Steps that SBI must take to get rid of NPAs.

Historically public sector banks have suffered from high NPAs due to por credit recovery, sticky loans made to government PSUs, priority sector lending and loan waivers. State Bank of Indias gross NPA ratio has jumped up to 4.75 per cent from 4.44 per cent in FY 2011-12. The NPA figure is at Rs. 51,189 crore, as compared to Rs. 39,676 crores in the previous year. This has drastically pulled up the NPAs of the entire banking system. In order to reduce such sharp growths in NPA levels, SBI now must adopt certain measures which are both preventive (first 5) and curative(last 5). 1. Early Warning Signals: At the time of sanctioning aloan itself the bank must diligently check the creditworthiness and condct credit appraisal. Post sanction, the bank must continuously monitor the use of the funds and also the accounts in order to track any signals determining the account turning bad. 2. Financial warning signals: a. Continuing irregularities in the account b. Guarantees being invoked. c. Increase in long-term debts and deterioration of working capital d. Decling sales/ increasing sales and increasing losses. e. Decreasing activity in the plant and loss of customers and employees. f. Labor problems and nonpayment of wages and bills. 3. Management related warning signals: Peer financial control, diversion of funds, manipulation of financial statements, venturing into projects with unviable risks, lack of co-ordination from key personnel are certain aspects that a bank must keep in view to track any signal of an account going bad. 4. By collecting customer details from the Credit Information Bureau (CIBIL) 5. Willful Defaulters RBI from time to time comes up with a list of willful defaulters and SBI must avoid granting loans to such individuals or persons. 6. Going in for a One Time Settlement Schemes As a part of curative measures, once the loan has gone bad, the bank can go in for a onetime payment and clear the entire loan. 7. Approaching Debt Recovery Tribunals (DRTs) DRTs can settle cases where the loan amount excess 10 lakhs and provide speedy justice. 8. Implementation of the Securitization and SARFAESI Act. a. Securitization is the process by which an illiquid asset can be converted into liquid tradable bonds by pooling together and stripping the loan portfolio into a number of tranches which are then rated and traded in the market. b. The SARFAESI act promotes banks to realize their NPAs by enforcing security interest transfer. 9. SBI can use the Asset Reconstruction Company (ARC) that they along with ICICI have set up. 10. Employing Corporate Debt Restructuring (CDR) is a transparent mechanism of extending the loan for a period greater than the original life of the loan when the bank knows that the person can pull it off at a later date.