Non-Perfoming Assets Uti Bank Project Report Mba Finance

Non Performing Assets and its impact on Profitability of New Private Sector Banks
BABASAB PATIL
Executive Summery
T"e f#t#re of Indian Banking represents a #ni$#e mi%t#re of #nlimited opport#nities amidst ins#rmo#ntable c"allenges& 'n t"e one "and we see t"e scenario represented by t"e rapid process of globali(ation presently taking s"ape bringing t"e comm#nity of nations in t"e world toget"er) transcending geograp"ical bo#ndaries) in t"e sp"ere of trade and commerce) and even employment opport#nities of individ#als& All t"ese indicate newly emerging opport#nities for Indian Banking& B#t on t"e darker side we see t"e acc#m#lated morass) bro#g"t o#t by t"ree decades of controlled and regimented management of t"e banks in t"e past& It "as sip"oned profitability of t"e many banks) acc#m#lated bloated NPA and t"reatens *apital Ade$#acy of t"e Banks and t"eir contin#ed stability& New Private Sector Banks in India can solve t"eir problems only if t"ey assert a spirit of self initiative and self reliance t"ro#g" developing t"eir in "o#se e%pertise& T"ey "ave to imbibe t"e banking p"ilosop"y in"erent in de reg#lation NPA is a problem created by t"e Banks and t"ey "ave to find t"e ca#se and t"e sol#tion "ow it was created and "ow t"e Banks are to overcome it& An attempt is made in t"is st#dy t"e present sit#ation and to arrive at a sol#tion to solve t"is problem&
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Design of the study

Title of the project: Non Performing Assets and its impact on Profita ility of Ne! Private Sector "an#s$%
Scope of study: Scope of my st#dy restricted only to , New Private Sector Banks
NPA data-s and Advances) and for *omparison of *redit risk pat" , old selected Private Banks is taken& Need &or Study: T"is st#dy will "elp to know t"e recent norms of NPA& T"is st#dy "elps to know "ow NPA *a#sing Problems to Banking Sector and w"at mig"t be t"e sol#tion to overcome from t"is problem and also its impact on Profitability of New Profit Banks&
STATE'ENT (& T)E P*("+E'

Profitability is considered as a benc"mark for eval#ating performance of any b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing Non Performing Assets) "ave a direct impact on profitability of banks and financial instit#tions& Legally speaking banks and financial instit#tions are not allowed to book income on s#c" acco#nt and at t"e same times t"ey are forced to make provision on s#c" assets& So T"is pro/ect is #ndertaken to now impact of NPA on Profitability of New Private Sector Banks&
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( jectives of Study !& To st#dy t"e 1BI norms on Non Performing Assets) and t"e vario#s reasons for t"e e%istence of "#ge level of NPA in Indian banking& +& To know t"e performance comparison of New Private Banks Non performing asset for past 0 years& 0& To know t"e impact of non performing assets on profitability of New Private Banks) and comparison of credit risk pat" of New Private Banks wit" , selected 'ld Private Banks& 2& To st#dy t"e vario#s steps taken by t"e banks to bring down t"e NPA-s in respective bank branc"es& 3& To recommend meas#res for Improving performance and red#ction of Non Performing Assets&
'ethodology
Primary Data: 4iews of t"e concerned officials were gat"ered by directly interacting wit" t"em) and s#c" data was fo#nd very #sef#l w"ile analy(ing and drawing concl#sions& Secondary Data: 1ecent 1BI norms of NPA& IBA B#lletin 5f +553 56 is referred to collect data for Net NPA) and Advances& 7eb site of 8TI Bank and ot"er 7eb sites&
Plan of analysis: In t"is st#dy $#adrant analysis is #sed on t"e calc#lated fig#res& +imitations: T"e st#dy is based mostly on secondary data& 9ata "as been drawn from /o#rnals) so information may not be complete&
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:or t"e analysis only t"e advances and NPA percentages of banks and operating profit) provisions and contingencies as a w"ole and net profit of New PSB-s are taken into consideration& ,NT*(D-.T,(N It;s a known fact t"at t"e banks and financial instit#tions in India face t"e problem of swelling non performing assets <NPA-s= and t"e iss#e is becoming more and more #nmanageable& In order to bring t"e sit#ation #nder control) some steps "ave been taken recently& T"e Sec#riti(ation and 1econstr#ction of :inancial Assets and >nforcement of Sec#rity Interest Act) +55+ was passed by Parliament) w"ic" is an important step towards elimination or red#ction of NPA-s& 'EAN,N/ (& NPA0s: An asset is classified as non performing asset <NPA-s= if d#es in t"e form of principal and interest are not paid by t"e borrower for a period of !?5 days& .owever wit" effect from @arc" +552) defa#lt stat#s wo#ld be given to a borrower if d#es are not paid for A5 days& If any advance or credit facilities granted by bank to a borrower become non performing) t"en t"e bank will "ave to treat all t"e advancesBcredit facilities granted to t"at borrower as non performing wit"o#t "aving any regard to t"e fact t"at t"ere may still e%ist certain advances B credit facility& NPA ,N ,ND,AN "AN1,N/ S2STE': NPA s#rfaced s#ddenly in t"e Indian banking scenario) aro#nd t"e >ig"ties) in t"e midst of t#rb#lent str#ct#ral c"anges overtaking t"e international banking instit#tions) and w"en t"e global financial markets were #ndergoing sweeping c"anges& In fact after it "ad emerged t"e problem of NPA kept "idden and grad#ally swelling #nnoticed and #nperceived) in t"e ma(e of defective acco#nting standards t"at still contin#ed wit" Indian Banks #p to t"e Nineties and opa$#e Balance s"eets&
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In a dynamic world) it is tr#e t"at new ideas and new concepts t"at emerge t"ro#g" s#c" c"anges ca#sed by social evol#tion bring beneficial effects) b#t only after levying a "eavy initial toll& T"e process of $#ickly integrating new innovations in t"e e%isting set #p leads to an immediate disorder and #nsettled conditions& People are not acc#stomed to t"e new models& T"ese new formations take time to config#re) and work smoot"ly& T"e old is cast away and t"e new is fo#nd diffic#lt to ad/#st& @arginal and s#b marginal operators are swept away by t"ese conv#lsions& Banks being sensitive instit#tions entrenc"ed deeply in traditional beliefs and conventions were #nable to ad/#st t"emselves to t"e c"anges& T"ey s#ffered easy victims to t"is #p"eaval in t"e initial p"ase& *onse$#ently banks #nderwent t"is transition syndrome and lang#is"ed #nder distress and banking crises s#rfaced in $#ick s#ccession one following t"e ot"er in many co#ntries& B#t w"en t"e banking ind#stry in t"e global sp"ere came o#t of t"is metamorp"osis to re ad/#st to t"e new order) t"ey emerged revitali(ed and as more vibrant and rob#st #nits& 9ereg#lation in developed capitalist co#ntries partic#larly in >#rope) witnessed a remarkable innovative growt" in t"e banking ind#stry) w"et"er meas#red in terms of deposit growt") credit growt") growt" intermediation instr#ments as well as in network& 9#ring all t"ese years t"e Indian Banking) w"ose environment was ins#lated from t"e global conte%t and was denominated by State controls of directed credit delivery) reg#lated interest rates) and investment str#ct#re did not participate in t"is vibrant banking revol#tion& S#ffering t"e deart" of innovative spirit and c"oking #nder #nd#e regimentation) Indian banking was lacking ob/ective and pr#dential systems of b#siness leading from early stagnation to event#al degeneration and red#ced or negative profitability& *ontin#ed political interference) t"e absence of competition and total lack of scientific decision making) led to conse$#ences /#st t"e opposite of w"at was "appening in t"e western co#ntries& Imperfect acco#nting standards and opa$#e balance s"eets served as tools for "iding t"e s"ortcomings and failing to reveal t"e progressive
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deterioration and str#ct#ral weakness of t"e co#ntry;s banking instit#tions to p#blic view& T"is enabled t"e nationali(ed banks to contin#e to flo#ris" in a deceptive manifestation
and false glitter) t"o#g" stray symptoms of t"e brewing ailment were discernable "ere and t"ere& T"e government "astily introd#ced t"e first p"ase of reforms in t"e financial and banking sectors after t"e economic crisis of !AA!& T"is was an effort to $#ickly res#rrect t"e "ealt" of t"e banking system and bridge t"e gap between Indian and global banking development& Indian Banking) in partic#lar PSB-s s#ddenly woke #p to t"e realities of t"e sit#ation and to face t"e b#rden of t"e s#rfeit of t"eir woes& Sim#ltaneo#sly ma/or revol#tionary transitions were taking place in ot"er sectors of t"e economy on acco#nt t"e ongoing economic reforms intended towards freeing t"e Indian economy from government controls and linking it to market driven forces for a $#ick integration wit" t"e global economy& Import restrictions were grad#ally freed& Tariffs were bro#g"t down and $#antitative controls were removed& T"e Indian market was opened for free competition to t"e global players& T"e new economic policy in t#rn revol#tionalised t"e environment of t"e Indian ind#stry and b#siness and p#t t"em to similar problems of new mi%t#re 'f opport#nities and c"allenges& As a res#lt we witness today a scenario of banking) trade and ind#stry in India) all #ndergoing t"e conv#lsions of total reformation battling to kick off t"e decadence of t"e past and to gain a new strengt" and vigor for effective links wit" t"e global economy& @any are still lang#is"ing #nable to get released from t"e old set #p) w"ile a few progressive corporate are making a nic"e for t"emselves in t"e global conte%t& 9#ring t"is decade t"e reforms "ave covered almost every segment of t"e financial sector& In partic#lar) it is t"e banking sector) w"ic" e%perienced ma/or reforms& T"e reforms "ave taken t"e Indian banking sector far away from t"e days of nationali(ation& Increase in t"e n#mber of banks d#e to t"e entry of new private and foreign banksC increase in t"e transparency of t"e banks; balance s"eets t"ro#g" t"e
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introd#ction of pr#dential norms and norms of disclos#reC increase in t"e role of t"e market forces d#e to t"e dereg#lated interest rates) toget"er wit" rapid comp#teri(ation and application of t"e benefits of information tec"nology to banking operations "ave all significantly affected t"e operational environment of t"e Indian banking sector& In t"e backgro#nd of t"ese comple% c"anges w"en t"e problem of NPA was belatedly recogni(ed for t"e first time at its peak velocity d#ring !AA+ A0) t"ere was res#ltant c"aos and conf#sion& As t"e problem in large magnit#de er#pted s#ddenly banks were #nable to analy(e and make a realistic or complete assessment of t"e s#rmo#nting sit#ation& It was not reali(ed t"at t"e root of t"e problem of NPA was centered elsew"ere in m#ltiple layers) as m#c" o#tside t"e banking system) more partic#larly in t"e transient economy of t"e co#ntry) as wit"in& Banking is not a compartmentali(ed and isolated sector delinked from t"e rest of t"e economy& As "as "appened elsew"ere in t"e world) a distressed national economy s"ifts a part of its negative res#lts to t"e banking ind#stry& In s"ort) banks are made #ltimately to finance t"e losses inc#rred by constit#ent ind#stries and b#sinesses& T"e #nprepared ness and str#ct#ral weakness of o#r banking system to act to t"e emerging scenario and de risk itself to t"e c"allenges t"rown by t"e new order) trying to switc" over to globali(ation were only aggravating t"e crisis& Partial perceptions and "asty /#dgments led to a policy of ad "oc ism) w"ic" c"aracteri(ed t"e approac" of t"e a#t"orities d#ring t"e last two decades towards finding sol#tions to banking ailments and dismantling recovery impediments& *ontin#o#s concern was e%pressed& 1epeated correctional efforts were e%ec#ted) b#t positive res#lts were evading& T"e problem was defying a sol#tion& T"e t"reat of NPA was being s#rveyed and s#mmari(ed by 1BI and Dovernment of India from a remote perception looking at a bird;s eye view on t"e banking ind#stry as a w"ole delinked from t"e rest of t"e economy& 1BI looks at t"e banking ind#stry;s average on a macro basis) consolidating and tab#lating t"e data s#bmitted by different instit#tions& It "as collected e%tensive statistics abo#t NPA in different financial sectors like commercial banks) financial instit#tions) #rban cooperatives) NB:* etc& B#t still it is
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a distant view of one o#tside t"e system and not t"e felt view of a s#ffering participant& Individ#al banks in"erit different c#lt#res and t"ey finance diverse sectors of t"e economy t"at do not possess identical attrib#tes& T"ere are distinct diversities as among t"e +A p#blic sector banks t"emselves) between different geograp"ical regions and between different types of c#stomers #sing bank credit& T"ere are t"ree weak nationali(ed banks t"at "ave been identified& B#t t"ere are also correspondingly two better performing banks like *orporation and 'B*& T"ere are also banks t"at "ave s#ccessf#lly contained NPA and bro#g"t it to single digit like Syndicate <Dross NPA ,&?,E= and And"ra <Dross NPA 6&!0E=& T"e scenario is not so simple to be generali(ed for t"e ind#stry as a w"ole to prescribe a readymade package of a common sol#tion for all banks and for all times& Similarly NPA concerns of individ#al Banks s#mmari(ed as a w"ole and e%pressed as an average for t"e entire bank cannot convey a dependable pict#re& It is being statistically stated t"at bank F or G "as !+E gross NPA& B#t if we look down f#rt"er wit"in t"at Bank t"ere are a few pockets possessing b#lk segments of NPA ranging 35E to ,5E gross ) w"ic" s"o#ld conse$#ently convey t"at t"ere s"o#ld also be several ot"er segments wit" 0 to 3E or even NIL E NPA) averaging t"e bank;s w"ole performance to !+E& @#c" criticism is made abo#t t"e obligation of Nationali(ed Banks to e%tend priority sector advances& B#t banks "ave neit"er fared better in non priority sector& T"e comparative performance #nder priority and non priority is only a difference of degree and not t"at of kind& T"e assessment of t"e mi% of contrib#ting factors incl#desH !& "#man factors <t"ose pertaining to t"e bankers and t"e credit c#stomers=) +& environmental imbalances in t"e economy on acco#nt of w"olesale c"anges and also 0& In"erited problems of Indian banking and ind#stry&
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4ariable skill) efficiency and level integrity prevailing in different branc"es and in different banks acco#nts for t"e sweeping disparities between inter bank and intra bank performance& 7e may add t"at w"ile t"e core or base level NPA in t"e ind#stry is d#e to common contrib#tory ca#ses) t"e inter se variations are on acco#nt of t"e str#ct#ral and operational disparities& T"e "eavy concentrated prevalence of NPA is definitely d#e to "#man factors contrib#ting to t"e same& No bank appears to "ave cond#cted st#dies involving a cross section of its operating field staff) incl#ding t"e a#dit and inspection f#nctionaries for a candid and compre"ensive introspection based on a s#rvey of t"e variables of NPA b#rden #nder different categories of sectoral credit) different regions and in individ#al Branc"es categori(ed as wit" "ig") medi#m and low incidence of NPA& 7e do not "ear t"e voice of t"e operating personnel in t"ese banks candidly e%pressed and e%plaining t"eir fail#res& >% bankers) i&e& t"e professional bankers w"o "ave retired from service) b#t possess a dept" of inside knowledge do not o#t po#r candidly t"eir views& After t"ree decades of nationali(ed banking) we m#st "ave some "#ndreds of retired Bank e%ec#tives in t"e co#ntry) w"o can boldly and independently) b#t ob/ectively voice t"eir views& >veryone is satisfied in blaming t"e ot"ers& Bank e%ec#tives "old ;willf#l defa#lters; responsible for all t"e plag#e& Ind#stry and b#siness blames t"e government policies& Important fact revealing information for eac" NPA acco#nt is t"e gap period between t"e date) w"en t"e advance was originally made and t"e date of its becoming NPA& If t"e gap is long) it is t"e case of a s#nset ind#stry& T"ings were all rig"t earlier) b#t economic variance in trade cycles or market sentiments "ave created t"e NPA& *redit c#stomers w"o are in NPA today) b#t for years were earlier rated as good performers and creditwort"y clients ranging wit"in t"e top 35 or !55& Significant part of t"e NPA is on acco#nt of clo#t banking or willf#lly given bad loans& Infant mortality in credit is solely on acco#nt of "#man factors and absence of "#man integrity& *redit to different sectors given by t"e PSB-s in fact represents different prod#cts& Advance to weaker sections below 1s&+3555B represents t"e act#al social banking& NPA
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!5
in t"is sector forms ? T' !5E of t"e gross amo#nt& Advance to agric#lt#re) SSI and big ind#stries eac" calls for different strategies in terms of credit assessment, credit delivery, project implementation, and post advance supervision & NPA in different sector is not ca#sed by t"e same res#ltant factors& *ontaining $#ant#m of NPA is t"erefore to be programmed by a sector wise strategy involving a role of t"e actively engaged participants w"o can tell w"ere t"e boot pinc"es in eac" case& B#siness and ind#stry "as e$#al responsibility to accept acco#ntability for containment of NPA& @any of t"e present defa#lters were once tr#sted and val#ed c#stomers of t"e banks& 7"y "ave t"ey become #nreliable now) or "ave t"eyI T"e credit portfolio of a nationali(ed bank also incl#des a n#mber of low risk and risk free segments) w"ic" cannot create NPA& Small personal loans against banks; own deposits and ot"er tangible and easily marketable sec#rities pledged to t"e bank and "eld in its c#stody are of t"is category& S#c" small loans are #niversally given in almost all t"e branc"es and "ence t"e aggregate constit#tes a significant fig#re& T"en t"ere is food credit given to :*I for food proc#rement and similar credits given to ma/or p#blic 8tilities and P#blic Sector 8ndertakings of t"e *entral Dovernment& It is only t"e resid#al fragments of Bank credit t"at are e%posed to credit fail#res and reasons for NPA can be ascertained by scr#tini(ing t"is segment& Secondly NPA is not a dilemma facing e%cl#sively t"e Bankers& It is in fact an all pervasive national sco#rge swaying t"e entire Indian economy& NPA is a sore t"roat of t"e Indian economy as a w"ole& T"e banks are only t"e #ltimate victims) w"ere life cycle of t"e vir#s is terminated& Now) "ow does t"e Dovernment s#fferI 7"at abo#t t"e rec#rring loss of reven#e by way of ta%es) e%cise to t"e government on acco#nt of clos#re of several lak"s of erstw"ile vibrant ind#strial #nits and inefficient #sage of costly ind#strial infrastr#ct#re erected wit" considerable investment by t"e nationI As per statistics collected t"ree years back t"ere are over two and "alf million small ind#strial #nits representing over A5 percent of t"e total n#mber of ind#strial #nits& A ma/ority of t"e ind#strial work force
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finds employment "ere and t"e sector;s contrib#tion to ind#strial o#tp#t is s#bstantial and is estimated at over 03 percent w"ile its s"are of e%ports is also val#ed to be aro#nd 25 percent& '#t of t"e +&3 million) abo#t !5E of t"e small ind#stries are reported to be sick involving a bank credit o#tstanding aro#nd 1s&3555 to 6555 *rores) at t"at period& It may be even more now& T"ese closed #nits represent some t"o#sands of displaced workers Previo#sly en/oying gainf#l employment& >ac" closed #nit w"et"er large) medi#m or small occ#pies costly developed ind#strial land& Several items of mac"inery form sec#rity for t"e NPA acco#nts s"o#ld eit"er be lying idle or /#nking o#t& In ot"er words) large val#e of land) mac"inery and money are locked #p in ind#strial sickness& T"ese are t"e assets created t"at "ave t#rned #nprod#ctive and t"ese represent t"e real p"ysical NPA) w"ic" indirectly are reflected in t"e financial statements of nationali(ed banks) as t"e #ltimate financiers of t"ese assets& In t"e final analysis it represents instability in ind#stry& NPA represents t"e owes of t"e credit recipients) in t#rn transferred and parked wit" t"e banks& 1ecogni(ing NPA as a sore t"roat of t"e Indian economy) t"e field level participants s"o#ld first address t"emselves to find t"e sol#tion& 7"y not representatives of ind#stries and commerce and t"at of t"e Indian Banks; Association come toget"er and candidly analy(e and find an everlasting sol#tion "eralding t"e real spirit of dereg#lation and decentrali(ation of management in banking sector) and accepting self discipline and self relianceI 7"at are t"e deficiencies in credit delivery t"at leads to its mis#se) ab#se or lossI .ow to c"eck mis#se and ab#se at so#rceI .ow to deal wit" erring *orporateI In s"ort) t"e f#nctional staff of t"e Bank along wit" t"e representatives of b#siness and ind#stry "as to accept a candid introspection and arrive at a code of discipline in any final sol#tion& And preventive action to be s#ccessf#l s"o#ld start from t"e credit recipient level and t"en e%tend to t"e bankers& 1BI and Dovernment of India can positively facilitate t"e process by providing enabling meas#res& 9o not try to set rig"t ind#stry and banks) b#t "elp ind#stry and banks to set rig"t t"emselves& T"e new tool of dereg#lated approac" "as to be accepted in solving NPA&
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*EAS(NS &(* T)E E3,STEN.E (& )-/E +E4E+ (& NPA0S ,N T)E ,ND,AN "AN1,N/ S2STE' 5,"S6: T"e origin of t"e problem of b#rgeoning NPA-s lies in t"e $#ality of managing credit risk by t"e banks concerned& 7"at is needed is "aving ade$#ate preventive meas#res in place namely) fi%ing pre sanctioning appraisal responsibility and "aving an effective post disb#rsement s#pervision& Banks concerned s"o#ld contin#o#sly monitor loans to identify acco#nts t"at "ave potential to become non performing& To start wit") performance in terms of profitability is a benc"mark for any b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing NPA-s "ave a direct impact on banks profitability as legally banks are not allowed to book income on s#c" acco#nts and at t"e same time banks are forced to make provision on s#c" assets as per t"e 1eserve Bank of India <1BI= g#idelines& Also) wit" increasing deposits made by t"e p#blic in t"e banking system) t"e banking ind#stry cannot afford defa#lts by borrowers since NPA-s affects t"e repayment capacity of banks& :#rt"er) 1eserve Bank of India <1BI= s#ccessf#lly creates e%cess li$#idity in t"e system t"ro#g" vario#s rate c#ts and banks fail to #tili(e t"is benefit to its advantage d#e to t"e fear of b#rgeoning non performing assets&
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!0
Some of the other reasons !ere: After t"e nationali(ation of banks sector wise allocation of credit disb#rsements became comp#lsory& Banks were compelled to give credit to even t"ose sectors) w"ic" were not considered to be very profitable) keeping in mind t"e federal policy& People in t"e agric#lt#ral sector were "ardly interested in ret#rning t"e loans as t"ey were confident t"at t"e loans wit" t"e interest wo#ld be written off by t"e s#ccessive governments& T"e small scale ind#stries also availed credit even t"o#g" t"ey were not s#re of performing to t"e e%tent of ret#rning t"e loans& Banks were also not in t"e position to press eno#g" sec#rities to cover t"e loans in calls of timings& >ven if t"e assets were provided t"ey proved to be s#bstandard assets as t"e val#es t"at co#ld be reali(ed were very low& :ree distrib#tion done d#ring loan mails <congress regime= also contrib#ted to t"e "eavy increase in NPA-s& T"e slackness in effort by t"e bank a#t"orities to collect or recover loan advances in time also contrib#tes to t"e increase in NPA-s&
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Lack of acco#ntability of t"e officers) w"o sanctioned t"e loans led to a caste w"ole approac" by t"e officers recovering t"e loans& Loans sanctioned to #nder servicing candidates d#e to press#re from t"e ministers and ot"er politicians also led to t"e non recovery of debts& Poor credit appraisal system) lack of vision w"ile sanctioning credit limits& Lack of proper monitoring& 1eckless advances to ac"ieve t"e b#dgetary targets&
Lack of sincere corporate c#lt#re) inade$#ate legal provisions on foreclos#re and bankr#ptcy& *"ange in economic policiesBenvironment& Lack of co ordination between banks&
Some of the internal factors of the organi7ation leading to NPA0s are: 9ivision of f#nds for e%pansion) diversification) moderni(ation) #ndertaking new pro/ects and for "elping associate concerns) t"is is co#pled wit" recessionary trends and fail#re to tap f#nds in t"e capital and debt markets& B#siness fail#re< prod#ct) marketing etc&)=)inefficient management) strained labor relations) inappropriate tec"nology) tec"nical problems) prod#ct obsolescence etc&)
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!3
1ecession ) s"ortage of inp#t) power s"ortage) price escalation) accidents) nat#ral calamities) besides e%ternali(ation problem in ot"er co#ntries leading to non payment of overd#e& TimeBcost overr#n d#ring t"e pro/ect implementation stage& Dovernment policies like c"anges in t"e e%cise d#ties) poll#tion control orders& 7illf#l defa#lt) sip"oning off of f#nds) fra#d) misappropriation)
promotersBdirectors disp#tes etc&) 9eficiencies on t"e part of t"e banks like delay in release of limits and delay in release of paymentsBs#bsidies by t"e government&
(perational definitions: NPA: An asset is classified as non performing asset <NPA-s= if d#es in t"e form of principal and interest are not paid by t"e borrower for a period of A5 days& Standard Assets: S#c" an asset is not a non performing asset& In ot"er words) it carries not more t"an normal risk attac"ed to t"e b#siness& Sub-standard Assets: It is classified as non performing asset for a period not e%ceeding !? mont"s
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!6
Doubtful Assets: Asset t"at "as remained NPA for a period e%ceeding !? mont"s is a do#btf#l asset& Loss Assets: .ere loss is identified by t"e banks concerned or by internal a#ditors or by e%ternal a#ditors or by 1eserve Bank India <1BI= inspection Cash eserve atio !C ": It is t"e reserve w"ic" t"e banks "ave to maintain wit" itself
in t"e form of cas" reserves or by way of c#rrent acco#nt wit" t"e 1eserve Bank of India <1BI=) comp#ted as a certain percentage of its demand and time liabilities& T"e ob/ective is to ens#re t"e safety and li$#idity of t"e deposits wit" t"e banks& Statutory Li#uidity atio !SL "H It is t"e one w"ic" every banking company s"all
maintain in India in t"e form of cas") gold or #nenc#mbered approved sec#rities) an amo#nt w"ic" s"all not) at t"e close of b#siness on any day be less t"an s#c" percentage of t"e total of its demand and time liabilities in India as on t"e last :riday of t"e second preceding fortnig"t) as t"e 1eserve Bank of India <1BI= may specify from time to time&
*", /-,DE+,NES (N ,N.('E *E.(/N,T,(N 5,NTE*EST ,N.('E (N NPA0s6 Income 1ecognitionH Income from Non Performing Assets s"o#ld not recogni(e on accr#al basis b#t s"o#ld be booked as income only w"en it is act#ally received& T"erefore interest s"o#ld not be c"arged and taken into income acco#nt till t"e acco#nt become standard asset&
BABASAB PATIL
!,

Interest c"arged to be stopped Provision to be made
(ver Due: Any amo#nt d#e to t"e Bank #nder any credit facility is 'ver d#e if it is not paid on t"e d#e date fi%ed by t"e Bank& (ut of (rder: An acco#nt s"o#ld be treated as o#t of order
If t"e o#tstanding balance remains contin#o#sly in e%cess of t"e sanctioned limitB drawing power& In cases w"ere t"e o#tstanding balance in t"e principal operating acco#nt is less t"an t"e sanctioned limitB drawing power) b#t t"ere are no credits continuously for 89 days as on t"e date of Bank-s Balance S"eet or 7"ere are credits are not eno#g" to cover t"e interest debited d#ring t"e same period&
A Non Performing Asset shall e an advance !here: Term +oan: Interest andB or installment of principal remain over d#e for a period of more than 89 days% .ash .redit: (ver Draft: If t"e acco#nt remains out of order for a period more than 89 days% "ills: 'verd#e for a period of more t"an A5 days& (ther accounts: Any amo#nt to be received remains overd#e for a period of more t"an A5 days&
Short duration crops: If t"e installment of principal or interest t"ere on remains overdue for t!o crop seasons% +ong duration crops: If installment of principal or interest t"ere on remains overd#e for 'ne *rop season& An acco#nt wo#ld be classified as NPA only if t"e interest c"arged d#ring any $#arter is not serviced f#lly wit"in A5 days from t"e end of t"e $#arter&
ASSET .+ASS,&,.AT,(N
BABASAB PATIL !?
Standard Assets: Is one w"ic" does not disclose any problem and w"ic" does not carry more t"an normal risks attac"ed to t"e b#siness& Su standard Assets: 7"ic" "as remained NPA for a period of less than or e;ual to <= months% Dou tful Assets: If it "as remained NPA for a period exceeding <= months% +oss Assets: A loss asset is one w"ere loss "as been identified by t"e bank&
*",
/-,DE+,NES
(N
P*(4,S,(N,N/
*E>-,*E'ENT
(&
"AN1
AD4AN.ES: +oss Assets: !55E of t"e o#tstanding amo#nt& Dou tful Assets: !55E of #nsec#red portion& Secured portion 8p to one year +5E BABASAB PATIL !A
'ne to t"ree years @ore t"an 0 years !& '#tstanding stock of NPA as on 0!&0&+552 +& Advances classified as do#btf#l more 05E ,3E w&e&f&0!st @arc") 56 !55E w&e&f&0!st @arc")5, !55E w&e&f&0!st @arc")53
t"an 0 years on or after 0!&0&+552 Su standard Assets: Sec#red portion !5E and #nsec#red portion +5E on total o#tstanding& Standard Assets: A general provision of 5&25E <:or direct Agric#lt#re J S@> Sector 5&+3E=& Provisioning for standard assets will be done at corporate office centrally&
.alculation of Net NPA 5Non Performing Asset6 :orm#laH D1'SS NPA L>SSH Balance in Interest S#spense Acco#nt L>SSH 9I*D*B>*D* *laims received b#t pending for ad/#stment L>SSH Part payment received and kept in s#spense acco#nt
BABASAB PATIL
+5
Ill#strationH <Based on ann#al reports of 8TI bank +553 56= Particulars Dross NPA of 8TI for t"e year +556 L>SSH Balance from interest s#spense acco#nt L>SSH 9I*D*B>*D* *laims received b#t pending for ad/#stment L>SSH Part payment received and kept in S#spense ABc N>T N'N P>1:'1@IND ASS>TS N>T NPA IN P>1*>NTAD> Amount 0,2+? !+,52 06 +A+? +!,65 5&A,E
T)E NA*AS,')AN .('',TTEE?S &,*ST *EP(*T T"e salient feat#res of t"ese reforms incl#deH
P"asing o#t of stat#tory pre emption 2&3E=
T"e SL1 re$#irement "ave been bro#g"t
down from 0?&3E to +3E and *11 re$#irement from ,&35E to 3&,3E& <Presently
9ereg#lation of interest rates
All lending rates e%cept for lending to small
borrowers and a part of e%port finance "ave been de reg#lated& Interest on all deposits are determined by banks e%cept on savings deposits&
BABASAB PATIL
+!

*apital ade$#acy *A1 of A E prescribed wit" effect from @arc" 0!) +555& 't"er pr#dential norms Income recognition) asset classification and provisioning norms "as been made applicable& T"e provisioning norms are more pr#dent) ob/ective) transparent) and #niform and designed to avoid s#b/ectivity&
9ebt 1ecovery Trib#nals ++ 91Ts and 3 91ATs "ave already been set #p and , more 91Ts will be set #p d#ring t"e c#rrent financial year& *ompre"ensive amendment in t"e Act "ave been made to make t"e provisions for ad/#dication) enforcement and recovery more effective&
Transparency in financial statements
Banks "ave been advised to disclose
certain key parameters s#c" as *A1) percentage of NPA-s) provisions for NPA-s) net val#e of investment) 1et#rn on Assets) profit per employee and interest income as percentage to working f#nds&
>ntry of new private sector banks A new private sector banks "ave been set #p wit" a view to ind#ce greater competition and for improving operational efficiency of t"e banking system& *ompetition "as been introd#ced in a controlled manner and today we "ave nine new private sector banks and 06 foreign banks in India competing wit" t"e p#blic sector banks bot" in retail and corporate banking
:#nctional a#tonomy T"e minim#m prescribed Dovernment e$#ity was bro#g"t to 3!E& Nine nationali(ed banks raised 1s&+?33 crores from t"e market d#ring !AA2 +55!& Banks Boards "ave been given more powers in operational matters s#c" as rationali(ation of branc"es) credit delivery and recr#itment of staff&
.iving off of reg#latory and s#pervisory control Board for financial s#pervision was set #p #nder t"e 1BI in !AA2 bif#rcating t"e reg#latory and s#pervisory f#nctions&
NA*AS,')AN .('',TTEE@ SE.(ND *EP(*T
BABASAB PATIL
++
T"e Narasim"an *ommittee on Banking 1eforms) in its second report) "as combined drastic s#rgery wit" a strong dose of medicine to c#re t"e ailing ind#stry& 'n performing assets <NPA-s= "ave been t"e bane of t"e ind#stry& T"e panel "as identified poor credit decisions by managements) cyclical c"anges in t"e economic environment) directed credit and cr#de forms of be"est lending as t"e factors responsible for poor asset $#ality& T"e panel points a finger at priority sector credit as "aving a "ig" contamination coefficient and s#ggests t"at $#antitative targets "ave ca#sed erosion of asset $#ality& It laments t"e fact t"at inf#sion of recapitali(ation f#nds notwit"standing) NPA-s remain #ncomfortably "ig"& Get it recommends t"at advances covered by government g#arantees t"at "ave t#rned sticky s"o#ld also be reckoned as net NPA-s& T"e Narasim"an *ommittee;s sol#tion for NPA-s is t"e creation of an Asset 1econstr#ction :#nd <A1:=) w"ic" will take over t"e bad debts of banks from t"eir balance s"eets to enable t"em to start on a clean slate& 1ecapitali(ation t"ro#g" b#dgetary inf#sion) t"e panel correctly points o#t) is not a s#stainable option& B#t bankers are skeptical abo#t t"e workability of t"e A1:& A senior banker asked) KAt w"at price will t"e A1: take over my NPA-sI .ow will t"e disco#nt be worked o#tIK .e said t"at t"e A1: cannot bail o#t banks #nder t"e present legal system& Alt"o#g" every bad debt is sec#red) banks cannot encas" t"e sec#rity beca#se of legal "#rdles& T"e 8rban Land *eiling Act is a ma/or deterrent to debt recovery& Bankers say t"at t"e legal system "as to be revamped to facilitate recovery so t"at t"e A1: can pick #p KNPA-s at a viable priceK& T"e committee "as recommended t"at net NPA-s be bro#g"t down to less t"an 3 per cent by t"e year +555 and 0 per cent by t"e year +55+& K>asier said t"an done)K says a top banker& KAlready we do a lot of window dressing& '#tstanding acco#nts are s"own as priority lending to meet targets& 7e keep lending to defa#lters to roll over t"e NPA-s& :i%ing #nrealistic targets will be co#nterprod#ctive&K T"e committee "as recommended t"at banks s"o#ld not lend to defa#lters) b#t bankers say t"at t"is is #nrealistic& T"ey claim t"at in t"e absence of fres" loans) t"e defa#lting companies will close down) and leading to loss of /obs& K7ill t"at be
BABASAB PATIL
+0
acceptableIK asks a banker& Bankers also complain t"at t"ey are forced by t"e Board for Ind#strial and :inancial 1econstr#ction <BI:1= to lend to sick companies) yet more often t"an not t"ere is no t#rnaro#nd and t"e acco#nts t#rn bad& .redit *is# and NPA0s: L#ite often credit risk management <*1@= is conf#sed wit" managing non performing assets <NPA-s=& .owever t"ere is an appreciable difference between t"e two& NPA-s are a res#lt of past action w"ose effects are reali(ed in t"e present i&e& t"ey represent credit risk t"at "as already materiali(ed and defa#lt "as already taken place& 'n t"e ot"er "and managing credit risk is a m#c" more forward looking approac" and is mainly concerned wit" managing t"e $#ality of credit portfolio before defa#lt takes place& In ot"er words) an attempt is made to avoid possible defa#lt by properly managing credit risk& *onsidering t"e c#rrent global recession and #nreliable information in financial statements) t"ere is "ig" credit risk in t"e banking and lending b#siness& To create a defense against s#c" #ncertainty) bankers are e%pected to develop an effective internal credit risk models for t"e p#rpose of credit risk management&
-sage of financial statements in assessing the ris# of default for lenders: :or banks and financial instit#tions) bot" t"e balance s"eet and income statement "ave a key role to play by providing val#able information on a borrower-s viability& .owever) t"e approac" of scr#tini(ing financial statements is a backward looking approac"& T"is is beca#seC t"e foc#s of acco#nting is on past performance and c#rrent positions&
BABASAB PATIL
+2
T"e key acco#nting ratios generally #sed for t"e p#rpose of ascertaining t"e creditwort"iness of a b#siness entity are t"at of debt e$#ity ratio and interest coverage ratio& .ig"ly rated companies generally "ave low leverage& T"is is beca#seC "ig" leverage is followed by "ig" fi%ed interest c"arges) non payment of w"ic" res#lts into a defa#lt& .apital Ade;uacy *atio 5.A*6 of *", and "asel committee on an#ing supervision 5"."S6: 1eserve Bank of India <1BI= "as iss#ed capital ade$#acy norms for t"e Indian banks& T"e minim#m *A1 w"ic" t"e Indian Banks are re$#ired to meet at all times is set at AE& It s"o#ld be taken into consideration t"at t"e bank;s capital refers to t"e ability of bank to wit"stand losses d#e to risk e%pos#res& To be more precise) capital c"arge is a sort of reg#latory cost of keeping loans <perceived as risky= on t"e balance s"eet of banks& T"e $#ality of assets of t"e bank and its capital are often closely related& L#ality of assets is reflected in t"e $#ant#m of NPA-s& By t"is) it implies t"at if t"e asset $#ality was poor) t"en "ig"er wo#ld be t"e $#ant#m of non performing assets and vice versa& @arket risk is t"e risk arising d#e to t"e fl#ct#ations in val#e of a portfolio d#e to t"e volatility of market prices& 'perational risk refers to losses arising d#e to comple% system and processes& It is important for a bank to "ave a good capital base to wit"stand #nforeseen losses& It indicates t"e capability of a bank to s#stain losses arising o#t of risky assets& T"e Basel *ommittee on Banking S#pervision <B*BS= "as also laid down certain minim#m risk based capital standards t"at apply to all internationally active commercial banks& T"at is) bank;s capital s"o#ld at least be ?E of t"eir risk weig"ted assets& T"is infact "elps bank to provide protection to t"e depositors and t"e creditors&
BABASAB PATIL
+3
T"e main ob/ective "ere is to b#ild a sort of s#pport system to take care of #ne%pected financial losses t"ereby ens#ring "ealt"y financial markets and protecting depositors& $%PAC& '( )*C)SS L$+,$D$&-: 'ne s"o#ld also not forget t"at t"e banks are faced wit" t"e problem of increasing li$#idity in t"e system& :#rt"er) 1eserve Bank of India <1BI= is increasing t"e li$#idity in t"e system t"ro#g" vario#s rate c#ts& Banks can get rid of its e%cess li$#idity by increasing its lending b#t) often s"y away from s#c" an option d#e to t"e "ig" risk of defa#lt& In order to promote certain pr#dential norms for "ealt"y banking practices) most of t"e developed economies re$#ire all banks to maintain minim#m li$#id and cas" reserves broadly classified into *as" 1eserve 1atio <*11= and t"e Stat#tory Li$#idity 1atio <SL1=& *as" 1eserve 1atio <*11= is t"e reserve w"ic" t"e banks "ave to maintain wit" itself in t"e form of cas" reserves or by way of c#rrent acco#nt wit" t"e 1eserve Bank of India <1BI=) comp#ted as a certain percentage of its demand and time liabilities& T"e ob/ective is to ens#re t"e safety and li$#idity of t"e deposits wit" t"e banks& 'n t"e ot"er "and) Stat#tory Li$#idity 1atio <SL1= is t"e one w"ic" every banking company s"all maintain in India in t"e form of cas") gold or #nenc#mbered approved sec#rities) an amo#nt w"ic" s"all not) at t"e close of b#siness on any day be less t"an s#c" percentage of t"e total of its demand and time liabilities in India as on t"e last :riday of t"e second preceding fortnig"t) as t"e 1eserve Bank of India <1BI= may specify from time to time& A rate c#t <for instance) decrease in *11= res#lts into lesser f#nds to be locked #p in 1BI;s va#lts and f#rt"er inf#ses greater f#nds into a system& .owever) almost all t"e banks are facing t"e problem of bad loans) b#rgeoning non performing assets) t"inning margins) etc& as a res#lt of w"ic") banks are little rel#ctant in granting loans to corporates&
BABASAB PATIL
+6
As s#c") t"o#g" in its monetary policy 1BI anno#nces rate c#t b#t) s#c" news are no longer warmly greeted by t"e bankers& ),/) .(ST (& &-NDS D-E T( NPA0s: L#ite often gen#ine borrowers face t"e diffic#lties in raising f#nds from banks d#e to mo#nting NPA-s& >it"er t"e bank is rel#ctant in providing t"e re$#isite f#nds to t"e gen#ine borrowers or if t"e f#nds are provided) t"ey come at a very "ig" cost to compensate t"e lender-s losses ca#sed d#e to "ig" level of NPA-s& T"erefore) $#ite often corporate prefer to raise f#nds t"ro#g" commercial papers <*Ps= w"ere t"e interest rate on working capital c"arged by banks is "ig"er& 7it" t"e enactment of t"e Sec#riti(ation and 1econstr#ction of :inancial Assets and >nforcement of Sec#rity Interest Act) +55+) banks can iss#e notices to t"e defa#lters to pay #p t"e d#es and t"e borrowers will "ave to clear t"eir d#es wit"in 65 days& 'nce t"e borrower receives a notice from t"e concerned bank and t"e financial instit#tion) t"e sec#red assets mentioned in t"e notice cannot be sold or transferred wit"o#t t"e consent of t"e lenders& T"e main p#rpose of t"is notice is to inform t"e borrower t"at eit"er t"e s#m d#e to t"e bank or financial instit#tion be paid by t"e borrower or else t"e former will take action by way of taking over t"e possession of assets& Besides assets) banks can also takeover t"e management of t"e company& T"#s t"e bankers #nder t"e aforementioned Act will "ave t"e m#c" needed a#t"ority to eit"er sell t"e assets of t"e defa#lting companies or c"ange t"eir management& B#t t"e protection #nder t"e said Act only provides a partial sol#tion& 7"at banks s"o#ld ens#re is t"at t"ey s"o#ld move wit" speed and c"arged wit" moment#m in disposing off t"e assets& T"is is beca#se as #ncertainty increases wit" t"e passage of time) t"ere is all possibility t"at t"e recoverable val#e of asset also red#ces and it cannot fetc" good price& If faced wit" s#c" a sit#ation t"an t"e very p#rpose of getting protection
BABASAB PATIL
+,
#nder t"e Sec#riti(ation Act) +55+ wo#ld be defeated and t"e "ope of seeing a m#st "ave growing banking sector can easily vanis"& Non Performing Assets of Ne! Private Sector "an#s@Sector !ise 5=99A data6 .enturion "an# of Panja +td
Sector Agric#lt#re Small Scale Ind#stries 't"ers )D&. "an# +td
Amount5 in .rore6 !5&6? !!&+0 ?&AA
Percentage to total 0&0A 0&3, +&?3
Sector Agric#lt#re Small Scale Ind#stries 't"ers
Amount5 in .rore6 ++&?3 !A&!3 !,2&+6
Percentage to total 0&A+ 0&+? +A&??
,.,., "an# +td%
Sector Agric#lt#re Small Scale Ind#stries
Amount5 in .rore6 23&63 03&3?
Percentage to total +&53 !&65
BABASAB PATIL
+?
't"ers ,ndusind "an# +td !0&56 5&3A
Sector Agric#lt#re Small Scale Ind#stries 't"ers 1ota# 'ahindra "an# +td
Amount5 in .rore6 !!5&0, !+&A+ +2&?5
Percentage to total 2!&56 2&?! A&+0
Sector Agric#lt#re Small Scale Ind#stries 't"ers -T, "an# +td
Amount5 in .rore6 0&+6
Percentage to total ?&!,
!3&06
0?&2A
Sector Agric#lt#re Small Scale Ind#stries 't"ers
Amount5 in .rore6 36&,! !0&?2 5&05
Percentage to total !3&!, 0&,5 5&5?
*E.(4E*2 'EAS-*ES:
BABASAB PATIL
+A
s
Broadly speaking) recovery meas#res co#ld be classified into two categories) namely) legal meas#res and non legal meas#res& +egal 'easures <% De t *ecovery Tri unals5D*T6 In t"e conte%t of recovery from NPAs 91T are ass#ming great importance since efforts are on to set #p J more 91T d#ring t"is year and also to strengt"en t"em& T"o#g" t"e recovery t"ro#g" 91T is at present less t"an two per cent of t"e claim amo#nt) banks and :ls "ave to depend "eavily on t"em& >fforts are on to amend t"e recovery act to assign more powers to 91Ts& @ore importantly) t"e borrowers tendency to c"allenge t"e verdict of t"e Appellate Trib#nals in t"e .ig" co#rt to seek nat#ral /#stice needs to be c"ecked) 't"erwise) early recovery efforts t"ro#g" 91Ts wo#ld be f#tile& Secondly) training of presiding officers of Trib#nals abo#t t"e intricacies of banking practices is very essential& :#rt"er) t"e n#mbers of recovery officers "ave to be en"anced in every 91T for effective recovery& :inally) banks and :ls "ave to come forward to provide liberal "elp to 91Ts to e$#ip t"em in terms of infrastr#ct#re) manpower) etc&
BABASAB PATIL
05
=% National .ompany +a! Tri unal : As per t"e anno#ncement made in t"e B#dget +55! 5+) Sick Ind#strial *ompany Act will be repealed and Board for Ind#strial :inance and 1econstr#ction will be wo#nd #p& As an alternative arrangement) it is proposed to set #p N*LT by amending t"e *ompanies Act !A36& In A#g#st +55!) t"e N*LT is e%pected to consolidate t"e powers of BI:1) .ig" co#rt and *ompany Law Board to avoid m#ltiplicity of for#ms& In matters of re"abilitation of sick #nits) all concerned parties are s#pposed to abide by t"e orders of N*LT& T"ere s"all be !5 benc"es) w"ic" will deal wit" re"abilitation)
reconstr#ction and winding #p of companies& It is estimated to complete t"e entire process d#ring a period of + 0 years as against +5 +, years presently taken& T"e Trib#nal will "ave) in addition) powers of contempt of co#rt& A re"abilitation and revival f#nd will be constit#ted to make interim payment of d#es to workers of a company declared sick or is #nder li$#idation) protection of assets of sick company and re"abilitate sick companies& 7"ile N*LT will be acting on t"e lines of BI:1 in t"e matters of re"abilitation viability of t"e pro/ects will be assessed on cas" test and not in t"e present test of net time limit for completing eac" formality relating to re"abilitation and winding #p& T"o#g" t"e Bill is well drafted to ens#re N*LT to become time wise) and more effective t"an BI:1 in respect of re"abilitation and winding #p) do#bts are raised abo#t t"e implementation of t"e Bill taking into acco#nt t"e present political economy& In any case) it is too early to comment&
BABASAB PATIL
0!
B% .orporate De t *estructuring "ody A need was felt to special agency to facilitate debt restr#ct#ring beca#se t"ere "as been some "esitancy on t"e part of Bank and financial instit#tion to implement 1BI g#idelines on debt restr#ct#ring recently t"ree tire body) *91 "as been set #p to coordinate corporate debt Mrestr#ct#ring program& It is yet to be operationali(ed *91 consist of :or#m Dro#p and cell& 7"ile t"e for#m evolves broad policy g#idelines) t"e gro#p takes decisions on t"e proposals pecommended by t"e *ell& Initially) t"e borrower approac"es "is Lead bankB:I wit" a re$#est to restr#ct#re debt w"ic" in t#rn p#ts #p t"e proposal to t"e *ell& T"e *91 *overs only m#ltiple banking acco#nts en/oying credit facilities e%ceeding 1s&+5crore& *ases of 91T) BI:1 and willf#l defa#lts) do#btf#l and loss acco#nts and s#it filed cased are o#tside t"e p#rview of t"e *91& T"#s standard and s#b standard acco#nts are only eligible to seek *91 s"elter& 9ecisions of t"e gro#p are based on t"e s#per ma/ority principle& If ,3 percent of t"e sec#red creditors agree to t"e re"abilitation plan) it is binding on t"e ot"er banksB:is& T"e *91 is a vol#ntary system based on debtor creditor agreement and inter creditors agreement& No bankerBborrower can take reco#rse to any legal action d#ring t"e stand still period of A5 !?5 days& Lastly) *91 will observe t"e 1BI D#ideline on 9ebt 1estr#ct#ring iss#ed in @arc" +556& 7"ile t"e arrangements #nder *91 seem to be feasible from t"e debt restr#ct#ring perspective) its s#ccess depends #pon t"e cooperation e%tended by borrowers and bankers) on t"e one "and) and #nderstanding among banks and :is) on t"e ot"er& 9o#bts are raised abo#t t"e implementation of t"ese agreements taking into t"e present working of t"e loan consorti#m arrangements&
BABASAB PATIL
0+
C% Asset *econstruction .orporation% It is proposed to set #p A1*s in t"e private sector to take over NPAs in t"e p#blic sector banks& T"e 1BI will be t"e reg#lator of t"ese AT*s& T"e A1* will b#y NPAs of t"e banks and financial instit#tions at t"e pre determined disco#nted val#e and iss#e NPA redemption bonds) w"ic" carry a fi%ed ret#rn& A1*s are e%pected to be managed by professionals to effect ma%im#m recovery of NPA) w"ic" will "elp in redemption of bonds after some time& T"e :inance @inistry "as finali(ed t"e draft Bill to set #p A1*s& T"o#g" t"e proposed sc"eme seems to be attractive) its s#ccess will depend #pon t"e efficiency of 91Ts and co#rts& :#rt"er) if A1* is going to depend on t"e staff dep#ted by weak banks) its recovery c"ances are do#btf#l& D% .ompany 'ergers% 8nder t"e *ompanies Act) !A36) mergers are permitted& In !A,,) Sec ,+ A was inserted in t"e Income Ta% Act to offer ta% incentives to "ealt"y companies w"ic" take over t"e sick companies and prepare revival plans& 1esponse to t"is sc"eme formalities as per t"e instr#ctions of t"e .ig" *o#rt and Income Ta% 9epartment& Ta% incentives are fo#nd to be inade$#ate to motivate "ealt"y companies to come forward and take advantage of t"e sc"eme& 1ecovery of bank d#es on company mergers is not ass#red since "ardly ,&? per cent of sick companies are s#ccessf#lly revived& >nco#raged by t"e s#ccess ac"ieved in company mergers in developed co#ntries) a review of t"e sc"eme #nder section ,+ A of IT Act is called for&
BABASAB PATIL
00
N(N +E/A+ 'EAS-*ES

<% *eminder System T"e c"eapest mode of recovery is by sending reminders to t"e borrowers before t"e loan installment falls d#e& Denerally) response to t"is arrangement partic#larly from "onest borrowers is enco#raging& B#t efforts need to be strengt"ened in banks in sending reminders on timely basis& =% 4isit to "orro!er0s "usiness Premise:*esidence T"is is a more dependable meas#re of recovery& 4isits need to be properly planned& Involvement of staff at all levels in t"e bank branc" is called for& *osts involved in recovery need to be kept to t"e minim#m& :re$#ent visits are called for in case of "ardcore borrowers& 'ver t"e years) it is observed t"at t"e n#mber and $#ality of visits are going down& *onse$#ently) t"e recovery process is affected& B% *ecovery .amps In respect of agric#lt#ral advances) recovery camps s"o#ld be organi(ed d#ring t"e "arvest season& To ens#re ma%im#m advantage) recovery camps need to be properly planned& It is also essential to take t"e "elp of o#tsiders) partic#larly) reven#e officers in t"e state government) local panc"ayat officials) regional approac" to give a wide
p#blicity of t"e recovery camps to be organi(ed in t"e local area) mobili(e as many farmers as possible and motivate t"e staff to get involved in t"e recovery drive&
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C% *ephrasing -npaid +oan ,nstallments In respect of small advances) bankers need to be system pat"etic in respect of sincere and "ardworking borrowers& If s#c" borrowers fail to pay loan installments d#e to nat#ral calamities or for some ot"er convincing reasons) #npaid loan installments may be replasedBresc"ed#led& Bankers efforts need to be strengt"ened in t"e regard& D% *eha ilitation of Sic# -nits Sick #nits bot" in SSI and non SSI sectors s"o#ld be identified on timely basis keeping in mind t"e official definitions& *a#ses of sickness s"o#ld be gen#ine& If t"e pro/ect is fo#nd viable in terms of 9ebt Service *overage 1atio <9S*1=) re"abilitation package "as to be prepared keeping in mind t"e broad parameters s#ggested by t"e 1BI& T"e package s"o#ld be implemented at t"e earliest by t"e bank and t"e borrower& *lose monitoring of t"e progress of implementation is called for& T"ere are several s#ccess stories on re"abilitation of sick #nits& B#t in general) it is observed t"at t"e s#ccess rate in revival of sickness is disco#raging& :#rt"er) in t"e process of financial sector reforms) banks and :is are "esitant to re"abilitate d#e to t"e t"reat of fail#re in re"abilitation& 1ecently) t"e 1BI "as permitted banks not to make provision for sick SSI #nits d#ring t"e first year of implementation& New g#idelines on re"abilitation of sick SSI #nits will also be iss#ed soon by t"e 1BI& :or s#ccessf#l re"abilitation) it is essential to create a sense of #rgency on t"e part of bot" banks and borrowers& >fforts on t"e part of t"e government in terms of concessions) relief-s etc& S"o#ld be made on timely basis& 8nderstanding between bank and S:*s s"o#ld be strengt"ened& Above all) stern action against willf#l defa#lters is called for&
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A% +oan .ompromise T"is is t"e last resort of recovery& T"is s"o#ld be vol#ntary& It calls for a
professional approac" in preparing t"e compromise proposal for w"ic" eac" bank is e%pected to introd#ce a sc"eme& *ommittee approac" s"o#ld be adopted to decide on t"e loan compromise& 9elays in taking decisions s"o#ld be avoided& 1ecently) one Time Settlement <'TS= sc"eme was introd#ced by t"e 1BI& T"e overall response to t"e sc"eme was limited& .ence) eac" bank is e%pected to come o#t wit" its own 'TS sc"eme& In addition) training of operating staff is essential to c"ange t"eir mindset& :or effective recovery) loan compromise s"o#ld be taken #p on priority basis& ,& Appointment of Professional Agencies for *ecovery 1ecently) IBA "as worked o#t certain g#idelines for banks on matters concerning t"e appointment of o#tside professional agencies w"ose services can be #tili(ed to ascertain t"e w"ereabo#ts of t"e borrowers and enforcement of sec#rities& T"ere is some "esitancy on t"e part of p#blic sector banks in engaging t"em for recovery p#rposes d#e to #npleasant e%periences in certain cases& B#t d#ring t"e post M 41S scenario) it is s#ggested to seek s#c" o#tso#rcing& T"is s"o#ld be done after e%amining t"e credentials of t"e professionals& It is also essential to keep a constant vigil on t"eir practice&
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-nit Trust of ,ndia "an#

8TI Bank was t"e first of t"e new private banks to "ave beg#n operations in !AA2) after t"e Dovernment of India allowed new private banks to be establis"ed& T"e Bank was promoted /ointly by t"e Administrator of t"e specified #ndertaking of t"e) 8nit Tr#st of India& Life Ins#rance *orporation of India <LI*= Deneral Ins#rance *orporation Ltd& 't"er fo#r PS8 companies) i&e& National Ins#rance *ompany Ltd&) T"e New India Ass#rance *ompany) T"e 'riental Ins#rance *orporation and 8nited Ins#rance *ompany Ltd& T"e Bank today is capitali(ed to t"e e%tent of 1s& +?5&3! *rores wit" t"e p#blic "olding <ot"er t"an promoters= at ,+&26 E& T"e "an#?s *egistered (ffice is at Ahmeda ad and its *entral 'ffice is located at 'um ai& Presently t"e Bank "as a very wide network of more t"an 26A branc" offices and >%tension *o#nters& T"e Bank "as a network of over +5!6 AT@s providing +2"rs a day banking convenience to its c#stomers& T"is is one of t"e largest AT@ networks in t"e co#ntry& T"e Bank "as strengt"s in bot" retail and corporate banking and is committed to adopting t"e best ind#stry practices internationally in order to ac"ieve e%cellence& 'ission of -T, "an#: *#stomer Service and Prod#ct Innovation t#ned to diverse needs of individ#al and corporate clientele& *ontin#o#s tec"nology #pgradation w"ile maintaining "#man val#es& Progressive globali(ation and ac"ieving international standards& >fficiency and effectiveness b#ilt on et"ical practices&
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.ore 4alues *#stomer Satisfaction t"ro#g" Providing $#ality service effectively and efficiently Smile) it en"ances yo#r face val#eK is a service $#ality stressed on Periodic *#stomer Service A#dits @a%imi(ation of Stake"older val#e S#ccess t"ro#g" Teamwork) Integrity and People
Promoters:
8TI Bank Ltd& "as been promoted by t"e largest and t"e best :inancial Instit#tion of t"e co#ntry) 8TI& T"e Bank was set #p wit" a capital of 1s& !!3 crore) wit" 8TI contrib#ting 1s& !55 crore) LI* 1s& ,&3 crore and DI* and its fo#r s#bsidiaries contrib#ting 1s& !&3 crore eac"&
"oard of DirectorsH T"e Bank "as <= members on t"e Board& Dr% P% E% Naya# is t"e .hairman and 'anaging Director of the "an#& T"e members of t"e Board are H Dr% P% E% Naya# Shri Surendra Singh Shri N%.% Singhal Shri A%T% Pannir Selvam Shri E%*% 4arma Dr% *% )% Patil Smt% *ama "ijapur#ar Shri * " + 4aish Shri S% .hatterjee Shri S " 'athur Shri ' 4 Su iah *"airman J @anaging 9irector 9irector 9irector 9irector 9irector 9irector 9irector 9irector >%ec#tive 9irector <7"ole Time 9irector= 9irector 9irector
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Shri *amesh *amanathan )istory of -T, "an# 9irector
<88B T"e Bank was incorporated on 0rd 9ecember and *ertificate of b#siness on!2t"
9ecember& T"e Bank transacts banking b#siness of all description& 8TI Bank Ltd& was promoted by 8nit Tr#st of India) Life Ins#rance *orporation of India) Deneral Ins#rance *orporation of India and its fo#r s#bsidiaries& T"e bank was t"e first private sector bank to get a license #nder t"e new g#idelines iss#ed by t"e 1BI
<88C M :irst branc" of 8TI Bank ina#g#rated at A"medabad by 9r& @anmo"an Sing")
.on;ble :inance @inister) Dovernment of India&
<88D M *ompletes first profitable year in operation <88A M *rosses 1s&!555 crore deposit mark <88F M T"e Bank obtained license to act as 9epository Participant wit" NS9L and
applied for registration wit" S>BI to act as NTr#stee to 9ebent#re .olders;& 1#pees !55 crores was contrib#ted by 8TI) t"e rest from LI* 1s ,&3 crores) DI* and its fo#r s#bsidiaries 1s !&3 crores eac"&
<88G M T"e Bank "as +? branc"es in #rban and semi #rban areas as on 0!st O#ly& All
t"e branc"es are f#lly comp#terised and networked t"ro#g" 4SAT& AT@ services are available in +, branc"es& T"e Bank came o#t wit" a p#blic iss#e of !)35)55)555 No& of e$#ity s"ares of 1s !5 eac" at a premi#m of 1s !! per s"are aggregating to 1s 0!&35 crores and 'ffer for sale of +)55)55)555 No& of e$#ity s"ares for cas" at a price of 1s +! per s"are& '#t of t"e p#blic iss#e +)+5)555 s"ares were reserved for allotment on preferencial basis to employees of 8TI Bank& Balance of 0)2,)?5)555 s"ares were offered to t"e p#blic& T"e company offers AT@ cards) #sing w"ic" acco#nt "olders can wit"draw money from any of t"e bank;s AT@s across t"e co#ntry w"ic" are inter connected by 4SAT&
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8TI Bank "as la#nc"ed a new retail prod#ct wit" operational fle%ibility for its c#stomers& 8TI Bank will sign a co brand agreement wit" t"e market) leader) *itibank NA for entering into t"e "ig"ly promising credit card b#siness& 8TI Bank promoted by India;s pioneer m#t#al f#nd 8nit Tr#st of India along wit" LI*) DI* and its fo#r s#bsidiaries&
<888 8TI Bank and *itibank "ave la#nc"ed an international co branded credit card&
8TI Bank and *itibank "ave come toget"er to la#nc" an international co branded credit card #nder t"e @aster*ard #mbrella& 8TI Bank Ltd "as ina#g#rated an off site AT@ at As"ok Nagar "ere) taking t"e total n#mber of its off site AT@s to !0&m =999 T"e Bank "as anno#nced t"e la#nc" of Tele 9epository Services for its depository clients& 8TI Bank "as la#nc" of Ni*onnect;) its Internet banking Prod#ct& 8TI Bank "as signed a memorand#m of #nderstanding wit" e$#itymaster&com for e broking activities of t"e site& Infinity&com financial Sec#rities Ltd&) an e broking o#tfit is typing #p wit" 8TI Bank for a banking interface& Deo/it Sec#rities Ltd) t"e first company to start online trading services) "as signed a @o8 wit" 8TI Bank to enable investors to b#yPsell demat stocks t"ro#g" t"e company;s website& Indiab#lls "as signed a memorand#m of #nderstanding wit" 8TI Bank& 8TI Bank "as entered into an agreement wit" Stock .olding *orporation of India for providing loans against s"ares to S*.*IL;s c#stomers and f#nding investors in p#blic and rig"ts iss#es& 8TI Bank "as tied #p wit" LJT Trade&com for providing c#stomi(ed online trading sol#tion for brokers&
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=99< 8TI Bank la#nc"ed a private placement of non convertible debent#res to rise #p to 1s ,3 crore& co#ntry to 033& 8TI Bank "as recorded a 6+ per cent rise in net profit for t"e $#arter ended September 05) +55!) at 1s 05&A3 crore& :or t"e second $#arter ended September 05) +555) t"e net profit was 1s !A&5? crore& T"e total income of t"e bank d#ring t"e $#arter was #p 30 per cent at 1s 066&+3 crore& =99= 8TI Bank Ltd "as informed BS> t"at S"ri B 1 Barwale "as resigned as a 9irector of t"e Bank w&e&f& Oan#ary 5+) +55+& A * S"a") former c"airman of Bank of Baroda) also retired from t"e bank;s board in t"e t"ird $#arter of last year& .is place contin#es to be vacant& @ 9amodaran took over as t"e director of t"e board after taking in t"e reins of 8TI& B S Pandit "as also /oined t"e bank;s board s#bse$#ent to t"e retirement of Q D 4assal& 8TI Bank Ltd "as informed t"at S"ri Pa#l :letc"er "as been appointed as an Additional 9irector Nominee of *9* :inancial Service <@a#riti#s= Ltd of t"e Bank&And S"ri 9onald Peck "as been appointed as an Additional 9irector <nominee of So#t" Asia 1egional :#nd= of t"e Bank& 8TI Bank Ltd "as informed t"at on laying down t"e office of *"airman of LI* on being appointed as *"airman of S>BI) S"ri D N Ba/pai) Nominee 9irector of LI* "as resigned as a 9irector of t"e Bank& =99= B Paran/pe J Abid .#ssain cease to be t"e 9irectors of 8TI Bank& 8TI Bank Ltd "as informed t"at in t"e meeting of t"e Board of 9irectors following decisions were takenH @r Gas" @a"a/an) 4ice *"airman and @anaging 9irector of P#n/ab Tractors Ltd was appointed as an Additional 9irector wit" immediate effect& @r N * Sing"al former 4ice *"airman and @anaging 9irector of S*I*I was appointed as an Additional 9irector wit" immediate effect& 8TI Bank "as opened two offsite AT@s and one e%tension co#nter wit" an AT@ in @angalore) taking its total n#mber of AT@s across t"e
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8TI Bank Ltd "as informed BS> t"at a meeting of t"e Board of 9irectors of t"e Bank is sc"ed#led to be "eld on 'ctober +2) +55+ to consider and take on record t"e #na#dited "alf yearlyB$#arterly financial res#lts of t"e Bank for t"e "alf yearBL#arter ended September 05) +55+& 8TI Bank Ltd "as informed t"at S"ri O @ Trivedi "as been appointed as an alternate director to S"ri 9onald Peck wit" effect from November +) +55+& =99B 8TI Bank Ltd "as informed BS> t"at at t"e meeting of t"e Board of 9irectors of t"e company "eld on Oan#ary !6) +550) S"ri 1 N B"aradwa/) @anaging 9irector of LI* "as been appointed as an Additional 9irector of t"e Bank wit" immediate effect& 8TI Bank) t"e private sector bank "as opeaned a branc" at Nellore& T"e bank;s *"airman and @anaging 9irector) 9r P&O& Nayak) ina#g#rating t"e bank branc" at DT 1oad on @ay +6& Speaking on t"e occasion) 9r Nayak said) KT"is marks anot"er step towards t"e e%tensive c#stomer banking foc#s t"at we are providing across t"e co#ntry and reinforces o#r commitment to bring s#perior banking services) marked by convenience and closeness to c#stomers& 8TI "as been a#t"orised to la#nc" !6 AT@s on t"e 7estern 1ailway Stations of @#mbai 9ivision& 8TI filed s#it against financial instit#tions I:*I Ltd in t"e debt recovery trib#nal at @#mbai to recover 1s&?3cr in d#es& 8TI bank made an entry to t"e :ood *redit Programme) it "as made an entry into t"e 3A cl#ster w"ic" incl#des private sector) p#blic sector) old private sector and co operative banks& S"ri A/eet Prasad) Nminee of 8TI "as resigned as t"e director of t"e bank& Banks *"airman and @9 9r&P&O&Nayak ina#g#rated a new branc" at Nellore& 8TI bank allots s"ares #nder >mployee Stock 'ption Sc"eme to its employees& 8TI Bank ties #p wit" 8Q govt f#nd for contract farming S"ri B S Pandit) nominee of t"e Administrator of t"e Specified 8ndertaking of t"e 8nit Tr#st of India <8TI I= "as resigned as a director from t"e Bank w&e&f November !+) +550&
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=99C *omes o#t wit" 1s& 355 mn 8nsec#red 1edeemable Non *onvertible 9ebent#re
Iss#e) iss#e f#lly s#bscribed 8TI Bank Ltd "as informed t"at S"ri A/eet Prasad) Nominee of t"e Administrator of t"e Specified 8ndertaking of t"e 8nit Tr#st of India <8TI I= "as been appointed as an Additional 9irector of t"e Bank w&e&f& Oan#ary +5) +552& 8TI Bank opens new branc" in 8d#pi 8TI Bank ties #p wit" S"riram Dro#p *o-s 8nveils premi#m payment facility t"ro#g" AT@s applicable to LI* J 8TI Bank c#stomers @etal/#nction <@O= t"e online trading and proc#rement /oint vent#re of Tata Steel and Steel A#t"ority of India <SAIL= "as roped in 8TI Bank to start off own e$#ipment for Tata Steel& 9I>B'L9 Systems Private Ltd) a w"olly owned s#bsidiary of 9iebold Incorporated) "as sec#red a ma/or contract for t"e s#pply of AT@s and services to 8TI Bank .SB* completes ac$#isition of !2&6E stake in 8TI Bank for R6,&6 m 8TI Bank installs AT@ in T"ir#vanant"ap#ram La#nc"es N1emittance *ard; in association wit" 1emit+India) a 7eb site offering money transfer services
=99D: 8TI Bank appointed by Dovernment of Qarnataka as t"e sole banker for t"e
Bangalore 'ne <B!= pro/ect& @ 8TI Bank la#nc"es a powerf#l version of Qisan *redit *ard& @ 8TI Bank gets listed on t"e London Stock >%c"ange) raises 8SR +0A&05 million t"ro#g" Dlobal 9epositary 1eceipts <D91s=& @ 8TI Bank and Ba/a/ Allian( /oin "ands to distrib#te general ins#rance prod#cts& @ 8TI Bank and 4isa International la#nc" @obile 1efill facility Anytime) Anyw"ere Pre Paid @obile 1efill for all 4isa *ard"olders in India&
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@ 8TI Bank wins International :inancing 1eview <I:1= Asia SIndia Bond .o#seaward for t"e year +553& 8TI Bank e%tends banking services to t"e r#ral milk prod#cers in Anand and Q"eda districts in D#/arat&
=99A: 8TI Bank and 8TI @#t#al :#nd to la#nc" a new service for sale and redemption
of m#t#al f#nd sc"emes t"ro#g" t"e Bank-s AT@s across t"e co#ntry& 8TI Bank opens its first international branc" in Singapore& 8TI Bank and LI* /oin "ands to la#nc" an Ann#ity *ard for gro#p pensioners of LI*& 8TI Bank ties #p wit" Deo/it :inancial Services to offer 'nline Trading service to its c#stomers&
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Non Performing Assets and its impact on Profitability of New Private Sector Banks SH(T Analysis Strength
8TI Bank "as been in t"e banking ind#stry since !AA2& It "as s#ccessf#lly completed !+ years in t"e Banking ind#stry&
T"e bank "as a so#nd network i&e Any!here "an#ing facility in 235 Branc"es and !?A!AT'?s at strategic locations in India&
Hea#ness Tedio#s proced#res "ave to be followed before advancing loans ca#sing inconvenience to c#stomers&
-T, "an# stands one among t"e top ten banks in India and is ranked <st in gro!th in usiness T"e bank is "aving well e%perienced) trained) most dedicated and committed staff& In "as a strong c#stomer base& (pportunities Dlobal aspirations of Indian cons#mers and growing integration wit" N1Is& T"e bank can optimi(e t"e growt" opport#nities arising o#t of retail banking and small and medi#m enterprises <S@>s=& :#rt"er e%pansion of AT@s networks and possible arrangements of s"aring networks of ot"er banks by iss#ing m#t#al f#nds and ins#rance&
Threat
Bank is facing competition from its ot"er Private Sector Banks and even t"e foreign Banks *"anging economic policies of Dovernment will "ave serio#s impact on interest rates and reserve ratio maintained wit" 1BI
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Products and Services of -T, "an# .onsumer an#ing 8TI Bank is providing in cons#mer banking t"e following prod#cts and servicesH Savings Acco#nt Salary Power Power Sal#te Priority Banking 7omen Acco#nt Senior Privilege ATAA9IK No :rills Savings Acco#nt 1:* <9= Acco#nt :i%ed 9eposits 1ec#rring 9eposits Lockers 9ebit *ard Travel *#rrency *ard >ncas" +2 1emittance *ard 4isa @oney Transfer Power Transfer .urrent Account Normal *#rrent Acco#nt B#siness Advantage Acco#nt B#siness *lassic Acco#nt B#siness Privilege Acco#nt *"annel 'ne
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Demand drafts at correspondent bank locations available at very nominal c"arges& :ree Pay 'rder facility& :ree 9emand 9rafts Intercity *as" 9eposit Intercity *as" 7it"drawal .ome Branc" *as" 7it"drawal *etail loans @ 8TI Bank is providing following loan facilities to t"e c#stomers in retail loan section& Power 9rive Power .ome Asset Power Personal Power Loans against Sec#rities *ons#mer Power St#dy Power .orporate an#ing @ In corporate banking 8TI Bank is providing following services& *as" @anagement Services LendingB:inancing Trade Service *#rrent Acco#nt :i%ed 9eposits +ending:&inancing 7orking capital finance
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*as" credit B working capital demand loan Loan against :*N1 <B= deposit Term lending Pro/ect loan Bill finance s#pply B p#rc"ase bills *"annel finance Asset sec#riti(ation Line of credit Bank g#arantees Trade Service Trade &inance Bills 9isco#nting LB* Backed bill disco#nting 9rawee Bill 9isco#nting 9rawer Bill 9isco#nting &inancial advisory service It is bank-s endeavor to offer c#stomer complete personal finance sol#tions& T"ro#g" bank-s financial Advisory Services bank #nderstand c#stomers investment re$#irements and design tailor made financial sol#tions for t"em& Beyond merely advising c#stomers) Bank will also "elp t"e c#stomers to invest in a variety of instr#ments incl#ding& @#t#al :#nds Bank ass#rance >$#ity Ta% cons#ltancy IP' B#(( BABASAB PATIL 2A
:i%ed Income Prod#cts Portfolio Tracker N*, SE*4,.ES In 8TI Bank) reali(e t"at as an N1I) c#stomer banking needs are special& And in keeping wit" t"is p"ilosop"y) and offer val#ed N1I c#stomers a plet"ora of services c#stomi(ed to t"eir needs) s#c" as T"e entire bo#$#et of N1I 9eposit Prod#cts J Services& International 9ebit *ard wit" Accident Ins#rance cover :ree Internet Banking facility Portfolio Investment sc"eme for capital market transactions& *orrespondent BankingB1emittance arrangements in all ma/or c#rrencies .apital mar#ets 9epository Services e9epository Services 9ebent#re Tr#stees"ip *learing bank for NS>BBS>B'T>*I *learing @embers for 9erivatives Segment Broker :inancing Iss#e @anagement @JA Advisory IP' :#nding 'nline Trading
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/overnment "usiness 8TI Bank is t"e :irst Private Sector Bank to be a#t"orised by t"e 1eserve Bank of India <1BI= and Dovernment of India for collecting Ta%es on be"alf of a State Dovernment& T"e Bank is "andling *ollection of *ommercial Ta%es in t"e twin cities of .yderabad and Sec#nderabad for Dovt& of And"ra Prades" since O#ly +55!& 8TI Bank is now a#t"orised by 1eserve Bank of India and Dovt& of India for cond#cting all *entral Dovernment and State Dovernment B#siness commencing wit" 'ctober !) +550& T"e a#t"orisation means t"e Bank can #ndertake t"e following b#siness on be"alf of *entral and State DovernmentsH Treasury :oreign >%c"ange 9esk International Banking @oney @arket 9esk *onstit#ent SDL :acility 1etail D sec 9eposit 1ate Newsletter :oreign >%c"ange
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&indings And Analysis
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Design of the study

Title of the project: Non Performing Assets and its impact on Profita ility of Ne! Private Sector "an#s$%
Scope of study: Scope of my st#dy restricted only to , New Private Sector Banks
NPA data-s and Advances) and for *omparison of *redit risk pat" , old selected Private Banks are taken& Need &or Study: T"is st#dy will "elp to know t"e recent norms of NPA& T"is st#dy "elps to know "ow NPA *a#sing Problems to Banking Sector and w"at mig"t be t"e sol#tion to overcome from t"is problem and also its impact on Profitability of New Profit Banks&
STATE'ENT (& T)E P*("+E'

Profitability is considered as a benc"mark for eval#ating performance of any b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing Non Performing Assets) "ave a direct impact on profitability of banks and financial instit#tions& Legally speaking banks and financial instit#tions are not allowed to book income on s#c" acco#nt and at t"e same times t"ey are forced to make provision on s#c" assets& So T"is pro/ect is #ndertaken to now impact of NPA on Profitability of New Private Sector Banks&
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( jectives of Study 6& To st#dy t"e 1BI norms on Non Performing Assets) and t"e vario#s reasons for t"e e%istence of "#ge level of NPA in Indian banking& ,& To know t"e performance comparison of New Private Banks Non performing asset for past 0 years& ?& To know t"e impact of non performing assets on profitability of New Private Banks) and comparison of credit risk pat" of New Private Banks wit" , selected 'ld Private Banks& A& To st#dy t"e vario#s steps taken by t"e banks to bring down t"e NPA-s in respective bank branc"es& !5& To recommend meas#res for Improving performance and red#ction of Non Performing Assets&
'ethodology
Primary Data: 4iews of t"e concerned officials were gat"ered by directly interacting wit" t"em) and s#c" data was fo#nd very #sef#l w"ile analy(ing and drawing concl#sions& Secondary Data: 1ecent 1BI norms of NPA& IBA B#lletin 5f +553 56 is referred to collect data for Net NPA) and Advances& 7eb site of 8TI Bank and ot"er 7eb sites&
Plan of analysis: In t"is st#dy $#adrant analysis is #sed on t"e calc#lated fig#res& +imitations: T"e st#dy is based mostly on secondary data& BABASAB PATIL 33
9ata "as been drawn from /o#rnals) so information may not be complete& :or t"e analysis only t"e advances and NPA percentages of banks and operating profit) provisions and contingencies as a w"ole and net profit of New PSB-s are taken into consideration& ,mpact of Provisions and .ontingencies on Net Profit of Ne! Private "an#s% Performance comparison of Ne! Private Sector "an#s (perating Profit of B years S No ! + 0 2 3 6 , ? "an#s Bank of Pan/ab LtdU *ent#rion Bank LtdU .9:* Bank Ltd I*I*I Bank Ltd Ind#sind Bank Ltd& Qotak @a"indra Bank Ltd& 8TI Bank Ltd Ges Bank
5000 4000 3000 2000 1000 0
Lt Ce d* nt ur io n B HD ank Lt FC d* Ba IC nk IC Lt In !o du I Ba d ta nk si k nd " Lt d Ba a# in n k dr L a Ba td n $% k L I B td an k Lt &e d s Ba nk
(perating Profit 5 in .rore6 =99B@9C =99C@9D =99D@9A !50 !A !+ !55? +2?! 223 !+, 6A? 0! !022 +A36 25! !00 366 <2= !2? !A,A 26A! ++3 +!! AA2 AA
2003-04 2004-05 2005-0'
-1000
Ba nk
of
Pa nj ab
BABASAB PATIL
36
,nterpretation: As we seen in grap" I*I*I Bank Ltd& 'perating Profit is increasing year by year followed by .9:* Bank Ltd&
BABASAB PATIL
3,
Performance comparison of Ne! Private Sector "an#s Provisions and
.ontingencies of B years S No ! + 0 2 3 6 , ? Banks Bank of Pan/ab LtdU *ent#rion Bank LtdU .9:* Bank Ltd I*I*I Bank Ltd Ind#sind Bank Ltd& Qotak @a"indra Bank Ltd& 8TI Bank Ltd Ges Bank Provisions and *ontingencies < in *rore= +550 52 +552 53 +553 56 66 ?! !!, 2A? ?22 !?0 2? 2+5 6 6,? A3! !A! 2A +0! 5 65 !!5? +!3! !?? A+ 35A 22
2500 2000 1500 1000 500 0

Lt Ce d* nt ur io n B HD ank Lt FC d* Ba IC nk IC L I I n !o Ba t d du ta si nk k nd " Lt d Ba a# in n k dr L a Ba td n $% k L I B td an k Lt &e d s Ba nk
2003-04 2004-05 2005-0'
,nterpretation: I*I*I Bank Ltd making large Provisions for losses compares to .9:* Bank Ltd and 8TI Bank Ltd may be beca#se of t"eir credit wort"iness&
Ba nk
of
Pa nj ab
BABASAB PATIL
3?
BABASAB PATIL
3A
Performance comparison of Ne! Private Sector "an#s Net Profit B years S No ! + 0 2 3 6 , ? Banks Bank of Pan/ab LtdU *ent#rion Bank LtdU .9:* Bank Ltd I*I*I Bank Ltd Ind#sind Bank Ltd& Qotak @a"indra Bank Ltd& 8TI Bank Ltd Ges Bank +550 52 0, <!53= 3!5 !60, +6+ ,A +,? Net Profit <in *rore= +552 53 +553 56 <6!= +3 666 +553 +!5 ?3 003 <2= ?? ?,! +325 0, !!? 2?3 33
3000 2500 2000 1500 1000 500 0

Lt Ce d* nt ur io n B HD ank Lt FC d* Ba IC nk IC L I I n !o Ba t d du ta si nk k nd " Lt d Ba a# in n k dr L a Ba td n $% k L I B td an k Lt &e d s Ba nk
2003-04 2004-05 2005-0'
-500
Pa nj ab
,nterpretation: I*I*I Bank Ltd and .9:* Bank LT9 Net Profit is Increasing >ven t"o#g" lot of @oney "as spent on Provision and *ontingency& It may be beca#se of t"eir risk taking ability&
Ba nk
of
BABASAB PATIL
65
Analysis of a ove data: As we see t"e above grap"s) I*I*I Bank Ltd 'perating Profit is increasing year by year followed by .9:* Bank Ltd& 8TI Bank Ltd 'perating Profit is decreased in +552 53 b#t its s#ddenly increased to AA2crore in +553 +556& B#t Bank of Pan/ab Ltd 'perating Profit for +550 52 is !50 crore b#t s#ddenly it decreases to !A crore !n +552 53) t"en it amalgamated wit" *ent#rian Bank 7"ose 'perating Profit is *omparatively Low in +550 52 and +552 53 after amalgamation it increases to !2?crore& >ven Ind#sind Bank Ltd 'perating Profit is go on 9ecreasing and as Ges Bank is very new so initially it "ad made loss of 2crore b#t made AAcrore operating profit in +553 56& Provisions and *ontingencies made by I*I*I Bank Ltd and .9:* Bank Ltd is *omparatively "ig" it may be beca#se of risk taking ability and "ave strong financial backgro#nd wit" more e%perience) And also t"ese banks are able to provide ade$#ate finance to 9ifferent Sectors& As we seen 8TI Bank Ltd 'perating Profit in +552 53 decreased and in +553 56 increased so t"e Provisions made is low in +552 53 b#t "ig" in +553 56 it may be beca#se of large advances made by bank in +553 56& B#t Bank of Pan/ab Ltd 'perating Profit gone down in +552 53 to !Acrore b#t it "as inc#rred to make ?!crore Provisions and *ontingencies it may be beca#se of wrong Strategy made by bank to provide finance and to maintain operating Profit) same sit#ation "as faced by *ent#rion Bank Ltd in t"e year +553 56& So only Bot" Bank of Pan/ab Ltd and *ent#rion Bank Ltd Amalgamated to make strong finance Backgro#nd& Ind#sind Bank 'perating Profit coming down year by year& Qotak @a"indra is performing better eno#g" ne%t to I*I*I Bank) .9:* Bank) 8TI Bank& As Ges Bank is new so initially it inc#rred 2crore loss so no provisions were made b#t it made Provisions in +553 56& I*I*I Bank Ltd) .9:* Bank Ltd and 8TI Bank Ltd "ad comparatively "ig" Net Profit it may be beca#se of risk taking ability and strong financial backgro#nd wit" more e%perience& As "eavy Provisions were inc#rred by Bank of Pan/ab Ltd and *ent#rion Bank Ltd till +552 53 "ad amalgamated to make Positive Net profit and named t"emselves as *ent#rion Bank of Pan/ab Ltd& Ind#sind Bank "ave to adopt different strategy to increase net profit as it inc#rring loss from past 0 years&
BABASAB PATIL
6!
Analysis of /ross and Net NPA y ta#ing B years Advances paid y Ne! Private Sector "an#% "an# of Panja +td "an#s +550 52 +552 53 +553 56 /ross Advances +,5A +3+5 @ /ross NPA !6? !+6 @ /ross NPA5I6 6&+5 3&55 Net Advances +030 +2!, @ Net NPA !+6 !!+ Net NPA5I6 3&03 2&62
.enturion "an# +td "an#s +550 52 +552 53 +553 56 ,ntrepretation: As Bank of Pan/ab Ltd and *ent#rion Bank "as amalgamated in +553 September) so we can see a decrease in Dross NPA from !+&A6E to 2&6E and Net NPA decreases to !&!0E& 'f co#rse it is a good sign to t"e company as it came below 3E) beca#se if NPA ratio of any Bank is more t"an 3E t"en it is said t"at t"e Banks need to adopt proper strategy for recovery of debt& /ross Advances !,53 ++A! 6?2? /ross NPA ++! !36 0!3 /ross NPA5I6 !+&A6 6&?! 2&6 Net Advances !336 +!A2 6300 Net NPA 6A 33 ,2 Net NPA5I6 2&20 +&2A !&!0
BABASAB PATIL
6+
)D&. "an# +td "an#s +550 52 +552 53 +553 56 ,nterpretation: :rom t"e above table we can see t"at Dross NPA of .9:* Bank Ltd "as decreasing from !&?6 to !&25 from +550 52 to +553 56& T"is accomplis"ment is on acco#nt of credit growt") w"ic" was "ig"er t"an t"e growt" of Dross NPA and not t"ro#g" appreciable recovery of NPA& T"ere is neit"er red#ction nor even containment of t"e t"reat beca#se as we seen increase in Net NPA from Past 0 years& ,.,., "an# +td "an#s +550 52 +552 53 +553 56 ,nterpretation: :rom above table we can see t"at Dross NPA of I*I*I Bank Ltd "as decreasing from 2&,5 to !&35 from +550 52 to +553 56& T"is accomplis"ment is on acco#nt of credit growt") w"ic" was "ig"er t"an t"e growt" of Dross NPA and not t"ro#g" appreciable recovery of NPA& T"ere is neit"er red#ction nor even containment of t"e t"reat& I*I*I Bank Ltd is providing "ig" advances compare to ot"er banks in +553 +556& /ross Advances 63!56 A!A+5 !2?+55 /ross NPA 0565 0A+3 +++0 /ross NPA5I6 2&,5 2&+, !&35 Net Advances 62A2? A!253 !26!60 Net NPA !2+0 !353 !530 Net NPA5I6 +&!A !&63 5&,+ /ross Advances !?562 +3A,6 0603, /ross NPA 006 20A 35A /ross NPA5I6 !&?6 !&6A !&25 Net Advances !,,23 +3366 0356! Net NPA +? 6! !33 Net NPA5I6 5&!6 5&+2 5&22
BABASAB PATIL
60
,ndusind "an# +td "an#s +550 52 +552 53 +553 56 ,nterpretation: Ind#sind Bank need to adopt strategy in red#cing NPA as its advances were more in +552 53 and also Dross NPA "as increased it may be beca#se of t"eir credit wort"& And again it decreases Dross NPA in +553 56 t"is #ps and down can affect credit wort"iness of t"e bank& 1ota# 'ahindra "an# +td% "an#s +550 52 +552 53 +553 56 ,nterpretation: Qotak @a"indra Bank Ltd Net NPA is Increasing from +550 52 to +552 53 and again it decreases to 5&+2 in +553 56& it implied t"at NPA of Qotak @a"indra Bank are in #ps and down it may be beca#se of any nat#ral calamities or c"ange in recovery meas#res etc& b#t Dross NPA and Net NPA of Qotak @a"indra Bank is less t"an !E& So its good sign to Bank& /ross Advances +!53 253? 6030 /ross NPA +5 +? 0? /ross NPA5I6 5&A3 5&6A 5&65 Net Advances +5A, 25!, 602A Net NPA 0 !3 !3 Net NPA5I6 5&!2 5&0, 5&+2 /ross Advances ,?2? A5A0 A0,6 /ross NPA +3A 0+! +6A /ross NPA5I6 0&0 0&30 +&A5 Net Advances ,05! A555 A0!5 Net NPA +!+ +22 !A3 Net NPA5I6 +&A5 +&,! +&5A
-T, "an# +td
BABASAB PATIL
62
"an#s +550 52 +552 53 +553 56 ,nterpretation 8TI Bank Ltd Dross and Net NPA "as decreases from +&A0 to !&,5 and !&+5 to 5&A? respectively from +550 52 to +553 56& T"is accomplis"ment is on acco#nt of credit growt") w"ic" was "ig"er t"an t"e growt" of Dross NPA and not t"ro#g" appreciable recovery of NPA& T"ere is neit"er red#ction nor even containment of t"e t"reat& /ross Advances A0?6 !36+? ++255 /ross NPA +,3 0!! 0,2 /ross NPA5I6 +&A0 !&AA !&,5 Net Advances A060 !3650 ++0!2 Net NPA !!+ +!, +!? Net NPA5I6 !&+5 !&0A 5&A?
Performance .omparison of Net NPA of Ne! Private Sector "an#s Ne! PS"0s Bank of Pan/ab LtdU =99B@9C 2&6A =99C@9D 2&62 =99D@9A 5
BABASAB PATIL
63
*ent#rion Bank LtdU .9:* Bank Ltd I*I*I Bank Ltd Ind#sind Bank Ltd& Qotak @a"indra Bank Ltd& 8TI Bank Ltd Ges Bank 2&20 5&!6 +&+! +&,+ 5&!, !&+A 5 +&2A 5&+2 !&63 +&,! 5&0, !&0A 5 !&!0 5&22 5&,+ +&5A 5&+2 5&A? 5
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
Bank of Panjab Ltd* Centurion Bank Ltd* HDFC Bank Ltd C C Bank Ltd ndu!ind Bank Ltd. "otak #a$indra Bank Ltd. %& Bank Ltd 'e! Bank
2003-04
2004-05
2005-06
,nterpretation: :rom above c"art we can see t"at Bank of Pan/ab Ltd-s NPA increasing till it-s amalgamated wit" *ent#rion Bank Ltd) and came nearer to 3E) after amalgamation bot" Bank of Pan/ab Ltd and *ent#rion Bank Ltd named t"emselves as *ent#rion Bank of
BABASAB PATIL
66
Pan/ab Ltd& And in +553 56 its NPA comes down !&!0E comparatively from previo#s year NPA& 7e can say t"at .9:* Bank Ltd "as strong financial backgro#nd and credit wort"iness so it can provide more advances to people and also it is efficient eno#g" to recover t"ose advances so its Net NPA "as coming down and it is less t"an !E& So .9:* is performing well& In +550 52 I*I*I Bank Ltd Net NPA is more b#t its declining slowly and came to 5&,+ from +&+! in +553 56& it may be beca#se of its credit wort"iness and strong recovery meas#res& I*I*I Bank Ltd is real risk taker so we cannot compare it wit" ot"er small banks beca#se it providing "ig" advances compare to ot"er banks& Ind#sind Bank Ltd Net NPA almost same for +550 52 to +552 53 and declines to +&5A in +553 56& As Qotak @a"indra Bank Ltd providing comparatively low advances to avoid credit risk so its NPA is low compare to ot"er Banks& >ven 8TI Bank is performing well in recovering debts so its NPA came down from previo#s year&
BABASAB PATIL
6,
,'PA.T (& NPA0S (N "AN1S? P*(&,TS AND +END,N/ P*(HESS: KT"e efficiency of a bank is not always reflected only by t"e si(e of its balance s"eet b#t by t"e level of ret#rn on its assets& NPA-s do not generate interest income for t"e banks) b#t at t"e same time banks are re$#ired to make provisions for s#c" NPA-s from t"eir c#rrent profits& NPA-s "ave a deleterio#s effect on t"e ret#rn on assets in several ways

T"ey erode c#rrent profits t"ro#g" provisioning re$#irements T"ey res#lt in red#ced interest income T"ey re$#ire "ig"er provisioning re$#irements affecting profits and accretion to capital f#nds and capacity to increase good $#ality risk assets in f#t#re) and
T"ey limit recycling of f#nds) set in asset liability mismatc"es) etc t"ere is at times a tendency among some of t"e banks to #nderstate t"e level of NPA-s in order to red#ce t"e provisioning and boost #p bottom lines& It wo#ld only postpone t"e In t"e conte%t of crippling effect on a bank;s operations in all sp"eres) asset $#ality "as been placed as one of t"e most important parameters in t"e meas#rement of a bank;s performance #nder t"e *A@>LS s#pervisory rating system of 1BI&
BABASAB PATIL
6?
.redit ris# path of the Ne! Private "an#0s y .omparing !ith selected F (ld PS"0s using >uadrant Analysis% .redit ris# path of the Ne! Private "an#0s:
Ne! Private "an#s

Bank of Pan/ab LtdU
NPA to Net Advances 5 I6 =99D 2&62 +&2A !&!0 =99A
Advances5crores6
>uadrant analysis
=99D +2!, +!A2
=99A
=99D .L
=99A
*ent#rion Bank LtdU .9:* Bank Ltd I*I*I Bank Ltd Ind#sind Bank Ltd& Qotak @a"indra Bank Ltd& 8TI Bank Ltd
6300
.L
.L
5&+2 !&63 +&,! 5&0,
5&22 5&,+ +&5A 5&+2 5&A?
+3366 A!253 A555 25!, !3650
0,66! !26!60 A0!5 602A ++0!2
L. L. .L LL LL
L. L. .L LL LL
!&0A
,nterpretation
BABASAB PATIL
6A
.redit ris# path of the Ne! PS"0s: A >uadrant Analysis In t"e c"art below an attempt is made to trace t"e relations"ip between NPA proportion and t"e si(e of credit portfolio <advances= of New Private Bank-s& :or t"is p#rpose proportion of gross NPA-s representing credit risk in"erent is taken on t"e F a%is and gross credit levels are taken on t"e G a%is& Since t"ese two parameters are assets) w"ic" are stock concept variables) t"ey "ave been plotted on t"e basis of + years +553 and +556 for a comparative analysis& >-AD*ANT TA"+E@ =99D
L>4>L *1>9IT L>4>L NPA L'7 <B>L'7 A4D= <L= .ID. <AB'4> A4D= <.=
L'7 .ID.
LL <+= .L <0=
L. <+= .. <5=
>-AD*ANT TA"+E@ =99A

L'7 .ID.
LL <+= .L <+=
L. <+= .. <5=
BABASAB PATIL
,5
As depicted in t"e tables) t"e banks are divided into 2 $#adrants namely LL) L.) .L and .. <t"e fig#res are arrived at by taking t"e averages=& T"e average of NPA-s for t"e year +553 is !&A0E and t"is fig#re is meas#red against eac" bank) any percentage above t"is fig#re falls in t"e . category and percentage below !&A0E falls in t"e L category& T"e same applies wit" t"e advances& T"e average of advances for +553 is +!)23, crores and 0,)6++ crores for +556& T"e average of NPA for +556 is 5&A0E& SLrepresents low or below average of t"e New Private Bank-s and) S.- represents "ig" or above average& >&g& w"ile LL means low in credit si(e and low in NPA-s) L. implies low in NPA and .ig" in credit si(e& T"e following facts are visible from t"e $#adrant tableH <6&As depicted in t"e tables) most of t"e new private banks fall in t"e .L $#adrant& In +553 t"ere were 0 banks) w"ic" was + in +556& As seen in t"e $#adrants) t"e NPA was "ig" compared to its credit si(e and t"e credit si(e is low in t"e New Sector Banks it mig"t be beca#se t"ese banks "esitate to take risk and improper recovery meas#res& =6&T"ere was + banks in t"e LL $#adrant in +553 w"ic" remain same in +556 also& It means NPA Level and *redit si(e is low& B6& Bank of Pan/ab LtdU is in .L $#adrant) t"ere is "ig" level of NPA and Low Advances in +553 & So only Bank of Pan/ab Ltd& "as merged wit" *ent#rion Bank in +553 September and named as *ent#rion Bank of Pan/ab Ltd b#t still its in .L $#adrant so still t"is banks "as to adopt proper strategy in providing advances and recovering debts& D6 T"e best performing bank in t"is sector was t"e I*I*I Bank w"ic" was "ig" in its credit si(e compared to t"e rest of t"e banks and still maintained a low NPA level followed by .9:* Bank Ltd&&
BABASAB PATIL
,!
.redit ris# path of the F selected (ld PS"0s:
(ld Private "an#s

*ity 8nion Bank Ltd 9evelopment *redit Bank Ltd IND 4ysya Bank Ltd Lord Qris"na Bank Ltd Bank of 1a/astan Ltd T"e 8nited 7estern Bank Ltd& T"e Qarnatak Bank Ltd
NPA to Net Advances 5 I6 =99D 0&0, 6&02 =99A !&A3 2&35
Advances5crores6
>uadrant analysis
=99D +5!0 +!36
=99A +335 !?6,
=99D LL .L
=99A LL .L
+&!0 2&++ +&35
!&,6 0&!! 5&AA
A5?! !0?, +?A6
!5+0+ !2+! 2563
L. .L LL
L. .L LL
3&?0
3&66
0A,6
2556
..
.L
+&+A
!&!?
6+?,
,,A+
L.
L.
,nterpretation
BABASAB PATIL
,+
.redit ris# path of the F Private Sector "an#s: A >uadrant Analysis In t"e c"art below an attempt is made to trace t"e relations"ip between NPA proportion and t"e si(e of credit portfolio <advances= of , old Private Bank-s& :or t"is p#rpose proportion of gross NPA-s representing credit risk in"erent is taken on t"e F a%is and gross credit levels are taken on t"e G a%is& Since t"ese two parameters are assets) w"ic" are stock concept variables) t"ey "ave been plotted on t"e basis of + years +553 and +556 for a comparative analysis& >-AD*ANT TA"+E@ =99D
L'7 .ID.
LL <+= .L <+=
L. <+= .. <!=
>-AD*ANT TA"+E@ =99A

L'7 .ID.
LL <+= .L <0=
L. <+= .. <5=
BABASAB PATIL
,0
As depicted in t"e tables) t"e banks are divided into 2 $#adrants namely LL) L.) .L and .. <t"e fig#res are arrived at by taking t"e averages=& T"e average of NPA-s for t"e year +553 is 0&?!E and t"is fig#re is meas#red against eac" bank) any percentage above t"is fig#re falls in t"e . category and percentage below 0&?!E falls in t"e L category& T"e same applies wit" t"e advances& T"e average of advances for +553 is 0A,! crores and 236+ crores for +556& T"e average of NPA for +556 is +&,2E& SL- represents low or below average of t"e PSB-s and) S.- represents "ig" or above average& >&g& w"ile LL means low in credit si(e and low in NPA-s) L. implies low in NPA and .ig" in credit si(e& T"e following facts are visible from t"e $#adrant tableH <6&As depicted in t"e table in +553) o#t of , Private Sector Banks) + are fall #nder LL) i&e& Low in NPA and Low in credit si(e) + fall #nder L. i&e& Low in NPA and .ig" in credit si(e& And remaining o#t of 0) + fall #nder .L i&e& .ig" in NPA and Low in credit si(e& =6 As depicted in t"e table in +556) o#t of , Private Sector Banks) + are fall #nder LL) i&e& Low in NPA and Low in credit si(e) + falls #nder L. i&e& Low in NPA and .ig" in credit si(e& And 0 fall #nder .L i&e& .ig" in NPA and Low in credit si(e& B6 T"ere were + banks in t"e .L $#adrant in +553 w"ic" increased to 0 in +556& It means NPA Level is increasing year by year& C6& T"e 8nited 7estern Bank Ltd moved from .. to .L ) t"ere is "ig" level of NPA and .ig" Advances in +553 w"ic" moved to .ig" level of NPA and Low level of advances in +556& Its not good sign to Bank beca#se as in +553 t"ere is .ig" NPA and *redit si(e so Bank red#ces its advances in +556) b#t also its NPA increasing& D6 T"e best performing bank in t"is sector was t"e IND 4ysya Bank w"ic" was "ig" in its credit si(e compared to t"e rest of t"e banks and still maintained a low NPA level&
BABASAB PATIL
,2
.omparison of Ne! Private "an#0s credit path !ith (ld selected Private "an#0s credit path y using a ove >uadrant Analysis% 7"en compare to 'ld PB-s) New PB-s are performing well from past + years& 'ld PB-s Net NPA on Advances are crossing 3E or nearer to 3 E) b#t almost all New PB-s Net NPA on Advances are below 0E& It is good sign to New PSB-s as it "as strong credit pat"& New PB-s are taking "ig" risk by Providing more and more advances w"en compare to 'ld PB-) @a/ority of 'ld PB-s provide advances to Priority sectors w"ose recovery are very diffic#lt) beca#se advances paid for agric#lt#re are very diffic#lt to recover) b#t New PB-s are able to provide advances to bot" priority and non priority sectors b#t it not e%panded its services over villages& T"at-s w"y New PB-s recovering its advances very $#ickly& Adverse Effects of NPA on the Hor#ing of Ne! Private "an#s: NPA "as affected t"e profitability) li$#idity and competitive f#nctioning of New Private Banks and finally t"e psyc"ology of t"e bankers in respect of t"eir disposition towards credit delivery and credit e%pansion& Between +552 and +556 New Private Banks inc#rred a total amo#nt of 1s&20AA *rores towards provisioning NPA& T"is "as bro#g"t Net NPA to 1s&3,?5 *rores or !&+5E of net advances& To t"is e%tent t"e problem is contained) b#t at w"at costI T"is costly remedy is made at t"e sacrifice of b#ilding "ealt"y reserves for f#t#re capital ade$#acy& T"e enormo#s provisioning of NPA toget"er wit" t"e "olding cost of s#c" non prod#ctive assets over t"e years "as acted as a severe drain on t"e profitability of t"e New Private Banks& In t#rn New Private Bank-s are seen as poor performers and #nable to approac" t"e market for raising additional capital& T"is "as alternatively forced New Private Bank-s to borrow "eavily from t"e debt market to b#ild Tier II *apital to meet capital ade$#acy norms p#tting severe press#re on t"eir profit margins) else t"ey are to seek t"e bo#nty of t"e *entral Dovernment for repeated 1ecapitali(ation&
BABASAB PATIL
,3
&indings:
T"e brig"test spot in t"e Indian banking ind#stry in +553 +556 was t"e massive cleaning #p of banks- balance s"eets by red#cing non performing assets <NPA-s=& T"e net NPA-s of , New Private Bank-s are red#ced by < = !?E w"ile compare to previo#s year) i&e& from +5A, to !,5A& 7"ic" was 6E "ig"er Net NPA in +552 53 w"en compare to +550 52& Net Profit of New Private Bank-s are increased by +?E from +552 53 to +553 56& It may be beca#se of provisions made in +556 is comparatively low& @ost of t"e New Private Bank-s fall #nder LL $#adrant i&e& Low in NPA and Low in credit pat" in +553 56& All New Private Bank-s Net NPA on advances is less t"an 3E in +553 56) its good sign for companies to increase profit& New Private Bank-s recorded a growt" in advances of 35&0E in +556 as compare to 2+&3E of t"e previo#s year& 7"en compare to total advances of 'ld Private Bank-s rose from 02&AE to 25&0,E& we can say New PSB-s *redit capacity is more w"ile compare to 'ld PSB-s& @ost banks were able to take advantage of fat profits from treas#ry operations) bro#g"t abo#t by t"e lower interest rates) to make "ig"er provisions for bad debts& As a res#lt) o#t of , new Private Bank-s) + New Private Bank-s i&e& .9:* Bank Ltd and Qotak @a"indra Bank Ltd- Net NPA on advances "as become less t"an !E& :ollowed by I*I*I Bank Ltd& And 8TI Bank Ltd Net NPA on advances are less t"an +E& I*I*I is Best Performer in New Private Banks as it providing "ig"er advances by taking risk compare to ot"er banks) and is able to its NPA less t"an +E&
BABASAB PATIL
,6
Suggestions
!& :i%ing #p t"e b#dget for profits and recovery rat"er t"an for advances& B#dget oriented approac" at times leads to release of credit facilities wit"o#t ens#ring compliance of covenants of sanction& A s#itable mec"anism co#ld be drawn at eac" bank level to provide monetary benefitsB re organi(ation of t"e operating staff partic#larly for recovery in NPA-s write off cases& +& Pro/ects wit" old tec"nology s"o#ld not be considered for finance& 0& 8p gradation of credit skills of t"e operating staff working in advance to avoid over and #nder finance& 2& Timely sanctionB release of loan to avoid time and cost overr#ns& and also proper c"ecking of doc#ments w"ile sanctioning loan are recommended& 3& It is s#ggested for possible restr#ct#ring of banks t"ro#g" mergers and ac$#isitions to keep t"emselves competitive in t"e "ig" credit risk market in India& 6& 'ne of best sol#tion to overcome NPA is 'TS < 'ne Time Settlement=) 1BI "as advised all banks to provide a simplified mec"anism for one time settlement of loans w"ere t"e principle amo#nt is e$#al to or less t"an +3555B and w"ic" "ave become do#btf#l and loss assets&
BABASAB PATIL
,,
.onclusion
An attempt is made in t"is st#dy to present a compre"ensive pict#re of non performing advances of New Private banks in India) to#c"ing #pon vario#s $#antitative and $#alitative trends in t"e post reform period) besides carrying o#t wit" some policy and strategic implications& 8ndo#btedly India is one of t"e few co#ntries w"ere NPA levels are very "ig" as t"ere is an increase in t"e percentage of gross advances eroding t"eir Profit by ma/or basic points) after netting t"e provision& New Private Banks NPA "as come down i&e& less t"an !E& 7"ile compare to old Private Bank-s w"ose NPA is more t"an 3E& It may be beca#se of t"e proportion of credit risk among t"e priority sector advances is do#ble t"at of non priority advances implying t"e irrationality of <administered= price controls) w"ic" still e%ists in some form& >%ternal factors o#tweig" t"e internal factors contrib#ting to t"is "ig" acc#m#lation of NPA-s& If t"e banks "ave to s#rvive in t"e competitive and increasingly globali(e market conditions t"ey s"o#ld be "elped bot" by t"e 1BI and t"e government in t"e form of faster recovery climate) especially for t"e legal processes of enforcement of contracts& T"e $#adrant analysis of credit risk clearly identifies t"at , New Private banks are comparatively performing well w"en compare to old selected PSB-s& It also offers scope for mergers and ac$#isitions among t"e banks to be better prepared for "ig" risk credit marketing in India& And also $#adrant analysis "elps to identify profitability position of New Private Banks by #sing advances provided and Non Performing Assets& 8nless New Private Banks adopt proper Strategy to prevent "#ge level of NPA-s) it go on affecting Profitability of Banks&
BABASAB PATIL
,?
BABASAB PATIL
,A
A
IBAH Indian Banking Association NPAH Non Performing Assets PB-sH Private Banks
reviation used:
8TI Bank LtdH 8nit Tr#st of India Bank I*I*I Bank Ltd H Ind#strial *redit and Investment *orporation of India .9:* Bank Ltd&H .o#sing 9evelopment :inance *orporation Bank Ltd
BABASAB PATIL
?5
"i liography
Indian Banking Association <IBA= B#lletin +553 56 7ebsites www&Indianbankingassociation&com www&#tibank&com www&Doogle&com
BABASAB PATIL
?!

Non-Perfoming Assets Uti Bank Project Report Mba Finance

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Non-Perfoming Assets Uti Bank Project Report Mba Finance

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Non Performing Assets and its impact on Profitability of New Private Sector Banks

Design of the study

STATE'ENT (& T)E P*("+E'

Interest c"arged to be stopped Provision to be made

P"asing o#t of stat#tory pre emption 2&3E=

T"e SL1 re$#irement "ave been bro#g"t

9ereg#lation of interest rates

All lending rates e%cept for lending to small

Transparency in financial statements

Banks "ave been advised to disclose

NA*AS,')AN .('',TTEE@ SE.(ND *EP(*T

Sector Agric#lt#re Small Scale Ind#stries 't"ers )D&. "an# +td

Amount5 in .rore6 !5&6? !!&+0 ?&AA

Percentage to total 0&0A 0&3, +&?3

Sector Agric#lt#re Small Scale Ind#stries 't"ers

Amount5 in .rore6 ++&?3 !A&!3 !,2&+6

Percentage to total 0&A+ 0&+? +A&??

,.,., "an# +td%

Sector Agric#lt#re Small Scale Ind#stries

Amount5 in .rore6 23&63 03&3?

Percentage to total +&53 !&65

Amount5 in .rore6 !!5&0, !+&A+ +2&?5

Percentage to total 2!&56 2&?! A&+0

Sector Agric#lt#re Small Scale Ind#stries 't"ers -T, "an# +td

Amount5 in .rore6 0&+6

Percentage to total ?&!,

Sector Agric#lt#re Small Scale Ind#stries 't"ers

Amount5 in .rore6 36&,! !0&?2 5&05

Percentage to total !3&!, 0&,5 5&5?

N(N +E/A+ 'EAS-*ES

-nit Trust of ,ndia "an#

&indings And Analysis

Design of the study

STATE'ENT (& T)E P*("+E'

2003-04 2004-05 2005-0'

2500 2000 1500 1000 500 0

2003-04 2004-05 2005-0'

3000 2500 2000 1500 1000 500 0

2003-04 2004-05 2005-0'

-T, "an# +td

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Ne! Private "an#s

NPA to Net Advances 5 I6 =99D 2&62 +&2A !&!0 =99A

=99D +2!, +!A2

5&+2 !&63 +&,! 5&0,

5&22 5&,+ +&5A 5&+2 5&A?

+3366 A!253 A555 25!, !3650

0,66! !26!60 A0!5 602A ++0!2

>-AD*ANT TA"+E@ =99A

.redit ris# path of the F selected (ld PS"0s:

(ld Private "an#s

NPA to Net Advances 5 I6 =99D 0&0, 6&02 =99A !&A3 2&35

=99D +5!0 +!36

=99A +335 !?6,

+&!0 2&++ +&35

!&,6 0&!! 5&AA

A5?! !0?, +?A6

!5+0+ !2+! 2563

>-AD*ANT TA"+E@ =99A

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NAAS,')AN .('',TTEE@ SE.(ND EP(*T