Npa on Final

8/8/2019 Npa on Final

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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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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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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.



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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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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



Data Analysis

FLUCTUATION IN LAST 3 yrs NPA IN SBI

Figure shows

the increase in

return on

assets in the

last three

years.



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.



Data AnalysisCOMPARASION WITH OTHER GROUP BANKS

Inference:

Compared to all

other groupbanks SBI is in

worst position

with 1.56 NPA

ratio.



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



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.



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.



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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.



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THANK YOU!

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