Assignment on Non Performing Assets

7/27/2019 Assignment on Non Performing Assets

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Assignment on Non Performing Assets in Banking Industry

Submitted To: Submitted By:

Deepak Tandon Aditya A. Dash


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Introduction:

A Non Performing Asset is a term given to a loan account where the customer of

the bank has defaulted in the payments of interest and the instalments.

An asset, including a leased asset, becomes non-performing when it ceases to

generate income for the bank.

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

greater transparency, it has been decided to adopt the 90 days overdue norm

for identification of NPA, from the year ending March 31, 2004. Accordingly, with

effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or anadvance where;

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 (OD/CC),

The bill remains overdue for a period of more than 90 days in the case of

bills purchased and discounted, Interest and/or installment of principal remains overdue for two harvest

seasons but for a period not exceeding two half years in the case of an

advance granted for agricultural purposes, and

Any amount to be received remains overdue for a period of more than 90

days in respect of other accounts.
http://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Overdraft


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Types of NPAs:

Standard Asset:

The standard asset is the asset which carries the normal risk attached to

the business and it continues for a period of 90 days. It is also known as

performing assets.

Provisioning Norm- 0.40% on standard assets 0.25% on direct advances to

agriculture and SME 1.00% on personal loans, capital market exposures,

residential houses beyond Rs. 20 lakhs and commercial real estate 40%

Sub-standard Asset:

This asset would be classified as sub-standard if it remains NPA for less than

or equal to 2 years.

Provisioning Norm- 10% on total outstanding irrespective of security

coverage/ guarantee. The unsecured portion will attract additional

provision of 10 percent. Doubtful Asset:

This asset would be classified as doubtful asset if it remains NPA for more

than 2 years.

Provisioning Norms- 100% shortfall in the securities and 20%/ 30%/ 50%/

100% depending upon the age of the asset.

Loss Asset:

These assets are the NPAs which have negligible realizable value of security

and the balance outstanding is 100%. Here the account can be written off

by the banks and these assets are handed over to the recovery agents for

sale.


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Factors behind rise in NPA

External Factors:

These are the factors that are not under control of any given banking institution:

Ineffective recovery tribunal

Wilful Defaults

Natural calamities

Industrial sickness

Change on Govt. policies

Lack of demand

Internal factors:

These are the factors that are in the control of the banking institution:

Defective lending process

Inappropriate technology

Improper SWOT analysis

Re-loaning process

Absence of regular industrial visit

Poor credit appraisal system

Managerial deficiencies

Effects of NPAs on banks and financial institutions

1. Drain on profit

2. Bad effect on goodwill

3. Bad effect on equity value

4. Excess focus Credit Risk Management

5. High cost of funds due to NPAs


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NPAs of Public Sector Banks:

(Amount in ` Million)

Banks As on March 31, 2012

Gross NPAs GrossAdvances

Gross NPAs toGross

Advances Ratio (%)

(1) (2) (3)

Public Sector Banks

State Bank of India 371560 7578886 4.90

State Bank of Bikaner and Jaipur 16515 499863 3.30

State Bank of Hyderabad 20074 783115 2.56

State Bank of Mysore 15026 406526 3.70

State Bank of Patiala 18878 641418 2.94

State Bank of Travancore 14888 560343 2.66

SBI and its Associates 456940 10470151 4.36


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Allahabad Bank 20564 1075272 1.91

Andhra Bank 17980 846840 2.12

Bank of Baroda 38818 2054536 1.89

Bank of India 51697 1779502 2.91

Bank of Maharashtra 12970 569789 2.28

Canara Bank 38901 2224944 1.75

Central Bank of India 72735 1506499 4.83

Corporation Bank 12742 1008253 1.26

Dena Bank 9565 571592 1.67

Indian Bank 16715 863104 1.94

Indian Overseas Bank 35537 1274189 2.79

Oriental Bank of Commerce 35805 1130498 3.17

Punjab and Sind Bank 7634 463686 1.65

Punjab National Bank 86899 2761077 3.15

Syndicate Bank 30507 1109533 2.75

UCO Bank 40197 1078399 3.73

Union Bank of India 54222 1718496 3.16

United Bank of India 21764 638730 3.41

Vijaya Bank 17185 586710 2.93

IDBI Bank Limited 45514 1772092 2.57

Nationalised Banks $ 667950 25033740 2.67

Public Sector Banks 1124890 35503890 3.17

Note : 1. Data are provisional.2. $ Includes IDBI Bank Ltd.Source : Department of Banking Supervision, RBI.


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NPAs for Private Sector Banks:

TABLE B7 : BANK WISE AND BANK GROUP-WISE GROSS NON-PERFORMING ASSETS,GROSS ADVANCES AND GROSS NPA RATIO OF SCHEDULED COMMERCIAL BANKS -

2012 (Contd.)

(Amount in`

Million)


GrossNPAs

Gross Advances Gross NPAs toGross

Advances Ratio (%)

(1) (2) (3)

Private Sector Banks

Catholic Syrian Bank Ltd 1829 77677 2.36

City Union Bank Limited 1235 122217 1.01

The Dhanalakshmi Bank Ltd 1043 88041 1.18

Federal Bank Ltd 13008 388113 3.35

ING Vysya Bank Ltd 1495 288335 0.52

Jammu & Kashmir Bank Ltd 5166 335447 1.54

Karnataka Bank Ltd 6847 209494 3.27

Karur Vysya Bank Ltd 3210 242051 1.33

Lakshmi Vilas Bank Ltd 3077 103283 2.98

Nainital Bank Ltd 310 19254 1.61

Ratnakar Bank Ltd 331 41570 0.80

South Indian Bank Ltd 2672 274732 0.97

Tamilnad Mercantile Bank Ltd 1775 138964 1.28

Old Private Sector Banks 41999 2329177 1.80

Axis Bank Limited 17202 1459049 1.18

Development Credit Bank Ltd. 2418 54967 4.40

HDFC Bank Ltd. 18149 1909689 0.95

ICICI Bank Limited 92926 1923338 4.83

Indusind Bank Ltd 3471 353164 0.98

Kotak Mahindra Bank Ltd. 6142 394519 1.56


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Yes Bank Ltd. 839 380550 0.22

New Private Sector Banks 141147 6475275 2.18

Private Sector Banks 183146 8804453 2.08

Note : 1. Data are provisional.Source : Department of Banking Supervision, RBI.

NPAs for Foreign banks:

TABLE B7 : BANK WISE AND BANK GROUP-WISE GROSS NON-PERFORMING ASSETS,GROSS ADVANCES AND GROSS NPA RATIO OF SCHEDULED COMMERCIAL

BANKS - 2012 (Concld.)

(Amount in ` Million)


GrossNPAs

GrossAdvances

Gross NPAs toGross Advances

Ratio (%)

(1) (2) (3)

Foreign Banks

Ab Bank Limited - 684 -

Abu Dhabi Commercial Bank Ltd 31 2924 1.07

American Express Banking Corp. 234 14800 1.58

Antwerp Diamond Bank Nv 996 9700 10.27

BNP Paribas 275 62075 0.44

Bank of America N.t. and S.a. 7 61833 0.01

Bank of Bahrain & Kuwait B.s.c. 315 6573 4.79

Bank of Ceylon 15 824 1.86

Bank of Nova Scotia 96 66152 0.15

Barclays Bank Plc 5472 90788 6.03

Chinatrust Commercial Bank 163 2918 5.58

Citibank N.a 8464 475257 1.78

Commonwealth Bank of Australia - 899 -

Credit Agricole Corporate and Investment Bank 9 19196 0.05

Credit Suisse Ag - 2500 -


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DBS Bank Ltd. 2147 129815 1.65

Deutsche Bank Ag 1349 126724 1.06

Firstrand Bank Ltd - 2416 -

Hongkong and Shanghai Banking Corpn.ltd. 7201 360121 2.00

Jpmorgan Chase Bank National Association 269 45562 0.59

JSC VTB Bank - 788 -

Krung Thai Bank Public Company Limited - 94 -

Mashreq Bank Psc - 523 -

Mizuho Corporate Bank Ltd 63 35879 0.18

Oman International Bank S.a.o.g. - 41 -

Shinhan Bank - 9146 -

Societe Generale 12 10576 0.11

Sonali Bank 8 195 3.84

Standard Chartered Bank 32122 583960 5.50

State Bank of Mauritius Ltd 210 8266 2.54

The Bank of Tokyo-mitsubishi Ufj Ltd - 64525 -

The Royal Bank of Scotland N.v. 3465 127877 2.71

UBS AG - 6312 -

United Overseas Bank Ltd - - -

Sberbank - - -

Rabobank International - 3513 -

National Australia Bank - - -

Industrial and Commercial Bank of China - 455 -

Australia and New Zealand Banking Group Lim - 13187 -

Foreign Banks 62922 2347096 2.68

All Scheduled Commercial Banks 1370957 46655438 2.94

Note : 1. Data are provisional.Source : Department of Banking Supervision, RBI.


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SARFAESI Act 2002:

The Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act empower banks and financial institutions to recover their

non performing assets without the intervention of court.

The act provides for three different methods for recovery of NPAs and they are:

Securitisation

Asset Reconstruction

Enforcement of Security without intervention of court

The provisions of the act are applicable only for NPA loans outstanding above Rs.

1 lakh. NPA loan accounts where the amount is less than 20% of the principal andthe interest are not eligible to be dealt under the act.

If the borrower fails to repay the debt and defaults the banks can:

a) take possession of the secured assets of the borrower, including transfer by the

way of lease, assignment or sale, for realizing the secured assets.

b) takeover the management of business of the borrower including the right of

transfer by the way of lease, assignment or sale for realizing the secured assets.

c) appoint any person to manage the secured assets possession of which is taken

by the secured creditor.

d) require a person, who has acquired any of the secured assets from the

borrower and from whom money is due to the borrower, to pay the secured

creditor so much of the money as if sufficient to pay the secured debt.


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Debt Recovery Tribunal

It is a special court established by the government for the purpose of recovery by

the financial institutions and the banks. The judges of the court are the retired

judges of the high court. In this court only recovery cases of 10 lakh and above

can be filed.

Sale of NPAs to other banks:

A NPA is eligible for sale to other banks only if it has remained a NPA for

at least two years in the books of the selling bank

The NPA must be held by the purchasing bank at least for a period of 15

months before it is sold to other banks but not to bank, which originally

sold the NPA.

The NPA may be classified as standard in the books of the purchasing

bank for a period of 90 days from date of purchase and thereafter it

would depend on the record of recovery with reference to cash flows

estimated while purchasing

If the sale is conducted below the net book value, the short fall should

be debited to P&L account and if it is higher, the excess provision will be

utilized to meet the loss on account of sale of other NPA.


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References:

*http://en.wikipedia.org/wiki/Non-performing_asset

http://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-are-indias-

banks/article4042975.ece http://rbi.org.in/Scripts/PublicationsView.aspx?Id=14709
http://en.wikipedia.org/wiki/Non-performing_assethttp://en.wikipedia.org/wiki/Non-performing_assethttp://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-are-indias-banks/article4042975.ecehttp://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-are-indias-banks/article4042975.ecehttp://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-are-indias-banks/article4042975.ecehttp://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-are-indias-banks/article4042975.ecehttp://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-are-indias-banks/article4042975.ecehttp://rbi.org.in/Scripts/PublicationsView.aspx?Id=14709http://rbi.org.in/Scripts/PublicationsView.aspx?Id=14709http://rbi.org.in/Scripts/PublicationsView.aspx?Id=14709http://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-are-indias-banks/article4042975.ecehttp://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-are-indias-banks/article4042975.ecehttp://en.wikipedia.org/wiki/Non-performing_asset

Assignment on Non Performing Assets

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