Npa 2

A PROJECT REPORT ON
COMPARATIVE ANALYSIS ON NON PERFORMING ASSETS OF PRIVATE AND PUBLIC SECTOR BANKS
SUBMITTED IN PARTIAL FULFILLMENT OF REQUIRMENT OF PG PROGRAME Institute of usiness !"n"#e!ent "n$ %ese"%&' A'!"$" "$ SUBMITTED BY( JIGAR J) SONI * + ,
Session( -../0-..1
A
[Comparative analysis on NPA of Private & Public sector Banks] Page 1
PROJECT REPORT ON
COMPARATIVE ANALYSIS ON NON PERFORMING ASSETS OF PRIVATE AND PUBLIC SECTOR BANKS
SUBMITTED IN PARTIAL FULFILLMENT OF REQUIRMENT OF PG PROGRAME Institute of usiness !"n"#e!ent "n$ %ese"%&' A'!"$" "$ SUBMITTED BY( JIGAR J) SONI * + ,
Session( -../0-..1
[Comparative analysis on NPA of Private & Public sector Banks]
Page 2
ANNE2URE 3A *COVER PAGE,
IBMR0 INSTITUTE OF BUSINESS MANAGEMNT 4 RESEARC5 Code:-2911
Project title: COMPARATIVE ANALYSIS ON NON PERFORMING ASSETS OF PRIVATE AND PUBLIC SECTOR BANKS
By:
Jigar J. Soni Nirav N. Gusai
A roject re ort su!"itted in artial #ul#ill"ent o# t$e re%uire"ent #or t$e degree o# &AS'() *+ B,S-N(SS A.&-N-S')A'-*N o# S-//-& &AN-PA0 ,N-1()S-'23 -N.-A. Si44i" 5&ani al university o# 6ealt$3 &edical and tec$nological Sciences .istance education 7ing Syndicate $ouse &ani al-89: 1;<
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ANNE2URE B *STUDENT DECLARATION,
=e $ere !y declare t$at t$e
roject re ort entitled COMPARATIVE artial #ul#ill"ent o# t$e
ANALYSIS ON NON PERFORMING ASSETS OF PRIVATE AND PUBLIC SECTOR BANKS su!"itted in re%uire"ents #or t$e degree o# "asters o# !usiness Ad"inistration to Si44i"-&ani al ,niversity3 -ndia3 are our original 7or4 and not su!"itted #or t$e a7ard o# any ot$er degree3 di lo"a3 #ello7s$i 3 or any ot$er si"ilar title or ri>es.
Re#)No( 82;9?19;9
N"!e J-GA) J. S*N-
.ate: Place:
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ANNE2URE 3C *E2AMINER6S CERTIFICATE,

'$e roject re ort !y Jigar Soni @ Nirav ON NON Gusai on
COMPARATIVE a
ANALYSIS
PERFORMING
ASSETS OF PRIVATE AND PUBLIC SECTOR BANKS is roved and is acce ta!le in %uality and #or" .
-nternal eAa"iner Na"e:Buali#ication: .esignation: -
(Aternal eAa"iner Na"e:Buali#ication:.esignation:-
Page 5
ANNU2ERE 3 D *UNIVERSITY STUDY CENTRE CERTIFICATE,

'$is is to certi#y t$at t$e roject re ort entitled COMPARATIVE artial #ul#ill"ent o# t$e *+ B,S-N(SS
ANALYSIS ON NON PERFORMING ASSETS OF PRIVATE AND PUBLIC SECTORS BANKS Su!"itted in re%uire"ent #or t$e degree o# &AS'()
A.&-N-S')A'-*N o# S-//-& &AN-PA0 ,N-1()S-'2 o# 6ealt$3 &edical and 'ec$nological science. Ji#"% Soni and Ni%"7 Gus"i $as 7or4ed under "y su ervision and t$at no art o# t$is re ort $as !een su!"itted #or t$e a7ard o# any ot$er degree3 .i lo"a 3 #ello7s$i or ot$er si"ilar titles or ri>es and t$at t$e 7or4 $as !een u!lis$ed in any journal or &aga>ine.
N"!e Jigar Soni
Re#) no 82;9?19;9
Certi#ied CGuideDs Na"e and Buali#icationE
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ACKNOWLEDGEMENT
With a deep sense of gratitude I express we thanks to all those who have been instrumental in the development of the project report. I am also grateful to Institute of Business Management And Research Ahmedabad who gave me a valuable opportunit! of involving me in real live business project. I am thankful to all the professors whose positive attitude guidance and faith in m! abilit! spurred me to perform well. I am also indebted to all lecturers friends and associates for their valuable advice stimulated suggestions and overwhelming support without which the project would not have been a success.
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I"#R$%&'#I$"
#he accumulation of huge non(performing assets in banks has assumed great importance. #he depth of the problem of bad debts was first reali)ed onl! in earl! *++,s. #he magnitude of "-As in banks and financial institutions is over Rs.* ., ,,, crores. While gross "-A reflects the /ualit! of the loans made b! banks net "-A shows the actual burden of banks. "ow it is increasingl! evident that the major defaulters are the big borrowers coming from the non(priorit! sector. #he banks and financial institutions have to take the initiative to reduce "-As in a time bound strategic approach. -ublic sector banks figure prominentl! in the debate not onl! because the! dominate the banking industries but also since the! have much larger "-As compared with the private sector banks. #his raises a concern in the industr! and academia because it is generall! felt that "-As reduce the profitabilit! of a banks weaken its financial health and erode its solvenc!. 0or the recover! of "-As a broad framework has evolved for the management of "-As under which several options are provided for debt recover! and restructuring. Banks and 0Is have the freedom to design and implement their own policies for recover! and write(off incorporating compromise and negotiated settlements.
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R121AR'3 M1#3$%$4$56
#!pe of Research
The research methodology adopted for carrying out the study were In this project %escriptive research methodologies were use . At the first stage theoretical stud! is attempted. At the second stage 3istorical stud! is attempted. At the #hird stage 'omparative stud! of "-A is undertaken.
2cope of the 2tud!

'oncept of "on -erforming Asset 5uidelines Impact of "-As Reasons for "-As -reventive Measures #ools to manage "-As
2ampling plan
#o prepare this -roject we took five banks from public sector as well as five banks from private sector.
$B71'#I812 $0 #31 2#&%6

#he basic idea behind undertaking the 5rand -roject on "-A was to9 #o evaluate "-As :5ross and "et; in different banks. #o stud! the past trends of "-A #o calculate the weighted of "-A in risk management in Banking [Comparative analysis on NPA of Private & Public sector Banks] Page 9
#o anal!)e financial performance of banks at different level of "-A #o evaluate profitabilit! positions of banks #o evaluate "-A level in different economic situation. #o <now the 'oncept of "on -erforming Asset #o <now the Impact of "-As #o <now the Reasons for "-As #o learn -reventive Measures
2ource of data collection

#he data collected for the stud! was secondar! data in "ature.
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::: '$"#1"#2 ;;;

C5APTER NO) 8 2
SUBJECT COVERED
Introduction to NPAs Research Methodology 2cope of Research #!pe of Research 2ources of %ata 'ollection $bjective of 2tud!
PAGE NO)
%ata 'ollection Introduction to Topic Definition History of Indian Banking Non Performing Assets Factor for rise in NPAs Problem due to NPAs Types of NPAs Income Recognition
Reporting of NPAs Provisioning Norms 5eneral 0loating provisions 4eased Assets
5uideline under special circumstances Impact, Reasons and ymptoms of NPAs Internal = 1xternal 0actor
1arl! 2!mptoms Preventive Measurement 1arl! Recognition of -roblem Identif!ing Borrowers with genuine Intent
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#imeliness 0ocus on 'ash flow Management 1ffectiveness " Multiple 0inancing Tools for Recovery Willful default Inabilit! to -a! 2pecial 'ases # Role of AR'I4 Analysis %eposit(Investment(Advances 5ross "-As and "et "-As $ '( -riorit! and "on(-riorit! 2ector %inding, uggestions and &onclusions )i*liography
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Introduction to the topic

#he three letters >"-A? 2trike terror in banking sector and business circle toda!. "-A is short form of >"on -erforming Asset?. #he dreaded "-A rule sa!s simpl! this9 when interest or other due to a bank remains unpaid for more than $( days the entire bank loan automaticall! turns a non performing asset. #he recover! of loan has alwa!s been problem for banks and financial institution. #o come out of these first we need to think is it possible to avoid "-A no can not be then left is to look after the factor responsible for it and managing those factors.
+efinitions,
An asset including a leased asset becomes non(performing when it ceases to generate income for the bank. A @non(performing assetA :"-A; was defined as a credit facilit! in respect of which the interest andB or instalment of principal has remained @past dueA for a specified period of time.
With a view to moving towards international best practices and to ensure greater transparenc! it has been decided to adopt the @ 90 days overdue norm for identification of "-As from the !ear ending March C* D,,E. Accordingl! with effect from March C* D,,E a non(performing asset :"-A; shall be a loan or an advance whereF Interest andB or instalment of principal remain overdue for a period of more than +, da!s in respect of a term loan Page 13
#he account remains @out of orderA for a period of more than +, da!s in respect of an $verdraftB'ash 'redit :$%B''; #he bill remains overdue for a period of more than +, da!s in the case of bills purchased and discounted Interest andBor instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half !ears in the case of an advance granted for agricultural purposes and
An! amount to be received remains overdue for a period of more than +, da!s in respect of other accounts. As a facilitating measure for smooth transition to +, da!s norm banks have been advised to move over to charging of interest at monthl! rests b! April * D,,D. 3owever the date of classification of an advance as "-A should not be changed on account of charging of interest at monthl! rests. Banks should therefore continue to classif! an account as "-A onl! if the interest charged during an! /uarter is not serviced full! within *G, da!s from the end of the /uarter with effect from April * D,,D and +, da!s from the end of the /uarter with effect from March C* D,,E.
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-I T.R/ .% IN+IAN )AN0IN1

A *an2 is a financial institution that provides banking and other financial services. B! the term bank is generall! understood an institution that holds a Banking 4icenses. Banking licenses are granted b! financial supervision authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. #here are also financial institutions that provide certain banking services without meeting the legal definition of a bank a so(called "on(bank. Banks are a subset of the financial services industr!. #he word bank is derived from the Italian banca, which is derived from 5erman and means bench. #he terms bankrupt and HbrokeH are similarl! derived from banca rotta which refers to an out of business bank having its bench ph!sicall! broken. Mone!lenders in "orthern Ital! originall! did business in open areas or big open rooms with each lender working from his own bench or table. #!picall! a bank generates profits from transaction fees on financial services or the interest spread on resources it holds in trust for clients while pa!ing them interest on the asset. %evelopment of banking industr! in India followed below stated steps.
Banking in India has its origin as earl! as the 8edic period. It is believed that the transition from mone! lending to banking must have occurred even before Manu the great 3indu 7urist who has devoted a section of his work to deposits and advances and laid down rules relating to rates of interest.
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Banking in India has an earl! origin where the indigenous bankers pla!ed a ver! important role in lending mone! and financing foreign trade and commerce. %uring the da!s of the 1ast India 'ompan! was the turn of the agenc! houses to carr! on the banking business. #he 5eneral Bank of India was first 7oint 2tock Bank to be established in the !ear *IGJ. #he others which followed were the Bank 3industan and the Bengal Bank.
In the first half of the *+th centur! the 1ast India 'ompan! established three banksF the Bank of Bengal in *G,+ the Bank of Bomba! in *GE, and the Bank of Madras in *GEC. #hese three banks also known as -residenc! banks were amalgamated in *+D, and a new bank the Imperial Bank of India was established in *+D*. With the passing of the 2tate Bank of India Act in *+.. the undertaking of the Imperial Bank of India was taken b! the newl! constituted 2tate Bank of India.
#he Reserve Bank of India which is the 'entral Bank was created in *+C. b! passing Reserve Bank of India Act *+CE which was followed up with the Banking Regulations in *+E+. #hese acts bestowed Reserve Bank of India :RBI; with wide ranging powers for licensing supervision and control of banks. 'onsidering the proliferation of weak banks RBI compulsoril! merged man! of them with stronger banks in *+J+.
#he three decades after nationali)ation saw a phenomenal expansion in the geographical coverage and financial spread of the banking s!stem in the countr!. As certain rigidities and weaknesses were found to have developed in the s!stem during the late eighties the 5overnment of India felt that these had to be [Comparative analysis on NPA of Private & Public sector Banks] Page 16
addressed to enable the financial s!stem to pla! its role in ushering in a more efficient and competitive econom!. Accordingl! a high( level committee was set up on *E August *++* to examine all aspects relating to the structure of the 'ommittee :'hairman9 organi)ation 2hri M. functions and a procedures of the financial s!stem. Based on the recommendations "arasimham; comprehensive reform of the banking s!stem was introduced in *++D(+C. #he objective of the reform measures was to ensure that the balance sheets of banks reflected their actual financial health. $ne of the important measures related to income recognition asset classification and provisioning b! banks on the basis of objective criteria was laid down b! the Reserve Bank. #he introduction of capital ade/uac! norms in line with international standards has been another important measure of the reforms process. *. 'omprises balance of expired loans compensation and other bonds such as "ational Rural %evelopment Bonds and 'apital Investment Bonds. Annuit! certificates are excluded. D. #hese represent mainl! non( negotiable non( interest bearing securities issued to International 0inancial Institutions like International C. At book value. E. 'omprises accruals under 2mall 2avings 2cheme -rovident 0unds 2pecial %eposits of "on( 5overnment In the post(nationali)ation era no new private sector banks were allowed to be set up. 3owever in *++C in recognition of the need to introduce greater competition which could lead to higher productivit! and efficienc! of the banking s!stem new private sector banks were allowed to be set up in the Indian banking [Comparative analysis on NPA of Private & Public sector Banks] Page 17 Monetar! 0und International Bank for Reconstruction and %evelopment and Asian %evelopment Bank.
s!stem. #hese new banks had to satisf! among others the following minimum re/uirements9 :i; :ii; It should be registered as a public limited compan!F #he minimum paid(up capital should be Rs *,, croreF
:iii; #he shares should be listed on the stock exchangeF :iv; #he head/uarters of the bank should be preferabl! located in a :v; centre which does not have the head/uarters of an! other bankF and #he bank will be subject to prudential norms in respect of banking operations accounting and other policies as laid down b! the RBI. It will have to achieve capital ade/uac! of eight per cent from the ver! beginning. A high level 'ommittee under the 'hairmanship of 2hri M. "arasimham was constituted b! the 5overnment of India in %ecember *++I to review the record of implementation of financial s!stem reforms recommended b! the '02 in *++* and chart the reforms necessar! in the !ears ahead to make the banking s!stem stronger and better e/uipped to compete effectivel! in international economic environment. #he 'ommittee has submitted its report to the 5overnment in April *++G. 2ome of the recommendations of the 'ommittee on prudential accounting norms particularl! in the areas of 'apital Ade/uac! Ratio 'lassification of 5overnment guaranteed advances have been provisioning re/uirements on standard and implemented. #he other advances and more disclosures in the Balance 2heets of banks accepted recommendations are under consideration.
#he banking industr! in India is in a midst of transformation thanks to the economic liberali)ation of the countr! which has changed [Comparative analysis on NPA of Private & Public sector Banks] Page 18
business environment in the countr!. %uring the pre(liberali)ation period the industr! was merel! focusing on deposit mobili)ation and branch expansion. But with liberali)ation it found man! of its advances under the non(performing assets :"-A; list. More importantl! the sector has become ver! competitive with the entr! of man! foreign and private sector banks. #he face of banking is changing rapidl!. #here is no doubt that banking sector reforms have improved the profitabilit! productivit! and efficienc! of banks but in the da!s ahead banks will have to prepare themselves to face new challenges.
Indian Banking9 <e! %evelopments *+J+ 5overnment ac/uires ownership in major banks Almost all banking operations in manual mode 2ome banks had &nit record Machines of IBM for IBR = *+I,( *+G, -a! roll &nprecedented expansion in geographical coverage staff business = transaction volumes and directed lending to agriculture 22I = 2B sector Manual s!stems struggle to handle exponential rise in transaction volumes (( $utsourcing of data processing to service bureau begins Back office s!stems onl! in Multinational :M"'; banksK offices
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*+G*( *++,
Regulator :read RBI; led I# introduction in Banks -roduct level automation on stand alone -'s at branches :A4-Ms; In(house 1%- infrastructure with &nix boxes processing in 'obol for MI2. Mainframes in corporate office batch
*++*(*++.
1xpansion slows down Banking sector reforms resulting in progressive de( regulation of banking introduction of prudential banking norms entr! of new private sector banks #otal Branch Automation :#BA; in 5ovt. owned and old private banks begins "ew private banks are set up with 'B2B#BA form the start
*++J(D,,,
"ew deliver! channels like A#M
-hone banking and
Internet banking and convenience of an! branch banking and auto sweep products introduced b! new private and M"' banks Retail banking in focus proliferation of credit cards 'ommunication infrastructure improves and becomes cheap. I%RB# sets up 82A# network for Banks 5ovt. owned banks feel the heat and attempt to respond using intermediar! technolog! #BA implementation surges ahead under fiat from 'entral 8igilance 'ommission :'8'; 6D< threat consumes last two !ears
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D,,,(D,,C
Alternate deliver! channels find wide consumer acceptance I# Bill passed lending legal validit! to electronic transactions 5ovt. owned banks and old private banks start implementing 'B2s but initial attempts face problems Banks enter insurance business launch debit cards
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N.N P3R%.RMIN1 A
6-AT I A NPA 4N.N P3R%.RMIN1 A
3T 4NPA5
3T 5 7
Action for enforcement of securit! interest can be initiated onl! if the secured asset is classified as "onperforming asset. "on performing asset means an asset or account of borrower which has been classified b! bank or financial institution as sub Lstandard doubtful or loss asset in accordance with the direction or guidelines relating to assets classification issued b! RBI . An amount due under an! credit facilit! is treated as >past due? when it is not been paid within C, da!s from the due date. %ue to the improvement in the pa!ment and settlement s!stem recover! climate up gradation of technolog! in the banking s!stem etc it was decided to dispense with >past due >concept with effect from March C* D,,*. Accordingl! as from that date a "on performing asset shell be an advance where i. ii. iii. iv. Interest andBor installment of principal remain overdue for a period of more than *G, da!s in respect of a term loan #he account remains @out of order @ for a period of more than *G, da!s in respect of an overdraftBcash credit :$%B''; #he bill remains overdue for a period of more than *G, da!s in case of bill purchased or discounted. Interest andBor principal remains overdue for two harvest season but for a period not exceeding two half !ears in case of an advance granted for agricultural purpose and An! amount to be received remains overdue for a period of more than *G, da!s in respect of other accounts With a view to moving towards international best practices and to ensure greater transparenc! it has been decided to adopt A+, da!s overdue @norms for identification of "-As from the !ear ending March C* D,,E a non performing asset shell be a loan or an advance whereF i. Interest andBor installment of principal remain overdue for a period of more than +, da!s in respect of a term loan Page 22
v.
ii. iii. iv.
#he account remains @out of order @ for a period of more than +, da!s in respect of an overdraftBcash credit :$%B''; #he bill remains overdue for a period of more than +, da!s in case of bill purchased or discounted. Interest andBor principal remains overdue for two harvest season but for a period not exceeding two half !ears in case of an advance granted for agricultural purpose and An! amount to be received remains overdue for a period of more than +, da!s in respect of other accounts
v.
.ut of order An account should be treated as out of order if the outstanding balance remains continuousl! in excess of sanctioned limit Bdrawing power. in case where the out standing balance in the principal operating account is less than the sanctioned amount Bdrawing power but there are no credits continuousl! 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 orderA. .verdue An! amount due to the bank under an! credit facilit! is @overdueA if it is not paid on due date fixed b! the bank.
%A&T.R %.R RI 3 IN NPAs #he banking sector has been facing the serious problems of the rising "-As. But the problem of "-As is more in public sector banks when compared to private sector banks and foreign banks. #he "-As in -2B are growing due to external as well as internal factors. 38T3RNA9 %A&T.R ,: :::::::::::::::::::::::::::::::::: [Comparative analysis on NPA of Private & Public sector Banks] Page 23
Ineffective recovery tri*unal
#he 5ovt. has set of numbers of recover! tribunals which works for recover! of loans and advances. %ue to their negligence and ineffectiveness in their work the bank suffers the conse/uence of non(recover their b! reducing their profitabilit! and li/uidit!.
6illful +efaults #here are borrowers who are able to pa!back loans but are intentionall! withdrawing it. #hese groups of people should be identified and proper measures should be taken in order to get back the mone! extended to them as advances and loans. Natural calamities
#his is the measure factor which is creating alarming rise in "-As of the -2Bs. ever! now and then India is hit b! major natural calamities thus making the borrowers unable to pa! back there loans. #hus the bank has to make large amount of provisions in order to compensate those loans hence end up the fiscal with a reduced profit.
Mainl! ours farmers depends on rain fall for cropping. %ue to irregularities of rain fall the farmers are not to achieve the production level thus the! are not repa!ing the loans.
Industrial sic2ness
Improper project handling ineffective management lack of ade/uate resources lack of advance technolog! da! to da! changing govt. -olicies give birth to industrial sickness. 3ence the [Comparative analysis on NPA of Private & Public sector Banks] Page 24
banks that finance those industries ultimatel! end up with a low recover! of their loans reducing their profit and li/uidit!.
9ac2 of demand
1ntrepreneurs in India could not foresee their product demand and starts production which ultimatel! piles up their product thus making them unable to pa! back the mone! the! borrow to operate these activities. #he banks recover the amount b! selling of their assets which covers a minimum label. #hus the banks record the non recovered part as "-As and has to make provision for it.
&hange on 1ovt; policies
With ever! new govt. banking sector gets new policies for its operation. #hus it has to cope with the changing principles and policies for the regulation of the rising of "-As.
#he fallout of handloom sector is continuing as most of the weavers 'o(operative societies have become defunct largel! due to withdrawal of state patronage. #he rehabilitation plan worked out b! the 'entral government to revive the handloom sector has not !et been implemented. 2o the over dues due to the handloom sectors are becoming "-As.
INT3RNA9 %A&T.R ,: :::::::::::::::::::::::::::::::::
+efective 9ending process [Comparative analysis on NPA of Private & Public sector Banks] Page 25
#here are three cardinal principles of bank lending that have been followed b! the commercial banks since long. i. ii. iii. -rinciples of safet! -rinciple of li/uidit! -rinciples of profitabilit!
i.
-rinciples of safet! 9(
B! safet! it means that the borrower is in a position to repa! the loan both principal and interest. #he repa!ment of loan depends upon the borrowers9
a. 'apacit! to pa!
b. Willingness to pa!
Capacity to pay depends upon: *. #angible assets D. 2uccess in business Willingness to pay depends on: *. 'haracter D. 3onest C. Reputation of borrower #he 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 carr!ing it out successfull! .he should be a person of integrit! and good character. [Comparative analysis on NPA of Private & Public sector Banks] Page 26
Inappropriate technology
%ue to inappropriate technolog! and management information s!stem market driven decisions on real time basis can not be taken. -roper MI2 and financial accounting s!stem is not implemented in the banks which leads to poor credit collection thus "-A. All the branches of the bank should be computeri)ed.
Improper 6.T analysis
#he improper strength weakness opportunit! and threat anal!sis is another reason for rise in "-As. While providing unsecured advances the banks depend more on the honest! integrit! and financial soundness and credit worthiness of the borrower.
Banks should investment.
consider
the
borrowers
own
capital
it should collect credit information of the borrowers fromM
a. 0rom bankers. b. 1n/uir! from business. marketBsegment of trade industr!
c. 0rom external credit rating agencies. [Comparative analysis on NPA of Private & Public sector Banks] Page 27
Anal!)e the balance sheet.
#rue picture of business will be revealed on anal!sis of profitBloss aBc and balance sheet.
-urpose of the loan
When bankers give loan he should anal!)e the purpose of the loan. #o ensure safet! and li/uidit! banks should grant loan for productive purpose onl!. Bank should anal!)e the profitabilit! viabilit! long term acceptabilit! of the project while financing.
Poor credit appraisal system
-oor credit appraisal is another factor for the rise in "-As. %ue to poor credit appraisal the bank gives advances to those who are not able to repa! it back. #he! should use good credit appraisal to decrease the "-As.
Managerial deficiencies
#he banker should alwa!s select the borrower ver! carefull! and should take tangible assets as securit! to safe guard its interests. When accepting securities banks should consider theM
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*. Marketabilit! D. Acceptabilit! C. 2afet! E. #ransferabilit!.
#he 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 onl! 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 adversel! the overall position of the bank will not be affected.
4ike $2'B suffered loss due to the $#M 'uttack and $rissa hand loom industries. #he biggest defaulters of $2'B are the $#M :**I.IIlakhs; and the handloom sector $rissa hand loom W'2 ltd :DEC+.J,lakhs;.
A*sence of regular industrial visit
#he irregularities in spot visit also increases the "-As. Absence of regularl! visit of bank officials to the customer point decreases the collection of interest and principals on the loan. #he "-As due to willful defaulters can be collected b! regular visits.
Re loaning process
"on remittance of recoveries to higher financing agencies and re loaning of the same have alread! affected the smooth operation of the credit c!cle;
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%ue to re loaning to the defaulters and ''Bs and -A's the "-As of $2'B is increasing da! b! da!.
PR.)93M +<3 T. NPA *. $wners do not receive a market return on there capital .in the worst case if the banks fails owners loose their assets. In modern times this ma! affect a broad pool of shareholders. D. %epositors do not receive a market return on saving. In the worst case if the bank fails depositors loose their assets or uninsured balance. C. Banks redistribute losses to other borrowers b! charging higher interest rates lower deposit rates and higher lending rates repress saving and financial market which hamper economic growth. E. "on performing loans epitomi)e bad investment. #he! misallocate credit from good projects which do not receive funding to failed projects. Bad investment ends up in misallocation of capital and b! extension labour and natural resources. "on performing asset ma! spill over the banking s!stem and contract the mone! stock which ma! lead to economic contraction. #his spill over effect can channeli)e through li/uidit! or bank insolvenc!9 a; When man! borrowers fail to pa! interest banks ma! experience li/uidit! shortage. #his can jam pa!ment across the countr! b; Illi/uidit! constraints bank in pa!ing depositors .c; &ndercapitali)ed banks exceeds the banks capital base.
#he three letters 2trike terror in banking sector and business circle toda!. "-A is short form of >"on -erforming Asset?. #he dreaded "-A rule sa!s [Comparative analysis on NPA of Private & Public sector Banks] Page 30
simpl! this9 when interest or other due to a bank remains unpaid for more than $( days the entire bank loan automaticall! turns a non performing asset. #he recover! of loan has alwa!s been problem for banks and financial institution. #o come out of these first we need to think is it possible to avoid "-A no can not be then left is to look after the factor responsible for it and managing those factors.
Interest andBor instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half !ears in the case of an advance granted for agricultural purposes and An! amount to be received remains overdue for a period of more than +, da!s in respect of other accounts. As a facilitating measure for smooth transition to +, da!s norm banks have been advised to move over to charging of interest at monthl! rests b! April * D,,D. 3owever the date of classification of an advance as "-A should not be changed on account of charging of interest at monthl! rests. Banks should therefore continue to classif! an account as "-A onl! if the interest charged during an! /uarter is not serviced full! within *G, da!s from the end of the /uarter with effect from April * D,,D and +, da!s from the end of the /uarter with effect from March C* D,,E.
=.ut of .rder= status:

An account should be treated as 'out of order' if the outstanding balance remains continuousl! in excess of the sanctioned limitBdrawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limitBdrawing [Comparative analysis on NPA of Private & Public sector Banks] Page 31
power but there are no credits continuousl! for six months as on the date of Balance 2heet or credits are not enough to cover the interest debited during the same period these accounts should be treated as =out of order=.
.verdue>,
An! amount due to the bank under an! credit facilit! is @overdueA if it is not paid on the due date fixed b! the bank.
Types of NPA
A? 1ross NPA )? Net NPA A? 1ross NPA,
5ross "-As are the sum total of all loan assets that are classified as "-As as per RBI guidelines as on Balance 2heet date. Gross non standard assets like as sub(standard doubtful and loss assets. It can be calculated with the help of following ratio9 [Comparative analysis on NPA of Private & Public sector Banks] Page 32 !" reflects t#e $uality of t#e loans %ade by banks& It consists of all the
1ross NPAs Ratio
1ross NPAs 1ross Advances
'(
et !":
et !" s#o)s t#e actual burden of banks&
"et "-As are those t!pe of "-As in which the bank has deducted the provision regarding "-As. 2ince in India bank balance sheets contain a huge amount of "-As and the process of recover! and write off of loans is ver! time consuming the provisions the banks have to make against the "-As according to the central bank guidelines are /uite significant. #hat is wh! the difference between gross and net "-A is /uite high. It can be calculated b! followingM Net NPAs 1ross NPAs @ Provisions 1ross Advances : Provisions
IN&.M3 R3&.1NITI.N
Income recognition @ Policy
#he polic! of income recognition has to be objective and based on the record of recover!. Internationall! income from non(performing assets :"-A; is not recognised on accrual basis but is booked as income onl! when it is actuall! received. #herefore the banks should not charge and take to income account interest on an! "-A. [Comparative analysis on NPA of Private & Public sector Banks] Page 33
3owever interest on advances against term deposits "2's I8-s <8-s and 4ife policies ma! be taken to income account on the due date provided ade/uate margin is available in the accounts.
0ees and commissions earned b! the banks as a result of re( negotiations or rescheduling of outstanding debts should be recognised on an accrual basis over the period of time covered b! the re(negotiated or rescheduled extension of credit.
If 5overnment guaranteed advances become "-A the interest on such advances should not be taken to income account unless the interest has been realised.
Reversal of income,
If an! advance including bills purchased and discounted becomes "-A as at the close of an! !ear interest accrued and credited to income account in the corresponding previous !ear should be reversed or provided for if the same is not realised. This will apply to 1overnment guaranteed accounts also. In respect of "-As fees commission and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods if uncollected.
9eased Assets
#he net lease rentals :finance charge; on the leased asset accrued
and credited to income account before the asset became non( performing and remaining unrealised should be reversed or provided for in the current accounting period.
#he term Knet lease rentalsK would mean the amount of finance
charge taken to the credit of -rofit = 4oss Account and would be worked out as gross lease rentals adjusted b! amount of statutor! depreciation and lease e/ualisation account.
As per the =1uidance Note on Accounting for 9eases= issued b!
the 'ouncil of the Institute of 'hartered Accountants of India :I'AI; a separate 4ease 1/ualisation Account should be opened b! the banks with a corresponding debit or credit to 4ease Adjustment Account as the case ma! be. 0urther 4ease 1/ualisation Account should be transferred ever! !ear to the -rofit = 4oss Account and disclosed separatel! as a deduction fromBaddition to gross value of lease rentals shown under the head K5ross IncomeK.
Appropriation of recovery in NPAs

Interest realised on "-As ma! be taken to income account provided the credits in the accounts towards interest are not out of freshB additional credit facilities sanctioned to the borrower concerned.
In the absence of a clear agreement between the bank and the borrower for the purpose of appropriation of recoveries in "-As [Comparative analysis on NPA of Private & Public sector Banks] Page 35
:i.e. towards principal or interest due; banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner.
Interest Application,
#here is no objection to the banks using their own discretion in debiting interest to an "-A account taking the same to Interest 2uspense Account or maintaining onl! a record of such interest in proforma accounts.
Reporting of NPAs
Banks are re/uired to furnish a Report on "-As as on C* st March each !ear after completion of audit. #he "-As would relate to the banksA global portfolio including the advances at the foreign branches. #he Report should be furnished as per the prescribed format given in the Annexure I.
While reporting "-A figures to RBI the amount held in interest suspense account should be shown as a deduction from gross "-As as well as gross advances while arriving at the net "-As. Banks which do not maintain Interest 2uspense account for parking interest due on non(performing advance accounts ma! furnish the amount of interest receivable on "-As as a foot note to the Report.
Whenever "-As are reported to RBI the amount of technical write off if an! should be reduced from the outstanding gross advances
Page 36
and gross "-As to eliminate an! distortion in the /uantum of "-As being reported.
R3P.RTIN1 %.RMAT %.R NPA @ 1R. Name of the )an2, Position as onAAA
AN+ N3T NPA
PARTI&<9AR *; 5ross Advanced N D; 5ross "-A N C; 5ross "-A as Oage of 5ross Advanced E; #otal deduction: aPbPcPd ; : a ; Balance in interest suspense aBc NN : b ; %I'5'B1'5' claims received and held pending adjustment : c ; part pa!ment received and kept in suspense aBc : d ; #otal provision held NNN .; "et advanced : *(E ; J; "et "-A : D(E ; I; "et "-A as a Oage of "et Advance Nexcluding #echnical write(off of Rs.MMMMMMMMcrore. NNBanks which do not maintain an interest suspense aBc to park the accrued interest on "-As ma! furnish the amount of interest receivable on "-As. NNN1xcluding amount of #echnical write(off :Rs.MMMMMMcrore; and provision on standard assets. :Rs.MMMMMcrore;.
Page 37
Asset &lassification :::::::::::::::::::::::::::::::

&ategories of NPAs
tandard Assets,
2tandard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularl! from the customer. 3ere it is also ver! important that in this case the arrears of interest and the principal amount of loan does not exceed +, da!s at the end of financial [Comparative analysis on NPA of Private & Public sector Banks] Page 38
!ear. If asset fails to be in categor! of standard asset that is amount due more than +, da!s then it is "-A and "-As are further need to classif! in sub categories. Banks are re/uired to classif! non(performing assets further into the following three categories based on the period for which the asset has remained non"performing and the realisability of the dues9
# $ % &ub"standard Assets # ' % Doubtful Assets # ( % )oss Assets
4'5
u*:standard Assets,::
With effect from C* March D,,. a sub standard asset would be one which has remained "-A for a period less than or e/ual to *D month. #he following features are exhibited b! sub standard assets9 the current net worth of the borrowers B guarantor or the current market value of the securit! charged is not enough to ensure recover! of the dues to the banks in fullF and the asset has well(defined credit weaknesses that jeopardise the li/uidation of the debt and are characterised b! the distinct possibilit! that the banks will sustain some loss if deficiencies are not corrected.
4 B 5 +ou*tful Assets,::
A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub(standard with the added characteristic that the weaknesses make collection or li/uidation in full L on the basis of currentl! known facts conditions and values L highl! /uestionable and improbable. [Comparative analysis on NPA of Private & Public sector Banks] Page 39
With effect from March C* D,,. an asset would be classified as doubtful if it remained in the sub(standard categor! for *D months.
4 C 5 Loss Assets:-A loss asset is one which considered uncollectible and of such little value that its continuance as a bankable asset is not warranted( although there ma! be some salvage or recover! value. Also these assets would have been identified as @loss assetsA b! the bank or internal or external auditors or the RBI inspection but the amount would not have been written(off wholl!.
Provisioning Norms ::::::::::::::::::::::::::::::::::::::::::

1eneral
In order to narrow down the divergences and ensure ade/uate provisioning b! banks it was suggested that a bankKs statutor! auditors if the! so desire could have a dialogue with RBIKs Regional $fficeB inspectors who carried out the bankKs inspection [Comparative analysis on NPA of Private & Public sector Banks] Page 40
during the previous !ear with regard to the accounts contributing to the difference.
-ursuant to this regional offices were advised to forward a list of individual advances where the variance in the provisioning re/uirements between the RBI and the bank is above certain cut off levels so that the bank and the statutor! auditors take into account the assessment of the RBI while making provisions for loan loss etc.
#he primar! responsibilit! for making ade/uate provisions for an! diminution in the value of loan assets investment or other assets is that of the bank managements and the statutor! auditors. #he assessment made b! the inspecting officer of the RBI is furnished to the bank to assist the bank management and the statutor! auditors in taking a decision in regard to making ade/uate and necessar! provisions in terms of prudential guidelines.
In conformit! with the prudential norms provisions should be made on the non(performing assets on the basis of classification of assets into prescribed categories as detailed in paragraphs E supra. #aking into account the time lag between an account becoming doubtful of recover! its recognition as such the realisation of the securit! and the erosion over time in the value of securit! charged to the bank the banks should make provision against sub(standard assets doubtful assets and loss assets as below9
9oss assets,
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#he entire asset should be written off. If the assets are permitted to remain in the books for an! reason *,, percent of the outstanding should be provided for.
+ou*tful assets,
*,, percent of the extent to which the advance is not covered b! the realisable value of the securit! to which the bank has a valid recourse and the realisable value is estimated on a realistic basis.
In regard to the secured portion provision ma! be made on the following basis at the rates ranging from D, percent to ., percent of the secured portion depending upon the period for which the asset has remained doubtful9
Period for which the advance has *een considered as dou*tful &p to one !ear $ne to three !ears More than three !ears9 :*; $utstanding stock of "-As as on March C* D,,E.
Provision reDuirement 4E5 D, C, J,O with effect from March C* D,,.. I.O effect from March C* Page 42
:D; Advances classified as @doubtfulA more than three !ears on or after April * D,,E.
D,,J. *,,O with effect from March C* D,,I.
Additional provisioning conse/uent upon the change in the definition of doubtful assets effective from March C* D,,C has to be made in phases as under9
As on C*.,C.D,,C ., percent of the additional provisioning
re/uirement on the assets which became doubtful on account of new norm of *G months for transition from sub(standard asset to doubtful categor!.
As on C*.,C.D,,D balance of the provisions not made during the
previous !ear in addition to the provisions needed as on C*.,C.D,,D. Banks are permitted to phase the additional provisioning
conse/uent upon the reduction in the transition period from substandard to doubtful asset from *G to *D months over a four !ear period commencing from the !ear ending March C* D,,. with a minimum of D, O each !ear. Note, Faluation of ecurity for provisioning purposes With a view to bringing down divergence arising out of difference in assessment of the value of securit! in cases of "-As with balance of Rs. . crore and above stock audit at annual intervals b! external agencies appointed as per the guidelines approved b! the Board would be mandator! in order to enhance the reliabilit! on stock valuation. 8aluers [Comparative analysis on NPA of Private & Public sector Banks] Page 43
appointed as per the guidelines approved b! the Board of %irectors should get collaterals such as immovable properties charged in favour of the bank valued once in three !ears.
u*:standard assets,
A general provision of *, percent on total outstanding should be made without making an! allowance for %I'5'B1'5' guarantee cover and securities available.
tandard assets,
0rom the !ear ending C*.,C.D,,, the banks should make a general provision of a minimum of ,.E, percent on standard assets on global loan portfolio basis. #he provisions on standard assets should not be reckoned for arriving at net "-As.
#he provisions towards 2tandard Assets need not be netted from gross advances but shown separatel! as K'ontingent -rovisions against 2tandard AssetsK under K$ther 4iabilities and -rovisions ( $thersK in 2chedule . of the balance sheet.
%loating provisions,
2ome of the banks make a Kfloating provisionK over and above the specific provisions made in respect of accounts identified as "-As. #he floating provisions wherever available could be set(off against provisions re/uired to be made as per above stated provisioning guidelines. 'onsidering that higher loan loss provisioning adds to the overall financial strength of the banks and the stabilit! of the financial sector banks are urged to voluntaril! set apart provisions much above the minimum prudential levels as a desirable practice.
Provisions on 9eased Assets,

4eases are peculiar transactions where the assets are not recorded in the books of the user of such assets as Assets whereas the! are recorded in the books of the owner even though the ph!sical existence of the asset is with the user :lessee;. MM:A2*+ I'AI;
u*:standard assets , :
*, percent of the =net *oo2 value=.
As per the K5uidance "ote on Accounting for 4easesK issued b! the
I'AI =1ross *oo2 value= of a fixed asset is its historical cost or other amount substituted for historical cost in the books of account or financial statements. 2tatutor! depreciation should be shown separatel! in the -rofit = 4oss Account. Accumulated depreciation should be deducted from [Comparative analysis on NPA of Private & Public sector Banks] Page 45
the 5ross Book 8alue of the leased asset in the balance sheet of the lesser to arrive at the =net *oo2 value=.
Also balance standing in K4ease Adjustment AccountK should be
adjusted in the Knet book valueK of the leased assets. #he amount of adjustment in respect of each class of fixed assets ma! be shown either in the main balance sheet or in the 0ixed Assets 2chedule as a separate column in the section related to leased assets.
+ou*tful assets ,:
*,, percent of the extent to which the finance is not secured b! the realisable value of the leased asset. Realisable value to be estimated on a realistic basis. In addition to the a*ove provision the following provision on the net *oo2 value of the secured portion should be made depending upon the period for which asset has been doubtful9 Period &p to one !ear $ne to three !ears More than three !ears Eage of provision D, C, .,
9oss assets ,:
#he entire asset should be written(off. If for an! reason an asset is allowed to remain in books *,, percent of the sum of the net investment in the lease and the unrealised portion of finance income net of finance charge component should be provided for. : =net *oo2 value=5
Page 46
1uidelines for Provisions under pecial &ircumstances

1overnment guaranteed advances
With effect from C* March D,,, in respect of advances sanctioned
against 2tate 5overnment guarantee if the guarantee is invoked and remains in default for more than two /uarters :*G, da!s at present; the banks should make normal provisions as prescribed in paragraph E.*.D above.
As regards advances guaranteed b! 2tate 5overnments in respect of
which guarantee stood invoked as on C*.,C.D,,, necessar! provision was allowed to be made in a phased manner during the financial !ears ending C*.,C.D,,, to C*.,C.D,,C with a minimum of D. percent each !ear.
Advances
granted
under
rehabilitation
packages
approved b! BI0RBterm lending institutions9

In respect of advances under rehabilitation package approved b!
BI0RBterm lending institutions the provision should continue to be made in respect of dues to the bank on the eGisting credit facilities as per their classification as sub(standard or doubtful asset.
Page 47
As regards the additional facilities sanctioned as per package finalised
b! BI0R andBor term lending institutions provision on additional facilities sanctioned need not be made for a period of one year from the date of disbursement.
In respect of additional credit facilities granted to 22I units which are
identified as sick Qas defined in R-'% circular "o.-4"02.B'..I B ,J.,E.,*BD,,*(D,,D dated *J 7anuar! D,,DR and where rehabilitation packagesBnursing programmes have been drawn b! the banks themselves or under consortium arrangements no provision need be made for a period of one !ear.
Advances against term deposits, N &s eligi*le for surrender, IFPs, 0FPs, and life policies are eGempted from provisioning reDuirements; -owever, advances against gold ornaments,
government securities and all other 2inds of securities are not eGempted from provisioning reDuirements; #reatment of interest suspense account9
Amounts held in Interest 2uspense Account should not be reckoned as part of provisions. Amounts l!ing in the Interest 2uspense Account should
Page 48
be deducted from the relative advances and thereafter provisioning as per the norms should be made on the balances after such deduction.
Advances covered b! 1'5'B%I'5' guarantee

In the case of advances guaranteed b! %I'5'B1'5' provision should be made onl! for the *alance in eGcess of the amount guaranteed b! these 'orporations. 0urther while arriving at the provision re/uired to be made for doubtful assets realisable value of the securities should first be deducted from the outstanding balance in respect of the amount guaranteed b! these 'orporations and then provision made as illustrated hereunder9 *+a%ple $utstanding Balance %I'5' 'over Rs. E lakhs ., percent than C !ears
-eriod for which the advance has remained More doubtful 8alue of securit!
remained doubtful held Rs. *.., lakhs
:excludes worth of Rs.;
!rovision re$uired to be %ade $utstanding balance Rs. E.,, lakhs
Page 49
4ess9 8alue of securit! held &nrealised balance 4ess9 %I'5'
Rs. *.., lakhs Rs. D.., lakhs 'over Rs. *.D. lakhs
:.,O of unrealisable balance; "et unsecured balance Rs. *.D. lakhs
-rovision for unsecured portion of Rs. *.D. lakhs :S *,, percent of advance -rovision advance #otal provision re/uired to be made for secured portion unsecured portion; of Rs. ,.I. lakhs :S ., percent of secured portion; Rs. D.,, lakhs
Advance covered *y &1T I guarantee

In case the advance covered b! '5#2I guarantee becomes non( performing no provision need be made towards the guaranteed portion. #he amount outstanding in excess of the guaranteed portion should be provided for as per the extant guidelines on provisioning for non( performing advances. #wo illustrative examples are given below9
*+a%ple ,
Page 50
Asset classification status9 '5#2I 'over
%oubtful L More than C !earsF I.O of the amount outstanding or I.O of the unsecured amount or Rs.*G.I. lakh whichever is the least
Realisable value of 2ecurit! Balance outstanding 4ess Realisable value
Rs.*.., lakh Rs.*,.,, lakh
of Rs. *.., lakh
securit! &nsecured amount 4ess '5#2I cover :I.O; "et unsecured Rs. G.., lakh Rs. J.CG lakh and Rs. D.*D lakh
uncovered portion9 Provision ReDuired 2ecured portion &nsecured portion #otal provision re/uired Rs. D.GI lakh = Rs.*.., lakh uncovered Rs.D.*D lakh Rs. ,.I. lakh :S .,O; Rs. D.*D lakh : *,,O;
Page 51
*+a%ple ,, Asset classification status '5#2I 'over %oubtful L More than C !earsF I.O of the amount outstanding orI.O of the unsecured amount or Rs.*G.I. lakh whichever is the least Realisable value of 2ecurit! Balance outstanding 4ess Realisable value Rs.*,.,, lakh Rs.E,.,, lakh of Rs. *,.,, lakh
securit! &nsecured amount 4ess '5#2I cover :I.O; "et unsecured Rs. C,.,, lakh Rs. *G.I. lakh and Rs. **.D. lakh
uncovered portion9 Provision ReDuired 2ecured portion &nsecured portion = Rs.*,.,, lakh uncovered Rs.**.D. lakh Rs. ..,, lakh :S .,O; Rs.**.D. lakh :*,,O;
Page 52
#otal provision re/uired
Rs. *J.D. lakh
Ta2e:out finance
#he lending institution should make provisions against a Ktake(out financeK turning into "-A pending its take(over b! the taking(over institution. As and when the asset is taken(over b! the taking(over institution the corresponding provisions could be reversed.
Reserve for 3Gchange Rate %luctuations Account 4R3R%A5

When exchange rate movements of Indian rupee turn adverse the outstanding amount of foreign currenc! denominated a loan :where actual disbursement was made in Indian Rupee; which becomes overdue goes up correspondingl! with its attendant implications of provisioning re/uirements. 2uch assets should not normall! be revalued. In case such assets need to be revalued as per re/uirement of accounting practices or for an! other re/uirement the following procedure ma! be adopted9
#he loss on revaluation of assets has to be booked in the bankKs -rofit
= 4oss Account. Besides the provisioning re/uirement as per Asset 'lassification banks should treat the full amount of the Revaluation 5ain relating to the corresponding assets if an! on account of 0oreign 1xchange 0luctuation as provision against the particular assets.
Page 53
Impact of NPA
Profita*ility,:
"-A means booking of mone! in terms of bad asset which occurred due to wrong choice of client. Because of the mone! getting blocked the prodigalit! of bank decreases not onl! b! the amount of "-A but "-A lead to opportunit! cost also as that much of profit invested in some return earning projectBasset. 2o "-A doesnAt affect current profit but also future stream of profit which ma! lead to loss of some long(term beneficial opportunit!. Another impact of reduction in profitabilit! is low R$I :return on investment; which adversel! affect current earning of bank.
9iDuidity,:
Mone! is getting blocked decreased profit lead to lack of enough cash at hand which lead to borrowing mone! for shotTrtes period of time which [Comparative analysis on NPA of Private & Public sector Banks] Page 54
lead to additional cost to the compan!. %ifficult! in operating the functions of bank is another cause of "-A due to lack of mone!. Routine pa!ments and dues.
Involvement of management,:
#ime and efforts of management is another indirect cost which bank has to bear due to "-A. #ime and efforts of management in handling and managing "-A would have diverted to some fruitful activities which would have given good returns. "ow da!As banks have special emplo!ees to deal and handle "-As which is additional cost to the bank.
&redit loss,:
Bank is facing problem of "-A then it adversel! affect the value of bank in terms of market credit. It will lose itAs goodwill and brand image and credit which have negative impact to the people who are putting their mone! in the banks .
Page 55
R3A .N %.R NPA,

Reasons can *e divided in to two *road categories,: "( ,nternal -actor '( *+ternal -actor
. " ( ,nternal -actors:/

Internal 0actors are those which are internal to the bank and are controllable b! banks. -oor lending decision9
Page 56
"on('ompliance to lending norms9
4ack of post credit supervision9
0ailure to appreciate good pa!ers9
1xcessive overdraft lending9
"on L #ransparent accounting polic!9
. ' ( *+ternal -actors:/

1xternal factors are those which are external to banks the! are not controllable b! banks. 2ocio political pressure9
'hang in industr! environment9
1ndangers macroeconomic disturbances9
"atural calamities
Industrial sickness
%iversion of funds and willful defaults
Page 57
#imeB cost overrun in project implementation
4abour problems of borrowed firm
Business failure
Inefficient management
$bsolete technolog!
-roduct obsolete
3arly symptoms *y which one can recogniHe a performing asset turning in to Non:performing asset
%our categories of early symptoms,: ::::::::::::::::::::::::::::::::::::::::::::::::::: 4 ' 5 %inancial,
"on(pa!ment of the ver! first installment in case of term loan. Bouncing of che/ue due to insufficient balance in the accounts. Irregularit! in installment. Irregularit! of operations in the accounts. &npaid over due bills. %eclining 'urrent Ratio. Page 58
-a!ment which does not cover the interest and principal amount of that installment. While monitoring the accounts it is found that partial amount is diverted to sister concern or parent compan!.
4B5

.perational and Physical,

If information is received that the borrower has either initiated the process of winding up or are not doing the business. $verdue receivables. 2tock statement not submitted on time. 1xternal non(controllable factor like natural calamities in the cit! where borrower conduct his business. 0re/uent changes in plan. "on pa!ment of wages.
4 C 5 Attitudinal &hanges,
&se for personal comfort stocks and shares b! borrower. Avoidance of contact with bank. -roblem between partners.
4 4 5 .thers,
'hanges in 5overnment policies. %eath of borrower. 'ompetition in the market.
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Preventive Measurement %or NPA *arly 0ecognition of t#e !roble%:/

Invariabl! b! the time banks start their efforts to get involved in a revival
process itAs too late to retrieve the situation( both in terms of rehabilitation of the project and recover! of bankAs dues. Identification of weakness in the ver! beginning that is 9 When the account starts showing first signs of weakness regardless of the fact that it ma! not have become "-A is imperative. Assessment of the potential of revival ma! be done on the basis of a techno(economic viabilit! stud!. Restructuring should be attempted where after an objective assessment of the promoterAs Page 60
intention banks are convinced of a turnaround within a scheduled timeframe. In respect of totall! unviable units as decided b! the bank it is better to facilitate winding upB selling of the unit earlier so as to recover whatever is possible through legal means before the securit! position becomes worse.
,dentifying 'orro)ers )it# Genuine ,ntent:/

Identif!i ng borrowers with genuine intent from those who are non( serious with no commitment or stake in revival is a challenge confronting bankers. 3ere the role of frontline officials at the branch level is paramount as the! are the ones who has intelligent inputs with regard to promotersA sincerit! and capabilit! to achieve turnaround. Base don this objective assessment banks should decide as /uickl! as possible whether it would be worthwhile to commit additional finance. In this regard banks ma! consider having I pecial InvestigationJ of all financial transaction or business transaction books of account in order to ascertain real factors that contributed to sickness of the borrower. Banks ma! have penal of technical experts with proven expertise and track record of preparing techno(economic stud! of the project of the borrowers. Borrowers having genuine problems due to temporar! mismatch in fund flow or sudden re/uirement of additional fund ma! be entertained at branch level and for this purpose a special limit to such t!pe of cases should be decided. #his will obviate the need to route the additional funding through the controlling offices in deserving cases and help avert man! accounts slipping into "-A categor!.
1i%eliness and "de$uacy of response:/

4onger the dela! in response grater the injur! to the account and the asset. #ime is a crucial element in an! restructuring or rehabilitation activit!. #he response decided on the basis of techno(economic stud! and promoterAs commitment has to be ade/uate in terms of extend of additional funding and relaxations etc. under the restructuring exercise. #he package of assistance ma! be flexible and bank ma! look at the exit option.
-ocus on Cas# -lo)s:/

While financing at the time of restructuring the banks ma! not be guided b! the conventional fund flow anal!sis onl! which could !ield a potentiall! misleading picture. Appraisal for fresh credit re/uirements ma! be done b! anal!)ing funds flow in conjunction with the 'ash 0low rather than onl! on the basis of 0unds 0low.
2anage%ent *ffectiveness:/
#he general perception among borrower is that it is lack of finance that leads to sickness and "-As. But this ma! not be the case all the time. Management effectiveness in tackling adverse business conditions is a ver! important aspect that affects a borrowing unitAs fortunes. A bank ma! commit additional finance to an aling unit onl! after basic viabilit! of the enterprise also in the context of /ualit! of management is examined and confirmed. Where the default is due to deeper malad! viabilit! stud! or investigative audit should be done L it will be useful to have consultant appointed as earl! as possible to examine this aspect. A proper techno( economic viabilit! stud! must thus become the basis on which an! future action can be considered.
Page 62
2ultiple -inancing:/
A; %uring the exercise for assessment of viabilit! and restructuring a
Pragmatic and unified approach b! all the lending banksB 0Is as also sharing of all relevant information on the borrower would go a long wa! toward overall success of rehabilitation exercise given the probabilit! of successBfailure.
); In some default cases where the unit is still working the bank
should make sure that it captures the cash flows :there is a tendenc! on part of the borrowers to switch bankers once the! default for fear of getting their cash flows forfeited; and ensure that such cash flows are used for working capital purposes. #oward this end there should be regular flow of information among consortium members. A bank which is not part of the consortium ma! not be allowed to offer credit facilities to such defaulting clients. 'urrent account facilities ma! also be denied at non( consortium banks to such clients and violation ma! attract penal action. #he &redit Information )ureau of India 9td;4&I)I95 ma! be ver! useful for meaningful information exchange on defaulting borrowers once the setup becomes full! operational.
&; In a forum of lenders the priorit! of each lender will be different.

While one set of lenders ma! be willing to wait for a longer time to recover its dues another lender ma! have a much shorter timeframe in mind. 2o it is possible that the letter categories of lenders ma! be willing to exit even a t a cost L b! a discounted settlement of the exposure. #herefore an! plan for restructuringBrehabilitation ma! take this aspect into account.
Page 63
+; &orporate
+e*t
Restructuring
mechanism
has
been
institutionali)ed in D,,* to provide a timel! and transparent s!stem for restructuring of the corporate debt of Rs. D, crore and above with the banks and 0Is on a voluntar! basis and outside the legal framework. &nder this s!stem banks ma! greatl! benefit in terms of restructuring of large standard accounts :potential "-As; and viable sub(standard accounts arrangements. with consortiumBmultiple banking
Page 64
Tools for recovery of NPAs

Credit Default
Inability to Pay
Willful default
Unviable
Viable
Re$abilitation Co"#ro"ise
Lok Adalat Debt Recovery Tribunals
ecuriti!ation Act
Consortiu" %inance
ole &anker
Asset Reconstruction
Cor#orate Debt Restructurin'
%res$ Issue of Ter" Loan
Conversion into WCTL
%res$ WC Li"it
Re#$ase"ent of Re#ay"ent Period

Page 65
$nce "-A occurred one must come out of it or it should be managed in most efficient manner. 4egal wa!s and means are there to over come and manage "-As. We will look into each one of it.
Willful 3efault :/
AR 4ok Adalat and %ebt Recover! #ribunal BR 2ecuriti)ation Act 'R Asset Reconstruction
)ok Adalat*
4ok Adalat institutions help banks to settle disputes involving account in >doubtful? and >loss? categor! with outstanding balance of Rs. . lakh for compromise settlement under 4ok Adalat. %ebt recover! tribunals have been empowered to organi)e 4ok Adalat to decide on cases of "-As of Rs. *, lakh and above. #his mechanism has proved to be /uite effective for speed! justice and recover! of small loans. #he progress through this channel is expected to pick up in the coming !ears. Debt Reco+ery Tribunals#DRT%* #he recover! of debts due to banks and financial institution passed in March D,,, has helped in strengthening the function of %R#s. -rovision for placement of more than one recover! officer power to attach defendantAs propert!Bassets before judgment penal provision for disobedience of tribunalAs order or for breach of an! terms of order and appointment of receiver with power of reali)ation management protection and preservation of propert! are [Comparative analysis on NPA of Private & Public sector Banks] Page 66
expected to provide necessar! teeth to the %R#s and speed up the recover! of "-As in the times to come. %R#s which have been set up b! the 5overnment to facilitate speed! recover! b! banksB%0Is have not been able make much impact on loan recover! due to variet! of reasons like inade/uate number lack of infrastructure under staffing and fre/uent adjournment of cases. It is essential that %R# mechanism is strengthened and vested with a proper enforcement mechanism to enforce their orders. "on observation of an! order passed b! the tribunal should amount to contempt of court the %R# should have right to initiate contempt proceedings. #he %R# should empowered to sell asset of the debtor companies and forward the proceed to the winding L up court for distribution among the lenders
,nability to !ay ,onsortium arrangements:

Asset classification of accounts under consortium should be based on the record of recovery of the individual mem*er *an2s and other aspects having a bearing on the recoverabilit! of the advances ; Where the remittances b! the borrower under consortium lending arrangements are pooled with one bank andBor 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 "-A. #he banks participating in the consortium should therefore arrange to get their share of recover! transferred from the lead bank or get an express consent from the lead bank for the transfer of their share of recover! to ensure proper asset classification in their respective books.
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Corporate debt 0estructuring 4C305: 'ackground

In spite of their best efforts and intentions sometimes corporate find themselves in financial difficult! because of factors be!ond their control and also due to certain internal reasons. 0or the revival of the corporate as well as for the safet! of the mone! lent b! the banks and 0Is timel! support through restructuring in genuine cases is called for. 3owever dela! in agreement amongst different lending institutions often comes in the wa! of such endeavours.
Based on the experience in other countries like the &.<. #hailand <orea etc. of putting in place institutional mechanism for restructuring of corporate debt and need for a similar mechanism in India a 'orporate %ebt Restructuring 2!stem has been evolved as under 9
6b7ective
#he objective of the 'orporate %ebt Restructuring :'%R; framework is to ensure timel! and transparent mechanism for restructuring of the corporate debts of via*le entities facing pro*lems, outside the purview of )I%R, +RT and other legal proceedings, for the *enefit of all concerned; In particular the framework will aim at preserving viable corporate that are affected b! certain internal and external factors and minimi)e the losses to the creditors and other stakeholders through an orderl! and coordinated restructuring programme.
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8tructure:
'%R s!stem in the countr! will have a three(tier structure9 4A5 &+R tanding %orum 4)5 &+R 3mpowered 1roup 4&5 &+R &ell
4"5 C30 8tanding -oru% :
#he '%R 2tanding 0orum would be the representative general bod! of all financial institutions and banks participating in '%R s!stem. All financial institutions and banks should participate in the s!stem in their own interest. '%R 2tanding 0orum will be a self(empowered bod! which will la! down policies and guidelines guide and monitor the progress of corporate debt restructuring. #he 0orum will also provide an official platform for both the creditors and borrowers :b! consultation; to amicabl! and collectivel! evolve policies and guidelines for working out debt restructuring plans in the interests of all concerned. #he '%R 2tanding 0orum shall comprise 'hairman = Managing %irector Industrial %evelopment Bank of IndiaF Managing %irector Industrial 'redit = Investment 'orporation of India 4imitedF 'hairman 2tate Bank of IndiaF 'hairman Indian Banks Association and 1xecutive %irector Reserve Bank of India as well as 'hairmen and Managing %irectors of all banks and financial institutions participating as permanent members in the s!stem. #he 0orum will elect its 'hairman for a period of one !ear and the principle of rotation will be followed in the subse/uent [Comparative analysis on NPA of Private & Public sector Banks] Page 69
!ears. 3owever the 0orum ma! decide to have a Working 'hairman as a whole(time officer to guide and carr! out the decisions of the '%R 2tanding 0orum.
A '%R 'ore 5roup will be carved out of the '%R 2tanding 0orum to assist the 2tanding 0orum in convening the meetings and taking decisions relating to polic! on behalf of the 2tanding 0orum. #he 'ore 5roup will consist of 'hief 1xecutives of I%BI I'I'I 2BI Bank of Baroda Bank of India -unjab "ational Bank Indian Banks Association and a representative of Reserve Bank of India. #he '%R 2tanding 0orum shall meet at least once ever! six months and would review and monitor the progress of corporate debt restructuring s!stem. #he 0orum would also la! down the policies and guidelines to be followed b! the '%R 1mpowered 5roup and '%R 'ell for debt restructuring and would ensure their smooth functioning and adherence to the prescribed time schedules for debt restructuring. It can also review an! individual decisions of the '%R 1mpowered 5roup and '%R 'ell. #he '%R 2tanding 0orum the '%R 1mpowered 5roup and '%R 'ell :described in following paragraphs; shall be housed in I%BI. All financial institutions and banks shall share the administrative and other costs. #he sharing pattern shall be as determined b! the 2tanding 0orum.
C30 *%po)ered Group and C30 Cell:

#he individual cases of corporate debt restructuring shall be decided b! the '%R 1mpowered 5roup consisting of 1% level representatives of I%BI I'I'I 4imited and 2BI as standing members in addition to 1% level representatives of financial institutions and banks who [Comparative analysis on NPA of Private & Public sector Banks] Page 70
have an exposure to the concerned compan!. In order to make the '%R 1mpowered 5roup effective and broad based and operate efficientl! and smoothl! it would have to be ensured that each financial institution and bank as participants of the '%R s!stem nominates a panel of two or three 1%s one of whom will participate in a specific meeting of the 1mpowered 5roup dealing with individual restructuring cases. Where however a bank B financial institution has onl! one 1xecutive %irector the panel ma! consist of senior officials dul! authori)ed b! its Board. #he level of representation of banksB financial institutions on the '%R 1mpowered 5roup should be at a sufficientl! senior level to ensure that concerned bank B 0I abides b! the necessar! commitments including sacrifices made towards debt restructuring. #he 1mpowered 5roup will consider the preliminar! report of all cases of re/uests of restructuring submitted to it b! the '%R 'ell. After the 1mpowered 5roup decides that restructuring of the compan! is prima( facie feasible and the enterprise is potentiall! viable in terms of the policies and guidelines evolved b! 2tanding 0orum with the 4ead Institution. #he '%R 1mpowered 5roup would be mandated to look into each case of debt restructuring eGamine the via*ility and reha*ilitation potential of the &ompany and approve the restructuring package within a specified time frame of $( days, or at best *G, da!s of reference to the 1mpowered 5roup. the detailed restructuring package will be worked out b! the '%R 'ell in conjunction
#here should be a general authorisation b! the respective Boards of the participating institutions B banks in favour of their representatives on the '%R 1mpowered 5roup authorising them to take decisions on behalf
Page 71
of their organi)ation corporate.
regarding restructuring of debts of individual
#he decisions of the '%R 1mpowered 5roup shall be final and action(reference point. If restructuring of debt is found viable and feasible and accepted b! the 1mpowered 5roup the compan! would be put on the restructuring mode. If however restructuring is not found viable the creditors would then be free to take necessar! steps for immediate recover! of dues and B or li/uidation or winding up of the compan! collectivel! or individuall!.
C30 Cell:
#he '%R 2tanding 0orum and the '%R 1mpowered 5roup will be assisted b! a '%R 'ell in all their functions. #he '%R 'ell will make the initial scrutin! of the proposals received from borrowers B lenders b! calling for proposed rehabilitation plan and other information and put up the matter before the '%R 1mpowered 5roup within one month to decide whether rehabilitation is prima facie feasible if so the '%R 'ell will proceed to prepare detailed Rehabilitation -lan with the help of lenders and if necessar! experts to be engaged from outside. If not found prima facie feasible the lenders ma! start action for recover! of their dues.
#o begin with '%R 'ell will be constituted in I%BI Mumbai and ade/uate members of staff for the 'ell will be deputed from banks and financial institutions. #he '%R 'ell ma! also take outside professional help. #he initial cost in operating the '%R mechanism including '%R 'ell will be met b! I%BI initiall! for one !ear and then from contribution from the financial institutions and banks in the 'ore 5roup at the rate of Rs.., lakh each and contribution from other institutions and banks at the rate of Rs.. lakh each. [Comparative analysis on NPA of Private & Public sector Banks] Page 72
All references for corporate debt restructuring b! lenders or borrowers will be made to the '%R 'ell. It shall be the responsibilit! of the lead institution B major stakeholder to the corporate to work out a preliminar! restructuring plan in consultation with other stakeholders and submit to the '%R 'ell within one month. #he '%R 'ell will prepare the restructuring plan in terms of the general policies and guidelines approved b! the '%R 2tanding 0orum and place for the consideration of the 1mpowered 5roup within C, da!s for decision. #he 1mpowered 5roup can approve or suggest modifications so however that a final decision must be taken within a total period of +, da!s. 3owever for sufficient reasons the period can be extended maximum upto *G, da!s from the date of reference to the '%R 'ell.
6t#er features:
'%R will be a "on(statutor! mechanism. '%R mechanism will be a voluntar! s!stem based on debtor( creditor agreement and inter(creditor agreement. #he scheme will not appl! to accounts involving onl! one financial institution or one bank. #he '%R mechanism will cover onl! multiple banking accounts B s!ndication B consortium accounts with outstanding exposure of Rs.D, crore and above b! banks and institutions.
#he '%R s!stem will be applicable onl! to standard and sub( standard accounts. 3owever as an interim measure permission for corporate debt restructuring will be made available b! RBI on the basis of specific recommendation of '%R H'ore(5roupH if a minimum of I. per cent :b! value; of the lenders constituting banks and 0Is consent for '%R [Comparative analysis on NPA of Private & Public sector Banks] Page 73
irrespective of differences in asset classification status in banksB financial institutions. #here would be no reDuirement of the account K company *eing sic2, NPA or *eing in default for a specified period before reference to the '%R 5roup. 3owever potentially via*le cases of NPAs will get priority; #his approach would provide the necessar! flexibilit! and facilitate timel! intervention for debt restructuring. -rescribing an! milestone:s; ma! not be necessar! since the debt restructuring exercise is being triggered b! banks and financial institutions or with their consent. In no case the re/uests of an! corporate indulging in wilful default or misfeasance will be considered for restructuring under '%R.
Reference to 'orporate %ebt Restructuring 2!stem could be triggered b! :i; an! or more of the secured creditor who have minimum D,O share in either working capital or term finance or :ii; b! the concerned corporate if supported b! a bank or financial institution having stake as in :i; above.
9egal 'asis
#he legal basis to the '%R mechanism shall be provided b! the +e*tor:&reditor Agreement 4+&A5 and the Inter:&reditor Agreement; #he debtors shall have to accede to the %'A either at the time of original loan documentation :for future cases; or at the time of reference to 'orporate %ebt Restructuring 'ell. 2imilarl! all participants in the '%R mechanism through their membership of the 2tanding 0orum shall have to enter into a legall! binding agreement with necessar! enforcement and penal clauses to operate the 2!stem through laid(down policies and guidelines.
Page 74
8tand/8till Clause:
$ne of the most important elements of %ebtor( 'reditor Agreement would be =stand still= agreement *inding for $( days, or *G, da!s b! both sides. &nder this clause both the debtor and creditor:s; shall agree to a legally *inding =stand:still= where*y *oth the parties commit themselves not to ta2ing recourse to any other legal action during the Kstand(stillK period this would be necessar! for enabling the '%R 2!stem to undertake the necessar! debt restructuring exercise without an! outside intervention judicial or otherwise. #he Inter('reditors Agreement would be a legall! binding agreement amongst the secured creditors with necessar! enforcement and penal clauses wherein the creditors would commit themselves to abide b! the various elements of '%R s!stem. 0urther the creditors shall agree that if "5E of secured creditors *y value, agree to a debt restructuring package the same would be binding on the remaining secured creditors.
"ccounting treat%ent for restructured accounts

#he accounting treatment of accounts restructured under '%R would be governed b! the prudential norms indicated in circular %B$%. B-. B'. +G B D*.,E.,EG B D,,,(,* dated March C, D,,*. Restructuring of corporate debts under '%R could take place in the following stages9
Before commencement of commercial productionF After commencement of commercial production but before the asset has been classified as sub(standardF
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After commencement of commercial production and the asset has been classified as sub(standard. #he prudential treatment of the accounts subjected to restructuring under '%R would be governed b! the following norms9
1reat%ent of standard accounts restructured under C30:
A rescheduling of the instalments of principal alone at an! of the aforesaid first two stages Qparagraph .:a; and :b; aboveR would not cause a standard asset to be classified in the sub(standard categor! provided the loan B credit facilit! is full! secured.
A rescheduling of interest element at an! of the foregoing first two stages would not cause an asset to be downgraded to sub( standard categor! subject to the condition that the amount of sacrifice if an! in the element of interest measured in present value terms is either written off or provision is made to the extent of the sacrifice involved. 0or the purpose the future interest due as per the original loan agreement in respect of an account should be discounted to the present value at a rate appropriate to the risk categor! of the borrower :i.e. current -4R P the appropriate credit risk premium for the borrower(categor!; and compared with the present value of the dues expected to be received under the restructuring package discounted on the same basis.
In case there is a sacrifice involved in the amount of interest in present value terms as at :b; above the amount of sacrifice should either be written off or provision made to the extent of the sacrifice involved.
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1reat%ent of sub/standard accounts restructured under C30
A rescheduling of the instalments of principal alone would render a sub(standard asset eligible to be continued in the sub(standard categor! for the specified period provided the loan B credit facilit! is full! secured.
A rescheduling of interest element would render a sub(standard asset eligible to be continued to be classified in sub(standard categor! for the specified period subject to the condition that the amount of sacrifice if an! in the element of interest measured in present value terms is either written off or provision is made to the extent of the sacrifice involved. 0or the purpose the future interest due as per the original loan agreement in respect of an account should be discounted to the present value at a rate appropriate to the risk categor! of the borrower :i.e. current -4R P the appropriate credit risk premium for the borrower(categor!; and compared with the present value of the dues expected to be received under the restructuring package discounted on the same basis.
In case there is a sacrifice involved in the amount of interest in present value terms as at :b; above the amount of sacrifice should either be written off or provision made to the extent of the sacrifice involved. 1ven in cases where the sacrifice is b! wa! of write off of the past interest dues the asset should continue to be treated as sub(standard. #he sub(standard accounts at :ii; :a; :b; and :c; above which have been subjected to restructuring etc. whether in respect of principal instalment or interest amount b! whatever modalit! would be eligible to be upgraded to the standard categor! only after the specified period, i;e;, a period of one year after the date when first pa!ment of interest or [Comparative analysis on NPA of Private & Public sector Banks] Page 77
of principal
whichever is earlier
falls due
subject to satisfactor!
performance during the period. #he amount of provision made earlier net of the amount provided for the sacrifice in the interest amount in present value terms as aforesaid could also be reversed after the one(!ear period. %uring this one(!ear period the sub(standard asset will not however the satisfactor!
deteriorate in its classification if satisfactor! performance of the account is demonstrated during the period. In case performance during the one !ear period is not evidenced the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre(restructuring pa!ment schedule. #he asset classification under '%R would continue to be bank( specific based on record of recover! of each bank as per the existing prudential norms applicable to banks.
0estructuring : 0esc#eduling of 9oans

A standard asset where the terms of the loan agreement regarding interest and principal have been renegotiated or rescheduled after commencement of production should be classified as sub(standard and should remain in such categor! for at least one !ear of satisfactor! performance under the renegotiated or rescheduled terms. In the case of sub(standard and doubtful assets also rescheduling does not entitle a bank to upgrade the /ualit! of advance automaticall! unless there is [Comparative analysis on NPA of Private & Public sector Banks] Page 78
satisfactor! performance under the rescheduled B renegotiated terms. 0ollowing representations from banks that the foregoing stipulations deter the banks from restructuring of standard and su*:standard loan assets even though the modification of terms might not jeopardise the assurance of repa!ment of dues from the borrower the norms relating to restructuring of standard and sub(standard assets were reviewed in March D,,*. In the context of restructuring of the accounts the following stages at which the restructuring B rescheduling B renegotiation of the terms of loan agreement could take place can be identified9
Before commencement of commercial productionF After commencement of commercial production but before the
asset has been classified as sub standard After commencement of commercial production and after the
asset has been classified as sub standard. In each of the foregoing three stages the rescheduling etc. of principal andBor of interest could take place with or without sacrifice as part of the restructuring package evolved.
1reat%ent of 0estructured 8tandard "ccounts:

A rescheduling of the instalments of principal alone at an! of the aforesaid first two stages would not cause a standard asset to be classified in the sub standard categor! provided the loanBcredit facilit! is full! secured.
A rescheduling of interest element at an! of the foregoing first two stages would not cause an asset to be downgraded to sub standard [Comparative analysis on NPA of Private & Public sector Banks] Page 79
categor! subject to the condition that the amount of sacrifice if an! in the element of interest measured in present value terms is either written off or provision is made to the extent of the sacrifice involved. 0or the purpose the future interest due as per the original loan agreement in respect of an account should be discounted to the present value at a rate appropriate to the risk categor! of the borrower :i.e. current -4RP the appropriate credit risk premium for the borrower(categor!; and compared with the present value of the dues expected to be received under the restructuring package discounted on the same basis.
In case there is a sacrifice involved in the amount of interest in present value terms as at :b; above the amount of sacrifice should either be written off or provision made to the extent of the sacrifice involved.
1reat%ent of restructured sub/standard accounts:

A rescheduling of the instalments of principal alone would render a sub(standard asset eligible to be continued in the sub(standard categor! for the specified period provided the loanBcredit facilit! is fully secured.
A rescheduling of interest element would render a sub(standard asset eligible to be continued to be classified in su* standard categor! for the specified period subject to the condition that the amount of sacrifice if an! in the element of interest measured in present value terms is either written off or provision is made to the extent of the sacrifice involved. 0or the purpose the future interest due as per the original loan agreement in respect of an account should be discounted to the present value at a rate appropriate to the risk categor! of the borrower :i.e. current -4R P the appropriate credit risk premium for the borrower(
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categor!; and compared with the present value of the dues expected to be received under the restructuring package discounted on the same basis. In case there is a sacrifice involved in the amount of interest in present value terms as at :b; above the amount of sacrifice should either be written off or provision made to the extent of the sacrifice involved. 1ven in cases where the sacrifice is b! wa! of write off of the past interest dues the asset should continue to be treated as sub(standard.
;p gradation of restructured accounts:

#he sub(standard accounts which have been subjected to restructuring etc. whether in respect of principal instalment or interest amount b! whatever modalit! would be eligible to be upgraded to the standard categor! onl! after the specified period i.e. a period of one !ear after the date when first pa!ment of interest or of principal whichever is earlier falls due subject to satisfactor! performance during the period. #he amount of provision made earlier net of the amount provided for the sacrifice in the interest amount in present value terms as aforesaid could also be reversed after the one !ear period. %uring this one(!ear period the sub(standard asset will not deteriorate in its classification if satisfactor! performance of the account is demonstrated during the period. In case however the satisfactor! performance during the one(!ear period is not evidenced the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre( restructuring pa!ment schedule.
General:
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#hese instructions would be applicable to all t!pe of credit facilities including working capital limits extended to industrial units provided the! are full! covered b! tangible securities. As trading involves onl! bu!ing and selling of commodities and the problems associated with manufacturing units such as bottleneck in commercial production time and cost escalation etc. are not applicable to them these guidelines should not be applied to restructuringB rescheduling of credit facilities extended to traders. While assessing the extent of securit! cover available to the credit facilities which are being restructuredB rescheduled collateral securit! would also be reckoned provided such collateral is a tangible securit! properl! charged to the bank and is not in the intangible form like guarantee etc. of the promoterB others.
,nco%e recognition
#here will be no change in the existing instructions on income recognition. 'onse/uentl! banks should not recognise income on accrual basis in respect of the projects even though the asset is classified as a standard asset if the asset is a Hnon performing assetH in terms of the extant instructions. In other words while the accounts of the project ma! be classified as a standard asset banks shall recognise income in such accounts onl! on realisation on cash basis if the asset has otherwise become @non performingA as per the extant delin/uenc! norm of *G, da!s. #he delin/uenc! norm would become +, da!s with effect from C* March D,,E. [Comparative analysis on NPA of Private & Public sector Banks] Page 82
'onse/uentl! banks which have wrongl! recognised income in the past should reverse the interest if it was recognised as income during the current !ear or make a provision for an e/uivalent amount if it was recognised as income in the previous !ear:s;. As regards the regulator! treatment of income recognised as @funded interestA and @conversion into e/uit! debentures or an! other instrumentA banks should adopt the following9
-unded ,nterest:
Income recognition in respect of the "-As
regardless of whether these are or are not subjected to restructuringB reschedulingB renegotiation of terms of the loan agreement should be done strictl! on cash basis onl! on realisation and not if the amount of interest overdue has been funded. If however the amount of funded interest is recognised as income a provision for an e/ual amount should also be made simultaneousl!. In other words an! funding of interest in respect of "-As if recognised as income should be full! provided for.
Conversion into e$uity, debentures or any ot#er

instru%ent: #he amount outstanding converted into other instruments
would normall! comprise principal and the interest components. If the amount of interest dues is converted into e/uit! or any other instrument and income is recognised in conse/uence full provision should be made for the amount of income so recognised to offset the effect of such income recognition. 2uch provision would be in addition to the amount of provision that ma! be necessar! for the depreciation in the value of the e/uit! or other instruments as per the investment valuation norms. 3owever if the conversion of interest is into e/uit! which is /uoted interest income can be recognised at market value of e/uit! as on the date of conversion not exceeding the amount of interest converted to e/uit!. 2uch e/uit! must [Comparative analysis on NPA of Private & Public sector Banks] Page 83
thereafter be classified in the Havailable for saleH categor! and valued at lower of cost or market value. In case of conversion of principal and Bor interest in respect of "-As into debentures such debentures should be treated as "-A ab initio in the same asset classification as was applicable to loan just before conversion and provision made as per norms. #his norm would also appl! to )ero coupon bonds or other instruments which seek to defer the liabilit! of the issuer. $n such debentures income should be recognised onl! on realisation basis. #he income in respect of unrealised interest which is converted into debentures or an! other fixed maturit! instrument should be recognised onl! on redemption of such instrument. 2ubject to the above the e/uit! shares or other instruments arising from conversion of the principal amount of loan would also be subject to the usual prudential valuation norms as applicable to such instruments.
!rovisioning
While there will be no change in the extant norms on provisioning for "-As banks which are alread! holding provisions against some of the accounts which ma! now be classified as @standardA shall continue to hold the provisions and shall not reverse the same.
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8pecial Cases
Accounts -ith temporary deficiencies*
#he classification of an asset as "-A should be based on the record of recover!. Bank should not classif! an advance account as "-A merel! due to the existence of some deficiencies which are temporar! in nature such as non(availabilit! of ade/uate drawing power based on the latest available stock statement balance outstanding exceeding the limit temporaril! non(submission of stock statements and non(renewal of the limits on the due date etc. In the matter of classification of accounts with such deficiencies banks ma! follow the following guidelines9
Banks should ensure that drawings in the working capital
accounts are covered b! the ade/uac! of current assets since current assets are first appropriated in times of distress. %rawing power is re/uired to be arrived at based on the stock statement which is current. 3owever considering the difficulties of large borrowers stock statements relied upon b! the banks for determining drawing power should not be older than three months. #he outstanding in the account based on drawing power calculated from stock statements older than three months would be deemed as irregular. A working capital borrower account will become "-A if such irregular drawings are permitted in the account for a continuous
Page 85
period of *G, da!s even though the unit ma! be working or the borrowerKs financial position is satisfactor!.
Regular and ad hoc credit limits need to be reviewedB regularised
not later than three months from the due dateBdate of ad hoc sanction. In case of constraints such as non(availabilit! of financial statements and other data from the borrowers the branch should furnish evidence to show that renewalB review of credit limits is alread! on and would be completed soon. In an! case dela! be!ond six months is not considered desirable as a general discipline. 3ence an account where the regularB ad hoc credit limits have not been reviewedB renewed within *G, da!s from the due dateB date of ad hoc sanction will be treated as "-A.
Accounts regularised near about the balance sheet date*

#he asset classification of borrower accounts where a solitar! or a few credits are recorded before the balance sheet date should be handled with care and without scope for subjectivit!. Where the account indicates inherent weakness on the basis of the data available the account should be deemed as a "-A. In other genuine cases the banks must furnish satisfactor! evidence to the 2tatutor! AuditorsBInspecting $fficers about the manner of regularisation of the account to eliminate doubts on their performing status.
Asset ,lassification to be borro-er"-ise and not facility"-ise

It is difficult to envisage a situation when onl! one facilit! to a borrower becomes a problem credit and not others. #herefore all the facilities granted b! a bank to a borrower will have to be treated as "-A and not the particular facilit! or part thereof which has become irregular. [Comparative analysis on NPA of Private & Public sector Banks] Page 86
If the debits arising out of devolvement of letters of credit or invoked guarantees are parked in a separate account the balance outstanding in that account also should be treated as a part of the borrowerAs principal operating account for the purpose of application of prudential norms on income recognition asset classification and provisioning.
Accounts -here there is erosion in the +alue of security
A "-A need not go through the various stages of classification in cases of serious credit impairment and such assets should be straightawa! classified as doubtful or loss asset as appropriate. 1rosion in the value of securit! can be reckoned as significant when the realisable value of the securit! is less than ., per cent of the value assessed b! the bank or accepted b! RBI at the time of last inspection as the case ma! be. 2uch "-As ma! be straightawa! classified under doubtful categor! and provisioning should be made as applicable to doubtful assets.
If the realisable value of the securit! as assessed b! the bankB approved valuesB RBI is less than *, per cent of the outstanding in the borrower accounts the existence of securit! should be ignored and the asset should be straightawa! classified as loss asset. It ma! be either written off or full! provided for b! the bank.
Ad+ances to PA,&.F&& ceded to ,ommercial Banks*

In respect of agricultural advances as well as advances for other purposes granted b! banks to ceded -A'2B 022 under the on(lending s!stem onl! that particular credit facilit! granted to -A'2B 022 which is in [Comparative analysis on NPA of Private & Public sector Banks] Page 87
default for a period of two harvest seasons :not exceeding two half !ears;Btwo /uarters as the case ma! be after it has become due will be classified as "-A and not all the credit facilities sanctioned to a -A'2B 022. #he other direct loans = advances if an! granted b! the bank to the member borrower of a -A'2B 022 outside the on(lending arrangement will become "-A even if one of the credit facilities granted to the same borrower becomes "-A.
Ad+ances against Term Deposits/ N&,s/ 01P.I1P/ etc*

Ad vances against term deposits "2's eligible for surrender I8-s <8-s and life policies need not be treated as "-As. Advances against gold ornaments government securities and all other securities are not covered b! this exemption.
)oans -ith 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 pa!ment of interest pa!ment of interest becomes KdueK onl! after the moratorium or gestation period is over. #herefore such amounts of interest do not become overdue and hence "-A with reference to the date of debit of interest. #he! become overdue after due date for pa!ment of interest if uncollected.
In the case of housing loan or similar advances granted to staff members where interest is pa!able after recover! of principal interest need not be considered as overdue from the first /uarter onwards. 2uch loansBadvances should be classified as "-A onl! when there is a default
Page 88
in repa!ment of instalment of principal or pa!ment of interest on the respective due dates
"gricultural advances
In respect of advances granted for agricultural purpose where interest andBor instalment of principal remains unpaid after it has become past due for two harvest seasons but for a period not exceeding two half( !ears such an advance should be treated as "-A. #he above norms should be made applicable to all direct agricultural advances as listed at items *.* *.*.D :i; to :vii; *.*.D :viii;:a;:*; and *.*.D :viii;:b;:*; of Master 'ircular on lending to priorit! sector "o. R-'%. -4A". B'. *DB,E.,+.,*B D,,*( D,,D dated * August D,,*. An extract of the list of these items is furnished in the Annexure II. In respect of agricultural loans other than those specified above identification of "-As would be done on the same basis as non agricultural advances which at present is the *G, da!s delin/uenc! norm.
Where
natural
calamities
impair
the
repa!ing
capacit!
of
agricultural borrowers banks ma! decide on their own as a relief measure ( conversion of the short(term production loan into a term loan or re( schedulement of the repa!ment periodF and the sanctioning of fresh short( term loan subject to various guidelines contained in RBI circulars dated D,.,J.+G and R-'%."o.-402.B'.*DGB,..,E.,DB+I(+G
R-'%."o.-402.B'.+B,..,*.,EB+G(++ dated D*.,I.+G.
Page 89
In such cases of conversion or re(schedulement the term loan as well as fresh short(term loan ma! be treated as current dues and need not be classified as "-A. #he asset classification of these loans would thereafter be governed b! the revised terms = conditions and would be treated as "-A if interest andBor instalment of principal remains unpaid for two harvest seasons but for a period not exceeding two half !ears.
Govern%ent guaranteed advances:

#he credit facilities backed b! guarantee of the 'entral 5overnment though overdue ma! be treated as "-A onl! when the 5overnment repudiates its guarantee when invoked. #his exemption from classification of 5overnment guaranteed advances as "-A is not for the purpose of recognition of income. With effect from *st April D,,, advances sanctioned against 2tate 5overnment guarantees should be classified as "-A in the normal course if the guarantee is invoked and remains in default for more than two /uarters. With effect from March C* D,,* the period of default is revised as more than *G, da!s.
1ake/out -inance:
#akeout finance is the product emerging in the context of the funding of long(term infrastructure projects. &nder this arrangement the institutionBthe bank financing infrastructure projects will have an arrangement with an! financial institution for transferring to the latter the outstanding in respect of such financing in their books on a pre( determined basis. In view of the time(lag involved in taking(over the possibilit! of a default in the meantime cannot be ruled out. #he norms of asset classification will have to be followed b! the concerned bankBfinancial institution in whose books the account stands as balance sheet item as on the relevant date. If the lending institution observes that [Comparative analysis on NPA of Private & Public sector Banks] Page 90
the asset has turned "-A on the basis of the record of recover! it should be classified accordingl!. #he lending institution should not recognise income on accrual basis and account for the same onl! when it is paid b! the borrowerB taking over institution :if the arrangement so provides;. #he lending institution should also make provisions against an! asset turning into "-A pending its take over b! taking over institution. As and when the asset is taken over b! the taking over institution the corresponding provisions could be reversed. 3owever the taking over institution on taking over such assets should make provisions treating the account as "-A from the actual date of it becoming "-A even though the account was not in its books as on that date.
!ost/s#ip%ent 8upplier's Credit

In respect of post(shipment credit extended b! the banks covering export of goods to countries for which the 1'5'As cover is available 1UIM Bank has introduced a guarantee(cum(refinance programme whereb! in the event of default 1UIM Bank will pa! the guaranteed amount to the bank within a period of C, da!s from the da! the bank invokes the guarantee after the exporter has filed claim with 1'5'. Accordingl! to the extent pa!ment has been received from the 1UIM Bank the advance ma! not be treated as a non(performing asset for asset classification and provisioning purposes.
*+port !ro7ect -inance:

In respect of export project finance there could be instances where the actual importer has paid the dues to the bank abroad but the bank in turn is unable to remit the amount due to political developments such as war strife &" embargo etc.
Page 91
In such cases where the lending bank is able to establish through documentar! evidence that the importer has cleared the dues in full b! depositing the amount in the bank abroad before it turned into "-A in the books of the bank but the importerKs countr! is not allowing the funds to be remitted due to political or other reasons the asset classification ma! be made after a period of one !ear from the date the amount was deposited b! the importer in the bank abroad.
"dvances under re#abilitation approved by ',-0: 19,:

Ban ks are not permitted to upgrade the classification of an! advance in respect of which the terms have been re(negotiated unless the package of re(negotiated terms has worked satisfactoril! for a period of one !ear. While the existing credit facilities sanctioned to a unit under rehabilitation packages approved b! BI0RBterm lending institutions will continue to be classified as sub(standard or doubtful as the case ma! be in respect of additional facilities sanctioned under the rehabilitation packages the Income Recognition Asset 'lassification norms will become applicable after a period of one !ear from the date of disbursement.
Page 92
069* 6- "0C,9 :/
#his empowerment encouraged the three major pla!ers in Indian banking s!stem namel! 2tate Bank of India :2BI; I'I'I Bank 4imited :I'I'I; and I%BI Bank 4imited :I%BI; to come together to set(up the first AR'. Arcil was incorporated as a public limited compan! on 0ebruar! ** D,,D and obtained its certificate of commencement of business on Ma! I D,,C. In pursuance of 2ection C of the 2ecuriti)ation Act D,,D it holds a certificate of registration dated August D+ D,,C issued b! the Reserve Bank of India :RBI; and operates under powers conferred under the 2ecuriti)ation Act D,,D. Arcil is also a Hfinancial institutionH within the meaning of 2ection D :h; :ia; of the Recover! of %ebts due to Banks and 0inancial Institutions Act *++C :the H%R# ActH;. Arcil is the first AR' in the countr! to commence business of resolution of non(performing assets :"-As; upon ac/uisition from Indian banks and financial institutions. As the first AR' Arcil has pla!ed a pioneering role in setting standards for the industr! in India.
;nlocking capital for t#e banking syste% and t#e econo%y #he primar! objective of Arcil is to expedite recover! of the amounts locked in "-As of lenders and thereb! rec!cling capital. Arcil thus provides relief to the banking s!stem b! managing "-As
Page 93
and help them concentrate on core banking activities thereb! enhancing shareholders value.
Creating a vibrant %arket for distressed debt assets : securities in ,ndia offering a trading platfor% for 9enders Arcil has made successful efforts in funneling investment from both from domestic and international pla!ers for funding these ac/uisitions of distressed assets followed b! showcasing them to prospective bu!ers. #his has initiated creation of a secondar! market of distressed assets in the countr! besides hastening their resolution. #he efforts of Arcil would lead the countr!As distressed debt market to international standards.
1o evolve and create significant capacity in t#e syste% for $uicker resolution of !"s by deploying t#e assets opti%ally
With a view to achieving high deliver! capabilities for resolution Arcil has put in place a structure aimed at outsourcing the various sub(functions of resolution to speciali)ed agencies wherever applicable under the provision of the 2ecuritisation Act D,,D. Arcil has also encourage groomed and developed man! such agencies to enhance its capacit! in line with the growth of its activit!.
Page 94
ANA9/ I
0or the purpose of anal!sis and comparison between private sector and public sector banks we take five(five banks in both sector to compare the non performing assets of banks. 0or understanding we further bifurcate the non performing assets in priorit! sector and non priorit! sector gross "-A and net "-A in percentage as well as in rupees deposit L investment L advances. %eposit L Investment L Advances is the first in the anal!sis because due to these we can understand the where the bank stands in the competitive market. As at end of march D,,G in private sector I'I'I Bank is the highest deposit(investment(advances figures in rupees crore second is 3%0' Bank and <$#A< Bank has least figures. In public sector banks -unjab "ational 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 %ena 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. [Comparative analysis on NPA of Private & Public sector Banks] Page 95
But when we compare the private sector bank I'I'I Bank with the public sector banks I'I'I Bank is more deposit(investment figures and first in the all banks.
+3P. IT:INF3 TM3NT:A+FAN&3
4 R ;&R.R35 of *oth sector
*an2s and comparison among them, year B((":(#;
)AN0 A8I -+%& I&I&I 0.TA0 IN+< IN+ T.TA9
+3P. IT #"!B! '(("!$ B444C' '!4B4 '$(C" 4!#B#"
INF3 TM3NT CC"(5 4$C$4 '''454 $'4B !!C( B'(CB5
A+FAN&3 5$!!' !C4B" BB5!'! '555B 'B"$5 C""(5'
-+.... -..... 8+.... 8..... +.... . ICICI 5DFC A2IS INDUS IND KOTAK DE POS IT INVE S TME NT ADVANCE S
Page 96
)AN0 ).) ).I +3NA PN) <)I T.TA9
+3P. IT '5B(C4 '5(('B CC$4C '!!45" '(C#5$ !(!C(5
INF3 TM3NT 4C#"( 4'#(C '(B#B 5C$$B CC#BC '#C""(
A+FAN&3 '(!"(' ''C4"! BC(B4 ''$5(B "4C4# 4C"(5'
8;.... 8:.... 89.... 8-.... 8..... ;.... :.... 9.... -.... . PNB BOB BOI UBI DE NA
DE POS IT INVES TME NT ADVANCE S
I&I&I )AN0 AN+ P<NLA) NATI.NA9 )AN0 ,:
Page 97
)AN0 I&I&I )AN0 PN)
+3P. IT B444C' '!!45"
INF3 TM3NT '''454 5C$$B
A+FAN&3 BB5!'! ''$5(B
-+.... -..... 8+.... 8..... +.... . IC IC I PNB DEPOSIT INVESTMENT ADVANC ES
#here are two concepts related to non(performing assetsM gross and net. 5ross refers to all "-As on a bankAs balance sheet irrespective of the provisions made. It consists of all the non standard assets vi). sub standard doubtful and loss assets. A loan asset is classified as @ sub standard? if it remains "-A up to a period of *G monthsF > doubtful? if it remains "-A for more than *G monthsF and loss collectible. "et "-A is gross "-A less provisions. 2ince in India bank balance sheets contains a huge amount of "-As and the process of recover! and write off of loans is ver! time consuming the provisions the banks have to make against the "-A according to the central bank guidelines are /uite significant. [Comparative analysis on NPA of Private & Public sector Banks] Page 98 without an! waiting period where the dues are considered not collectible or marginall!
3ere we can see that there are huge difference between gross and net "-A. 6hile gross NPA reflects the Duality of the loans made *y *an2s, net NPA shows the actual *urden of *an2s; #he re/uirements for provisions are 9 *,,O for loss assets *,,O of the unsecured portion plus D,(.,O of the secured portion depending on the period for which the account has remained in the doubtful categor! *,O general provision on the outstanding balance under the sub standard categor!.
3ere there are gross and net "-A data for D,,J(,I and D,,I(,G we taken for comparison among banks. #hese data are "-A A2 -1R'1"#A51 $0 #$#A4 A221#2. As we discuss earlier that gross "-A reflects the /ualit! of the loans made b! banks. Among all the ten banks %ena Banks has highest gross "-A as a percentage of total assets in the !ear D,,J(,I and also net "-A. -unjab "ational Bank shows vast difference between gross and net "-A. #here is almost same figures between B$I and B$B.
Page 99
61AR D,,J(,I
)AN0 ).) ).I +3NA PN) <)I 1R. NPA N3T NPA (;C5 (;45 ';'! (;45 (;5$
';4! ';4# B;C" B;($ ';#B
-)+ 8)+ 8 .)+ . DE NA UBI PNB BOI BOB GROSSNPA NE T NPA
Page 100
D,,I(,G
)AN0 ).) ).I +3NA PN) <)I 1R. NPA N3T NPA (;B" (;CC (;5! (;C# (;'(
';'( ';(# ';4# ';!" ';C4
8); 8): 8)9 8)8 .); .): .)9 .). DE NA PNB BOI BOB UBI
GROS SNPA NE T NPA
D,,J(,I
)AN0 A8I -+%& I&I&I 0.TA0 IN+< IN+ 1R. NPA N3T NPA (;C! (;BB (;5# ';($ ';C'
(;5" (;"B ';B( ';C$ ';!4
Page 101
8); 8): 8)9 8)8 .); .): .)9 .). INDUS IND KOTAK ICICI A2IS 5DFC
GROS SNPA NET NPA
D,,I(,G
)AN0 A8I -+%& I&I&I 0.TA0 IN+< IN+ 1R. NPA N3T NPA (;BC (;BB (;#" (;$# ';B5
(;45 (;!# ';$( ';55 ';!$
8)+ 8 .)+ . GROS SNPA NE T NPA
INDUS IND
KOTAK
ICICI
5DFC
A2IS
'$M-ARI2$" $0 1R.
NPA WI#3 A44 BA"<2 0$R #31
61AR D,,I(,G. #he growing "-As affects the health of banks [Comparative analysis on NPA of Private & Public sector Banks] Page 102
profitabilit! and efficienc!. In the long run it eats up the net worth of the banks. We can sa! that "-A is not a health! sign for Average of these ten banks 2o if we financial institutions. 3ere we take all the ten banks gross "-A together for better understanding. gross "-As is *.D+ as percentage of total assets.
compare in private sector banks AUI2 and 3%0' Bank are below average of all banks and in public sector B$B and B$I. Average of these five private sector banks gross "-A is *.D. and average of public sector banks is *.CC. Which is higher in compare of private sector banks. 5R$22 "-A 9(
2 1. 5 1 0.5 0 IC IC I INDU S IND K OTA K HD F C A XIS B OI B OB UB I D ENA P NB
'$M-ARI2$" $0 N3T NPA WI#3 A44 BA"<2 0$R #31 61AR D,,I(,G. Average of these ten bankAs net "-A is ,..J. 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. #he difference between private and public banks average is also vast. -rivate sector banks net "-A average is ,.I* and in public sector banks it is ,.E* as percentage of total assets. As we know that net "-A shows actual burden of banks. IndusInd bank has highest net "-A figure and 3%0' Bank has lowest in comparison.
"1# "-A of banks9(
Page 103
8)9 8)8 .); .): .)9 .). IC IC I INDUSIND K OTAK 5DFC A2IS B OI B OB UB I DENA PNB
!0,60,1< = 6 !0,60,1< 8*C160 When we further bifurcate "-A in priorit! sector and "on priorit! sector. Agriculture P small P others are priorit! sector. In private sector banks I'I'I Bank has the highest "-A in both sector in compare to other private sector banks. Around IDO of "-A is with I'I'I Bank with Rs.*C.+ crore in priorit! sector and around IGO in non priorit! sector. We can see that in private sector banks priorit! sector.
)AN0 A1RI 4'5 A8I -+%& I&I&I 0.TA0 IN+< IN+ T.TA9 *,+.*D CJ.*D +G*.G. *,.,, C,.EE **JI..C MA99 4B5 *E.IJ **,..J DC.C. CC.GE C.*G *G..J+ .T-3R 4C5 GJ.I* EI.I, C.E.*C E.,E C,.,D .DD.J, PRI.RIT/ 3&T.R 4 'MBMC 5 B'(;5$ '$4;4' 'C5$;C4 4";#" !C;!4 '#"5;#5 N.N: PRI.RIT/ B"5;(! "($;BC !B'';'B 4(5;B( CB#;!" "$B$;B#
banks has more "-A in non priorit! sector than
/... :... +... 9... <... -... 8... . A2IS 5DFC IC IC I KOTAK INDUSIND PRIORITY NON0PRIORITY
)AN0
PRI.RIT/ 3&T.R
NPA
Page 104
).) ).I +3NA PN) <)I
4A+FAN&3+ R ;&R.R3 5 .EJ+ CDJ+ **J, CIID *+DE
C., CD. *,J EEC *+I
:... +... 9... <... -... 8... . BOB BOI DE NA PNB UBI PRIORITY NPA
When we talk about public sector banks the! are more in priorit! sector and the! given advanced to weaker sector or industries. -ublic sector banks give more loans to Agriculture small scale and others units and as a result we see that there are more number of "-A in public sector banks than in private sector banks. B$B given more advanced to priorit! sector in D,,I(,G than other four banks and %ena Bank is in least. But when there are comparison between private bank and public sector bank still I'I'I Bank has more "-A in both priorit! and non priorit! sector with the comparison of public sector banks. 4arge "-A in I'I'I Bank because the strateg! of bank that risk(reward attitude and initiative in each sector. Above we also discuss that I'I'I Bank has highest deposit( investment(advance than other banks. "ow when we compare the all public sector banks and public sector banks on priorit! and non(priorit! sector than the figures are reall!
Page 105
shocking.
Because in compare of private sector banks public sector
banks numbers are ver! large.

P<)9I& 3&T.R B((!:(" B((":(# BB$54 4$( '5'5# C#!(B B5B#" B$$ '4'!C C$"4$ N36 PRIFAT3 B((!:(" B((":(# '4!# C 4#(( !B"' B(#( ( #CC$ '(4'$
3&T.R -RI$RI#6 -&B4I' "$" -R# #$#A4
3ere there are huge difference between private and public sector banks "-A. #here is increase in new private sector banks "-A of Rs.E*EG cr in D,,I(,G which is almost JJO rise than previous !ear. In public sector banks the numbers are not increased like private sector banks.
Page 106

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A PROJECT REPORT ON

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

ANNE2URE 3A *COVER PAGE,

IBMR0 INSTITUTE OF BUSINESS MANAGEMNT 4 RESEARC5 Code:-2911

Jigar J. Soni Nirav N. Gusai

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

ANNE2URE B *STUDENT DECLARATION,

=e $ere !y declare t$at t$e

roject re ort entitled COMPARATIVE artial #ul#ill"ent o# t$e

N"!e J-GA) J. S*N-

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

ANNE2URE 3C *E2AMINER6S CERTIFICATE,

-nternal eAa"iner Na"e:Buali#ication: .esignation: -

(Aternal eAa"iner Na"e:Buali#ication:.esignation:-

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

ANNU2ERE 3 D *UNIVERSITY STUDY CENTRE CERTIFICATE,

N"!e Jigar Soni

Certi#ied CGuideDs Na"e and Buali#icationE

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

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

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

2cope of the 2tud!

$B71'#I812 $0 #31 2#&%6

2ource of data collection

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

::: '$"#1"#2 ;;;

Reporting of NPAs Provisioning Norms 5eneral 0loating provisions 4eased Assets

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

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

Introduction to the topic

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

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

-I T.R/ .% IN+IAN )AN0IN1

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

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

"ew deliver! channels like A#M

-hone banking and

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

-ublication b! #A#A Mc5raw hill;

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

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

ii. iii. iv.

Ineffective recovery tri*unal

&hange on 1ovt; policies

INT3RNA9 %A&T.R ,: :::::::::::::::::::::::::::::::::

Improper 6.T analysis

Banks should investment.

it should collect credit information of the borrowers fromM

a. 0rom bankers. b. 1n/uir! from business. marketBsegment of trade industr!

Anal!)e the balance sheet.

-urpose of the loan

Poor credit appraisal system

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

*. Marketabilit! D. Acceptabilit! C. 2afet! E. #ransferabilit!.

A*sence of regular industrial visit

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

=.ut of .rder= status:

1ross NPAs Ratio

1ross NPAs 1ross Advances

As per the =1uidance Note on Accounting for 9eases= issued b!

Appropriation of recovery in NPAs

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

AN+ N3T NPA

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

D,,J. ,,O with effect from March C D,,I.

, percent of the =net oo2 value=.

Rs..., lakh Rs.,.,, lakh