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How to manage NPAs

G. Raghavan

Managing Non-performing Assets in Banks

By S. N. Bidani
Publishers: Vision Books
Price: Rs 325

The primary aim of any business is to make profits. Therefore, any asset created in the course of
the conduct of business should generate income for the business. This applies equally to the
business of banking. The banks the world over deal in money, by accepting deposits (liabilities)
and out of such deposits (liabilities) lend/create loans (assets). If for any reason such assets
created do not generate income or become sticky and difficult of recovery, then the very position
of the banks in repaying the deposits (liabilities) on the due dates would be at stake and in
jeopardy. Banks with such assets portfolio would become weak and naturally such weak banks
will lose the faith and confidence of the investors.

With the introduction of prudential norms for income recognition, assets classification and
provisioning, banks have become quite sensitive and are taking all possible steps to strengthen
their assets acquisition and monitoring systems. There is also a growing awareness to bring down
non-performing assets as these are having adverse impact on their profitability due to de-
recognition of interests as well as requirement of heavy loan loss provisions on such assets.
Therefore it would be prudent for banks to manage their assets in such a manner that they always
remain healthy, generate sufficient income and capable of repayment/recovery on the due dates.
Management of performing/non-performing assets in banks has become an `art and science' and
virtually `a battle of wits' between the banker and the borrower with the latter demanding write
off or at least a major sacrifice from the bankers side irrespective of whether he is in a position to
pay or not.

In view of the importance attached, a great need was felt for a comprehensive book on the
subject and this book by S.N. Bidani, a seasoned banker, has come in at the right time. The
author has dealt with the subject with conceptual clarity and in a lucid and understandable
language. An effort has been made in this book to deal with the subject of management of NPAs
right from identification stage till recovery of the dues including other aspects connected with the

Thus it is a definitive book which tackles the subject of managing NPAs in banks in its totality
— how to identify non-performing assets, assets classification and assessment of provisions, pre-
sanction appraisal and post-sanction supervision and follow-up, monitoring system for existing
and potential NPAs, rehabilitation of sick non-performing units, how to reduce risk-weighted
assets, NPA recovery through compromise and negotiated settlement, strategies and actionable
operational guidelines for reducing NPAs and suggestions for improving bank profitability.

In addition, the author has also provided by way of annexure, statistics on NPAs of banking
system and important reports like Narasimham Committee Report, Formats for bank's internal
control and reporting, etc., which would prove to be very useful for practicing bankers.
Management of non-performing assets of the financial sector was put on fast track recently with
the Union Cabinet approving the promulgation of an ordinance to facilitate securitisation and
reconstruction of financial assets.

Besides enabling banks and financial institutions to create a market for the securitised assets and
improve their asset liability management, the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Ordinance would also assist in setting up Asset
Reconstruction Companies. Though this is a welcome development, the bankers have to do their
basic homework and to utilise this opportunity to clean up and recover their dues at an early date.

Thus, this book will prove to be a useful document for those working in banks and financial
institutions, executives connected with the industry, students of management, etc as it gives a
comprehensive coverage. But this needs to be periodically updated with the latest developments
to keep it current and relevant. A special mention must be made about the publishers, Vision
Books who have brought out this book attractively.

(Appeared in The Hindu Business line 30th Sep 2002)