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IntroductionBanking sector reforms in India has progressed promptly on aspects like interest rate deregulation, reduction in statutory reserve requirements, prudential norms for interest rates, asset classification, income recognition and provisioning. But it could not match the pace with which it was expected to. The accomplishment of these norms at the execution stages without restructuring the banking sector as such is creating havoc, this research paper deals with the problem of having non-performing assets, the reasons for mounting of non-performing assets and the practices present in other countries for dealing with non-performing assets.12Classification of Assets Performing Assets Non-Performing AssetsDEFINITION OF NPAS A 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 account remains out of order in respect of an overdraft/ cash creditThe bill remains overdue for a period of more than 90 days in the case of bills purchased and discountedThe 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

3CATEGORIES OF NPASubstandard Assets Which has remained NPA for a period less than or equal to 12 months. Doubtful Assets Which has remained in the sub-standard category for a period of 12 months (mainly up to 3 years).Loss Assets where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.

4PROVISIONING NORMSStandard Assets general provision of a minimum of 0.25% Substandard Assets 10% on total outstanding balance, 10 % on unsecured exposures identified as sub-standard.Doubtful Assets 100% to the extent advance not covered by realizable value of security. In case of secured portion, provision may be made in the range of 20% to 100% depending on the period of asset remaining sub-standardLoss Assets 100% of the outstanding

5Impact of NPAs upon Banks They erode current profits through provisioning requirements. They result in reduced interest income.They require higher provisioning requirements affecting profits and accretion to capital. They limit recycling of funds, set in assets-liability mismatches, etc.Adverse impact on Capital Adequacy Ratio.ROE and ROA goes down because NPAs do not earn.Banks rating gets affected.Banks cost of raising funds goes up.RBIs approval required for declaration of dividend if Net NPA ratio is above 3%. Bad effect on Goodwill & equity value.

6Underlying Reasons for NPAs in IndiaInternal Factors

Inefficiency in management Slackness in credit management and monitoringLack of co-ordination among lenders.Problem of bad credit appraisal.Inappropriate Technology/technical problems Funds borrowed for a particular purpose but not use for the said purpose. Project not completed in time. Poor recovery of receivables.

7 External FactorsRecession.Input / power shortagePrice escalation.Exchange rate fluctuationAccidents and natural calamities,Liberalization of Economy/ removal of restrictions/reduction of tariffs.Sluggish legal system. Long legal tangles. Changes that had taken place in labour laws

Underlying Reasons for NPAs in India8 Contd.Lack of sincere effort & Industrial recession. Scarcity of raw material, labour and other resources. Shortage of raw material, raw material\input price escalation, power shortage, industrial recession, excess capacity, natural calamities like floods, accidents. Failures, nonpayment\ over dues in other countries, recession in other countries, externalization problems, adverse exchange rates etc.Government policies like excise duty changes, Import duty changes etc.,

Underlying Reasons for NPAs in India9Early SymptomsFour categories of early symptoms:

Financial. Operational and Physical. Attitudinal Changes. Others ( death of person , competition in the market etc.)10Sale of NPAs to other Banks A NPA is eligible for sale to other banks only if it has remained a NPA for at least two years in the books of the selling bankThe NPA must be held by the purchasing bank at least for a period of 15 months before it is sold to other banks but not to bank, which originally sold the NPA.The NPA may be classified as standard in the books of the purchasing bank for a period of 90 days from date of purchase and thereafter it would depend on the record of recovery with reference to cash flows estimated while purchasing.The bank may purchase/ sell NPA only on without recourse basis.If the sale is conducted below the net book value, the short fall should be debited to P&L account and if it is higher, the excess provision will be utilized to meet the loss on account of sale of other NPA.

11Measures Initiated by RBI & Govt.Compromise Settlement SchemesRestructuring / Reschedulement Lok Adalat Corporate Debt Restructuring CellDebt Recovery Tribunal (DRT)Proceedings under the Code of Civil ProcedureBoard for Industrial & Financial Reconstruction (BIFR)/ AAIFRNational Company Law Tribunal (NCLT)Sale of NPA to other banksSale of NPA to ARC/ SC under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SRFAESI)Liquidation

12RESEARCH OPERATIONSSignificance of the study The main aim behind making this report is to know how SBP is operating its business and how NPAs play its role to the operations of the SBP bank. My study is also focusing upon existing system in India to solve the problem of NPAs and comparative analysis to understand which bank is playing what role with concerned to NPAs. Thus, the study would help the decision maker to understand the financial performance and growth of the concerned banks as compared to the NPAs.

Objective of the study To know which is better in terms of NPAs from both the banks SBP and OBC banks. To understand what is Non Performing Assets and what are the underlying reasons for the emergence of the NPAs.To understand the impacts of NPAs on the operations of the Banks.

13To know what steps are being taken by the Indian banking sector to reduce the NPAs?To evaluate the comparative ratios of the SBP & OBC banks.To know why NPAs are the great challenge to Banks. To understand the meaning & nature of NPAs.To study the general reasons for assets become NPAs.What are the methods adopted by the bank to look after NPA management

Objectives of the study14Need For Study Following Type of need arises for this study:

To study what kind of role NPAs are playing upon the operations of the Bank.To know the variables available to control NPAs.The need also has been felt to study the financial performance of SBP bank.

15Scope of the StudyBanks can improve their financial position or can increase their income from credits with the help of this project.This project can be used for comparing the performance of the bank with others.This can also be applicable to know the reasons of increase in NPAs.This project also gives light upon Impact of NPAs.Concept of NPAs can be made clear. To present a picture of movement of NPA in The SBOP Bank.

16Limitations of the studyThe data collected by me was not sufficient for report studying.I havent got enough time to study my report so that becomes the cause of limitation in the study.Since my study is based upon Secondary data, the practical operations as related to NPAs are adopted by the banks are not learned.The solutions are not applicable to every bank.

17Research MethodologyResearch Problem As my training is at bank I have got the project upon Non Performing Assets the great challenge before the banks. This is my problem to be studied.

Research Design The research design tells about the mode with which the entire project is prepared. My research design for this study is basically analytical. Because I have utilized the large number of data of the banking sector. In this project theoretical study is also attempted.

Determining the data source The data source can be primary or secondary. The primary data are those data which are used for the first time in the study. However such data take place much time and are also expensive.

Contd.

18 Contd. Whereas the secondary data are those data which are already available in the market these data are easy to search and are not expensive too. For my study I have utilized almost totally the secondary data .But somehow I have also used primary data in shape of interviews. Tools used for analysis of data The data collected were analyzed with the help of statistical tools like Ratio analysis, and trend analysis. Tables are used to represent the consolidated data. Graphical representation is also used for better comprehension & presentationAnalyzing the Data The Primary or secondary data both would never be useful until they are edited and studied or analyzed. When the person receives the data many unuseful data would also be there. So, I analyzed the data and edited it and turned it in the useful manner So, that it can become useful in my report study.

19Contd.Interpretation of the data With the use of analyzed data I managed to prepare my project report. But analyzing of the data would not help my study to reach towards its objectives. The interpretation of the data is required so that the others can understand the Crux of the study in more simple way without any problem so I have added the chapter of analysis that would explain others to understand my study in simpler way.

Project Writing This is the last step in preparing the project report. The objective of the report writing was to report the findings of the study to the concerned authorities. And to attach all the requirements with your report.

20FindingsHigh NPA ratio indicates the high quantity of risky assets in the Banks for which no provision are made. The OBC bank has the highest NPA ratio of 0.7 % as compared to the State Bank of Patiala with 0.6% However there is not too much difference.

Interpretation21FindingsThis Ratio indicates the degree of safety measures adopted by the Banks. It has direct bearing on the profitability, Dividend and safety of shareholders fund. If the provision ratio is less, it indicates that the Banks has made under provision. The highest provision ratio is showed by State Bank of Patiala with58.34% as compared to OBC with 57.90%. Interpretation22FindingsOBC Bank shows high NPAs Ratio as compare to SBOP Bank.High NPAs Ratio shows low credit portfolio of OBC Bank.In analysis SBOP low risk profile as compare to OBC in terms of NPAs.Study also indicates that major NPA increases because of govt. recommended priority sectors.SBOP has better provisioning as compare to OBC however OBC have better capital adequacy ratio than SBOP.23ConclusionBoth the bank shows very much high NPA ratios.NPAs represent high level of risk & low level of credit appraisal.There are so many preventive measures available those can be adopted to stop an Asset or A/C becoming NPA.There are some certain guidelines made by RBI for NPAs which are adopted by banks.SBOP is better in all terms than OBC instead of capital Adequacy.

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