Final Project manoj bharti

7/27/2019 Final Project manoj bharti

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A

PROJECT REPORT

ON

Comparative Analysison

Non Performing Assets

of

Private And Public Sector Bans

SUBMITTED IN PARTIAL FULFILLMENT OF REQUIRMENT OF PG

PROGRAMME

Session! "#$"%"#$&

Supervised by Submitted

by

Prof' Smriti Sood

JatinC(aud(ary

)niversity business sc(ool *ano+

umar

Pan+ab university San+eev

umar

[Comparative analysis on NPA of Private & Public sector Banks] Page 1[University Business School, Panjab University, Chandigarh]


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c(andigar( ,ias Sa(ota

ACKN!"#$%#N'ACKN!"#$%#N'

Any (ission can never conclude )ithout coo*eration +ro( surroundings -t is a

great *leasure +or us to (a.e use o+ this o**ortunity to e/*ress our than.s to

those *ersons )ho hel*ed us to held out our *roject success+ul venture

!e, +irst o+ all, e/*ress our dee* sense o+ gratitude and sincere than.s to our

*roject guide Prof' S*R-T- SOO. +or giving us the constant invaluable

guidance, in the absence o+ )hich our *roject )ould have been inco(*lete

!e )ould also li.e to e/*ress our sincere than.s to $r AK 0ashisht

Chair*erson o+ the $e*art(ent2 +or .indly *roviding us the o**ortunity to

*resent the assign(ent

"ast, but not the least, )e than. all our colleagues, ban. (anagers and +riends

+or assisting us and *roviding us their valuable +eedbac. that hel*ed us very

(uch



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CERT-/-CATE

!e here by declare that the *roject re*ort entitled CO*PARAT-,E ANA01S-S ON

NON PER/OR*-N2 ASSETS O/ PR-,ATE AN. P)B0-C SECTOR BAN3S

sub(itted in *artial +ul+ill(ent o+ the re4uire(ents +or the degree o+ &asters o+ Business

Ad(inistration to )niversity Business Sc(ool4 Pan+ab )niversity4C(andigar(4 -ndia4are

our original )or. and not sub(itted +or the a)ard o+ any other degree, di*lo(a, +ello)shi*,

or any other si(ilar title or *ri5es

NA*E

S-2NAT)RE

Jatin C(aud(ary

*ano+ umar

San+eev umar

,ias Sa(ota

.ate!

Place!



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Table of Contents

'able o+ Contents8

#/ecutive Su((ary9bjectives:;


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E5ecutive Summary

'he accu(ulation o+ huge nonD*er+or(ing assets in ban.s has assu(ed great

i(*ortance 'he de*th o+ the *roble( o+ bad debts )as +irst reali5ed only in early 1>>?s

'he (agnitude o+ NPAs in ban.s and +inancial institutions is over


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or the recovery o+ NPAs a broad +ra(e)or. has evolved +or the (anage(ent

o+ NPAs under )hich several o*tions are *rovided +or debt recovery and restructuring

Ban.s and -s have the +reedo( to design and i(*le(ent their o)n *olicies +or recovery

and )riteDo++ incor*orating co(*ro(ise and negotiated settle(ents

Ob+ectives!

'he basic idea behind underta.ing the %rand Project on NPA is to:

1 'o .no) the conce*t o+ Non Per+or(ing Assets and various tools to (anage NPAs

via theoretical analysis

3 'o co(*are level o+ NPAs in *ublic and *rivate sector ban.s and analy5e their

+inancial *er+or(ance at di++erent level o+ NPAs via co(*arative analysis

6 'o do a co(*arative analysis o+ NPAs in *riority and nonD*riority lending by *ublicand *rivate sector ban.s

7 'o do a ratio and trend analysis o+ NPAs level in *ublic and *rivate sector ban.s

[Comparative analysis on NPA of Private & Public sector Banks] Page ;[University Business School, Panjab University, Chandigarh]


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Results:Results:

Conclusion:Conclusion:

Recommendations!

[Comparative analysis on NPA of Private & Public sector Banks] Page =[University Business School, Panjab University, Chandigarh]


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-ntroduction

Back!oun" o# t$e stu"%:Back!oun" o# t$e stu"%:

The three letters NPA Strike terror in banking sector and business circle today.

NPA is short form of Non Performing Asset. The dreaded NPA rule says simplythis: 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 reco!ery 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 a!oid NPA no can not be then left is to

look after the factor responsible for it and managing those factors.

[Comparative analysis on NPA of Private & Public sector Banks] Page >[University Business School, Panjab University, Chandigarh]


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Revie6 Of 0iterature

An asset, including a leased asset, beco(es nonD*er+or(ing )hen it ceases to generate

inco(e +or the ban.

A EnonD*er+or(ing assetF NPA2 )as de+ined as a credit +acility in res*ect o+ )hich theinterest andG or instal(ent o+ *rinci*al has re(ained E*ast dueF +or a s*eci+ied *eriod o+

ti(e

!ith a vie) to (oving to)ards international best *ractices and to ensure greater

trans*arency, it has been decided to ado*t the E&' "a%s( o)e!"ue(nor( +or identi+ication o+

NPAs, +ro( the year ending &arch 61, 3??7 Accordingly, )ith e++ect +ro( &arch 61,

3??7, a nonD*er+or(ing asset NPA2 shall be a loan or an advance )hereH

-nterest andG or instal(ent o+ *rinci*al re(ain overdue +or a *eriod o+ (ore

than >? days in res*ect o+ a ter( loan,

'he account re(ains Eout o+ orderF +or a *eriod o+ (ore than >? days, in

res*ect o+ an verdra+tGCash Credit $GCC2,

'he bill re(ains overdue +or a *eriod o+ (ore than >? days in the case o+ bills

*urchased and discounted,

-nterest andGor instal(ent o+ *rinci*al re(ains overdue +or t)o harvest seasons

but +or a *eriod not e/ceeding t)o hal+ years in the case o+ an advance granted

+or agricultural *ur*oses, and

Any a(ount to be received re(ains overdue +or a *eriod o+ (ore than >? days

in res*ect o+ other accounts

As a +acilitating (easure +or s(ooth transition to >? days nor(, ban.s have been

advised to (ove over to charging o+ interest at (onthly rests, by A*ril 1, 3??3 @o)ever,

the date o+ classi+ication o+ an advance as NPA should not be changed on account o+

charging o+ interest at (onthly rests Ban.s should, there+ore, continue to classi+y an

account as NPA only i+ the interest charged during any 4uarter is not serviced +ully )ithin1=? days +ro( the end o+ the 4uarter )ith e++ect +ro( A*ril 1, 3??3 and >? days +ro( the

end o+ the 4uarter )ith e++ect +ro( &arch 61, 3??7

[Comparative analysis on NPA of Private & Public sector Banks] Page 1?[University Business School, Panjab University, Chandigarh]


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"eference#"eference# &aster Circular: ?

RESEARC7 *ET7O.O0O21

Resea!c$ "esin:Resea!c$ "esin:


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Sa*+lin +lan:Sa*+lin +lan:

!e have ado*ted LU'A sa(*ling *lan non *robability sa(*ling *rocedure2 and

as *er the *lan )e have selected t)o branch (anager +ro( each ban. Ban. selected

)ere on convenience basis +ive each +ro( *ublic and *rivate sector ban. )hich )ere

selected +or our co(*arative study

Conce+tual Mo"elConce+tual Mo"el

(INDEPENDENT VARIABLES) (DEPENDENT VARIABLES)

Sco+e o# t$e Stu"%Sco+e o# t$e Stu"%

Conce*t o+ Non Per+or(ing Asset


A2E

*ANA2ER-A0

PERCEPT-ON


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%uidelines

-(*act o+ NPAs


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* 'o study the *erce*tion o+ (anagerso+ *ublic and *rivate ban.s to)ards

the strategies *re+erred to decreasethe incidence o+ NPAFs in non

*riority sector

'here is a slight di++erence in the *erce*tion bet)een (anagers

o+ *ublic and *rivate sector ban.s to)ards the strategies

*re+erred to decrease the incidence in NPAFs in non *rioritysector lending

+ 'o study the *erce*tion o+ (anagerso+ *ublic and *rivate ban.s to)ards

agricultural loans being the+avorable category +or occurrence o+

NPAFs

'here is a signi+icant di++erence in the *erce*tion )here

agricultural loans +or (anagers in *ublic ban.s is considered as

the (ost occuring category +or NPAFs and +or the (anagers o+*rivate co(*any it is the least occuring category +or occurrence

o+ NPAFs

, 'o study the *erce*tion o+ (anagerso+ *ublic and *rivate ban.s to)ardscash credit being the +avorable

category +or occurrence o+ NPAFs

'here is a hugely signi+icant di++erence in the *erce*tion )here

cash credit +or (anagers in *ublic ban.s is considered as theslightly +avorable category +or NPAFs and +or the (anagers o+

*rivate co(*any it is the (ost +avorable category +or

occurrence o+ NPAFs

Sou!ce o# "ata collection:Sou!ce o# "ata collection:

'he data collected +or the study )as secondary as )ell as *ri(ary data in Nature



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7-STOR1 O/ -N.-AN BAN3-N2

Aban is a +inancial institution that *rovides ban.ing and other +inancial services By the

ter( ,ankis generally understood an institution that holds a Ban.ing "icenses Ban.ing

licenses are granted by +inancial su*ervision authorities and *rovide rights to conduct the

(ost +unda(ental ban.ing services such as acce*ting de*osits and (a.ing loans 'here are

also +inancial institutions that *rovide certain ban.ing services )ithout (eeting the legal

de+inition o+ a ban., a soDcalled NonDban. Ban.s are a subset o+ the +inancial services

industry

'y*ically, a ban. generates *ro+its +ro( transaction +ees on +inancial services or the interest

s*read on resources it holds in trust +or clients )hile *aying the( interest on the asset

$evelo*(ent o+ ban.ing industry in -ndia +ollo)ed belo) stated ste*s

Ban.ing in -ndia has its origin as early as the 0edic *eriod -t is believed that the

transition +ro( (oney lending to ban.ing (ust have occurred even be+ore &anu,

the great @indu Murist, )ho has devoted a section o+ his )or. to de*osits and

advances and laid do)n rules relating to rates o+ interest

Ban.ing in -ndia has an early origin )here the indigenous ban.ers *layed a very

i(*ortant role in lending (oney and +inancing +oreign trade and co((erce $uring

the days o+ the #ast -ndia Co(*any, )as the turn o+ the agency houses to carry on

the ban.ing business 'he %eneral Ban. o+ -ndia )as +irst Moint Stoc. Ban. to be

established in the year 1;=9 'he others )hich +ollo)ed )ere the Ban. @industan

and the Bengal Ban.

-n the +irst hal+ o+ the 1>th century the #ast -ndia Co(*any established three ban.sH

the Ban. o+ Bengal in 1=?>, the Ban. o+ Bo(bay in 1=7? and the Ban. o+ &adras

in 1=76 'hese three ban.s also .no)n as Presidency ban.s )ere a(alga(ated in

1>3? and a ne) ban., the -(*erial Ban. o+ -ndia )as established in 1>31 !ith the

*assing o+ the State Ban. o+ -ndia Act in 1>88 the underta.ing o+ the -(*erial Ban.

o+ -ndia )as ta.en by the ne)ly constituted State Ban. o+ -ndia

'he 68 by

*assing 67 )hich )as +ollo)ed u* )ith the Ban.ing



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7> 'hese acts besto)ed


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-n the *ostDnationali5ation era, no ne) *rivate sector ban.s )ere allo)ed to be set

u* @o)ever, in 1>>6, in recognition o+ the need to introduce greater co(*etition

)hich could lead to higher *roductivity and e++iciency o+ the ban.ing syste(, ne)

*rivate sector ban.s )ere allo)ed to be set u* in the -ndian ban.ing syste( 'hese

ne) ban.s had to satis+y a(ong others, the +ollo)ing (ini(u( re4uire(ents:

i2 -t should be registered as a *ublic li(ited co(*anyH

ii2 'he (ini(u( *aidDu* ca*ital should be >= So(e o+

the reco((endations o+ the Co((ittee, on *rudential accounting nor(s,

*articularly in the areas o+ Ca*ital Ade4uacy


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sector ban.s 'he +ace o+ ban.ing is changing ra*idly 'here is no doubt that

ban.ing sector re+or(s have i(*roved the *ro+itability, *roductivity and e++iciency

o+ ban.s, but in the days ahead ban.s )ill have to *re*are the(selves to +ace ne)

challenges

-ndian Ban.ing: Key $evelo*(ents

1>9> %overn(ent ac4uires o)nershi* in (ajor ban.s

Al(ost all ban.ing o*erations in (anual (ode

So(e ban.s had Unit record &achines o+ -B& +or -B< Pay roll

1>;?D 1>=? Un*recedented e/*ansion in geogra*hical coverage, sta++,

business transaction volu(es and directed lending to

agriculture, SS- SB sector

&anual syste(s struggle to handle e/*onential rise in transaction

volu(es DD

utsourcing o+ data *rocessing to service bureau begins

Bac. o++ice syste(s only in &ultinational &NC2 ban.s o++ices

1>=1D 1>>?


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1>>1D1>>8 #/*ansion slo)s do)n

Ban.ing sector re+or(s resulting in *rogressive deDregulation o+

ban.ing, introduction o+ *rudential ban.ing nor(s entry o+ ne)

*rivate sector ban.s

'otal Branch Auto(ation 'BA2 in %ovt o)ned and old *rivateban.s begins

Ne) *rivate ban.s are set u* )ith CBSG'BA +or( the start

1>>9D3??? Ne) delivery channels li.e A'&, Phone ban.ing and -nternet

ban.ing and convenience o+ any branch ban.ing and auto s)ee*

*roducts introduced by ne) *rivate and &NC ban.s


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NON PER/OR*-N2 ASSETS 8NPA9

:7AT -S A NPA 8NON PER/OR*-N2 ASSETS9 ;

Action +or en+orce(ent o+ security interest can be initiated only i+ the secured asset is

classi+ied as Non*er+or(ing asset

Non*er+or(ing asset (eans an asset or account o+ borro)er ,)hich has been classi+ied by

ban. or +inancial institution as sub Qstandard , doubt+ul or loss asset, in accordance )iththe direction or guidelines relating to assets classi+ication issued by


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v Any a(ount to be received re(ains overdue +or a *eriod o+ (ore than 1=? days in

res*ect o+ other accounts

!ith a vie) to (oving to)ards international best *ractices and to ensure greatertrans*arency, it has been decided to ado*t F>? days overdue Enor(s +or identi+ication o+

NPAs ,+ro( the year ending &arch 61,3??7,a non *er+or(ing asset shall be a loan or an

advance )hereH

i -nterest andGor install(ent o+ *rinci*al re(ain overdue +or a *eriod o+ (ore

than >? days in res*ect o+ a ter( loan,

ii 'he account re(ains Eout o+ order E +or a *eriod o+ (ore than >? days ,in

res*ect o+ an overdra+tGcash credit $GCC2

iii 'he bill re(ains overdue +or a *eriod o+ (ore than >? days in case o+ bill

*urchased or discounted

iv -nterest andGor *rinci*al re(ains overdue +or t)o harvest season but +or a

*eriod not e/ceeding t)o hal+ years in case o+ an advance granted +or

agricultural *ur*ose ,and

v Any a(ount to be received re(ains overdue +or a *eriod o+ (ore than >?

days in res*ect o+ other accounts

Out of order

An account should be treated as out o+ order i+ the outstanding balance re(ains

continuously in e/cess o+ sanctioned li(it Gdra)ing *o)er in case )here the outstandingbalance in the *rinci*al o*erating account is less than the sanctioned a(ount Gdra)ing

*o)er, but there are no credits continuously +or si/ (onths as on the date o+ balance sheet

or credit are not enough to cover the interest debited during the sa(e *eriod ,theseaccount should be treated as Eout o+ orderF

Overdue

Any a(ount due to the ban. under any credit +acility is EoverdueF i+ it is not *aid on

due date +i/ed by the ban.

?

http://rbi.org.in/Scripts/NotificationUser.aspx?Mode=0&Id=5090http://rbi.org.in/Scripts/NotificationUser.aspx?Mode=0&Id=5090


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T(eoretical analysis

FACTORS FOR RISE IN NPAsFACTORS FOR RISE IN NPAs

'he ban.ing sector has been +acing the serious *roble(s o+ the rising NPAs But

the *roble( o+ NPAs is (ore in *ublic sector ban.s )hen co(*ared to *rivate sector ban.sand +oreign ban.s 'he NPAs in PSB are gro)ing due to e/ternal as )ell as internal +actors

E.TERNAL FACTORS :/E.TERNAL FACTORS :/%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

-neffective recovery tribunal

'he %ovt has set o+ nu(bers o+ recovery tribunals, )hich )or.s +or

recovery o+ loans and advances $ue to their negligence and ine++ectiveness in their

)or. the ban. su++ers the conse4uence o+ nonDrecover, their by reducing their

*ro+itability and li4uidity

:illful .efaults

'here are borro)ers )ho are able to *aybac. loans but are intentionally)ithdra)ing it 'hese grou*s o+ *eo*le should be identi+ied and *ro*er (easures

should be ta.en in order to get bac. the (oney e/tended to the( as advances and

loans



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Natural calamities

'his is the (easure +actor, )hich is creating alar(ing rise in NPAs o+ the

PSBs every no) and then -ndia is hit by (ajor natural cala(ities thus (a.ing the

borro)ers unable to *ay bac. there loans 'hus the ban. has to (a.e large a(ount

o+ *rovisions in order to co(*ensate those loans, hence end u* the +iscal )ith a

reduced *ro+it

&ainly ours +ar(ers de*ends on rain +all +or cro**ing $ue to irregularities

o+ rain +all the +ar(ers are not to achieve the *roduction level thus they are not

re*aying the loans

-ndustrial sicness

-(*ro*er *roject handling , ine++ective (anage(ent , lac. o+ ade4uate

resources , lac. o+ advance technology , day to day changing govt Policies give

birth to industrial sic.ness @ence the ban.s that +inance those industries ulti(ately

end u* )ith a lo) recovery o+ their loans reducing their *ro+it and li4uidity

0ac of demand

#ntre*reneurs in -ndia could not +oresee their *roduct de(and and starts *roduction

)hich ulti(ately *iles u* their *roduct thus (a.ing the( unable to *ay bac. the

(oney they borro) to o*erate these activities 'he ban.s recover the a(ount by

selling o+ their assets, )hich covers a (ini(u( label 'hus the ban.s record the nonrecovered *art as NPAs and has to (a.e *rovision +or it

C(ange on 2ovt' policies



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!ith every ne) govt ban.ing sector gets ne) *olicies +or its o*eration

'hus it has to co*e )ith the changing *rinci*les and *olicies +or the regulation o+

the rising o+ NPAs

'he +allout o+ handloo( sector is continuing as (ost o+ the )eavers CoD

o*erative societies have beco(e de+unct largely due to )ithdra)al o+ state

*atronage 'he rehabilitation *lan )or.ed out by the Central govern(ent to revive

the handloo( sector has not yet been i(*le(ented So the over dues due to the

handloo( sectors are beco(ing NPAs

INTERNAL FACTORS :/INTERNAL FACTORS :/

//////////////////////////////////////////////////////////////////

.efective 0ending process

'here are three cardinal *rinci*les o+ ban. lending that have been +ollo)ed by the

co((ercial ban.s since long

i Princi*les o+ sa+ety

ii Princi*le o+ li4uidity

iii Princi*les o+ *ro+itability

i Princi*les o+ sa+ety :D

By sa+ety it (eans that the borro)er is in a *osition to re*ay the loan both

*rinci*al and interest 'he re*ay(ent o+ loan de*ends u*on the borro)ers:



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a Ca*acity to *ay

b !illingness to *ay

Ca+acit% to +a% "e+en"s u+on:

1 'angible assets3 Success in business

0illinness to +a% "e+en"s on:

1 Character

3 @onest6


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a ro( ban.ers

b #n4uiry +ro( (ar.etGseg(ent o+ trade, industry, business

c ro( e/ternal credit rating agencies

Analy5e the balance sheet

'rue *icture o+ business )ill be revealed on analysis o+ *ro+itGloss aGc and

balance sheet

Pur*ose o+ the loan

!hen ban.ers give loan, he should analy5e the *ur*ose o+ the loan 'o

ensure sa+ety and li4uidity, ban.s should grant loan +or *roductive *ur*ose

only Ban. should analy5e the *ro+itability, viability, long ter( acce*tability

o+ the *roject )hile +inancing

Poor credit appraisal system

Poor credit a**raisal is another +actor +or the rise in NPAs $ue to *oor credit

a**raisal the ban. gives advances to those )ho are not able to re*ay it bac. 'heyshould use good credit a**raisal to decrease the NPAs

*anagerial deficiencies

'he ban.er should al)ays select the borro)er very care+ully and should ta.e

tangible assets as security to sa+e guard its interests !hen acce*ting securities

ban.s should consider theR

1 &ar.etability

3 Acce*tability

[Comparative analysis on NPA of Private & Public sector Banks] Page 3;[University Business School, Panjab University, Chandigarh]


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6 Sa+ety

7 'rans+erability

'he ban.er should +ollo) the *rinci*le o+ diversi+ication o+ ris. based on the

+a(ous (a/i( Odo not keep all the eggs in one basket;it (eans that the ban.ershould not grant advances to a +e) big +ar(s only or to concentrate the( in +e)

industries or in a +e) cities -+ a ne) big custo(er (eets (is+ortune or certain

traders or industries a++ected adversely, the overall *osition o+ the ban. )ill not be

a++ected

Absence of regular industrial visit

'he irregularities in s*ot visit also increases the NPAs Absence o+ regularly visit

o+ ban. o++icials to the custo(er *oint decreases the collection o+ interest and

*rinci*als on the loan 'he NPAs due to )ill+ul de+aulters can be collected by

regular visits

Re loaning process

Non re(ittance o+ recoveries to higher +inancing agencies and re loaning o+ the

sa(ehave already a++ected the s(ooth o*eration o+ the credit cycle '

[Comparative analysis on NPA of Private & Public sector Banks] Page 3=[University Business School, Panjab University, Chandigarh]


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PROB0E*S .)E TO NPA

1 )ners do not receive a (ar.et return on there ca*ital in the )orst case, i+ the

ban.s +ails, o)ners loose their assets -n (odern ti(es this (ay a++ect a broad *ool

o+ shareholders

3 $e*ositors do not receive a (ar.et return on saving -n the )orst case i+ the ban.

+ails, de*ositors loose their assets or uninsured balance

6 Ban.s redistribute losses to other borro)ers by charging higher interest rates, lo)er

de*osit rates and higher lending rates re*ress saving and +inancial (ar.et, )hich

ha(*er econo(ic gro)th

7 Non *er+or(ing loans e*ito(i5e bad invest(ent 'hey (isallocate credit +ro( good

*rojects, )hich do not receive +unding, to +ailed *rojects Bad invest(ent ends u* in

(isallocation o+ ca*ital, and by e/tension, labour and natural resources

Non *er+or(ing asset (ay s*ill over the ban.ing syste( and contract the (oney stoc.,

)hich (ay lead to econo(ic contraction 'his s*ill over e++ect can channeli5e through

li4uidity or ban. insolvency:

a2 !hen (any borro)ers +ail to *ay interest, ban.s (ay e/*erience li4uidity

shortage 'his can ja( *ay(ent across the country,

b2 -lli4uidity constraints ban. in *aying de*ositors

c2 Underca*itali5ed ban.s e/ceeds the ban.s ca*ital base

As a +acilitating (easure +or s(ooth transition to >? days nor(, ban.s have been advised to

(ove over to charging o+ interest at (onthly rests, by A*ril 1, 3??3 @o)ever, the date o+

classi+ication o+ an advance as NPA should not be changed on account o+ charging o+

interest at (onthly rests Ban.s should, there+ore, continue to classi+y an account as NPA

only i+ the interest charged during any 4uarter is not serviced +ully )ithin 1=? days +ro( the

end o+ the 4uarter )ith e++ect +ro( A*ril 1, 3??3 and >? days +ro( the end o+ the 4uarter

)ith e++ect +ro( &arch 61, 3??7

[Comparative analysis on NPA of Private & Public sector Banks] Page 3>[University Business School, Panjab University, Chandigarh]


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Types of NPA

A< 2ross NPAA< 2ross NPA

B< Net NPAB< Net NPA

A1A1 G!oss NPA:G!oss NPA:%ross NPAs are the su( total o+ all loan assets that are classi+ied as NPAs as *er


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2ross Advances % Provisions

-NCO*E RECO2N-T-ON

-ncome recognition = Policy-ncome recognition = Policy

'he *olicy o+ inco(e recognition has to be objective and based on the record o+

recovery -nternationally inco(e +ro( nonD*er+or(ing assets NPA2 is notrecognised on accrual basis but is boo.ed as inco(e only )hen it is actually

received 'here+ore, the ban.s should not charge and ta.e to inco(e account interest

on any NPA

@o)ever, interest on advances against ter( de*osits, NSCs, -0Ps, K0Ps and "i+e

*olicies (ay be ta.en to inco(e account on the due date, *rovided ade4uate (argin

is available in the accounts

ees and co((issions earned by the ban.s as a result o+ reDnegotiations or

rescheduling o+ outstanding debts should be recognised on an accrual basis over the

*eriod o+ ti(e covered by the reDnegotiated or rescheduled e/tension o+ credit

-+ %overn(ent guaranteed advances beco(e NPA, the interest on such advances

should notbe ta.en to inco(e account unless the interest has been realised

Reversal of income!Reversal of income!



32/80

-+ any advance, including bills *urchased and discounted, beco(es NPA as at the

close o+ any year, interest accrued and credited to inco(e account in the

corres*onding *revious year, should be reversed or *rovided +or i+ the sa(e is not

realised T(is 6ill apply to 2overnment guaranteed accounts also

-n res*ect o+ NPAs, +ees, co((ission and si(ilar inco(e that have accrued should

cease to accrue in the current *eriod and should be reversed or *rovided +or )ith

res*ect to *ast *eriods, i+ uncollected

0eased Assets

'he net lease rentals +inance charge2 on the leased asset accrued and credited toinco(e account be+ore the asset beca(e nonD*er+or(ing, and re(aining unrealised,

should be reversed or *rovided +or in the current accounting *eriod

'he ter( net lease rentals )ould (ean the a(ount o+ +inance charge ta.en to thecredit o+ Pro+it "oss Account and )ould be )or.ed out as gross lease rentals

adjusted by a(ount o+ statutory de*reciation and lease e4ualisation account

As *er the >2uidance Note on Accounting for 0eases>issued by the Council o+

the -nstitute o+ Chartered Accountants o+ -ndia -CA-2, a se*arate "ease #4ualisation

Account should be o*ened by the ban.s )ith a corres*onding debit or credit to "ease

Adjust(ent Account, as the case (ay be urther, "ease #4ualisation Account should

be trans+erred every year to the Pro+it "oss Account and disclosed se*arately as a

deduction +ro(Gaddition to gross value o+ lease rentals sho)n under the head %ross

-nco(e

Appropriation of recovery in NPAsAppropriation of recovery in NPAs



33/80

-nterest realised on NPAs (ay be ta.en to inco(e account *rovided the credits in

the accounts to)ards interest are not out o+ +reshG additional credit +acilities

sanctioned to the borro)er concerned

-n the absence o+ a clear agree(ent bet)een the ban. and the borro)er +or the

*ur*ose o+ a**ro*riation o+ recoveries in NPAs ie to)ards *rinci*al or interest

due2, ban.s should ado*t an accounting *rinci*le and e/ercise the right o+

a**ro*riation o+ recoveries in a uni+or( and consistent (anner

-nterest Application!-nterest Application!

'here is no objection to the ban.s using their o)n discretion in debiting interest to an NPA

account ta.ing the sa(e to -nterest Sus*ense Account or (aintaining only a record o+ such

interest in *ro+or(a accounts

Reporting of NPAsReporting of NPAs

Ban.s are re4uired to +urnish a


34/80

aUK

K-ih)1j>Lbv(Jbv781?;761,db(.

REPORT-N2 /OR*AT /OR NPA = 2ROSS AN. NET NPA

Name of t(e Ban!

Position as on???

PART-C)0ARS12 %ross Advanced

32 %ross NPA

62 %ross NPA as age o+ %ross Advanced

72 'otal deduction aVbVcVd 2

a 2 Balance in interest sus*ense aGc

b 2 $-C%CG#C%C clai(s received and held *ending

adjust(ent

c 2 *art *ay(ent received and .e*t in sus*ense aGc

d 2 'otal *rovision held

82 Net advanced 1D7 2

92 Net NPA 3D7 2

;2 Net NPA as a age o+ Net Advance

e/cluding 'echnical )riteDo++ o+


35/80

Ban.s )hich do not (aintain an interest sus*ense aGc to *ar. the accrued interest on

NPAs (ay +urnish the a(ount o+ interest receivable on NPAs

#/cluding a(ount o+ 'echnical )riteDo++ ? days then it is NPA and NPAs are +urther need to classi+y in sub categories

Ban.s are re4uired to classi+y nonD*er+or(ing assets +urther into the

+ollo)ing three categories based on the *eriod +or )hich the asset has re(ained non-

performingand the realisabilityo+ the dues:

( 1 ) Sub-standard Assets( 1 ) Sub-standard Assets

( 2 ) Doubtful Assets( 2 ) Doubtful Assets



36/80

( 3 ) oss Assets( 3 ) oss Assets

8 $ 9 Sub%standard Assets!%%8 $ 9 Sub%standard Assets!%%

!ith e++ect +ro( 61 &arch 3??8, a sub standard asset )ould be one, )hich has re(ained

NPA +or a *eriod less than or e4ual to 13 (onth 'he +ollo)ing +eatures are e/hibited by

sub standard assets: the current net )orth o+ the borro)ers G guarantor or the current (ar.et

value o+ the security charged is not enough to ensure recovery o+ the dues to the ban.s in

+ullH and the asset has )ellDde+ined credit )ea.nesses that jeo*ardise the li4uidation o+ the

debt and are characterised by the distinct *ossibility that the ban.s )ill sustain so(e loss, i+

de+iciencies are not corrected

8 " 9 .oubtful Assets!%%8 " 9 .oubtful Assets!%%

A loan classi+ied as doubt+ul has all the )ea.nesses inherent in assets that )ere classi+ied as

subDstandard, )ith the added characteristic that the )ea.nesses (a.e collection or

li4uidation in +ull, Q on the basis o+ currently .no)n +acts, conditions and values Q highly

4uestionable and i(*robable

!ith e++ect +ro( &arch 61, 3??8, an asset )ould be classi+ied as doubt+ul i+ it re(ained in

the subDstandard category +or 13 (onths

8 @ 9 0oss Assets!%%0oss Assets!%%

A loss asset is one )hich considered uncollectible and o+ such little value that its

continuance as a ban.able asset is not )arrantedD although there (ay be so(e salvage orrecovery value Also, these assets )ould have been identi+ied as Eloss assetsF by the ban. or

internal or e/ternal auditors or the


37/80


38/80

ta.e into account the assess(ent o+ the


39/80

-n regard to the secured *ortion, *rovision (ay be (ade on the +ollo)ing basis, at

the rates ranging +ro( 3? *ercent to 8? *ercent o+ the secured *ortion de*ending

u*on the *eriod +or )hich the asset has re(ained doubt+ul:

Period for 6(ic( t(e advance (as been

considered as doubtful

Provision

reuirement 89

U* to one year 3?

ne to three years 6?

&ore than three years:

12 utstanding stoc. o+ NPAs as on

&arch 61, 3??7

32 Advances classi+ied as Edoubt+ulF

(ore than three years on or a+ter

A*ril 1, 3??7

9? )ith e++ect +ro( &arch

61,3??8

;8 e++ect +ro( &arch 61,

3??9

1?? )ith e++ect +ro( &arch

61, 3??;

Additional *rovisioning conse4uent u*on the change in the de+inition o+ doubt+ul

assets e++ective +ro( &arch 61, 3??6 has to be (ade in *hases as under:

As on 61?63??6, 8? *ercent o+ the additional *rovisioning re4uire(ent on theassets )hich beca(e doubt+ul on account o+ ne) nor( o+ 1= (onths +or transition +ro(

subDstandard asset to doubt+ul category

As on 61?63??3, balance o+ the *rovisions not (ade during the *revious year, in

addition to the *rovisions needed, as on 61?63??3



40/80

Ban.s are *er(itted to *hase the additional *rovisioning conse4uent u*on the

reduction in the transition *eriod +ro( substandard to doubt+ul asset +ro( 1= to 13

(onths over a +our year *eriod co((encing +ro( the year ending &arch 61, 3??8,

)ith a (ini(u( o+ 3? each year

Note! ,aluation of Security for provisioning purposes

!ith a vie) to bringing do)n divergence arising out o+ di++erence in assess(ent o+ the

value o+ security, in cases o+ NPAs )ith balance o+


41/80

So(e o+ the ban.s (a.e a +loating *rovision over and above the

s*eci+ic *rovisions (ade in res*ect o+ accounts identi+ied as NPAs 'he +loating *rovisions,

)herever available, could be setDo++ against *rovisions re4uired to be (ade as *er above

stated *rovisioning guidelines Considering that higher loan loss *rovisioning adds to the

overall +inancial strength o+ the ban.s and the stability o+ the +inancial sector, ban.s are

urged to voluntarily set a*art *rovisions (uch above the (ini(u( *rudential levels as a

desirable *ractice

Provisions on 0eased Assets!Provisions on 0eased Assets!

"eases are *eculiar transactions )here the assets are not recorded in the boo.s o+ the user o+"eases are *eculiar transactions )here the assets are not recorded in the boo.s o+ the user o+

such assets as Assets, )hereas they are recorded in the boo.s o+ the o)ner even though thesuch assets as Assets, )hereas they are recorded in the boo.s o+ the o)ner even though the

*hysical e/istence o+ the asset is )ith the user lessee2*hysical e/istence o+ the asset is )ith the user lessee2RRAS1> -CA-2RRAS1> -CA-2

Sub%standard assets ! %

1? *ercent o+ the >net boo value>

As *er the %uidance Note on Accounting +or "eases issued by the -CA-, >2ross boo

value>o+ a +i/ed asset is its historical cost or other a(ount substituted +or historical cost in

the boo.s o+ account or +inancial state(ents Statutory de*reciation should be sho)n

se*arately in the Pro+it "oss Account Accu(ulated de*reciation should be deducted

+ro( the %ross Boo. 0alue o+ the leased asset in the balance sheet o+ the lesser to arrive at

the >net boo value>

Also, balance standing in "ease Adjust(ent Account should be adjusted in the net boo.

value o+ the leased assets 'he a(ount o+ adjust(ent in res*ect o+ each class o+ +i/ed assets

(ay be sho)n either in the (ain balance sheet or in the i/ed Assets Schedule as a se*arate

colu(n in the section related to leased assets

.oubtful assets !%



42/80

1?? *ercent o+ the e/tent to )hich the +inance is not secured by the realisable value o+ the

leased asset


43/80

2uidelines for Provisions under Special Circumstances

2overnment guaranteed advances2overnmentguaranteed advances

!ith e++ect +ro( 61 &arch 3???, in res*ect o+ advances sanctioned against State%overn(ent guarantee, i+ the guarantee is invo.ed and re(ains in de+ault +or (ore than t)o

4uarters 1=? days at *resent2, the ban.s should (a.e nor(al *rovisions as *rescribed in

*aragra*h 713 above

As regards advances guaranteed by State %overn(ents, in res*ect o+ )hich guaranteestood invo.ed as on 61?63???, necessary *rovision )as allo)ed to be (ade, in a *hased

(anner, during the +inancial years ending 61?63??? to 61?63??6 )ith a (ini(u( o+ 38

*ercent each year

Advances granted under rehabilitation *ac.ages a**roved byAdvances granted under rehabilitation *ac.ages a**roved by

B-


44/80

3??3] and )here rehabilitation *ac.agesGnursing *rogra((es have been dra)n by the

ban.s the(selves or under consortiu( arrange(ents, no *rovision need be (ade +or a

*eriod o+ one year

Advances against term deposits4 NSCs eligible for surrender4Advances against term deposits4 NSCs eligible for surrender4

-,Ps4 3,Ps4 and life policies are e5empted from provisioning-,Ps4 3,Ps4 and life policies are e5empted from provisioning

reuirements'reuirements'

7o6ever4 advances against gold ornaments4 government7o6ever4 advances against gold ornaments4 government

securities and all ot(er inds of securities are not e5empted fromsecurities and all ot(er inds of securities are not e5empted from

provisioning reuirements'provisioning reuirements'

'reat(ent o+ interest sus*ense account:'reat(ent o+ interest sus*ense account:

A(ounts held in -nterest Sus*ense Account should not be rec.oned as *art o+ *rovisions

A(ounts lying in the -nterest Sus*ense Account should be deducted +ro( the relative

advances and therea+ter, *rovisioning as *er the nor(s, should be (ade on the balances

a+ter such deduction

Advances covered by #C%CG$-C%C guaranteeAdvances covered by #C%CG$-C%C guarantee

-n the case o+ advances guaranteed by $-C%CG#C%C, *rovision should be (ade only +or

the balance in e5cess of the a(ount guaranteed by these Cor*orations urther, )hile

arriving at the *rovision re4uired to be (ade +or doubt+ul assets, realisable value o+ the

securities should +irst be deducted +ro( the outstanding balance in res*ect o+ the a(ount

guaranteed by these Cor*orations and then *rovision (ade as illustrated hereunder:

E5a*+le

utstanding Balance


45/80

$-C%C Cover 8? *ercent

Period +or )hich the advance has re(ained

doubt+ul

&ore than 6 years re(ained

doubt+ul

0alue o+ security held

e/cludes )orth o+


46/80

-n case the advance covered by C%'S- guarantee beco(es nonD*er+or(ing, no *rovision

need be (ade to)ards the guaranteed *ortion 'he a(ount outstanding in e/cess o+ the

guaranteed *ortion should be *rovided +or as *er the e/tant guidelines on *rovisioning +or

nonD*er+or(ing advances

Tae%out financeTae%out finance

'he lending institution should (a.e *rovisions against a ta.eDout +inance turning into NPA

*ending its ta.eDover by the ta.ingDover institution As and )hen the asset is ta.enDover by

the ta.ingDover institution, the corres*onding *rovisions could be reversed

Reserve for E5c(ange Rate /luctuations Account 8RER/A9Reserve for E5c(ange Rate /luctuations Account 8RER/A9

!hen e/change rate (ove(ents o+ -ndian ru*ee turn adverse, the outstanding a(ount o+

+oreign currency deno(inated a loan )here actual disburse(ent )as (ade in -ndian


47/80

-mpact of NPA

Profitability!%Profitability!%

NPA (eans boo.ing o+ (oney in ter(s o+ bad asset, )hich

occurred due to )rong choice o+ client Because o+ the (oney getting bloc.ed the

*rodigality o+ ban. decreases not only by the a(ount o+ NPA but NPA lead to

o**ortunity cost also as that (uch o+ *ro+it invested in so(e return earning

*rojectGasset So NPA doesnFt a++ect current *ro+it but also +uture strea( o+ *ro+it,

)hich (ay lead to loss o+ so(e longDter( bene+icial o**ortunity Another i(*act o+

reduction in *ro+itability is lo)


48/80

co(*any $i++iculty in o*erating the +unctions o+ ban. is another cause o+ NPA due to lac.

o+ (oney


49/80

Pay(ent )hich does not cover the interest and *rinci*al a(ount o+ that install(ent

!hile (onitoring the accounts it is +ound that *artial a(ount is diverted to sister

concern or *arent co(*any

8 " 9 Operational and P(ysical!

-+ in+or(ation is received that the borro)er has either initiated the *rocess o+)inding u* or are not doing the business

verdue receivables

Stoc. state(ent not sub(itted on ti(e

#/ternal nonDcontrollable +actor li.e natural cala(ities in the city )here borro)er

conduct his business

re4uent changes in *lan

Non *ay(ent o+ )ages8 @ 9 Attitudinal C(anges!

Use +or *ersonal co(+ort, stoc.s and shares by borro)er

Avoidance o+ contact )ith ban.

Proble( bet)een *artners

8 & 9 Ot(ers!

Changes in %overn(ent *olicies

$eath o+ borro)er

Co(*etition in the (ar.et

Preventive *easurement /or NPA

Ea!l% Reconition o# t$e P!o,le*:/Ea!l% Reconition o# t$e P!o,le*:/-nvariably, by the ti(e ban.s start their e++orts to get involved in a revival *rocess, itFs too

late to retrieve the situationD both in ter(s o+ rehabilitation o+ the *roject and recovery o+

ban.Fs dues -denti+ication o+ )ea.ness in the very beginning that is : !hen the account

starts sho)ing +irst signs o+ )ea.ness regardless o+ the +act that it (ay not have beco(e

NPA, is i(*erative Assess(ent o+ the *otential o+ revival (ay be done on the basis o+ a



50/80

technoDecono(ic viability study


51/80

technoDecono(ic study and *ro(oterFs co((it(ent, has to be ade4uate in ter(s o+ e/tend

o+ additional +unding and rela/ations etc under the restructuring e/ercise 'he *ac.age o+

assistance (ay be +le/ible and ban. (ay loo. at the e/it o*tion

Focus on Cas$ Flo4s:/Focus on Cas$ Flo4s:/ !hile +inancing, at the ti(e o+ restructuring the ban.s (ay not be guided by the

conventional +und +lo) analysis only, )hich could yield a *otentially (isleading *icture

A**raisal +or +resh credit re4uire(ents (ay be done by analy5ing +unds +lo) in conjunction

)ith the Cash lo) rather than only on the basis o+ unds lo)

Manae*ent E##ecti)eness:/Manae*ent E##ecti)eness:/

'he general *erce*tion a(ong borro)er is that it is lac. o+ +inance that leads to sic.ness

and NPAs But this (ay not be the case all the ti(e &anage(ent e++ectiveness in tac.ling

adverse business conditions is a very i(*ortant as*ect that a++ects a borro)ing unitFs

+ortunes A ban. (ay co((it additional +inance to an aling unit only a+ter basic viability o+

the enter*rise also in the conte/t o+ 4uality o+ (anage(ent is e/a(ined and con+ir(ed

!here the de+ault is due to dee*er (alady, viability study or investigative audit should be

done Q it )ill be use+ul to have consultant a**ointed as early as *ossible to e/a(ine this

as*ect A *ro*er technoD econo(ic viability study (ust thus beco(e the basis on )hich any

+uture action can be considered

Multi+le Financin:/Multi+le Financin:/A' $uring the e/ercise +or assess(ent o+ viability and restructuring, a Pragmatic and

unified approac( by all the lending ban.sG -s as also sharing o+ all relevant

in+or(ation on the borro)er )ould go a long )ay to)ard overall success o+

rehabilitation e/ercise, given the *robability o+ successG+ailure



52/80

B' -n so(e de+ault cases, )here the unit is still )or.ing, the ban. should (a.e sure

that it captures t(e cas( flo6sthere is a tendency on *art o+ the borro)ers to

s)itch ban.ers once they de+ault, +or +ear o+ getting their cash +lo)s +or+eited2, and

ensure that such cash +lo)s are used +or )or.ing ca*ital *ur*oses 'o)ard this end,

there should be regular +lo) o+ in+or(ation a(ong consortiu( (e(bers A ban.,)hich is not *art o+ the consortiu(, (ay not be allo)ed to o++er credit +acilities to

such de+aulting clients Current account +acilities (ay also be denied at nonD

consortiu( ban.s to such clients and violation (ay attract *enal action 'he Credit

-nformation Bureau of -ndia 0td'8C-B-09(ay be very use+ul +or (eaning+ul

in+or(ation e/change on de+aulting borro)ers once the setu* beco(es +ully

o*erational

C' -n a +oru( o+ lenders, the *riority o+ each lender )ill be di++erent !hile one set o+

lenders (ay be )illing to )ait +or a longer ti(e to recover its dues, another lender

(ay have a (uch shorter ti(e+ra(e in (ind So it is *ossible that the letter

categories o+ lenders (ay be )illing to e/it, even a t a cost Q by a discounted

settle(ent o+ the e/*osure 'here+ore, any *lan +or restructuringGrehabilitation (ay

ta.e this as*ect into account

.' Corporate .ebt Restructuring (echanis( has been institutionali5ed in 3??1 to

*rovide a ti(ely and trans*arent syste( +or restructuring o+ the cor*orate debt o+


53/80



54/80

Tools for recovery of NPAs

nce NPA occurred, one (ust co(e out o+ it or it should be (anaged in (ost e++icient

(anner "egal )ays and (eans are there to over co(e and (anage NPAs !e )ill loo.

into each one o+ it

0ill#ul De#ault :/0ill#ul De#ault :/

A] "o. Adalat and $ebt


55/80

teeth to the $


56/80

Stan"/Still Clause:Stan"/Still Clause:

ne o+ the (ost i(*ortant ele(ents o+ $ebtorDCreditor Agree(ent

)ould be >stand still> agreement binding for F# days4or 1=? days by both sides Under

this clause, both the debtor and creditors2 shall agree to a legally binding >stand%still>

6(ereby bot( t(e parties commit t(emselves not to taing recourse to any ot(er legal

action during the standDstill *eriod, this )ould be necessary +or enabling the C$< Syste(

to underta.e the necessary debt restructuring e/ercise )ithout any outside intervention

judicial or other)ise

'he -nterDCreditors Agree(ent )ould be a legally binding agree(ent a(ongst the

secured creditors, )ith necessary en+orce(ent and *enal clauses, )herein the creditors

)ould co((it the(selves to abide by the various ele(ents o+ C$< syste( urther , the

creditors shall agree that i+ GH of secured creditors by value4 agree to a debt

restructuring *ac.age, the sa(e )ould be binding on the re(aining secured creditors

Accountin t!eat*ent #o! !est!uctu!e" accountsAccountin t!eat*ent #o! !est!uctu!e" accounts

'he accounting treat(ent o+ accounts restructured under C$< )ould be governed by the

*rudential nor(s indicated in circular $B$ BP BC >= G 31?7?7= G 3???D?1 dated

&arch 6?, 3??1


57/80

A+ter co((ence(ent o+ co((ercial *roduction and the asset has been classi+ied as

subDstandard

'he *rudential treat(ent o+ the accounts, subjected to restructuring under C$


58/80

A rescheduling o+ interest ele(ent )ould render a subDstandard asset eligible to be

continued to be classi+ied in subDstandard category +or the s*eci+ied *eriod subject to the

condition that the a(ount o+ sacri+ice, i+ any, in the ele(ent o+ interest, (easured in *resent

value ter(s, is either )ritten o++ or *rovision is (ade to the e/tent o+ the sacri+ice involved

or the *ur*ose, the +uture interest due as *er the original loan agree(ent in res*ect o+ an

account should be discounted to the *resent value at a rate a**ro*riate to the ris. category

o+ the borro)er ie, current P"< V the a**ro*riate credit ris. *re(iu( +or the borro)erD

category2 and co(*ared )ith the *resent value o+ the dues e/*ected to be received under

the restructuring *ac.age, discounted on the sa(e basis

Ref% C$S KN


59/80

beco(e NPA i+ such irregular dra)ings are *er(itted in the account +or a continuous *eriod

o+ 1=? days even though the unit (ay be )or.ing or the borro)ers +inancial *osition is

satis+actory

[University Business School, Panjab University, Chandigarh]


60/80

)ill have to be treated as NPA and not the *articular +acility or *art thereo+ )hich has

beco(e irregular

-+ the debits arising out o+ devolve(ent o+ letters o+ credit or invo.ed guarantees are

*ar.ed in a se*arate account, the balance outstanding in that account also should be treated

as a *art o+ the borro)erFs *rinci*al o*erating account +or the *ur*ose o+ a**lication o+

*rudential nor(s on inco(e recognition, asset classi+ication and *rovisioning

A##ounts 'here there is erosion in the $alue of se#urityA##ounts 'here there is erosion in the $alue of se#urity

A NPA need not go through the various stages o+ classi+ication in cases o+ serious

credit i(*air(ent and such assets should be straighta)ay classi+ied as doubt+ul or loss asset

as a**ro*riate #rosion in the value o+ security can be rec.oned as signi+icant )hen the

realisable value o+ the security is less than 8? *er cent o+ the value assessed by the ban. or

acce*ted by


61/80

and not all the credit +acilities sanctioned to a PACSG SS 'he other direct loans

advances, i+ any, granted by the ban. to the (e(ber borro)er o+ a PACSG SS outside the

onDlending arrange(ent )ill beco(e NPA even i+ one o+ the credit +acilities granted to the

sa(e borro)er beco(es NPA

Ad$an#es against %erm Deposits, S&s, ./0/, et#!Ad$an#esagainst %erm Deposits, S&s, ./0/, et#!

Advances against

ter( de*osits, NSCs eligible +or surrender, -0Ps, K0Ps and li+e *olicies need not be treated

as NPAs Advances against gold orna(ents, govern(ent securities and all other securities

are not covered by this e/e(*tion

oans 'ith moratorium for payment of interestoans 'ith moratoriumfor payment of interest

-n the case o+ ban. +inance given +or industrial *rojects or +or agricultural

*lantations etc )here (oratoriu( is available +or *ay(ent o+ interest, *ay(ent o+ interest

beco(es due only a+ter the (oratoriu( or gestation *eriod is over 'here+ore, such

a(ounts o+ interest do not beco(e overdue and hence NPA, )ith re+erence to the date o+

debit o+ interest 'hey beco(e overdue a+ter due date +or *ay(ent o+ interest, i+ uncollected

-n the case o+ housing loan or si(ilar advances granted to sta++ (e(bers )here

interest is *ayable a+ter recovery o+ *rinci*al, interest need not be considered as overdue

+ro( the +irst 4uarter on)ards Such loansGadvances should be classi+ied as NPA only )hen

there is a de+ault in re*ay(ent o+ instal(ent o+ *rinci*al or *ay(ent o+ interest on the

res*ective due dates

A!icultu!al a")ancesA!icultu!al a")ances

-n res*ect o+ advances granted +or agricultural *ur*ose )here interest andGor

instal(ent o+ *rinci*al re(ains un*aid a+ter it has beco(e *ast due +or t)o harvest seasons

but +or a *eriod not e/ceeding t)o hal+Dyears, such an advance should be treated as NPA



62/80

'he above nor(s should be (ade a**licable to all direct agricultural advances as listed at

ite(s 11, 113 i2 to vii2, 113 viii2a212 and 113 viii2b212 o+ &aster Circular on

lending to *riority sector No ;D>= dated 3??9>= and


63/80

the guarantee is invo.ed and re(ains in de+ault +or (ore than t)o 4uarters !ith e++ect

+ro( &arch 61, 3??1 the *eriod o+ de+ault is revised as (ore than 1=? days

Take/out Finance:Take/out Finance:

'a.eout +inance is the *roduct e(erging in the conte/t o+ the +unding o+ longD

ter( in+rastructure *rojects Under this arrange(ent, the institutionGthe ban. +inancing

in+rastructure *rojects )ill have an arrange(ent )ith any +inancial institution +or

trans+erring to the latter the outstanding in res*ect o+ such +inancing in their boo.s on a *reD

deter(ined basis -n vie) o+ the ti(eDlag involved in ta.ingDover, the *ossibility o+ a

de+ault in the (eanti(e cannot be ruled out 'he nor(s o+ asset classi+ication )ill have to

be +ollo)ed by the concerned ban.G+inancial institution in )hose boo.s the account stands

as balance sheet ite( as on the relevant date -+ the lending institution observes that the

asset has turned NPA on the basis o+ the record o+ recovery, it should be classi+ied

accordingly 'he lending institution should not recognise inco(e on accrual basis and

account +or the sa(e only )hen it is *aid by the borro)erG ta.ing over institution i+ the

arrange(ent so *rovides2 'he lending institution should also (a.e *rovisions against any

asset turning into NPA *ending its ta.e over by ta.ing over institution As and )hen the

asset is ta.en over by the ta.ing over institution, the corres*onding *rovisions could be

reversed @o)ever, the ta.ing over institution, on ta.ing over such assets, should (a.e

*rovisions treating the account as NPA +ro( the actual date o+ it beco(ing NPA even

though the account )as not in its boo.s as on that date

Post/s$i+*ent Su++lie!6s C!e"itPost/s$i+*ent Su++lie!6s C!e"it

-n res*ect o+ *ostDshi*(ent credit e/tended by the ban.s covering e/*ort o+ goods to

countries +or )hich the #C%CFs cover is available, #-& Ban. has introduced a guaranteeD

cu(Dre+inance *rogra((e )hereby, in the event o+ de+ault, #-& Ban. )ill *ay the



64/80

guaranteed a(ount to the ban. )ithin a *eriod o+ 6? days +ro( the day the ban. invo.es the

guarantee a+ter the e/*orter has +iled clai( )ith #C%C

Accordingly, to the e/tent *ay(ent has been received +ro( the #-& Ban., the

advance (ay not be treated as a nonD*er+or(ing asset +or asset classi+ication and

*rovisioning *ur*oses

E5+o!t P!o-ect Finance:E5+o!t P!o-ect Finance:

-n res*ect o+ e/*ort *roject +inance, there could be instances )here the actual

i(*orter has *aid the dues to the ban. abroad but the ban. in turn is unable to re(it the

a(ount due to *olitical develo*(ents such as )ar, stri+e, UN e(bargo, etc

-n such cases, )here the lending ban. is able to establish through docu(entary

evidence that the i(*orter has cleared the dues in +ull by de*ositing the a(ount in the ban.

abroad be+ore it turned into NPA in the boo.s o+ the ban., but the i(*orters country is not

allo)ing the +unds to be re(itted due to *olitical or other reasons, the asset classi+ication

(ay be (ade a+ter a *eriod o+ one year +ro( the date the a(ount )as de*osited by the

i(*orter in the ban. abroad

A")ances un"e! !e$a,ilitation a++!o)e" ,% BIFR7 TLI:A")ances un"e! !e$a,ilitation a++!o)e" ,% BIFR7 TLI:

Ban.s are not

*er(itted to u*grade the classi+ication o+ any advance in res*ect o+ )hich the ter(s have

been reDnegotiated unless the *ac.age o+ reDnegotiated ter(s has )or.ed satis+actorily +or a

*eriod o+ one year !hile the e/isting credit +acilities sanctioned to a unit under

rehabilitation *ac.ages a**roved by B-


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ANA01S-S

or the *ur*ose o+ analysis and co(*arison bet)een *rivate sector and *ublic sector ban.s,

)e ta.e +iveD+ive ban.s in both sector to co(*are the non *er+or(ing assets o+ ban.s or

understanding )e +urther bi+urcate the non *er+or(ing assets in *riority sector and non

*riority sector, gross NPA and net NPA in *ercentage as )ell as in ru*ees, de*osit Q

invest(ent Q advances

$e*osit Q -nvest(ent Q Advances is the +irst in the analysis because due to these )e can

understand the )here the ban. stands in the co(*etitive (ar.et As at end o+ (arch 3??=,

in *rivate sector -C-C- Ban. is the highest de*ositDinvest(entDadvances +igures in ru*ees

crore, second is @$C Ban. and K'AK Ban. has least +igures-n *ublic sector ban.s Punjab National Ban. has highest de*ositDinvest(entDadvances but

)hen )e loo. at gra*h +irst three (eans Ban. o+ Baroda and Ban. o+ -ndia are al(ost the

si(ilar in nu(bers and $ena Ban. is stands +or last in *ublic sector ban. !hen )e

co(*are the *rivate sector ban.s )ith *ublic sector ban.s a(ong these ban.s, )e can

understand the (ore nu(ber o+ *eo*le *re+er to choose *ublic sector ban.s +or de*ositD

invest(ent

But )hen )e co(*are the *rivate sector ban. -C-C- Ban. )ith the *ublic sector ban.s

-C-C- Ban. is (ore de*ositDinvest(ent +igures and +irst in the all ban.s



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.EPOS-T%-N,EST*ENT%A.,ANCES 8 RS'CRORE9 of bot( sector bans and

comparison among t(em4 year "##G%#I'

BAN3 .EPOS-T -N,EST*ENT A.,ANCES

A-S IGK"K @@G#H HFKK$

7./C $##GKF &F@F& K@&"G

-C-C- "&&&@$ $$$&H& ""HK$K

3OTA3 $K&"& F$&" $HHH"

-N.)S-N. $F#@G KK@# $"GFH

TOTA0 &KI"IG "$#@"H @GG#H$

0

50000

100000

150000

200000

250000

ICICI AXIS KOTAK

DEPOSIT

INVESTMENT

ADVANCES



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BOB $H"#@& &@IG# $#KG#$BO- $H##$" &$I#@ $$@&GK

.ENA @@F&@ $#"I" "@#"&

PNB $KK&HG H@FF" $$FH#"

)B- $#@IHF @@I"@ G&@&I

TOTA0 K#K@#H $I@GG# &@G#H$

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

PNB BOB BOI UBI DENA

DEPOSIT

INVESTMENT

ADVANCES

-C-C- BAN3 AN. P)NJAB NAT-ONA0 BAN3 !%

[Comparative analysis on NPA of Private & Public sector Banks] Page 9;[University Business School, Panjab University, Chandigarh]


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-C-C- BAN3 "&&&@$ $$$&H& ""HK$K

PNB $KK&HG H@FF" $$FH#"

0

50000

100000

150000

200000

250000

ICICI PNB

DEPOSIT

INVESTMENT

ADVANCES

'here are t)o conce*ts related to nonD*er+or(ing assetsR gross and net %ross re+ers to all

NPAs on a ban.Fs balance sheet irres*ective o+ the *rovisions (ade -t consists o+ all the

non standard assets, vi5 sub standard, doubt+ul, and loss assets A loan asset is classi+ied

as E sub standard i+ it re(ains NPA u* to a *eriod o+ 1= (onthsH O doubt+ul i+ it re(ains

NPA +or (ore than 1= (onthsH and loss, )ithout any )aiting *eriod, )here the dues are

considered not collectible or (arginally collectible

Net NPA is gross NPA less *rovisions Since in -ndia, ban. balance sheets contains a huge

a(ount o+ NPAs and the *rocess o+ recovery and )rite o++ o+ loans is very ti(e consu(ing,

the *rovisions the ban.s have to (a.e against the NPA according to the central ban.

guidelines, are 4uite signi+icant

@ere, )e can see that there are huge di++erence bet)een gross and net NPA :(ile gross

NPA reflects t(e uality of t(e loans made by bans4 net NPA s(o6s t(e actual burden

of bans' 'he re4uire(ents +or *rovisions are :

1?? +or loss assets

1?? o+ the unsecured *ortion *lus 3?D8? o+ the secured *ortion, de*ending on

the *eriod +or )hich the account has re(ained in the doubt+ul category

1? general *rovision on the outstanding balance under the sub standard category

[Comparative analysis on NPA of Private & Public sector Banks] Page 9=[University Business School, Panjab University, Chandigarh]


69/80

@ere, there are gross and net NPA data +or 3??9D?; and 3??;D?= )e ta.en +or co(*arison

a(ong ban.s 'hese data are NPA AS P#


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3??;D?=

BAN3 2ROSS NPA NET NPA

BOB $'$# #'"G

BO- $'#I #'@@

.ENA $'&I #'HKPNB $'KG #'@I

)B- $'@& #'$#

0

0.2

0.4

0.60.8

1

1.2

1.4

1.6

1.8

DENA PNB BOI BOB UBI

GROSS NPA

NET NPA

3??9D?;


A-S #'HG #'@K

7./C #'G" #'""

-C-C- $'"# #'HI

3OTA3 $'@F $'#F

-N.)S-N. $'K& $'@$

[Comparative analysis on NPA of Private & Public sector Banks] Page ;?[University Business School, Panjab University, Chandigarh]


71/80

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

INDUSIND KOTAK ICICI AXIS HDFC

GROSS NPA

NET NPA

3??;D?=


A-S #'&H #'"@

7./C #'KI #'""

-C-C- $'F# #'IG

3OTA3 $'HH #'FI

-N.)S-N. $'KF $'"H

0

0.5

1

1.5

2

INDUSIND KOTAK ICICI HDFC AXIS

GROSS NPA

NET NPA

[Comparative analysis on NPA of Private & Public sector Banks] Page ;1[University Business School, Panjab University, Chandigarh]


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C&PA


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0

0.2

0.4

0.6

0.8

1

1.2

1.4

ICICI INDUSIND KOTAK HDFC AXIS BOI BOB UBI DENA PNB

PRIORIT8 9NON PRIORIT8 SECTOR

!hen )e +urther bi+urcate NPA in *riority sector and Non *riority sector Agriculture V

s(all V others are *riority sector -n *rivate sector ban.s -C-C- Ban. has the highest NPA

in both sector in co(*are to other *rivate sector ban.s Around ;3 o+ NPA is )ith -C-C-

Ban. )ith crore in *riority sector and around ;= in non *riority sector !e can

see that in *rivate sector ban.s , ban.s has (ore NPA in non *riority sector than *riority

sector

BAN3 A2R-

8 $ 9

S*A00

8 " 9

OT7ERS

8 @ 9

PR-OR-T1

SECTOR

8 $L"L@ 9

NON%

PR-OR-T1

A-S 1?>13 17;9 =9;1 "$#'HF "GH'#K

7./C 6913 11?89 7;;? $F&'&$ G#F'"@

-C-C- >=1=8 3668 68716 $@HF'@& K"$$'$"

3OTA3 1??? 66=7 7?7 &G'IG H'"#

-N.)S-N. 6?77 61= 6??3 K@'K& @"I'KG

TOTA0 119;86 1=89> 8339? $IGH'IH GF"F'"I

0

1000

2000

3000

4000

5000

6000

7000

AXIS HDFC ICICI KOTAK INDUSIND

PRIORIT

NON!PRIORIT

BAN3 PR-OR-T1 SECTOR NPA



74/80

8A.,ANCE. RS'CRORE 9

BOB 879> 68?

BO- 639> 638

.ENA 119? 1?9

PNB 6;;3 776

)B- 1>37 1>;

0

1000

2000

3000

4000

5000

6000

BOB BOI DENA PNB UBI

PRIORIT

NPA

!hen )e tal. about *ublic sector ban.s they are (ore in *riority sector and they given

advanced to )ea.er sector or industries Public sector ban.s give (ore loans to Agriculture

, s(all scale and others units and as a result )e see that there are (ore nu(ber o+ NPA in

*ublic sector ban.s than in *rivate sector ban.s BB given (ore advanced to *riority

sector in 3??;D?= than other +our ban.s and $ena Ban. is in least

But )hen there are co(*arison bet)een *rivate ban. and *ublic sector ban. still -C-C-

Ban. has (ore NPA in both *riority and non *riority sector )ith the co(*arison o+ *ublic

sector ban.s "arge NPA in -C-C- Ban. because the strategy o+ ban. that ris.Dre)ard

attitude and initiative in each sector Above )e also discuss that -C-C- Ban. has highest

de*ositDinvest(entDadvance than other ban.s

No), )hen )e co(*are the all *ublic sector ban.s and *ublic sector ban.s on *riority and

nonD*riority sector than the +igures are really shoc.ing Because in co(*are o+ *rivate

sector ban.s, *ublic sector ban.s nu(bers are very large

P)B0-C SECTOR NE: PR-,ATE



75/80

SECTOR "##K%#G "##G%#I "##K%#G "##G%#I

P


76/80

ANALYSIS OF PERCEPTION OF PUBLIC AND PRIVATE BANK MANAGERS

TOWARDS DIFFERENT NPA RELATED QUESTIONS

-aor reasons for assets becoming NPAs in banks/

"#$%&' ()'*+, $-./

mean rank

q9iindustrialsickness 1 1

q9clackoftimelyaction 2.4 2

q9dlackofadequateeffortsforrecovery 2.6 3

q9kchangeingovt.policies 4 4

q9elackofproperverification 5.5 5

q9fdefectivelendingprocess 5.5 5

q9ginappropriatetechnology 7.5 6

q9hpoorcreditappraisalsystem 7.5 7

q9lackofdemandmacroeconomicfactor 9.3 !

q9"lackofkno#ledgeofareaofhandling 1$.3 9

q9amanagerialdeficiency 1$.4 1$

",&0-*) ()'*+, $-./

mean rank

q9iindustrialsickness 1.2 1

q9clackoftimelyaction 2.3 2

q9dlackofadequateeffortsforrecovery 2.5 3

q9kchangeingovt.policies 4 4

q9elackofproperverification 5.5 5

q9fdefectivelendingprocess 5.5 5

q9ginappropriatetechnology 7.3 6

q9hpoorcreditappraisalsystem 7.7 7

q9lackofdemandmacroeconomicfactor 9.2 !

q9amanagerialdeficiency 1$.4 9

q9"lackofkno#ledgeofareaofhandling 1$.4 9

Strategies to decrease NPAs in priority sector lending/

"#$%&' ()'*+, $-./

mean

rank

q12aproperappraisallending 1.7 1

q12esecuritisationofde"t 1.9 2

q12flegalrecovery 2.4 3



77/80

q12clendingatlo#rateofinterestforeasyrepayment 4.3 4

q12dpreferencetocooperativesocitiesoverindividuals 5.3 5

q12"reducedpoliticalrecommendation 5.4 6

",&0-*) ()'*+, $-./

mea

n

ran

k

q12esecuritisationofde"t 1.7 1

q12aproperappraisallending 1.! 2

q12flegalrecovery 2.5 3

q12clendingatlo#rateofinterestforeasyrepayment 4.! 4

q12"reducedpoliticalrecommendation 5 5

q12dpreferencetocooperativesocitiesoverindividuals 5.2 6

Strategies to decrease NPAs in non priority sector lending/

"#$%&' ()'*+, $-./

mean

rank

q13esecuritisationofde"tinnonprioritylending 1.6 1

q13flegalrecoveryinnonprioritylending 2.1 2

q13aproperappraisal"eforelendinginnonprioritylending 2.3 3

q13"reducepoliticalrecommendationinnonprioritylending 4.6 4

q13clendingto"igcorporateshouseatlo#rateofintersestthantosmse

s 5.1 5q13dtopreferpsusratherthanprivatesector 5.3 6

",&0-*) ()'*+, $-./

mean

rank

q13esecuritisationofde"tinnonprioritylending 1.5 1

q13aproperappraisal"eforelendinginnonprioritylending 1.6 2

q13flegalrecoveryinnonprioritylending 2.9 3

q13"reducepoliticalrecommendationinnonprioritylending 4.7 4q13dtopreferpsusratherthanprivatesector 5.1 5

q13clendingto"igcorporateshouseatlo#rateofintersestthantosmses 5.2 6

[Comparative analysis on NPA of Private & Public sector Banks] Page ;;[University Business School, Panjab University, Chandigarh]


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*ategories in which NPA occurrence is more/

"#$%&' ()'*+, $-./

mean rank

q1$aoccurencemoreinagriculturalloan 1.4 1

q1$"occurencemoreinnonagriculturalloan 2.2 2q1$coccurencemoreincashcredit 2.4 3

q1$eoccurencemoreintermloan 4 4

q1$doccurancemoreinoverdrafts 5.5 5

q1$foccurencemoreinhousingloan 5.5 6

",&0-*) ()'*+, $-./

mean rank

q1$coccurencemoreincashcredit 1.5 1

q1$"occurencemoreinnonagriculturalloan 1.6 2

q1$doccurancemoreinoverdrafts 2.9 3

q1$eoccurencemoreintermloan 4.5 4

q1$foccurencemoreinhousingloan 5.2 5

q1$aoccurencemoreinagriculturalloan 5.3 6

CONCLUSION

0becti!es 1ypothesis *0N*23S40N

$ %o compare level of &'(s

in pu"lic and private sector

"anks and analy)e their

financial performance at

different level of &'(s via

comparative analysis.

% 'o do a co(*arative

analysis o+ NPAs in *riority

and nonD*riority lending by

[Comparative analysis on NPA of Private & Public sector Banks] Page ;=[University Business School, Panjab University, Chandigarh]


79/80

*ublic and *rivate sector

ban.s

& %o do a ratio and trend

analysis of &'(s level in

pu"lic and private sector

"anks.

' To study the perception

of managers of public

and pri!ate banks

towards the maor

reasons of assets

becoming NPA5s

There is no significantdifference in the perceptionbetween managers of publicand pri!ate sector bankstowards the knowledge ofarea of handling andmanagerial deficienciesbeing the maor reasons ofassets becoming NPA5s.

( To study the perception


and pri!ate banks

towards the strategies

preferred to decrease

NPA in priority sector

There is a slight differencein the perception between

managers of public and p!tsector banks towards thestrategies preferred todecrease incidence inNPA5s in priority sectorlending.

6 To study the perception


and pri!ate banks

towards the strategies

preferred to decrease the

incidence of NPA5s in non

priority sector.

'here is a slight di++erence in

the *erce*tion bet)een

(anagers o+ *ublic and *rivate

sector ban.s to)ards the

strategies *re+erred to decrease

the incidence in NPAFs in non

*riority sector lending



and pri!ate banks

towards agricultural loans

being the fa!orable

category for occurrence

of NPA5s.

'here is a signi+icantdi++erence in the *erce*tion

)here agricultural loans +or

(anagers in *ublic ban.s isconsidered as the (ost

occuring category +or NPAFsand +or the (anagers o+*rivate co(*any it is the least

occuring category +or

occurrence o+ NPAFs

[Comparative analysis on NPA of Private & Public sector Banks] Page ;>[University Business School, Panjab University, Chandigarh]


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and pri!ate banks

towards cash credit being

the fa!orable category for

occurrence of NPA5s.

'here is a hugely signi+icant

di++erence in the *erce*tion

)here cash credit +or (anagers

in *ublic ban.s is considered

as the slightly +avorable

category +or NPAFs and +or the

(anagers o+ *rivate co(*any

it is the (ost +avorable

category +or occurrence o+

NPAFs

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