.5

2

2.5

3

2.12

2.7

1.23

Graph -17 showing categories of the farmers have taken loan from the bank.

Weighted average

Farmers category

Wei

ghte

d av

erag

e

Graph -18 showing no. of farmers account classified as defaulter on the basis of farmers category.

Marginal Small Other0

5

10

15

20

25

30

35

40

45

50

35.86

44.02

20.1

Graph -18 showing no. of farmers account classified as defaulter on the basis of farmers category.

Percentage

Farmers category

Per

cent

age

Graph -19 Showing agriculture advances and NPA observed in each types of loan.

Short term Medium term Long term0

10

20

30

40

50

60

32.52

40.8

26.68

6.52

53.33

40.14

Agriculture advancesAgriculture NPA

Per

cent

age

Loan types

Graph -19 Showing agriculture advances and NPA observed in each types of loan.

Graph-20 showing the role of Government in reducing NPA level in the bank.

More helpful Helpful Not helpful Cant say0

10

20

30

40

50

60

70

10

60

30

0

Graph-20 showing the role of Government in reducing NPA level in the bank.

Percentage

Result

Per

cent

age

Conclusion

We studied the concept of Non performing asset.

We understood different reasons behind rise in NPAs.

We understood how NPAs affect the operations of the banks.

The study then highlights the policy and recovery tools that are to be taken to reduce NPAs.

We observed that NPAs rate in personal loan is more than vehicle & housing loan.

We observed that share of NPAs in short term loan is minimum than medium & long term loan.

We observed that management of NPAs in Kasbe Digraj branch is good than other branches at sangli district.

We observed that most of the branches of UBI at sangli district profitability affected by 0-5%.

We observed that NPAs rate in small farmer’s category more than marginal & other farmers in branches of UBI at sangli district.

We also clear that opinion of the branch managers at sangli district about role of Government in reducing NPAs level in bank. v

Suggestions

It is recommended that the proper documentation and verification to be made before sanctioning the loan. Empowering staff to make decisions related to sanctioning of loans. Constant interactions have to be maintained with the customers to keep track of their loan payment. Strict measures have to be taken while issuing or sanctioning the loan. The measures can include verification of job and salary slips, verification of securities and the like. Bank should give more thrust on vehicle and housing loan instead of personal loan because NPAs rate in personal loan is more Bank should give more thrust on Constant dialogue with borrower for compromise/ recovery of critical amount to reduce NPAs level in the bank because bank get opportunity of time value of money. To encourages farmers about crop insurance and personal insurance. Avoid disbursement of loan to customer whose account is NPA from More than 3 year.

Bank have good opportunity to expand short term advances in agriculture where share of NPAs minimum in this category.

Field publicity campaign should be evolved to improve the recovery climate.

To continue a system of incentives related to performance of the managers should be devised and proper rewards are given to the bank staff for their performance in recovering the loans.

To reduce political interference.

Bank should prefer compromise option if defaulter is not willful and its good opportunity for bank to take advantage of time value of money.

Timely delivery of credit.

Meaningful pre-sanction inspection

Proper identification of the borrower

Finding out the technical feasibility and economic viability of the project.

Recovery in Agriculture segment is effort elastic, it is necessary that close follow up is maintained, on an ongoing basis, more particularly during the harvesting period.

References

www.banking .com

www.rbi.org

www.google.com

www.google.com

www.unionbankofIndia.co.in

Thank You