SUMMER TRAINING REPORT

NON PERFORMING ASSETS (NPA) IN NAINITAL BANK LTD.

Dissertation submitted to the Department of Management Studies

(KUMAUN UNIVERSITY CAMPUS BHIMTAL, NAINITAL)
in the partial fulfillment of the requirements for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

ACADEMIC SESSION (2016-18)

SUBMITTED BY:
HIMANSHU ARYA
ROLL NO. - 1664960003
ENROLLMENT NO. - 12110021
 DECLARATION

The Head of the Department,

Department of Management Studies,
Bhimtal

Respected Sir,

I HIMANSHU ARYA hereby declare that the Summer project report is an original work
developed and submitted by me under the guidance of Mr. CHANDRA MOHAN
SINGH RAWAT branch manager of Nainital Bank ltd. Tallital Nainital.

The empirical findings in this project report are not copied from any report and are
true and best of my knowledge.

Date: 00-00-0000
Place: NAINITAL
 PREFACE

Summer training is a very important part of an MBA curriculum. It provides an optimistic

approach for future existence through which students are able to see the real industrial
environment which gives an opportunity to relate theory with practice. The summer training
project has helped me to understand NPA and what are the impacts of NPA in the banking
industries.
Education imparts enlightenment but training polishes the personalities of an
individual. The Institute directed me to undertake summer training project in THE
NAINITAL BANK LTD. and prepare a report.

The whole project is divided in five segments:

o First segment consists of introduction, Objective of studies, Research Methodology,
scope of study.
o Second segment consists of industrial profile, Company profile.
o Third segment consists about NPA,
o Fourth segment consists about Data analysis and interpretation and finding.
o Fifth segment consists of Recommendation and suggestion.
 ACKNOWLEDGMENT

I would like to thank first of god to complete my project without any interventions. Next to THE
NAINITAL BANK LIMITED TALLITAL NAINITAL, for giving me this opportunity to do my
summer training project there. The employee and the staff had very supportive and have helped me in
every possible way to finish the project. I would like to special thanks Mr. CHANDRA MOHAN
SINGH RAWAT. Who is the branch manager of THE NAINITAL BANK LIMITED TALLITAL
NAINITAL, for guiding me and spending time with me on this project? Special thanks to MR.
VINAY CANDOLA (MANAGEMENT TRAINEE) OF THE NAINITAL BANK LTD. For giving his
valuable tips and suggestions whatever required. This project has helped me for in knowing about the
NPA and has taught me some very important information of NPA in banking industries.

Last but not the least, I express my sincere thanks to DR.L.K.SINGH Sir my mentor, who guided me
in the completion of the report. I would also like to thank my parents, brothers, daughter, friends, and
well-wisher who contributed and encourage me in development of this project.

PLACE: BHIMTAL (HIMANSHU ARYA)

 CONTENT

CHAPTER- I Page No
1. Introduction 1
2. Statement of problem 1
What is NPA 1

What we are doing 2

3. Objective 2

4. Scope of study 2

5. Limitation of study 3

6. Research Methodology 3

7. Chapter planning 3-4

5
CHAPTER- ll
1. Industrial Profile 6-9
2. Company profile 9
CHAPTER- lll
1. About NPA 10
2. Problems due to NPA 11-14
3. Types of NPA 15-17

4. Impact of NPA 17

5. Reasons for NPA 18

6. Preventive measure for NPA 19-25

CHAPTER-IV
1. Data analysis and interpretations 26-38

CHAPTER- IV
39
1. Finding
40
2. Suggestions
40
3. Conclusion

Bibliography 41
Annexure 42-44
 CHAPTER - I
1. INTRODUCTION
The accumulation of huge non-performing assets in banks has assumed great importance.
The depth of the problem of bad debts was first realized only in early 1990s. The magnitude
of NPAs in banks and financial institutions is over Rs.1,50,000 crores.
While gross NPA reflects the quality of the loans made by banks, net NPA shows
the actual burden of banks. Now it is increasingly evident that the major defaulters are the
big borrowers coming from the non-priority sector. The banks and financial institutions have
to take the initiative to reduce NPAs in a time bound strategic approach.
Public sector banks figure prominently in the debate not only because they
dominate the banking industries, but also since they have much larger NPAs compared with
the private sector banks. This raises a concern in the industry and academia because it is
generally felt that NPAs reduce the profitability of a banks, weaken its financial health and
erode its solvency.
For the recovery of NPAs a broad framework has evolved for the management
of NPAs under which several options are provided for debt recovery and restructuring.
Banks and FIs have the freedom to design and implement their own policies for recovery and
write-off incorporating compromise and negotiated settlements.

1.1 PROBLEM STATEMENT

WHAT IS NPA?

An asset which does not bring substantial income to its owner or just dormant.
It is a classification for loans on the books financial institutions that are in
default or in arrears on scheduled payments of principal or interest.
Debt is classified as nonperforming when loan payments have not been made
for a period of 90 days.
It is a credit facility in respect of which the interest and /or installment
of principal has remained past due for a period of 90 days.
An asset is tagged as NPA when it ceases to generate income for the lender.

1
 WHAT WE ARE DOING

We are try to find out what is NPA?

What are the measures which are taken by the banks to reduce NPA from the
banks?
What are the perception of employees regarding NPA?
How NPA effect the financial position of the banks?

1.2 OBJECTIVE
The basic idea behind undertaking the Grand Project on NPA was to:

To study the impact of Non-Performing Asset (NPA) on the Banks financial position.

To assess the steps taken by the bank to prevent NPAs.

To suggest various process to the bank for preventing NPAs.

To study the employees perception towards NPAs.

To Know the Reasons for NPAs.

1.3 SCOPE OF STUDY

The scope of the study refers to the job that to know about the activities of the organization.
The study means that the analysis of the products of the company on which I have to focus.

Scope of the Study

Concept of Non Performing Asset

Guidelines

Impact of NPAs

Reasons for NPAs

Preventive Measures

Tools to manage NPAs

During the summer training I need to find out the corporate strategies of the running
company and the mile stone which the company has covered during its journey. In
the summer training, it is necessary for me that to know the knowledge about the
company. That is how the company has got the success, Or if it is going in the loss,
why.

2
1.4 LIMITATION OF STUDY
It was difficult to get the accurate data regarding NPA from the bank.
Employees are not ready to discuss details regarding NPA.
Time and maintaining resources was major constraint.
The reach of my study was a major limitation.

1.5 RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. Research
methodology constitutes of research methods, selection criterion of research methods, used in
context of research study and explanation of using of a particular method or technique so that
research results are capable of being evaluated either by researcher himself or by others

RESEARCH DESIGN
NON-PROBABILITY
EXPLORATORY &DISCRIPTIVE EXPERIMENTAL RESEARCH
The research is primarily both exploratory as well as descriptive in nature. The sources of
information are both primary & secondary.
Primary Data:
Primary data is basically the live data which I collected on field while doing cold calls
with the Distributor and shopkeeper, customers, I shown them list of question for which I
had required their responses. In some cases I got no response form their side and then on
the basis of my previous experiences I filled those fields.
Source: Main source for the primary data for the project was questionnaires which I got
filled by the customers or sometimes filled myself on the basis of discussion with the
customers.
Secondary Data:
1 Internet,
2 Books
3 Journals,
4 Newspaper,
5 Annual report,
6 Database available in the library,
7 Catalogues and presentations.

3
Tools and Techniques:
As no study could be successfully completed without proper tools and techniques, same with
my project. For the better presentation and right explanation I used tools of statistics and
computer very frequently. And I am very thankful to all those tools for helping me a lot.
Basic tools which I used for project from statistics are-
- Bar Charts
- Pie charts
- Tables
bar charts and pie charts are really useful tools for every research to show the result in a well
clear, ease and simple way. Because I used bar charts and pie charts in project for showing
data in a systematic way, so it need not necessary for any observer to read all the theoretical
detail, simple on seeing the charts any body could know that what is being said.
Technological Tools
Ms-Access
Ms-Word
Above application software of Microsoft helped me a lot in making project more interactive
and productive.
Microsoft-Excel had a great role in my project, it created for me a situation of you sit and
get. I provided it simply all the detail of data and in return it given me all the relevant
information.
SAMPLING METHODOLOGY
Sampling Technique:
Initially, a rough draft was prepared keeping in mind the objective of the research. A pilot
study was done in order to know the accuracy of the Questionnaire.
The final Questionnaire was arrived only after certain important changes were done. Thus my
sampling came out to be judgment and convenient
Sampling Unit:
The respondent who were asked to fill out questionnaires are the sampling units. These
comprise of employees of MNC, Govt. Employees, Self Employed etc.
Sample size:
The sample size was restricted to only 50, which comprised of mainly peoples from different
regions of HALDWANI due to time constraints.
Sampling Area:
The area of the research was Haldwani

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 CHAPTER PLANNING

CHAPTER-1 It has a brief study about the project including introduction , statement of
problem, objective of the study ,limitations of the study, and research methodology.

CHAPTER-2 It include profile of Indian banking sector (industry profile) and

profile of THE NAINITAL BANK LTD.(company profile).

CHAPTER-3 It include a brief study of NPA

CHAPTER-4 It includes the data interpretation.

CHAPTER-5 It includes findings, conclusion, suggestions.

 CHAPTER - II

2.1 INDUSTRY PROFILE

1.1.1.1 Introduction
As per the Reserve Bank of India (RBI), Indias banking sector is sufficiently capitalized and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market and liquidity risk studies suggest that Indian banks
are generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models
like payments and small finance banks. RBIs new measures may go a long way in helping
the restructuring of the domestic banking industry.
1.1.1.2 Market Size
The Indian banking system consists of 27 public sector banks, 26 private sector banks, 46
foreign banks, 56 regional rural banks, 1,574 urban cooperative banks and 93,913 rural
cooperative banks, in addition to cooperative credit institutions. Public-sector banks control
more than 70 per cent of the banking system assets, thereby leaving a comparatively smaller
share for its private peers. Banks are also encouraging their customers to manage their
finances using mobile phones.
ICRA estimates that credit growth in Indias banking sector would be at 7-8 per cent in FY
2017-18.
1.1.1.3 Investments/developments
Key investments and developments in Indias banking industry include:

The Reserve Bank of India (RBI) has proposed to allow banks to invest in real estate
investment trusts (REITs) and infrastructure investment trusts (InvITs) which is
expected to benefit both real estate and banking sector in diversifying investor base
and investment avenues respectively.
The Canada Pension Plan Investment Board (CPPIB) and the Cause de Depot Quebec
(CDPQ) have acquired a 1.5 per cent stake in Kotak Mahindra Bank from MrUday
Kotak, Executive vice-chairman and Managing director, Kotak Mahindra Bank, for a
total consideration of Rs 2,254 crore (US$ 350.0 million).
Fullerton India Credit Co Ltd, a non-banking finance company (NBFC), has raised
Rs 500 crore (US$ 75 million) through masala bonds, to support its onward lending
and other financing activities.

6
 The Insurance Regulatory and Development Authority of India (IRDA) has allowed
insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds, that are issued by
banks to augment their tier 1 capital, in order to expand the pool of eligible investors
for the banks.
Qatars Doha Bank plans to apply to the Qatar Central Bank and Reserve Bank of
India for permission to establish a local subsidiary in India, with the vision to create
a retail branch network in India.
Fairfax Financial Holdings, a Canada-based financial services firm, has received
an approval from the RBI to acquire a majority 51 per cent stake in Kerala-based
Catholic Syrian Bank for Rs 1,000 crore (US$ 150 million), which will be the first
takeover of an Indian bank by a non-banking financial entity, after RBI tweaked
ownership norms.
IndiaPost has received the final license from RBI to start its payment bank
operations, thus becoming the third entity in India after Bharti Airtel and Paytm to
receive payment bank license from RBI.
Microfinance firm Ujjivan Financial Services Ltd has announced starting of banking
services across its branches under the name of Ujjivan Small Finance Bank Ltd,
thus becoming the largest among five small banks which are scheduled to start their
operations or have already started.

1.1.1.4 Government Initiatives

Finance Minister MrArunJaitley has proposed various measures to quicken India's

transition to a cashless economy, including a ban on cash transactions over Rs
200,000 (US$ 3,100), tax incentives for creation of a cashless infrastructure,
promoting greater usage of non-cash modes of payments, and making Aadhaar-based
payments more widespread.
The Government of India has announced demonetisation of high denomination
bank notes of Rs 1000 and Rs 500, with effect from November 08, 2016, in order to
eliminate black money and the growing menace of fake Indian currency notes,
thereby creating opportunities for improvement in economic growth.
The RBI has cut its key repo rate by 25 basis points to 6.25 per cent, in order to
boost growth as according to RBI, the inflation momentum has moderated because
of a normal monsoon.

7
The government and the regulator have undertaken several measures to strengthen the
Indian banking sector.

Government of India has decided to amend Section 35 A of the Banking Regulation

Act that will allow the Reserve Bank of India (RBI) to direct banks for the recovery
of non-performing assets (NPAs)
The Reserve Bank of India (RBI) has proactively instructed banks to increase their
levels of provision on the loans provided to the telecom sector as a prudent measure,
which will help to shore up provisions for future recognition of any non-performing
assets arising out of the sector.
The RBI has allowed banks in India to raise funds through issuance of rupee-
denominated bonds overseas, also called masala bonds, within the current limit of Rs
2,44,323 crore (US$ 36.6 billion) set for foreign investment in corporate bonds.
The Ministry of Labour and Employment has successfully opened around
3,840,863 bank accounts as on December 26, 2016, for workers especially in the
unorganised sector, as part of its campaign to promote and ensure cashless transfer
of wages to workers.
The National Bank for Agriculture and Rural Development (NABARD) plans to
provide around 200,000 point-of-sale (PoS) machines in 100,000 villages and
distribute RuPay cards to over 34 million farmers across India, to enable farmers to
undertake cashless transactions.
The Government of Indias indigenous digital payments application, BHIM (Bharat
Interface for Money), has recorded 18 million downloads since its launch on
December 30, 2016, according to Mr Amitabh Kant, Chief Executive Officer, NITI
Aayog.
The Ministry of Finance has lowered the threshold for making electronic payments to
suppliers, contractors or institutions from Rs 10,000 (US$ 150) to Rs 5,000 (US$ 75),
in order to attain the goal of complete digitisation of government payments.

1.1.1.5 Road Ahead

Enhanced spending on infrastructure, speedy implementation of projects and continuation of
reforms are expected to provide further impetus to growth. All these factors suggest that
Indias banking sector is also poised for robust growth as the rapidly growing business would
turn to banks for their credit needs.

8
Also, the advancements in technology have brought the mobile and internet banking
services to the fore. The banking sector is laying greater emphasis on providing improved
services to their clients and also upgrading their technology infrastructure, in order to
enhance the customers overall experience as well as give banks a competitive edge.
Many banks, including HDFC, ICICI and AXIS are exploring the option to launch contact-
less credit and debit cards in the market shortly. The cards, which use near field
communication (NFC) mechanism, will allow customers to transact without having to insert
or swipe.
Mr Bill Gates, Co-founder of Microsoft Corp, has stated that India will move quite rapidly to
a digital payments economy in as little as seven years, based on the introduction of digital
payment banks combined with other things like direct benefit transfers, universal payments
interface and Aadhaar.
Exchange Rate Used: INR 1 = US$ 0.0154 as of OCTOBER 24, 2017.

2.1 COMPANY PROFILE

The Nainital Bank Limited was established in the year 1922 with the objective to cater
banking needs of the people of the region. In the year 1973, Reserve Bank of India directed
Bank of Baroda, a premier nationalized bank, to manage the affairs of the Nainital Bank
Limited.
The Bank is having 135 branches operating in five states i.e. Uttarakhand, Uttar Pradesh,
Delhi, Haryana and Rajasthan.
All the branches of the Bank are operating in CBS platform. Bank is also providing RTGS,
NEFT, SMS Alerts, RuPay ATM cum Debit Card, NainiNetInterrnetBanking and Mobile
Banking facilities to its customers.
The total business of bank was Rs. 10,133 crore as on 31/03/2017 registering a growth of
25.89% over previous F.Y.
The Operating profit of Bank increased to Rs. 109.78 crore registering a growth of 31.50%
over previous F.Y.
The Net NPA stood at 1.25%.
Nainital Bank is a customer centric bank and provides prompt and personalized services to its
customers in latest technological environment.
 HISTORY

INDUSTRY -Banking, financial services, investment services

FOUNDED -1922
HEADQUATERS Seven Oaks Building,Mallital,Nainital,Uttarakhand,India
KEY PEOPLE - Mukesh Sharma (Chairman & CEO)
PRODUCT Finance and Insurance , Consumer Banking , Corporate Banking , investment banking ,
Investment management , Private banking.
PARENT Bank Of Baroda.
The Nainital Bank Limited (NTB) (known as Nainital Bank) is a scheduled commercial bank
founded in 1922. The bank is a subsidiary of Bank of Baroda. The bank has expanded to Uttar
Pradesh and Uttarakhand, and has over 130 branches in Rajasthan, Delhi and Haryana. It has
a total business of more than Rs. 8000(Crore) and aims to be TTC (Ten Thousand Crore), and
is listed as a scheduled bank by the Reserve Bank of India.
Nainital Bank was founded by Govind Ballabh Pant. In 1975, the government-owned Bank of
Baroda (BOB), the second largest bank in India, acquired a 98.6% (around 99%) stake in the
bank and made it a subsidiary.
In April 2004, National Insurance Company (NIC) signed an agreement with Nainital Bank for
distribution of its general insurance products through the bank's branches across
Uttarakhand, Haryana and New Delhi states. The bank had a net worth of around Rs
1.12 billion on as on 31 March 2006. It bank launched its rights issue in September 2009, to
expand its capital adequacy ratio (CAR) to 14 per cent, this came after it previously withdrew
its plans for an IPO due to adverse market conditions in 2007; by April 2010, the right issue
had raised 300 million.

Nainital bank is subsidiary of Bank of Baroda, and is associated with HDFC Bank, LIC, National
Insurance Company Limited etc. Currently, NBL has 134 branches in Uttarakhand, Uttar
Pradesh, Delhi, Haryana and Rajasthan.
It also provide online facilities, apart from Personal Banking, Business Banking, Rural and
Agricultural Banking. The Nainital Bank Limited is registered as scheduled commercial bank
with Reserve Bank of India (RBI).

Branch Location
The Nainital Bank Limited has 135 branches presently in the following Indian states.

Uttarakhand
Uttar Pradesh
Delhi
Rajasthan
Haryana

STATE WISE POSITION OF BRANCHES

S NO. AREA No. of Branches
2017 2016
1. Uttarakhand 73 69
2. Uttar Pradesh 35 31
3. Delhi 16 16
4. Haryana 7 5
5. Rajasthan 3 2
TOTAL 134 123

Board of Directors and Top Management

Shri Mukesh Sharma - Chairman and Chief Executive Officer

Shri R K Gupta - Director

Mr. S. R. Solankee - Director

Shri H. K. Awasthi - Director

Mr. Rakesh Nema - Director

Mr. Neeraj Sharda - Director

Mr. Mradul Kumar Agarwal - Director

Prof. (Dr.) V.P.S Arora - Director

Dr. (Mrs.) K.K. Sharma - Director

AWARDS AND ACHIEVEMENT

 Bank conferred with National Payment Excellence Awards 2014 by NPCI in
recognition of excellent performance in Cheque Truncation System (CTS).

Bank conferred with Social Banking Excellence Award 2014 by ASSOCHAM at New
Delhi on 30-09-2014.

Total Business of the bank increased from 8,049.22 crore as on 31st March ,2016 to
10,132.80 crore as on 31st March ,2017 showing annualized growth of 25.89.

Net profit of the Bank increased to 48.46 crore as on 31st March ,2017 against 46.97
crore as on 31st March ,2016.

NEW INITIATIVES

Implementation of EKYC and CKYC.

Implementation of AEPS (Aadhar Enabled Payment System).

Implementation of Unified Payment Interface (UPI).

Implementation of Loan Automated System for NLPs.

Initiate steps to become Digital Bank.

Upgradation of CBS software from the existing VB.Net to ASP.Net plateform.

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 CHAPTER - III

NON PERFORMING ASSETS (NPA)

WHAT IS A NPA (NON PERFORMING ASSETS)

Nonperforming asset means an asset or account of borrower ,which has been classified by
bank or financial institution as sub standard , doubtful or loss asset, in accordance with the
direction or guidelines relating to assets classification issued by RBI .
An amount due under any credit facility is treated as past due when it is not been paid
within 30 days from the due date. Due to the improvement in the payment and settlement
system, recovery climate, up gradation of technology in the banking system etc, it was
decided to dispense with past due concept, with effect from March 31, 2001. Accordingly
as from that date, a Non performing asset shell be an advance where
i. Interest and/or installment of principal remain overdue for a period of more than 180
days in respect of a term loan,
ii. The account remains out of order for a period of more than 180 days ,in respect of
an overdraft/cash credit (OD/CC)
iii. The bill remains overdue for a period of more than 180 days in case of bill purchased
or discounted.
iv. Interest and/or principal remains overdue for two harvest season but for a period not
exceeding two half years in case of an advance granted for agricultural purpose ,and
v. Any amount to be received remains overdue for a period of more than 180 days in
respect of other accounts

With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt 90 days overdue norms for identification of
NPAs ,from the year ending March 31,2004,a non performing asset shell be a loan or an
advance where;
i. Interest and/or installment of principal remain overdue for a period of more
than 90 days in respect of a term loan,
ii. The account remains out of order for a period of more than 90 days ,in
respect of an overdraft/cash credit (OD/CC)

10
 iii. The bill remains overdue for a period of more than 90 days in case of bill
purchased or discounted.
iv. Interest and/or principal remains overdue for two harvest season but for a
period not exceeding two half years in case of an advance granted for
agricultural purpose ,and
v. Any amount to be received remains overdue for a period of more than 90 days
in respect of other accounts

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

Overdue
Any amount due to the bank under any credit facility is overdue if it is not paid on
due date fixed by the bank.

FACTORS FOR RISE IN NPAs

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

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

11
 Willful Defaults
There are borrowers who are able to payback loans but are intentionally
withdrawing it. These groups of people should be identified and proper measures
should be taken in order to get back the money extended to them as advances and
loans.

Natural calamities
This is the measure factor, which is creating alarming rise in NPAs of the
PSBs. every now and then India is hit by major natural calamities thus making the
borrowers unable to pay back there loans. Thus the bank has to make large amount of
provisions in order to compensate those loans, hence end up the fiscal with a reduced
profit.
Mainly ours farmers depends on rain fall for cropping. Due to irregularities of
rain fall the farmers are not to achieve the production level thus they are not repaying
the loans.

Industrial sickness
Improper project handling, ineffective management, lack of adequate
resources, lack of advance technology, day to day changing govt. Policies give birth
to industrial sickness. Hence the banks that finance those industries ultimately end up
with a low recovery of their loans reducing their profit and liquidity.

Lack of demand
Entrepreneurs in India could not foresee their product demand and starts production
which ultimately piles up their product thus making them unable to pay back the
money they borrow to operate these activities. The banks recover the amount by
selling of their assets, which covers a minimum label. Thus the banks record the non
recovered part as NPAs and has to make provision for it.

Change on Govt. policies

With every new govt. banking sector gets new policies for its operation. Thus
it has to cope with the changing principles and policies for the regulation of the rising
of NPAs.

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 The fallout of handloom sector is continuing as most of the weavers Co-
operative societies have become defunct largely due to withdrawal of state patronage.
The rehabilitation plan worked out by the Central government to revive the handloom
sector has not yet been implemented. So the over dues due to the handloom sectors
are becoming NPAs.

INTERNAL FACTORS :-
---------------------------------

Defective Lending process

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

i. Principles of safety :
By safety it means that the borrower is in a position to repay the loan both
principal and interest. The repayment of loan depends upon the borrowers:
a. Capacity to pay
b. Willingness to pay

Capacity to pay depends upon:

1. Tangible assets
2. Success in business

Willingness to pay depends on:

1. Character
2. Honest
3. Reputation of borrower
The banker should, there fore take utmost care in ensuring that the enterprise or
business for which a loan is sought is a sound one and the borrower is capable of
carrying it out successfully .he should be a person of integrity and good character.

13
 Inappropriate technology
Due to inappropriate technology and management information system, market driven
decisions on real time basis can not be taken. Proper MIS and financial accounting system is
not implemented in the banks, which leads to poor credit collection, thus NPA. All the
branches of the bank should be computerized.

Improper SWOT analysis
The improper strength, weakness, opportunity and threat analysis is another reason for
rise in NPAs. While providing unsecured advances the banks depend more on the
honesty, integrity, and financial soundness and credit worthiness of the borrower.
Banks should consider the borrowers own capital investment.
it should collect credit information of the borrowers from_
a. From bankers.
b. Enquiry from market/segment of trade, industry, business.
c. From external credit rating agencies.
Analyze the balance sheet.
True picture of business will be revealed on analysis of profit/loss a/c and
balance sheet.
Purpose of the loan
When bankers give loan, he should analyze the purpose of the loan. To ensure
safety and liquidity, banks should grant loan for productive purpose only.
Bank should analyze the profitability, viability, long term acceptability of the
project while financing.

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

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

14
 1. Marketability
2. Acceptability
3. Safety
4. Transferability.

The banker should follow the principle of diversification of risk based on the
famous maxim do not keep all the eggs in one basket; it means that the banker
should not grant advances to a few big farms only or to concentrate them in few
industries or in a few cities. If a new big customer meets misfortune or certain traders
or industries affected adversely, the overall position of the bank will not be affected.

Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of
bank officials to the customer point decreases the collection of interest and principals
on the loan. The NPAs due to willful defaulters can be collected by regular visits.

Re loaning process
Non remittance of recoveries to higher financing agencies and re loaning of the same
have already affected the smooth operation of the credit cycle.
Due to re loaning to the defaulters and CCBs and PACs, the NPAs of OSCB is
increasing day by day.
PROBLEMS DUE TO NPA

1. Owners do not receive a market return on their capital .in the worst case, if the banks
fails, owners lose their assets. In modern times this may affect a broad pool of
shareholders.
2. Depositors do not receive a market return on saving. In the worst case if the bank
fails, depositors lose their assets or uninsured balance.
3. Banks redistribute losses to other borrowers by charging higher interest rates, lower
deposit rates and higher lending rates repress saving and financial market, which
hamper economic growth.
4. Nonperforming loans epitomize bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital, and by extension, labour and natural resources.

15
Nonperforming asset may spill over the banking system and contract the money stock, which
may lead to economic contraction. This spillover effect can channelize through liquidity or
bank insolvency:
a) When many borrowers fail to pay interest, banks may experience liquidity shortage. This
can jam payment across the country,
b) Illiquidity constraints bank in paying depositors
.c) Undercapitalized banks exceeds the banks capital base.

The three letters Strike terror in banking sector and business circle today. NPA is short form
of Non Performing Asset. The dreaded NPA rule says simply this: when interest or other
due to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns
a non performing asset. The recovery of loan has always been problem for banks and
financial institution. To come out of these first we need to think is it possible to avoid NPA,
no can not be then left is to look after the factor responsible for it and managing those factors.

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

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

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

'Out of Order' status:

An account should be treated as 'out of order' if the outstanding balance remains
continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding
balance in the principal operating account is less than the sanctioned limit/drawing power, but
there are no credits continuously for six months as on the date of Balance Sheet or credits are

16
not enough to cover the interest debited during the same period, these accounts should be
treated as 'out of order'.
Overdue:
Any amount due to the bank under any credit facility is overdue if it is not paid
on the due date fixed by the bank.

Impact of NPA

Profitability:-
NPA means booking of money in terms of bad asset, which occurred due to wrong
choice of client. Because of the money getting blocked the prodigality of bank
decreases not only by the amount of NPA but NPA lead to opportunity cost also as
that much of profit invested in some return earning project/asset. So NPA doesnt
affect current profit but also future stream of profit, which may lead to loss of some
long-term beneficial opportunity. Another impact of reduction in profitability is low
ROI (return on investment), which adversely affect current earning of bank.

Liquidity:-
Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to
borrowing money for shot\rtes period of time which lead to additional cost to the company.
Difficulty in operating the functions of bank is another cause of NPA due to lack of money.
Routine payments and dues.

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

Credit loss:-
Bank is facing problem of NPA then it adversely affect the value of bank in terms of market
credit. It will lose its goodwill and brand image and credit which have negative impact to the
people who are putting their money in the banks .

17
 REASONS FOR NPA:

Reasons can be divided in to two broad categories:-

A] Internal Factor
B] External Factor
[ A ] Internal Factors:-
Internal Factors are those, which are internal to the bank and are controllable by banks.
Poor lending decision:
Non-Compliance to lending norms:
Lack of post credit supervision:
Failure to appreciate good payers:
Excessive overdraft lending:
Non Transparent accounting policy:
[ B ] External Factors:-
External factors are those, which are external to banks they are not controllable by banks.

Socio political pressure:

Chang in industry environment:
Endangers macroeconomic disturbances:
Natural calamities
Industrial sickness
Diversion of funds and willful defaults
Time/ cost overrun in project implementation
Labour problems of borrowed firm
Business failure
Inefficient management
Obsolete technology
Product obsolete

18
 Types of NPA

A] Gross NPA
B] Net NPA

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

It can be calculated with the help of following ratio:

Gross NPAs Ratio Gross NPAs
Gross Advances

B] Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the provision regarding
NPAs. Net NPA shows the actual burdenof banks. Since in India, bank balance sheets
contain a huge amount of NPAs and the process of recovery and write off of loans is very
time consuming, the provisions the banks have to make against the NPAs according to the
central bank guidelines, are quite significant. That is why the difference between gross and
net NPA is quite high.
It can be calculated by following_

Net NPAs Gross NPAs Provisions
Gross Advances - Provisions

PREVENTIVE MEASUREMENT FOR NPA

Early Recognition of the Problem:-

Invariably, by the time banks start their efforts to get involved in a revival process, its too
late to retrieve the situation- both in terms of rehabilitation of the project and recovery of

19
banks dues. Identification of weakness in the very beginning that is : When the account starts
showing first signs of weakness regardless of the fact that it may not have become NPA, is
imperative. Assessment of the potential of revival may be done on the basis of a techno-
economic viability study. Restructuring should be attempted where, after an objective
assessment of the promoters intention, banks are convinced of a turnaround within a
scheduled timeframe. In respect of totally unviable units as decided by the bank, it is better to
facilitate winding up/ selling of the unit earlier, so as to recover whatever is possible through
legal means before the security position becomes worse.

Identifying Borrowers with Genuine Intent:-

Identifying borrowers with genuine intent from those who are non- serious with no
commitment or stake in revival is a challenge confronting bankers. Here the role of frontline
officials at the branch level is paramount as they are the ones who has intelligent inputs with
regard to promoters sincerity, and capability to achieve turnaround. Base don this objective
assessment, banks should decide as quickly as possible whether it would be worthwhile to
commit additional finance.

In this regard banks may consider having Special Investigation of all financial transaction
or business transaction, books of account in order to ascertain real factors that contributed to
sickness of the borrower. Banks may have penal of technical experts with proven expertise
and track record of preparing techno-economic study of the project of the borrowers.

Borrowers having genuine problems due to temporary mismatch in fund flow or

sudden requirement of additional fund may be entertained at branch level, and for this
purpose a special limit to such type of cases should be decided. This will obviate the need to
route the additional funding through the controlling offices in deserving cases, and help avert
many accounts slipping into NPA category.

Timeliness and Adequacy of response:-

Longer the delay in response, grater the injury to the account and the asset. Time is a crucial
element in any restructuring or rehabilitation activity. The response decided on the basis of
techno-economic study and promoters commitment, has to be adequate in terms of extend of

20
additional funding and relaxations etc. under the restructuring exercise. The package of
assistance may be flexible and bank may look at the exit option.

Focus on Cash Flows:-

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

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

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

B. In some default cases, where the unit is still working, the bank should make sure that
it captures the cash flows (there is a tendency on part of the borrowers to switch
bankers once they default, for fear of getting their cash flows forfeited), and ensure
that such cash flows are used for working capital purposes. Toward this end, there
should be regular flow of information among consortium members. A bank, which is
not part of the consortium, may not be allowed to offer credit facilities to such
defaulting clients. Current account facilities may also be denied at non-consortium

21
 banks to such clients and violation may attract penal action. The Credit Information
Bureau of India Ltd.(CIBIL) may be very useful for meaningful information
exchange on defaulting borrowers once the setup becomes fully operational.

C. In a forum of lenders, the priority of each lender will be different. While one set of
lenders may be willing to wait for a longer time to recover its dues, another lender
may have a much shorter timeframe in mind. So it is possible that the letter categories
of lenders may be willing to exit, even a t a cost by a discounted settlement of the
exposure. Therefore, any plan for restructuring/rehabilitation may take this aspect into
account.

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

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

22
 1.1.2 Tools for recovery of NPAs

Credit Default

Inability to Pay
Willful default

Unviable Viable

LokAdalat
Rehabilitation Securitization
Compromise Act

Asset
Sole Banker Reconstruction
Consortium Finance

1.1.1.1.1 Corporate Debt

Rephasement of
Conversion

Fresh Issue into WCTL 1.1.1.1.2 Fresh Repayment Period of Term

23
Once NPA occurred, one must come out of it or it should be managed in most efficient
manner. Legal ways and means are there to over come and manage NPAs. We will look into
each one of it.

Willful Default :-

A] LokAdalat and Debt Recovery Tribunal

B] Securitization Act
C] Asset Reconstruction

LokAdalat:

LokAdalat institutions help banks to settle disputes involving account in doubtful and
loss category, with outstanding balance of Rs. 5 lakh for compromise settlement under
LokAdalat. Debt recovery tribunals have been empowered to organize LokAdalat to decide
on cases of NPAs of Rs. 10 lakh and above. This mechanism has proved to be quite effective
for speedy justice and recovery of small loans. The progress through this channel is expected
to pick up in the coming years.

Debt Recovery Tribunals(DRT):

The recovery of debts due to banks and financial institution passed in March 2000 has helped in
strengthening the function of DRTs. Provision for placement of more than one recovery officer,
power to attach defendants property/assets before judgment, penal provision for disobedience of
tribunals order or for breach of any terms of order and appointment of receiver with power of
realization, management, protection and preservation of property are expected to provide
necessary teeth to the DRTs and speed up the recovery of NPAs in the times to come. DRTs
which have been set up by the Government to facilitate speedy recovery by banks/DFIs, have not
been able make much impact on loan recovery due to variety of reasons like inadequate number,
lack of infrastructure, under staffing and frequent adjournment of cases. It is essential that DRT
mechanism is strengthened and vested with a proper enforcement mechanism to enforce their
orders. Non observation of any order passed by the tribunal should amount to contempt of court,
the DRT should have right to initiate

24
contempt proceedings. The DRT should empowered to sell asset of the debtor companies and
forward the proceed to the winding up court for distribution among the lenders

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

Corporate debt Restructuring (CDR):

Background
In spite of their best efforts and intentions, sometimes corporate find themselves in financial
difficulty because of factors beyond their control and also due to certain internal reasons. For
the revival of the corporate as well as for the safety of the money lent by the banks and FIs,
timely support through restructuring in genuine cases is called for. However, delay in
agreement amongst different lending institutions often comes in the way of such endeavours.
Based on the experience in other countries like the U.K., Thailand, Korea, etc. of
putting in place institutional mechanism for restructuring of corporate debt and need for a
similar mechanism in India, a Corporate Debt Restructuring System has been evolved, as
under :
Objective
The objective of the Corporate Debt Restructuring (CDR) framework is to ensure
timely and transparent mechanism for restructuring of the corporate debts of viable entities
facing problems, outside the purview of BIFR, DRT and other legal proceedings, for the
benefit of all concerned. In particular, the framework will aim at preserving viable corporate
that are affected by certain internal and external factors and minimize the losses to the
creditors and other stakeholders through an orderly and coordinated restructuring programme.

25
 CHAPTER IV
3.1 Data Analysis & Interpretation

Q.1 Every organization has reasons for having NPAs. What is/are the major reasons for having NPAs in
your company? Please rate the following as per the importance:

Default by customers

Variables No of responses Percentage

Most Important 20 40
Important 8 16
Least important 15 30
Not important 7 14
Total 50 100

Default by customers
Most Important Important Least important Not important

14%

40%

30%

16%

Interpretation
As per the above results 40%, 26%, 30%, 14% employees of Nainital bank, Nainital thinks
that defaults by customer is most important, important, least important, not important reason
for NPA respectively.

26
Lack of supervision

Variables No of responses Percentage

Most Important 8 40
Important 7 20
Least important 15 10
Not important 20 10
Total 50 100

Lack of supervision
Most Important Important Least important Not important

16%

40%
14%

30%

Interpretation
As per the above results 16%, 14%, 30%, 40% employees of Nainital bank, Nainital thinks
that lack of supervision is most important, important, least important, not important reason
for NPAs respectively.

27
No proper appraisal

Variables No of responses Percentage

Most Important 12 40
Important 13 20
Least important 9 10
Not important 16 10
Total 50 100

No proper appraisal
Most Important Important Least important Not important

24%
32%

26%
18%

Interpretation
As per the above results 24%, 26%, 18%, 32% employees of Nainital bank, Nainital thinks
that no proper appraisal is most important, important, least important, not important reason
for NPA respectively.

28
Political influence on loans

Variables No of responses Percentage

Most Important 5 10
Important 18 36
Least important 10 20
Not important 17 34
Total 50 100

Political influence on loans

Most Important Important Least important Not important

10%

34%

36%

20%

Interpretation
As per the above results 10%, 36%, 20%, 34% employees of Nainital bank, Nainital thinks
that political influence on loans is most important, important, least important, not important
reason for NPA respectively.

29
Change in government policy

Variables No of responses Percentage

Most Important 16 32
Important 18 36
Least important 7 14
Not important 9 18
Total 50 100

Change in government policy

Most Important Important Least important Not important

11%

35%
15%

39%

Interpretation
As per the above results 35%, 39%, 15%, 11% employees of Nainital bank, Nainital thinks
that Change in goverment policy is most important, important, least important, not important
reason for NPA respectively.

30
Diversification of funds

Variables No of responses Percentage

Most Important 22 44
Important 11 22
Least important 7 14
Not important 10 20
Total 50 100

Diversification of funds
Most important Important Least important Not important

20%

44%

14%

22%

Interpretation
As per the above results 44%,22%,14%, 20% employees of Nainital bank, Nainital thinks
that diversification of funds is most important, important, least important, not important
reason for NPA respectively.

31
Q.2 Does competitive pressure has forced banks in general to relax credit appraisal
standards and thereby contributed to more NPAs
Variables No of responses Percentage
Strongly agree 9 18
Agree 16 32
Neither agree nor disagree 11 22
Disagree 9 18
Strongly disagree 5 10
Total 50 100

variables
Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree

10%
18%

18%

32%
22%

Interpretation
As per the above results 18%,32%,22%,18%, 10% employees of Nainital bank, Nainital
strongly agrees, agrees, Neither agree nor disagree, disagrees, strongly disagrees
respectively with the statement competitive pressure has forced banks in general to relax
credit appraisal standards and thereby contributed to more NPAs.

32
Q3. Whether the current credit appraisal system of your bank is inadequate in modern environment

Variables No of responses Percentage

Agree 9 18
Neither agree nor disagree 10 20
Disagree 17 34
Strongly disagree 14 28
Total 50 100

variables
Agree Neither agree nor disagree Disagree Strongly disagree

18%
28%

20%

34%

Interpretation
As per the above results,18%,20%,34%,28%, employees of Nainital bank, Nainital agrees,
Neither agree nor disagree, disagrees, strongly disagrees respectively with the statement the
current credit appraisal system of your bank is inadequate in modern environment.

33
Q4. Do you feel that the present competitive pressure in the banking sector leading to the
emergence of more local banks and branches of international banks in the country leads to relaxing
the credit norms and thereby more NPA Whether the current credit appraisal system of your bank is
inadequate in modern environment:?

Variables No of responses Percentage

Agree 7 14
Neither agree nor disagree 11 22
Disagree 19 38
Strongly disagree 13 26
Total 50 100

variables
Agree Neither agree nor disagree Disagree Strongly disagree

14%
26%

22%

38%

Interpretation
As per the above results 14%,22%,38%,26% employees of Nainital bank, Nainital agrees,
Neither agree nor disagree, disagrees, strongly disagrees respectively with the above
statement

34
Q5.What is the impact that NPAs have on the bank?

Variables No of responses Percentage

Decrease in stock price 19 38

Loss of capital 21 42

Increasing spread 10 20

Total 50 100

variables
Decrease in stock price Loss of capital Increasing spread

20%

38%

42%

Interpretation
As per the result 38% think NPA is the major reason in decrease in stock price. 42% thinks
NPA causes loss in capital. And 20% thinks that it increases spread.

35
Q6. NPA adversely affects the liquidity of banks and its income-generating capacity:

Variables No of responses Percentage

Agree 18 36
Neither agree nor disagree 12 24
Disagree 7 14
Strongly disagree 13 26
Total 50 100

varibles
Agree Neither agree nor disagree Disagree Strongly disagree

26%
36%

14%

24%

Interpretation
As per the above results 36%,24%,14%,26% employees of Nainital bank, Nainital agrees,
Neither agree nor disagree, disagrees, strongly disagrees respectively with the statement that
NPA adversely affects the liquidity of banks and its income-generating capacity.

36
Q7. Do you agree that NPAs have significant role on interest rates charged by banks.

Variables No of responses Percentage

Agree 7 14
Neither agree nor disagree 10 20
Disagree 15 30
Strongly disagree 18 36
Total 50 100

variables
Agree Neither agree nor disagree Disagree Strongly disagree

14%

36%

20%

30%

Interpretation
As per the above results 14%, 20%, 30%, 36% employees of Nainital bank, Nainital agrees,
Neither agree nor disagree, disagrees, strongly disagrees respectively with the statement that
NPAs have significant role on interest rates charged by banks.

37
Q8. A higher NPA may adversely affect attitude towards fresh credit proposals and thus credit
growth:

Variables No of responses Percentage

Strongly agree 17 34

Agree 13 26
Neither agree nor disagree 11 22
Disagree 7 14
Strongly disagree 2 4
Total 50 100

variables
Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree

4%
14%
34%

22%

26%

Interpretation
As per the above results,34%,,26%,22%,14%, 4% employees of Nainital bank, Nainital
strongly agrees, agrees, Neither agree nor disagree, disagrees, strongly disagrees with the
statement that A higher NPA may adversely affect attitude towards fresh credit proposals and
thus credit growth.

38
 CHAPTER V

FINDING

For the purpose of analysis and comparison between private sector and public sector banks,
we take five-five banks in both sector to compare the non performing assets of banks. For
understanding we further bifurcate the non performing assets in priority sector and non
priority sector, gross NPA and net NPA in percentage as well as in rupees, deposit
investment advances.

55% respondent think the bank will always face the problem of npa because of poor
recovery of advances granted by the bank while 45% dont think.

45% of the respondents are satisfied with uneven scale of repayment schedule with higher
repayment in the initial years normally is preferred

55% of the respondents are not satisfied with that statement

60% of the respondents were think the banks should not only take steps for reducing present
NPAs, but necessary precaution should also be taken to avoid future NPAs . 40% of the
respondents are not satisfied with that statement.

Deposit Investment Advances is the first in the analysis because due to these we can
understand the where the bank stands in the competitive market. As at end of march 2008, in
private sector ICICI Bank is the highest deposit-investment-advances figures in rupees crore,
second is HDFC Bank and KOTAK Bank has least figures.

In public sector banks Punjab National Bank has highest deposit-investment-advances but
when we look at graph first three means Bank of Baroda and Bank of India are almost the
similar in numbers and Dena Bank is stands for last in public sector bank. When we compare
the private sector banks with public sector banks among these banks, we can understand the
more number of people prefer to choose public sector banks for deposit-investment.
comparison of net npa with all banks for the year 2007-08. Average of these ten banks net
NPA is 0.56. And in the public sector banks all these five banks are below this. But in private
sector banks there are three banks are above average

39
 SUGGESTION

Effective inspection system should be implemented.

Operating staff should scrutinize the level of inventories/receivables regularly.

Large exposure on big corporate or single project should be avoided.

Uneven scale of repayment schedule with higher repayment in the initial years
normally is preferred.

Large exposure on big corporate or single project should be avoided

CONCLUSION

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

40
 BIBLIOGRAPHY

Marketing Management Philip Kotler, The Millennium Edition, Prentice Hall Of India
Private Limited, New Delhi.

Marketing Research: G.C Brek, Tata Mc Graw-Hill Publishing Company Limited,

New Delhi

Periodical: Business Word

C.R.Kothari , 2nd edition.

S.N Murty and U Bhojanna

Website Address: www.nainitalbank.co.in

www.slideshare.net
scholar.google.co.in

41
 Questionnaire
Ques.1 Every organization has reasons for having NPAs. What is/are the major reasons for
having NPAs in your company? Please rate the following as per the importance:

Most Important Least Not NA

Reasons For NPA Important important Important

Default by customers
Lack of supervision
No proper appraisal
Political influence on loans
Change in government policy
Diversification of funds
Any Other

Ques 2. Does competitive pressure has forced banks in general to relax credit
appraisal standards and thereby contributed to more NPAs.

Strongly agree

Agree

Neither agree nor disagree

Disagree

Strongly disagree

Ques3. Whether the current credit appraisal system of your bank is inadequate in modern
environment:

Strongly agree

Agree

Neither agree nor disagree

Disagree

Strongly disagree

42
Ques4. Do you feel that the present competitive pressure in the banking sector leading to the
emergence of more local banks and branches of international banks in the country leads to
relaxing the credit norms and thereby more NPA Whether the current credit appraisal system of
your bank is inadequate in modern environment:

Strongly agree

Agree

Neither agree nor disagree

Disagree

Strongly disagree

Ques5. What is the impact that NPAs have on the bank:

Decline reserves and surpluses

Decrease in profitability

Decrease in stock price

Loss of capital

Increasing spread

Any other (please specify)

Ques6. NPA adversely affects the liquidity of banks and its income-generating capacity:

Strongly agree

Agree

Neither agree nor disagree

Disagree

Strongly disagree

43
Ques7. Do you agree that NPAs have significant role on interest rates charged by banks.

Strongly agree

Agree

Neither agree nor disagree

Disagree

Strongly disagree

Ques8. A higher NPA may adversely affect attitude towards fresh credit proposals and thus
credit growth:

Strongly agree

Agree

Neither agree nor disagree

Disagree

Strongly disagree

44