Performing Loan Assets of Pnb

7/26/2019 Performing Loan Assets of Pnb

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PROJECT REPORT

ON

NON PERFORMING ASSETS OF PUNJABNATIONAL BANK

SUBMITTED BY IN THE GUIDANCE OF

NAVPREET SINGH DR. V.K. KHURANA

07114803914 SENIOR PROFESSOR

DEPARTMENT OF MANAGEMENT

MAHARAJA AGRASEN INSTITUTE OF TECHNOLOGY

A!!"#"$%&' %( G.G.S.I.P. U)"*&+,"%-

S&/%(+ 2 R(")"2 D" 110085

A) ISO 90016008 C&+%"!"&' I),%"%%&AICTE NBA A//+&'"%&' I),%"%%&


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SR.NO. TOPICS PAGE NO.

1. GUIDE CERTIFICATE

. ACKNOLEDGEMENT

3. ABSTRACT

4. INTRODUCTION

. COMPANY PROFILE5. PRODUCTS

7. LITERATURE REVIE

8. RESEARCH METHOLOGY

9. DATA ANLYSIS

10. CONCLUSION

11. REFERENCE

S%'&)% U)'&+%$:");

This is to certify that I ____________________________ had completed

the Project titled title of the project in (name of the company) under the


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guidance of Mr./Ms. (aculty guide) in the partial fulfillment of the

re!uirement for the a"ard of degree of M#$ from Maharaja $grasen

Institute of Technology ($ffiliated to %.%.&.I.P. 'niersity) *e" +elhi.

This is an original piece of "or, and I had neither copied nor su-mitted itearlier else"here.

S%'&)% N$


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This is to certify that the project titled

_____________________________ is an academic "or, done -y

________________________ su-mitted in the partial fulfillment of the

re!uirement for the a"ard of the +egree of M#$ from Maharaja $grasenInstitute of Technology ($ffiliated to %.%.&.I.P. 'niersity)*e" +elhi

under my guidance and direction. To the -est of my ,no"ledge and -elief

the data and information presented -y him/her in the project has not -een

su-mitted earlier.

N$


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I "ould li,e to than, all those "ho helped me through the project of

familiariation I "ould li,e to epress my sincere appreciation to my guide________________ for his enlightenment of my ,no"ledge of feed-ac, and

the #an,ing industry alua-le adice and ,ind support throughout the

process of dissertation completion

Most importantly I "ould li,e to than, my parents and sister "ho "ere

al"ays there to motiate me. I "ould li,e to than, all the focus group

mem-ers for giing their alua-le time and thoughts to my project.

I "ould li,e to than, all the customers and employees of #an, for sharing

their alua-le thoughts "hich helped me shape this project

ABSTRACT


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*P$ plays an important role in performance measurement of any -an, as it

reduces the oerall profita-ility of the -an,. In this research paper the

performance of the t"o pu-lic -an,s i.e. &tate #an, of India and Punja-

*ational #an, in concern "ith *P$ management is ealuated. Through thispaper it has -een try to analye ho" efficiently these t"o pu-lic sector

-an,s are managing their *P$s "ith the help of arious financial and

statistical tools.


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CHAPTER

1INTRODUCTION

INDIAN BANKING INDUSTRY


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$ -an, is a financial institution that proides -an,ing and other financial

serices to their customers. $ -an, is generally understood as an institution

"hich proides fundamental -an,ing serices such as accepting deposits and

proiding loans. There are also non-an,ing institutions that proide certain

-an,ing serices "ithout meeting the legal definition of a -an,. #an,s are a

su-set of the financial serices industry. $ -an,ing system also referred as a

system proided -y the -an, "hich offers cash management serices for

customers reporting the transactions of their accounts and portfolios

throughout the day. The -an,ing system in India should not only -e hasslefree -ut it should -e a-le to meet the ne" challenges posed -y the

technology and any other eternal and internal factors. or the past three

decades India0s -an,ing system has seeral outstanding achieements to its

credit. The #an,s are the main participants of the financial system in India.

The #an,ing sector offers seeral facilities and opportunities to their

customers. $ll the -an,s safeguards the money and alua-les and proide

loans credit and payment serices such as chec,ing accounts money

orders and cashier0s che!ues. The -an,s also offer inestment and insurance

products.


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N&&' (! %& B$):,

#efore the esta-lishment of -an,s the financial actiities "ere handled -y

money lenders and indiiduals. $t that time the interest rates "ere ery high.$gain there "ere no security of pu-lic saings and no uniformity regarding

loans. &o as to oercome such pro-lems the organied -an,ing sector "as

esta-lished "hich "as fully regulated -y the goernment. The organied

-an,ing sector "or,s "ithin the financial system to proide loans accept

deposits and proide other serices to their customers.

1. H",%(+- (! I)'"$) B$):"); S-,%&1 all presidency -an,s "ere amalgamated to >> from the Imperial #an,

of India "hich "as run -y 5uropean &hareholders. $fter that the ?esere

#an, of India "as esta-lished in $pril 18:


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India. To streamline the functioning and actiities of commercial -an,s the

%oernment of India came up "ith the #an,ing 6ompanies $ct 1898 "hich

"as later changed to #an,ing ?egulation $ct 1898 as per amending $ct of

184< ($ct *o.>: of 1847. &een more -an,s "ere nationalied "ith deposits

oer >77 6rores. Till the year 1837 approimately 37C of the -an,ing

segment in India "as under goernment0s o"nership. An the suggestions of

*arsimhan 6ommittee the #an,ing ?egulation $ct "as amended in 188:

and thus the gates for the ne" priate sector -an,s "ere opened.


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INTRODUCTION OF PUNJAB NATIONAL BANK

P*# "as founded in the year 1389 at =ahore (presently in Pa,istan) as an

offDshoot of the &"adeshi Moement. $mong the inspired founders "ere&ardar +ayal &ingh Majithia =ala ;arEishen =al =ala =alchand &hri Eali

Prosanna ?oy &hri 5.6. Bessa"ala &hri Pra-hu +ayal #a,shi Baishi ?am

=ala +holan +ass.

Fith a common missionary eal they set a-out esta-lishing a national -an,G

the first one "ith Indian capital H o"ned managed and operated -y the

Indians for the -enefit of the Indians. The =ion of Punja- =ala =ajpat ?ai

"as actiely associated "ith the management of the #an, in its formatie

years.

The #an, made steady progress right from its inception. It has sho"n

resilience to tide oer many a crisis. It "ithstood the crisis in -an,ing

industry of 181: and the seere depression of the thirties.

It suried the most critical period in its history H the Partlition of

1892 H "hen it "as uprooted from its major area of operations. It "as the

farsightedness of the management that the registered office of the #an, "as

shifted from =ahore to +elhi in Bune 1892 H een -efore the announcement

of the Partition.

LALA LAJPAT RAI

Fith the passage of time the #an, gre" to strength spreading its "ings fromone corner of the country to another. &ome smaller -an,s li,e The #hag"an

+ass #an, =imited 'niersal #an, of India The #harat #an, =imited The

IndoD6ommercial #an, =imited The ;industan 6ommercial #an, =imited

and The *edungadi #an, "ere -rought "ithin its fold.


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P*# has the priilege of maintaining accounts of the illustrious national

leaders li,e Mahatma %andhi &hri Ba"ahar =al *ehru &hri =al #ahadur

&hastri &hrimati Indira %andhi -esides the account of the famous Balian"ala#agh 6ommittee.

*ationaliation of the fourteen major -an,s on 18th Buly 1848 "as a major

step for the -an,ing industry. P*# "as one amongst these. $s a result

-an,ing "as gien a ne" direction and thrust.

The -an,s "ere epected to reach people in eery noo, and corner meet

their needs and "or, for their economic enlistment. ?emoal of poerty and

regional im-alances "ere accorded a high priority.

P*# has al"ays responded enthusiastically to the nations needs. It has -een

earnestly engaged in the tas, of national deelopment. In the process the

-an, has emerged as a major nationalied -an,.

Punja- *ational #an, (herein referred to as P*#) is one of the leading

-an,s in India and offers a "ide ariety of -an,ing serices "hich include

corporate and personal -an,ing industrial finance agricultural finance

financing of trade and international -an,ing. $mong the clients of the #an,

are Indian conglomerates medium and small industrial units eporters nonD

resident Indians and multinational companies. Punja- *ational #an, "as

incorporated in the year 138


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aggressiely the concept of @$ny Time $ny Fhere #an,ing@ through the

introduction of 6entralied #an,ing &olution (6#&) and oer >777 offices

hae already -een -rought under its am-it.


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COMPANY PROFILE

Punja- *ational #an, is a stateDo"ned commercial -an, located in *e"

+elhi. The #an, is one of the #ig our #an,s of India. They offer -an,ing

products and also operate credit card and de-it card -usiness -ullion-usiness life and nonDlife insurance -usiness and gold coins and asset

management -usiness. They are recognied as the #an, offering highest

leels of customer satisfaction in +elhi and 6hennai. The #an, has the

largest domestic net"or, of 9882 offices including 94 etension counters

among *ationalied #an,s. $ll their -ranches offer 6ore/ 6entralied

#an,ing &olution (6#&) along "ith a ariety of financial products catering

to different mar,et segments. They has international presence in 8 countries

"ith a -ranch at Ea-ul > -ranches in ;ong Eong representatie offices at

$lmaty +u-ai &hanghai and Aslo a "holly o"ned su-sidiary in 'E ("ith

< -ranches) and a joint enture "ith 5erest #an, =td *epal. Punja-

*ational #an, "as incorporated in the year 138< at =ahore undiided India.

The #an, has the distinction of -eing the first Indian -an, to hae -een

started solely "ith Indian capital. In the year 1897 the #an, a-sor-ed

#hag"an +ass #an, a scheduled -an, located in +elhi circle. In the year

18


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proiding finance against mortgage of immoa-le property. In &eptem-er

>777 they commenced their gold -usiness in the form of %old Import

&cheme. In *oem-er >777 they launched an International 6oD-randed

6redit 6ard of Punja- *ational #an, and ;ong,ong J &hanghai #an,ing6orporation (;P*#6) in *e" +elhi. In March >77> the #an, came out

"ith their first Initial pu-lic offer (IPA) for


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deployment of arious ITDrelated solutions. +uring the year the #an, signed

an Mo' "ith I6I6I #an, for $TM net"or, sharing. They a"arded a project

to Tata 6onsultancy &erices (T6&) for implement human capital

management and payroll solution. They esta-lished a -ranch office in Ea-ul$fghanistan. $lso they opened a representatie office in &hanghai. The

-an, esta-lished an alliance "ith 5erest #an, in *epal that permits

migrants to transfer funds easily -et"een India and 5erest #an,s 1>

-ranches in *epal. In the year >77774 the

#an, made a tie up "ith Master6ard International to launch a signatureD

-ased de-it card. $lso they made a tie up "ith Indian $irlines for online

-oo,ing of air tic,ets. They opened a ne" -ranch in 'ttara,hand. In Acto-er

>772 the #an, entered into Mo' "ith India Infrastructure inance

6ompany "ith an aim to etend their cooperation and support to II6 in

areas of creating a deal flo" of infrastructure projects. In Banuary >773 the

#an, commenced commercial -an,ing operations in ;ong Eong. +uring the

year >773D78 the #an, opened 143 -ranches out of "hich 87 are ne"

-ranches and 23 -ranches "as added through upgradation of 5tension

6ounters. They made colla-oration "ith =I6 for selling insurance policies

and also made a toe up "ith Ariental Insurance for selling nonDlife policies

on a referral -asis. In Bune >773 they entered into an Mo' "ith I=&

6luster +eelopment Initiatie =td for proiding finance for arious

industrial infrastructure projects in the country. In &eptem-er >773 theysigned an Mo' "ith &M6 %lo-al &ecurities =td and *et"orth &toc,

#ro,ing =td for proiding online trading facility to 6ompanys customers.

They offered a uni!ue : in 1 account comprising of &aing +emat and

Trading account. In e-ruary >778 they commercially launched their credit


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cards "ith > types of consumer credit cards namely %old and 6lassic. $lso

they entered into an agreement "ith Ariental Insurance 6ompany to mar,et

insurance products a practice also ,no"n as -ancassurance. In March >778

the #an, entered into an understanding "ith Tata Motors for financing entirerange of passenger cars. $lso they eecuted an agreement "ith The =ife

Insurance 6orporation of India for -anc assurance life insurance under the

proisions of I?+$s ?eferral $rrangement. +uring the year >778D17 the

#an, opened 9 domestic -ranches out of "hich :92 are at ne" locations

"hile 122 -ranches "as added through up gradation of eisting 5tension

6ounters. They deployed 1977 $TMs ta,ing the the total count of $TMs to

more than :778 the #an,

incorporated a su-sidiary company namely P*# Inestment &erices =td. In

*oem-er >778 they entered into an agreement "ith IM #an, (Malta)

#anca II& Italy and #lend inancial &erices =td Mum-ai for setting up ajoint enture company for proiding factoring forfeiting and trade finance

related -usiness. +uring the year >717D11 the #an, introduced ne" set of

products and serices such as P*# 'phaar P*# &uidha and Forld Trael

6ard. In +ecem-er 1: >717 they ac!uired 4:.49C sta,e in B&6 +ana #an,


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of Eaa,hstan. In Banuary 1> >711 the #an,s joint enture India factoring

and inance &olutions Pt =td started its commercial operations from +elhi

Mum-ai J 6hennai. The total num-er of -ranches at the end of March >711

rose to 17

domestic -ranches "ere opened. Fith 3

5tension 6ounters the #an, has the largest net"or, amongst the

nationalied -an,s. $s part of customer segmentation #an, has opened

specialied #ranches that include 4 Micro inance -ranches &pecial oreign

5change Affices 12 &pecial MI6? 6enters 91 &erice (?egional 6learing

6entre) centers 9 inancial Inclusion &erice 6enters : 6entralied +raft

Paya-le 6enters 1 6entral 6learing &erice 6entre and 1 +epository #ac,

Affice are esta-lished to reduce deliery time and improe response time.

The #an, receied permission from ?#I for setting up a representatie

office in &ydney $ustralia. $lso they are in the process of entering into

6anada. The company is haing an aim to increase the customer -ase to 171


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NON PERFORMING ASSETS

#an,ing industry plays an important role in the deelopment of an economy.

#an,s hae -ecome ery cautious in etending loans. The reason -eing

mounting nonDperforming assets (*P$s). *P$s put detrimental impact on

the profita-ility capital ade!uacy ratio and credi-ility of -an,s. $n *P$ is

defined as a loan asset "hich has ceased to generate any income for a -an,

"hether in the form of interest or principal repayment. $s per the prudentialnorms suggested -y the ?esere #an, of India (?#I) a -an, cannot -oo,

interest on an *P$ on accrual -asis. In other "ords such interests can -e

-oo,ed only "hen it has -een actually receied. Therefore this has -ecome

"hat is called as a Lcritical performance area0 of the -an,ing sector as the

leel of *P$s affects the profita-ility of a -an,. Therefore an *P$ account

not only reduces profita-ility of -an,s -y proisioning in the profit and loss

account -ut their carrying cost is also increased "hich results in ecess J

aoida-le management attention $part from this a high leel of *P$ also

puts strain on a -an,s net "orth -ecause -an,s are under pressure to

maintain a desired leel of 6apital $de!uacy and in the a-sence of

comforta-le profit leel -an,s eentually loo, to"ards their internal

financial strength to fulfill the norms there-y slo"ly eroding the net "orth.

The present research paper focuses on *P$ management -et"een I J

P*#. $n asset is classified as nonDperforming asset (*P$) if the -orro"er

does not pay dues in the form of principal and interest for a period of 137

days. ;o"eer "ith effect from March >779 default status "ould -e gien

to a -orro"er if dues are not paid for 87 days. 6lassification of #an, $ssets


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?esere #an, of India (?#I) has issued guidelines on proisioning

re!uirement "ith respect to -an, adances.

In terms of these guidelines -an, adances are mainly classified into

STANDARD ASSETS

&uch an asset is not a nonD performing asset. In other "ords it carries not

more than normal ris, attached to the -usiness.

SUBSTANDARD ASSETS

It is classified as nonD performing asset for a period not eceeding 13

months.

DOUBTFUL ASSETS

$sset that has remained *P$ for a period eceeding 13 months is a dou-tful

asset.

LOSS ASSETS

;ere loss is identified -y the -an,s concerned or -y internal auditors or -y

eternal auditors or -y ?esere #an, India (?#I) inspection.

In terms of ?#I guidelines as and "hen an asset -ecomes a *P$ such

adances "ould -e first classified as a su-Dstandard one for a period that

should not eceed 13 months and su-se!uently as dou-tful assets. It should

-e noted that the a-oe classification is only for the purpose of computing

the amount

of proision that should -e made "ith respect to -an, adances and certainlynot for the purpose of presentation of adances in the -an,s0 -alance sheet.


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OBJECTIVES

To study the sources and inestment of funds of P*#.

To eamine the gross *P$s and net *P$s of P*#.

To study the impact of *P$ on oerall performance of selected -an,s.

To ealuate the efficiency in managing *P$ -et"een the selected

-an,s.

To ma,e suggestions for -etter *P$ management in selected -an,s.

To compare the total adances net profits gross *P$ J net *P$. To study the relationship -et"een *ets profit and *et *P$ of P*#.

To suggest measures to manage *P$s in P*#.


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NON PERFORMING ASSETS AN OVERVIE

$ nonDperforming asset is defined as a credit facility in respect of "hich the

interest and/or installments of principal has remained LoerDdue0 for a

specified length of time. Fith an aim of moing to"ards the international

-est practices and ensuring greater transparency a standard criterion of 087

days0 oerdue norm "as fied for identification of *P$ from the N ending

March >779 in the Indian financial system. Thus as per present conention

a nonDperforming asset refers to a loan or an adance "here Interest and/or

installment of principal remain oerdue for a period of more than 87 days in

respect of a term loan The account remains Lout of order0 for a period of

more than 87 days in respect of an Aerdraft/6ash 6redit (A+/66) The

-ill remains oerdue for a period of more than 87 days in the case of -ills

purchased and discounted Interest and/or installment of principal remains

oerdue for t"o harest seasons -ut for a period not eceeding t"o half

years in the case of an adance granted for agricultural purposes and $ny

amount to -e receied remains oerdue for a period of more than 87 days inrespect of other accounts.

PUNJAB NATIONAL BANK

Inspite of the challenging phase of Indian 5conomy P group continued

its efforts in maintaining the asset !uality during the year >711D1> -y


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accelerated recoery of *P$s through the "ell coordinated and sustained

efforts including action under &$?$5&I $ct >77>. Inspite of high fresh

slippage the %ross and *et *P$s stood at 24:.99 crore (1.4:2.89 crore(7.711 respectiely. The performance of the #an,s under

recoery of *P$s during the year continued to -e good. $ggressie and

focused efforts in ?ecoery could result in total recoery of oer ::1.:4

crore including recoery of 173.2< crore in Ltechnically "rittenDoff

accounts0. The position of %ross and *et *P$s as on :1.7:.>71> isDODis

preious year end is depicted under. %ross and *et *P$ leels hae

registered an increase in terms of a-solute alues and in terms of percentage

of oerall assets in -an,0s portfolio. The proisioning coerage ratio of the

-an, (including the technically "ritten off accounts) as on year ending

:1/7:/>719 stood at 49.1


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years in the case of an adance granted for agricultural purposes and $ny

amount to -e receied remains oerdue for a period of more than 87 days in

respect of other accounts.

#an,s are re!uired to classify their *P$s further into the follo"ing threecategories -ased on the period for "hich a specific asset has remained nonD

performing as "ell as the relia-ility of the dues

&u-Dstandard $ssets

+ou-tful $ssets

=oss $ssets

&u-Dstandard assets refer to all those assets (loans and adances) "hichremain in the nonDperforming category for a period of 1> months. +ou-tful

assets are the -an, assets "hich remain in the nonDperforming category for a

period eceeding 1> months. inally =oss assets refer to the class of -an,

assets "hich cannot -e recoered at all. Proisioning ?e!uirements for $sset

6ategories $s a part of its prudential -an, management guidelines ?#I

ensures that ade!uate capital -uffer is ,ept aside as coer for arious asset

classes -y the commercial -an,s. It "or,s on the premise that asset

management should -e an ongoing process and -an,s are mandated to

ensure that capital proisions are maintained at arious stages of slippage of

an asset from standard assets to loss assets category. Ta-le 1 "ithin the

LTa-les J 5hi-its0 highlights the asset proisioning guidelines mandated -y

?#I for the commercial -an,s. urther Ta-le 11 indicates the proisions

maintained in a-solute terms -y the leading pu-lic sector -an,s for different

asset !ualities. or the fiscal year >711D1> $llaha-ad #an, #an, of

#aroda #an, of India 6entral #an, of India and &tate #an, of India hae

recorded major increments in proisions for the adances falling under *P$


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category. $s far as standard assets are concerned $llaha-ad #an, #an, of

#aroda #an, of India Indian #an, and Punja- *ational #an, registered a

major increase during the same period. An a o-sering the amount of #ad

+e-ts "ritten off from *P$ accounts during >711D1> #an, of #aroda #an,of India 6entral #an, of India 6orporation #an, and &tate #an, of India

major increment in this regard.

LITERATURE REVIES

*P$ Monitoring and ?ecoery Management is the -iggest challenge for the

#an,ing Industry. $sset !uality of -an,s is one of the most important

indicators of their financial health. It also reflects the efficacy of -an,s0

credit ris, management and the recoery enironment. It is important that

the signs of distress in all stressed accounts are detected early and those

"hich are ia-le are also etended restructuring facilities epeditiously to

presere their economic alue. #hattacharya (>771) rightly points to the fact

that in an increasing rate regime !uality -orro"ers "ould s"itch oer to

other aenues such as capital mar,ets internal accruals for their re!uirement

of funds. 'nder such circumstances -an,s "ould hae no option -ut to

dilute the !uality of -orro"ers there-y increasing the pro-a-ility of

generation of *P$s. In another study Mohan (>77:) o-sered that lending

rates of -an,s hae not come do"n as much as deposit rates and interest

rates on %oernment -onds. In the Indian contet ?ajaraman and Kasishtha

(>77>) in an empirical study proided an eidence of significant -iDariaterelationship -et"een an operating inefficiency indicator and the pro-lem

loans of pu-lic sector -an,s. In a similar manner largely from lenders0

perspectie +as and %hosh (>77:) empirically eamined nonDperforming

loans of India0s pu-lic sector -an,s in terms of arious indicators such as


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asset sie credit gro"th and macroeconomic condition and operating

efficiency indicators. &ergio (1884) in a study of nonDperforming loans in

Italy found eidence that an increase in the ris,iness of loan assets is rooted

in a -an,0s lending policy adducing to relatiely unselectie and inade!uateassessment of sect oral prospects. %upta0s study (183:) on a sample of

Indian companies financed -y I6I6I concludes that certain cash flo"s

coerage ratios are -etter indicators of corporate sic,ness. #hatia (1833) and

&ahoo Mishra and &oothpathy (1884) eamine the predictie po"er of

accounting ratios on a sample of sic, and nonDsic, companies -y applying

the multi discriminate analysis techni!ues. In -oth the studies the selected

accounting ratios are effectie in predicting industrial sic,ness "ith a high

degree of precision.


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CHAPTER

RESEARCH

METHODOLOGY


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RESEARCH METHODOLOGY

Methodology is the systematic theoretical analysis of the methods applied

to a field of study or the theoretical analysis of the -ody of methods and

principles associated "ith a -ranch of ,no"ledge My research methodology

re!uires gathering releant data from the annual reports of P*# and

compiling data in order to critically analye the Total $dances *et Profit

%ross *P$ *et *P$ of P*# and arrie at a more complete understanding

a-out performance of P*# The study uses the annual reports of Punja-

*ational #an, for the period of si years from >774D72 to >711D1>. The data

has -een analyed -y using ta-les and coefficient of correlation. Ta-le is

used to compare total adances gross *P$ net *P$ J profits of P*#. #y

using the coefficient of correlation "e "ant to determine "hether there is

any relation -et"een *et Profits and *et *P$ of P*# or not.


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HYPOTHESES OF STUDY

;7 There is no significant difference of *P$ on oerall performance

-et"een selected -an,s.

;1 There is significant difference of *P$ on oerall performance -et"een

selected -an,s.

;7 There is no significant difference on efficiency in managing *P$

-et"een selected -an,s.

;1 There is significant difference on efficiency in managing *P$ -et"een

selected -an,s.

RESEARCH DESIGN

1. THE SAMPLED

The unierse of the study consist all the pu-lic sector -an,s. ;ere

researcher has -een selected t"o pu-lic sector -an,s i.e. I and P*# for

this comparatie study.

. THE DATA COLLECTION AND PERIOD OF THE STUDY6

The study has -een carried out for a three year i.e. during >717 Q11 to >71>

Q 1:. The reason -ehind selecting this period "as aaila-ility of data for

-oth sample -an,s under study. The study is -ased on secondary data.

3. TOOLS AND TECHNI=UESD


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$s per the nature of study follo"ing tools and techni!ues are used for testing

the hypotheses

R ToolD ?atio $nalysis

R &tatistical Techni!ues D Mean &tandard deiation and T Q test

MANAGEMENT OF NONPERFORMING ASSETS IN BANK

$ mounting leel of *P$0s in the -an,ing sector can seerely affect the

economy in many "ays. If *P$0s are not properly managed it can cause

financial and economic degradation "hich in turn signals and aderse

inestment climate. *onperforming $sset is an important constraint in the

study of financial performance of a -an, as it results in declining margin and

higher proisioning re!uirement for dou-tful de-ts. Karious -an,s from

different categories together proide adances to different sectors li,e &&I

agricultural priority sector pu-lic sector J others. These adances need to

-e done preDsanctioning ealuation and postDdis-ursement control to contain

rising nonDperforming assets in the Indian #an,ing sector. The decline of

*P$ is essential to improe profita-ility of -an,s and fulfil "ith the capital

ade!uacy norms as per the #asel $ccord

PNB TOTAL ADVANCES COMPARED ITH NET PROFIT2 GROSS

NPA > NET NPA

N5$? TAT$=

$+K$*65&

*5T P?AIT %?A&& *P$ *5T *P$


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009 010 84 2>

010011 1188 24:31 :379 :>1991 83148

013 014>9>17277 99:9 9:28:8 >7:34:

014 01 >82 99:

Ta-le 1 P*# total adances compared "ith net profit gross *P$ J net

*P$. &ource $nnual ?eport of P*#

2009- 2010

2010-2011

2011-2012

2012-2013

2013- 2014

2014- 2015

0 10000000 20000000 30000000 40000000

PNB TOTAL ADVANCES TO DIFFERENT SEGMENTS

TOTAL ADVANCES NET PROFIT GROSS NPA NET NPA

INTERPRETATION OF RESULT6


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The ta-le is comparing Total adances "ith *5T Profit %ross *P$ J *et

*P$ of P*#. Fith the help of this ta-le "e can get ,no"ledge a-out

sha,ing performance of P*#. Fe can see that on one side total adances

gien -y P*# and *et Profits are increasing continuously since >774.Fhich sho"s that -an, is performing ery "ell. #ut %ross *P$ J *et *P$

is also increasing "hich sho"s performance is declining due to

mismanagement of -an,s

IMPACT OF NPA

$. =i!uidity Money is getting -loc,ed lead to lac, of enough cash in hand

"hich lead to -orro"ing money for short period of time from outside "hich

lead to additional cost to the -an,. +ifficulty in operating the functions of

-an, is another cause of *P$. +ue to lac, of money ?outine payments and

dues are not paid on time.

B. CREDIT LOSS

In case of -an, is facing pro-lem of *P$ then it adersely affect the alue

of -an, in terms of mar,et credit. It "ill lose its good"ill and -rand image

-ecause as "e hae discussed earlier that -an, is not a-le to pay its dues on

time and its negatie impact is that people start "ithdra"ing their money

from -an, "hich then cause li!uidity pro-lem and also decrease in

credi-ility.

C. INVOLVEMENT OF MANAGEMENT

Time and efforts of management is another indirect cost "hich -an, has to-ear due to *P$ other"ise time and efforts of management in handling and

managing *P$ "ould hae -een dierted to some fruitful actiities "hich

"ould gie good returns. *o" a day0s -an,s hae special employees to deal

and handle *P$s "hich is additional cost to the -an,.


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D. PROFITABILITY

*P$ means -oo,ing of money in terms of -ad asset "hich occurred due to

"rong choice of client. #ecause of the money getting -loc,ed the

profita-ility of -an, decreases not only -y the amount of *P$ -ut *P$ leadto opportunity cost also as that much of profit can -e inested in some return

earning project/asset. &o *P$ not only affect current profits -ut also future

stream of profits "hich may lead to loss of some longDterm -eneficial

opportunity. $nother impact of reduction in profita-ility is lo" ?AI (return

on inestment) "hich adersely affect current earning of -an,.

RELATIONSHIP BETEEN NET NPA > NET PROFITS OF PNB

6orrelation 6orrelation is a numerical measure used to determine the degree

of relationship -et"een Karia-les.

PROFITS AND NET

*P$ of P*# or not.

ormula r *SddyDSdSdy (Sd> D (Sd) > ) U (Sdy> D (Sdy) > )

CALCULATION OF CORRELATION BETEEN NET PROFIT >

NET NPA OF PNB

N5$? *5T P?AIT

(V

dVD$

$131 *5T *P$

(N)

dyND$

$ 1>42

dy> ddy

01 9339 :748 8913241 9998

013 :379 1838 :81 83> D>3< 31>>< D24 14>3124 >49 D177: 1774778 D1>283>3

011 >798 >:9 4 D8>431 0009 SV >7722 Sd

8132

Sd>

>181482

13 Sdy 1414 Sdy>

1>:8998

9

Sd Sdy

83::912

#y putting the a-oe calculated alues in our formulae "e get


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r 4U83::912D8132U1414

(4U>1814827722)> ) U (4U1>:89989D (1414)> )

&o r .:1

INTERPRETATION OF RESULT6

$s "e can see that r that is correlation coefficient is e!ual to 7.:1. It means

that there is a positie relation -et"een *et Profits and *P$ of P*#. It

simply means that as profits increase *P$ also increase. It is -ecause of the

mismanagement on the side of -an,. *P$ is directly related to Total

$dances gien -y -an, and -an,s main source of income is interest earned

-y -an,. &ince "e hae seen earlier that total adances are increasing so

interest income is increasing and profits are also increasing. #ut as "e ,no"

there are t"o types of 6ustomers (good and -ad). %ood customers0 leads to

increase in profits -y paying interest and installments on total adances

timely and #ad customers leads to increase in *P$ -y not paying interest

and installment on total adances timely. This is -ecause of mismanagement

and "rong choice of client. That is the only reason of positie relation

-et"een *P$ and Profits. #ut thin, if there is good management -y -an,

then amount of *P$ decrease and Profits "ill increase more -y the amount

not -ecome *P$. Then there "ill -e negatie relation -et"een profits and

*P$.


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T$?#&6 PNB, T(%$# A'*$)/&, C(


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&ource $nnual ?eports of P*#

$-oe ta-le sho"s the total adances net profit gross *P$ net *P$ of

P*#. Fith the help of this ta-le "e find that the total adances of P*#

during the period >77< to >719D1< is increasing continuously "hich sho"sthat the -an,0s performance is good. #ut on the other side the %ross *P$ J

*et *P$ is also increasing during this time period "hich sho"s that the

management of P*# is not satisfactory.


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0

50000

100000

150000

200000

250000

300000

350000

400000

PNB TOTAL ADVANCES TABLE

TOTAL ADVANCES NET PROFIT GROSS NPA NET NPA

$-oe chart sho"s the total adances net profit gross *P$ net *P$ of

P*#


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T$?#&6 T(%$# A'*$)/&, $, C(


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2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

0 50000 100000 150000 200000 250000 300000 350000 400000

NET PROFIT TO TOTAL ADVANCES

Tot! A"#$%&' N&t ()o*t

T$?#& A GROSS NPA TO TOTAL ADVANCES

P)$? N$%"()$# B$):

Near %ross *P$ s Total $dances %ross *P$/Total

$dances>717D 11 9:28 >9>172 7.713>711D 1> 32>7 >8:22< 7.7:7>71>D 1: 1:944 :732>< 7.799I)%&+@+&%$%"() The ta-le sho"s the %ross *P$ against Total adances is

7.713 7.7:7 and 7.799 in the year >717D11 >711D1> and >71>D1:

respectiely. This indicator sho"s the increase *P$ during these years

PUNJAB NATIONAL BANK

T$?#& A GROSS NPA TO TOTAL ADVANCES

Near %ross *P$s Total $dances %ross *P$/Total

$dances>717D 11 9:28 >9>172 7.713>711D 1> 32>7 >8:22< 7.7:7>71>D 1: 1:944 :732>< 7.799


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G)o'' NPA ' Tot! A"#$%&'0

50000

100000

150000

200000

250000

300000

350000

GROSS NPA' TO TOTAL ADVANCES

2012- 13 2013- 14 2014- 15

I)%&+@+&%$%"() The ta-le no.: sho"s the %ross *P$ against Total adances

is 7.713 7.7:7 and 7.799 in the year >717D11 >711D1> and >71>D1:

respectiely. This indicator sho"s the increase *P$ during these years

TABLE NET PROFIT TO TOTAL ADVANCES6 GRAPHICAL

REPRESENTATION P)$? N$%"()$# B$):

Near *et Profit Total $dances *et Profit /Total $dances>717D11 99:1 >9>172 7.713>711D1> 9339 >8:22< 7.712>71>D1: 9293 :732>< 7.71


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2012-13 2013-14 2014-150

50000

100000

150000

200000

250000

300000

350000

NET PROFIT TO TOTAL ADVANCES

N&t P)o*t Tot! A"#$%&'

I)%&+@+&%$%"() The ta-le no.9 sho"s the *et Profit against Total adances

is 7.713 7.712 and 7.71< in the year >717D11 >711D1> and >71>D1:

respectiely. This indicator sho"s the profit is decline due to controlling of

*P$.

STRESSED ASSETS MANAGEMENT GROUP SAMG

To"ards giing focused attention to high alue *P$s in &M5 and

6orporates &tressed $ssets Management %roup (&$M%) "as created in

$pril >711 headed -y a +eputy Managing +irector. &$M% has 19 &tressed

$ssets Management #ranches (&$M#s) and 1 ?esident Affice under its

aegis. The I group further opened t"o ne" -ranches in March >71> (one


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in =udhiana and 5rna,ulam). These -ranches handle *P$s and $dances

under 6ollection $ccount ($'6$s) "ith outDstandings in ecess of 1 crore.

5ach -ranch has dedicated trained staff including a legal epert for

epeditious resolution and is a-le to affect significant recoeries -y resortingto action under &$?$5&I $ct +?T $ct sale to $?6s and negotiated

settlements.

In addition 11< &tressed $ssets ?esolution #ranches/6enters

(&$?#s/&$?6s) hae -een functioning under the *#% across the country

in Metro/'r-an centers for !uic,er resolution of *P$s "ithoutDstandings

upto 1 crore in M&M5 and Personal segments. The performance of &$M%

for the period >711D1> is gien as "ithin Ta-le 711D1> -y

accelerated recoery of *P$s through the "ell coordinated and sustained

efforts including action under &$?$5&I $ct >77>. Inspite of high fresh

slippage the %ross and *et *P$s stood at 24:.99 crore (1.4:2.89 crore

(7.711 respectiely. The performance of the #an,s under

recoery of *P$s during the year continued to -e good. $ggressie and

focused efforts in ?ecoery could result in total recoery of oer ::1.:4

crore including recoery of 173.2< crore in Ltechnically "rittenDoff

accounts0. The position of %ross and *et *P$s as on :1.7:.>71> isDODis

preious year end is depicted under Ta-le 4. %ross and *et *P$ leels haeregistered an increase in terms of a-solute alues and in terms of percentage

of oerall assets in -an,0s portfolio. The proisioning coerage ratio of the

-an, (including the technically "ritten off accounts) as on year ending

:1/7:/>71> stood at 49.1


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of 97:> crore as on March >71> along "ith a %ross *P$ ratio of 1.2:C.

#an,0s proision coerage ratio stood at 42.71>. The

-an, too, special care to"ards aoiding further slippages and oerdue

accounts recoery "as apprecia-le. 6ash recoery during the year endingMarch >71> "as amounting to :>8< crores (significantly up from the

preious N figure of >7:> crore) indicating the rigorous efforts underta,en

-y the -an,. These efforts are ranging from identification of stressed

accounts for rephrasing in time conduct of 6anadalats at -ranch leel and

megaDadalats at 6ircle leel for one time settlements regular follo" up of

oerDdues regarding loan accounts through 6all 6entres and eDauctions.

#an, has also put up unified ris, management architecture to attain glo-al

-est practices for ?is, Management initiaties in tune "ith *e" 6apital

$de!uacy frame"or, prescri-ed -y ?#I. $n independent ris, management

structure is in place for integrated ris, management coering 6redit

Mar,et Aperational and %roup ris,.

Ta,ing on arious types of ris, is integral to the -an,ing -usiness. Af the

arious types of ris,s your -an, is eposed to the most important are credit

ris, mar,et ris, and operational ris,. The identification measurement

monitoring and management of ris,s remain a ,ey focus area for the -an,.

#usiness and reenue gro"th hae therefore to -e "eighed in the contet of

the ris,s implicit in the -an,0s -usiness strategy. The ?is, Policy and

Monitoring 6ommittee of the #oard monitors the -an,0s ris, management

policies and procedures ets treasury limits -efore they are considered -ythe #oard and reie"s portfolio composition and impaired credits. or

credit ris, distinct policies processes and systems are in place for the retail

and "holesale -usinesses. In the retail loan -usinesses the credit cycle is

managed through appropriate frontDend credit operational and collection


44/68

processes. or each product programs defining customer segments

under"riting standards security structure etc. are specified to ensure

consistency of credit -uying patterns. +uring the year >711D1> the -an,

o-tained the I&A 8771>773 reDcertification of its retail credit under"ritingunit "hich "as confirmed for :< sites. or "holesale credit eposures

management of credit ris, is done through target mar,et definition

appropriate credit approal processes ongoing postDdis-ursement

monitoring and remedial management procedures. $s of March :1 >71>

-an,0s ratio of %ross *P$s to %ross $dances "as 1.7>C. *et *P$s (%ross

*P$s less specific loan loss proisions) "ere 7.>C of customer assets as of

March :1 >71>. The specific loan loss proisions that the #an, has made

for its *P$s continue to -e more conseratie than the regulatory

re!uirement. In addition the -an, has made general proisions for standard

assets "hich are as per regulatory prescription and dynamic counter cyclical

proisions or floating proisions "hich are made as per -oard approal

policy. The coerage ratio ta,ing into account specific general and floating

proisions "as 188.2C as of March :1 >71>. In accordance "ith ?#I0s

guidelines on #asel II the #an, is currently on the &tandardied $pproach

for 6redit ?is, the #asic Indicator $pproach for Aperational ?is, and the

&tandardied $pproach for Mar,et ?is,. Parallely the #an, is progressing

"ith its initiatie on meeting the re!uirements for adoption of the adanced

approaches for these ris,s under #asel II -rought out -y ?#I in this regard.


45/68


46/68

CHAPTER

3

FINDINGS AND

ANALYSIS

ASSET =UALITY TREND IN INDIAN BANKS

&ignificant improements in terms of asset !uality and performance hae

-een o-sered oer the years "ith respect to Indian commercial -an,s. In


47/68

the post reforms period the practice of safer -an,ing practices -y

emphasiing upon tighter accounting norms (Munniapan %. P. >77>).

Performance of Indian -an,s on the -asis of %ross and *et *P$s from 1889

to >777 and from >772 to >71> is listed in Ta-le 2. An reie"ing the *et*P$ position of the Indian -an,s oer the specified time period it is eident

that though the *P$ alue in a-solute terms hae sho"n a consistent

increasing trend -ut their share in total adances hae sho"n a steady

decline during majority of the time periods o-sered. In the recent years

(>778D>71>) commercial -an,s hae seen a reersal of this trend "hich may

-e attri-uted to macroeconomic enironment plagued -y recession. Thus the

-an,s hae -een a-le to increase their com-ined credit -ase significantly in

relation to the resulting *P$s during each year ecept for fe" a-errations

particularly during the recent years. urther the domestic adances -y the

pu-lic sector -an,s occupying major portion of the Indian -an,ing sector

hae sho"n increase across majority of the adance categories during the

fiscal year >711D1> (Ta-le 3). The adances for"arded under the priority

sector category and as "ell as to the pu-lic sector underta,ings registered a

consistent increment across the o-sered -an,s -arring fe". The inter-an,

adances though follo"ed an opposite trend and recorded a decline "ithin of

majority of the -an,s under study. The Indian -an,ing sector receied a

must needed competitie push "hen the priate players "ere permitted to

enter the sector post the -an,ing sector reforms initiated -y ?#I in early

1887s. $ num-er of priate players hae forayed into the Indian -an,ingsector -oth domestic and multinational "hich in the present times has -een

classified under t"o categories i. Ald Priate &ector #an,s and *e"

Priate &ector #an,s for the purpose of -etter monitoring and superision.

Ta-le 1> (Ta-le J 5hi-its) depicts adances position of leading Indian


48/68

priate sector -an,s. Fithin the ne" -an,s category $is #an, ;+6 #an,

and I6I6I #an, hae recorded significant increase in oerall leel of

adances during the fiscal period of >711D1>. Their indiidual !uantum of

adances is compara-le to com-ined adances position of old priate sector-an,s. $s far as percentage gro"th in adances from the preious year is

concerned $is #an, and Nes #an, hae sho"n a steep fall in percentage

gro"th in adances (12C and 99C respectiely). urther ;+6 #an, and

I6I6I #an, occupy a siea-le share of adance portfolios "ithin the mar,et.

Their indiidual percentage mar,et share of adances (>7.>>C and >4.>:.31C). $s a part of a recent initiatie the Ministry of inance

(%AI) reie"ed the process adopted -y pu-lic sector -an,s after it found

these lenders are saddled "ith the -iggest cases of corporate defaults. The

ministry "hile preparing a case study of corporate defaults oer a si month

period ending Acto-er >71> "as pertur-ed that "hile the priate -an,s

hae largely managed to insulate their -oo,s from -ad de-ts Ps failed to

follo" een the -asic chec,s and -alances in some cases li,e securing

collateral -efore sanctioning loans (5T *e" +elhi Act >71>). *et *P$

ratio of Ps rose 99 -asis points to 1.711D1> oer the preious

year. In star, contrast *et *P$ ratio of priate -an,s fell 17 -asis points to

7.94C oer the same period. Ane of the pu-lic sector -an,s had lent 277

crore to Eingfisher $irline despite a damning internal assessment.

SYMPTOMS OF RECOGNIING A PERFORMING ASSET

TURNING INTO NPA

The -an,ing groups in pu-lic sector particularly hae -een !uite hard

pressed in recent times in terms of major portion of their adances turning


49/68

into *P$s. ollo"ing are some of common indications hinting a prospect of

an asset slipping into *P$ -rac,et.

*onDpayment of the initial installment.

#ouncing of che!ue due to insufficient -alance in the accounts. Irregularity in installment.

'npaid oerDdue -ills.

+eclining current ratio.

Payment "hich does not coer the interest and principal amount of

that installment

. Fhile monitoring the accounts it is found that partial amount isdierted to

&ister/parent company. #orro"er has either initiated the process of

"inding up or is not doing -usiness.

AerDdue receia-les.

&toc, statement not su-mitted on time.

5ternal conDcontrolla-le factor li,e natural calamities "here-orro"er conduct his

-usiness. re!uent changes in plan.

*onDpayment of "ages.

$oidance of contact "ith -an,.

Pro-lem -et"een partners.

6hanges in %oernment policies.

+eath of -orro"er.

6ompetition in the mar,et


50/68

PREVENTIVE MEASURES FOR NON PERFORMING ASSETS

Identifying -orro"ers "ith genuine intent from those "ho are nonDserious

"ith no commitment or sta,e in reial is a challenge confronting -an,ers.

=onger the delay in response greater the injury to the account and the asset. Fhile financing/appraisal of credit re!uirements funds flo" analysis

in

6onjunction "ith the cash flo" analysis should -e done rather than

only concentrating on funds flo" analysis. The general perception

among -orro"ers is that it is lac, of finance that leads to

&ic,ness and *P$s. ;o"eer management effectieness in tac,lingaderse -usiness conditions is a ery important aspect that affects a

-orro"ing unit0s fortunes. +uring the eercise for assessment of

ia-ility and restructuring a practical and

Integrated approach -y all the lending -an,s as also sharing of all

releant information on the -orro"er "ould go a long "ay to"ards

oerall success of reha-ilitation eercise gien the pro-a-ility of

success/failure.

$s a part of asset portfolio decision -y commercial -an,s eposure to

predefined sensitie sectors i. capital mar,et sector and the real estate

sector should -e ,ept "ithin reasona-le limits and their trends should -e

su-jected to stringent internal monitoring. #eing igilant to"ards such

adances helps aoiding their slippages into the *P$ and -ad de-t

categories significantly. Ta-le 17 portrays the trend of adances to sensitie

sectors -y the major Indian pu-lic sector -an,s. rom the ta-le it is eident

that the Ps hae -een successful in terms of ,eeping their sensitie


51/68

adances in chec,. Majority of the -an,s hae recorded a decline in

percentage lending to -oth the sensitie sectors during the fiscal year >711D

1> compared to the preceding fiscal of >717D11.

METHODS FOR REDUCING NON PERFORMING ASSETS

$ll accounts "here interest has not -een collected should -e reie"ed at

Periodical interals -y appropriate authorities. In order to recoer the

amount one can adopt any "ay li,e persuasion pressuriation

fre!uent interaction sho"ing sympathy etc. ?epayment of a term loan

depends on income generating capacity of the -orro"ing unit.Therefore it is necessary to fi repayment program for a term loan

according to the income generating capacity of the unit. $fter

classification of unit as sic, -an, can ma,e decision to offer a

?eha-ilitation pac,age. In that case -an, has to hae a sympathetic

and positie approach and proide the relief pac,age in time. Merger

is the process under "hich a sic, unit is merged "ith a healthy unit or

&ometimes a healthy unit ac!uires a sic, unit. $ part of the

consideration paid to the sic, unit -y the healthy unit is used to

li!uidate the *P$ "holly or partly. ?ecoery of adances through

compromise settlement is accepted as an effectie

*onDlegal remedy. 'nder this -orro"er agrees to pay certain amount

of the -an, after getting concessions. If all attempts of conerting an

*P$ into a performing asset fail the -an, is left

Fith no other option -ut to recall the adance and resort to legal

action -y filing of recoery suits in the ciil court or +e-t ?ecoery

Tri-unals. To do a"ay "ith this specific re!uirement of filing a suit


52/68

"ith court to"ards recoery of *P$s %oernment of India enacted

the &ecuritiation and ?econstruction of inancial $ssets J

5nforcement of &ecurities Interest (&$?$5&I) $ct or popularly

referred to as &ecuritiation $ct in the year >77>.


53/68

CAPITAL ADE=UACY COMPLIANCE

The #asel 6ommittee recommendations on the capital ade!uacy ratios hae

-een proposed to"ards ensuring that the commercial -an,s maintain

ade!uate -uffers in the form of capital as coer for adances granted underarious categories. The idea is that a -an,0s o"n funds should also -e

employed to"ards loan granting actiity instead of solely depending on

pu-lic deposits. #aselDII accords mandated a -enchmar, 6apital $de!uacy

?atio (6$?) of 8C for the commercial -an,s. %oernment of India (%AI)

"ith a ie" to"ards safer -an,ing practice raised 6$? for Indian Ps to

1>C. $s per the findings depicted "ithin Ta-le 1: (#aselDII 6$? of Ps

for the period >717D 1>) all the major Indian Ps had consistently

achieed the -enchmar, 6$? in line "ith #aselDII norms. This can -e

attri-uted proactie approach of %AI -y enforcing a higher much higher

6$? than the -enchmar, rate. $ll the Ps successfully achieed the %AI

mandated 6$? 1>C during the o-sered years. #an, of India (in >71>)

6entral #an, of India (in >711) and &tate #an, of India (in >711) had

narro"ly missed the 6$? prescri-ed -y %AI. An the priate -an,s front

Ta-le 19 (#aselDII 6$? of Priate &ector #an,s for the period >717D1>)

indicates the fact that major -an,s hae managed to achieed a significantly

higher 6$? as compared to their pu-lic sector counterparts. This may -e

attri-uted to ro-ust and stringent asset ris, management frame"or, in place

"ithin the priate sector -an,s.


54/68

TYPES OF NPA

*P$ may -e classified into

A. GROSS NPA GROSS*P$ is adance "hich is considered

irrecoera-le for "hich -an, has made proisions and "hich is still held in

-an,s -oo,s of account.

B. NET NPA NET*P$ is o-tained -y deducting items li,e interest due -ut

not recoered part payment receied and ,ept in suspense account from

%ross *P$.

ASSET CLASSIFICATION CATEGORIES OF NPAS

1. STANDARD ASSETS&tandard assets are the ones in "hich the -an, is

receiing interest as "ell as the principal amount of the loan regularly from

the customer. ;ere it is also ery important that in this case the arrears of

interest and the principal amount of loan do not eceed 87 days at the end of

financial year. If asset fails to -e in category of standard asset that is amount

due more than 87 days then it is *P$ and *P$s are further need to classify

in su- categories. #an,s are re!uired to classify nonDperforming assets

further into the follo"ing three categories -ased on the period for "hich the

asset has remained nonDperforming and the relia-ility of the dues . SUBSTANDARD ASSETS Fith effect from :1 March >77 month.


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3. DOUBTFUL ASSETS$ loan classified as dou-tful if it remained in the

su-standard category for 1> months.

4. LOSS ASSETS$ loss asset is one "hich considered uncollecti-le and of

such little alue that its continuance as a -an,a-le asset is not "arrantedDalthough there may -e some salage or recoery alue. $lso these assets

"ould hae -een identified as Wloss assets -y the -an, or internal or

eternal auditors or the ?#I inspection -ut the amount "ould not hae -een

"rittenDoff "holly. Proisioning norms for *P$& $fter a proper

classification of loan assets the -an,s are re!uired to ma,e sufficient

proision against each of the *P$ account for possi-le loan losses as per

prudential norms. The minimum amount of proision re!uired to -e made

against a loan asset is different for different types of assets. The details of

the proisioning re!uirements as per the ?#I guidelines are furnished -elo"

In terms of ?#I circular *o ?#I/>779/>1.79.191/>77:D79 dated 12.74.>779 the ?esere #an, of India has

decided that ".e.f March:1 >777 percent on the outstanding -alance.

The proisioning re!uirement for unsecured dou-tful assets is 177 percent.

*P$s under +ou-tful category In terms of ?#I 6ircular *o.>779/>41/+#A+ #P.#6.88/>1.79.793/>77:D>779 dated >1.74.>779

?esere #an, decided to introduce graded higher proisioning according to

the age of *P$s in dou-tful category for more than three years "ith effect

from March :1 >77


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re!uirement on the secured portion "ould -e applied in a phase manner oer

a three year period in respect of the eisting stoc, of *P$s as classified as

Ldou-tful for more three years as on March :1 >779 as per clarification

gien hereunder In respect of all adance classified as dou-tful for morethan three years on or after 1 $pril >779 the proisioning re!uirement

"ould -e 177 percent. $ccordingly the proisioning norm for adances

identified as dou-tful for more than : years "ould -e as Indicated -elo" as

on March:1 >778.

A UNSECURED PORTIONThe portion of the adance "hich is not

coered -y the realia-le alue of the tangi-le security to "hich the -an, has

the alid recourse and the realia-le alue is estimated (-) &ecured Portion

'pto 1 year >7C (+1 6ategory) Ane to three years :7C (+> 6ategory)

More than three years 177C (+: 6ategory) *P$s under =oss category

Proisioning at 177C for loss category "ould continue actors for rise in

*P$s The -an,ing sector has -een facing the serious pro-lems of the rising

*P$s. #ut the pro-lem of *P$s is more in pu-lic sector -an,s "hen

compared to priate sector -an,s and foreign -an,s. The *P$s are gro"ing

due to eternal as "ell as internal factors. 5ternal factors a. Ineffectie

recoery D The %ot. has set up num-ers of recoery tri-unals "hich "or,s

for recoery of loans and adances. +ue to their negligence and

ineffectieness in their "or, the -an, suffers the conse!uence of nonD

recoer there-y reducing their profita-ility and li!uidity.

B. ILFUL DEFAULTSD There are -orro"ers "ho are a-le to pay -ac,loans -ut are intentionally "ithdra"ing it. These groups of people should -e

identified and proper measures should -e ta,en in order to get -ac, the

money etended to them as adances and loans.


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C. NATURAL CALAMITIESD This is the major factor "hich is creating

alarming rise in *P$s of the Ps. 5ery no" and then India is hit -y major

natural calamities thus ma,ing the -orro"ers una-le to pay -ac, there loans.

Thus the -an, has to ma,e large amount of proisions in order tocompensate those loans hence end up the fiscal "ith a reduced profit.

D. INDUSTRIAL SICKNESS D Improper project handling ineffectie

management lac, of ade!uate resources lac, of adance technology day

to day changing got. Policies gie -irth to industrial sic,ness. ;ence the

-an,s that finance those industries ultimately end up "ith a lo" recoery of

their loans reducing their profit and li!uidity.

E. LACK OF DEMANDD 5ntrepreneurs in India could not foresee their

product demand and starts production "hich ultimately piles up their

product thus ma,ing them una-le to pay -ac, the money they -orro" to

operate these actiities. The -an,s recoer the amount -y selling of their

assets "hich coers a minimum la-el. Thus the -an,s record the nonD

recoered part as *P$s and has to ma,e proision for it.

F. CHANGE ON GOVT. POLICIES D Fith eery ne" got. -an,ing

sector gets ne" policies for its operation. Thus it has to cope "ith the

changing principles and policies for the regulation of the rising of *P$s.

G. DIRECTED LOANS SYSTEM 'nder this commercial -an,s are

re!uired to supply 97C percentage of their credit to priority sectors. Most

significant sources of *P$s are directed loans supplied to the Xmicro sector

are pro-lematic of recoeries especially "hen some of its units -ecome sic,or "ea,.

INTERNAL FACTORS


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A. DEFECTIVE LENDING PROCESS D There are three cardinal

principles of -an, lending that hae -een follo"ed -y the commercial -an,s

since long.

i. Principle of safetyii. Principle of li!uidity

iii. Principle of profita-ility.

B. INAPPROPRIATE TECHNOLOGYD +ue to inappropriate technology

and management information system mar,et drien decisions on real time

-asis can0t -e ta,en. Proper MI& and financial accounting system is not

implemented in the -an,s "hich leads to poor credit collection thus *P$s.

$ll the -ranches of the -an, should -e computeried.

C. IMPROPER SOT ANALYSIS D The improper strength "ea,ness

opportunity and threat analysis is another reason for rise in *P$s. Fhile

proiding unsecured adances the -an,s depend more on the honesty

integrity and financial soundness and credit "orthiness of the -orro"er.

D. POOR CREDIT APPRAISAL SYSTEM D Poor credit appraisal is

another factor for the rise in *P$s. +ue to poor credit appraisal the -an,

gie adances to those "ho are not a-le to repay it -ac,. They should use

good credit appraisal to decrease the *P$s.

E. MANAGERIAL DEFICIENCIESDThe -an,er should al"ays select the-orro"er ery carefully and should ta,e tangi-le assets as security to safe

guard its interests.

&) $//&@%"); ,&/+"%"&, ?$):, ,(#' /(),"'&+ %&6

1. Mar,eta-ility


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>. $ccepta-ility

:. &afety

9. Transfera-ility The -an,er should follo" the principle of diersification

of ris, -ased on the famous maim do not ,eep all the eggs in one -as,et itmeans that the -an,er should not grant adances to a fe" -ig farms only or

to concentrate them in fe" industries or in a fe" cities. If a ne" -ig

customer meets misfortune or certain traders or industries affected adersely

the oerall position of the -an, "ill not -e affected.

F. ABSENCE OF REGULAR INDUSTRIAL VISITD The irregularities

in spot isit also increases the *P$s. $-sence of regularly isit of -an,

officials to the customer point decreases the collection of interest and

principals on the loan. The *P$s due to "ilful defaulters can -e collected -y

regular isits.

G. FAULTY CREDIT MANAGEMENTD li,e defectie credit in recoery

mechanism lac, of professionalism in the "or, force.

IMPACT OF NPA

*P$ impact the performance and profita-ility of -an,s. The most nota-le

impact of *P$ is change in -an,er0s sentiments "hich may hinder credit

epansion to productie purpose. #an,s may incline to"ards more ris, free

inestments to aoid and reduce ris,iness "hich is not conducie for the

gro"th of economy. If the leel of *P$s is not controlled timely they "ill

?educe the earning capacity of assets and -adly affect the ?AI. The cost of capital "ill go up.

The assets and lia-ility mismatch "ill "iden.

;igher proisioning re!uirement on mounting *P$s adersely affect capital

ade!uacy ratio and -an,s profita-ility.


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The economic alue additions (5K$) -y -an,s gets upset -ecause 5K$ is e!ual

to the net operating profit minus cost of capital.

*P$s causes to decrease the alue of share sometimeseen -elo" their -oo,

alue in the capital mar,et.*P$s affect the ris, facing a-ility of -an,s.

NPAS6 EFFECT ON THE PERFORMANCE OF BANKS

The large percentages of *P$s hae a deleterious impact on a -an,0s profit

in a num-er of "ays

They result in reduced interest income

They erode (eat into) current profits through proisioning

re!uirements.

It leads into erosion of capital -ase and reduction in their

competitieness R Through creation of reseres and proisions that

come from profits to act as cushions for loan losses.

R+ecline in profit has its -earing on aria-les li,e 6apital to ?is, Feighted

$ssets ?atio (6?$? and cost).

To !uote the committee on -an,ing sector reforms (*arasimham 6ommittee

II 1883) *P$s constitute a real economic cost to the nation is that they

reflect the application of scarce capital J credit funds to unproductie uses.

The money loc,ed up in *P$s is not aaila-le for productie uses to the

etent that -an, see, to ma,e proisions for *P$s or "rite them off. It is a


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charge on their profits *P$s in short is not just a pro-lem for -an,sG they

are -ad for the economy

A CASE STUDY OF RECOVERY POSITION OF NON

PERFORMING ASSETS OF PUNJAB NATIONAL BANK OF INDIA

#an,ing system plays a ital role in the economic system of a country -y

mo-iliing the nation0s saings and directing them into high inestment

priorities for -etter utiliation of aaila-le resources. &chumpeter the first

modern economist considered -an,s to -e the most important of all the

financial intermediaries in the financial system of a country. #ut in recent

times the -an,s hae -ecome ery cautious in proiding loans the reason

-ehind is the non performing assets. *on Performing $ssets are defined as

the loans "hich hae ceased to generate any income for a -an, "hether in

the form of interest or principal amount. To -ring do"n the leel of *P$s a

num-er of strategies hae -een initiated in the past and are -eing initiated at

present -y the %oernment and the -an,s. In ie" of the ital role of nonperforming assets on the profita-ility Punja- *ational #an, hae -een

selected for the purpose of present research -ecause -oth are the giant -an,s

in pu-lic and priate sector so a comparatie study is made. In the present

study the researcher proposes to ma,e an analytical study in respect of *on


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Performing $ssets and their recoery management so that it may -e useful

at all -an,ing leels regarding the efficient utiliation of resources "hich

may lead to -etter "or,ing of the -an,ing sector.

ASSET =UALITY TREND IN INDIAN BANKS

&ignificant improements in terms of asset !uality and performance hae

-een o-sered oer the years "ith respect to Indian commercial -an,s. In

the post reforms period the practice of safer -an,ing practices -y

emphasiing upon tighter accounting norms (Munniapan %. P. >77>).

Performance of Indian -an,s on the -asis of %ross and *et *P$s from 1889

to >777 and from >772 to >71> is listed in Ta-le 2. An reie"ing the *et

*P$ position of the Indian -an,s oer the specified time period it is eident

that though the *P$ alue in a-solute terms hae sho"n a consistent

increasing trend -ut their share in total adances hae sho"n a steady

decline during majority of the time periods o-sered. In the recent years

(>778D>71>) commercial -an,s hae seen a reersal of this trend "hich may

-e attri-uted to macroeconomic enironment plagued -y recession. Thus the

-an,s hae -een a-le to increase their com-ined credit -ase significantly in

relation to the resulting *P$s during each year ecept for fe" a-errations

particularly during the recent years. urther the domestic adances -y the

pu-lic sector -an,s occupying major portion of the Indian -an,ing sector

hae sho"n increase across majority of the adance categories during the

fiscal year >711D1> (Ta-le 3). The adances for"arded under the prioritysector category and as "ell as to the pu-lic sector underta,ings registered a

consistent increment across the o-sered -an,s -arring fe". The inter-an,

adances though follo"ed an opposite trend and recorded a decline "ithin of

majority of the -an,s under study. The Indian -an,ing sector receied a


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must needed competitie push "hen the priate players "ere permitted to

enter the sector post the -an,ing sector reforms initiated -y ?#I in early

1887s. $ num-er of priate players hae forayed into the Indian -an,ing

sector -oth domestic and multinational "hich in the present times has -eenclassified under t"o categories i. Ald Priate &ector #an,s and *e"

Priate &ector #an,s for the purpose of -etter monitoring and superision.

Ta-le 1> (Ta-le J 5hi-its) depicts adances position of leading Indian

priate sector -an,s.. Their indiidual percentage mar,et share of adances

(>7.>>C and >4.>:.31C). $s a part of a recent initiatie the

Ministry of inance (%AI) reie"ed the process adopted -y pu-lic sector

-an,s after it found these lenders are saddled "ith the -iggest cases of

corporate defaults. The ministry "hile preparing a case study of corporate

defaults oer a si month period ending Acto-er >71> "as pertur-ed that

"hile the priate -an,s hae largely managed to insulate their -oo,s from

-ad de-ts P*#s failed to follo" een the -asic chec,s and -alances in some

cases li,e securing collateral -efore sanctioning loans (5T *e" +elhi Act

>71>). *et *P$ ratio of P*#s rose 99 -asis points to 1.71:D19 oer

the preious year. In star, contrast *et *P$ ratio of priate -an,s fell 17

-asis points to 7.94C oer the same period.

PREVENTIVE MEASURES FOR NON PERFORMING ASSETS

Identifying -orro"ers "ith genuine intent from those "ho are nonDserious

"ith no commitment or sta,e in reial is a challenge confronting -an,ers.=onger the delay in response greater the injury to the account and the asset.

Fhile financing/appraisal of credit re!uirements funds flo" analysis

in conjunction "ith the cash flo" analysis should -e done rather than

only concentrating on funds flo" analysis.


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The general perception among -orro"ers is that it is lac, of finance

that leads to sic,ness and *P$s. ;o"eer management effectieness

in tac,ling aderse -usiness conditions is a ery important aspect that

affects a -orro"ing unit0s fortunes. +uring the eercise for assessment of ia-ility and restructuring a

practical and integrated approach -y all the lending -an,s as also

sharing of all releant information on the -orro"er "ould go a long

"ay to"ards oerall success of reha-ilitation eercise gien the

pro-a-ility of success/failure.

CHAPTER

4

LIMITATIONS >

CONCLUSIONS


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LIMITATIONS OF STUDY

5ery study has certain limitations. &ame is true "ith this study also. &ome

of the limitations faced during this study are

1. or the purpose of this study only data of < years has -een ta,en that is

from financial year >717 to >719.

>. The data "ould -e collected from only 4 -an,s that is : priate sector

-an,s and : pu-lic sector -an,s.

:. The study coers only one aspect that is comparison of trend and amount

of *P$ in different pu-lic and priate -an,s.

9. 6onenience method of sampling has -een used so all the units in the

unierse (all pu-lic and priate -an,s) did not hae the e!ual chances of

selection.


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CONCLUSION

The *P$s hae al"ays created a -ig pro-lem for the -an,s in India. It is just

not only pro-lem for the -an,s -ut for the economy too. The money loc,ed

up in *P$s has a direct impact on profita-ility of the -an, as Indian -an,s

are highly dependent on income from interest on funds lended. This study

sho"s that etent of *P$ is comparatiely ery high in pu-lic sectors -an,s

as compared to priate -an,s. $lthough arious steps hae -een ta,en -y

goernment to reduce the *P$s -ut still a lot needs to -e done to cur- this

pro-lem. The *P$s leel of our -an,s is still high as compared to the

foreign -an,s. It is not at all possi-le to hae ero *P$s. The -an,

management should speed up the recoery process. The pro-lem of recoery

is not "ith small -orro"ers -ut "ith large -orro"ers and a strict policyshould -e follo"ed for soling this pro-lem. The goernment should also

ma,e more proisions for faster settlement of pending cases and also it

should reduce the mandatory lending to priority sector as this is the major

pro-lem creating area. &o the pro-lem of *P$ needs lots of serious efforts


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other"ise *P$s "ill ,eep ,illing the profita-ility of -an,s "hich is not good

for the gro"ing Indian economy at all.

REFERENCES

&atyanarayana E. J &u-rahmanyam %. (>777)

$natomy of *P$s of 6ommercial #an,s $pplied inance Kolume 4 *o.:

Buly >777 pp 19D>4.

#alasu-ramaniam 6.&. (>771) L*onDperforming assets and profita-ility of

commercial -an,s in India assessment and emerging issues0

$-hina Bournal Kol.1Issue no.2 I&&* >>22D1144 ?ajaraman Indira

%arima Kasishtha (>77>)

*onDperforming =oans of P&' #an,sD &ome Panel ?esults 5conomic and

Political Fee,ly Kol.>2 pp.9>8D9:77: L*onD

Performing =oans and Terms of 6redit of Pu-lic &ector #an,s in India $n

5mpirical $ssessment0 Accasional Papers ?esere #an, of IndiaPu-lication Mum-ai "inter Kol. >9 *o. : Pp. 31D1>1. ;arpreet E. and

Pasricha B. &. (>779) L

Management of *P$s in Pu-lic &ector #an,s0 Indian Bournal of 6ommerce

Kol.. +as &. J #ose &.E (>77


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L?is, Modelling Q $ Mar,oian $pproach0 the $lternatie Kol. IK *o.1

March >77>D>2. #hatia (>772) L*onDPerforming $ssets of Indian

Pu-lic Priate and oreign &ector #an,s

$n 5mpirical $ssessment0 I6$I Bournal of #an, Management Kol. 4 *o.: pp. 2D>3.

Kalla-h %. Mishra &. and #hatia $. (>772) *onDPerforming $ssets of

Indian Pu-lic Priate and oreign &ector #an,s $n 5mpirical $ssessment

Icfai Bournal of #an, Management Kol. 4 *o. : pp. 2D>3 $ugust >772.

Eani,a %oyal >717. 5mpirical &tudy of *onDPerforming $ssets

Management of Indian Pu-lic &ector #an,s $PB?#M Kolume 1 Issue 1

Acto-er >717.

Performing Loan Assets of Pnb

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