Non-Performing Assets in Indian Banks

PROJECT REPORT ON
A STUDY OF NON PERFORMING ASSETS IN INDIAN COMMERCIAL

BANKS
A STUDY OF NON PERFORMING ASSETS IN INDIAN COMMERCIAL BANKS
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SUBMITTED BY
RAVI JAISWAL
(13/154)
(213!215)
Submitted in fulfillment of the requirement of award of PGDM degree at
ICBM ! SC"OOL OF BUSINESS E#CELLENCE
"YDERABAD
DECLARATION
I$ R%&' J%'()%* student of ICBMS!hool of Business E"!ellen!e# $%derabad# hereb%
de!lare that the &ro'e!t re&ort entitled +A STUDY OF NON PERFORMING
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ASSETS IN INDIAN COMMERCIAL BANK,S- is the wor( underta(en b% me for
+CENTRAL BANK OF INDIA- $ $%derabad during the a!ademi! %ear )*+,)*+-
and submitted to ICBMSBE. It is an original and bonafide re!ord of wor( done b%
me during the !ourse of summer internshi& &ro'e!t wor( of PGDM &rogram and all
!ontents and fa!ts are &re&ared and &resented b% me without an% bias.
I also de!lare that it has not &re/iousl% formed the basis for the award to me for an%
degree0di&loma asso!iate shi&# fellowshi& or other similar title# of an% institute0so!iet%.
P*%./0 ( RAVI
JAISWAL )
D%1/ 0

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CERTIFICATE
This is to !ertif% that the &ro'e!t entitled +A STUDY OF NON PERFORMING
ASSETS IN INDIAN COMMERCIAL BANKS- with referen!e to C/213%* B%24
56 I27'%$ 852%* B3%2.9$ ":7/3%;%7 being submitted b% R%&' J%'()%*$ a student of
ICBM!SBE bearing 1oll 2o 13/154 and was su!!essfull% !ondu!ted at C/213%*
B%24 56 I27'%$ 852%* B3%2.9$ ":7/3%;%7 from +) Ma%3+4 to )5 6une3+4 for the
&artial fulfillment for the award of Post Graduate Di&loma in Management 7PGDM8.
To the best of m% (nowledge this is an original &ie!e of wor(.
I wish his all the /er% best in his !areer endea/ors.
P356< S<
8ARAR
PRINCIP
AL

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CERTIFICATE OF T"E GUIDE
This is to !ertif% that the wor( in!or&orated in this Pro'e!t entitled + A STUDY OF
NON PERFORMING ASSETS IN INDIAN COMMERCIAL BANKS -
Submitted b% R%&' J%'()%* his 9riginal wor( and !om&leted under m% su&er/ision.
D%1/0 MR< G< KRIS"NA
":7/3%;%7 (A((5.'%1/ P356/((53 F'2%2./
D/=%31>/21 )
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ACKNOWLEDGEMENT
: &ro'e!t re&ort is ne/er su!!essfull% !om&leted without the guidan!e and mentorshi&
of a few &eo&le. So# I ta(e this o&&ortunit% to e"&ress m% sin!ere gratitude towards all
those# who ha/e hel&ed me in this endea/or.
I ta(e the o&&ortunit% to e"&ress m% sin!ere gratitude to P356< R'1?
8%3%3$C9%'3=/3(52 56 ICBM!SBE and P356< S9%>(9?77'2 8%3%3$ P3'2.'=%* 56
ICBM!SBE for his &erse/eran!e and attention e"tended to o/er the !ourse of the
PGDM &rogram. I e"&ress m% humble and dee& indebtness to P356< J'1/27/3
G5&'27%2'$ D'3/.153 (A.%7/>'.() ICBM!SBE whose guidan!e and en!ouragement
&ro/ed to be a sour!e of ins&iration to do m% best in this &ro'e!t.
I am e"tremel% grateful to M3< NVVL N%3%('>9% R%5$S/2'53 M%2%@/3 R/.5&/3:
7/=%31>/21 %1 C/213%* B%24 O6 I27'% $852%* B3%2.9$ $%derabad for &ro/iding an
o&&ortunit% to gain /aluable &ra!ti!al e"&erien!e in the !om&an%# b% underta(ing the
!urrent stud%.
S&e!ial than(s goes to m% mentor A((5< P356< G< K3'(92% and also than(s to P356<
P<S%' R%2'$ A((5< P356< F'37%?( K9%2 D/=1< 56 F'2%2./$ ICBM!SBE for &ro/iding
me mu!h needed information and gi/ing me dire!tion whi!h &a/ed the wa% for the
!om&letion of the &ro'e!t.
I am also than(ful to entire fa!ult% and staff of ICBMSBE# $%derabad for dire!tl% or
indire!tl% su&&orting m% resear!h wor(.
;ast# but not the least# m% heartfelt a&&re!iation to m% &arents who ha/e instilled in
me a strong wor( ethi! and the dri/e to e"!el in all m% goals and endea/ors.
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R%&
'
J%'(
)%*

ABSTRACT0!
Indian ban(ing industr% &la%s a &i/otal in the so!io e!onomi! de/elo&ment of the
!ountr%. This role is &la%ed b% ban(s b% e"tending !redit to /arious defi!it se!tors for
their growth and de/elo&ment. This !redit !reation &ro!ess leads to !redit ris( whi!h
will lead non &erforming asset. <hile the &rimar% fun!tion of ban(s is to lend funds as
loans to /arious se!tors su!h as agri!ulture# industr%# &ersonal loans# housing loans
et!.# in re!ent times the ban(s ha/e be!ome /er% !autious in e"tending loans. The
!urrent stud% was underta(en to stud% the non &erforming assets of nationali=ed
ban(s. The reason being mounting non&erforming assets 72P:s8# 2P: a!!ount not
onl% redu!es &rofitabilit% of ban(s b% &ro/isioning in the &rofit and loss a!!ount# but
their !arr%ing !ost is also in!reased whi!h results in e"!ess > a/oidable management
attention. :&art from this# a high le/el of 2P: also &uts strain on a ban(s net worth
be!ause ban(s are under &ressure to maintain a desired le/el of Ca&ital :dequa!% and
in the absen!e of !omfortable to assess the health of /arious !ategories of loan assets
in /arious !ategories of ban(s. The data was !olle!ted for a &eriod of si" %ears and
anal%=ed b% mean# C:G1 and ran(ing ban(s. The indi/idual ban(s got ran(s as &er
their &erforman!e in management of 2P: s. It was also tested# whether there is
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signifi!ant differen!e between non&erforming assets of ban(s# it was found that there
is signifi!ant differen!e in the le/el of 2P: s of nationali=ed ban(s whi!h refle!t their
/aried effi!ien!% in the management of non&erforming assets.
KEY WORDS0 Ca&ital :dequa!%# Growth# 2ationali=ed Ban(s# 2on Performing
:ssets#
So!io E!onomi! De/elo&ment#
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INDE#
C9%=1/3 T'1*/ P%@/ N5<
+ I2T19DUCTI92
9b'e!ti/es of the stud%
S!o&e of the stud%
1esear!h Methodolog%
+* ? +@
) T$E19TIC:; B:CAG19U2D
+BMeaning
)B:ssets !lassifi!ation
,BT%&es of 2P:3s
4BIm&a!t on Ban(s 9&erations
-BSte&s for 1edu!ing 2P:3s
@B<h% are 2P:3s In!reasing
CB2P:3s Im&a!t on Balan!e sheet
1EDIE< 9E ;ITE1:TU1E
+C ? ,4
,- ? ,F
, C9MP:2Y P19EI;E 4* ? 4C
4 D:T: :2:;YSIS > I2TE1P1ET:TI92 45 ? @F
- EI2DI2G #1EC9M:2D:TI92 #SUGGESTI92 >
C92C;USI92
G;9SS:1Y
:22EGU1EB +
:22EGU1EB )
C*? C@
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@ BIB;I9G1:P$Y C@? CF
Table No. Title of table Page No.
+.+ Publi! se!tor Ban(s )**5)**F 49 50
+.) Pri/ate se!tor Ban(s )**5)**F 50 - 51
+., Publi! se!tor Ban(s )**F)*+* 51 52
+.4 Pri/ate se!tor Ban(s )**F)*+* 52 53
+.- Publi! se!tor Ban(s )*+*)*++ 54 55
+.@ Pri/ate se!tor Ban(s )*+*)*++ 55 56
+.C Publi! se!tor Ban(s )*++)*+) 56 57
+.5 Pri/ate se!tor Ban(s )*++)*+) 57 58
+.F Publi! se!tor Ban(s )*+))*+, 58 59
+.+* Pri/ate se!tor Ban(s )*+))*+, 60
+.++ Publi! se!tor Ban(s )*+,)*+4 61 62
+.+) Pri/ate se!tor Ban(s )*+,)*+4 62 63
).+ :gri!ulture ;oan of Publi! Se!tor Ban(s 64 65
).) Medium and small s!ale industries ;oan of Publi! Se!tor Ban(s 65 66
)., 1etails ;oan of Publi! Se!tor Ban(s 67
,.+ C:G1 68 69
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C"APTER!1
INTRODUCTION
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INTRODUCTION0!
The ban(ing s%stem &la%s a signifi!ant and !ommendable role in the growth and
de/elo&ment of e!onom% and its !om&onents. The ban(ing s%stem mobili=es the funds
from the sur&lus units and distributes them to defi!it se!tors for their &rodu!ti/e and
effi!ient utili=ation. The ban(ing se!tor in India !om&rise of &ubli! se!tor ban(#
&ri/ate se!tor ban(s and foreign se!tor ban(s. Publi! se!tor ban(s are those in whi!h
ma'orit% of equit% holding is with go/ernment and in!ludes SBI grou& 7State ban( and
its subsidiaries8 and nationali=ed ban(s. Modern trade and !ommer!e would almost
be im&ossible without the a/ailabilit% of suitable ban(ing ser/i!es and it fa!ilitates it
in innumerable wa%s. Ban(s &la% an im&ortant role in the mobili=ation# allo!ation of
!a&ital# &rogress and de/elo&ment of an e!onom%. The modern ban(ing is not onl%
!onfined to traditional business of the a!!e&ting and lending mone% but ha/e
di/ersified their a!ti/ities into new fields of o&erations li(e mer!hant ban(ing# leasing#
housing finan!e# mutual funds and /enture !a&ital. The% ha/e introdu!ed a number of
inno/ati/e s!hemes for mobili=ing de&osits. In addition to the abo/e the% are
&ro/iding /aluable ser/i!es to their !ustomers# issuing drafts# tra/eler !heques# gift
!heques# a!!e&ting /aluables for safe !ustod% and modern ban(ing fa!ilities.
The main business of ban(ing is to a!!e&t de&osits for the &ur&ose of lending# so it
mobili=es funds b% issuing !laims against itself and lends this mone% to others in the
form of loans whi!h are assets for ban(s. The liabilities and assets of ban(s are in the
form of !laims unli(e other forms of business. The mobili=ed mone% is lent in the
form of loans whi!h is ma'or and main a!ti/it% of ban(ing and !om&rises the largest
asset in the asset &ortfolio of the ban(.
The mone% lent are !alled loans or ad/an!es whi!h earn in!ome for the ban( in the
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form of interest# in addition to this ban(s in/ests a &ortion of mone% in se!urities 7both
debt and equit%8 and a minor &ortion of total funds is in/ested in real assets li(e land#
building for !arr%ing the o&erations of ban(ing.
The mone% is ad/an!ed in the form of loans and in/ested in se!urities in e"&e!tation
of
in!ome and re&a%ment of &rin!i&le at &eriodi! inter/als as &er the !ontra!tual
obligations
between the lender and borrower. The assets whi!h is &erforming as &er the
!ontra!tual
obligations i.e. &a%ment of interest and re&a%ment of &rin!i&al as and when it fall due#
it is !alled &erforming asset or standard asset. The asset whi!h fails to meet obligation
of &a%ment of interest and re&a%ment of &rin!i&al within a s&e!ified date from due
date is !alled non &erforming asset or non standard asset.
2on&erforming asset 72P:8 is one of the ma'or !on!ern and &roblem for ban(s in
India.
2P:s refle!t the degree of ris( and qualit% of assets of ban( and &rofitabilit% of a
ban(. :
high le/el of 2P:s suggests high &robabilit% of a large number of !redit defaults that
affe!t the &rofitabilit% and networth of ban(s and also erodes the /alue of the asset.
The 2P: growth in/ol/es redu!ed in!ome from assets and the ne!essit% of &ro/isions#
whi!h redu!es the o/erall &rofits and shareholders /alue . The le/el of non&erforming
assets is at the alarming rate in Indian ban(ing !om&arati/el% to other !ountries. This
le/el is mu!h higher in !ase of &ubli! se!tor ban(s due to their dire!tional !redit to
&riorit% se!tor &ro'e!ts and so!ial de/elo&ment &ro'e!ts. The &ubli! se!tor ban(s &la%
an immense role in the de/elo&ment and growth from the /er% in!e&tion. The &ubli!
se!tor ban(s whi!h were o&erating on so!ial model b% mobili=ing the huge resour!es
and dire!ting them to so!ial and &riorit% se!tors for so!ial and e!onomi! de/elo&ment
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of the !ountr%. Due to their so!io e!onomi! role# there was high le/el of 2P: s s in
their asset &ortfolio. :fter the liberali=ation in +FF+# the% fa!ed high le/el !om&etition
from &ri/ate and foreign ban(s. Due to this fier!e !om&etition and !hallenge on their
sur/i/al# the% were for!ed to im&ro/e the &erforman!e and wea(ness. The biggest
wea(ness and &roblem the% fa!ed was huge 2P: S in their &ortfolio. This stud% aims
to !he!( what is the &osition and le/el of non&erforming assets of nationali=ed ban(s
whi!h is !ore and heart of &ubli! se!tor ban(ing in India and whi!h handles the ma'or
&ortion of ban(ing business in India.
OBJECTIVES OF T"E STUDY0!
P3'>%3: 5;A/.1'&/0
The &rimar% ob'e!ti/e of the ma(ing re&ort isB
+BTo Stud% the !hallenges fa!ed b% &ubli! and &ri/ate se!tor ban(s with 2P:3s in
India.

)B To anal%=e the 2P: &osition of sele!ted &ubli! and &ri/ate se!tor ban(s in India.
S/.527%3: 5;A/.1'&/(0
The se!ondar% ob'e!ti/es of &re&aring this re&ort areB
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+B To understand what is 2onPerforming :ssets and what are the underl%ing reasons
for
the emergen!e of the 2P:s.
)B To understand the im&a!ts of 2P:s on the o&erations of the Publi! and Pri/ate
Se!tor Ban(s.
,B To (now what ste&s are being ta(en b% the Indian ban(ing se!tor to redu!e the
2P:sH
SCOPE OF STUDY0!

+0! Con!e&t of 2onPerforming assets
)B Guidelines
,B Im&a!t of 2P:3s
4B 1easons for 2P:3s
-B Pre/enti/e Measures
@B Tools to manage 2P:3s
The s!o&e of the stud% is limited to the anal%sis of 2P:s of all the nationali=ed ban(s
o/er the &eriod of )**F)*+4. It e"amines trend of Gross 2P:s# Gross 2P:s IJ and
assess the qualit% of 2P: management and ran( them as &er mean of last si" %ears.
The data has been anal%=ed using &er!entage method# and sele!ted statisti!.
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RESEARC" MET"ODOLGY0!
The resear!h methodolog% means the wa% in whi!h we would !om&lete
our &ros&e!ted tas(. Before underta(ing an% tas( it be!omes /er% essential for an%one
to determine the &roblem of stud%. I ha/e ado&ted the following &ro!edure in
!om&leting m% re&ort stud%.
+. Eormulating the &roblem
). 1esear!h design
,. Determining the data sour!es
4. :nal%=ing the data
-. Inter&retation
@. Pre&aring resear!h re&ort
7+) F53>?*%1'2@ 19/ =35;*/>BI am interested in the ban(ing se!tor and I want to
ma(e m% future in the ban(ing se!tor so de!ided to ma(e m% resear!h stud% on the
ban(ing se!tor. I anal%=ed first the fa!tors that are im&ortant for the ban(ing se!tor
and I !ame to (now that &ro/iding !redit fa!ilit% to the borrower is one of the
im&ortant fa!tors as far as the ban(ing se!tor is !on!erned. 9n the basis of the
anal%=ed fa!tor# I felt that the im&ortant issue right now as far as the !redit fa!ilities
are &ro/ided b% ban( is non&erforming assets. I started (nowing about the basi!s of
the 2P:s and de!ided to stud% on the 2P:s. So# I !hose the to&i!
+N52!P/3653>'2@ A((/1( 19/ @3/%1 .9%**/2@/ ;/653/ 19/ P?;*'. %27 P3'&%1/ S/.153
B%24(-<
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7)) R/(/%3.9 D/('@2B The resear!h design tells about the mode with whi!h the entire
&ro'e!t is &re&ared. M% resear!h design for this stud% is basi!all% anal%ti!al. Be!ause I
ha/e utili=ed the large number of data of the Publi! and Pri/ate Se!tor Ban(s.
7,) D/1/3>'2'2@ 19/ 7%1% (5?3./B The data sour!e !an be &rimar% or se!ondar%. The
&rimar% data are those data whi!h are used for the first time in the stud%. $owe/er
su!h data ta(e &la!e mu!h time and are also e"&ensi/e. <hereas the se!ondar% data
are those data whi!h are alread% a/ailable in the mar(et. These data are eas% to sear!h
and are not e"&ensi/e too. for m% stud% I ha/e utili=ed totall% the se!ondar% data.
748 T55*( T9/ A2%*:B'2@ T9/ 7%1%0! I am using C:G1# 1an(ing S%stem Eor
anal%=ing the data.
7-8 A2%*:B'2@ 19/ 7%1%BThe &rimar% data would not be useful until and unless the%
are well edited and tabulated. <hen the &erson re!ei/es the &rimar% data man% un
useful data would also be there. So# I anal%=ed the data and edited them and turned
them in the useful tabulations. So# that !an be!ome useful in m% re&ort stud%.
7@) I21/3=3/1%1'52 56 19/ 7%1% W'19 ?(/ 56 %2%*:B/7 7%1%0 I managed to &re&are m%
&ro'e!t re&ort. But the anal%=ing of data would not hel& the stud% to rea!h towards its
ob'e!ti/es. The inter&retation of the data is required so that the others !an understand
the !ru" of the stud% in more sim&le wa% without an% &roblem so I ha/e added the
!ha&ter of anal%sis that would e"&lain others to understand m% stud% in sim&ler wa%.
7C8 P35A/.1 )3'1'2@BThis is the last ste& in &re&aring the &ro'e!t re&ort. The ob'e!ti/e
of the re&ort writing was to re&ort the findings of the stud% to the !on!erned
authorities.
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TIME FRAME0!
The time frame has been ta(en 4@ da%s.
LIMITATION OF T"E STUDY0!
The limitations that I felt in m% stud% areB
+BIt was !riti!al for me to gather the finan!ial data of the e/er% ban( of the Publi! and
Pri/ate Se!tor Ban(s so the better e/aluations of the &erforman!e of the ban(s are
not &ossible.
)BSin!e m% stud% is based on the se!ondar% data# the &ra!ti!al o&erations as related to
the 2P:s are ado&ted b% the ban(s are not learned.

,BSin!e the Indian ban(ing se!tor is so wide so it was not &ossible for me to !o/er all
the ban(s of the Indian ban(ing se!tor.
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C"APTER!2
T"EROTICAL
BACKGROUND
REVIEW OF LITERATURE
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CONCEPTUAL AND T"EORETICAL IDEA OF NPA,(
N52!P/3653>'2@ A((/1( (NPAS) C M/%2'2@
:ssets whi!h generate &eriodi!al in!ome are !alled as &erforming assets. :ssets whi!h
do not generate &eriodi!al in!ome are !alled as non&erforming assets. :n asset#
in!luding a leased asset# be!omes non&erforming when it !eases to generate in!ome
for the ban(. : non&erforming asset 72P:8 is a loan or an ad/an!e whereJ
i. interest and0 or instalment of &rin!i&al remain o/erdue for a &eriod of more than F*
da%s in res&e!t of a term loan#
ii. The a!!ount remains Kout of order Kfor more than F* da%s in res&e!t of an
9/erdraft0Cash Credit 79D0CC8#
iii. The bill remains o/erdue for a &eriod of more than F* da%s in the !ase of bills
&ur!hased and dis!ounted#
i/. The instalment of &rin!i&al or interest thereon remains o/erdue for two !ro&
seasons for short duration !ro&s#
/. The instalment of &rin!i&al or interest thereon remains o/erdue for one !ro& season
for
;ong duration !ro&s#
/i. The amount of liquidit% fa!ilit% remains outstanding for more than F* da%s# in
res&e!t of a se!uriti=ation transa!tion underta(en in terms of guidelines on
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se!uriti=ation dated Eebruar% +# )**@.
/ii. in res&e!t of deri/ati/e transa!tions# the o/erdue re!ei/ables re&resenting &ositi/e
mar( to mar(et /alue of a deri/ati/e !ontra!t# if these remain un&aid for a &eriod of
F* da%s from the s&e!ified due date for &a%ment.
Ban(s should# !lassif% an a!!ount as 2P: onl% if the interest due and !harged during
an%
Luarter is not ser/i!ed full% within F* da%s from the end of the quarter. :n% amount
due to the ban( under an% !redit fa!ilit% is Ko/erdue if it is not &aid on the due date
fi"ed b% the ban(.
C%?(/( 653 C3/%1'52 56 N52!P/3653>'2@ A((/1(
ED1/32%* .%?(/(0 2atural !alamities and !limati! !onditions$ 1e!ession# !hanges in
Go/ernment &oli!ies !hanges in e!onomi! !onditions# Industr% related &roblems#
Im&a!t of liberali=ation on industries# Te!hni!al &roblems
I21/32%* .%?(/(0 Internal defaulters$ Ea!ult% &ro'e!ts# Most of the &ro'e!t re&orts are
ground realities# &ro&er lin(ages# &rodu!t &ri!ing et!. Some a&&roa!h for the Mhe!(N of
starting a /enture# with &oor (nowledge of &rodu!t ris(s# o/er de&ended on &oorl%
&aid (illed wor(ers and te!hni!ians# Building u& &ressure for san!tions# Ine&t handling
b% ban(er3s la!( of &rofessionalism and a&&raisal standards# 2onobser/an!e of
s%stem# &ro!edures and noninsisten!e of !ollaterals et!# ;a!( of &ost san!tion
monitoring# un!he!(ed di/ersions.
ASSET CLASSIFICATION
C%1/@53'/( 56 NPA(
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Ban(s are required to !lassif% non&erforming assets further into the following three
Categories based on the &eriod for whi!h the asset has remained non&erforming and
the
1eali=e abilit% of the duesB
i. Substandard :ssets
ii. Doubtful :ssets
iii. ;oss :ssets
S?;(1%27%37 A((/1(
<ith effe!t from ,+ Mar!h )**-# a substandard asset would be one# whi!h has
remained
2P: for a &eriod less than or equal to +) months. In su!h !ases# the !urrent net worth
of the borrower0 guarantor or the !urrent mar(et /alue of the se!urit% !harged is not
enough to ensure re!o/er% of the dues to the ban(s in full. In other words# su!h an
asset will ha/e well defined !redit wea(nesses that 'eo&ardi=e the liquidation of the
debt and are !hara!teri=ed b% the distin!t &ossibilit% that the ban(s will sustain some
loss# if defi!ien!ies are not !orre!ted.
D5?;16?* A((/1(
<ith effe!t from Mar!h ,+# )**-# an asset would be !lassified as doubtful if it has
remained in the substandard !ategor% for a &eriod of +) months. : loan !lassified as
doubtful has all the wea(nesses inherent in assets that were !lassified as substandard#
with the added !hara!teristi! that the wea(nesses ma(e !olle!tion or liquidation in
full# ? on the basis of !urrentl% (nown fa!ts# !onditions and /alues ? highl%
questionable and im&robable.
L5(( A((/1(
: loss asset is one where loss has been identified b% the ban( or internal or e"ternal
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auditors or the 1BI ins&e!tion but the amount has not been written off wholl%. In other
words# su!h an asset is !onsidered un!olle!tible and of su!h little /alue that its
!ontinuan!e as a ban( able asset is not warranted although there ma% be some sal/age
or re!o/er% /alue.
T:=/( 56 NPA
G35(( NPA
Gross 2P:s are the sum total of all loan assets that are !lassified as 2P:s as &er 1BI
Guideline as on Balan!e Sheet date. Gross 2P: is ad/an!e whi!h is !onsidered
Irre!o/erable# for ban( has made &ro/isions# and whi!h is still held in ban(sO boo(s of
a!!ount Gross 2P: refle!ts the qualit% of the loans made b% Ban(s. It !onsists of all
the
nonstandard assets li(e as substandard# doubtful# and loss assets. It !an be !al!ulated
withthe hel& of following ratioB
Gross 2P:s 1atio P Gross 2P:s 0 Gross :d/an!es
N/1 NPA
2et 2P:s are those t%&e of 2P:s in whi!h the ban( has dedu!ted the &ro/ision
regarding
2P:s.2et 2P: shows the a!tual burden of ban(s. Sin!e in India# ban( balan!e sheets
!ontain a huge amount of 2P:s and the &ro!ess of re!o/er% and write off of loans is
/er%
Time !onsuming# the &ro/isions the ban(s ha/e to ma(e against the 2P:s a!!ording
to the Central ban( guidelines# are quite signifi!ant. That is wh% the differen!e
between gross and net 2P: is quite high. It !an be !al!ulated b% following#
2et 2P:s P Gross 2P:s ? Pro/isions 0 Gross :d/an!es ? Pro/isions
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24
C%?(/( 653 NPA
The fa!tors attributed for the !ause of 2P: !an beB
Im&ro&er sele!tion of borrower3s a!ti/ities# <ea( !redit a&&raisal s%stem Industrial
&roblem# Ineffi!ien!% in management of borrower# Sla!(ness in !redit management >
monitoring# ;a!( of &ro&er follow u& b% ban(# 1e!ession in the mar(et# Due to natural
!alamities and other un!ertainties .
I>=%.1 56 NPA,( 52 ;%24'2@ 5=/3%1'52(
The effi!ien!% of a ban( is not refle!ted onl% b% the si=e of its balan!e sheet but also
b% the le/el of return on its assets. The 2P:s do not generate interest in!ome for
ban(s. :t the same time# ban(s are required to &ro/ide &ro/isions for 2P:s from their
!urrent &rofits. The 2P:s ha/e deleterious im&a!t on the return on assets in the
following wa%sB
a. The interest in!ome of ban(s will fall and it is to be a!!ounted onl% on re!ei&t
basis.
b. Ban(s &rofitabilit% is affe!ted ad/ersel% be!ause of the &ro/iding of doubtful
debts and
Consequent to writing it off as bad debts.
!. 1eturn on in/estments 719I8 is redu!ed.
d. The !a&ital adequa!% ratio is disturbed as 2P:s enter into its !al!ulation.
e. The !ost of !a&ital will go u&.
f. :sset and liabilit% mismat!h will widen.
g. It limits re!%!ling of the funds
C5(1 56 N52=/3653>'2@ %((/1(
2onPerforming :ssets affe!t the &rofitabilit%# liquidit% and !om&etiti/e fun!tioning
of ban(s and de/elo&mental finan!ial institutions and finall% the &s%!holog% of the
ban(ers in res&e!t of their dis&osition towards !redit deli/er% and !redit e"&ansion.
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25
2onPerforming assets !ause high !ost for the ban(# as these assets do not im&ro/e
an% of the followingB
+BProfits
)BCa&ital adequa!%
,B1edu!tion of other !osts
4BCa&ital mar(et &er!e&tion
The impact of NPAs on the profitability of the banks is summarized in the
following points:-

+. R/7?./( /%32'2@ .%=%.'1: 56 19/ %((/1(0 2P: s redu!ed the earning !a&a!it% of
the assets and as a result of this return on assets get affe!ted.
). B*5.4( .%='1%*0 2P: s !arr% ris( weight of +**I 7to the e"tent it is un!o/ered8.
Therefore the% blo!( !a&ital for maintaining Ca&ital adequa!%. :s 2P: s do not earn
an% in!ome# the% are ad/ersel% affe!ting MCa&ital :dequa!% 1atioN of the ban(.
,. I2.?33/2./ 56 %77'1'52%* .5(10 Carr%ing of 2P:3s require in!urren!e of #Cost of
Ca&ital :dequa!%# Cost of funds in 2P:3s and 9&erating !ost for monitoring and
re!o/ering 2P:3s.
4. R/7?./( EVA0 <hile !al!ulating E!onomi! Dalue :dded 7ED: P2et o&erating
&rofit after ta" minus !ost of !a&ital8 for measuring &erforman!e towards shareholders
/alue !reation# !umulati/e loan loss &ro/isions on 2P:s s !onsidered as !a&ital.
$en!e# it in!reases !ost of !a&ital and redu!es ED:.
-. L5) :'/*7 52 %7&%2./(0 Due to 2P:s# %ield on ad/an!es shows a lower figure than
a!tual %ield on Mstandard :d/an!esN. The reasons that %ield are !al!ulated on wee(l%
a/erage total ad/an!es in!luding 2P:s.
@. E66/.1 52 R/1?32 52 A((/1(0 2P:s redu!e earning !a&a!it% of the assets and as a
result of this# 19: gets affe!ted
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26
V%3'5?( S1/=( 653 R/7?.'2@ NPA(0!
+. Pre&are a loan re!o/er% &oli!% and strategies for redu!ing 2P:s.
). Create s&e!ial re!o/er% !ells as head offi!e0Qonal offi!e0 regional offi!e le/els
identif% !riti!al bran!hes for re!o/er%
,. Ei" targets of re!o/er% and draw time bound a!tion &rogrammer
4. Sele!t &ro&er te!hniques for sol/ing the &roblem of ea!h 2P:
-. Monitor im&lementing of the time bound a!tion &lan
@. Ta(e !orre!ti/e ste&s when e/er found ne!essar% while monitoring the a!tion &lan
and ma(e !hanges in the original &lan if ne!essar%
W9: %3/ NPA( '2.3/%('2@E
Growing 2P:s is the biggest !hallenge for the ban(ing industr%. : slowing e!onom%
is bound to see an in!rease in 2P:s. 2otwithstanding the e!onomi! wea(ness# the
2P:s of ban(s ha/e registered in!reases sin!e EY )*+) whi!h is a !ause of !on!ern
for us. The 2P: in!reases ha/e been more &ronoun!ed in !ase of the &ubli! se!tor
ban(s. There are /arious fa!tors affe!ting the asset qualit% of SCBs ad/ersel%# su!h as
the !urrent slowdown global and domesti!# &ersistent &oli!% log'ams# dela%ed
!learan!es of /arious &ro'e!ts# aggressi/e e"&ansion b% !or&orate during the high
growth &hase et!. $owe/er# it is the short!omings in the !redit a&&raisal# disbursal and
re!o/er% me!hanism of the ban(s# besides the e!onomi! slowdown that !an in large
&art be held res&onsible for their high le/els of 2P:s. ;a!( of robust /erifi!ation and
s!reening of a&&li!ation# absen!e of su&er/ision following !redit disbursal and
shortfalls in the re!o/er% me!hanism ha/e led to the deterioration of asset qualit% of
these ban(s.
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27
C3/7'1 R%1'2@( %27 A((/1 F?%*'1:
;et us now see the relationshi& between !redit ratings and asset qualit% of the ban(s.
Credit ratings are forward loo(ing o&inion e"&ressed b% a !redit rating agen!% on the
abilit% and willingness of a borrower to &a% his dues in full and on time. More
s&e!ifi!all%# !redit ratings are relati/e ran(ing of borrowers based on the !redit rating
agen!%3s assessment of !reditworthiness of the borrowers within a gi/en uni/erse.
Credit ratings ma% also indi!ate the !redit ris( asso!iated with a s&e!ifi! !redit fa!ilit%
or a s&e!ifi! se!urit%.
$ow does a !redit rating differ from !redit s!ores assigned b% !redit information
!om&aniesH Both !redit rating and !redit s!ores are a measure of !redit ris( and refle!t
the /ar%ing le/el of &robabilit% of default of a gi/en borrower. The differen!e is in the
methodolog% used b% them to assess the !redit ris(. <hile !redit ratings are forward
loo(ing o&inion about !redit ris(# !redit s!ores assigned b% !redit bureaus are based on
!redit histor% of a borrower. Credit ratings ta(e into a!!ount the ris( that a borrower
ma% fa!e during a gi/en time hori=on in the future# whereas !redit s!ores are based on
the &ast &erforman!e of a borrower with regard to ser/i!ing of debt. The se!ond
differen!e is that !redit s!ores are assigned to a &arti!ular borrower while !redit
ratings !an be assigned to a s&e!ifi! fa!ilit%.
<hile !redit rating generall% denotes a rating assigned b% a !redit rating agen!%# there
is also a me!hanism of internal ratings b% ban(s. : me!hanism of internal !redit rating
of borrowers was in e"isten!e in ban(s mu!h before e"ternal !redit rating of ban(
loans were introdu!ed under Basel II regulations. 1eser/e Ban(3s guidelines on R1is(
Management S%stems in Ban(s3 issued in 9!tober +FFF# indi!ated that measurement
of !redit ris( through !redit rating0s!oring re!ei/e the to& management3s attention.
Eurther# the RGuidan!e 2ote on Credit 1is( Management3 issued in 9!tober )**)#
stated thatB
R: Creditris( 1ating Eramewor( 7C1E8 is ne!essar% to a/oid the limitations
asso!iated with a sim&listi! and broad !lassifi!ation of loans0e"&osures into a MgoodN
or a MbadN !ategor%. The C1E de&lo%s a number0 al&habet0 s%mbol as a &rimar%
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28
summar% indi!ator of ris(s asso!iated with a !redit e"&osure. Su!h a rating framewor(
is the basi! module for de/elo&ing a !redit ris( management s%stem and all ad/an!ed
models0a&&roa!hes are based on this stru!ture.3
The !redit rating assigned b% a ban( !ould be used for the followingB
a. Indi/idual !redit sele!tion ? to de!ide whether to lend or not to a &arti!ular
borrower.
b. Pri!ing 7!redit s&read8 and s&e!ifi! features of the loan fa!ilit% <hile ris(
based &ri!ing is an essential !om&onent of !redit ris( management# a/ailable
e/iden!e suggest that !om&etiti/e fa!tors influen!e the &ri!ing of a ban( loan
more than the ris( rating. $owe/er# for traded debt instruments# li(e
!ommer!ial &a&er# there is still lin( between rating and !redit s&reads.
c. Portfoliole/el anal%sis.
d. Sur/eillan!e# monitoring and internal MIS.
e. :ssessing the aggregate ris( &rofile of ban(0 lender. These would be rele/ant
for &ortfoliole/el anal%sis. Eor instan!e# the s&read of !redit e"&osures a!ross
/arious C1E !ategories# the mean and the standard de/iation of losses
o!!urring in ea!h C1E !ategor% and the o/erall migration of e"&osures would
highlight the aggregated !reditris( for the entire &ortfolio of the ban(.
In line with 1eser/e Ban(3s guidelines# ban(s in India ha/e &ut in &la!e an internal
!redit rating framewor(. Internal rating framewor(s a/ailable with man% of the ban(s
are based on solutions de/elo&ed b% e"ternal ser/i!e &ro/iders. $owe/er# the
effe!ti/eness and so&histi!ation le/els of internal rating framewor( /ar% from ban( to
ban(. <hile differen!e of o&inion is essential to a/oid Rherding3# large /arian!e in
ratings b% ban(s using similar models !ould &ut a question mar( o/er the stabilit% of
the models or the abilit% of users to use the models a&&ro&riatel%.
In addition to the internal !redit rating framewor(# whi!h are generall% used to rate
!or&orate !lients# ban(s also use sim&le !redit s!oring models to rate smaller
borrowers and retail borrowers. Credit s!oring models for retail !ustomers generall%
loo( at the following four grou&s of indi!ators ? demogra&hi! indi!ators# finan!ial
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29
indi!ators# em&lo%ment indi!ators and beha/ioral indi!ators.
Sin!e !redit ratings0s!ores are a measure of !redit ris(# it has a strong lin( with 2P:s.
;oans e"tended b% ban(s are !lassified as 2P:s when the ban( !onsiders that
borrower has not ser/i!ed his debt or is unli(el% to ser/i!e his debt as &er the terms
and !onditions of the !ontra!t. :s su!h 2P:s are manifestation of !redit ris(. Sin!e
!redit ratings are relati/e measure of !redit ris(# the li(elihood of default of a borrower
with a higher !redit rating should be lower than a borrower with a lower !redit rating.
:s a !orollar%# a higher &ro&ortion of borrowers with good !redit rating in the boo(s
of a ban( should translate into lower le/el of 2P:s. <hether that assertion is true or
not requires us to e/aluate the !redit ratings assigned b% a !redit rating agen!% b%
'u"ta&osing them against the a!tual default e"&erien!e.
:nother im&ortant fa!tor that needs to be (e&t in mind while !om&aring the ratings b%
a C1: with that b% a ban( is what !onstitutes a Rdefault3H Credit rating agen!ies
re!ognise default e/en if there is a default of one ru&ee or a dela% of one da% in
ser/i!ing the s!heduled debt obligations. :s far as ban(s are !on!erned# an asset is
treated as non&erforming asset onl% when a s!heduled &a%ment remains o/erdue for a
&eriod of more than F* da%s. The definition of default is different as the &ur&ose of
re!ognition of default is different.
W9%1 (95?*7 ;%24( ;/ 75'2@E
There is growing need for ban(s to strengthen their internal !redit a&&raisal s%stem i.e.
on their !redit assessment and ris( management me!hanisms. :t the same time# ban(s
should also !onsider using e"ternal !redit a&&raisals in !on'un!tion with their own
assessment. This would mean getting the house in order and at least on this s!ore#
ban(s would be on stronger ground. Ban(s would still be /ulnerable to other fa!tors
su!h as e!onomi! slowdown# or &oli!% !hanges or wilful defaults. But# one area of
!on!ern would be &lugged. This is where !redit rating agen!ies !an &la% an im&ortant
role gi/en their e"&erien!e as well as stead% tra!( re!ord o/er the %ears.
R/@?*%1'52 56 CRA(
In the Indian !onte"t# the general su&erintenden!e and regulation of !redit rating
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30
agen!ies are !arried out b% the SEBI under Se!urities and E"!hange Board of India
7Credit 1ating :gen!ies8 1egulations# +FFF. The regulations issued b% SEBI !o/er
/arious as&e!ts /i=.# registration of rating agen!ies# fit and &ro&er !riteria for rating
agen!ies# rating &ro!ess and methodolog% and its re!ords# trans&aren!% and
dis!losures# a/oidan!e of !onfli!t of interest# !ode of !ondu!t# et!. <hile these
regulations were initiall% a&&li!able to rating of debt se!urities b% !redit rating
agen!ies# the% ha/e been e"tended to !o/er all rating a!ti/ities in!luding ban( loan
ratings.
:dditionall%# the a!!reditation for a !redit rating agen!% to qualif% as an eligible
E"ternal Credit :ssessment Institution under Basel II framewor( is issued b% the
1eser/e Ban( of India. Su!h a!!reditation b% the 1eser/e Ban( of India is issued after
e/aluating a !redit rating agen!%3s abilit% to adhere to the standards &res!ribed under
the Basel II framewor(. 1eser/e Ban( of India has so far a!!redited si" !redit rating
agen!ies /i=.# Crisil# IC1:# C:1E# India 1atings# Bri!(wor( 1atings and SME1:
1atings. <hile a!!rediting !redit rating agen!ies 1eser/e Ban( has been mindful of
the need to ha/e an o&timum le/el of !om&etition in the ratings mar(et.
In this regard# !ertain studies on effe!t of !om&etition among !redit rating agen!ies
ha/e indi!ated that in!reased le/el of !om&etition ma% lead to Rrating sho&&ing3 and
thus affe!t the qualit% of ratings. :nil A Aash%a& and 2atalia Ao/ri'n%(h 7Se&tember
)*+,8 ha/e shown that RS!om&etition among C1:s !auses them to redu!e their fees#
&ut in less effort# and thus leads to less a!!urate ratings3. $owe/er# in order to a/oid
&redator% &ri!ing# 1eser/e Ban( has mandated that !redit rating agen!ies should
dis!lose the nature of their !om&ensation arrangements with the rated entities on their
websites. The dis!losure should in!lude the minimum fee that a !redit rating agen!%
will !harge and fa!tors determining the fee !harged.
Credit rating agen!ies3 eligibilit% is assessed against /arious qualitati/e and
quantitati/e &arameters. These requirements are grou&ed into the following si"
!riteriaB 9b'e!ti/it%# Inde&enden!e# International a!!ess0Trans&aren!%# Dis!losure#
1esour!es# and Credibilit%.
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31
O;A/.1'&'1:0 Basel regulations &res!ribe that the methodolog% for assigning !redit
ratings must be rigorous# s%stemati!# and sub'e!t to some form of /alidation 7ba!(
testing et!.8 based on histori!al e"&erien!e. Eurther# the ratings should be sub'e!ted to
!ontinuous sur/eillan!e.
1eser/e Ban( assesses this !riteria in terms of fa!tors li(e !redit rating agen!%3s
definition of default and a!tion ta(en on default# histori!al default rates# !ordialit% of
default rates 7i.e.# lower the rating higher the default &robabilit%8# stabilit% of the
ratings 7i.e.# &robabilit% that a gi/en rating remain un!hanged during a gi/en &eriod8#
&redi!ti/e abilit% of the ratings# im&ro/ement to the rating methodolog% to refle!t
!urrent trends et!. 1eser/e Ban( loo(s into the default studies# transition matri!es#
Gini Coeffi!ient et!. of !redit rating agen!ies to !ondu!t the abo/e assessment.
To ensure standardi=ation of default rates# the 1eser/e Ban( of India has mandated
that all rating agen!ies shall use a uniform definition of default as far as the ban( loan
ratings are !on!erned.
I27/=/27/2./0 Basel norms state that a !redit rating agen!% should be inde&endent
and not sub'e!ted to &oliti!al or e!onomi! &ressures while rating. The rating &ro!ess
should also be free from !onfli!t of interest that ma% arise due to shareholding &attern
or !om&osition of board of dire!tors.
To assess whether a rating agen!% is inde&endent# 1eser/e Ban( of India e/aluates the
ownershi& and organi=ation stru!ture 7&resen!e of inde&endent dire!tors in the Board
> rating !ommittees8# Inde&enden!e of indi/iduals i.e. !onfli!t of interestbetween
rating fee and qualit% of ratings# !onfli!t of interest with shareholders# !onfli!t of
interest at rating !ommittee le/el# se&aration of business de/elo&ment and rating
a!ti/ities# se&aration of rating business from other business a!ti/ities.
I21/32%1'52%* A../(( / T3%2(=%3/2.:0 Under this &arameter# 1eser/e Ban( e/aluates
whether a !redit rating agen!% ma(es ne!essar% dis!losures with regard to rating
methodologies and rating rationales to both domesti! as well as international users
without an% differentiation.
D'(.*5(?3/0 During the a!!reditation &ro!ess# the 1eser/e Ban( assesses whether a
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32
!redit rating agen!% ma(es the following dis!losuresB rating methodologies# in!luding
the definition of default# the time hori=on# and the meaning of ea!h ratingJ the a!tual
default rates e"&erien!ed in ea!h rating !ategor%J and the transitions of the rating. In
addition the Se!urities and E"!hange Board of India has also mandated a detailed set
of dis!losures b% !redit rating agen!ies.
R/(5?3./(0 :!!ess to suffi!ient resour!es is an im&ortant fa!tor in determining a
!redit rating agen!ies abilit% to furnish qualit% ratings. 1eser/e Ban( ma(es an
assessment as to whether a !redit rating agen!% has suffi!ient !a&abilities in terms of
human resour!es i.e.# number of em&lo%ees# their qualifi!ations and e"&erien!e et!.
Eurther# 1eser/e Ban( also loo(s into the te!hnologi!al !a&abilities of the !redit rating
agen!ies before de!iding u&on their a!!reditation. In addition# 1eser/e Ban( requires
!redit rating agen!ies to ha/e a!!ess to /arious sour!es of information on e!onom%#
se!tors# !om&anies# et!.
C3/7';'*'1:0 Credibilit% of a rating agen!% is assessed based on the degree of
a!!e&tabilit% of ratings of a rating agen!% b% inde&endent &arties /i=.# in/estors#
insurers# trading &artners et!. 1eser/e Ban( also loo(s into the internal &ro!edures &ut
in &la!e b% the !redit rating agen!ies to &re/ent misuse of !onfidential information
a!quired b% them during their rating e"er!ise. Credit rating agen!%3s adheren!e to
!ode of !ondu!t &res!ribed b% Se!urities and E"!hange Board of India# International
9rgani=ation of Se!urities Commissions 7I9SC98 and :sso!iation of Credit 1ating
:gen!ies in :sia 7:C1::8 are also anal%=ed to determine the !redibilit% of a !redit
rating agen!%.
In addition to a!!rediting !redit rating agen!ies# Basel II framewor( requires that the
ratings assigned b% !redit rating agen!ies shall be ma&&ed to a&&ro&riate ris( weights
a/ailable under the standardi=ed ris( weighting framewor(. Basel II framewor(
requires that national regulators should de!ide whi!h rating !ategories !orres&ond to
whi!h ris( weights. The ma&&ing &ro!ess should be ob'e!ti/e and should result in a
ris( weight assignment !onsistent with the le/el of !redit ris( refle!ted in the ratings.
In India the 1eser/e Ban( has &res!ribed uniform ris( weights for all rating agen!ies.
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33
Su!h uniform ris( weights are &res!ribed due to relati/el% low &enetration of ratings
and absen!e of suffi!ient histori!al default data.
In addition to the detailed assessment at the time of a!!reditation# the 1eser/e Ban( of
India also !ondu!ts an annual re/iew of a!!reditation of !redit rating agen!ies to
assess their eligibilit% for !ontinued a!!reditation under Basel II framewor(. During
the re/iew e"er!ise# 1eser/e Ban( e/aluates the &ro!esses as well as the out!omes.
The !umulati/e default rates of rated &ortfolio of indi/idual rating agen!% is e/aluated
in !om&arison with the ben!hmar( !umulati/e default rates &ro&osed under the Basel
II framewor(. The !umulati/e default rates of the ban( loan ratings in India are higher
than the ben!hmar(s &ro/ided b% Basel II framewor(.
"5) 15 >/3@/ ;%24( .3/7'1 %==3%'(%*( %27 CRA(, %((/((>/21(E
There are essentiall% four issues here where ban(s and C1:s need to wor( together
whi!h will also hel& ban(s to deris( their own &ortfolios as well as monitor their
loans more effe!ti/el%.
Eirst# Indian ban(s in !onformit% with the Basel II norms ha/e been e"tensi/el% using
the !redit assessment o&inion of e"ternal rating agen!ies for !al!ulating ris( based
!a&ital requirements. E/en though ban(s do not require !redit rating b% e"ternal rating
agen!ies for !al!ulating their !a&ital requirement for all loans 7onl% loans abo/e T +*
!rore require !redit rating8# some are seemed to be as(ing !om&anies to get a rating.
This e/identl% is being done to enhan!e their !redit assessments. Luite !learl%# there is
re!ognition of the /alue brought to the table b% C1:s for ban(s whi!h is being used
for &ur&oses be%ond !a&ital adequa!%. $owe/er# ban(s should ta(e into a!!ount the
!ost to the !om&anies and balan!e it against the benefits.
<e tal( of sharing of !redit information# whi!h is /ital gi/en the frequent o!!urren!e
of business !%!les and their !onsequen!es. <e ha/e institutions !alled !redit
information !om&anies whi!h &ro/ide su!h information to ban(s on the indi/idual
!om&anies. Eurther# a transition stor% of how ratings ha/e been mo/ing o/er time is
also a/ailable whi!h the ban(ers should monitor and &i!( u& and regularl% draw a
&arallel rating ma& of C1:s whi!h the% should !om&are with their own models and
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rating. This will be one useful !he!( whi!h ban(s !an !reate for their entire &ortfolio.
Se!ond# I do see a lot of use in the &rodu!ts offered b% C1:s and there is need to see
how we !an further integrate the two models of !redit ris( assessment of ban(s and
C1:s. There is a suggestion that ban(s should deris( their own &ortfolio b% as(ing
!om&anies loo(ing for long term finan!e to &artl% borrow from the !or&orate debt
mar(et. This wa% the >%34/1 '21/**'@/2./ of C1:s whi!h is mandator% for bond
mar(et borrowing would be an additional in&ut that would !ome in hand% for ban(s
when the% are lending mone% to the entit%. This is e/en more &ertinent toda% be!ause
of :;M issues and the demand for funds that would arise on!e the e!onom% &i!(s u&
and infrastru!ture starts to boom. Ban(s ma% not be able to full% meet the demand for
funds to the borrowers. <e ha/e to start wor(ing out in detail the im&li!ations of su!h
a mo/e# but in this forum it is worth germinating su!h a thought !onsidering that we
ha/e e"&erts from both ban(s and C1:s &resent here.
Thirdl%# one segment whi!h &arti!ularl% be!omes /ulnerable to e!onomi! sho!(s is
the SME segment. The% are disad/antaged on a!!ount of their si=e and also are the
first ones to get affe!ted when the downturn ta(es &la!e. C1:s ha/e models in &la!e
for rating of SMEs and the 2SIC s!heme gi/es a subsid% to SMEs for the rating. It
will be a good idea for ban(s to require a rating from these SMEs before gi/ing a loan
so that there is a !he!( in &la!e before the loan is disbursed. Gi/en the large number of
SMEs in our s&a!e# it ma% not be &ossible for ban(s to do a due diligen!e for one and
all. This is where the s%stems organi=ed b% C1:s !an be harnessed b% ban(s so that
there is some homewor( alread% done whi!h is useful for ban(s
Eourth# as %ou ma% be aware# re!entl% we ha/e gi/en guidelines on ban(s offering
!redit enhan!ement on infra bonds issued sub'e!t to !ertain !onditions. This is
definitel% one measure that we would li(e to &ursue whi!h will also wor( towards
de/elo&ing the bond mar(et. :t the same time# we see an im&ortant role for C1:s
here too. This is an e"am&le of a !ase of the bond mar(et# ban(s and C1:s all
wor(ing together for an o&timal solution whi!h will finall% benefit the e!onom%.
The de/elo&ment of !or&orate bond mar(et is /er% !riti!al for le/eraging the s%nergies
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between ban(s and C1:s whi!h !an address the issue of growing 2P:s in the s%stem.
Therefore# I do see C1:s &la%ing a /er% im&ortant role in the o&erations of ban(s that
go be%ond 'ust !a&ital adequa!% and Basel II. The final de!ision as well as the !redit
a&&raisal has to be done b% the ban( and what the C1: &ro/ides will onl% be
additional information that !an be used. Ban(s will also be loo(ing towards the C1:s
to sha&e u& their !a&ital requirements under Basel III as the% ha/e to raise tier II
bonds for shoring it u&. But that will be more as a mar(et borrower rather than a
lender.
:lthough the road has been set for Indian ban(s to migrate to an internal rating based
a&&roa!h for e/aluating their !redit ris(# the abilit% and &re&aredness of these ban(s to
migrate to the internal rating a&&roa!h is e"&e!ted to be !ontingent on ban(s being in
a &osition to test data based on the models to be used for this &ur&ose. Ban(s would
thus ne!essaril% ha/e to rel% on e"ternal !redit ratings for their !al!ulation of !redit
ris( until all the s%stems are in &la!e.
A..5?21%;'*'1: 56 CRA(
2ow let us loo( at the issue of a!!ountabilit% and trans&aren!% of !redit rating
agen!ies. <h% should there be a!!ountabilit% and trans&aren!% of !redit rating
agen!iesH This brings us to the moot &oint of who &a%s for the !redit ratings. There are
two !on/entional models. These areB Rin/estor&a%3 model# where the in/estor or
ban(er !ommissions the !redit rating and Rissuer&a%3 model# where the issuer of the
se!urit% or borrower &a%s for the rating. 9f late# a new model is being &ro&osedB
Rso!iet%&a%3 model# where a neutral third &art%# i.e.# Go/ernment# 1egulator et!.# &a%s
for the rating of a debt.
Ea!h model has its own ad/antages and disad/antages. ;et us anal%ses the Rissuer
&a%3 model further as that is the most &re/alent model !urrentl% in our !ountr%. :s said
earlier# in the issuer &a% model# the issuer of the debt or the borrower !ommissions the
!redit rating either /oluntaril% or to !om&l% with regulator% requirement. In India# as
far as &ubli! issue of debt is !on!erned# regulations b% the Se!urities and E"!hange
Board of India and 1eser/e Ban( of India ma(e it mandator% for the issuers to obtain
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36
a !redit rating. :s far as the ban( loans are !on!erned there is no su!h mandator%
requirement# e/en though the !a&ital requirements of ban(s with regard to !or&orate
loans are de&endent on !redit ratings. Ban(s ma% at their dis!retion require borrowers
to obtain !redit ratings.
The ad/antages of issuer&a% model is that# ratings on!e assigned and a!!e&ted# are
dis!losed &ubli!l% and is a/ailable for users at free of !harge. Small in/estors and
indi/iduals who wish to in/est in debt se!urities need not &a% for a!!essing the !redit
ratings. :nother ad/antage of this model !ould be that issuers ma% be more
forth!oming in sharing information as the% are the ones who ha/e !ommissioned the
rating. $owe/er# there is an inherent !onfli!t of interest in this model. Sin!e the
in!ome and &rofits of !redit rating agen!ies are de&endent u&on the /olume of ratings
the% assign# there ma% be a tenden!% to assign inflated ratings to a!quire and retain
!lients.
The Einan!ial Crisis Inquir% Commission 7)*++# Page )+)8# whi!h went into the
!auses of the finan!ial and e!onomi! !risis in the United States# has !on!luded that
RS.the business model under whi!h firms issuing se!urities &aid for their ratings
seriousl% undermined the qualit% and integrit% of those ratingsJ the rating agen!ies
&la!ed mar(et share and &rofit !onsiderations abo/e the qualit% and integrit% of their
ratings3. Su!h !on!lusions on the !ontribution of !redit rating agen!ies to the re!ent
finan!ial !risis ha/e led to !alls for tougher regulator% o/ersight on !redit rating
agen!ies.
To !on!lude# we !an see that among the &roa!ti/e ste&s that a ban( !an ta(e to stem
the &roblem of in!reasing le/el of 2P:s and stressed assets# use of !redit ratings is an
im&ortant one. Ban(s !an use the e"ternal ratings as third &art%# &rofessional
assessment# either as a standalone basis or in !ombination with their own internal
ratings. $owe/er# ban(s need to balan!e the use of e"ternal ratings# as the re!ent
finan!ial !risis has highlighted the dangers of o/er de&enden!e on ratings.
NPA ! I>=%.1 52 B%*%2./ S9//1

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The &roblem of 2P:s in the Indian ban(ing s%stem is one of the foremost and the
most formidable &roblems that had im&a!t the entire ban(ing s%stem. $igher 2P:
ratio trembles the !onfiden!e of in/estors# de&ositors# lenders et!. It also !auses &oor
re!%!ling of funds# whi!h in turn will ha/e deleterious effe!t on the de&lo%ment of
!redit. The nonre!o/er% of loans effe!ts not onl% further a/ailabilit% of !redit but also
finan!ial soundness of the ban(s.

P356'1%;'*'1:B 2P:s &ut detrimental im&a!t on the &rofitabilit% as ban(s sto& to earn
in!ome on one hand and attra!t higher &ro/isioning !om&ared to standard assets on
the other hand. 9n an a/erage# ban(s are &ro/iding around )-I to ,*I additional
&ro/ision on in!remental 2P:s whi!h has dire!t bearing on the &rofitabilit% of the
ban(s.

A((/1 (C3/7'1) .5213%.1'52B The in!reased 2P:s &ut &ressure on re!%!ling of funds
and redu!es the abilit% of ban(s for lending more and thus results in lesser interest
in!ome. It !ontra!ts the mone% sto!( whi!h ma% lead to e!onomi! slowdown.

L'%;'*'1: M%2%@/>/210 In the light of high 2P:s# Ban(s tend to lower the interest
rates on de&osits on one hand and li(el% to le/% higher interest rates on ad/an!es to
sustain 2IM. This ma% be!ome hurdle in smooth finan!ial intermediation &ro!ess and
ham&ers ban(s3 business as well as e!onomi! growth.
C%='1%* A7/G?%.:B :s &er Basel norms# ban(s are required to maintain adequate
!a&ital on ris(weighted assets on an ongoing basis. E/er% in!rease in 2P: le/el adds
to ris( weighted assets whi!h warrant the ban(s to shore u& their !a&ital base further.
Ca&ital has a &ri!e tag ranging from +)I to +5I sin!e it is a s!ar!e resour!e.

S9%3/95*7/3(, .526'7/2./B 2ormall%# shareholders are interested to enhan!e /alue of
their in/estments through higher di/idends and mar(et !a&itali=ation whi!h is &ossible
onl% when the ban( &osts signifi!ant &rofits through im&ro/ed business. The in!reased
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2P: le/el is li(el% to ha/e ad/erse im&a!t on the ban( business as well as &rofitabilit%
thereb% the shareholders do not re!ei/e a mar(et return on their !a&ital and sometimes
it ma% erode their /alue of in/estments. :s &er e"tant guidelines# ban(s whose 2et
2P: le/el is -I > abo/e are required to ta(e &rior &ermission from 1BI to de!lare
di/idend and also sti&ulate !a& on di/idend &a%out.

P?;*'. .526'7/2./B Credibilit% of ban(ing s%stem is also affe!ted greatl% due to
higher le/el 2P:s be!ause it sha(es the !onfiden!e of general &ubli! in the soundness
of the ban(ing s%stem. The in!reased 2P:s ma% &ose liquidit% issues whi!h is li(el%
to lead run on ban( b% de&ositors. Thus# the in!reased in!iden!e of 2P:s not onl%
affe!ts the &erforman!e of the ban(s but also affe!t the e!onom% as a whole.

In a nutshell# the high in!iden!e of 2P: has !as!ading im&a!t on all im&ortant
finan!ial ratios of the ban(s /i=.# 2et Interest Margin# 1eturn on :ssets# Profitabilit%#
Di/idend Pa%out# Pro/ision !o/erage ratio# Credit !ontra!tion et!.# whi!h ma% li(el%
to erode the /alue of all sta(eholders in!luding Shareholders# De&ositors# Borrowers#
Em&lo%ees and &ubli! at large.
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REVIEW OF LITERATURE :-
This se!tion &ro/ides an o/er/iew of some of the e"isting literature with regard to the
2P:. This literature re/iew hel&s me to better understanding of both resear!h to&i!s
and of the e"isting ga&B

10!K9/7/4%3 P55A% S< (212) : strong Ban(ing Se!tor is essential for a flourishing
e!onom%. Indian ban(ing se!tor emerged stronger during )*+*++ in the aftermath of
global finan!ial meltdown of )**5+* under the wat!hful e%e of its regulator. The
le/el of 2P:Os a!t as an indi!ator showing the !redit ris(s > effi!ien!% of allo!ation of
resour!e. 2P: in/ol/es the ne!essit% of &ro/isions# an% in!rease in whi!h bring down
the o/erall &rofitabilit% of ban(s. :n e"!essi/e rise in interest rates o/er the &ast +5
months has led to a shar& in!rease in non&erforming assets. This not onl% affe!ts the
ban(s but also the e!onom% as a whole. This &a&er deals with understanding the
!on!e&t of 2P:# the !auses and o/er/iew of different se!tors in India.

20!S/*&%3%A%2 B< %27 V%7'&%*%@%2$ G<(212) 9/er the few %ears Indian ban(ing#
attem&ts to integrate with the global ban(ing has been fa!ing lots of hurdles in its wa%
due to !ertain inherent wea(ness# des&ite its high sounding !laims and loft%
a!hie/ements. In a de/elo&ing !ountr%# ban(ing is seen as an im&ortant instrument of
de/elo&ment# while with the demanding 2onPerforming :ssets 72P:s8# ban(s ha/e
be!ome burden on the e!onom%. 2onPerforming :ssets are not merel% non
remunerati/e# but the% add !ost to the !redit Management. The fear of 2on
Performing :ssets &ermeates the &s%!holog% of ban( managers in entertaining new
&ro'e!ts for !redit e"&ansion. 2onPerforming :ssets is not a dilemma fa!ing
e"!lusi/el% the ban(ersJ it is in fa!t an all &er/asi/e national s!ourge swa%ing the
entire Indian e!onom%. 2onPerforming :sset is a sore throat of the Indian e!onom%
as a whole. 2onPerforming :ssets ha/e affe!ted the &rofitabilit%# liquidit% and
!om&etiti/e fun!tioning of ban(s and de/elo&mental of finan!ial institutions and
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finall% the &s%!holog% of the ban(ers in res&e!t of their dis&osition towards !redit
deli/er% and !redit e"&ansion. 2P:s do not generate an% in!ome for the ban(s# but at
the same time ban(s are required to ma(e &ro/isions for su!h 2P:s from their !urrent
&rofits. :&art from internal and e"ternal !om&le"ities# in!reases in 2P:s dire!tl%
affe!ts ban(sO &rofitabilit% sometimes e/en their e"isten!e.

30!M//4/3 L%33: G< %27 G3%: L%?3% (1HIJ) in +F5,# the &ubli! was gi/en its first
o&&ortunit% to 3/&'/) ban( asset qualit% in the form of non!&erforming asset
information. The &ur&ose of this stud% is to e/aluate that information. : regression
anal%sis !om&aring the non!&erforming asset statisti!s with e"aminer !lassifi!ations of
%((/1( suggests that the non!&erforming asset information !an be a useful aid in
anal%=ing the asset qualit% of ban(s# &arti!ularl% when the information is timel%.

40!P%?*P?32/27? $ B5(/$S)%=%2 %27 D9%**%$ R'B)%2 S<7211) In this &a&er we
attem&t to measure the relati/e effi!ien!% of Indian PSU ban(s on o/erall finan!ial
&erforman!es. Sin!e# the finan!ial industr% in a de/elo&ing !ountr% li(e India is
undergoing through a /er% d%nami! &a!e of restru!turing# it is im&erati/e for a ban( to
!ontinuousl% monitor their effi!ien!% on N52!P/3653>'2@ A((/1($ Ca&ital 1is(
<eighted :sset 1atio# Business &er Em&lo%ee# 1eturn on A((/1( and Profit &er
Em&lo%ee. $ere# N52!P/3653>'2@ A((/1( is a negati/e finan!ial indi!ator. To &ro/e
em&iri!all%# we &ro&ose a framewor( to measure effi!ien!% of Indian &ubli! se!tor
ban(s.
50!V//3%4?>%3$ K<(212) The Indian ban(ing se!tor has been fa!ing serious
&roblems of raising 2on!Performing :ssets 72P:s8. ;i(e a !an(er worm# 2P:s ha/e
been eating the ban(ing industries from within# sin!e nationali=ation of ban(s in +F@F.
2P:s ha/e !ho(ed off quantum of !redit# restri!tion the re!%!ling of funds and leads
to assetliabilit% mismat!hes. It also affe!ted &rofitabilit%# liquidit% and sol/en!%
&osition of the Indian ban(ing se!tor. 9ne of the ma'or reasons for 2P:s in the
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ban(ing se!tor is the ODire!t ;ending S%stemO b% the 1BI under so!ial ban(ing motto
of the Go/ernment# under whi!h s!heduled !ommer!ial ban(s are required to lend
4*I of their total !redit to &riorit% se!tor. The ban(s who ha/e ad/an!ed to the
&riorit% se!tor and rea!hed the target suffo!ated on a!!ount of raising 2P:s# sin!e
long. The &riorit% se!tor 2P:s ha/e registered higher growth both in &er!entage and
in absolute terms %ear after %ear. The &resent &a&er is an attem&t to stud% the &riorit%
se!tor ad/an!es b% the &ubli!# &ri/ate and foreign ban( grou&wise# target a!hie/ed b%
them and a !om&arati/e stud% on &riorit% and non!&riorit% se!tor 2P:s o/er the
&eriod of +* %ears between )**+*) and )*+*++. This &a&er also aims to find out the
!ategories of &riorit% se!tor ad/an!es whi!h !ontribute to the growth of total &riorit%
se!tor 2P:s during the &eriod under stud%.

K0!M?319:$ K< V< B9%2? G?=1%$ L5&*//2<(212) 9ne of the ma'or reasons !ited for
this state of health of ban(ing industr% has been the &ersisten!e of O2on!&erforming
:ssetsO 72P:s8. In this stud% the fo!us is on the im&a!t of liberali=ation on the non!
&erforming assets of the four ban(ing segments# namel%# &ubli! se!tor# old &ri/ate
se!tor# new &ri/ate se!tor and foreign ban(s b% stud%ing the o/erall trends in 2P:s.
<e ha/e used the Stru!ture Condu!t Performan!e 7SCP8 a&&roa!h that shows the
relationshi& between !om&etition and !ondu!t# !on!entration and growth in 2P:S.
9ur results show that on an a/erage a!ross the ban(ing industr% segments# a/erage
non!&erforming assets in the &ast ++ %ears ha/e been de!lining at the rate of +,I &.a.
!om&ounded growth rate. The old &ri/ate se!tor ban(sO non&erforming assets ha/e
redu!ed at the rate of ++.F5I and that of &ubli! se!tor ban(s ha/e de!lined at the rate
of +5I and foreign ban(s at ++.4I. Though new &ri/ate se!tor ban(s and the foreign
ban(s seem to be more effi!ient but their !ondu!t does not show !onsisten!% and
stabilit%
J0!J5(/=9$ M%;&?3/ T/27%' E7(52$ G)%2@)%&%(212) The &ur&ose of the stud%
was to find out the !auses of non!&erforming loans in Qimbabwe. ;oans form a greater
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&ortion of the total %((/1( in ban(s. These %((/1( generate huge interest in!ome for
ban(s whi!h to a large e"tent determines the finan!ial &erforman!e of ban(s.
$owe/er# some of these loans usuall% fall into non!&erforming status and ad/ersel%
affe!t the &erforman!e of ban(s. In /iew of the !riti!al role ban(s &la% in an e!onom%#
it is essential to identif% &roblems that affe!t the &erforman!e of these institutions.
This is be!ause non!&erforming loans !an affe!t the abilit% of ban(s to &la% their role
in the de/elo&ment of the e!onom%. : !ase stud% resear!h design of CBQ Ban(
;imited was em&lo%ed. Inter/iews and questionnaires were used to !olle!t data for the
stud%. The &a&er re/ealed that e"ternal fa!tors are more &re/alent in !ausing non
&erforming loans in CBQ Ban( ;imited. The ma'or fa!tors !ausing non&erforming
loans were natural disasters# go/ernment &oli!% and the integrit% of the borrower.
I0!T553 N<S< (1HH4) stated that re!o/er% of non&erforming assets through the
&ro!ess of !om&romise b% dire!t tal(s rather than b% the length% and !ostl% &ro!edure
of litigation. $e suggested that b% !onstant monitoring# it is &ossible to dete!t# the
sti!(% a!!ounts# the in!i&ient si!(ness of the earl% stages itself and an attem&t !ould be
made to re/iew the unit and &ut it ba!( on the road to re!o/er%

H0!S<N< B'7%2' (22) 2on&erforming :ssets are the smo(ing gun threatening the
/er% stabilit% of Indian ban(s. 2P:s wre!( a ban(3s &rofitabilit% both through a loss
of interest in!ome and writeoff of the &rin!i&al loan amount itself. This is definiti/e
boo( whi!h ta!(les the sub'e!t of managing ban( 2P:s in it3s entirel%# starling right
from the stage of their identifi!ation till the re!o/er% of dues in su!h a!!ounts.
10!D/;%3(9 %27 S?4%2:% G5:%* (212) em&hasi=ed on management of non
&erforming assets in the &ers&e!ti/e of the &ubli! se!tor ban(s in India under stri!t
asset !lassifi!ation norms# use of latest te!hnologi!al &latform based on Core Ban(ing
Solution# re!o/er% &ro!edures and other ban( s&e!ifi! indi!ators in the !onte"t of
stringent regulator% framewor( of the 1BI. 2on&erforming :sset is an im&ortant
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&arameter in the anal%sis of finan!ial &erforman!e of a ban( as it results in de!reasing
margin and higher &ro/isioning requirements for doubtful debts. The redu!tion of non
&erforming asset is ne!essar% to im&ro/e &rofitabilit% of ban(s and !om&l% with the
!a&ital adequa!% norms as &er the Basel :!!ord.,
110!K%&'19%< N (212)$ em&hasi=ed on the assessment of non&erforming assets on
&rofitabilit% its magnitude and im&a!t. Credit of total ad/an!es was in the form of
doubtful assets in the &ast and has an ad/erse im&a!t on &rofitabilit% of all Publi!
Se!tor Ban(s affe!ted at /er% large e"tent when non&erforming assets wor( with
other ban(ing and also affe!t &rodu!ti/it% and effi!ien!% of the ban(ing grou&s. The
stud% obser/ed that there is in!rease in ad/an!es o/er the &eriod of the stud%.
120! CII ( Confederation of Indian Industry ) 2014 :-For addressing te
!ress"re of Non-Perfor#ing $ssets %NP$& on te ealt of te 'ndian
ban(ing s)ste#* +'' as s"ggested 5-!oint a,tion !lan to te
-inistr) of Finan,e and te ./'. 't 0ill el! in dealing 0it te
deterioration in asset 1"alit) and red",ing te stress on te ban(2s
balan,e seets.
Te 5 !oint a,tion !lan fo,"ses "!on %1& .e3a#!ing te +or!orate
4ebt .estr",t"ring %+4.& #e,anis#* %2& +reating a s!e,ial
resol"tion #e,anis# for te infrastr",t"re se,tor* %3& 5etting "! of
a National $sset -anage#ent +o#!an)* %4& 6iberali7ing nor#s to
'n,rease ,a!itali7ation of $sset .e,onstr",tion +o#!anies* and %5&
'#!ro3ing te e8e,ti3eness of te insol3en,) regi#e and
i#!le#entation of legal fra#e0or(.
+,B2P: management in Publi! Se!tor ban(s7)*+48 By Pravin Palande/ Forbes India
Indian ban(s ha/e brought ;%7 *5%2( down to ).4I o/er +* %ears# but now the% need
to be !areful
The &ast three months ha/e been tough for Indian ban(ing. $igh '21/3/(1 3%1/( and
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44
threats of a global re!ession ha/e ta(en their toll on ban( sto!(s. The 2SE ban(ing
inde" fell +-I !om&ared with the N'61:,( ++I slide in the &ast three months. Indian
ban(s# ironi!all%# ha/e ne/er been in a better state of health in the &ast +* %ears.
: re!ent stud% b% B5(152 C52(?*1'2@ G35?= 7BCG8 found that bad loans fell from a
&ea( of ++.4I in )**+ to 'ust ).4I in )*+*# showing the effi!ien!% of management of
!a&ital. In fa!t# Indian ban(s ha/e been &erforming better in !ontrolling defaults with
onl% *.@I of loans handed out last %ear turning sti!(%# !om&ared to +I in the US and
China. Indian ban(s also ha/e a !osttoin!ome ratio of 4CI# whi!h is lower than
German%# Eran!e and the US.
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C"APTER !3
COMPANY PROFILE
C/213%* B%24 O6 I27'%
Established in +F++# Central Ban( of India was the first Indian !ommer!ial ban(
whi!h was wholl% owned and managed b% Indians. The establishment of the Ban( was
the ultimate reali=ation of the dream of Sir Sorab'i Po!h(hanawala# founder of the
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Ban(. Sir Phero=esha Mehta was the first Chairman of a trul% OSwadeshi Ban(O. In
fa!t# su!h was the e"tent of &ride felt b% Sir Sorab'i Po!h(hanawala that he
&ro!laimed Central Ban( of India as the O&ro&ert% of the nation and the !ountr%Os
assetO. $e also added that OCentral Ban( of India li/es on &eo&leOs faith and regards
itself as the &eo&leOs own ban(O.
During the &ast +*) %ears of histor% the Ban( has weathered man% storms and fa!ed
man% !hallenges. The Ban( !ould su!!essfull% transform e/er% threat into business
o&&ortunit% and e"!elled o/er its &eers in the Ban(ing industr%.
: number of inno/ati/e and unique ban(ing a!ti/ities ha/e been laun!hed b% Central
Ban( of India and a brief mention of some of its &ioneering ser/i!es are as underB
+F)+ Introdu!tion to the $ome Sa/ings Safe De&osit S!heme to build sa/ing0thrift
habits in all se!tions of the so!iet%.
+F)4 :n E"!lusi/e ;adies De&artment to !ater to the Ban(Os women !lientele.
+F)@ Safe De&osit ;o!(er fa!ilit% and 1u&ee Tra/ellers Cheques.
+F)F Setting u& of the E"e!utor and Trustee De&artment.
+F,) De&osit Insuran!e Benefit S!heme.
+F@) 1e!urring De&osit S!heme.
Subsequentl%# e/en after the nationali=ation of the Ban( in the %ear +F@F# Central
Ban( !ontinued to introdu!e a number of inno/ati/e ban(ing ser/i!es as underB
+FC@ The Mer!hant Ban(ing Cell was established.
+F5* Central !ard# the !redit !ard of the Ban( was introdu!ed.
+F5@ OPlatinum 6ubilee Mone% Ba!( De&osit S!hemeO was laun!hed.
+F5F The housing subsidiar% Cent Ban( $ome Einan!e ;td. was started with its
headquarters at Bho&al in Madh%a Pradesh.
+FF4 Lui!( Cheque Colle!tion Ser/i!e 7LCC8 > E"&ress Ser/i!e was set u& to
enable s&eed% !olle!tion of outstation !heques.
Eurther in line with the guidelines from 1eser/e Ban( of India as also the
Go/ernment of India# Central Ban( has been &la%ing an in!reasingl% a!ti/e role in
&romoting the (e% thrust areas of agri!ulture# small s!ale industries as also medium
Page
47
and large industries. The Ban( also introdu!ed a number of Self Em&lo%ment
S!hemes to &romote em&lo%ment among the edu!ated %outh.
:mong the Publi! Se!tor Ban(s# Central Ban( of India !an be trul% des!ribed as an
:ll India Ban(# due to distribution of its large networ( in )C out of )F States as also in
, out of C Union Territories in India. Central Ban( of India holds a /er% &rominent
&la!e among the Publi! Se!tor Ban(s on a!!ount of its networ( of 4,,@ Bran!hes#
:sset 1e!o/er% Bran!hes 7:1B8 F#1etail :sset Bran!hes 71:B8 +- and )@ e"tension
!ounters along with satelite bran!hes at /arious !entres throughout the length and
breadth of the !ountr%.
CustomersO !onfiden!e in Central Ban( of IndiaOs wide ranging ser/i!es !an /er% well
be 'udged from the list of ma'or !or&orate !lients su!h as ICICI# IDBI# UTI# ;IC#
$DEC as also almost all ma'or !or&orate houses in the !ountr%.
C53=53%1/ V'('52
To emerge as a strong# /ibrant and &roa!ti/e Ban(0Einan!ial Su&er Mar(et and to
&ositi/el% !ontribute to the emerging needs of the e!onom% through !onsistent
harmoni=ation of human# finan!ial and te!hnologi!al resour!es and effe!ti/e ris(
!ontrol s%stems.
C53=53%1/ M'(('52
To transform the !ustomer ban(ing e"&erien!e into a fruitful and en'o%able one.
To le/erage te!hnolog% for effi!ient and effe!ti/e deli/er% of all ban(ing ser/i!es.
To ha/e bouquet of &rodu!t and ser/i!es tailormade to meet !ustomers as&irations.
The &anIndia s&read of bran!hes a!ross all the state of the !ountr% will be utili=ed to
further the so!io e!onomi! ob'e!ti/e of the Go/ernment of India with em&hasis on
Einan!ial In!lusion.
T9/ 5;A/.1'&/( 56 19/ C/213%* B%24 56 I27'% %3/ %( 65**5)(0
To hel& ensure the monetar% stabilit% of the !ountr%.
To assist in regulating the finan!ial s%stem of the !ountr%#
To formulate# im&lement and monitor the monetar% &oli!%.
Page
48
To maintain the liquidit% in the !ountr%.
To ensure adequate flow of !redits.
Pres!ribes &arameters for ban(ing in the !ountr%.
Maintain &ubli! !onfiden!e in the s%stem.
To manage the foreign e"!hange Management :!t.
To fa!ilitate e"ternal trade.
Issue and e"!hange !urren!%.
Maintain su&&l% of !urren!%.
9wn and o&erate the de&ositor% and e"!hange for go/ernment bonds.
Ban(er to the go/ernment

DIRECTORS OF CENTRAL BANK OF INDIA
1- hri! "a#ee$ "ishi
(Chairman & Managing Director)
) S93' R%A K?>%3 G5:%* , S93' A2'>/(9 C9%?9%2
E"e!uti/e Dire!tor E"e!uti/e Dire!tor
4 S93' B<K< D'&%4%3% - S93' S%?3%;9 G%3@$
Go/ernment 2ominee Dire!tor E"e!uti/e Dire!tor
@ Shri She(har Bhatnagar C S93' G?>%2('2@9
Dire!tor 1BI 2ominee Dire!tor
Page
49
5 S93' G?>%2('2@9 F S93' M< P< S953%)%*%
Dire!tor Dire!tor

+* S93' K3'(9%2 S/19' 11! S93' S< B< R57/
Dire!tor 9ffi!er Em&lo%ee Dire!tor
+) S93' G?3;%D K?>%3 J5(9' 13 S>1< N<S< R%192%=3%;9%
<or(men Em&lo%ee Dire!tor D'3/.153

Performance Of central Bank Of India for 3years
Page
50
-ar,*2013 -ar, *2012 -ar,*2011
+a!ital 6iabilities
Total 5are +a!ital 2661.58 2353.12 2021.14
91"it) 5are +a!ital 1044.58 736.12 404.14
5are $!!li,ation -one) 0 0 2025.68
Pre 5are +a!ital 1617 1617 1617
.eser3es 12651.27 8201.45 4898.15
.e3ol"tion .eser3es 0 1896.96 1928.43
Net :ort 15312.85 12451.53 10873.4
4e!osits 226038.31 196173.33 179356.02
/orro0ings 18305.51 12919.6 12887.98
Total debts 244343.82 209092.93 192244.98
;ter 6iabilities 8472.87 8255.29 6639.93
Total 6iabilities 268129.54 2229799.75 209757.33
$559T5
+as < /alan,e 0it ./' 13560.17 13114.18 1408199
/alan,e 0it /an(s* -one) at ,all 532.04 1012.42 1200.81
$d3an,es 171935.84 147512.85 129725.41
'n3est#ents 72603.79 59243.24 54504.49
=ross /lo,( 2684.75 3770.8 3559.31
$,,"#"lated 4e!re,iation 0 1296.89 1133.93
Net /lo,( 2684.75 2473.91 2425.38
+a!ital :or( in Progress 0 0 0
;ter $ssets 6812.95 6443.11 7819.24
Total $ssets 268129.54 229799.74 209757.32
+ontingent 6iabilities 46881.78 50885.06 36569.78
/ills For +olle,tion 18732.82 14183.44 9755.78
/oo( 3al"e 131.11 121.42 131.2
5o"r,e > 4ion =lobal 5ol"tions 6i#ited
PERFORMANCE "IG"LIG"TS! FY 213!14
Page
51
: %ear of !onsolidation for the Ban(.
Growth moderated in tune with the Mar(et situation.
Shedding of Unremunerati/e BusinessB
$igh Cost Bul( De&osits
;ow Yield 0 $ighl% Pri!e Sensiti/e :d/an!es
Eo!us on :gri!ulture# SME > 1etail :d/an!es &aid off
1obust growth witnessed in all the abo/e , &referred Se!tors
Mo/ing towards rea!hing the regulator% target of 4*I under Priorit% Se!tor
:d/an!es.
2P:s !ontained at Se&tember0De!ember )*+, le/els.
Minimi=ation of Costs and Ma"imi=ation of 1e/enue started %ielding desired
results
Total Business of the Ban( in!reased to 1s. 4#),#,F* !rore from 1s. 4#*)#)C)
!rore in Mar!h )*+,# re!ording growth of -.)- I.
Total De&osits of the Ban( in!reased to 1s. )#4*#*@F !rore from 1s. )#)@#*,5
!rore in Mar!h )*+,#re!ording growth of @.)+ I.
Page
52
Total :d/an!es stood at 1s. +#5,#,)+ !rore against 1s. +#C@#),4 !rore in
Mar!h )*+,# re!ording growth of 4.*) I.
C:S: in!reased to 1s. 5*#*++ !rore from 1s. C,#-5+ !rore in Mar!h )*+,#
re!ording growth of 5.C4 I .
Share of C:S: in total de&osits stood at ,,.,,I as against ,).--I in Mar!h
)*+,.
Core De&osits in!reased to 1s. +#5C#+@4 !rore from 1s. +#C*#F-, !rore in
Mar!h )*+,# re!ording growth of F.45 I.
Total In!ome in!reased to 1s. )@#,-* !rore from 1s. ),#-)5 !rore in Mar!h
)*+, re!ording growth of ++.FF I .
Pro/ision Co/erage 1atio has im&ro/ed from 4C.C- I to -*.@5 I
.
C1:1 under B:SE;II is at ++.F@ I with Tier I at 5.+) I whereas C1:1
under B:SE; III is F.5C I with Tier I at C.,C I.
2IM im&ro/ed from ).@-I in EY )*+)+, to ).C,I in EY )*+,+4.
Page
53
CHAPTER- 4
DATA!ANALYSIS L
INTERPRETATION
1<1P?;*'. (/.153 B%24( 2I!2H
Table +.+
Bank/ears As on marc! 31"#$$%
&ross 'PAs &ross Ad(ances &)'PA * Rank
$llaabad /an( 107825 5944340 1.81 11
$ndra /an( 36814 4442760 0.83 2
/an( of /aroda 184293 14484487 1.27 5
/an( of 'ndia 247088 14473156 1.71 9
/an( of -aarastra 79841 3481728 2.29 17
+anara /an( 216797 13903691 1.56 8
Central Bank of India #31+,, -+.4$#. #)+. 1%
+or!oration /an( 55922 4892712 1.14 4
4ena /an( 62077 2918536 2.13 15
'4/' /an( 6i#ited 143569 10391507 1.38 6
'ndian /an( 45918 5183064 0.89 3
'ndian ;3erseas /an( 192341 7580954 2.54 18
Page
54
;riental /an( of
+o##er,e
105812 6906472 1.53 7
P"n?ab and 5ind /an( 16104 2969810 0.54 1
P"n?ab National /an( 276746 15609845 1.77 10
5)ndi,ate /an( 159454 8249504 1.93 12
@+; /an( 153951 6966905 2.21 16
@nion /an( of 'ndia 192335 9826485 1.96 14
@nited /an( of 'ndia 101956 3572745 2.85 20
Ai?a)a /an( 69882 3587463 1.95 13
A(era/e Total 134$1% ..$3$1$ 1).,
I21/3=3/1%1'520
In this table +.+ <hi!h is of EY )**5)**F in that Pun'ab > Sind Ban( 7Total
ad/an!es )F@F5+* la(hs in whi!h total gross 2P: is +@+*4 la(hs whi!h is *.-4I 8
1an(ing on +
st
in !om&arison to all other &ubli! ban( followed b% :ndhra ban( .where
Central ban( of India lies on +F
th
ran( with ).@CI 2P: on Gross ad/an!es 5@C4*)C
la(hs. This ga& is be!ause of more ad/an!es gi/en b% ban(s .
1.2 P3'&%1/ (/.153 B%24 2I!2H
Table +.)
$s on -ar, 31*2009
=ross NP$2s =ross $d3an,es =. NP$2s B .an(
$Cis /an( 6td. 89048 8212012 1.08 2
4e3elo!#ent +redit
/an(
30555 348005 8.78 9
D4F+ /an( 198392 10023935 1.98 5
'+'+' /an( 964931 22362109 4.32 8
'nd"sland /an( 25502 1584653 1.61 4
Eota( -aindra /an( 73071 1695921 4.31 7
Fes /an( 8493 1244686 0.68 1
'N= A)s)a /an( 20939 1675437 1.25 3
so"t 'ndian /an( 26056 1196516 2.18 6
A(era/e total 1,%++, ,3.14., #)%1
Page
55
I21/3=3/1%1'520
In this table +.) whi!h is of )**5)**F of &ri/ate se!tor ban(s .In whi!h is on +
st
ran(
with *.@5I. Performan!e of this ban(s are better than &ubli! ban(s be!ause their
Gross ad/an!es are less than &ubli! se!tor ban(s that3s wh% their Gross 2P:3s I are
going down Year b% %ear
1<3P?;*'. (/.153 B%24 2H!21
Table +.,
Bank/ears As on marc! 31"#$1$
&ross 'PAs &ross Ad(ances&)'PA * Rank
$llaabad /an( 122085 7150992 1.71 8
$ndra /an( 48787 5650537 0.86 3
/an( of /aroda 219606 13358879 1.64 7
/an( of 'ndia 448121 13519396 3.31 19
/an( of -aarastra 120979 4092615 2.96 17
+anara /an( 250453 16329097 1.53 5
Central Bank of India #4,.-% 1$+1$#+% #)3# 14
+or!oration /an( 65094 6362905 1.02 4
4ena /an( 64199 3572141 1.80 11
'4/' /an( 6i#ited 45859 5996330 0.76 2
'ndian /an( 344166 7302581 4.71 20
'ndian ;3erseas /an( 146875 8418394 1.74 10
Page
56
;riental /an( of
+o##er,e
20615 3273867 0.63 1
P"n?ab and 5ind /an( 321441 18830611 1.71 9
P"n?ab National /an( 200459 8255913 2.43 16
5)ndi,ate /an( 166502 7756826 2.15 12
@+; /an( 266387 11827270 2.25 13
@nion /an( of 'ndia 137230 4275590 3.21 18
@nited /an( of 'ndia 99445 4193453 2.37 15
Ai?a)a /an( 212939 13858359 1.54 6
A(era/e Total 1..3,# -.31-$1 #)$3
I21/3=3/1%1'520
In this table +., whi!h is of EY )**F)*+* in whi!h 9riental ban( of !ommer!e7Gross
:d/an!es ,)C,5@C la(hs in whi!h Gross 2P:3s is )*@+- la(hs whi!h is *.@,I of
Gross :d/an!es8on +
st
ran(. <here Indian ban( on )*
th
ran( whi!h &ro/ides Gross
ad/an!es 7302581 la(s in 0i, =ross NP$Gs is 344166 la(s 0i, is
4.71B of gross ad3an,es. +entral ban( of 'ndia ran(ed on 14
t
0it
gross NP$Gs 2.32B. 'n ,o#!arison of !re3io"s )ear data +entral
ban( of 'ndia did better .
1<4P3'&%1/ (/.153 B%24 2H!21
Table +.4
Page
57
As on 0arc! 31"#$1$
&ross 'PA1s&ross Ad(ances &)'PA1s *Rank
$Cis /an( 6td. 129542 9300534 1.39 5
4e3elo!#ent +redit
/an(
31918 367259 8.69 9
D4F+ /an( 180717 12528339 1.44 6
'+'+' /an( 926742 14210056 6.52 8
'nd"sland /an( 25547 2070423 1.23 3
Eota( -aindra /an( 76734 2117788 3.62 7
Fes /an( 6020 2224034 0.27 1
'N= A)s)a /an( 22415 1850951 1.21 2
so"t 'ndian /an( 21100 1597005 1.32 4
A(era/e total 1,.-,% ,14$.1$ #)-+
I21/3=3/1%1'520
In this table +.4 whi!h shows the 2P:3s of &ri/ate ban(s in whi!h Yes ban( on +
st

ran( among all &ri/ate ban(. Gross ad/an!es of %es ban( is )))4*,4 in whi!h Gross
2P:3s is @*)* la(hs #Gross 2P:3s *.)CI of Gross ad/an!es. DCB is on F
th
ran( in
&ri/ate ban(s with 5.@FI Gross 2P:3s.. Pri/ate se!tor ban(s &erforman!e are better
be!ause the% are gi/en more for agri!ulture.
Page
58
1<5P?;*'. (/.153 B%24 21!211
Table +.-
Bank/ears As on marc! 31"#$11
&ross 'PAs &ross
Ad(ances
&)'PAs * Rank
$llaabad /an( 164698 9158545 1.80 9
$ndra /an( 99564 7215445 1.38 4
/an( of /aroda 278623 17180148 1.62 6
/an( of 'ndia 435660 16514716 2.64 17
/an( of -aarastra 117370 4748742 2.47 14
+anara /an( 298178 20272402 1.47 5
Central Bank of India #3%4,3 1313%$$# 1)-# 1$
+or!oration /an( 79023 8721345 0.91 1
4ena /an( 84224 4516337 1.86 11
'4/' /an( 6i#ited 278473 15599550 1.79 7
'ndian /an( 72002 7258733 0.99 3
'ndian ;3erseas /an( 279342 10308747 2.71 19
;riental /an( of
+o##er,e
192054 9683891 1.98 12
P"n?ab and 5ind /an( 42428 4283262 0.99 2
P"n?ab National /an( 437939 24399878 1.79 8
5)ndi,ate /an( 258912 9753461 2.65 18
@+; /an( 309017 9324624 3.31 20
@nion /an( of 'ndia 362282 15302246 2.37 13
@nited /an( of 'ndia 135578 5393373 2.51 15
Ai?a)a /an( 125919 4922224 2.56 16
A(era/e Total #14,3. 1$--4-34 1)%-
Page
59
I21/3=3/1%1'520 I
n this table +.- of EY )*+*)*++ of &ubli! ban(s in whi!h !or&oration ban( is on +
st

ran( 7 Gross :d/an!es 5C)+,4- la(hs in whi!h Gross 2P:3s is CF*), la(hs whi!h is
*.F+I of Gross ad/an!es8.U!o ban( is on )*
th
ran( 7Gross ad/an!es F,)4@)4 la(hs in
whi!h Gross 2P:3s ,*F*+C la(hs whi!h is ,.,+I of Gross ad/an!es. Central ban( of
India is on +*
th
ran( with +.5)I Gross 2P:3s. +entral /an( of 'ndia did #",
better tan !re3io"s )ear.
1<KP3'&%1/ (/.153 B%24( 21!211
Table +.@
As on 0arc! 31"#$11
&ross
'PA1s
&ross
Ad(ances
&)'PA1s* Rank
$Cis /an( 6td. 158699 12411981 1.28 6
4e3elo!#ent +redit /an( 26357 449467 5.86 9
D4F+ /an( 166032 15670526 1.06 4
'+'+' /an( 981596 16918176 5.80 8
'nd"sland /an( 26589 2635869 1.01 3
Eota( -aindra /an( 60349 2971873 2.03 7
Fes /an( 8053 3443501 0.23 1
'N= A)s)a /an( 15156 2366192 0.64 2
Page
60
so"t 'ndian /an( 23034 2065879 1.11 5
A(era/e total 1+#-.4 +,4-1+3 #)11
I21/3=3/1%1'520
In this table +.@ of &ri/ate se!tor ban(s in whi!h Yes ban( is on +
st
ran( 7Gross
ad/an!es ,44,-*+ la(hs in whi!h Gross 2P:3s is 5*-, la(hs whi!h is *.),I of Gross
ad/an!es8 DCB is on F
th
ran( with -.5@I Gross 2P:3s. Main reason behind their
&erforman!e is !olle!ting their loan from the !ustomer.
1<J P?;*'. (/.153 B%24( 211!212
Table +.C
Bank/ears As on 0arc! 31"#$1#
&ross
'PAs
&ross Ad(ances &)'PAs *Rank
$llaabad /an( 205640 10752720 1.91 6
$ndra /an( 17980 846840 2.12 8
/an( of /aroda 388180 20545360 1.89 5
/an( of 'ndia 516970 17795020 2.91 13
/an( of -aarastra 129700 5697890 2.28 9
+anara /an( 389010 22249440 1.75 4
Central Bank of India .#.3,$ 1,$+4%%$ 4)-3 #$
+or!oration /an( 127420 10082530 1.26 1
4ena /an( 95650 5715920 1.67 3
'4/' /an( 6i#ited 455140 17720920 2.57 10
'ndian /an( 167150 8631040 1.94 7
Page
61
'ndian ;3erseas /an( 355370 12741890 2.79 12
;riental /an( of
+o##er,e
358090 11304980 3.17 17
P"n?ab and 5ind /an( 76340 4636860 1.65 2
P"n?ab National /an( 868990 27610770 3.15 15
5)ndi,ate /an( 305070 11095330 2.75 11
@+; /an( 401970 10783990 3.73 19
@nion /an( of 'ndia 542220 17184960 3.16 16
@nited /an( of 'ndia 217640 6387300 3.41 18
Ai?a)a /an( 171850 5867100 2.93 14
A(era/e Total 3#,--. 1#13,.%3 #)+%
I21/3=3/1%1'52B
In this table +.C whi!h is of EY )*++)*+) of &ubli! se!tors ban( in whi!h
Cor&oration Ban( is on +
st
ran( 7 Gross ad/an!es +**5)-,* la(hs in whi!h Gross 2P:
is +)C4)* la(hs whi!h is +.)@ I 9f Gross :d/an!es8. Central ban( of India is on )*
th

ran( with 4.5,I.In this %ear ban( gi/en more and more
1<IP3'&%1/ (/.153 ;%24( 211!212
Table +.5
As on 0arc! 31"#$1#
&ross
'PA1s
&ross ad(ances &)'PA12
*
Rank
$Cis /an( 6td. 172020 14590490 1.18 6
Page
62
4e3elo!#ent +redit /an( 24180 549670 4.40 8
D4F+ /an( 181490 19096890 0.95 3
'+'+' /an( 929260 19233380 4.83 9
'nd"sland /an( 34710 3531640 0.98 5
Eota( -aindra /an( 61420 3945190 1.56 7
Fes /an( 8390 3805500 0.22 1
'N= A)s)a /an( 14950 2883350 0.52 2
so"t 'ndian /an( 26720 2747320 0.97 4
A(era/e total 1+14+$ .-#$3-1 1).3
I21/3=3/1%1'52B
In this table +.5 whi!h is of EY )*++)*+) of &ri/ate se!tors ban( in whi!h Yes Ban(
is on +
st
ran( 7 Gross ad/an!es ,5*--** la(hs in whi!h Gross 2P: is 5,F* la(hs
whi!h is *.)) I 9f Gross :d/an!es8. ICICI Ban( is on F
th
ran( with 4.5,I 2P:<
The% mostl% fo!used on industries from where the% are easil% getting ba!( loan
amounts <
1<HP?;*'. (/.153 B%24( 212!213
Table +.F
Bank/ears As on 0arc! 31"#$13
&ross
'PAs
&ross Ad(ances &)'PAs *Rank
Page
63
$llaabad /an( 513700 13093630 3.92 15
$ndra /an( 371450 10013780 3.71 14
/an( of /aroda 798260 33281130 2.40 6
/an( of 'ndia 876530 29296790 2.99 10
/an( of -aarastra 113760 7639720 1.49 2
+anara /an( 626020 24393580 2.57 7
+entral /an( of 'ndia 845620 17623370 4.80 18
+or!oration /an( 204820 1193540 17.16 20
4ena /an( 145250 6645690 2.19 5
'4/' /an( 6i#ited 645000 20013470 3.22 12
'ndian /an( 356550 10715590 3.33 13
'ndian ;3erseas /an( 660800 16436650 4.02 16
;riental /an( of +o##er,e 418400 13018620 3.21 11
P"n?ab and 5ind /an( 153690 5184340 2.96 8
P"n?ab National /an( 1346580 31524400 4.27 17
5)ndi,ate /an( 297850 14942270 1.99 3
@+; /an( 713010 13156910 5.42 19
@nion /an( of 'ndia 631380 21191110 2.98 9
@nited /an( of 'ndia 2963.8 6970810 0.04 1
Ai?a)a /an( 153290 7051350 2.17 4
A(era/e Total 4%3.4+ 1,1+%33- 3).4
I21/3=3/1%1'52 0
In this table +.F whi!h is of EY )*+))*+, of &ubli! se!tors ban( in whi!h United
Ban( of India is on +
st
ran( 7 Gross ad/an!es @FC*5+* la(hs in whi!h Gross 2P: is
)F@,.5 la(hs whi!h is *.*4 I 9f Gross :d/an!es8.!or&oration ban( is on )*
th
ran(
Page
64
with +C.+@I Gross 2P:3s# Central ban( of India is on +5
th
ran( with 4.5*I. 2P:.
1<1P3'&%1/ (/.153 B%24(212!213
Table +.+*
Bank/year As on marc! 31"#$13
&ross
'PA1s
&ross Ad(ances &)'PA1s
*
Rank
$Cis /an( 6td. 237140 19890070 1.19 7
4e3elo!#ent +redit /an( 21500 675300 3.18 9
D4F+ /an( 204810 24130610 0.85 5
'+'+' /an( 960780 298416400 0.32 3
'nd"sland /an( 45780 4464160 1.03 6
Eota( -aindra /an( 75810 4891860 1.55 8
Fes /an( 9430 4708680 0.20 2
'N= A)s)a /an( 12140 3189160 0.38 4
so"t 'ndian /an( 4330 3201400 0.14 1
A(era/e total 1.4+3+ 4$3%+4$4 $)%-
I21/3=3/1%1'520
Page
65
'n tis table 1.10 0i, is of FF 2012-2013 of !ri3ate se,tors ban( in
0i, so"t 'ndian /an( is on 1
st
ran( % =ross ad3an,es 3201400
la(s in 0i, =ross NP$ is 4330 la(s 0i, is 0.14 B ;f =ross
$d3an,es&. 4e3elo!#ent +redit /an( is on 9
t
ran( 0it 3.18B NP$.
1<11P?;*'. (/.153 B%24( 213!214
Table +.++
Bank/ears As on marc! 31"#$14
&ross 'PA1s &ross
Ad(ances
&)'PA1s *Rank
$llaabad /an( 806800 14080279 5.73 18
$ndra /an( 585800 11073724 5.29 17
/an( of /aroda 1167198 39700600 2.94 4
/an( of 'ndia 1185118 37622800 3.15 5
/an( of -aarastra 285864 9036867 3.16 6
+anara /an( 757000 30401606 2.49 2
Central Bank of India 11,$$$ 1-33#1$ +)#. 1%
+or!oration /an( 423679 12388275 3.42 8
4ena /an( 261603 7855946 3.33 7
'4/' /an( 6i#ited 996016 20326857 4.9 14
'ndian /an( 456220 12435865 3.67 9
'ndian ;3erseas /an( 902000 18108100 4.98 15
;riental /an( of +o##er,e 561786 14079850 3.99 10
P"n?ab and 5ind /an( 255352 5790295 4.41 13
P"n?ab National /an( 1888000 35964600 5.25 16
5)ndi,ate /an( 461100 17599237 2.62 3
@+; /an( 662137 15327245 4.32 12
@nion /an( of 'ndia 956400 23441176 4.08 11
@nited /an( of 'ndia 711801 6798481 10.47 20
Ai?a)a /an( 198600 8240664 2.41 1
A(era/e Total +-1-.3. 1.1$,#-4 4)34
Page
66
I21/3=3/1%1'520
In this table +.++ whi!h is of EY )*+,)*+4 of &ubli! se!tors ban( in whi!h Di'a%a
Ban( is on +
st
ran( 7 Gross ad/an!es 5)4*@@4 la(hs in whi!h Gross 2P: is +F5@**
la(hs whi!h is ).4+ I 9f Gross :d/an!es8. United ban( of India is on )*
th
ran( with
+*.4CI of Gross :d/an!es Central ban( of India is on +F
th
ran( with @.)CI. 2P:.
1<12P3'&%1/ (/.153 B%24( 213!214
Table +.+)
PRI3ATE BA'452 As on
year31"#$14
&ross 'PA1s &ross
Ad(ances
&)'PA1s
*
Rank
$Cis ban( 6td. 283911 23271382 1.22 5
4e3elo!#ent +redit ban(
6td.
13845 819230 1.69 6
D4F+ /an( 6td. 298928 29892800 1 2
'+'+' /an( 6T4 1055400 40370800 2.61 9
'nd"slnd /an( 6T4 62100 5132231 1.21 4
Eota( -aindra /an( 6T4 105944 53020763 1.99 8
Fes /an( 6T4 17490 5641935 0.31 1
'N= A)s)a /an( 6T4 64421 3639605 1.77 7
so"t 'ndian /an( 6T4 43476 3622985 1.2 3
A(era/e total 216168 18379081 1.44
Page
67
I21/3=3/1%1'520
In this table +.+) whi!h is of EY )*+,)*+4 of &ri/ate se!tors ban( in whi!h Yes
Ban( ;TD is on +
st
ran( 7 Gross ad/an!es -@4+F,- la(hs in whi!h Gross 2P: is
+C4F* la(hs whi!h is *.,+ I 9f Gross :d/an!es8. ICICI Ban( ;TD is on F
th
ran( with
).@+I 2P:.
Page
68
2<1 A@3'.?*1?3/ L5%2 56 P?;*'. S/.153 B%24(
Table ).+
Rs)in crore
Bank/ loan A&RIC67T6RE 7OA'
0ar-13 0ar-14
$llaabad /an( 17688 20847
$ndra /an( 16451 20267
/an( of /aroda 27663 26310
/an( of 'ndia 27041 36071
/an( of -aarastra 7972 10276
+anara /an( 40786 48797
Central Bank of India #4+,- 3$3%$
+or!oration /an( 9644 13144
4ena /an( 6719 8016
'4/' /an( 6i#ited 14390 14379
'ndian /an( 17001 19047
'ndian ;3erseas /an( 23393 26254
;riental /an( of +o##er,e 13866 15097
P"n?ab and 5ind /an( 5228 5757
P"n?ab National /an( 38055 53053
5)ndi,ate /an( 20156 22071
@+; /an( 12625 16642
@nion /an( of 'ndia 20224 25621
@nited /an( of 'ndia 9571 9725
Ai?a)a /an( 7099 7563
$3erage total 18011 21466
Page
69
I21/3=3/1%1'520
In this table ).+ whi!h shows the &riorit% whi!h are gi/en b% ban(s as agri!ulture
loan from their total Gross ad/an!es. Eigures of two !onsequen!e %ear whi!h shows
the growth in their loans .In this Central ban( of India gi/en in )*+))*+, #)4@-5 !r.
and in )*+,)*+4#,*,F* !r. whi!h is ),.)4I of )*+))*+,.This table shows the
growth rate of loan %ear b% %ear .
#)# M/7'?> %27 (>%** (.%*/ '27?(13'/( L5%2 56 P?;*'. S/.153 B%24
T:B;E ).)
.s.in ,rore
/an(H6oan 02E 7OA'
0ar-13 0ar-14
$llaabad /an( 16570 19520
$ndra /an( 16863 13917
/an( of /aroda 46722 54396
/an( of 'ndia 28913 35504
+anara /an( 26612 36703
Central Bank of India 1.3$$ #14%1
+or!oration /an( 18555 23816
4ena /an( 9100 12110
'4/' /an( 6i#ited 6925 6467
'ndian /an( 11020 13322
Page
70
P"n?ab and 5ind /an( 10115 13708
5)ndi,ate /an( 15074 18697
@+; /an( 16421 26389
@nion /an( of 'ndia 34699 45418
Ai?a)a /an( 10594 12953
I21/3=3/1%1'52 0
Page
71
In this table ).) whi!h shows the &riorit% whi!h are gi/en b% ban(s as loan medium
and small industries their total Gross ad/an!es. Eigures of two !onsequen!e %ear
whi!h shows the growth in their loans .In this Central ban( of India gi/en in )*+)
)*+, #+C,** !r. and in )*+,)*+4#)+4F+!r. whi!h is )4.))I of )*+))*+,.This table
shows the growth rate of loan %ear b% %ear.
2<3 R/1%'* L5%2 56 P?;*'. S/.153 B%24(
Table ).,
.s. 'n
,rore
/an(H6oan RETAI72 7OA'
0ar-13 0ar-14
$llaabad /an( 14773 16976
$ndra /an( 14326 16515
/an( of /aroda 38046 42777
/an( of 'ndia 9119 10114
+anara /an( 23084 33529
Central Bank of India #13,# #.,11
+or!oration /an( 25148 29026
4ena /an( 7724 9706
'4/' /an( 6i#ited 2562 2929
'ndian /an( 15439 17068
P"n?ab and 5ind /an( 3632 3998
Page
72
5)ndi,ate /an( 19620 20926
@+; /an( 9434 16545
@nion /an( of 'ndia 19560 24922
Ai?a)a /an( 13447 15617
I21/3=3/1%1'52 0
In this table )., whi!h shows the &riorit% whi!h are gi/en b% ban(s as 1etails loan
from their total Gross ad/an!es. Eigures of two !onsequen!e %ear whi!h shows the
growth in their loans .In this Central ban( of India gi/en in )*+))*+, #)+,-, !r. and
in )*+,)*+4#)C-++ !r. whi!h is )5.5,I of )*+))*+,.This table shows the growth
rate of loan %ear b% %ear.
3<1 COMPOUND ANNUAL GROWT" RATE
Table ,.+
/an(HFear 2009 2010 2011 2012 2013 2014 T;T$6 -9$N 54 +$=.
12
+$=.
13
+$=.
14
5 Fear
+$=.
%2009-
2014&
$llaabad
/an(
1.81 1.71 1.8 1.91 3.92 5.73 16.88 2.81 1.66 2B 32B 47B 26B
$ndra
/an(
0.83 0.86 1.38 2.12 3.71 5.29 14.19 2.37 1.79 37B 63B 57B 45B
/an( of 1.27 1.64 1.62 1.81 2.4 2.94 11.68 1.95 0.61 13B 14B 22B 18B
Page
73
/aroda
/an( of
'ndia
1.71 3.31 2.64 2.91 2.99 3.15 16.71 2.79 0.57 19B -3B 6B 13B
/an( of
-aarastr
a
1.29 2.96 2.47 2.28 1.49 3.16 13.65 2.28 0.76 21B -20B 9B 20B
+anara
/an(
1.56 1.53 1.47 1.75 2.57 2.49 11.37 1.90 0.50 4B 19B 19B 10B
+entral
/an( of
'ndia
2.67 2.32 1.82 4.83 4.8 6.27 22.71 3.79 1.76 22B 27B 51B 19B
+or!oration
/an(
1.14 1.02 0.91 1.26 17.2 3.42 24.91 4.15 6.44 3B 156B 55B 25B
4ena /an( 2.13 1.8 1.86 1.67 2.19 3.33 12.98 2.16 0.61 -8B 7B 21B 9B
'4/' /an(
6i#ited
1.38 0.76 1.79 2.57 3.22 4.9 14.62 2.44 1.49 23B 62B 40B 29B
'ndian /an( 0.89 4.71 0.99 1.94 3.33 3.67 15.53 2.59 1.55 30B -11B 55B 33B
'ndian
;3erseas
/an(
2.54 1.74 2.71 2.79 4.02 4.98 18.78 3.13 1.17 3B 32B 22B 14B
;riental
/an( of
+o##er,e
1.53 0.63 1.98 3.17 3.21 3.99 14.51 2.42 1.25 27B 72B 26B 21B
P"n?ab and
5ind /an(
0.54 1.71 0.99 1.65 2.96 4.41 12.26 2.04 1.42 45B 20B 65B 52B
PN/ 1.77 2.43 1.79 3.15 4.27 5.25 18.66 3.11 1.41 21B 21B 43B 24B
5)ndi,ate 1.93 2.15 2.65 2.75 1.99 2.62 14.09 2.35 0.37 13B -3B 0B 6B
@+; /an( 2.21 2.25 3.31 3.73 5.42 4.32 21.24 3.54 1.24 19B 34B 9B 14B
@nion /an(
of 'ndia
1.96 3.21 2.37 3.16 2.98 4.08 17.76 2.96 0.74 17B -2B 20B 16B
@/' 2.85 2.37 2.51 3.41 0.04 10.5 21.65 3.61 3.55 6B -74B 61B 30B
Ai?a)a /an( 1.95 1.54 2.56 2.93 2.17 2.41 13.56 2.26 0.49 15B 12B -2B 4B
Page
74
INTERPRITATION0!
In the abo/e table ,.+in whi!h the &erforman!e of all !ommer!ial ban( of EY )**F)*+* to
)*+,)*+4 are gi/en .Erom that it is showing the C9MP9U2D :22U:; G19<T$ 1:TE
b% the hel& of mean and standard de/iation.in that Central ban( of India ha/ing +FI growth
in their 2P: during This %ears .
2P: of all ban(s shows that the loss of their assets b% 292PE1E91MI2G :SSETS has
been in!reased.
C:G1 !al!ulated for Three %ears as base using the formula 77ED0PD8U7+0,88+
Page
75
C"APTER 5
FINDING
SUGGESTION
RECOMMENDATIONS
CONCLUSION
Page
76
FINDING 0!
Eindings from the stud% !an be !lassified into two &arts. In first &art the findings were
made with referen!e to the data re!orded from :sset de&artment and in the se!ond &art
the general reasons for non &erforming of assets were highlighted.
+BIt is found that the ban( is effi!ient in a!hie/ing the budgeted target and mobili=ing
the funds from !ustomers.

)BIt is found that the amount of loan outstanding is graduall% in!reasing %ear after# it
shows that ban( is ineffi!ient in &ro&er a&&raisals and !ontrol s%stem.
,0! 2P:3s In!reasing %ear b% %ear of all !ommer!ial ban(s in India be!ause of their
in!rease in :d/an!es.
4B 2on&erforming asset is one whi!h does not generated in!ome for the ban(. In other
words# an ad/an!e a!!ount whi!h !eases to %ield in!ome is a non &erforming asset.
SUGGESTION AND RECOMMENDATIONS0!
+B Se!uriti=ation is another wa% whi!h transforms non &erforming assets to
&erforming. So the ban( shall go for se!uriti=ation of assets.
)BBan( em&lo%ees need to gi/e more attention on the a!ti/ities of the 2P:3s and slow
re!o/er% of o/erdue loans.
,BIf the !ustomer intentionall% tries to be!ome 2P: then ta(e serious or legal a!tion.
If the% do this the other 2P:3s a!!ount whi!h are slow in &a%ment will be re!o/ered
fast.
4BBan( should &ro&erl% e/aluate all loan a&&li!ations and anal%=e &ro'e!t feasibilit%.
Ban( staff should be &ro&erl% trained in this regard.
Page
77
-BTr% to deal soft% with 2P: !ustomer and moti/ate them to re&a% the loan.
CONCLUSION 0!
2P: is not 'ust a &roblem for ban(# but also bad for the e!onom% of the !ountr%. The
mone% whi!h is lo!(ed in 2P: is not a/ailable for &rodu!ti/e a!ti/ities. It ad/ersel%
affe!ts the &rofit of the ban( and result in higher rate of their diligent !redit !ustomer.
Ste& should be ta(en a&&ro&riatel% on the time to a/oid 2P:s. Lualitati/e a&&raisal#
Su&er/ision and follow u&s should be ta(en for the &resent ad/an!ed to a/oid the
further 2:Ps. It is essential to restru!ture the strategies for re!o/er% &ro!essJ this will
im&ro/e ban( general !a&abilities and meets the &rudential requirements.
Page
78
GLOSSARY0!
C52(?>/3 R/=531'2@ A@/2.:0
:n agen!% that regularl% !olle!ts or e/aluates indi/idual !onsumer !redit information
or other information about !onsumers and sells !onsumer re&orts for a fee to !reditors
or others. T%&i!al !lients in!lude ban(s# mortgage lenders# !redit !ard !om&anies# and
other finan!ing !om&anies.
D/;'10
: debit ma% be an a!!ount entr% re&resenting mone% %ou owe a lender or mone% that
has been ta(en from %our de&osit a!!ount.
D/;1 C5**/.1530
:n% &erson who regularl% !olle!ts debts owed to others.
P%:5660
The !om&lete re&a%ment of a loan# in!luding &rin!i&al# interest# and an% other
amounts due. Pa%off o!!urs either o/er the full term of the loan or through
&re&a%ments.
T'/3 I C%='1%*0
: term used to refer to one of the !om&onents of regulator% !a&ital. It !onsists mainl%
of share !a&ital and dis!losed reser/es 7minus goodwill# if an%8. Tier I items are
deemed to be of the highest qualit% be!ause the% are full% a/ailable to !o/er losses
$en!e it is also termed as !ore !a&ital.
T'/3 II C%='1%*0
1efers to one of the !om&onents of regulator% !a&ital. :lso (nown as su&&lementar%
!a&ital# it !onsists of !ertain reser/es and !ertain t%&es of subordinated debt. Tier II
Page
79
items qualif% as regulator% !a&ital to the e"tent that the% !an be used to absorb losses
arising from a ban(Os a!ti/ities. Tier IIOs !a&ital loss absor&tion !a&a!it% is lower than
that of Tier I !a&ital.
B:SE; Committee on Ban(ing Su&er/ision
The B:SE; Committee is a !ommittee of ban( su&er/isors !onsisting of members
from ea!h of the G+* !ountries. The Committee is a forum for dis!ussion on the
handling of s&e!ifi! su&er/isor% &roblems. It !oordinates the sharing of su&er/isor%
res&onsibilities among national authorities in res&e!t of ban(sO foreign establishments
with the aim of ensuring effe!ti/e su&er/ision of ban(sO a!ti/ities worldwide.
BASEL C%='1%* %..5370
The B:SE; Ca&ital :!!ord is an :greement !on!luded among !ountr%
re&resentati/es in +F55 to de/elo& standardi=ed ris(based !a&ital requirements for
ban(s a!ross !ountries. The :!!ord was re&la!ed with a new !a&ital adequa!%
framewor( 7B:SE; II8# &ublished in 6une )**4. B:SE; II is based on three mutuall%
reinfor!ing &illars hat allow ban(s and su&er/isors to e/aluate &ro&erl% the /arious
ris(s that ban(s fa!e. These three &illars areB
Minimum !a&ital requirements# whi!h see( to refine the &resent measurement
framewor(
su&er/isor% re/iew of an institutionOs !a&ital adequa!% and internal assessment
&ro!essJ
mar(et dis!i&line through effe!ti/e dis!losure to en!ourage safe and sound ban(ing
&ra!ti!es
N52 P/3653>'2@ A((/1( (NPA)0
:n asset# in!luding a leased asset# be!omes non &erforming when it !eases to generate
in!ome for the ban(.
N/1 NPA
Gross 2P: ? 7Balan!e in Interest Sus&ense a!!ount V DICGC0ECGC !laims re!ei/ed
and held &ending ad'ustment V Part &a%ment re!ei/ed and (e&t in sus&ense a!!ount V
Total &ro/isions held8.
Page
80
ANN%&'"% (
REPORTING FORMAT FOR NPA! GROSS AND NET
NAME OF T"E BANK
POSITION AS ON !!!!!!!!!
P$.T'+@6$.5
1& =ross $d3an,ed
2&=ross NP$I
3&=ross NP$ as B of =ross $d3an,es
4& Total ded",tion %aJbJ,Jd&
%a& /alan,e in interest s"s!ense aH,II
%b& 4'+=+H9+=+ ,lai#s re,ei3ed and eld !ending
ad?"st#ent
% , &!art !a)#ent re,ei3ed and (e!t in s"s!ense aH,
%d& Total !ro3ision eld III
5& Net ad3an,ed %1-4&
6& Net NP$ %2-4&
7& Net NP$ as a B of Net $d3an,es

IeC,l"ding te,ni,al 0rite-o8 of rs KKKKKK,rore.
II/an(s 0i, do not #aintain an interest
s"s!ense aH, to
!ar( te a,,"red interest on NP$s #a) f"rnis te
a#o"nt of interest re,ei3able on NP$s.
Page
81
ANN%&'"%:- )

Page
82
C"APTER ! K
BIBILIOGRAP"Y
BIBILOGRAP"Y
+. :nantharam I%er.T.2# 7+FFF8# MBan( su&er/ision and the management of 2on
Performing :d/an!esN# The 6ournal of the Indian Institute of Ban(ers# &.CF
). Mittal. D.M. 7)**58# KMone%# Ban(ing# International Trade and Publi! Einan!e
K7Ele/enth Edition8# $imala%a Publishing $ouse.
,. Meena(shi 1a'ee/ and $ P Mahesh 7)*+)8 ban(ing se!tor reforms and 2P:B a
stud% of Indian !ommer!ial ban(s# wor(ing &a&er )-)#institute for so!ial !hange
and e!onomi! !hange# Bangalore# ISB2 FC55+CCF++*54
4. 1a'araman# I.#S.Bhaumi(# and 2. Bhatia 7+FFF8# M 2P: Dariations :!ross Indian
Commer!ial Ban(sB Some Eindings# E!onomi! and Politi!al <ee(l%# Dol.,C# 2o.
, and 4# &&. +@),.
-. 1a'araman I > Dashishta G 7)**)8. M2on&erforming ;oans of Indian Publi!
Se!tor Ban(s Some Panel 1esultsN# E!onomi! and Politi!al <ee(l%.
Page
83
@. 1a'ni Salu'a and 1oshan ;al 7)*+*8# MCom&arati/e :nal%sis on 2onLPerforming
:ssets 72P:s8 of Publi! Se!tor# Pri/ate Se!tor and Eoreign Ban(s in IndiaN#
International 6ournal of 1esear!h in Commer!e > Management 7I61CM8# /ol +#
issue no. C 72o/ember8 ISS2 *FC@)+5,.
C. 1a'u D.2.M.# 7)**F8# ME/aluation of the Performan!e of State Ban( of India with
s&e!ial referen!e to 2onPerforming :ssets 72P:s8N# Einan!e India# Indian
Institute of Einan!e# Dol. GGIII# 2o.,# Pages F5-F5F.
5. 1amesh.A.D# Sudha(ar.:# M2P: Management in Publi! Se!tor Ban(sB : Stud%
of Canara Ban( and State Ban( of IndiaN# International 6ournal of 1esear!h in
Commer!e > Management# Dol. ,7++8# )*+)# && 444F# ISS2 *FC@)+5,
F. Sandee& :ggarwal# Parul Mittal 7)*+)8 M2on Performing :ssestB Com&arati/e
Position of Publi! and Pri/ate Se!tor Ban(s in IndiaN# International 6ournal of
Business and Management Tomorrow Dol. ) 2o.+#&& +C.
+*. Sharma# Meena# 7)**)8# MManaging 2onPerforming :ssets through :sset
1e!onstru!tion Com&aniesN# Ed.Boo(# E!onomi! 1eforms in India# from Eirst to
Se!ond Generation and be%ond# Dee& and Dee& Publi!ations# 2ew Delhi
++. Dibha 6ain 7)**C8# M2on Performing :ssets in Commer!ial ban(sN# 1egal
Publi!ations# 2ew Delhi
+). Di/e( Sri/asta/a+ Dee&a( Bansal 7)*+)8 M : Stud% of trends of 2onPerforming
:ssets in Pri/ate Ban(s in IndiaN S$ID S$:ATI International 6ournal in
Multidis!i&linar% and :!ademi! 1esear!h 7SSI6M:18 Dol. )# 2o. )# Mar!h:&ril
7ISS2 ))C5 ? -FC,8
+,. www.rbi.org.in
+4. Google
+-. :ll Ban( <ebsites
Page
84
+@. www.mone%!ontrol.!om

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85

Non-Performing Assets in Indian Banks

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Non-Performing Assets in Indian Banks

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PROJECT REPORT ON

A STUDY OF NON PERFORMING ASSETS IN INDIAN COMMERCIAL

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