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    PRESENTATION

    ON

    A STUDY OF NON PERFORMING ASSETS IN

    LEADING NATIONALISED BANKS.

    BY

    RAHUL N. KATRE

    Under the guidance of

    Prof. Dr.Mukul Burghate

    (B.E. , MBA, PH. D)

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    Presented by RAHUL N. KATRE 2

    DEFINITION OF NPASA NPA is a loan or an advance where

    Interest and/ or installment of principal remain overdue for a period

    of more than 90 days in respect of a term loan,

    The debt remains outstanding for 90 consecutive days or more

    beyond the scheduled payment date or maturity.

    For overdrafts, the account has been inactive for 90 consecutive daysor deposits are insufficient to cover the interest capitalized during the

    period.

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

    the case of bills purchased and discounted

    The installment or interest remains overdue for two crop seasons in

    case of short duration crops and for one crop season in case of long

    duration crops.

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    Presented by RAHUL N. KATRE 3

    CATEGORIES OF NPAS

    Sub-standard asset is one which has been classified as NPA for a period not exceeding

    two years. With effect from 31 March 2001, a sub-standard asset is one, which has

    remained NPA for a period less than or equal to 18 months

    A doubtful asset is one, which has remained NPA for a period exceeding two years. With

    effect from 31st March 2001, an asset is to be classified as doubtful, if it has remained

    NPA for a period exceeding 18 months.

    A loss asset is one where loss has been identified by the bank or internal or external

    auditors or the RBI inspection but the amount has been written off, wholly or partly.

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    Presented by RAHUL N. KATRE 4

    RESEARCH METHDOLOGY

    Research methodology is designed in order to solve a research

    problem. I have conducted a descriptive research to understand and

    develop knowledge on the existing problem of Non-performing Assets.

    The broad objectives of the present study are:

    To understand the meaning & nature of NPAs.

    To examine the causes for NPAs in public sector banks.

    To analyze the NPA and its relation with operating profit of the bank

    To study the general reasons for assets become NPAs.

    What is the criterion to recover the advances from the bank.

    What are the methods adopted by the banks to look after NPA

    management

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    RESEARCH METHDOLOGY

    Statement of problem:The bank will always face the problem of NPA because of poor recoveryof advances granted by the bank and several other reasons likeadopting a poor recovery strategies so when the loan is not recoveredfrom the bank effectively and efficiently that balance amount willbecome the NPA to the bank it may create some huge problem to thebanks net profit.

    The study of NPAs become necessary due to the following mentionedreasons :

    They erode current profits through provisioning requirements.

    They result in reduced interest income.

    They require higher provisioning requirements affecting profits and accretion to

    capital funds and capacity to increase good quality risk assets in future, and They limit recycling of funds, set in asset-liability mismatches, etc.

    Presented by RAHUL N. KATRE 5

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    Presented by RAHUL N. KATRE 6

    FACTORS CONTRIBUTING TO NPAS

    1. Willful Default:

    2. Improper functioning of Debt Recovery Tribunals:

    3. Project appraisal Deficiencies:

    4. Ineffective Credit Monitoring:

    5. Diversion of Funds:

    6. Ineffective legal system:

    7. External factors:.

    8. Promoter-banker nexus:

    9. International development:

    10. Operational factors:

    11. Strategic Factors:

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    7/16Presented by RAHUL N. KATRE 7

    IMPACT OF NPAS ON OPERATIONS

    Drain on Profitability

    Impact on capital adequacy

    Adverse effect on credit growth as the bankers prime focusbecomes zero percent risk and as a result turn lukewarm to fresh

    credit.

    Excessive focus on Credit Risk Management

    High cost of funds due to NPAS

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    8/16Presented by RAHUL N. KATRE 8

    Data Analysis

    FLUCTUATION IN LAST 3 yrs NPA IN SBI

    Figure shows

    the increase in

    return on

    assets in the

    last three

    years.

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    Data Analysis

    GROSS NPA V/S OPERATING PROFIT

    Inference: From the

    chart, it is understood

    that as the gross NPA

    level started decreasing

    in recent year, operating

    profit started increasing

    drastically.

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    Data AnalysisCOMPARASION WITH OTHER GROUP BANKS

    Inference:

    Compared to all

    other groupbanks SBI is in

    worst position

    with 1.56 NPA

    ratio.

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    Data Analysis

    Trend of NPAs in

    different banks in 2008-

    09

    The SBI is showing

    decreasing trend of gross

    NPA as compared two lasttwo years where it was 15%

    & 16 % in 2007-08 & 2007-

    08

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    12/16Presented by RAHUL N. KATRE 12

    NPA : PREVENTIVE MEASURES

    Formation of the Credit Information Bureau (India) Limited (CIBIL)

    Reporting of Frauds to RBI

    Norms of Lenders Liability framing of Fair Practices Code with regard to lenders

    liability to be followed by banks.

    Risk assessment and Risk management

    RBI has advised banks to examine all cases of willful default of Rs.1 crore and above and

    file suits in such cases. Board of Directors are required to review NPA accounts of Rs.1

    crore and above with special reference to fixing of staff accountability.

    Reporting quick mortality cases

    Special mention accounts for early identification of bad debts. Loans and advances

    overdue for less than one and two quarters would come under this category.

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    NPA MANAGEMENT - RESOLUTION

    Compromise Settlement Schemes

    Restructuring / Reschedulement

    Corporate Debt Restructuring Cell

    Debt Recovery Tribunal (DRT)

    Proceedings under the Code of Civil Procedure

    Board for Industrial & Financial Reconstruction (BIFR)/ AAIFR

    National Company Law Tribunal (NCLT)

    Sale of NPA to other banks

    Sale of NPA to ARC/ SC under Securitization and Reconstruction of Financial

    Assets and Enforcement of Security Interest Act 2002 (SRFAESI)

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    CONCLUSION

    The NPA is one of the biggest problems that the Public Sector Banks are facing

    today is the problem of nonperforming assets. If the proper management of theNPAs is not undertaken it would hamper the business of the banks. In absolute

    terms, the last three years have seen an increase in the net NPAs of 25 public

    sector banks by 24 per cent. According to the numbers, the last year it saw a 17

    percent rise in the sticky assets.

    The largest public sector lender, SBI, has seen an increase in the net NPAs by awhopping 41 percent in 2007-08.As the global slowdown has crept into the

    economy, bankers feel that in more loans are going to turn bad in the coming

    quarters and therefore they want RBI to relax the deadline for loan

    reconstruction.

    The reduction of the NPAs would help the banks to boost up their profits, smoothrecycling of funds in the nation. This would help the nation to develop more

    banking branches and developing the economy by providing the better financial

    services to the nation.

    Presented by RAHUL N. KATRE 14

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    RECOMMENDATIONS:1. It is recommended that the proper documentation and verification to be made before sanctioning the

    loan.

    2. 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.

    3. 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.

    4. Effective and regular follow-up of the end use of the funds sanctioned is required to ascertain any

    embezzlement or diversion of funds.

    5. Assisting the borrowers in developing his entrepreneurial skills will not only establish a good relation

    between the borrowers but also help the bankers to keep a track of their funds.

    6. Some tax incentives like capital gain tax exemption, carry forward the losses to set off the same with other

    income of the QIBS should be granted so as to ensure their active participation by way of investing

    sizeable amount in distressed assets of banks and financial institutions.

    Presented by RAHUL N. KATRE 15

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    THANK YOU!