COMPARISION

[Comparative analysis on NPA of Private & Public sector Banks]
CHAPTER-1
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.
The three letters “NPA” 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
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.
Page 1
Definitions:
An asset, including a leased asset, becomes non-performing when it ceases to generate income
for the bank.
A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest
and/ or instalment of principal has remained ‘past due’ for a specified period of time.
With a view to moving towards international best practices and to ensure greater transparency, it
has been decided to adopt the ‘90 days’ overdue’ norm for identification of NPAs, from the year
ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset
(NPA) shall be a loan or an advance where;
 Interest and/ or instalment of principal remain overdue for a period of more than
90 days in respect of a term loan,
 The account remains ‘out of order’ for a period of more than 90 days, in respect of
an Overdraft/Cash Credit (OD/CC),
 The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
 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.
Page 2
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.
RESEARCH METHODOLOGY
Type of Research
The research methodology adopted for carrying out the study were
 In this project Descriptive research methodologies were use.
 At the first stage theoretical study is attempted.
 At the second stage Historical study is attempted.
 At the Third stage Comparative study of NPA is undertaken.
Scope of the Study

 Concept of Non Performing Asset
 Guidelines
 Impact of NPAs
 Reasons for NPAs
 Preventive Measures
 Tools to manage NPAs
Sampling plan
To prepare this Project we took five banks from public sector as well as five banks from private
sector.
OBJECTIVES OF THE STUDY
The basic idea behind undertaking the Grand Project on NPA was to:
 To evaluate NPAs (Gross and Net) in different banks.
 To study the past trends of NPA
 To calculate the weighted of NPA in risk management in Banking
 To analyze financial performance of banks at different level of NPA
Page 3
 To evaluate profitability positions of banks

 To evaluate NPA level in different economic situation.
 To Know the Concept of Non Performing Asset
 To Know the Impact of NPAs
 To Know the Reasons for NPAs
 To learn Preventive Measures
Source of data collection

The data collected for the study was secondary data in Nature.
Page 4
REVIEW OF LITERATURE
NON PERFORMING ASSETS (NPA)
WHAT IS A NPA (NON PERFORMING ASSETS) ?
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,
Page 5
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.
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 out standing
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
Page 6
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, their by reducing their profitability and liquidity.
 Willful Defaults
There are borrowers who are able to payback 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.
Page 7
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.
 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
ii. Principle of liquidity
iii. Principles of profitability
i. 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, there fore 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.
Page 8
 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.
 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
Page 9
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.
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 there capital .in the worst case, if the banks
fails, owners loose their assets. In modern times this may affect a broad pool of
shareholders.
Page 10
2. Depositors do not receive a market return on saving. In the worst case if the bank fails,
depositors loose 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, labour and natural resources.
Non performing asset may spill over the banking system and contract the money stock, which
may lead to economic contraction. This spill over 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
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.
Page 11
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
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.
Types of NPA
A] Gross NPA
Page 12
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
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
INCOME RECOGNITION
Page 13
Income recognition – Policy
 The policy of income recognition has to be objective and based on the record of recovery.
Internationally income from non-performing assets (NPA) is not recognised on accrual
basis but is booked as income only when it is actually received. Therefore, the banks
should not charge and take to income account interest on any NPA.
 However, interest on advances against term deposits, NSCs, IVPs, KVPs and Life
policies may be taken to income account on the due date, provided adequate margin is
available in the accounts.
 Fees and commissions earned by the banks as a result of re-negotiations or rescheduling

of outstanding debts should be recognised on an accrual basis over the period of time
covered by the re-negotiated or rescheduled extension of credit.
 If Government guaranteed advances become NPA, the interest on such advances should
not be taken to income account unless the interest has been realised.
Reversal of income:
 If any advance, including bills purchased and discounted, becomes NPA as at the close of
any year, interest accrued and credited to income account in the corresponding previous
year, should be reversed or provided for if the same is not realised. This will apply to
Government guaranteed accounts also.
 In respect of NPAs, fees, commission and similar income that have accrued should cease
to accrue in the current period and should be reversed or provided for with respect to past
periods, if uncollected.
Page 14
Leased Assets
 The net lease rentals (finance charge) on the leased asset accrued and credited to income
account before the asset became non-performing, and remaining unrealised, should be
reversed or provided for in the current accounting period.
 The term 'net lease rentals' would mean the amount of finance charge taken to the credit
of Profit & Loss Account and would be worked out as gross lease rentals adjusted by
amount of statutory depreciation and lease equalisation account.
 As per the 'Guidance Note on Accounting for Leases' issued by the Council of the
Institute of Chartered Accountants of India (ICAI), a separate Lease Equalisation Account
should be opened by the banks with a corresponding debit or credit to Lease Adjustment
Account, as the case may be. Further, Lease Equalisation Account should be transferred
every year to the Profit & Loss Account and disclosed separately as a deduction
from/addition to gross value of lease rentals shown under the head 'Gross Income'.
Appropriation of recovery in NPAs
 Interest realised on NPAs may be taken to income account provided the credits in the
accounts towards interest are not out of fresh/ additional credit facilities sanctioned to the
borrower concerned.
 In the absence of a clear agreement between the bank and the borrower for the purpose of
appropriation of recoveries in NPAs (i.e. towards principal or interest due), banks should
adopt an accounting principle and exercise the right of appropriation of recoveries in a
uniform and consistent manner.
Page 15
Interest Application:
There is no objection to the banks using their own discretion in debiting interest to an NPA
account taking the same to Interest Suspense Account or maintaining only a record of such
interest in proforma accounts.
Reporting of NPAs
 Banks are required to furnish a Report on NPAs as on 31 st March each year after
completion of audit. The NPAs would relate to the banks’ global portfolio, including the
advances at the foreign branches. The Report should be furnished as per the prescribed
format given in the Annexure I.
 While reporting NPA figures to RBI, the amount held in interest suspense account, should
be shown as a deduction from gross NPAs as well as gross advances while arriving at the
net NPAs. Banks which do not maintain Interest Suspense account for parking interest
due on non-performing advance accounts, may furnish the amount of interest receivable
on NPAs as a foot note to the Report.
 Whenever NPAs are reported to RBI, the amount of technical write off, if any, should be
reduced from the outstanding gross advances and gross NPAs to eliminate any distortion
in the quantum of NPAs being reported.
REPORTING FORMAT FOR NPA – GROSS AND NET NPA
Page 16
Name of the Bank:

Position as on………
PARTICULARS
1) Gross Advanced *
2) Gross NPA *
3) Gross NPA as %age of Gross Advanced
4) Total deduction( a+b+c+d )
( a ) Balance in interest suspense a/c **
( b ) DICGC/ECGC claims received and held pending
adjustment
( c ) part payment received and kept in suspense a/c
( d ) Total provision held ***
5) Net advanced ( 1-4 )
6) Net NPA ( 2-4 )
7) Net NPA as a %age of Net Advance
*excluding Technical write-off of Rs.________crore.
**Banks which do not maintain an interest suspense a/c to park the accrued interest on NPAs
may furnish the amount of interest receivable on NPAs.
***Excluding amount of Technical write-off (Rs.______crore) and provision on standard assets.

(Rs._____crore).
Asset Classification
-------------------------------
Categories of NPAs
Standard Assets:
Page 17
Standard assets are the ones in which the bank is receiving interest as well as the principal
amount of the loan regularly from the customer. Here it is also very important that in this case
the arrears of interest and the principal amount of loan does not exceed 90 days at the end of
financial year. If asset fails to be in category of standard asset that is amount due more than 90
days then it is NPA and NPAs are further need to classify in sub categories.
Banks are required to classify non-performing assets further into the following
three categories based on the period for which the asset has remained non-performing and the
realisability of the dues:
( 1 ) Sub-standard Assets
( 2 ) Doubtful Assets
( 3 ) Loss Assets
( 1 ) Sub-standard Assets:--
With effect from 31 March 2005, a sub standard asset would be one, which has remained NPA
for a period less than or equal to 12 month. The following features are exhibited by sub standard
assets: the current net worth of the borrowers / guarantor or the current market value of the
security charged is not enough to ensure recovery of the dues to the banks in full; and the asset
has well-defined credit weaknesses that jeopardise the liquidation of the debt and are
characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are
not corrected.
( 2 ) Doubtful Assets:--
A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-
standard, with the added characteristic that the weaknesses make collection or liquidation in full,
– on the basis of currently known facts, conditions and values – highly questionable and
improbable.
Page 18
With effect from March 31, 2005, an asset would be classified as doubtful if it remained in the
sub-standard category for 12 months.
( 3 ) Loss Assets:--
A loss asset is one which considered uncollectible and of such little value that its continuance as
a bankable asset is not warranted- although there may be some salvage or recovery value. Also,
these assets would have been identified as ‘loss assets’ by the bank or internal or external
auditors or the RBI inspection but the amount would not have been written-off wholly.
Provisioning Norms
------------------------------------------
General
 In order to narrow down the divergences and ensure adequate provisioning by banks, it
was suggested that a bank's statutory auditors, if they so desire, could have a dialogue
with RBI's Regional Office/ inspectors who carried out the bank's inspection during the
previous year with regard to the accounts contributing to the difference.
 Pursuant to this, regional offices were advised to forward a list of individual advances,
where the variance in the provisioning requirements between the RBI and the bank is
above certain cut off levels so that the bank and the statutory auditors take into account
the assessment of the RBI while making provisions for loan loss, etc.
 The primary responsibility for making adequate provisions for any diminution in the
value of loan assets, investment or other assets is that of the bank managements and the
statutory auditors. The assessment made by the inspecting officer of the RBI is furnished
Page 19
to the bank to assist the bank management and the statutory auditors in taking a decision
in regard to making adequate and necessary provisions in terms of prudential guidelines.
 In conformity with the prudential norms, provisions should be made on the non-
performing assets on the basis of classification of assets into prescribed categories as
detailed in paragraphs 4 supra. Taking into account the time lag between an account
becoming doubtful of recovery, its recognition as such, the realisation of the security and
the erosion over time in the value of security charged to the bank, the banks should make
provision against sub-standard assets, doubtful assets and loss assets as below:
Loss assets:
The entire asset should be written off. If the assets are permitted to remain in the books for any
reason, 100 percent of the outstanding should be provided for.
Doubtful assets:
 100 percent of the extent to which the advance is not covered by the realisable value of
the security to which the bank has a valid recourse and the realisable value is estimated
on a realistic basis.
 In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 percent to 50 percent of the secured portion depending upon the
period for which the asset has remained doubtful:
Period for which the advance has been Provision

considered as doubtful requirement (%)
Page 20
Up to one year 20
One to three years 30

More than three years: 60% with effect from March
31,2005.
(1) Outstanding stock of NPAs as on
March 31, 2004. 75% effect from March 31,
2006.
(2) Advances classified as ‘doubtful’
more than three years on or after April 100% with effect from March
1, 2004. 31, 2007.
 Additional provisioning consequent upon the change in the definition of doubtful assets
effective from March 31, 2003 has to be made in phases as under:
 As on 31.03.2003, 50 percent of the additional provisioning requirement on the assets
which became doubtful on account of new norm of 18 months for transition from sub-
standard asset to doubtful category.
 As on 31.03.2002, balance of the provisions not made during the previous year, in
addition to the provisions needed, as on 31.03.2002.
 Banks are permitted to phase the additional provisioning consequent upon the reduction
in the transition period from substandard to doubtful asset from 18 to 12 months over a
four year period commencing from the year ending March 31, 2005, with a minimum of
20 % each year.
Note: Valuation of Security for provisioning purposes
With a view to bringing down divergence arising out of difference in assessment of the value of
security, in cases of NPAs with balance of Rs. 5 crore and above stock audit at annual intervals
by external agencies appointed as per the guidelines approved by the Board would be mandatory
in order to enhance the reliability on stock valuation. Valuers appointed as per the guidelines
Page 21
approved by the Board of Directors should get collaterals such as immovable properties charged
in favour of the bank valued once in three years.
Sub-standard assets:
A general provision of 10 percent on total outstanding should be made without making any
allowance for DICGC/ECGC guarantee cover and securities available.
Standard assets:
 From the year ending 31.03.2000, the banks should make a general provision of a
minimum of 0.40 percent on standard assets on global loan portfolio basis.
 The provisions on standard assets should not be reckoned for arriving at net NPAs.
 The provisions towards Standard Assets need not be netted from gross advances but
shown separately as 'Contingent Provisions against Standard Assets' under 'Other
Liabilities and Provisions - Others' in Schedule 5 of the balance sheet.
Floating provisions:
Some of the banks make a 'floating provision' over and above the specific
provisions made in respect of accounts identified as NPAs. The floating provisions, wherever
available, could be set-off against provisions required to be made as per above stated
provisioning guidelines. Considering that higher loan loss provisioning adds to the overall
financial strength of the banks and the stability of the financial sector, banks are urged to
voluntarily set apart provisions much above the minimum prudential levels as a desirable
practice.
Provisions on Leased Assets:
Page 22
Leases are peculiar transactions where the assets are not recorded in the books of the user of such
assets as Assets, whereas they are recorded in the books of the owner even though the physical
existence of the asset is with the user (lessee). (AS19 ICAI)
 Sub-standard assets : -
 10 percent of the 'net book value'.
 As per the 'Guidance Note on Accounting for Leases' issued by the ICAI, 'Gross book
value' of a fixed asset is its historical cost or other amount substituted for historical cost
in the books of account or financial statements. Statutory depreciation should be shown
separately in the Profit & Loss Account. Accumulated depreciation should be deducted
from the Gross Book Value of the leased asset in the balance sheet of the lesser to arrive
at the 'net book value'.
 Also, balance standing in 'Lease Adjustment Account' should be adjusted in the 'net book
value' of the leased assets. The amount of adjustment in respect of each class of fixed assets
may be shown either in the main balance sheet or in the Fixed Assets Schedule as a separate
column in the section related to leased assets.
 Doubtful assets :-
100 percent of the extent to which the finance is not secured by the realisable value of the leased
asset. Realisable value to be estimated on a realistic basis. In addition to the above provision,
the following provision on the net book value of the secured portion should be made, depending
upon the period for which asset has been doubtful:
Period %age of provision
Up to one year 20
One to three years 30
More than three years 50
Page 23
 Loss assets :-
The entire asset should be written-off. If for any reason, an asset is allowed to remain in books,
100 percent of the sum of the net investment in the lease and the unrealised portion of finance
income net of finance charge component should be provided for. ('net book value')
Guidelines for Provisions under Special Circumstances

Government guaranteed advances
 With effect from 31 March 2000, in respect of advances sanctioned against State
Government guarantee, if the guarantee is invoked and remains in default for more than two
quarters (180 days at present), the banks should make normal provisions as prescribed in
paragraph 4.1.2 above.
 As regards advances guaranteed by State Governments, in respect of which guarantee stood

invoked as on 31.03.2000, necessary provision was allowed to be made, in a phased
manner, during the financial years ending 31.03.2000 to 31.03.2003 with a minimum of 25
percent each year.
Advances granted under rehabilitation packages approved by BIFR/term

lending institutions:
 In respect of advances under rehabilitation package approved by BIFR/term lending institutions,

the provision should continue to be made in respect of dues to the bank on the existing
credit facilities as per their classification as sub-standard or doubtful asset.
Page 24
 As regards the additional facilities sanctioned as per package finalised by BIFR and/or
term lending institutions, provision on additional facilities sanctioned need not be made
for a period of one year from the date of disbursement.
 In respect of additional credit facilities granted to SSI units which are identified as sick
[as defined in RPCD circular No.PLNFS.BC.57 /06.04.01/2001-2002 dated 16 January
2002] and where rehabilitation packages/nursing programmes have been drawn by the
banks themselves or under consortium arrangements, no provision need be made for a
period of one year.
Advances against term deposits, NSCs eligible for surrender, IVPs,

KVPs, and life policies are exempted from provisioning requirements.
However, advances against gold ornaments, government securities and

all other kinds of securities are not exempted from provisioning
requirements.
Treatment of interest suspense account:
Amounts held in Interest Suspense Account should not be reckoned as part of provisions.
Amounts lying in the Interest Suspense Account should be deducted from the relative advances
and thereafter, provisioning as per the norms, should be made on the balances after such
deduction.
Page 25
Advances covered by ECGC/DICGC guarantee
In the case of advances guaranteed by DICGC/ECGC, provision should be made only for the
balance in excess of the amount guaranteed by these Corporations. Further, while arriving at the
provision required to be made for doubtful assets, realisable value of the securities should first be
deducted from the outstanding balance in respect of the amount guaranteed by these
Corporations and then provision made as illustrated hereunder:
Example
Outstanding Balance Rs. 4 lakhs
DICGC Cover 50 percent
Period for which the advance has remained More than 3 years remained
doubtful doubtful
Value of security held Rs. 1.50 lakhs

(excludes worth of Rs.)
Provision required to be made
Outstanding balance Rs. 4.00 lakhs
Less: Value of security held Rs. 1.50 lakhs
Unrealised balance Rs. 2.50 lakhs
Less: DICGC Cover Rs. 1.25 lakhs

(50% of unrealisable balance)
Net unsecured balance Rs. 1.25 lakhs
Provision for unsecured portion of advance Rs. 1.25 lakhs (@ 100 percent of
unsecured portion)
Page 26
Provision for secured portion of advance Rs. 0.75 lakhs (@ 50 percent of

secured portion)
Total provision required to be made Rs. 2.00 lakhs
Advance covered by CGTSI guarantee
In case the advance covered by CGTSI guarantee becomes non-performing, no provision need be
made towards the guaranteed portion. The amount outstanding in excess of the guaranteed
portion should be provided for as per the extant guidelines on provisioning for non-performing
advances. Two illustrative examples are given below:
Example I
Asset classification status: Doubtful – More than 3 years;
CGTSI Cover 75% of the amount outstanding or

75% of the unsecured amount or
Rs.18.75 lakh, whichever is the
least
Realisable value of Security Rs.1.50 lakh
Balance outstanding Rs.10.00 lakh
Less Realisable value of Rs. 1.50 lakh

security
Unsecured amount Rs. 8.50 lakh
Less CGTSI cover (75%) Rs. 6.38 lakh
Page 27
Net unsecured and uncovered Rs. 2.12 lakh

portion:
Provision Required
Secured portion Rs.1.50 lakh Rs. 0.75 lakh (@ 50%)
Unsecured & uncovered portion Rs.2.12 lakh Rs. 2.12 lakh ( 100%)
Total provision required Rs. 2.87 lakh
Example II
Asset classification status Doubtful – More than 3 years;
CGTSI Cover 75% of the amount outstanding

or75% of the unsecured amount or
Rs.18.75 lakh, whichever is the
least
Realisable value of Security Rs.10.00 lakh
Balance outstanding Rs.40.00 lakh
Less Realisable value of Rs. 10.00 lakh

security
Unsecured amount Rs. 30.00 lakh
Less CGTSI cover (75%) Rs. 18.75 lakh
Net unsecured and uncovered Rs. 11.25 lakh

portion:
Page 28
Provision Required
Secured portion Rs.10.00 lakh Rs. 5.00 lakh (@ 50%)
Unsecured & uncovered portion Rs.11.25 lakh Rs.11.25 lakh (100%)
Total provision required Rs. 16.25 lakh
Take-out finance
The lending institution should make provisions against a 'take-out finance' turning into NPA
pending its take-over by the taking-over institution. As and when the asset is taken-over by the
taking-over institution, the corresponding provisions could be reversed.
Reserve for Exchange Rate Fluctuations Account (RERFA)
When exchange rate movements of Indian rupee turn adverse, the outstanding amount of foreign
currency denominated a loan (where actual disbursement was made in Indian Rupee) which
becomes overdue goes up correspondingly, with its attendant implications of provisioning
requirements. Such assets should not normally be revalued. In case such assets need to be
revalued as per requirement of accounting practices or for any other requirement, the following
procedure may be adopted:
 The loss on revaluation of assets has to be booked in the bank's Profit & Loss Account.
Page 29
Besides the provisioning requirement as per Asset Classification, banks should treat the full
amount of the Revaluation Gain relating to the corresponding assets, if any, on account of
Foreign Exchange Fluctuation as provision against the particular assets.
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 doesn’t 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:-
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 day’s banks have special
employees to deal and handle NPAs, which is additional cost to the bank.
Page 30
 Credit loss:-
Bank is facing problem of NPA then it adversely affect the value of bank in terms of market
credit. It will lose it’s 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:
 Excessive overdraft lending:
 Non – Transparent accounting policy:
Page 31
[ B ] External Factors:-
External factors are those, which are external to banks they are not controllable by banks.
 Socio political pressure:
 Chang 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
 Business failure
 Inefficient management
 Obsolete technology
 Product obsolete
Early symptoms by which one can recognize a performing

asset turning in to Non-performing asset
Page 32
Four categories of early symptoms:-

---------------------------------------------------
(1) Financial:
 Non-payment of the very first installment in case of term loan.

 Bouncing of cheque due to insufficient balance in the accounts.
 Irregularity in installment.
 Irregularity of operations in the accounts.
 Unpaid over due bills.
 Declining Current Ratio.
 Payment which does not cover the interest and principal amount of that installment.
 While monitoring the accounts it is found that partial amount is diverted to sister
concern or parent company.
(2) Operational and Physical:
 If information is received that the borrower has either initiated the process of winding up
or are not doing the business.
 Overdue receivables.
 Stock statement not submitted on time.
 External non-controllable factor like natural calamities in the city where borrower
conduct his business.
 Frequent changes in plan.
 Nonpayment of wages.
( 3 ) Attitudinal Changes:
Page 33
 Use for personal comfort, stocks and shares by borrower.

 Avoidance of contact with bank.
 Problem between partners.
( 4 ) Others:
 Changes in Government policies.

 Death of borrower.
 Competition in the market.
Preventive Measurement for NPA
 Early Recognition of the Problem:-
Invariably, by the time banks start their efforts to get involved in a revival process, it’s too late to
retrieve the situation- both in terms of rehabilitation of the project and recovery of bank’s 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 promoter’s
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.
Page 34
 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, 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 promoter’s 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
Page 35
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:-
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 unit’s 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
Page 36
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
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.
Page 37
Tools for recovery of NPAs
Credit Default
Inability to Pay Willful default
Unviable Viable
Rehabilitation Lok Adalat

Debt Recovery
Securitization
Tribunals
Compromise Act
Consortium Finance Sole Banker Asset

Reconstructi
on
Corporate Debt Restructuring
Fresh Issue Conversion Fresh WC Limit Rephasement

of Term Loan into WCTL of Repayment
Period
Page 38
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
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 defendant’s property/assets before
judgment, penal provision for disobedience of tribunal’s 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
Page 39
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
 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
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.
Page 40
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.
Structure:
CDR system in the country will have a three-tier structure:
(A) CDR Standing Forum

(B) CDR Empowered Group
(C) CDR Cell
(A) CDR Standing Forum :
The CDR Standing Forum would be the representative general body of all financial
institutions and banks participating in CDR system. All financial institutions and banks should
participate in the system in their own interest. CDR Standing Forum will be a self-empowered
body, which will lay down policies and guidelines, guide and monitor the progress of corporate
debt restructuring.
Page 41
The Forum will also provide an official platform for both the creditors and borrowers (by
consultation) to amicably and collectively evolve policies and guidelines for working out debt
restructuring plans in the interests of all concerned.
The CDR Standing Forum shall comprise Chairman & Managing Director, Industrial
Development Bank of India; Managing Director, Industrial Credit & Investment Corporation of
India Limited; Chairman, State Bank of India; Chairman, Indian Banks Association and
Executive Director, Reserve Bank of India as well as Chairmen and Managing Directors of all
banks and financial institutions participating as permanent members in the system. The Forum
will elect its Chairman for a period of one year and the principle of rotation will be followed in
the subsequent years. However, the Forum may decide to have a Working Chairman as a whole-
time officer to guide and carry out the decisions of the CDR Standing Forum.
A CDR Core Group will be carved out of the CDR Standing Forum to assist the Standing
Forum in convening the meetings and taking decisions relating to policy, on behalf of the
Standing Forum. The Core Group will consist of Chief Executives of IDBI, ICICI, SBI, Bank of
Baroda, Bank of India, Punjab National Bank, Indian Banks Association and a representative of
Reserve Bank of India.
The CDR Standing Forum shall meet at least once every six months and would review
and monitor the progress of corporate debt restructuring system. The Forum would also lay down
the policies and guidelines to be followed by the CDR Empowered Group and CDR Cell for debt
restructuring and would ensure their smooth functioning and adherence to the prescribed time
schedules for debt restructuring. It can also review any individual decisions of the CDR
Empowered Group and CDR Cell.
The CDR Standing Forum, the CDR Empowered Group and CDR Cell (described in
following paragraphs) shall be housed in IDBI. All financial institutions and banks shall share
the administrative and other costs. The sharing pattern shall be as determined by the Standing
Forum.
Page 42
CDR Empowered Group and CDR Cell:
The individual cases of corporate debt restructuring shall be decided by the CDR
Empowered Group, consisting of ED level representatives of IDBI, ICICI Limited and SBI as
standing members, in addition to ED level representatives of financial institutions and banks who
have an exposure to the concerned company. In order to make the CDR Empowered Group
effective and broad based and operate efficiently and smoothly, it would have to be ensured that
each financial institution and bank, as participants of the CDR system, nominates a panel of two
or three EDs, one of whom will participate in a specific meeting of the Empowered Group
dealing with individual restructuring cases. Where, however, a bank / financial institution has
only one Executive Director, the panel may consist of senior officials, duly authorized by its
Board. The level of representation of banks/ financial institutions on the CDR Empowered Group
should be at a sufficiently senior level to ensure that concerned bank / FI abides by the necessary
commitments including sacrifices, made towards debt restructuring.
The Empowered Group will consider the preliminary report of all cases of requests of
restructuring, submitted to it by the CDR Cell. After the Empowered Group decides that
restructuring of the company is prima-facie feasible and the enterprise is potentially viable in
terms of the policies and guidelines evolved by Standing Forum, the detailed restructuring
package will be worked out by the CDR Cell in conjunction with the Lead Institution.
The CDR Empowered Group would be mandated to look into each case of debt
restructuring, examine the viability and rehabilitation potential of the Company and approve
the restructuring package within a specified time frame of 90 days, or at best 180 days of
reference to the Empowered Group.
There should be a general authorisation by the respective Boards of the participating

institutions / banks in favour of their representatives on the CDR Empowered Group, authorising
them to take decisions on behalf of their organization, regarding restructuring of debts of
individual corporate.
Page 43
The decisions of the CDR Empowered Group shall be final and action-reference point. If
restructuring of debt is found viable and feasible and accepted by the Empowered Group, the
company would be put on the restructuring mode. If, however, restructuring is not found viable,
the creditors would then be free to take necessary steps for immediate recovery of dues and / or
liquidation or winding up of the company, collectively or individually.
CDR Cell:
The CDR Standing Forum and the CDR Empowered Group will be assisted by a CDR
Cell in all their functions. The CDR Cell will make the initial scrutiny of the proposals received
from borrowers / lenders, by calling for proposed rehabilitation plan and other information and
put up the matter before the CDR Empowered Group, within one month to decide whether
rehabilitation is prima facie feasible, if so, the CDR Cell will proceed to prepare detailed
Rehabilitation Plan with the help of lenders and if necessary, experts to be engaged from outside.
If not found prima facie feasible, the lenders may start action for recovery of their dues.
To begin with, CDR Cell will be constituted in IDBI, Mumbai and adequate members of
staff for the Cell will be deputed from banks and financial institutions. The CDR Cell may also
take outside professional help. The initial cost in operating the CDR mechanism including CDR
Cell will be met by IDBI initially for one year and then from contribution from the financial
institutions and banks in the Core Group at the rate of Rs.50 lakh each and contribution from
other institutions and banks at the rate of Rs.5 lakh each.
All references for corporate debt restructuring by lenders or borrowers will be made to
the CDR Cell. It shall be the responsibility of the lead institution / major stakeholder to the
corporate, to work out a preliminary restructuring plan in consultation with other stakeholders
and submit to the CDR Cell within one month. The CDR Cell will prepare the restructuring plan
in terms of the general policies and guidelines approved by the CDR Standing Forum and place
for the consideration of the Empowered Group within 30 days for decision. The Empowered
Group can approve or suggest modifications, so, however, that a final decision must be taken
Page 44
within a total period of 90 days. However, for sufficient reasons the period can be extended
maximum upto 180 days from the date of reference to the CDR Cell.
Other features:
CDR will be a Non-statutory mechanism.
CDR mechanism will be a voluntary system based on debtor-creditor agreement and

inter-creditor agreement.
The scheme will not apply to accounts involving only one financial institution or one
bank. The CDR mechanism will cover only multiple banking accounts / syndication / consortium
accounts with outstanding exposure of Rs.20 crore and above by banks and institutions.
The CDR system will be applicable only to standard and sub-standard accounts.
However, as an interim measure, permission for corporate debt restructuring will be made
available by RBI on the basis of specific recommendation of CDR "Core-Group", if a minimum
of 75 per cent (by value) of the lenders constituting banks and FIs consent for CDR, irrespective
of differences in asset classification status in banks/ financial institutions. There would be no
requirement of the account / company being sick, NPA or being in default for a specified
period before reference to the CDR Group. However, potentially viable cases of NPAs will get
priority. This approach would provide the necessary flexibility and facilitate timely intervention
for debt restructuring. Prescribing any milestone(s) may not be necessary, since the debt
restructuring exercise is being triggered by banks and financial institutions or with their consent.
In no case, the requests of any corporate indulging in wilful default or misfeasance will be
considered for restructuring under CDR.
Reference to Corporate Debt Restructuring System could be triggered by (i) any or more
of the secured creditor who have minimum 20% share in either working capital or term finance,
Page 45
or (ii) by the concerned corporate, if supported by a bank or financial institution having stake as
in (i) above.
Legal Basis
The legal basis to the CDR mechanism shall be provided by the Debtor-Creditor
Agreement (DCA) and the Inter-Creditor Agreement. The debtors shall have to accede to the
DCA, either at the time of original loan documentation (for future cases) or at the time of
reference to Corporate Debt Restructuring Cell. Similarly, all participants in the CDR mechanism
through their membership of the Standing Forum shall have to enter into a legally binding
agreement, with necessary enforcement and penal clauses, to operate the System through laid-
down policies and guidelines.
Stand-Still Clause:
One of the most important elements of Debtor-Creditor Agreement would

be 'stand still' agreement binding for 90 days, or 180 days by both sides. Under this clause,
both the debtor and creditor(s) shall agree to a legally binding 'stand-still' whereby both the
parties commit themselves not to taking recourse to any other legal action during the 'stand-
still' period, this would be necessary for enabling the CDR System to undertake the necessary
debt restructuring exercise without any outside intervention judicial or otherwise.
The Inter-Creditors Agreement would be a legally binding agreement amongst the

secured creditors, with necessary enforcement and penal clauses, wherein the creditors would
commit themselves to abide by the various elements of CDR system. Further , the creditors shall
agree that if 75% of secured creditors by value, agree to a debt restructuring package, the same
would be binding on the remaining secured creditors.
Accounting treatment for restructured accounts
Page 46
The accounting treatment of accounts restructured under CDR would be governed by the
prudential norms indicated in circular DBOD. BP. BC. 98 / 21.04.048 / 2000-01 dated March 30,
2001. Restructuring of corporate debts under CDR could take place in the following stages:
 Before commencement of commercial production;

 After commencement of commercial production but before the asset has been classified
as sub-standard;
 After commencement of commercial production and the asset has been classified as sub-
standard.
The prudential treatment of the accounts, subjected to restructuring under CDR, would be
governed by the following norms:
Treatment of standard accounts restructured under CDR:
 A rescheduling of the instalments of principal alone, at any of the aforesaid first two
stages [paragraph 5(a) and (b) above] would not cause a standard asset to be classified in
the sub-standard category, provided the loan / credit facility is fully secured.
 A rescheduling of interest element at any of the foregoing first two stages would not
cause an asset to be downgraded to sub-standard category subject to the condition that the
amount of sacrifice, if any, in the element of interest, measured in present value terms, is
either written off or provision is made to the extent of the sacrifice involved. For the
purpose, the future interest due as per the original loan agreement in respect of an account
should be discounted to the present value at a rate appropriate to the risk category of the
borrower (i.e. current PLR + the appropriate credit risk premium for the borrower-
category) and compared with the present value of the dues expected to be received under
the restructuring package, discounted on the same basis.
Page 47
 In case there is a sacrifice involved in the amount of interest in present value terms, as at
(b) above, the amount of sacrifice should either be written off or provision made to the
extent of the sacrifice involved.
Treatment of sub-standard accounts restructured under CDR
A rescheduling of the instalments of principal alone, would render a sub-standard asset

eligible to be continued in the sub-standard category for the specified period, provided the loan /
credit facility is fully secured.
A rescheduling of interest element would render a sub-standard asset eligible to be

continued to be classified in sub-standard category for the specified period subject to the
condition that the amount of sacrifice, if any, in the element of interest, measured in present
value terms, is either written off or provision is made to the extent of the sacrifice involved. For
the purpose, the future interest due as per the original loan agreement in respect of an account
borrower (i.e., current PLR + the appropriate credit risk premium for the borrower-category) and
compared with the present value of the dues expected to be received under the restructuring
package, discounted on the same basis.
In case there is a sacrifice involved in the amount of interest in present value terms, as at
(b) above, the amount of sacrifice should either be written off or provision made to the extent of
the sacrifice involved. Even in cases where the sacrifice is by way of write off of the past interest
dues, the asset should continue to be treated as sub-standard.
The sub-standard accounts at (ii) (a), (b) and (c) above, which have been subjected to
restructuring, etc. whether in respect of principal instalment or interest amount, by whatever
modality, would be eligible to be upgraded to the standard category only after the specified
period, i.e., a period of one year after the date when first payment of interest or of principal,
Page 48
whichever is earlier, falls due, subject to satisfactory performance during the period. The amount
of provision made earlier, net of the amount provided for the sacrifice in the interest amount in
present value terms as aforesaid, could also be reversed after the one-year period.
During this one-year period, the sub-standard asset will not deteriorate in its classification
if satisfactory performance of the account is demonstrated during the period. In case, however,
the satisfactory performance during the one year period is not evidenced, the asset classification
of the restructured account would be governed as per the applicable prudential norms with
reference to the pre-restructuring payment schedule.
The asset classification under CDR would continue to be bank-specific based on record
of recovery of each bank, as per the existing prudential norms applicable to banks.
Restructuring / Rescheduling of Loans

A standard asset where the terms of the loan agreement regarding interest and principal
have been renegotiated or rescheduled after commencement of production should be classified as
sub-standard and should remain in such category for at least one year of satisfactory performance
under the renegotiated or rescheduled terms. In the case of sub-standard and doubtful assets also,
rescheduling does not entitle a bank to upgrade the quality of advance automatically unless there
is satisfactory performance under the rescheduled / renegotiated terms. Following representations
from banks that the foregoing stipulations deter the banks from restructuring of standard and
sub-standard loan assets even though the modification of terms might not jeopardise the
assurance of repayment of dues from the borrower, the norms relating to restructuring of
standard and sub-standard assets were reviewed in March 2001. In the context of restructuring of
the accounts, the following stages at which the restructuring / rescheduling / renegotiation of the
terms of loan agreement could take place, can be identified:
1. Before commencement of commercial production;

2. After commencement of commercial production but before the asset has
been classified as sub standard,
Page 49
3. After commencement of commercial production and after the asset has been
classified as sub-standard.
In each of the foregoing three stages, the rescheduling, etc., of principal and/or of interest could
take place, with or without sacrifice, as part of the restructuring package evolved.
Treatment of Restructured Standard Accounts:
A rescheduling of the instalments of principal alone, at any of the aforesaid first two stages
would not cause a standard asset to be classified in the sub standard category provided the
loan/credit facility is fully secured.
A rescheduling of interest element at any of the foregoing first two stages would not
cause an asset to be downgraded to sub standard category subject to the condition that the
amount of sacrifice, if any, in the element of interest, measured in present value terms, is either
written off or provision is made to the extent of the sacrifice involved. For the purpose, the future
interest due as per the original loan agreement in respect of an account should be discounted to
the present value at a rate appropriate to the risk category of the borrower (i.e., current PLR+ the
appropriate credit risk premium for the borrower-category) and compared with the present value
of the dues expected to be received under the restructuring package, discounted on the same
basis.
(b) above, the amount of sacrifice should either be written off or provision made to the extent
of the sacrifice involved.
Treatment of restructured sub-standard accounts:
Page 50
A rescheduling of the instalments of principal alone, would render a sub-standard asset

eligible to be continued in the sub-standard category for the specified period, provided the
loan/credit facility is fully secured.
A rescheduling of interest element would render a sub-standard asset eligible to be

continued to be classified in sub standard category for the specified period subject to the
condition that the amount of sacrifice, if any, in the element of interest, measured in present
value terms, is either written off or provision is made to the extent of the sacrifice involved. For
the purpose, the future interest due as per the original loan agreement in respect of an account
borrower (i.e., current PLR + the appropriate credit risk premium for the borrower-category) and
compared with the present value of the dues expected to be received under the restructuring
package, discounted on the same basis.
(b) above, the amount of sacrifice should either be written off or provision made to the extent of
the sacrifice involved. Even in cases where the sacrifice is by way of write off of the past interest
dues, the asset should continue to be treated as sub-standard.
Up gradation of restructured accounts:
The sub-standard accounts which have been subjected to restructuring etc., whether in respect of
principal instalment or interest amount, by whatever modality, would be eligible to be upgraded
to the standard category only after the specified period i.e., a period of one year after the date
when first payment of interest or of principal, whichever is earlier, falls due, subject to
satisfactory performance during the period. The amount of provision made earlier, net of the
amount provided for the sacrifice in the interest amount in present value terms as aforesaid,
could also be reversed after the one year period. During this one-year period, the sub-standard
asset will not deteriorate in its classification if satisfactory performance of the account is
demonstrated during the period. In case, however, the satisfactory performance during the one-
year period is not evidenced, the asset classification of the restructured account would be
Page 51
governed as per the applicable prudential norms with reference to the pre-restructuring payment
schedule.
General:
These instructions would be applicable to all type of credit facilities including working
capital limits, extended to industrial units, provided they are fully covered by tangible securities.
As trading involves only buying and selling of commodities and the problems associated
with manufacturing units such as bottleneck in commercial production, time and cost escalation
etc. are not applicable to them, these guidelines should not be applied to restructuring/
rescheduling of credit facilities extended to traders.
While assessing the extent of security cover available to the credit facilities, which are
being restructured/ rescheduled, collateral security would also be reckoned, provided such
collateral is a tangible security properly charged to the bank and is not in the intangible form like
guarantee etc. of the promoter/ others.
Income recognition
There will be no change in the existing instructions on income recognition. Consequently,

banks should not recognise income on accrual basis in respect of the projects even though the
asset is classified as a standard asset if the asset is a "non performing asset" in terms of the extant
instructions. In other words, while the accounts of the project may be classified as a standard
asset, banks shall recognise income in such accounts only on realisation on cash basis if the asset
has otherwise become ‘non performing’ as per the extant delinquency norm of 180 days. The
delinquency norm would become 90 days with effect from 31 March 2004.
Page 52
Consequently, banks, which have wrongly recognised income in the past, should reverse
the interest if it was recognised as income during the current year or make a provision for an
equivalent amount if it was recognised as income in the previous year(s). As regards the
regulatory treatment of income recognised as ‘funded interest’ and ‘conversion into equity,
debentures or any other instrument’ banks should adopt the following:
 Funded Interest: Income recognition in respect of the NPAs, regardless of whether

these are or are not subjected to restructuring/ rescheduling/ renegotiation of terms of the
loan agreement, should be done strictly on cash basis, only on realisation and not if the
amount of interest overdue has been funded. If, however, the amount of funded interest is
recognised as income, a provision for an equal amount should also be made
simultaneously. In other words, any funding of interest in respect of NPAs, if recognised
as income, should be fully provided for.
 Conversion into equity, debentures or any other instrument: The amount

outstanding converted into other instruments would normally comprise principal and the
interest components. If the amount of interest dues is converted into equity or any other
instrument, and income is recognised in consequence, full provision should be made for
the amount of income so recognised to offset the effect of such income recognition. Such
provision would be in addition to the amount of provision that may be necessary for the
depreciation in the value of the equity or other instruments, as per the investment
valuation norms. However, if the conversion of interest is into equity, which is quoted,
interest income can be recognised at market value of equity, as on the date of conversion,
not exceeding the amount of interest converted to equity. Such equity must thereafter be
classified in the "available for sale" category and valued at lower of cost or market value.
In case of conversion of principal and /or interest in respect of NPAs into debentures,
such debentures should be treated as NPA, ab initio, in the same asset classification as
was applicable to loan just before conversion and provision made as per norms. This
norm would also apply to zero coupon bonds or other instruments which seek to defer the
liability of the issuer. On such debentures, income should be recognised only on
Page 53
realisation basis. The income in respect of unrealised interest, which is converted into
debentures or any other fixed maturity instrument, should be recognised only on
redemption of such instrument. Subject to the above, the equity shares or other
instruments arising from conversion of the principal amount of loan would also be
subject to the usual prudential valuation norms as applicable to such instruments.
Provisioning
While there will be no change in the extant norms on provisioning for NPAs, banks
which are already holding provisions against some of the accounts, which may now be classified
as ‘standard’, shall continue to hold the provisions and shall not reverse the same.
Special Cases
Accounts with temporary deficiencies:
The classification of an asset as NPA should be based on the record of recovery. Bank
should not classify an advance account as NPA merely due to the existence of some deficiencies
which are temporary in nature such as non-availability of adequate drawing power based on the
latest available stock statement, balance outstanding exceeding the limit temporarily, non-
submission of stock statements and non-renewal of the limits on the due date, etc. In the matter
of classification of accounts with such deficiencies banks may follow the following guidelines:
1. Banks should ensure that drawings in the working capital accounts are covered by the
adequacy of current assets, since current assets are first appropriated in times of distress.
Drawing power is required to be arrived at based on the stock statement which is current.
However, considering the difficulties of large borrowers, stock statements relied upon by the
banks for determining drawing power should not be older than three months. The outstanding in
the account based on drawing power calculated from stock statements older than three months,
Page 54
would be deemed as irregular. A working capital borrower account will become NPA if such
irregular drawings are permitted in the account for a continuous period of 180 days even though
the unit may be working or the borrower's financial position is satisfactory.
2. Regular and ad hoc credit limits need to be reviewed/ regularised not later than three
months from the due date/date of ad hoc sanction. In case of constraints such as non-
availability of financial statements and other data from the borrowers, the branch should
furnish evidence to show that renewal/ review of credit limits is already on and would be
completed soon. In any case, delay beyond six months is not considered desirable as a general
discipline. Hence, an account where the regular/ ad hoc credit limits have not been reviewed/
renewed within 180 days from the due date/ date of ad hoc sanction will be treated as NPA.
Accounts regularised near about the balance sheet date:

The asset classification of borrower accounts where a solitary or a few credits are recorded
before the balance sheet date should be handled with care and without scope for subjectivity.
Where the account indicates inherent weakness on the basis of the data available, the account
should be deemed as a NPA. In other genuine cases, the banks must furnish satisfactory evidence
to the Statutory Auditors/Inspecting Officers about the manner of regularisation of the account to
eliminate doubts on their performing status.
Asset Classification to be borrower-wise and not facility-wise
It is difficult to envisage a situation when only one facility to a borrower becomes a problem
credit and not others. Therefore, all the facilities granted by a bank to a borrower will have to be
treated as NPA and not the particular facility or part thereof which has become irregular.
If the debits arising out of devolvement of letters of credit or invoked guarantees are
parked in a separate account, the balance outstanding in that account also should be treated as a
part of the borrower’s principal operating account for the purpose of application of prudential
norms on income recognition, asset classification and provisioning.
Page 55
Accounts where there is erosion in the value of security
A NPA need not go through the various stages of classification in cases of serious credit
impairment and such assets should be straightaway classified as doubtful or loss asset as
appropriate. Erosion in the value of security can be reckoned as significant when the realisable
value of the security is less than 50 per cent of the value assessed by the bank or accepted by RBI
at the time of last inspection, as the case may be. Such NPAs may be straightaway classified
under doubtful category and provisioning should be made as applicable to doubtful assets.
If the realisable value of the security, as assessed by the bank/ approved values/ RBI is
less than 10 per cent of the outstanding in the borrower accounts, the existence of security should
be ignored and the asset should be straightaway classified as loss asset. It may be either written
off or fully provided for by the bank.
Advances to PACS/FSS ceded to Commercial Banks:

In respect of agricultural advances as well as advances for other purposes granted by banks to
ceded PACS/ FSS under the on-lending system, only that particular credit facility granted to
PACS/ FSS which is in default for a period of two harvest seasons (not exceeding two half
years)/two quarters, as the case may be, after it has become due will be classified as NPA and not
all the credit facilities sanctioned to a PACS/ FSS. The other direct loans & advances, if any,
granted by the bank to the member borrower of a PACS/ FSS outside the on-lending arrangement
will become NPA even if one of the credit facilities granted to the same borrower becomes NPA.
Advances against Term Deposits, NSCs, KVP/IVP, etc:

Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and life policies need
not be treated as NPAs. Advances against gold ornaments, government securities and all other
securities are not covered by this exemption.
Loans with moratorium for payment of interest
Page 56
In the case of bank finance given for industrial projects or for agricultural plantations etc.
where moratorium is available for payment of interest, payment of interest becomes 'due' only
after the moratorium or gestation period is over. Therefore, such amounts of interest do not
become overdue and hence NPA, with reference to the date of debit of interest. They become
overdue after due date for payment of interest, if uncollected.
In the case of housing loan or similar advances granted to staff members where interest is
payable after recovery of principal, interest need not be considered as overdue from the first
quarter onwards. Such loans/advances should be classified as NPA only when there is a default in
repayment of instalment of principal or payment of interest on the respective due dates
Agricultural advances
In respect of advances granted for agricultural purpose where interest and/or instalment
of principal remains unpaid after it has become past due for two harvest seasons but for a period
not exceeding two half-years, such an advance should be treated as NPA. The above norms
should be made applicable to all direct agricultural advances as listed at items 1.1, 1.1.2 (i) to
(vii), 1.1.2 (viii)(a)(1) and 1.1.2 (viii)(b)(1) of Master Circular on lending to priority sector No.
RPCD. PLAN. BC. 12/04.09.01/ 2001- 2002 dated 1 August 2001. An extract of the list of these
items is furnished in the Annexure II. In respect of agricultural loans, other than those specified
above, identification of NPAs would be done on the same basis as non agricultural advances
which, at present, is the 180 days delinquency norm.
Where natural calamities impair the repaying capacity of agricultural borrowers, banks
may decide on their own as a relief measure - conversion of the short-term production loan into a
term loan or re-schedulement of the repayment period; and the sanctioning of fresh short-term
loan, subject to various guidelines contained in RBI circulars
RPCD.No.PLFS.BC.128/05.04.02/97-98 dated 20.06.98 and RPCD.No.PLFS.BC.9/05.01.04/98-
99 dated 21.07.98.
Page 57
In such cases of conversion or re-schedulement, the term loan as well as fresh short-term
loan may be treated as current dues and need not be classified as NPA. The asset classification of
these loans would thereafter be governed by the revised terms & conditions and would be treated
as NPA if interest and/or instalment of principal remains unpaid, for two harvest seasons but for a
period not exceeding two half years.
Government guaranteed advances:
The credit facilities backed by guarantee of the Central Government though overdue may
be treated as NPA only when the Government repudiates its guarantee when invoked. This
exemption from classification of Government guaranteed advances as NPA is not for the purpose
of recognition of income. With effect from 1st April 2000, advances sanctioned against State
Government guarantees should be classified as NPA in the normal course, if the guarantee is
invoked and remains in default for more than two quarters. With effect from March 31, 2001 the
period of default is revised as more than 180 days.
Take-out Finance:
Takeout finance is the product emerging in the context of the funding of long-term
infrastructure projects. Under this arrangement, the institution/the bank financing infrastructure
projects will have an arrangement with any financial institution for transferring to the latter the
outstanding in respect of such financing in their books on a pre-determined basis. In view of the
time-lag involved in taking-over, the possibility of a default in the meantime cannot be ruled out.
The norms of asset classification will have to be followed by the concerned bank/financial
institution in whose books the account stands as balance sheet item as on the relevant date. If the
lending institution observes that the asset has turned NPA on the basis of the record of recovery,
it should be classified accordingly. The lending institution should not recognise income on
accrual basis and account for the same only when it is paid by the borrower/ taking over
institution (if the arrangement so provides). The lending institution should also make provisions
Page 58
against any asset turning into NPA pending its take over by taking over institution. As and when
the asset is taken over by the taking over institution, the corresponding provisions could be
reversed. However, the taking over institution, on taking over such assets, should make
provisions treating the account as NPA from the actual date of it becoming NPA even though the
account was not in its books as on that date.
Post-shipment Supplier's Credit
In respect of post-shipment credit extended by the banks covering export of goods to

countries for which the ECGC’s cover is available, EXIM Bank has introduced a guarantee-cum-
refinance programme whereby, in the event of default, EXIM Bank will pay the guaranteed
amount to the bank within a period of 30 days from the day the bank invokes the guarantee after
the exporter has filed claim with ECGC.
Accordingly, to the extent payment has been received from the EXIM Bank, the advance
may not be treated as a non-performing asset for asset classification and provisioning purposes.
Export Project Finance:
In respect of export project finance, there could be instances where the actual importer
has paid the dues to the bank abroad but the bank in turn is unable to remit the amount due to
political developments such as war, strife, UN embargo, etc.
In such cases, where the lending bank is able to establish through documentary evidence
that the importer has cleared the dues in full by depositing the amount in the bank abroad before
it turned into NPA in the books of the bank, but the importer's country is not allowing the funds
to be remitted due to political or other reasons, the asset classification may be made after a
period of one year from the date the amount was deposited by the importer in the bank abroad.
Advances under rehabilitation approved by BIFR/ TLI:
Page 59
Banks are not permitted to

upgrade the classification of any advance in respect of which the terms have been re-negotiated
unless the package of re-negotiated terms has worked satisfactorily for a period of one year.
While the existing credit facilities sanctioned to a unit under rehabilitation packages approved by
BIFR/term lending institutions will continue to be classified as sub-standard or doubtful as the
case may be, in respect of additional facilities sanctioned under the rehabilitation packages, the
Income Recognition, Asset Classification norms will become applicable after a period of one
year from the date of disbursement.
ROLE OF ARCIL :-
This empowerment encouraged the three major players in Indian banking system, namely, State
Bank of India (SBI), ICICI Bank Limited (ICICI) and IDBI Bank Limited (IDBI) to come
together to set-up the first ARC. Arcil was incorporated as a public limited company on February
11, 2002 and obtained its certificate of commencement of business on May 7, 2003. In pursuance
of Section 3 of the Securitization Act 2002, it holds a certificate of registration dated August 29,
2003, issued by the Reserve Bank of India (RBI) and operates under powers conferred under the
Securitization Act, 2002. Arcil is also a "financial institution" within the meaning of Section 2
(h) (ia) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (the "DRT
Act").
Arcil is the first ARC in the country to commence business of resolution of non-performing
assets (NPAs) upon acquisition from Indian banks and financial institutions. As the first ARC,
Arcil has played a pioneering role in setting standards for the industry in India.
 Unlocking capital for the banking system and the economy
The primary objective of Arcil is to expedite recovery of the amounts locked in NPAs of
lenders and thereby recycling capital. Arcil thus, provides relief to the banking system by
managing NPAs and help them concentrate on core banking activities thereby enhancing
shareholders value.
Page 60
 Creating a vibrant market for distressed debt assets / securities in India offering a
trading platform for Lenders
Arcil has made successful efforts in funneling investment from both from domestic and
international players for funding these acquisitions of distressed assets, followed by
showcasing them to prospective buyers. This has initiated creation of a secondary market
of distressed assets in the country besides hastening their resolution. The efforts of Arcil
would lead the country’s distressed debt market to international standards.
 To evolve and create significant capacity in the system for quicker resolution of NPAs
by deploying the assets optimally
With a view to achieving high delivery capabilities for resolution, Arcil has put in place a
structure aimed at outsourcing the various sub-functions of resolution to specialized
agencies, wherever applicable under the provision of the Securitisation Act, 2002. Arcil
has also encourage, groomed and developed many such agencies to enhance its capacity
in line with the growth of its activity.
Page 61
COMPANY PROFILE
HDFC Asset Management Company Limited (AMC)
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act,
1956, on December 10, 1999, and was approved to act as an Asset Management Company for the
HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.
The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169,
Backbay Reclamation, Churchgate, Mumbai - 400 020.
In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset
Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is
Rs. 25.169 crore.
The present equity shareholding pattern of the AMC is as follows :
Particulars % of the paid up equity capital

Housing Development Finance Corporation Limited 59.98
Standard Life Investments Limited 39.99
Other Shareholders (shares issued on exercise of Stock Options) 0.03
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review
Page 62
of its overall strategy, had decided to divest its Asset Management business in India. The AMC
had entered into an agreement with ZIC to acquire the said business, subject to necessary
regulatory approvals.
On obtaining the regulatory approvals, the following Schemes of Zurich India Mutual Fund have
migrated to HDFC Mutual Fund on June 19, 2003. These Schemes have been renamed as
follows:
Former Name New Name

Zurich India Equity Fund HDFC Equity Fund
Zurich India Prudence Fund HDFC Prudence Fund
Zurich India Capital Builder Fund HDFC Capital Builder Fund
Zurich India TaxSaver Fund HDFC TaxSaver
Zurich India Top 200 Fund HDFC Top 200 Fund
Zurich India High Interest Fund HDFC High Interest Fund
Zurich India Liquidity Fund HDFC Cash Management Fund
Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund*
*HDFC Sovereign Gilt Fund has been wound up in March 2006
The AMC is also providing portfolio management / advisory services and such activities are not
in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from
SEBI vide Registration No. - PM / INP000000506 dated December 21, 2009 to act as a Portfolio
Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration
is valid from January 1, 2010 to December 31, 2012.
HDFC Asset Management Company Limited (AMC)
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act,
1956, on December 10, 1999, and was approved to act as an Asset Management Company for the
HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.
The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169,
Backbay Reclamation, Churchgate, Mumbai - 400 020.
Page 63
In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset
Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is
Rs. 25.169 crore.
The Board of Directors of the HDFC Asset Management Company Limited (AMC) consists
of the following eminent persons.
Mr. Partho Datta

Mr. Bobby Parikh
Mr. A. N. Roy
Mr. Malay Patel
Mr. Keki Mistry
Mrs. Renu Karnad
Mr. Aditya Puri
Mr. Paresh Sukthankar
Mr. Kaizad Bharucha
Mr. Umesh Chandra Sarangi
Mr. Srikanth Nadhamuni
Mrs. Shyamala Gopinath
Mrs. Shyamala Gopinath holds a Master's Degree in Commerce and is a CAIIB. Mrs. Gopinath
has over 39 years of experience in financial sector policy formulation in different capacities at
RBI. As Deputy Governor of RBI for seven years and member of the Board, Mrs. Gopinath had
been guiding and influencing the national policies in the diverse areas of financial sector
regulation and supervision, development and regulation of financial markets, capital account
management, management of government borrowings, forex reserves management and payment
and settlement systems.
During 2001-03, Mrs. Gopinath worked as senior financial sector expert in the then Monetary
Page 64
Affairs and Exchange Department of the International Monetary Fund (Financial Institutions
Division). She was responsible for preparing the accompanying document to the Guidelines on
Foreign Exchange Reserve Management detailing country practices. Mrs. Gopinath was a
member of the FSAP missions to Tanzania, Nigeria, Hungary and Poland and the Foreign
Exchange and Reserve Management team to Turkey and Kosovo.
Mrs. Gopinath was actively involved in managing India's balance of payments crisis in 1991, the
fall out of the Asian and the Russian crisis, nuclear sanctions against India, Kargil war with
Pakistan and the transmission of the recent financial crisis to Indian financial system and the
markets.
Mrs. Gopinath is a member of the following Committees of the Board of the Bank:
 Audit Committee (Chairperson)

 Nomination and Remuneration Committee
 Risk Policy and Monitoring Committee
 Customer Service Committee (Chairperson)
 Fraud Monitoring Committee (Chairperson)
Email ID:
Mr. Partho Datta
Mr. Partho Datta is an Associate Member of the Institute of Chartered Accountants of India. Mr.
Datta joined Indian Aluminum Company Limited (INDAL) and was with INDAL and its parent
company in Canada for 25 years and held positions as Treasurer, Chief Financial Officer and
Director- Finance during his tenure. Thereafter, Mr. Datta joined the Chennai based Murugappa
Group as the head of Group Finance and was a member of the Management Board of the
Group, as well as Director in several Murugappa Group companies. Post retirement from the
Murugappa Group, Mr. Datta was an advisor to the Central Government-appointed Board of
Directors of Satyam Computers Services Limited during the restoration process and has also
been engaged in providing business / strategic and financial consultancy on a selective basis.
Mr. Datta has rich and extensive experience in various financial and accounting matters
including financial management.
Page 65
Mr. Datta is a member on the following Committees of the Board of the Bank:
 Audit Committee
 Corporate Social Responsibility Committee
 Fraud Monitoring Committee
Email ID:
Mr. Bobby Parikh
Mr. Bobby Parikh holds a Bachelor's degree in Commerce from the Mumbai University and has
qualified as a Chartered Accountant in 1987. Mr. Parikh is a Senior Partner with BMR &
Associates LLP and leads its financial services practice. Prior to joining BMR & Associates
LLP, Mr. Parikh was the Chief Executive Officer of Ernst & Young in India and held that
responsibility until December 2003. Mr. Parikh worked with Arthur Andersen for over 17 years
and was its Country Managing Partner, until the Andersen practice combined with that of Ernst
& Young in June 2002.
Over the years, Mr. Parikh has had extensive experience in advising clients across a range of
industries. India has witnessed significant deregulation and a progressive transformation of its
policy framework. An area of focus for Mr. Parikh has been to work with businesses, both
Indian and multinational, in interpreting the implications of the deregulation as well as the
changes to India's policy framework, to help businesses better leverage opportunities that have
become available and to address challenges that resulted from such changes.
Mr. Parikh works closely with regulators and policy formulators, in providing inputs to aid in
the development of new regulations and policies, and in assessing the implications and efficacy
of these and providing feedback for action. Mr. Parikh led the Financial Services industry
practice at Arthur Andersen and then also at Ernst & Young, and has advised a number of
banking groups, investment banks, brokerage houses, fund managers and other financial
services intermediaries in establishing operations in India, mergers and acquisitions and in
Page 66
developing structured financial products, besides providing tax and business advisory and tax
reporting services.
Mr. Parikh is a member on the following Committees of the Board of the Bank:
 Audit Committee
 Nomination and Remuneration Committee (Chairman)
 Credit Approval Committee
Email ID:
Mr. A. N. Roy
Mr. Anami. N. Roy is an M. A., M. Phil and is a distinguished retired civil servant. During his
long career of 38 years in the Indian Police Service (IPS), Mr. Roy held with great distinction a
range of assignments, including some of the most prestigious, challenging and sensitive ones,
both in the state of Maharashtra and Government of India, including Commissioner of Police,
Mumbai and DGP, Maharashtra before retiring in the year 2010.
Mr. Roy's areas of specialisation include policy planning, budget, recruitment, training and other
finance and administration functions in addition to all operational matters.
A firm believer in technology in Police for providing solutions to a variety of complex problems
or citizen facilitation and as Ã¢â‚¬Ëœforce-multiplier', Mr. Roy brought in technology in a very
big way in the Police department with full co-operation and support of the entire IT Industry.
Mr. Roy also held the position of Director General of the Anti-Corruption Bureau, in which
capacity Mr. Roy initiated a policy document on vigilance matters for Government of
Maharashtra.
Mr. Roy has wide knowledge and experience of security and intelligence matters at the state and
national level.
Having handled multifarious field and staff assignments, Mr. Roy has a rich and extensive
experience of functioning of the government at various levels and of problem solving.
Page 67
Mr. Roy is a member on the following Committees of the Board of the Bank:
 Audit Committee
 Stakeholders' Relationship Committee (Chairman)
 Customer Service Committee
Email ID:
Mr. Malay Patel
Mr. Malay Patel is a Major in Engineering (Mechanical) from Rutgers University, Livingston,
NJ, USA, and an A.A.B.A. in business from Bergen County College, Fairlawn, NJ, USA. He is
a director on the Board of Eewa Engineering Company Private Limited, a company in the
plastics / packaging industry with exports to more than 50 countries. He has been involved in
varied roles such as export / import, procurement, sales and marketing, etc in Eewa Engineering
Company Private Limited. Mr. Malay Patel has special knowledge and practical experience in
matters relating to small scale industries in terms of Section 10-A (2 a) of the Banking
Regulation Act, 1949.
Mr. Patel is a member on the following Committees of the Board of the Bank:

 Premises Committee
Email ID:
Mr. Keki Mistry
Page 68
Mr. Keki Mistry holds a Bachelor's Degree in Commerce from the Mumbai University. Mr.
Mistry is a Fellow Member of the Institute of Chartered Accountants of India.
Mr. Mistry started his career with The Indian Hotels Company Limited, one of the largest chains
of hotels in India.
In the year 1981, Mr. Mistry joined Housing Development Finance Corporation Limited (HDFC
Ltd). Mr. Mistry was inducted on to the Board of Directors of HDFC Ltd as an Executive
Director in the year 1993 and was elevated to the post of Managing Director in November 2000.
In October 2007, Mr. Mistry was appointed as Vice Chairman & Managing Director of HDFC
Ltd and became the Vice Chairman & Chief Executive Officer in January 2010.
Mr. Mistry is a member of the following Committees of the Board of the Bank:

 Credit Approval Committee (Chairman)
Email ID:
Mrs. Renu Karnad
Mrs. Renu Karnad is a graduate in law from the Mumbai University and also holds a Master's
Degree in Economics from Delhi University. Mrs. Karnad is a Parvin Fellow-Woodrow Wilson
School of International Affairs, Princeton University, U.S.A.
Mrs. Karnad joined Housing Development Finance Corporation Limited in 1978. After spending
two decades in various positions, Mrs. Karnad was inducted on to the Board as Executive
Director in 2000 and was further elevated to the post of Managing Director with effect from
January 1, 2010.
Over the years, Mrs. Karnad has to her credit, numerous awards and accolades. Known for her
wit and diplomacy, Mrs. Karnad has always had a humane approach towards solving complex
Page 69
issues.
Mrs. Karnad is a member on the following Committees of the Board of the Bank:
 Stakeholders' Relationship Committee

 Corporate Social Responsibility Committee (Chairperson)
 Risk Policy and Monitoring Committee (Chairperson)
 Premises Committee (Chairperson)
Email ID:
Mr. Aditya Puri
Mr. Aditya Puri holds a Bachelor's degree in Commerce from Punjab University and is an
Associate Member of the Institute of Chartered Accountants of India.
Prior to joining the Bank, Mr. Puri was the Chief Executive Officer of Citibank, Malaysia from
1992 to 1994.
Mr. Puri has been the Managing Director of the Bank since September 1994. Mr. Puri has nearly
40 years of experience in the banking sector in India and abroad.
Mr. Puri has provided outstanding leadership as the Managing Director and has contributed
significantly to enable the Bank scale phenomenal heights under his stewardship. The numerous
awards won by Mr. Puri and the Bank are a testimony to the tremendous credibility that Mr. Puri
has built for himself and the Bank over the years.
Page 70
The Bank has made good and consistent progress on key parameters like balance sheet size,
total deposits, net revenues, earnings per share and net profit during Mr. Puri's tenure.
The rankings achieved by the Bank amongst all Indian banks with regard to market
capitalization, profit after tax and balance sheet size remain amongst the top 10.
Mr. Puri is a member of the following Committees of the Board of the Bank:

 Premises Committee
Email ID:
Mr. Paresh Sukthankar
Mr. Paresh Sukthankar completed his graduation from Sydenham College, Mumbai and holds a
Bachelor of Commerce (B.Com) degree from University of Mumbai. He has done his Masters
in Management Studies (MMS) from Jamnalal Bajaj Institute (Mumbai). Mr. Sukthankar has
also completed the Advanced Management Program (AMP) from the Harvard Business School.
Mr. Sukthankar has been associated with the Bank since its inception in 1994 and has rich
experience in areas such as Risk Management, Finance, Human Resources, Investor Relations,
and Corporate Communications etc.
Prior to joining the Bank, Mr. Sukthankar worked in Citibank for around 9 years, in various
departments including corporate banking, risk management, financial control and credit
administration. Mr. Sukthankar has been a member of various Committees formed by Reserve
Page 71
Bank of India and Indian Banks' Association. At present, Mr. Sukthankar is the Deputy
Managing Director of the Bank.
Mr. Sukthankar is a member on the following Committees of the Board of the Bank:

Email ID:
Mr. Kaizad Bharucha
Mr. Kaizad Bharucha holds a Bachelor of Commerce degree from University of Mumbai. He
has been associated with the Bank since 1995. In his current position as Executive Director, he
is responsible for Wholesale Banking covering areas of Corporate Banking, Emerging
Corporate Group, Business Banking, Capital Markets & Commodities Business, Agri Lending,
Investment Banking, Financial Institutions & Government Business and Department for Special
Operations.
In his previous position as Group Head - Credit & Market Risk, he was responsible for the Risk
Management activities in the Bank viz., Credit Risk, Market Risk, Debt Management, Risk
Intelligence and Control functions.
Mr. Bharucha has been a career banker with over 28 years of banking experience. Prior to
joining the Bank, he worked in SBI Commercial and International Bank in various areas
including Trade Finance and Corporate Banking.
He has represented HDFC Bank as a member of the working group constituted by the Reserve
Bank of India to examine the role of Credit Information Bureau and on the sub-committee with
regard to adoption of the Basel II guidelines.
Mr. Bharucha is a member on the following Committees of the Board of the Bank:
Email ID:
Mr. Umesh Chandra Sarangi
Page 72
Mr. Umesh Chandra Sarangi has been appointed as an Independent Director on the Board of the
Bank with effect from 21st July, 2016 for a period of five (5) years.
Mr. Sarangi holds a Masters degree in Science (Botany) from Utkal University (gold medallist).
Mr. Sarangi has 35 years of experience in Indian Administrative Service and brought in
significant reforms in modernizing of agriculture, focus on agro processing and export. As the
erstwhile Chairman of National Bank for Agricultural and Rural Development (NABARD)
from December 2007 to December 2010, Mr. Sarangi focused on rural infrastructure,
accelerated initiatives such as microfinance, financial inclusion, watershed development and
tribal development.
Mr. Sarangi has been appointed as a Director having specialized knowledge and experience in
agriculture and rural economy pursuant to Section 10-A (2)(a) of the Banking Regulation Act,
1949.
Mr. Sarangi is a member on the following Committees of the Board of the Bank:
Audit Committee
Corporate Social Responsibility Committee
Email ID:
Mr. Srikanth Nadhamuni
Mr. Srikanth Nadhamuni has been appointed as an Additional Director on the Board of the
Bank with effect from 20th September, 2016, to hold office till the ensuing Annual General
Meeting of the Bank.
Mr. Nadhamuni holds a Bachelor's degree in Electronics and Communications from National
Institute of Engineering and a Master's degree in Electrical Engineering from Louisiana State
University.
Mr. Nadhamuni was the Chief Technology Officer of Aadhaar (UID Authority of India) during
Page 73
2009-2012 and is currently the Chairman of Novopay Solutions, a company involved in the
area of mobile payments and banking and is the CEO of Khosla Labs, a start-up incubator. Mr.
Nadhamuni has extensive experience in Information Technology, particularly in the banking
and financial services industry. Mr. Nadhamuni was instrumental in the development of
Aadhaar technology, and has contributed on several Aadhaar banking products and services.
Mr. Nadhamuni has been appointed as a Director having expertise in the field of Information
Technology.
Mr. Nadhamuni is a member on the following Committees of the Board of the Bank:
IT Strategy Committee
Awards and Achievements - Banking Services
HDFC Bank began operations in 1995 with a simple mission: to be a "World-class Indian Bank". We realised that
only a single-minded focus on product quality and service excellence would help us get there. Today, we are proud
to say that we are well on our way towards that goal.
It is extremely gratifying that our efforts towards providing customer convenience have been
appreciated both nationally and internationally.
2016
Asia money FX Poll 2016 -Ranked No. 1 in the Best Domestic Provider for FX Products
and Services in India
-Ranked No.2 in the Best Domestic Provider of FX Services and
for FX Research and Market Coverage
-Ranked No. 1 in the Best Local Cash Management Bank in
Page 74
India
BrandZ Top 50 Most Valuable Indian Brands HDFC Bank has been ranked India's most valuable brand for the
3rd consecutive year
CNBC-TV18 India Business Leader Awards (IBLA) Outstanding Business Leader of the year
2015-16
The Financial Express India's Best Banks Awards Lifetime Achievement Award to Mr. Aditya Puri
IDRBT Banking Technology Excellence Awards 2016 Best Bank in Banking Technology Excellence for the year 2015-
16
Cisco-CNBC TV 18 Digitizing India Awards Award for Innovations in the Financial Industry & Digital
Banking
Dun & Bradstreet Corporate Awards 2016 HDFC Bank wins Dun & Bradstreet Corporate Award 2016 in
the Banking sector
The Financial Express India's Best Banks Awards - Profitability: Rank 1
2015 - Efficiency: Rank 1
- Strength & Soundness: Rank 1
Outlook Money Awards 2015 - Best Bank of the year : Runner up
- Winner : Institutional Financial Distributor of the year
Pension Fund Regulatory and Development Authority - Best Performing Bank - Maximum APY Subscribers
awards for Atal Pension Yojana - Best Performing Bank in the Private sector Banks category
- Best Performing Bank : Atal Pension Yojana Carnivals in
Private Sector Banks
Business Today KPMG India's Best Banks 2015 Awards
Barron's World's Top 30 CEOs Mr. Aditya Puri in Barron's Top 30 Global CEOs for 2nd year
IBA Awards HDFC Bank wins prestigious IBA Banking Technology Awards
Business Today Best Companies to Work for in India
NABARD Award Best Bank in JLG-Bank Linkage programme in Assam
Business Today - KPMG India's Best Bank HDFC Bank wins Bank of the year and Best Digital Banking
Initiative awards
NABARD Award - The Best Bank in SHG Credit HDFC Bank wins NABARD Award
Linkage in Tamil Nadu
2015
National Payments Excellence Awards 2015 HDFC Bank wins NPCI National Payments Excellence
Awards
Business Today Award Best CEO Award - Mr. Aditya Puri
Kerala's State Forum of Bankers' Club Award Best Bank Branch
FinanceAsia Awards Best Equity Deal in Asia Award
IDC Insights Award 2015 Excellence in Customer Experience
QualTech Award HDFC Bank wins Award at 27th QIMPRO Convention
Lean Sigma project competition Best Case Study Award
Page 75
IDRBT Banking Technology Excellence Best Bank Award for Cyber Security Risk Management
Awards 2014-15 among Large Banks
FinanceAsia Country Awards 2015 - Best Asian Bank
- Best Domestic Bank - India
Forbes Asia Fab 50 Companies List for the 9th year
AIMA Managing India Awards 2015 - Business Leader of the Year - Aditya Puri
Barron's - World's 30 Best CEOs - Mr Aditya Puri
Finance Asia poll on Asia's Best Companies - Best Managed Public Company - India'
2015 Best CEO- Aditya Puri
Best Corporate Governance- Rank 3
Best Investor Relations- Rank 3
J. P Morgan Quality Recognition Award - Best in class straight Through Processing Rates
2014
Euromoney - HDFC Bank wins Best Private Banking

Services for Super affluent clients for 5
years in a row at Euromoney Awards
Euromoney Private Banking and Wealth Management Survey 2015 - Best Private Banking Services award for
Net-worth-specific services category for
Super affluent clients (US$ 1 million to US$
5 million).
- Best Private Banking Services award Asset
Management
FE Best Bank Awards - Best Bank in the New Private sector
- Winner - Profitability
- Winner - Efficiency
Business Today - KPMG Study 2014 - Best Large Bank - Overall
- Best Large Bank - Growth
Businessworld-PwC India Best Banks Survey 2014 - Best Large Bank
- Fastest Growing Large Bank
Asiamoney FX Poll 2014 - Best Domestic Provider of FX options
- Best Domestic Provider of FX products &
Services
- Best Domestic Provider of FX research &
market coverage
- Best Domestic provider for FX Services
The Asian Banker Strongest Bank in India in the Asian Banker
500 (AB 500) Strongest Bank by Balance
Sheet Ranking 2014
Dun & Bradstreet - Polaris Financial Technology Banking Awards 2014 - Best Bank - Managing IT Risk (Large
Banks)
- Best Bank - Mobile Banking (Large
Banks)
- Best Bank - Best IT Team (Private Sector
Banks)
Page 76
Forbes Asia Fab 50 Companies List for the 8th year

BrandZ TM
Top 50 Most Valuable Indian Brands study by Millward Brown India's Most Valuable Brand
Finance Asia Country Awards 2014 and poll on India's Top Companies - Best Bank - India
- Best CEO- Rank 1
- Best CSR - Rank 1
- Best CFO - Rank 2
Asiamoney Best of Best Domestic Banks - India
Dun & Bradstreet - Manappuram Finance Limited Corporate Award 2014 Best Corporate in Banking Sector
2013 - Best Domestic Bank in India

Asiamoney - Best Local Cash Management
Bank in India
- Aditya Puri - Best Executive in
India
Institute for Development and Research in Banking Technology Awards - Best Bank - Managing IT Risk
(Large Banks)
- Best Bank - Mobile Banking (Large
Banks)
- Best Bank - Best IT Team (Private
Sector Banks)
Businessworld Best Bank in India (Large Banks)
Guinness World Record A GUINNESS WORLD
RECORDTMcreated for the Largest
Blood Donation Drive across
multiple venues, in a single day
Finance Asia Country Awards for Achievement Best Bank - India
IBA Banking Technology Awards 2012-13 - Best Technology Bank of the year -
Winner
- Best Internet Bank - Winner
- Best Customer Management
Initiative - Winner
- Best use of Mobility Technology in
Banking
Business Standard Mr Aditya Puri - Banker of the Year
2013
Business Today-KPMG Best Banks Survey 2013 Best Bank 2013
Business India Best Bank 2013
Global Finance Survey -World's Best Banks 2013 Best Bank in India
Outlook Money Awards 2013
Best Bank in Large Banks Category
IBA Innovation Awards

Most Innovative use of Technology
Dun & Bradstreet Polaris Financial Technology Banking Award 2013

- Best Private Sector Bank
Page 77
Technology Adoption
- Best Private Sector Bank Retail
- Overall Best Private Sector Bank
Institutional Investor
- Best Bank in Asia
- Mr. Aditya Puri - Best CEO
Forbes Asia
Fab 50 Companies List for the 7th
year
Sunday Standard Best Banker Awards

- Best Private Sector Bank: Large
- Safest Bank: Large
- Mr. Aditya Puri: Top Achiever
UTI Mutual Fund CNBC TV 18 Financial Advisory Awards 2012

Best Performing Bank - Private
Asia Money 2013

- Best Domestic Bank in India
- Mr. Aditya Puri: Best Executive in
India
MACCIA Awards 2013

Best in Financial Services: Bank
Category
Dun & Bradstreet Corporate Awards 2012 Best in Banking sector

NDTV Profit Business Leadership Awards 2012 Winner in the banking category
NASSCOM CNBC–TV18 IT Innovation Award Best IT Driven Innovation in Banking
(COMMERCIAL)
The National Quality Excellence Awards Best Customer Service Result
FE Best Bank Awards - Best Bank: New Private sector
- Best in Strength & Soundness
- Mr. Aditya Puri: Best Banker
Skoch Financial Inclusion Awards 2013
ANALYSIS
Page 78
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 2008, 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.
Page 79
2015-16
BANK DEPOSIT INVESTMENT ADVANCES

AXIS 87626 33705 59661
HDFC 100769 49394 63427
ICICI 244431 111454 225616
KOTAK 16424 9142 15552
INDUSIND 19037 6630 12795
TOTAL 468287 210325 377051
ICICI BANK AND PUNJAB NATIONAL BANK :-
IN THE YEAR 2015-2016

Page 80
BANK DEPOSIT INVESTMENT ADVANCES

ICICI BANK 244431 111454 225616
PNB 166457 53992 119502
There are two concepts related to non-performing assets_ gross and net. Gross refers to all NPAs
on a bank’s 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
Page 81
 10% general provision on the outstanding balance under the sub standard category.
Here, there are gross and net NPA data for 2014-15 and 2015-16 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 2006-07 and also net NPA.
Punjab National Bank shows vast difference between gross and net NPA. There is almost same
figures between BOI and BOB.
Gross NPA and NET NPA

YEAR 2012-13
BANK GROSS NPA NET NPA
BOB 1.46 0.35

BOI 1.48 0.45
DENA 2.37 1.16
Page 82
PNB 2.09 0.45

UBI 1.82 0.59
Gross NPA and NET NPA
2013-14
BOB 1.10 0.27

BOI 1.08 0.33
DENA 1.48 0.56
Page 83
PNB 1.67 0.38

UBI 1.34 0.10
2014-15
AXIS 0.57 0.36

HDFC 0.72 0.22
ICICI 1.20 0.58
KOTAK 1.39 1.09
INDUSIND 1.64 1.31
Page 84
2015-16
AXIS 0.45 0.23

HDFC 0.68 0.22
ICICI 1.90 0.87
KOTAK 1.55 0.98
INDUSIND 1.69 1.25
Page 85
 COMPARISON OF GROSS NPA WITH ALL BANKS FOR THE YEAR 2015-16. 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 :-
Page 86
 COMPARISON OF NET NPA WITH ALL BANKS FOR THE YEAR 2007-08. Average
of these ten bank’s 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:-
PRIORITY –NON PRIORITY SECTOR
Page 87
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
( 1+2+3 )
AXIS 109.12 14.76 86.71 210.59 275.06
HDFC 36.12 110.56 47.70 194.41 709.23
ICICI 981.85 23.35 354.13 1359.34 6211.12
KOTAK 10.00 33.84 4.04 47.87 405.20
INDUSIND 30.44 3.18 30.02 63.64 328.67
TOTAL 1167.53 185.69 522.60 1875.85 7929.28
BANK PRIORITY SECTOR NPA

(ADVANCED RS.CRORE )
BOB 5469 350
Page 88
BOI 3269 325

DENA 1160 106
PNB 3772 443
UBI 1924 197
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 2007-08 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 non-
priority sector than the figures are really shocking. Because in compare of private sector banks,
public sector banks numbers are very large.
Page 89
PUBLIC SECTOR NEW PRIVATE

2013-16 2015-16 2014-15 2015-16
SECTOR
PRIORITY 22954 25287 1468 2080
PUBLIC 490 299 3 0
NON PRT 15158 14163 4800 8339
TOTAL 38602 39749 6271 10419
Here, there are huge difference between private and public sector banks NPA. There is increase
in new private sector banks NPA of Rs.2080 cr in 2015-16 which is almost 66% rise than
previous year. In public sector banks the numbers are not increased like private sector banks.
Page 90

COMPARISION

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

COMPARISION

Uploaded by

Copyright:

Available Formats

[Comparative analysis on NPA of Private & Public sector Banks]

The accumulation of huge non-performing assets in banks has assumed great

Scope of the Study

 To evaluate profitability positions of banks

Source of data collection

WHAT IS A NPA (NON PERFORMING ASSETS) ?

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

FACTORS FOR RISE IN NPAs

 Ineffective recovery tribunal

Improper project handling , ineffective management , lack of adequate resources ,

 Change on Govt. policies

The fallout of handloom sector is continuing as most of the weavers Co-operative

 Defective Lending process

Capacity to pay depends upon:

Willingness to pay depends on:

Due to inappropriate technology and management information system, market driven

 Improper SWOT analysis

 Banks should consider the borrowers own capital investment.

 it should collect credit information of the borrowers from_

 Analyze the balance sheet.

 Purpose of the loan

 Poor credit appraisal system

 Absence of regular industrial visit

PROBLEMS DUE TO NPA

'Out of Order' status:

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

Gross NPAs Ratio  Gross NPAs

Net NPAs  Gross NPAs – Provisions

Income recognition – Policy

 Fees and commissions earned by the banks as a result of re-negotiations or rescheduling

Appropriation of recovery in NPAs

REPORTING FORMAT FOR NPA – GROSS AND NET NPA

Name of the Bank:

***Excluding amount of Technical write-off (Rs.______crore) and provision on standard assets.

Period for which the advance has been Provision

One to three years 30

Note: Valuation of Security for provisioning purposes

Provisions on Leased Assets:

 10 percent of the 'net book value'.

Period %age of provision

One to three years 30

More than three years 50

Guidelines for Provisions under Special Circumstances

 As regards advances guaranteed by State Governments, in respect of which guarantee stood

Advances granted under rehabilitation packages approved by BIFR/term

 In respect of advances under rehabilitation package approved by BIFR/term lending institutions,

Advances against term deposits, NSCs eligible for surrender, IVPs,

However, advances against gold ornaments, government securities and

Treatment of interest suspense account:

Advances covered by ECGC/DICGC guarantee

Outstanding Balance Rs. 4 lakhs

DICGC Cover 50 percent

Value of security held Rs. 1.50 lakhs

Outstanding balance Rs. 4.00 lakhs

Less: Value of security held Rs. 1.50 lakhs

Unrealised balance Rs. 2.50 lakhs

Less: DICGC Cover Rs. 1.25 lakhs

Net unsecured balance Rs. 1.25 lakhs

Provision for secured portion of advance Rs. 0.75 lakhs (@ 50 percent of

Total provision required to be made Rs. 2.00 lakhs

Advance covered by CGTSI guarantee

Asset classification status: Doubtful – More than 3 years;

CGTSI Cover 75% of the amount outstanding or