WINTER PROJECT REPORT

A Study on Non Performing Assets in Banks

Prepared for the Mumbai University in the partial fulfillment of the
Requirement for the award of the degree in
MASTERS OF MANAGEMENT STUDIES

SUBMITTED BY:
ASHER P MENEZES
Roll No: 07

Year: 2013-15

UNDER THE GUIDANCE OF

Prof. NATIKA PODDAR

1.ACKNOWLEDGEMENT
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I take this opportunity to express my gratitude to all those who have been instrumental in the
successful completion of this Summer Project. I would first like to thank Bro. Alphonse
Nesamony, Chairman, St Francis Institute of Management and Research, for having
permitted me to carry out this project.
I would like to thank my faculty guide, PROF. NATIKA PODDAR for her able guidance,
constant Motivation and useful suggestions, which helped me in completing the project work, in
time.

The successful completion of this training wouldnt have been possible without the cooperation
and the coordination of many people who not only helped me whenever I got hindered in
between but also kept my high morale high. Such kind of cooperation extended by all has lead to
fruitful completion of the training period.
Date:
Place: Mumbai

ASHER MENEZES

1. DECLARATION

This is to certify that project report A Study on Non Performing Assets in Banks has been
successfully completed by Mr. ASHER P MENEZES in partial fulfillment of the requirement
for the award of the degree in Master in Management Studies at St. Francis Institute of
Management and Research under Mumbai University.
The information submitted is true, original and to the best of my knowledge.

SIGNED BY
ASHER MENEZES

COUNTER SIGNED BY
PROF. NATIKA PODDAR

MMS II [Finance]

Project on Non Performing Assets in Banks

CONTENTS

SR. NO.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

PARTICULARS
Acknowledgment
Declaration
Executive Summary
Project Introduction
Need for the Study
Objectives
Review of Literature
Research Methodology
Data Collection
Analysis of Data and Results
Findings and Interpretation
Future Scope
Recommendation and Conclusion
References

PAGE NO.
2
3
5
6
7
8
9
11
12-30
31-42
43
44
45
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2. EXECUTIVE SUMMARY

Studying books and merely passing exams is not worth, the education, knowledge and
experience is incomplete without being exposed to what is happening in real. It gives the overall
idea about the NPA problems faced by Indian banks and the steps taken by them to overcome and
reduce the NPA in Banking Sector.
In order to make students competent enough to face real world, there is a requirement of course
for undergoing training for six to eight weeks with some reputed organization. This exposure to
real life situation gives an insight to the Problems faced due toNPA students the kind of pressure
and problems they can expect to face during bankingtheir career.
These analysisChapter gives the introduction to investment. It provides information about the
various investment options available to the investor like mutual funds, bonds, shares, real estate,
bank deposits etc. Next chapter It describes the industry profile stating about investment
management, investment banking & major players. Then comes the turn of company profile
where the History, Mission & the Products offered by HDFC Bank are discussed. Some of the
products offered are saving account, current account, fixed deposit, anywhere banking, online
broking, insurance, lockers etc.
Series of steps were undertaken in order to study the investment behavior of people. Descriptive
research design & Non probability convenient sampling technique is used.

3. INTRODUCTION
The accumulation of huge non-performing assets in banks has assumed great
importance. The depth of the problem of bad debts was first realized only in early 1990s. The
magnitude of NPAs in banks and financial institutions is over Rs.1,50,000 crores.
While gross NPA reflects the quality of the loans made by banks, net NPA shows the
actual burden of banks. Now it is increasingly evident that the major defaulters are the big
borrowers coming from the non-priority sector. The banks and financial institutions have to take
the initiative to reduce NPAs in a time bound strategic approach.
Public sector banks figure prominently in the debate not only because they dominate
the banking industries, but also since they have much larger NPAs compared with the private
sector banks. This raises a concern in the industry and academia because it is generally felt that
NPAs reduce the profitability of a banks, weaken its financial health and erode its solvency.
For the recovery of NPAs a broad framework has evolved for the management of
NPAs under which several options are provided for debt recovery and restructuring. Banks and
FIs have the freedom to design and implement their own policies for recovery and write-off
incorporating compromise and negotiated settlements.

4. NEED OF THE STUDY

The Non-Performing Assets (NPAs) problem is one of the foremost and the most
formidable problems that have shaken the entire banking industry in India like an
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earthquake. Like a canker worm, it has been eating the banking system from within, since
long. It has grown like a cancer and has infected every limb of the banking system. At
macro level, NPAs have choked off the supply line of credit to the potential borrowers,
thereby having a deleterious effect on capital formation and arresting the
economic activity in the country.

SCOPE OF THE STUDY

The scope of the study refers to the job that to know about the activities of the organization. The
study means that the analysis of the NPAs of Banks on which he/she has to focus.
Scope of the Study
Concept of Non-Performing Asset
Guidelines
Impact of NPAs
Reasons for NPAs
Preventive Measures
Tools to manage NPAs

5. OBJECTIVES OF THE STUDY

The basic idea behind undertaking the Grand Project on NPA was to:
To Know the Concept of Non-Performing Asset

 To know Preventive Measures

To evaluate NPAs (Gross and Net) in different banks.
To analyze financial performance of banks at different level of NPA
To Know the Impact of NPAs
To Know the Reasons for NPAs
To know difference of NPA in Private and Public Sector banks.

6. REVIEW OF LITERATURE

Non Performing Assets's soar 35.2% to Rs 2.43 trillion in 9 months ended December
Sources: Financial Express
February 18, 2014

The gross non-performing assets (NPAs) of listed banks rose 35.2 per cent to Rs 2.43 trillion
during the first three quarters of the current financial year, according to an industry report.
In absolute terms, the 40 listed banks added Rs 63,386 crore to their gross NPAs during the nine
months, with State Bank of India, the largest, leading with an accretion of Rs 16,610 crore,
NPASource.com, a portal that tracks bad assets in the system, said today.
Troubled Kolkata-based United Bank of India's gross NPAs rose 188.3 per cent to Rs 8,546
crore, an addition of Rs 5,582 crore. It had Rs 2,963.8 crore of bad loans on March 31, 2013,
according to a bank filing with the BSE.
IDBI Bank added Rs 3,562 crore, or 55.2 per cent, to take its gross NPA book to Rs 10,012 crore,
while Bank of Baroda's bad loans increased Rs 3,943 crore, or 49.4 per cent, to Rs 11,926 crore,
it said.
For SBI, the increase in gross NPAs was 32.4 per cent. The bank had gross NPAs of Rs
67,799.33 crore as of December 31, up from Rs 51,189.4 crore on March 31 last year, according
to its Q3 earnings filing to the BSE.
The portal said 10 of the 40 banks accounted for 70 per cent of the NPAs in the system. Barring
ICICI Bank, the largest private sector lender, all the others on this list are state-run banks.
ICICI Bank's gross NPAs rose 8.2 per cent, or by Rs 791 crore, to Rs 10,399 crore, the portal
said. The level of bad loans was Rs 9,607.75 crore on March 31, ICICI Bank said in a BSE filing
last month.
"There is no respite for banks from the onslaught of higher interest rates and slowdown in the
economy leading to further increase in loans turning bad from corporate as well as retail
segments," portal Chairman DK Jain said.
He said the fourth quarter will be as bad as the previous quarters of this financial year for banks
on asset quality stress and added that most lenders are likely to make higher

Finance minister asks United Bank of India to fix responsibility for non-performing assets
Sources: Times of India
February 20, 2014
NEW DELHI: The finance ministry has asked United Bank of India (UBI) to identify executives
responsible for the lender's failure to spot swelling bad debt, resulting in a loss at the Kolkataheadquartered lender in the December quarter.
The move comes as the ministry has mandated all state-run banks to depend on a computer9

generated list of non-performing assets (NPAs) and it fears that executives at UBI may have
tampered with the system, resulting in a pile-up of sticky loans over the past few years. The bank
reported a loss of over Rs 1,200 crore during the December quarter.
"UBI has to fix responsibility. We have asked them to find out how the system did not throw up
alerts and who was responsible," said a senior government official, adding that there was no risk
to the financial system or to consumers. In addition, the ministry has asked to go slow on bigticket loans and focus on recovery of loans, while maintaining that there is no need for an
immediate fund infusion.

7. Research methodology
The foregoing review indicates that existing studies concentrated on PSBs & comparison of
PSBs with private & banks. But the present study has focused on the comparison of NPAs
between public and private sector banks.
RESEARCH DESIGN

NON-PROBABILITY

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EXPLORATORY & DESCRIPTIVE EXPERIMENTAL RESEARCH

The research is primarily both exploratory as well as descriptive in nature. The sources of
information are both primary & secondary.

Secondary Data:
1

Internet ,

Books

Journals ,

Newspaper,

5 Annual report,
6

Database available in the library,

Catalogues and presentations.

8.

Data Collection

NON PERFORMING ASSETS (NPA)

WHAT IS A NPA (NON PERFORMING ASSETS) ?

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Action for enforcement of security interest can be initiated only if the secured asset is classified
as Nonperforming asset.
Non performing asset means an asset or account of borrower ,which has been classified by bank
or financial institution as sub standard , doubtful or loss asset, in accordance with the
direction or guidelines relating to assets classification issued by RBI .
An amount due under any credit facility is treated as past due when it is not been paid within
30 days from the due date. Due to the improvement in the payment and settlement system,
recovery climate, up gradation of technology in the banking system etc, it was decided to
dispense with past due concept, with effect from March 31, 2001. Accordingly as from that
date, a Non performing asset shell be an advance where
i.

Interest and/or installment of principal remain overdue for a period of more than 180
days in respect of a term loan,

ii.

The account remains out of order for a period of more than 180 days ,in respect of an
overdraft/cash credit (OD/CC)

iii.

The bill remains overdue for a period of more than 180 days in case of bill purchased or
discounted.

iv.

Interest and/or principal remains overdue for two harvest season but for a period not
exceeding two half years in case of an advance granted for agricultural purpose ,and

v.

Any amount to be received remains overdue for a period of more than 180 days in
respect of other accounts
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt 90 days overdue norms for identification of
NPAs ,from the year ending March 31,2004,a non performing asset shell be a loan or an
advance where;

i.

Interest and/or installment of principal remain overdue for a period of more than
90 days in respect of a term loan,

ii.

The account remains out of order for a period of more than 90 days ,in respect
of an overdraft/cash credit (OD/CC)

iii.

The bill remains overdue for a period of more than 90 days in case of bill
purchased or discounted.

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iv.

Interest and/or principal remains overdue for two harvest season but for a period
not exceeding two half years in case of an advance granted for agricultural
purpose ,and

v.

Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts

Out of order
An account should be treated as out of order if the outstanding balance remains
continuously in excess of sanctioned limit /drawing power. in case where the outstanding balance
in the principal operating account is less than the sanctioned amount /drawing power, but there
are no credits continuously for six months as on the date of balance sheet or credit are not
enough to cover the interest debited during the same period ,these account should be treated
as out of order.
Overdue
Any amount due to the bank under any credit facility is overdue if it is not paid on due
date fixed by the bank.

FACTORS FOR RISE IN NPAs

The banking sector has been facing the serious problems of the rising NPAs. But the
problem of NPAs is more in public sector banks when compared to private sector banks and
foreign banks. The NPAs in PSB are growing due to external as well as internal factors.

EXTERNAL FACTORS :--------------------------------- Ineffective recovery tribunal

The Govt. has set of numbers of recovery tribunals, which works for recovery of
loans and advances. Due to their negligence and ineffectiveness in their work the bank
suffers the consequence of non-recover, thereby reducing their profitability and liquidity.

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 Willful Defaults
There are borrowers who are able to pay back loans but are intentionally
withdrawing it. These groups of people should be identified and proper measures should
be taken in order to get back the money extended to them as advances and loans.
Natural calamities
This is the measure factor, which is creating alarming rise in NPAs of the PSBs.
every now and then India is hit by major natural calamities thus making the borrowers
unable to pay back there loans. Thus the bank has to make large amount of provisions in
order to compensate those loans, hence end up the fiscal with a reduced profit.
Mainly ours farmers depends on rain fall for cropping. Due to irregularities of
rain fall the farmers are not to achieve the production level thus they are not repaying the
loans.
Industrial sickness
Improper project handling , ineffective management , lack of adequate resources ,
lack of advance technology , day to day changing govt. Policies give birth to industrial
sickness. Hence the banks that finance those industries ultimately end up with a low
recovery of their loans reducing their profit and liquidity.
Lack of demand
Entrepreneurs in India could not foresee their product demand and starts production
which ultimately piles up their product thus making them unable to pay back the money
they borrow to operate these activities. The banks recover the amount by selling of their
assets, which covers a minimum label. Thus the banks record the non-recovered part as
NPAs and has to make provision for it.
Change on Govt. policies
With every new govt. banking sector gets new policies for its operation. Thus it
has to cope with the changing principles and policies for the regulation of the rising of
NPAs.
The fallout of handloom sector is continuing as most of the weavers Co-operative
societies have become defunct largely due to withdrawal of state patronage. The
rehabilitation plan worked out by the Central government to revive the handloom sector
has not yet been implemented. So the over dues due to the handloom sectors are
becoming NPAs.
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 INTERNAL FACTORS :-------------------------------- Defective Lending process

There are three cardinal principles of bank lending that have been followed by the
commercial banks since long.
i.
Principles of safety

i.

ii.

Principle of liquidity

iii.

Principles of profitability

Principles of safety :By safety it means that the borrower is in a position to repay the loan both principal
and interest. The repayment of loan depends upon the borrowers:
a. Capacity to pay
b. Willingness to pay
Capacity to pay depends upon:
1. Tangible assets
2. Success in business
Willingness to pay depends on:
1. Character
2. Honest
3. Reputation of borrower
The banker should, therefore take utmost care in ensuring that the enterprise or business
for which a loan is sought is a sound one and the borrower is capable of carrying it out
successfully .he should be a person of integrity and good character.

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 Inappropriate technology
Due to inappropriate technology and management information system, market driven
decisions on real time basis can not be taken. Proper MIS and financial accounting
system is not implemented in the banks, which leads to poor credit collection, thus NPA.
All the branches of the bank should be computerized.
Improper SWOT analysis
The improper strength, weakness, opportunity and threat analysis is another reason for
rise in NPAs. While providing unsecured advances the banks depend more on the
honesty, integrity, and financial soundness and credit worthiness of the borrower.

Banks should consider the borrowers own capital investment.

it should collect credit information of the borrowers from_

a. From bankers.
b. Enquiry from market/segment of trade, industry, business.
c. From external credit rating agencies.

Analyze the balance sheet.

True picture of business will be revealed on analysis of profit/loss a/c and balance
sheet.

Purpose of the loan

When bankers give loan, he should analyze the purpose of the loan. To ensure
safety and liquidity, banks should grant loan for productive purpose only. Bank
should analyze the profitability, viability, long term acceptability of the project
while financing.

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 Poor credit appraisal system

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal
the bank gives advances to those who are not able to repay it back. They should use good
credit appraisal to decrease the NPAs.

Managerial deficiencies
The banker should always select the borrower very carefully and should take tangible
assets as security to safe guard its interests. When accepting securities banks should
consider the_

1. Marketability
2. Acceptability
3. Safety
4. Transferability.
The banker should follow the principle of diversification of risk based on the
famous maxim do not keep all the eggs in one basket; it means that the banker should
not grant advances to a few big farms only or to concentrate them in few industries or in a
few cities. If a new big customer meets misfortune or certain traders or industries affected
adversely, the overall position of the bank will not be affected.
Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand loom
industries. The biggest defaulters of OSCB are
the OTM (117.77lakhs), and the
handloom sector Orissa hand loom WCS ltd (2439.60lakhs).
Absence of regular industrial visit
The irregularities in spot visit also increases the NPAs. Absence of regularly visit of bank
officials to the customer point decreases the collection of interest and principals on the
loan. The NPAs due to willful defaulters can be collected by regular visits.
Re loaning process
Non remittance of recoveries to higher financing agencies and re loaning of the same
have already affected the smooth operation of the credit cycle.
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Due to re loaning to the defaulters and CCBs and PACs, the NPAs of OSCB is increasing
day by day.

PROBLEMS DUE TO NPA

1. Owners do not receive a market return on their capital .in the worst case, if the banks
fails, owners lose their assets. In modern times this may affect a broad pool of
shareholders.
2. Depositors do not receive a market return on saving. In the worst case if the bank fails,
depositors lose their assets or uninsured balance.
3. Banks redistribute losses to other borrowers by charging higher interest rates, lower
deposit rates and higher lending rates repress saving and financial market, which hamper
economic growth.
4. Non-performing loans epitomize bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital, and by extension, labor and natural resources.
Non-performing asset may spill over the banking system and contract the money stock, which
may lead to economic contraction. This spillover effect can channelize through liquidity or bank
insolvency:
a) When many borrowers fail to pay interest, banks may experience liquidity shortage. This can
jam payment across the country,
b) Illiquidity constraints bank in paying depositors
.c) Undercapitalized banks exceeds the banks capital base.
The three letters Strike terror in banking sector and business circle today. NPA is short form of
Non Performing Asset. The dreaded NPA rule says simply this: when interest or other due to a
bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non
performing asset. The recovery of loan has always been problem for banks and financial

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institution. To come out of these first we need to think is it possible to avoid NPA, no can not be
then left is to look after the factor responsible for it and managing those factors.

Interest and/or instalment of principal remains overdue for two harvest seasons but
for a period not exceeding two half years in the case of an advance granted for
agricultural purposes, and

Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.

As a facilitating measure for smooth transition to 90 days norm, banks have been advised to
move over to charging of interest at monthly rests, by April 1, 2002. However, the date of
classification of an advance as NPA should not be changed on account of charging of interest at
monthly rests. Banks should, therefore, continue to classify an account as NPA only if the
interest charged during any quarter is not serviced fully within 180 days from the end of the
quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from
March 31, 2004.

'Out of Order' status:

An account should be treated as 'out of order' if the outstanding balance remains

continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding
balance in the principal operating account is less than the sanctioned limit/drawing power, but
there are no credits continuously for six months as on the date of Balance Sheet or credits are not

19

enough to cover the interest debited during the same period, these accounts should be treated as
'out of order'.
Overdue:
Any amount due to the bank under any credit facility is overdue if it is not paid on
the due date fixed by the bank.

Impact of NPA
Profitability:NPA means booking of money in terms of bad asset, which occurred due to
wrong choice of client. Because of the money getting blocked the prodigality of bank
decreases not only by the amount of NPA but NPA lead to opportunity cost also as that
much of profit invested in

some return earning project/asset. So NPA doesnt affect

current profit but also future stream of profit, which may lead to loss of some long-term
beneficial opportunity. Another impact of reduction in profitability is low ROI (return on
investment), which adversely affect current earning of bank.
Liquidity:Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to
borrowing money for shot\rtes period of time which lead to additional cost to the company.
Difficulty in operating the functions of bank is another cause of NPA due to lack of money.
Routine payments and dues.
Involvement of management:20

Time and efforts of management is another indirect cost which bank has to bear due to NPA.
Time and efforts of management in handling and managing NPA would have diverted to some
fruitful activities, which would have given good returns. Now days banks have special
employees to deal and handle NPAs, which is additional cost to the bank.

Credit loss:Bank is facing problem of NPA then it adversely affect the value of bank in terms of market
credit. It will lose its goodwill and brand image and credit which have negative impact to the
people who are putting their money in the banks .
REASONS FOR NPA:
Reasons can be divided in to two broad categories:A] Internal Factor
B] External Factor

[ A ] Internal Factors:Internal Factors are those, which are internal to the bank and are controllable by banks.

Poor lending decision:

Non-Compliance to lending norms:

Lack of post credit supervision:

Failure to appreciate good payers:

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Excessive overdraft lending:

Non Transparent accounting policy:

[ B ] External Factors:External factors are those, which are external to banks they are not controllable by banks.

Socio political pressure:

Change in industry environment:

Endangers macroeconomic disturbances:

Natural calamities

Industrial sickness

Diversion of funds and willful defaults

Time/ cost overrun in project implementation

Labour problems of borrowed firm

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Business failure

Inefficient management

Obsolete technology

Product obsolete

Types of NPA
A] Gross NPA
B] Net NPA
A] Gross NPA:
Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines
as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It
consists of all the non standard assets like as sub-standard, doubtful, and loss assets.
It can be calculated with the help of following ratio:

Gross NPAs Ratio

Gross NPAs

Gross Advances
B]

Net NPA:

Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs.
Net NPA shows the actual burden of banks. Since in India, bank balance sheets contain a huge
amount of NPAs and the process of recovery and write off of loans is very time consuming, the

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provisions the banks have to make against the NPAs according to the central bank guidelines, are
quite significant. That is why the difference between gross and net NPA is quite high.
It can be calculated by following_
Net NPAs Gross NPAs Provisions
Gross Advances - Provisions

PREVENTIVE MEASUREMENT FOR NPA

Early Recognition of the Problem:Invariably, by the time banks start their efforts to get involved in a revival process, its too late to
retrieve the situation- both in terms of rehabilitation of the project and recovery of banks dues.
Identification of weakness in the very beginning that is : When the account starts showing first
signs of weakness regardless of the fact that it may not have become NPA, is imperative.
Assessment of the potential of revival may be done on the basis of a techno-economic viability
study. Restructuring should be attempted where, after an objective assessment of the promoters
intention, banks are convinced of a turnaround within a scheduled timeframe. In respect of
totally unviable units as decided by the bank, it is better to facilitate winding up/ selling of the
unit earlier, so as to recover whatever is possible through legal means before the security position
becomes worse.
Identifying Borrowers with Genuine Intent:
Identifying borrowers with genuine intent from those who are non- serious with no commitment
or stake in revival is a challenge confronting bankers. Here the role of frontline officials at the
branch level is paramount as they are the ones who has intelligent inputs with regard to
promoters sincerity, and capability to achieve turnaround. Base don this objective assessment,
24

banks should decide as quickly as possible whether it would be worthwhile to commit additional
finance.
In this regard banks may consider having Special Investigation of all financial transaction or
business transaction, books of account in order to ascertain real factors that contributed to
sickness of the borrower. Banks may have penal of technical experts with proven expertise and
track record of preparing techno-economic study of the project of the borrowers.
Borrowers having genuine problems due to temporary mismatch in fund flow or sudden
requirement of additional fund may be entertained at branch level, and for this purpose a special
limit to such type of cases should be decided. This will obviate the need to route the additional
funding through the controlling offices in deserving cases, and help avert many accounts slipping
into NPA category.
Timeliness and Adequacy of response:Longer the delay in response, grater the injury to the account and the asset. Time is a crucial
element in any restructuring or rehabilitation activity. The response decided on the basis of
techno-economic study and promoters commitment, has to be adequate in terms of extend of
additional funding and relaxations etc. under the restructuring exercise. The package of
assistance may be flexible and bank may look at the exit option.

Focus on Cash Flows:While financing, at the time of restructuring the banks may not be guided by the conventional
fund flow analysis only, which could yield a potentially misleading picture. Appraisal for fresh
credit requirements may be done by analyzing funds flow in conjunction with the Cash Flow
rather than only on the basis of Funds Flow.
Management Effectiveness:-

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The general perception among borrower is that it is lack of finance that leads to sickness and
NPAs. But this may not be the case all the time. Management effectiveness in tackling adverse
business conditions is a very important aspect that affects a borrowing units fortunes. A bank
may commit additional finance to an aling unit only after basic viability of the enterprise also in
the context of quality of management is examined and confirmed. Where the default is due to
deeper malady, viability study or investigative audit should be done it will be useful to have
consultant appointed as early as possible to examine this aspect. A proper techno- economic
viability study must thus become the basis on which any future action can be considered.

Multiple Financing:-

A. During the exercise for assessment of viability and restructuring, a Pragmatic and
unified approach by all the lending banks/ FIs as also sharing of all relevant information
on the borrower would go a long way toward overall success of rehabilitation exercise,
given the probability of success/failure.

B. In some default cases, where the unit is still working, the bank should make sure that it
captures the cash flows (there is a tendency on part of the borrowers to switch bankers
once they default, for fear of getting their cash flows forfeited), and ensure that such cash
flows are used for working capital purposes. Toward this end, there should be regular
flow of information among consortium members. A bank, which is not part of the
consortium, may not be allowed to offer credit facilities to such defaulting clients.
Current account facilities may also be denied at non-consortium banks to such clients and
violation may attract penal action. The Credit Information Bureau of India Ltd.
(CIBIL) may be very useful for meaningful information exchange on defaulting
borrowers once the setup becomes fully operational.

C. In a forum of lenders, the priority of each lender will be different. While one set of
lenders may be willing to wait for a longer time to recover its dues, another lender may
26

have a much shorter timeframe in mind. So it is possible that the letter categories of
lenders may be willing to exit, even a t a cost by a discounted settlement of the
exposure. Therefore, any plan for restructuring/rehabilitation may take this aspect into
account.

D. Corporate Debt Restructuring mechanism has been institutionalized in 2001 to provide

a timely and transparent system for restructuring of the corporate debt of Rs. 20 crore and
above with the banks and FIs on a voluntary basis and outside the legal framework.
Under this system, banks may greatly benefit in terms of restructuring of large standard
accounts (potential NPAs) and viable sub-standard accounts with consortium/multiple
banking arrangements.

Tools for recovery of NPAs

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Fig 1. Tools for recovery of NPAs

Once NPA occurred, one must come out of it or it should be managed in most efficient manner.
Legal ways and means are there to over come and manage NPAs. We will look into each one of
it.

Willful Default :A] Lok Adalat and Debt Recovery Tribunal

B] Securitization Act
C] Asset Reconstruction

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Lok Adalat:
Lok Adalat institutions help banks to settle disputes involving account in doubtful
and loss category, with outstanding balance of Rs. 5 lakh for compromise settlement under Lok
Adalat. Debt recovery tribunals have been empowered to organize Lok Adalat to decide on cases
of NPAs of Rs. 10 lakh and above. This mechanism has proved to be quite effective for speedy
justice and recovery of small loans. The progress through this channel is expected to pick up in
the coming years.
Debt Recovery Tribunals(DRT):
The recovery of debts due to banks and financial
institution passed in March 2000 has helped in strengthening the function of DRTs. Provision for
placement of more than one recovery officer, power to attach defendants property/assets before
judgment, penal provision for disobedience of tribunals order or for breach of any terms of order
and appointment of receiver with power of realization, management, protection and preservation
of property are expected to provide necessary teeth to the DRTs and speed up the recovery of
NPAs in the times to come. DRTs which have been set up by the Government to facilitate
speedy recovery by banks/DFIs, have not been able make much impact on loan recovery due to
variety of reasons like inadequate number, lack of infrastructure, under staffing and frequent
adjournment of cases. It is essential that DRT mechanism is strengthened and vested with a
proper enforcement mechanism to enforce their orders. Non observation of any order passed by
the tribunal should amount to contempt of court, the DRT should have right to initiate contempt
proceedings. The DRT should empowered to sell asset of the debtor companies and forward the
proceed to the winding up court for distribution among the lenders

29

 Inability to Pay

Consortium arrangements:
Asset classification of accounts under consortium
should be based on the record of recovery of the individual member banks and other aspects
having a bearing on the recoverability of the advances. Where the remittances by the borrower
under consortium lending arrangements are pooled with one bank and/or where the bank
receiving remittances is not parting with the share of other member banks, the account will be
treated as not serviced in the books of the other member banks and therefore, be treated as NPA.
The banks participating in the consortium should, therefore, arrange to get their share of recovery
transferred from the lead bank or get an express consent from the lead bank for the transfer of
their share of recovery, to ensure proper asset classification in their respective books.

Corporate debt Restructuring (CDR):

Background
In spite of their best efforts and intentions, sometimes corporate find themselves in financial
difficulty because of factors beyond their control and also due to certain internal reasons. For the
revival of the corporate as well as for the safety of the money lent by the banks and FIs, timely
30

support through restructuring in genuine cases is called for. However, delay in agreement
amongst different lending institutions often comes in the way of such endeavours.

Based on the experience in other countries like the U.K., Thailand, Korea, etc. of putting
in place institutional mechanism for restructuring of corporate debt and need for a similar
mechanism in India, a Corporate Debt Restructuring System has been evolved, as under :

Objective
The objective of the Corporate Debt Restructuring (CDR) framework is to ensure timely
and transparent mechanism for restructuring of the corporate debts of viable entities facing
problems, outside the purview of BIFR, DRT and other legal proceedings, for the benefit of all
concerned. In particular, the framework will aim at preserving viable corporate that are affected
by certain internal and external factors and minimize the losses to the creditors and other
stakeholders through an orderly and coordinated restructuring programme.

Analysis of Data and Results

31

For the purpose of analysis and comparison between private sector and public sector banks, we
take five-five banks in both sector to compare the non performing assets of banks.

For

understanding we further bifurcate the non performing assets in priority sector and non priority
sector, gross NPA and net NPA in percentage as well as in rupees, deposit investment
advances.
Deposit Investment Advances is the first in the analysis because due to these we can
understand the where the bank stands in the competitive market. As at end of march 2014, in
private sector ICICI Bank is the highest deposit-investment-advances figures in rupees crore,
second is HDFC Bank and KOTAK Bank has least figures.
In public sector banks Punjab National Bank has highest deposit-investment-advances but when
we look at graph first three means Bank of Baroda and Bank of India are almost the similar in
numbers and Dena Bank is stands for last in public sector bank. When we compare the private
sector banks with public sector banks among these banks, we can understand the more number of
people prefer to choose public sector banks for deposit-investment.
But when we compare the private sector bank ICICI Bank with the public sector banks ICICI
Bank is more deposit-investment figures and first in the all banks.

DEPOSIT-INVESTMENT-ADVANCES ( RS.CRORE) of both sector banks and

comparison among them, year 2013-14.

BANK

DEPOSIT

INVESTMENT

ADVANCES
32

AXIS
HDFC
ICICI
KOTAK
INDUSIND
TOTAL

87626
100769
244431
16424
19037
468287

33705
49394
111454
9142
6630
210325

59661
63427
225616
15552
12795
377051

250000
200000
150000
100000

DEPOSIT

INVESTMENT

ADVANCES

50000
0
ICICI

HDFC

AXIS

INDUSIND

KOTAK

As we can see , ICICI bank being the largest bank and covering the major part of India has the
highest amount of Deposits, Investments and Advances over other Private sector banks.

BANK
BOB
BOI

DEPOSIT
152034
150012

INVESTMENT
43870
41803

ADVANCES
106701
113476
33

DENA
PNB
UBI
TOTAL

33943
166457
103859
606305

10282
53992
33823
183770

23024
119502
74348
437051

180000
160000
140000
120000
100000
80000DEPOSIT

INVESTMENT

ADVANCES

60000
40000
20000
0
PNB

BOB

BOI

UBI

DENA

In Public Sector Bank (PSBs) also Punjab National Bank has the highest amount of Deposits,
Investments and Advances over other banks.

34

250000
200000
150000
DEPOSIT

INVESTMENT

ADVANCES

100000
50000
0
ICICI

PNB

We can see that ICICI bank which is Private sector bank has more amount

in Deposits,

Investments and Advances over PNB which is a Public sector bank.

There are two concepts related to non-performing assets_ gross and net. Gross refers to all NPAs
on a banks balance sheet irrespective of the provisions made. It consists of all the non standard
assets, viz. sub standard, doubtful, and loss assets. A loan asset is classified as sub standard if
it remains NPA up to a period of 18 months; doubtful if it remains NPA for more than 18
months; and loss, without any waiting period, where the dues are considered not collectible or
marginally collectible.
Net NPA is gross NPA less provisions.

Since in India, bank balance sheets contains a huge

amount of NPAs and the process of recovery and write off of loans is very time consuming, the
provisions the banks have to make against the NPA according to the central bank guidelines, are
quite significant.
Here, we can see that there are huge difference between gross and net NPA. While gross NPA
reflects the quality of the loans made by banks, net NPA shows the actual burden of banks.
The requirements for provisions are :

100% for loss assets

100% of the unsecured portion plus 20-50% of the secured portion, depending on the
period for which the account has remained in the doubtful category

10% general provision on the outstanding balance under the sub standard category.
35

Here, there are gross and net NPA data for 2012-13 and 2013-14 we taken for comparison among
banks. These data are NPA AS PERCENTAGE OF TOTAL ASSETS. As we discuss earlier that
gross NPA reflects the quality of the loans made by banks. Among all the ten banks Dena Banks
has highest gross NPA as a percentage of total assets in the year 2011-12 and also net NPA.
Punjab National Bank shows vast difference between gross and net NPA. There is almost same
figures between BOI and BOB.

Public Sector banks Gross NPA and Net NPA

YEAR 2012-13
BANK

GROSS NPA

NET NPA

BOB
BOI
DENA
PNB
UBI

1.46
1.48
2.37
2.09
1.82

0.35
0.45
1.16
0.45
0.59

2.5
2
1.5
GROSS NPA

NET NPA

0.5
0
DENA

UBI

PNB

BOI

BOB

Public Sector banks Gross NPA and Net NPA

36

2013-14
BANK

GROSS NPA

NET NPA

BOB
BOI
DENA
PNB
UBI

1.10
1.08
1.48
1.67
1.34

0.27
0.33
0.56
0.38
0.10

1.8
1.6
1.4
1.2
1

GROSS NPA

0.8

NET NPA

0.6
0.4
0.2
0
DENA

PNB

BOI

BOB

UBI

Private Sector banks Gross NPA and Net NPA

2012-13

37

BANK

GROSS NPA

NET NPA

AXIS
HDFC
ICICI
KOTAK
INDUSIND

0.57
0.72
1.20
1.39
1.64

0.36
0.22
0.58
1.09
1.31

1.8
1.6
1.4
1.2
1

GROSS NPA

0.8

NET NPA

0.6
0.4
0.2
0
INDUSIND

KOTAK

ICICI

AX IS

HDFC

Private Sector banks Gross NPA and Net NPA

2013-14
BANK

GROSS NPA

NET NPA
38

AXIS
HDFC
ICICI
KOTAK
INDUSIND

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

0.45
0.68
1.90
1.55
1.69

GROSS NPA

INDUSIND

KOTAK

0.23
0.22
0.87
0.98
1.25

NET NPA

ICICI

HDFC

AXIS

COMPARISON OF GROSS NPA WITH ALL BANKS FOR THE YEAR 2013-14. The
growing NPAs affects the health of banks, profitability and efficiency. In the long run, it
eats up the net worth of the banks. We can say that NPA is not a healthy sign for financial
institutions. Here we take all the ten banks gross NPA together for better understanding.
Average of these ten banks gross NPAs is 1.29 as percentage of total assets. So if we
compare in private sector banks AXIS and HDFC Bank are below average of all banks
and in public sector BOB and BOI. Average of these five private sector banks gross NPA
is 1.25 and average of public sector banks is 1.33. Which is higher in compare of private
sector banks.
GROSS NPA :-

39

2
1.5
1
0.5
0
ICICI

INDUSIND

KOTAK

HDFC

AXIS

BOI

BOB

UBI

DENA

PNB

COMPARISON OF NET NPA WITH ALL BANKS FOR THE YEAR

2013 -14.

Average of these ten banks net NPA is 0.56. And in the public sector banks all these five
banks are below this. But in private sector banks there are three banks are above average.
The difference between private and public banks average is also vast. Private sector
banks net NPA average is 0.71 and in public sector banks it is 0.41 as percentage of total
assets. As we know that net NPA shows actual burden of banks. IndusInd bank has
highest net NPA figure and HDFC Bank has lowest in comparison.

NET NPA of banks:1.25

1.4
1.2
1

0.98

0.87

0.8

0.5

0.6
0.22

0.4

0.23

0.33

0.56
0.38

0.27

0.2
0
ICICI

INDU SIND

KOTAK

HDFC

AXIS

BOI

BOB

UBI

DENA

PNB

40

PRIORITY NON PRIORITY SECTOR

When we further bifurcate NPA in priority sector and Non priority sector. Agriculture + small +
others are priority sector. In private sector banks ICICI Bank has the highest NPA in both sector
in compare to other private sector banks. Around 72% of NPA is with ICICI Bank with Rs.1359
crore in priority sector and around 78% in non priority sector. We can see that in private sector
banks , banks has more NPA in non priority sector than priority sector.
BANK

AGRI

SMALL

OTHERS

PRIORITY

NON-

(1)

(2)

(3)

SECTOR

PRIORITY
275.06
709.23
6211.12
405.20
328.67
7929.28

AXIS
HDFC
ICICI
KOTAK
INDUSIN

109.12
36.12
981.85
10.00
30.44

14.76
110.56
23.35
33.84
3.18

86.71
47.70
354.13
4.04
30.02

( 1+2+3 )
210.59
194.41
1359.34
47.87
63.64

D
TOTAL

1167.53

185.69

522.60

1875.85

7000
6000
5000
4000
PRIORITY

3000

NON-PRIORITY

2000
1000
0
AXIS

BANK

HDFC

ICICI

PRIORITY SECTOR

KOTAK

INDUSIND

NPA

(ADVANCED
41

RS.CRORE )
5469
3269
1160
3772
1924

BOB
BOI
DENA
PNB
UBI

350
325
106
443
197

6000
5000
4000
3000

PRIORITY

NPA

2000
1000
0
BOB

BOI

DENA

PNB

UBI

When we talk about public sector banks they are more in priority sector and they given advanced
to weaker sector or industries. Public sector banks give more loans to Agriculture , small scale
and others units and as a result we see that there are more number of NPA in public sector banks
than in private sector banks. BOB given more advanced to priority sector in 2013-14 than other
four banks and Dena Bank is in least.
But when there are comparison between private bank and public sector bank still ICICI Bank has
more NPA in both priority and non priority sector with the comparison of public sector banks.
Large NPA in ICICI Bank because the strategy of bank that risk-reward attitude and initiative in
each sector. Above we also discuss that ICICI Bank has highest deposit-investment-advance
than other banks.
Now, when we compare the all public sector banks and public sector banks on priority and nonpriority sector than the figures are really shocking. Because in compare of private sector banks,
public sector banks numbers are very large.
42

SECTOR
PRIORITY
PUBLIC
NON PRT
TOTAL

PUBLIC SECTOR
2012-13
2013-14
22954
490
15158
38602

25287
299
14163
39749

NEW PRIVATE
2012-13
2013-14
1468
3
4800
6271

2080
0
8339
10419

Here, there are huge difference between private and public sector banks NPA. There is increase
in new private sector banks NPA of Rs.4148 cr in 2013-14 which is almost 66% rise than
previous year. In public sector banks the numbers are not increased like private sector banks.

9. Findings and Interpretation

For the purpose of analysis and comparison between private sector and public sector banks, we
take five-five banks in both sector to compare the non performing assets of banks.

For

understanding we further bifurcate the non performing assets in priority sector and non priority
43

sector, gross NPA and net NPA in percentage as well as in rupees, deposit investment
advances.
55% respondent think the bank will always face the problem of npa because of poor recovery of
advances granted by the bank while 45% dont think.
45% of the respondents are satisfied with uneven scale of repayment schedule with higher
repayment in the initial years normally is preferred
55% of the respondents are not satisfied with that statement
60% of the respondents were think the banks should not only take steps for reducing present
NPAs, but necessary precaution should also be taken to avoid future NPAs . 40% of the
respondents are not satisfied with that statement.
Deposit Investment Advances is the first in the analysis because due to these we can
understand the where the bank stands in the competitive market. As at end of Mmarch 201408,
in private sector ICICI Bank is the highest deposit-investment-advances figures in rupees crore,
second is HDFC Bank and KOTAK Bank has least figures.
In public sector banks Punjab National Bank has highest deposit-investment-advances but when
we look at graph first three means Bank of Baroda and Bank of India are almost the similar in
numbers and Dena Bank is stands for last in public sector bank. When we compare the private
sector banks with public sector banks among these banks, we can understand the more number of
people prefer to choose public sector banks for deposit-investment. Comparison of net npa with
all banks for the year 2013-14. Average of these ten banks net NPA is 0.56. And in the public
sector banks all these five banks are below this. But in private sector banks there are three banks
are above average

44

10. Future Scope

Effective inspection system can be implemented.

Operating staff can scrutinize the level of inventories/receivables regularly further work
can be done in detail.
Large exposure on big corporate or single project should be avoided.
Uneven scale of repayment schedule with higher repayment in the initial years normally
is preferred a study can be done on this.

45

11. Recommendation and Conclusion

It is not possible to eliminate totally the NPAs in the banking business but can only be
minimized. It is always wise it follow the proper policy appraisal, supervision and
follow-up of advances to avoid NPAs.
The banks should not only take steps for reducing present NPAs, but necessary
precaution should also be taken to avoid future NPAs.
The bank has achieved its target because the net profit is also increased and there is a
decrease in NPAs. So it is in better position compared to last year

46

12. References

Website Address:
www.hdfcbank.com
www.scribed.com
http://profit.ndtv.com/news/industries/article-banks-gross-npas-rise-to-3-85per-cent-state-run-lenders-lag-care-595254
www.rbi.org
www. googlesearch.com

RBI Websites

47