Download - PPT STUDY ON NPA OF PRIORITY SECTION LENDING.pptx

7/26/2019 PPT STUDY ON NPA OF PRIORITY SECTION LENDING.pptx

1/25

STUDY ON NPA ASSET OF PRIORITY

SECTOR LENDINDG

MBA (B&F)-Research Project

BY

GANESH DATTATRAYA CHOTHE

Ro N!"#er$ %%%''%''*

G+,DE

Eter.a G!/0e $ Dr1 R/sh/2esh Pa0"a.a#haN

,.ter.a G!/0e $ H/"2!.0 Ma.0hare

16/9/16


2/25

OBJECTIVES :-

2

To know and study about the non-performing

assets in ICICI Bank

Find out Non-Performing Assets under the PrioritySector lending in ICICI Bank

Make appropriate suggestions to avoid futureNPAs and to manage existing NPAs in ICICI Bank

NPA in Priority sector lending

6/9/16


3/25

Definition of NPA : -

The Non-Performing Asset (NPA) concept is restricted to loans, advances

and investments. As long as an asset generates the income expected fromit and does not disclose any unusual risk other than normal commercialrisk, it is treated as performing asset, and when it fails to generate theexpected income it becomes a Non-Performing Asset.

In other words, a loan asset becomes a Non Performing Asset (NPA)when it ceases to generate income, i.e. interest, fees, commission or anyother dues for the bank for more than 90 days.

A NPA is an advance where payment of interest or repayment ofinstallment on principal or both remains unpaid for a period of twoquarters or more and if they have become past due.

36/9/16


4/25

Classification of NPA

Non-performing assets further into the following three categories based onthe period for which the asset has remained non-performing and thereliability of the dues: Sub-standard assets: a substandard asset is one which has been classifiedas NPA for a period not exceeding 12 months.

Doubtful Assets: a doubtful asset is one which has remained NPA for aperiod exceeding 12 months.

Loss assets: where loss has been identified by the bank, internal orexternal auditor or central bank inspectors. But the amount has not beenwritten off, wholly or partly.

Sub-standard asset is the asset in which bank have to maintain 15% of itsreserves. All those assets which are considered as non-performing for periodof more than 12 months are called as Doubtful Assets. All those assets whichcannot be recovered are called as Loss Assets.

46/9/16


5/25

CATEGORIES OF PRIORITY SECTOR

56/9/16


6/25

Reason of NPA in PrioritySection : -

Owners do not receive a market return on their capital, In the worst case, if

the bank fails, owners Lose their assets, In modern times, this may affect abroad pool of shareholders

Depositors do not receive a market return on savings. In the worst case ifthe bank fails, Depositors lose their assets or uninsured balance.

Non-Performing loans epitomize bad investment. They misallocate creditfrom good projects, which do not receive funding, to failed projects.

When many borrowers fail to pay interest, banks may experience liquidityshortages. These Shortages can jam payments across the country.

Major portion of bad debts in Indian Banks arose out of lending to thepriority sector at the dictates of politicians and bureaucrats.

66/9/16


7/25

The Problems caused by NPAs

Depositors do not get rightful returns and many times may lose uninsured

deposits. Banks may begin charging higher interest rates on some productsto compensateNon-performing loanlosses.

Bank shareholders are adversely affected.

Bad loans imply redirecting of funds from good projects to bad ones.Hence, the economy suffers due to loss of good projects and failure of badinvestments.

When bank do not get loan repayment or interest payments, liquidityproblems may ensue.

When many borrowers fail to pay interest, banks may experience liquidityshortages. These shortages can jam payments across the country.

76/9/16
https://en.wikipedia.org/wiki/Non-performing_loanhttps://en.wikipedia.org/wiki/Non-performing_loan


8/25

Credit Process :-

86/9/16


9/25

RBI rules and regulations with respect to priority sectorlending

Categories

Domestic commercial banks / Foreign banks with 20 and

above branches

Total Priority Sector (Target)40%

Total agriculture(Sub-target) 18%

Advances to Weaker Sections 10%

96/9/16


10/25

NPA percentage of Private and Public Sector Bank from 2001 to2011

Public Sector Bank Private Sector Bank

YEAR Gross NPAs (%) Net NPAs (%) Gross NPAs (%) Net NPAs (%)

2001-02 11.09 5.82 9.64 5.73

2002-03 9.36 4.54 8.08 4.95

2003-04 7.8 3 5.85 2.8

2004-05 5.5 2 6 2.7

2005-06 3.6 1.3 4.4 1.7

2006-07 2.7 1.1 3.1 1

2007-08 2.2 1 2.3 0.7

2008-09 2 0.94 2.36 0.9

2009-10 2.2 1.09 2.32 0.82

2010-11 2.4 1.2 1.97 0.53

2011-12 3.3 1.7 1.8 0.6

106/9/16


11/25

NPA percentage of Sate Bank of India and ICICI BANK LTD as on

March 2!"

Bank #ross NPAs

#ross

Ad$ances

#ross NPAs to #ross Ad$ances %atio

&'()

State Bank ofIndia *!!+, !.+**.! /.*

ICICI Bank Ltd/ ,0.+ 2,+!0 "/22

Above table it has been found that up to the March 2013 NPA percentage of SBIis more than ICICI bank

116/9/16


12/25

Farm Equipment Delinquency of ICICI Bank in Maharashtra state wefound following result

BucketsSum - Total Amount

Due

Sum -

TOT_PRIN_OS

Sum -

TOT_INST_OS

PERCENTAGE OF

NPA1 42267241.3 227994923.16 712 18.54

2 24012474.8 135527828.42 397 17.71

3 15696606.16 89765383.1 282 17.48

4 13219737.24 66631368.9 210 19.84

5 14078348 73778616.5 204 19.08

6 11022139 56139807.5 149 19.63

7 19116413.9 46577388.3 259 41.04

8 10971516.1 27330146.7 144 40.14

9 5709471.9 12535430.2 69 45.54

10 5394342 11318337.7 64 47.66

11 6311934 15463289.7 78 40.8112 3888900 9329509.9 46 41.68

13 32984718.62 34991021.2 78 94.26

total 204673843.02 807383051.280001 3005 25.35

If we see in above table total amount overdue in FE product is 20.47 cr. Out of

Total Advances 80.73 cr which is 25 % of total advances. Total Cases in Due is3005.

126/9/16


13/25

Maharashtra state we found following result

Bucket Sum - Total Amount Due Sum - TOT_PRIN_OS Sum - TOT_INST_OS percentage

1 4398738.05000001 50184773.97 1018 8.7650849093

2 4236188.77 17205480.6 783 24.621159202

3 2691839.23 6803832.53 484 39.5635727089

4 2015526.65 3197982.12 390 63.0249505585

5 1650157.9 1889786.9 299 87.3197872205

6 1350750.01 1553692.1 274 86.9380754398

7 1223119.99 1417313.75 281 86.2984635547

8 1375781.8 1421407.4 243 96.7901109844

9 832566.62 662935.77 154 125.587825801

10 682149.75 575681.05 131 118.4943902531

11 522736.8 438590.9 76 119.1855097769

12 556542 434901.05 107 127.969799107213 2776273.97 1974549.57 515 140.6029006403

Total Result 24312371.54 87760927.71 4755 27.7029564003

If we see in above table total amount overdue in SHG product is 8.78 cr. Out

of Total Advances 24.32 cr which is 27 % of total advances. Total Cases in Dueis 4755. 136/9/16


14/25

#e foun$ follo#ing re"ult

Bucket Sum - Total Amount Due Sum - TOT_PRIN_OS Sum - TOT_INST_OS P%RC%NTA&%

1 3491630.04 10160834.05 136 34.36

2 3492625 9871914.41 157 35.38

3 4614066.94 11751258.64 189 39.26

4 4181215.33 11120604.69 252 37.60

5 6733052.67 14597650.94 303 46.12

6 4133977.79 9851972 276 41.96

7 7581909.06 12155883.3 401 62.37

8 7620805.59 10868276.69 346 70.12

9 6154520.3 9634233.29 391 63.88

10 5574774.72 8071894.6 382 69.06

11 7692414.64 10987857.1 358 70.01

12 5789613.28 8680589 365 66.70

13 103296568.48 97099655.46 5773 106.38

Total Re"ult '()*+('(*,. //.+/0/.,'( 1*/1 (+,(0

146/9/16


15/25

If we see in above table total amount overdue in ATL product is 17.04 cr.Out of Total Advances 22.49 cr which is 93 % of total advances. TotalCases in Due is 9329.

If we observe in Agriculture sector lending of Maharashtra State ATLloan are in highest deliquency.which May possibility of huge NPA loan inATL.

156/9/16


16/25

Agriculture Sector NPA"

Loan and NPAs of Public Sector Banks in Agriculture Sector

Source: RBI, Report on Trend and Progress of Banking in India, various issues

166/9/16


17/25

In 2001 the NPAs of public sector banks in Agriculture sector amounted to Rs.7377 crore and formed 14 percent of loan amount and 14 percent of totalNPAs of PSBs.

In 2001 the percentage of NPA to loan amount was at a high level of 14percent, which continuously decreased and reached a level of 2 percent in2009 and then increased to 2 percent and 3 percent in 2010 and 2011respectively.

The NPAs to agriculture increased by 6 percent from Rs 7377 crore in 2001 to

Rs 7822 crore in 2002 and it was 14 percent to total NPAs. While the growthrate of NPAs in Agriculture sector was negative from 2003 to 2006, but it washigher in 2010 and 2011.

The growth rate of loan has increased from 2004-05 to 2005- 06 and for thesame period the growth rate of NPAs was negative. The percentage ofAgriculture sector NPAs to total NPA of Public sector Banks has increased

from 14 percent in 2001 to 20 percent in 2011, while its share to loan amounthas reduced from 14 percent in 2001 to 3 percent in 2011. This indicates marked improvement in the loan portfolio of Public sectorBanks in Agriculture sector. NPAs in Agriculture sector has declined from2002-03 to 2005-06 but growth rate of NPAs in Agriculture Sector was higherin 2009-10 and 2010-11.

The growth rate of loan has increased from 2004-05 to 2005- 06 and at thesame period the growth rate of NPAs was negative.

176/9/16


18/25

Loan and NPAs of Pri$ate Sector Banks in Agric1t1re Sector

186/9/16


19/25

It is observed from above table that NPAs of the Private sector banks inagriculture credit increased continuously year after year.

In 2001 the amount of NPAs in Agriculture Sector of Private Sector banksamounted to Rs 322 crore against the loan amount of Rs 5394 crore andformed 6 percent to loan amount and 5 percent to total NPA of Private Sector

banks.

From 2001 to 2010 the amount of loan to Agriculture has increased by Rs84374 crore while NPAs has increased by Rs 1701 crore.

The percentage of NPAs to loan amount has continuously decreased from2001 to 2010 In 2007-08 the growth rate of loan was 11 percent while thegrowth rate of NPAs was highest at 71 percent and turned negative i.e. -2

percent in 2009.

The percentage of NPAs in Agriculture Sector to total NPAs of private bankshas decreased from 2001 to 2004 and then increased till 2011.

196/9/16


20/25

Reco2ery of NPA

206/9/16


21/25

Using the new institutions and legal options, banks and financial institutionsaccelerated their recovery of NPAs.

The NPAs recovered by scheduled commercial banks through various

channels is presented in above Table .

Between 2003-04 and 2005-06, the total cases referred to various institutionswas 93,2377 which was worth about Rs 70,226 crores. Out of this, around Rs19,075 crore was recovered.

In terms of cases, the highest number (5,53,042) was referred to the LokAdalats and the lowest (15,812) to the DRTs. In terms of the amount involved,the DRTs recovered the highest amount of around Rs 32,745 crore and LokAdalats the least, around Rs 2,965 crore.

In terms of the recovery, 58 per cent of the amount involved was recovered

through one-time settle ment/compromise schemes.

DRTs recovered around 29 per cent and Lok Adalats recovered 25 percent.

22 per cent of the amount was recovered under the SARFAESI Act.

216/9/16


22/25

SUGGESTION AND RECOMMENDATION The incidence of NPAs is more in Priority sector advances. Therefore, ICICI

Bank has to Restrict its advances to Priority Sector to the limit of 40% oftotal advances. Simultaneously, ICICI Bank Must take steps to improverecovery in Priority sector advances.

ICICI Bank Extends more credit to Agricultural. At the same time, the bankmakes good recovery and thus NPAs are restricted. However, ICICI Bank

must take all efforts to prevent fresh NPAs in Agricultural Advances.

ICICI Bank has to do an account wise analysis to identify initial sicknessand prevent from Becoming NPAs.

ICICI Bank has to take appropriate steps to improve recovery in OtherPriority Sector advances. At most care must be taken to ensure promptrecovery without allowing any fresh NPAs.

226/9/16


23/25

The incidence of NPAs in weaker section advances is more in ICICI Bank.Therefore, the bank must take steps to recovery and reduce NPAs. Efforts are

necessary to prevent creation of fresh NPAs. The study could suggest measures for the banks to avoid future NPAs & toreduce existing NPAs.

The study may help the government in creating & implementing new

strategies to control NPAs.

The study will help to select appropriate techniques suited to manage theNPAs and develop a time bound action plan to arrest the growth of NPAs.

Since non-performing assets are critical, bank officials are not willing to part

with all the formation with them.

236/9/16


24/25

The Priority sector advances has to analyzed in detail under three majorheads, viz., Agriculture, Small Scale Industries and Other Priority Sector.Further weaker section advances, which forms part of Priority sector, havealso been studied.

The data which provided helped to have an in-depth analysis about theparticipation of ICICI Bank in lending activities to priority sector incomparison with that of the Public Sector Banks as a whole.

Therefore, the management of ICICI Bank must pay special attention towardsthe NPA management and take appropriate steps to arrest the creation of newNPAs, besides making recoveries in the existing NPAs.

Timely action is essential to ensure future growth of the Bank.

CONC34SION

246/9/16


25/25

THANK

YOU!

256/9/16