Professional Documents
Culture Documents
Dissertation Report
On
A Study on Non - Performing Assets in Banking
Sector
Submitted in partial fulfillment for the award of
Degree of Master of Business Administration
Scholar
Supervisor
Dimple
Submitted to
Department of Business Administration
NIT Kurukshetra
Apr 2014
1
CERTIFICATE
Project Coordinator
Dr. Niti Goel
Head of Department
(Assistant Professor)
DBA
NIT K
NIT K
ACKNOWLEDGEMENT
Inspiration & Perseverance always played a key role in the success of any venture. At the
level of practice, it is often difficult to get knowledge without Guidance. Project is like a
bridge between theoretical & practical. With this willing I joined this project. I would like to
express my gratitude towards all those who gave a helping hand to me in preparing this
project.
I feel obliged in taking the opportunity to Dr. Niti Goel for giving me proper guidance.
Last but not the least I am thankful to the HOD, Dr. Rajender Kumar , teachers & friends for
their kind support & encouragement provided by them & for boosting up my morale during
this project report.
DIMPLE
DECLARATION
I here by declare that the dissertation Non - Performing Assets in Banking System
submitted for the MASTERS DEGREE OF BUSINESS ADMINISTRATION is my original
work and the dissertation has not formed the basis for the award of any degree, diploma,
associate ship, fellowship or similar others titles. It has not been submitted to any other
University or Institution for the award or degree or diploma.
Date
Name DIMPLE
Roll no 4122045
CONTENTS
Page
No.
CHAPTER-1
INTRODUCTION
Industry Profile
Profile of selected banks
Project
CHAPTER-2
LITRATURE REVIEW
CHAPTER-3
RESEARCH METHODOLOGY
Meaning of Research
Objectives of the Study
Sample Design
Data Collection
CHAPTER-4
CHAPTER-5
CHAPTER-6
RECOMMENDATIONS
BIBLIOGRAPHY
ANNEXURE
share
of
the
domestic
Indian
banking
market.
SBIs non- banking subsidiaries/joint ventures are market leaders in their respective areas and
provide wide ranging services, which include life insurance, merchant banking, mutual funds,
7
credit cards, factoring services, security trading and primary dealership, making the SBI
Group a truly large financial supermarket and Indias financial icon. SBI has arrangements
with over 1500 various international / local banks to exchange financial messages through
SWIFT in all business centres of the world to facilitate trade related banking business,
reinforced by dedicated and highly skilled teams of professionals.
2014 ranking.
SBI was ranked 298th in the Fortune Global 500 rankings of the world's biggest corporations
2013'.
State Bank of India won three IDRBT Banking Technology Excellence Awards 2013 for
Electronic Payment Systems, Best use of technology for Financial Inclusion, and
Customer Management & Business Intelligence in the large bank category.
SBI won National Award for its performance in the implementation of Prime Ministers
PNB has a banking subsidiary in the UK, as well as branches in Hong Kong, Dubai and
Kabul. It has representative offices in Almaty (Kazakhstan), Dubai, Shanghai (China), Oslo
(Norway) and Sydney (Australia).
Punjab National Bank was registered on 19 May 1894 under the Indian Companies Act, with
its office in Anarkali Bazaar, Lahore. The founding board was drawn from different parts of
India professing different faiths and a varied back-ground with, however, the common
objective of providing country with a truly national bank which would further the economic
interest of the country. PNB's founders included several leaders of the Swadeshi movement
such as Dyal Singh Majithia and Lala Harkishan Lal, Lala Lalchand, Shri Kali Prosanna Roy,
Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala
Lajpat Rai was actively associated with the management of the Bank in its early years. The
board first met on 23 May 1894. Ironically, the PNB Website now claims Lala Lajpat Rai to
be the founding father, surpassing Rai Mul Raj and Dyal Singh Majithia. The bank opened
for business on 12 April 1895 in Lahore.
PNB has the distinction of being the first Indian bank to have been started solely with Indian
capital that has survived to the present. (The first entirely Indian bank, Commercial Bank,
was established in 1881 in Faizabad, but failed in 1958.)
PNB has had the privilege of maintaining accounts of national leaders such as Mahatma
Gandhi, Jawahar Lal Nehru, Lal Bahadur Shastri, Indira Gandhi, as well as the account of the
famous Jalianwala Bagh Committee.[1]
Awards and Recognitions:
Owing to its performance during the year 2013, Bank earned many laurels and accolades in
recognition to its service towards doing good to society and on its overall performance.
Recently, PNB was awarded with Vigilance Excellence Award by Institute of Public
Enterprises, Global CSR Excellence and Leadership Award for Organisations with Best
CSR Practices and Bank with leading Financial Inclusion Initiatives Award by ABP News.
Apart from these, the Bank has been conferred with IBA Banking Technology Awards
under the category of Best Risk Management and Security Initiatives and Banking
Technology Excellence Award under Customer Management and Business Excellence
Initiatives by IDBRT, Hyderabad. Further the Bank has been recognized as Best Banker
under Agriculture Credit and Inclusion by The Sunday Standard.
In terms of accolades, PNB has been adjudged as the Most profitable Bank amongst Public
sector banks by Financial Express and Ernst & young survey on Indias Best Bank. Globally,
'The Banker' Magazine, London has ranked PNB at 170th position amongst World's Top 1000
Banks in 2013, up from 175th position in 2012. Forbes Magazine has placed PNB at 668th
place amongst 2000 global giants.
Business Performance:
During Q3 FY14, Punjab National Bank maintained it NUMBER ONE position in
Domestic Business, Domestic Deposits, Domestic Advances, Saving Deposits, CASA
Deposits, Total Income, Interest Income, Non Interest Income, and Operating Profit amongst
nationalized bank.
Global Reach (Branches and Subsidiaries):
Backed by strong domestic performance, the Bank has its global aspirations as well.
Presently, the Bank has its overseas presence in 10 countries by way of 5 branches (Hong
Kong, Dubai, Kabul & OBU-Mumbai), 3 Subsidiaries (London, Bhutan & Kazakhstan) , a
Joint Venture (at Nepal) and 5 Representative Offices (Sydney, Shanghai, Oslo, Dubai &
Almaty ).
3)HDFC BANK:HDFC Bank Limited was incorporated in August 1994. It was promoted by Housing
Development Finance Corporation Limited (HDFC), India's largest housing finance
company. It was among the first companies to receive an 'in principle' approval from the
Reserve Bank of India (RBI) to set up a bank in the private sector. The Bank started
operations as a scheduled commercial bank in January 1995 under the RBI's liberalization
policies.
On 26 February 2000, Times Bank Limited owned by The Times Group (Bennett, Coleman
& Co.) was merged with HDFC Bank Ltd. This was the first merger of two private banks in
10
India. Shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of
Times Bank.
On 23 May 2008, HDFC Bank acquired Centurion Bank of Punjab taking its total branches to
more than 1,000. The amalgamated bank emerged with a base of about Rs. 1,22,000 crore
and net advances of about Rs. 89,000 crore. The balance sheet size of the combined entity is
more than Rs. 1,63,000 crore.
Products
HDFC Bank offers the following four core products:
Personal banking
Under Personal Banking, HDFC offers:
Loans
Cards
Demat
Investments
Insurance
Forex
Premium Banking
Private Banking
NRI banking
Under NRI Banking, HDFC offers:
Money Transfer
Research Reports
Loans
Premium Banking
11
Payment Services
SME banking
Under SME Banking, HDFC offers:
Business Financing
Trade Services
Cards
Wholesale banking
HDFC offers Wholesale Banking for Corporates and Financial Institutions & Trusts. The
Bank also provides services such as Investment Banking and other services in the
Government sector.
4)ICICI BANK:ICICI Bank is an Indian multinational banking and financial services company
headquartered in Mumbai. It is the second largest bank in India by assets and by market
capitalzation, as of 2014. It offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through its
specialized subsidiaries in the areas of investment banking, life, non-life insurance, venture
capital and asset management. The Bank has a network of 3,539 branches and 11,162 ATMs
in India, and has a presence in 19 countries.
ICICI Bank is one of the Big Four banks of India, along with State Bank of India, Punjab
National Bank and Bank of Baroda. The bank has subsidiaries in the United Kingdom,
Russia, and Canada; branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka,
Qatar and Dubai International Finance Centre; and representative offices in United Arab
Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The
company's UK subsidiary has also established branches in Belgium and Germany.
12
In March 2013, Operation Red Spider showed high-ranking officials and some employees of
ICICI Bank involved in money laundering. After a government inquiry, ICICI Bank
suspended 18 employees and faced penalties from the Reserve Bank of India in relation to the
activity.
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was
reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering
in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of
Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by
ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at
the initiative of the World Bank, the Government of India and representatives of Indian
industry. The principal objective was to create a development financial institution for
providing
medium-term
and
long-term
project
financing
to
Indian
businesses.
In the 1990s, ICICI transformed its business from a development financial institution offering
only project finance to a diversified financial services group offering a wide variety of
products and services, both directly and through a number of subsidiaries and affiliates like
ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial
institution from non-Japan Asia to be listed on the NYSE.
ICICI Bank awards in 2014
ICICI Bank has been honoured as The Best Service Provider - Risk Management, India at
The Asset Triple A Transaction Banking, Treasury, Trade and Risk Management Awards
2014.
Mr Rakesh Jha has been ranked as the Best CFO in India at the 14th Annual Finance
Asia's Best Managed Companies Poll.
ICICI Bank has won The Corporate Treasurer Awards 2013 in the categories of 'Best
Cash Management Bank in India' & 'Best Trade Finance Bank in India'.
ICICI Bank has been awarded the 'Best Retail Bank in India', 'Best Microfinance
Business' and Best Retail Banking Branch Innovation' under the 'Excellence in Retail
Financial Services awards 2014' by The Asian Banker.
Ms Chanda Kochhar, MD & CEO, ICICI Bank, has been named among Fortune's 50 most
powerful women in business for the fourth consecutive year.
13
Ms. Chanda Kochhar, MD and CEO received the 'Mumbai Women Of The Decade'
award by ASSOCHAM.
Best Bank CNBC-TV18 Indias Best Bank and Financial Institution Awards 2012
14
'Consistent Performer' in 'Indias Best Banks 2012 survey' by Business Today and
KPMG
Fastest Growing Large Bank Dun & Bradstreet Polaris Financial Technology
Banking Awards 2012
Best Domestic Bond House The Asset Triple A Country Awards 2012
India Bond House of the year IFR ASIA Country Awards 2012
Deal Maker of the Year in Rupee Bonds Businessworld Magna Awards India's Best
Deal Makers 2012
The Best Emerging Bullion Dealing Bank 9th India International Gold Convention2011-12
Best Acquiring Institution in South Asia Visa LEADER Award at Visas 2012
APCEMEA Security Summit, Bali
Gold Shield for Excellence in Financial Reporting in the Private Banks category
201112 from Institute of Chartered Accountants of India
15
16
Under such a situation, it goes without saying that banks are no exception and are bound to
face the heat of a global downturn. One would be surprised to know that the banks and
financial institution in India hold non performing assets worth Rs. 110000 crores Bankers
have realized that unless the level of NPAs is reduced drastically, they will find it difficult to
survive.
GLOBAL DEVELOPMENTS AND NPAs
The core banking business is of mobilizing the deposits and utilizing it for lending to
industry. Lending business is generally encouraged because it has the effect of funds being
transferred from the system to productive purposes, which results into economic growth.
However lending also carries credit risk, which arises from the failure of borrower to fulfill
its contractual obligations either during the course of a transaction or on a future obligation.
A question that arises is how much risk can a bank afford to take? Recent happenings in the
business world -Enron, WorldCom, Xerox, Global Crossing do not give much confidence to
banks. In case after case, these giant corporate becan1e bankrupt and failed to provide
investors with clearer and more complete information thereby introducing a degree of risk
that many investors could neither anticipate nor welcome. The history of financial institutions
also reveals the fact that the biggest banking failures were due to credit risk. Due to this,
banks are restricting their lending operations to secured avenues only with adequate collateral
on which to fall back upon in a situation of default.
MEANING OF NPAs
An asset which ceases to generate income for the bank is called a Non-Performing Asset. An
asset is classified as non-performing asset (NPAs) if dues in the form of principal and interest
are not paid by the borrower for a period of 180 days. With a view to moving towards
international best practices and to ensure greater transparency, it has been decided to adopt
the '90 days overdue' norm for identification of NPAs, from the year ending March 31, 2005.
Accordingly, with effect form March 31, 2005, a non-performing asset (NPA) shell be a loan
or an advance where;
1. Interest and/or installment of principal remain overdue for a period of more than 90 days
in respect of a Term Loan,
17
2. The account remains 'out of order' for a period of more than 90 days, in respect of an
Overdraft/Cash Credit (ODICC),
3. The bill remains overdue for a period of more than 90 days in the case of bills purchased
and discounted,
4. For a period not exceeding two half years in the case of an advance granted for
agricultural purpose, and
5. Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.
ADVERSE EFFECTS OF NPAs
An NPA on the balance sheet of an institution deteriorates its health in several ways:
1. Problem of moral hazard: Interest income cannot be booked on the loan declared as
an NPA, and so profits get affected. In addition, provisioning against assets creates
further losses. Thus, financial institutions have a tendency to rollover non- performing
loans. The borrower is given more loans to pay interest on past loans and repay
whatever amount is possible.
2. Adverse Incentive: A bank with say 25% NPA, will have to earn on 75% of its assets
to meet its expenses and make a profit. It will have a tendency to go for more risky
ventures promising higher rates of return, since 750/(; of the loan portfolio will have
to pay for 100% of the liabilities and risky venture always have a greater probability
of becoming 'non- performing', thus completing the self- fulfilling cycle.
3. Huge Opportunity Cost: Assuming Rs. 1,00,000 crore locked up due to NPAs
started earning interest, say at 10%, it would immediately boost the interest yield of
the nationalized banks by anything between 1.6 and 1.8%. This increased yield could
then translate into reduced interest rates for the banks' clients.
18
19
Also, interest income should be recognized on a time proportion basis after taking into
consideration rate applicable and the total amount outstanding.
Usage of financial statements in assessing the risk of default for lenders
For banks and financial institutions, both the balance sheet and income statement have a key
role to play by providing valuable information on a borrower's viability. However, the
approach of scrutinizing financial statements is a backward looking approach. This is
because; the focus of accounting is on past performance and current positions.
The key accounting ratios generally used for the purpose of ascertaining the creditworthiness
of a business entity are that of debt-equity ratio and interest coverage ratio. Highly rated
companies generally have low leverage. This is because; high leverage is followed by high
fixed interest charges, non-payment of which results into a default
High cost of funds due to NPAs
Quite often genuine borrowers face the difficulties ill raising funds from banks due to
mounting NPAs. Either the bank is reluctant in providing the requisite funds to the genuine.
Borrowers or if the funds are provided, they come at a very high cost to compensate the
lender's losses caused due to high level of NPAs.
Therefore, quite often corporate prefer to raise funds through commercial papers (CPs) where
the interest rate on working capital charged by banks is higher.
With the enactment of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, banks can issue notices to the defaulters to pay
up the dues and the borrowers will have to clear their dues within 60 days. Once the borrower
receives a notice from the concerned bank and the financial institution, the secured assets
mentioned in the notice cannot be sold or transferred without the consent of the lenders.
The main purpose of this notice is to inform the borrower that either the sum due to the bank
or financial institution is paid by the borrower or else the former will take action by way of
taking over the possession of assets. Besides assets, banks can also takeover the management
of the company. Thus the bankers under the aforementioned Act will have the much-needed
authority to either sell the assets of the defaulting companies or change their management.
20
But the protection under the said Act only provides a partial solution. What banks should
ensure is that they should move with speed and charged with momentum in disposing off the
assets. This is because as uncertainty increases with the passage of time, there is all
possibility that the recoverable value of asset also reduces and it cannot fetch good price. If
faced with such a situation than the very purpose of getting protection under the
Securitisation Act, 2002 would be defeated and the hope of seeing a must ha\re growing
banking sector can easily vanish.
mentioned in the notice. However, there is a potential threat to recovery if there is substantial
erosion in the value of security given by the borrower or if borrower has committed fraud.
Under such a situation it will be prudent to directly classify the advance as a doubtful or loss
asset, as appropriate.
RBI GUIDELINES ON PROVISIONING REQUIREMENT OF BANK ADVANCES
As and when an asset is classified as an NPA, the bank has to further sub-classify it into substandard, loss and doubtful assets. Based on this classification, bank makes the necessary
provision against these assets.
Reserve Bank of India (RBI) has issued guidelines on provisioning requirements of bank
advances where the recovery is doubtful. Banks are also required to comply with such
guidelines in making adequate provision to the satisfaction of its auditors before declaring
any dividends on its shares.
In case of loss assets, guidelines specifically require that full provision for the amount
outstanding should be made by the concerned bank. This is justified on the grounds that such
an asset is considered uncollectible and cannot be classified as bankable asset.
Also in case of doubtful assets, guidelines requires the bank concerned to provide entirely the
unsecured portion and in case of secured portion an additional provision of 20%-50% of the
secured portion should be made depending upon the period for which the advance has been
considered as doubtful.
For instance, for NPAs which are up to 1-year old, provision should be made of 20% of
secured portion, in case of 1-3 year old NPAs up to 30% of the secured portion and finally in
case of more than 3 year old NP As up to 50% of secured portion should be made by the
concerned bank.
In case of a sub-standard asset, a general provision of 10% of total out standings should be
made.
Reserve Bank of India (RBI) has merely laid down the minimum provisioning requirement
that should be complied with by the concerned bank on a mandatory basis. However, where
there is a substantial uncertainty to recovery, higher provisioning should be made by the bank
concerned.
22
agency. Besides, there may be conflict of interest, which a credit rating agency may not be
able to resolve in the interest of investors and lenders.
Stock prices are an important (but not the sole) indicator of the credit risk involved. Stock
prices are much more forward looking in assessing the creditworthiness of a business
enterprise. Historical data proves that stock prices of companies such as Enron and
WorldCom had started showing a falling trend many months prior to it being downgraded by
credit rating agencies.
24
Doubtful/loss assets:
Under these categories, there would be both suit filed and non-suit filed accounts. In case of
non-suit filed accounts, the recovery is to be pursued more vigorously and after adjustment of
securities, exhausting all the remedies and persuasive methods, steps shall be taken to resort
to legal action expeditiously within the validity period of the documents.
Direct credit has a proportionately higher share in NPAs portfolio of corporations and has
been one of the factors in erosion in the quality of asset portfolio. There is a continuing need
of Financial Corporations to extend Credit to SS 1 sector, which is important segment of
national economy but on commercial considerations and on basis of credit worthiness.
Government feels reluctant to accept the recommendation for reducing the scope of directed
credit under priority sector because tiny sector of industry and small businesses have problem
with regard to obtaining credit and some remaining may be necessary for this sector. Poverty
alleviation and employment generation schemes. Given the special needs of these sectors, the
current practice may continue.
As an incentive to bank is to make specific provision, the consideration be given to making
such provisions tax deductible.
Banks should pay greater attention to asset liability management to avoid such mismatch and
to cover, among others, liquidity and interest rate risks.
There is a need for greater use of computerized system. Computerization has to be recognized
as an indispensable tool for improvement in customer service. The institution and operation
of better control systems, greater efficiency in information technology.
The main issue with regard to operations of banks is to ensure operational flexibility and
measure of competition and adequate internal autonomy in matters of loan sanctioning and
internal administration.
The committee believes that the balance sheets of banks and f7Is should be made more
transparent and full disclosure made in balance sheet. "This is to be done in phased manner.
26
Special case:
Equated monthly installments: In case of loans repayable in equated monthly installments
where a part of the interest is including in the installment, NPA status shall be determined on
the basis of non-payment of equated monthly installments and not with reference to the date
of debit of monthly interest.
Loans with moratorium for payment of interest: In the case of bank finance given for
industrial projects or for agricultural plantations etc. where moratorium is available for
payment of interest, payment of interest becomes due only after the moratorium or gestation
period is over. Therefore such amounts of interest becomes overdue and hence NPA, with
reference to date of debit of interest. They become overdue after due date for payment of
interest, if uncollected.
Staff housing loans: In case of housing loan or similar advances granted to staff members
where interest is payable after recovery of principal, interest need not be considered as
overdue from the first month onwards Such loans/advances should be classified as NP A only
when there is a default in repayment of installment of principal or payment of interest on the
respective due dates.
27
Advance payments: Where the borrower has made advance payment of installments fixed
towards the loan as on 31.03.2004 the loan account is regular, such loan account need not be
treated as NPA even if technically interest is due for more than 90 days.
CASH CREDIT/OVERDRAFT:
A cash credit/overdraft account shall be treated as NPA if it remains 'out of order' for 90
days.
An account shall be treated as out of order if the outstanding balance remains continuously in
excess of the sanctioned limit/drawing power, whichever is less but there are no credits
simultaneously for 90 days as on the date of balance sheet or credits are not enough to cover
the interest debited during the same period, these accounts should be treated as' out of' order.
Illustration:
If a cash credit/overdraft if within limit but there are no credits continuously during the
period from 02.01.2005 to 31.03.2005, the account becomes NPA on 31.03.2005(i.e. no
credits continuously for 90 days).
BILLS PURCHASED/DISCOUNTED:
A Bill purchased/discounted shall be treated as NPA if it remains overdue for a period of
more than 90 days. Hence a cheque /draft/bill purchased/discounted shall be treated as NPA
as on 31.03.2005 if it remains overdue for more than 90 days as on 31.03.2005.
AGRICULTURAL LOANS:
An agricultural advance shall be treated as NPA if interest and/or installment of principal
remains overdue for two harvest seasons but for a period not exceeding two half years.
Hence in respect of advances granted for agricultural purpose where interest and/or
installment of principal remains unpaid for two harvest seasons but for a period not exceeding
two half years after it has become due, such advance should be treated as NPA. In respect of
agricultural advances such as dairy, poultry, sericulture, animal husbandry, fishery etc,
income recognition, Asset classification and provisioning should be done on the same basis
as non-agricultural advances as per 90 days noun.
28
OTHER ACCOUNTS:
Any other credit facility shall be treated as NPA if any amount to be received remains
overdue for a period of more than 90 days.
Hence any other credit facility shall be classified as NPA as on 31.0 3.2005 if
interest/principal remains overdue for more than 90 days.
29
Further, in case of Government guaranteed accounts. When suit is filed against the borrower
as well as against the concerned Government, it should be classified as sub-standard, doubtful
or loss asset applying the norms as applicable to other advances.
SECURITASATION
30
Definition
"Securitisation is the process of pooling and re-packaging of homogeneous illiquid financial
assets into marketable securities that can be sold to investors".
"Every such process which converts a financial relation into a transaction'" In simple words: "Selling the cash flow generated from the assets (either existing or future) against the charge
of the assets, by converting them into homogeneous market negotiable instruments is known
as Securitisation".
31
3) Privately Owned and Privately managed: Here an independent private player may
purchase the NP As from the Banks and manage them professionally. However a private
player entering such high-risk business is less likely. Though the revenue model would
primarily be commission based, the profitability poses a question mark for the entry of
the private player. Thus a SPV owned by the government or the issuing bank and
professionally managed would be the ideal structure for the Indian condition.
illiquid
financial assets into marketable securities that can be sold to investors. It has emerged as
an important means of financing in recent times. A typical securitisation transaction
consists of following steps:
Creation of special purpose vehicle to hold the financial assets underlying the securities;
Sale of the financial assets by the originator or holder of the assets to special purpose
vehicle, which will hold the assets and realize the assets.
Issuance of securities by the SPV, to investors, against the financial assets held by it. This
process leads to the financial asset been taken of the balance sheet of the originator, thereby
relieving pressures of capital adequacy, and provides immediate liquidity to the originator.
32
SECURITISATION SURUCTURE
34
The regulators, whose principal concerns related to the capital adequacy, liquidity and the
balance sheet treatment of the transaction.
Specialist functionaries such as legal and tax councils, accounting firms, pool auditors
etc.
REASONS FOR HUGE LEVEL OF NPAs
1. Willful Default:
If the borrower doesn't pay though he has the capacity to pay. He is termed as willful
defaulter. The features of willful default are wrong use of funds and siphoning of funds.
2. Improper functioning of Debt Recovery Tribunals
Although the setting up of Debt Recovery Tribunals had raised much hope about speeding up
of the recovery proceedings initiated by banks these hopes have largely remained unfulfilled.
At quite a few places, the DRTs are still to be set up and, even where these have been set up,
they are not yet fully equipped to handle very large number of cases already before them or
those that can be placed before them. In some of the DRTs, the number of pending cases is
quite large. While the government has been reviewing the operations of DRTs, as yet a Stage
has not come when it can be said that these are helping recoveries of banks' dues
substantially. In fact it has failed to achieve the declared objective of disposal of' cases within
six months in speedy recovery of advances.
3.Project appraisal Deficiencies: It includes deficiencies regarding technical feasibility" economic viability and project
management deficiencies in regard to implementation, production, and labor marketing"
financial and administrative.
4. Ineffective Credit Monitoring: Ineffective credit monitoring al1d follow-up mechanism of' the banks have also
contributed to slippage of' standard loans into bad loans.
5. Diversion of Funds: -
35
37
LITERATURE REVIEW
A large number of researchers have been studied to the issue of NON PERFOMING ASSET
in banking industry .A review of the relevant literature has been described as under:
THE TREASURY
MANAGEMENT,
DECEMBER
2004,
vinay kumar,PG62-
38
Dong he (2002)
Indian banking system and define the important role of assets reconstruction companies in
resolving NON PERFOMING ASSETS.
Krishnamurthi, C.V.(2000)
serious diseases for the public sector banks .It shows that the gross NON PERFOMING
ASSET of
PERFOMING ASSET curses lie between a gross of Rs.39.253 crores in 1992 -93 to
Rs.45,463 crores in 1997-98.
Munniappan (2002)
factors .One is internal factor in respect of portfolio of funds for expansion, modernization
and diversification, accept new projects etc. Second is external factor in respect of recession
in economy, other countries suffered from non performing assets assessment, input/power
shortage, price up and downs uncertain natural calamities etc.
Banerjee,B. and Dan,A.K (2006)
the most crucial problem which is faced by bank to require attention for improvement in the
management of PSBs are increasing very speedily at present scenario due to following reason
. One is government has got to bail out banks with monetary fund provisions sporadically and
ultimately taxpayers bear the value. Second is cash borrowed for investment ,for not utilized
properly ,affects the creation of assets and therefore the growth of economy is vulnerable
.The author has urged many strategic measures to manage Non playing assets of Public sector
banks
39
RESEARCH METHODOLOGY
40
Sources of Data: 42
Secondary Data
Secondary Data are those, which have already been collected by someone else and which
have already been passed through the statistical process. This data is collected from the
following sources.
Reports of State Bank of India, AXIS bank, HDFC,PNB & ICICI bank.
Magazines
Journals
Newspapers
Internet websites
Sample design:
I have taken Non Performing assets of banking sector and analysis the data of selected banks
include SBI,AXIS,HDFC, PNB,ICICI of their last three years performance.
Tools used
In order to study the Non performance assets of banking sector,the secondary data
was analyzed through column chart and percentage bar chart.
43
44
(Rs. Cr.)
Table no.1
Banks
2010-2011
2011-2012
2012-2013
TOTAL
SBI
54504.49
59243.27
72603.79
186351.55
PNB
274746.58
301346.52
320218.45
866311.55
HDFC
1608314
1988375
2472451
6069140
ICICI
2560193
2921254
3299741
8781188
AXIS
142407.83
169759.54
196965.96
509133.33
3500000
3000000
2500000
SBI
2000000
PNB
1500000
HDFC
ICICI
1000000
AXIS
500000
0
2010-2011
2011-2012
2012-2013
(Rs. Cr.)
Banks
2010-2011
2011-2012
2012-2013
TOTAL
SBI
25326.29
39676.46
51189.39
116192.14
PNB
4379.39
8719.62
13469.79
26568.8
HDFC
1694.34
1999.39
2334.64
6028.37
ICICI
10034.26
9475.33
9607.75
29117.34
AXIS
159.94
1806.30
2393.42
4359.66
Source:
Compil
Table no.3
Banks
2010-2011
2011-2012
2012-2013
TOTAL
SBI
1.63
1.82
2.10
5.55%
PNB
0.85
1.52
2.35
4.72%
46
HDFC
0.20
0.20
0.30
0.70%
ICICI
0.75
0.76
0.94
2.45%
AXIS
0.26
0.25
0.32
0.83%
2.5
2
SBI
1.5
HDFC
AXIS
ICICI
0.5
PNB
0
2010-2011
2011-2012
2012-2013
Table no.4
Banks
2010-2011
2011-2012
2012-2013
TOTAL
SBI
1.63%
1.93%
2.10%
5.66%
47
PNB
0.85%
0.97%
1.09%
2.91%
HDFC
0.19%
0.23%
0.59%
1.01%
ICICI
1.11%
1.31%
1.45%
3.87%
AXIS
0.29%
0.35%
0.62%
1.26%
2.50%
2.00%
SBI
1.50%
HDFC
AXIS
1.00%
ICICI
0.50%
PNB
0.00%
2010-2011
2011-2012
2012-2013
Table no.5
Banks
2010-2011
2011-2012
48
2012-2013
Total
SBI
1647898.25
1929956.18
2133158.34
386283.81
470445.39
4,96,577.10
HDFC
2779629
3149550
4077230
10006409
ICICI
5337679
619522869
67448217
692308765
AXIS
242566.65
285416.51
340557.13
868540.29
PNB
571101.7
1356306.03
70000000
60000000
50000000
SBI
40000000
PNB
30000000
HDFC
ICICI
20000000
AXIS
10000000
0
2010-2011
2011-2012
2012-2013
49
(%)
Banks
2010-2011
2011-2012
2012-2013
TOTAL
SBI
3.28%
4.44%
4.75%
12.47%
PNB
1.79%
2.93%
3.37%
8.09%
HDFC
1.05%
1.02%
0.97%
3.04%
ICICI
4.47%
3.62%
3.22%
11.31%
AXIS
1.01%
0.94%
1.06%
3.01%
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
SBI
HDFC
AXIS
ICICI
PNB
2010-2011
2011-2012
2012-2013
50
Table no.7
BANKS
SBI
PNB
HDFC
ICICI
AXIS
TOTAL
186351.55
866311.55
6069140
8781188
509133.33
9000000
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
TOTAL
SBI
HDFC
AXIS
ICICI
PNB
51
Table no.10
BANKS
TOTAL
SBI
PNB
HDFC
ICICI
AXIS
571101.7
1356306.03
10006409
692308765
868540.29
70000000
60000000
50000000
40000000
TOTAL
30000000
20000000
10000000
0
SBI
HDFC
AXIS
ICICI
PNB
52
53
FINDINGS
From the above graph we have concluded that Total advances of all the selected banks is
incresing in the year 2012-13.Acording to our study as advances of all the selected banks
are kept on increasing but ICICI bank has higher Total advances in comparision to
other banks and SBI has less total advances in all the three years.
According my study we have concluded that gross NPAs of the banks we have taken into
consideration are increasing year by year but major part of my study is acquired by SBI
and this bank has higher gross NPAs in the last year i.e 2012-2013 and PNB hold the
second position in the same year & AXIS bank has the lowest gross NPAs in all the
years
As we earlier concluded that NPAs of all the selected banks are kept on increasing so
their percentage value is also increasing above graph shows that PNB have higher NPA
percentage in all the three respective years & HDFC and AXIS bank shows the lower but
fluctuating values in three years. This shows that major part my study is covered by
PNB.
As per my study we concluded that percentage of gross npas of all banks is increasing
year per year but SBI have highest percentage among all banks in all the year and AXIS
bank has lowerest in the percentage in all the three years.
This graph shows the comparison between the total advances and total assets of all banks
we have taken into consideration . In this table total asset of five selected banks is
compared with total advances of the same banks from the year 2010 to 2013 .In the year
2011-2012 total assets are shows very high value in comparison to total advances.
This graph shows the comparison between the Net NPA and Gros NPA of all banks we
have taken into consideration . In this table Gross NPA of five selected banks is
compared with Net NPA of the same banks from the year 2010 to 2013 .In the year
2012-2013 Net NPA are shows very high value in comparison toGross NPA.as Gross
NPA is kept on increasing in all the three years
54
In this graph we took the average advances of all the selected banks .from my study we
concluded that average advances of ICICI bank have higher in the value and SBI have
lower value among all the slected banks.HDFC is placed at the second and third one is
PNB. Second lowest advances are shown by AXIS bank.
In this graph we took the average assets of all the selected banks .from my study we
concluded that average assets of ICICI bank have higher in the value and SBI have lower
value among all the selected banks. HDFC is placed at the second and third one is PNB.
Second lowest advances are shown by AXIS bank.
55
CONCLUSION
A strong banking sector is important for a flourishing economy. The failure of the banking
sector may have an adverse impact on other sectors.
Over the years, much has been talked about NPAs and the emphasis so far has been only on
identification and quantification of NPAs rather than on ways to reduce and upgrade them.
Managers of rural and semi-urban branches generally sanction these loans. Hence, selection
of right borrowers, viable economic activity, adequate finance and timely disbursement,
correct end use of funds and timely recovery of loans is absolutely necessary pre conditions
for preventing or minimizing the incidence of new NPAs.
It is high time to take stringent measures to curb NPAs and see to it that the Non-Performing
Assets may not turn banks into Non-Performing Banks; instead steps should be taken to
covert Non-Performing Assets into Now-Performing Assets.
56
LIMITATIONS
The topic was contemporary and had limited data available. But an attempt to present the
best has been done.
Time has been the biggest constraints but all efforts have been made to get all the relevant
information required for a study.
The study period is fixed for three years only since 2010 to 2013.
57
58
RECOMMENDATION
There surely is a need to distinguish between willful and unwilling defaulters. In case of
the latter category of defaulters the law should not be as harsh as in case of willful
defaulters.
The act should be judiciously and selectively applied so that NPAs could be converted
into performing assets.
Compromise wherever possible and desirable should be resorted to as per banks extent
terms and conditions.
Creation of additional benches and enhancing the capacity of DRT (debt recovery
tribunal) can be rationalized and delays could be avoided.
Segregation of the benches should be done in order to ensure that a flood of small cases
do not retard the disposal of larger cases.
In order to reduce the balance of NPAs, Bank should constantly review and monitor the
accounts and the progress of the project for which the loan has been sanctioned.
59
60
BIBLIOGRAPHY
Journals and magazines
www.statebankofindia.com
www.reservebankofindia.org
www.indianbanksassociation.org
www.tribuneindia.com
www.moneycontrol.com
61
DATA ANALYSIS:-
Sn.
NATIONALINED
2010
2011
2012
2013
2010
2011
2012
2013
BANK
1
Allahabad Bank
1,21,907.29
1,51,600.39
1,83,310.89
2,04,818.51
0.66%
0.79%
0.98%
3.19%
Andhra Bank
90,383.24
1,09,332.48
1,25,683.16
1,47,559.32
0.17%
0.38%
0.91%
2.45%
Bank of Baroda
2,84,272.58
3,66,213.77
4,57,412.01
5,59,338.33
0.34%
0.35%
0.54%
Bank of India
14,50,143.97
16,47,898.25
18,29,956.18
2133,158.34
1.72%
1.63%
1.82%
2.10%
Bank of Maharashtra
7,10,640
7,64,548
9,11,558
1,169.807
1.6%
1.3%
0.8%
0.5%
Canaera Bank
2,66,524.67
3,39,165.74
3,79,083.31
4,19,324.27
1.06%
1.10%
1.46%
2.18%
1,82,671.62
2,09,757.33
2,29,799.74
2,68,129.55
0.54%
0.55%
3.09%
2.90%
Dena Bank
57,586.58
70,838.42
87,387.92
1,13,440.42
1.21%
1.22%
1.01%
1.39%
10
Indian Bank
84,053.83
1,01,389.31
1,21,718.31
1,41,419.20
0.23%
0.53%
1.33%
2.26%
11
1,31,091.63
1,78,784.28
2,19,637.13
2,44,656.03
1.15%
1.19%
1.35%
2.50%
12
Oriental
1,37,431.00
1,61,343.38
1,78,130.17
2,00,697.20
0.75%
0.98%
2.21%
2.27%
Bank
of
Commerce
13
56,664.88
68,550.14
72,905.27
8,477.90
0.50%
0.56%
0.19%
2.16%
14
3,03,569.42
3,86,283.81
4,70,445.39
4,96,577.10
0.53%
0.85%
1.52%
2.35%
15
Syndicate Bank
1,39,050.81
1,56,538.58
1,82,467.75
2,16,442.80
1.07%
0.97%
0.96%
0.76%
16
UCO Bank
1,37,319.50
1,63,398.45
1,80,498.40
1,98,651.40
1.17%
1.84%
1.96%
3.17%
17
1,95,161.84
2,35,984.45
2,62,211.44
3,11,860.81
1.15%
1.19%
1.70%
1.61%
18
77,004.99
90.040.53
1,020,10.39
1,41,615.11
1.32%
1.42%
1.72%
2.87%
19
Vijaya Bank
70,222.08
82,013.37
95,764.01
1,10,981.75
1.40%
1.52%
1.72%
1.30%
4,49,569,99.93
5283680.68
5994215.46
5918251.847
16.57%
18.37%
25.27%
35.96%
TOTAL
OF
19
NATIONALISED
BANKS [I]
62
State
Bank
of
India (SBI)
[III]
2011
2012
2013
2010
2011
2012
16,47,898.25
18,29,956.18
21,33,158.34
3.20%
3.28
4.44%
4.75%
14,50,143.97
2013
ASSOCIATES OF
SBI
State
Bank
of
54,189.68
62,954.50
72,528.15
86,016.82
0.80%
0.83%
1.92%
2.27%
of
1,053,413.74
1,223,736.21
1,335,519.24
1,556,261.03
1.52%
1.60%
1.61%
1.64%
Bank
of
45,408.93
52,302.46
60,403.58
67,232.76
0.98%
1.38%
1.93%
2.69%
Bank
of
7,60,76,96,71
8,128,624,60
9,852,707,26
1,085,506,268
1.04%
1.21%
1.35%
1.62%
Bank
of
59,454.70
70,976.75
85,949.33
1,01,579.33
0.95%
0.98%
1.54%
1.46%
1,212,467.05
1,409,969.92
1,554,400.30
1,087,215,77
5.29%
6.00
8.35%
9.68%
12.79%
14.43
State
Bank
Hyderabad
3
State
Mysore
State
Patiala
State
Travancore
TOTAL
OF
ASSOCIATES
8.61
(III )
TTOTAL
SSTATE
OF
2662611.00
3057868.10
3963114.50
BANK
110854735.9
8.49%
9.28
%
GGROUP.[II+III
TOTAL
OF
76,196,10.93
83,415,48.78
99,573,29.96
PUBLIC
SECTOR
BANKS[I+II+III
63
116772987.79
25.06
27.65
38.06%
50.39
%
GROSS NPAs(%)
Sn.
BANKS
2010
2011
2012
2013
2010
2011
2012
2013
2,36,102.18
2,53,557.60
2,90,696.68
3,22,666.20
1.32%
1.76%
2.49%
3.22%
4,893,473
5,337,679
6,192,869
6,748,217
4.00%
4.47%
3.62%
3.20%
2,229,475
2,779,629
3,410,550
4,077,230
1.01%
1.05%
1.02%
0.97%
35,369.52
46,635.84
57,596.07
73,306.52
0.95%
1.01%
0.98%
1.03%
37,436.32
50,850.67
65,666.79
83,693.69
1.98%
2.03%
1.56%
1.55%
7,195,754
8,214,795
9,726,682
10,982,447
9.26%
10.32%
9.67%
9.97%
NEW
PRIVATE
SECTOR
BANK
IDBI Bank
1
Ltd.
ICICI
Bank Ltd.
HDFC
Bank Ltd.
Indusind
Bank Ltd.
Kotak
Mahindra
Bank Ltd.
TOTAL
OF
banks OF
PRIVATE
BANKS
64