Вы находитесь на странице: 1из 79



A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of
which the interest and/ or installment of principal has remained ‘past due’ for a
specified period of time.
The three letters “NPA” Strike terror in banking sector and business circle today. NPA
is short form of “Non Performing Asset”. The dreaded NPA rule says simply this:
when interest or other due to a bank remains unpaid for more than 90 days, the entire
bank loan automatically turns a non performing asset. The recovery of loan has
always been problem for banks and financial institution. To come out of these first we
need to think is it possible to avoid NPA, no can not be then left is to look after the
factor responsible for it and managing those factors.
A bank is a financial institution that provides banking and other financial services. By
the term bank is generally understood an institution that holds a Banking Licenses.
Banking licenses are granted by financial supervision authorities and provide rights to
conduct the most fundamental banking services such as accepting deposits and
making loans. There are also financial institutions that provide certain banking
services without meeting the legal definition of a bank, a so-called Non-bank. Banks
are a subset of the financial services industry.
In human life, sickness, bankruptcy and death are not welcome, but they do
occur. So is the case with advances, which fall sick, go into liquidation and die much
against the wishes of all concerned. Realities cannot be escaped. It is necessary to face

In the context of non-performing assets the situation is no different. The frequent

references to non-performing assets primarily concern sick industrial units and
mounting over dues in all other sectors of advances, particularly in agriculture.
Financial assets become non-performing primarily because of the failure of the units
financed by banks.

The costs of managing non-performing assets are exorbitant. Bankers are compelled
to get bogged down with these matters thereby neglecting their role as a developing


The term non-performing assets can be defined both in the wider and in the narrower
sense. While in the narrow sense it includes only non-performing credit portfolio, in
the wider sense it may also include the volume of unutilized cash balances, unutilized
or underutilized physical assets like buildings and premises in the still wider sense, it
may also include non-performing human resources – a large volume of workforce not
effectively utilized.

A non-performing asset in the banking sector also is termed as an asset not

contributing to the income of the Bank. In other words they are the zero yielding
assets that are considered. The non-performing assets, inter-alia, includes surplus cash
and bankers balances hold over the optimal levels, amounts lying in the suspense
account, investments in shares or debentures and other securities not yielding any
dividend or interest, advances where interest is not forthcoming and even the principal
amount is difficult to recover. In terms of Health code basis, we may say that
advances classified under the Health Code Numbers 6,7,8 and those advances under
the Health Code Numbers 4,5 on which no interest is being charged, may be classified
among non-performing assets.

The project is to determine how to manage the Non-Performing Assets in Banks and
what is the trend of NPAs from the past years.

To carry out the study regarding NPAs which is of great concern in today’s scenario,
a very simple approach is followed to draw a conclusion. The comparison is done
between the data of HSBC& other commercial banks. Since this being a descriptive
research much emphasis will be given on comparison analysis of various years’
secondary data to carry out an inference.

To study the Non performing assets with reference to HSBC BANK

To understand what is Non Performing Assets and what are the underlying reasons
for the emergence of the NPAs.

To know what steps are being taken by the Indian banking sector to reduce the

To study the NPA management policy of ICICI BANK

To review HSBCperformance in non-performing assets for the time period of

The scope of the study is limited to the objectives as mentioned earlier. The
study ranges from understanding the significance of non-performing assets to defining
the criteria of identifying non-performing assets in the banking sector, to review
HSBC performance in the management of non-performing assets. It also reviews the
framework of HSBC recovery policy with which it hopes to bring down the
percentage of net non-performing assets to the net advances. The study also
encompasses the recommendations, the adhering of which will bring good results to
the organization.
The study pertains to behavior aspects such as perception, attitude and
expectations towards the Loan products and provided by HSBC PVT LTD.
The Research Design of my project is based on descriptive research.
 Through questionnaire: I initially was asked to prepare a questionnaire with
special reference to NPA and surveyed respondents in general i.e., not only the
customers of ICICI BANKwere questioned but customers of other banks in
 Face to face interaction: I was also provided the list of some defaulters i.e.,
NPA’s of HSBC bank residing in near locality, I personally interviewed them
in order to provide the information to bank and it also helped me in my
project report.
 Discussions: I also with help of discussions with my industry guide was able
to understand how they deal with NPAs.


 Records maintained by the bank: My project in charge provided me the

necessary records maintained by bank over the past periods regarding NPA in
general and also NPA’s with special reference to ICICI BANK so that I can get
ample information regarding this topic
 Internet: I also collected a lot of information regarding NPA in general and
related to bank through internet.

 I have selected only one bank for NPA which is not enough to provide me the
general information regarding NPA in other banks also it was due to short
period of time.
 I faced difficulty in doing proper INTERPRETATION as I did not have prior
experience for making project report.
 Questionnaire was given by bank as it was meant to be within the bank
 Response from respondents while filling the questionnaire was not up to the
Finance is the pre-essential for current business and budgetary organizations
assume a fundamental part in the monetary framework. It is through budgetary
markets and foundations that the money related arrangement of an economy works.
Money related markets allude to the institutional courses of action for managing in
budgetary resources and credit instruments of various sorts, for example, cash,
checks, bank stores, charges, securities, values, and so on. Money related market is a
wide term portraying any commercial center where purchasers and merchants take an
interest in the exchange of advantages, for example, values, securities, monetary
forms and subsidiaries. They are regularly characterized by having straightforward
estimating, fundamental controls on exchanging, expenses and charges and market
powers deciding the costs of securities that exchange.
For the most part, there is no particular place or area to demonstrate a budgetary
market. Wherever a money related exchange happens, it is considered to have
occurred in the monetary market. Thus budgetary markets are unavoidable in nature
since money related exchanges are themselves exceptionally inescapable all through
the financial framework. For example, issue of value shares, allowing of advance by
term loaning foundations, store of cash into a bank, buy of debentures, offer of offers
et cetera.
Basically, budgetary markets are the credit markets obliging the different needs of the
people, firms and foundations by encouraging purchasing and offering of money
related resources, claims and administrations.
Capital Market
The capital market is a business opportunity for money related resources which have a
long or uncertain development. For the most part, it manages long haul securities
which have a time of over multi year. In the most stretched out sense, it comprises of
a progression of channels through which the reserve funds of the network are made
accessible for modern and business undertakings and open specialists. All in all,
capital market encourages ascending of capital.
The real capacities performed by a capital market are:
1. Mobilization of money related assets on an across the nation scale.
2. Securing the outside capital and know-how to top off shortage in the required
assets for financial development at a speedier rate.
3. Effective distribution of the prepared money related assets, by guiding the
same to ventures yielding most noteworthy yield or to the undertakings expected to
advance adjusted financial improvement.
Capital market comprises of essential market and optional market.

Essential market: Primary market is a business opportunity for new issues or new
money related cases. Thus it is likewise called as New Issue Market. It fundamentally
manages those securities which are issued to the general population out of the blue.
The market, accordingly, makes accessible another square of securities for open
membership. As such, it manages raising of new capital by organizations either for
money or for thought other than money. As well as could be expected be Initial Public
Offering (IPO) where a firm offers to general society out of the blue.

Optional market: Secondary market is where existing securities are exchanged. At the
end of the day, securities which have just gone through new issue showcase are
exchanged this market. For the most part, such securities are cited in the stock trade
and it gives a nonstop and customary market for purchasing and offering of securities.
This market comprises of every single stock trade perceived by the administration of

Currency Market
Currency markets are the business sectors for here and now, very fluid obligation
securities. Currency showcase securities are by and large exceptionally safe
speculations which return generally low loan cost that is most fitting for impermanent
money stockpiling or here and now time needs. It comprises of various sub-markets
which on the whole constitute the currency advertise in particular call currency
showcase, business charges showcase, acknowledgment market, and Treasury charge
Subordinates Market
The subordinates showcase is the budgetary market for subsidiaries, money related
instruments like prospects contracts or alternatives, which are gotten from different
types of advantages. A subsidiary is a security whose cost is reliant upon or gotten
from at least one fundamental resources. The subsidiary itself is only an agreement
between at least two gatherings. Its esteem is controlled by variances in the hidden
resource. The most widely recognized fundamental resources incorporate stocks,
securities, items, monetary forms, loan fees and market files. The critical monetary
subsidiaries are the accompanying:
• Forwards: Forwards are the most seasoned of the considerable number of
subordinates. A forward contract alludes to an assention between two gatherings to
trade a concurred amount of a benefit for money at a specific date in future at a
foreordained cost determined in that understanding. The guaranteed resource might be
money, item, instrument and so forth.
• Futures: Future contract is fundamentally the same as a forward contract in all
regards with the exception of the way that it is totally an institutionalized one. It is
only an institutionalized forward contract which is legitimately enforceable and
dependably exchanged on a sorted out trade.

• Options: A monetary subsidiary that speaks to an agreement sold by one

gathering (alternative essayist) to another gathering (choice holder). The agreement
offers the purchaser the right, yet not the commitment, to purchase (call) or offer (put)
a security or other money related resource at a settled upon value (the strike cost)
amid a specific timeframe or on a particular date (practice date). Call alternatives give
the choice to purchase at certain value, so the purchaser would need the stock to go
up. Put alternatives give the choice to offer at a specific value, so the purchaser would
need the stock to go down. Swaps: It is yet another energizing exchanging instrument.
Infact, it is the mix of advances by two counterparties. It is masterminded to receive
the rewards emerging from the variances in the market – either cash market or
financing cost advertise or some other market so far as that is concerned. Outside
Exchange Market
It is a market in which members can purchase, offer, trade and conjecture on monetary
standards. Remote trade markets are comprised of banks, business organizations,
national banks, venture administration firms, speculative stock investments, and retail
forex intermediaries and speculators. The forex advertise is thought to be the biggest
monetary market on the planet. It is an overall decentralized over-the-counter money
related market for the exchanging of monetary standards. Since the cash markets are
huge and fluid, they are accepted to be the most proficient money related markets.
Realize that the remote trade showcase is anything but a solitary trade, however is
built of a worldwide system of PCs that interfaces members from all parts of the
Wares Market
It is a physical or virtual commercial center for purchasing, offering and exchanging
crude or essential items. For financial specialists' motivations there are as of now
around 50 noteworthy product markets worldwide that encourage speculation
exchange almost 100 essential items. Wares are part into two kinds: hard and delicate
products. Hard wares are regularly normal assets that must be mined or extricated
(gold, elastic, oil, and so on.), while delicate wares are agrarian items or domesticated
animals (corn, wheat, espresso, sugar, soybeans, pork, and so forth.)
Mergers and procurement (M&A) action in India rose 125 for every penny year-on-
year to US$ 32.5 billion crosswise over 445 arrangements amid January-September
2016.** Domestic M&A bargain esteem remained at US$ 7.3 billion crosswise over
137 arrangements amid July-September 2016, which is around 65 for each penny of
the aggregate M&A bargain estimation of US$ 11.3 billion amid the quarter. ^

Private value (PE) interests in land segment in India have expanded 22 for every
penny in the initial nine months of 2016 to achieve Rs 283 billion (US$ 4.24 billion),
when contrasted with a similar period in 20151

Assets prepared by Indian organizations through non-convertible debentures (NCDs)

expanded sixteen-crease to Rs 23,901.4 crore (US$ 3.58 billion) amid April-
September 2016 drove by developing financial specialist craving.

ICICI Direct.com is a truly online share-trading site. Which means that from the time
you punch in a buy or sell trade on your computer to the final settlement in your
account, everything happens completely online? The 3-in-1 e-invest account
integrates your brokerage, bank and one or more depository accounts to make sure
that you can do the otherwise cumbersome share trading from the comfort of your
home or office, at absolutely any time of the day or night


The Sales turnover of the Company during the year was Rs.2,602
million. There is a decrease of 4% from the previous year. Decline in the sale of
Carburettors for two wheelers and four wheelers had contributed to the overall sales
downturn though the Company has improved the sale of MPFI parts to passenger cars.

The profit after tax of the Company for the year under review is
Rs.377 million Due to inclusion of an extraordinary profit of Rs.250 million on sale of
investments, the Profit after Tax has registered an increase of 42% compared to
previous year. The profit from the manufacturing activities of the Company is lower
mainly due to

a. price reduction offered to customers

b. increase in the input and raw materials cost

c. a particular customer in the two wheeler market witnessed a steep decline in the
sale of a model for which UFSL is supplying the Carburettors

Key Ratios 2005-06 2004-05

Net Profit Ratio (PAT/Sales) 14.49 9.49 Net Profit Ratio (PAT/Net worth) 22.21
18.13 Current Ratio (Current Assets/Current Liabilities) 1.67:1 2.55:1 Debt - Equity
Ratio 0.47:1 0.04:1 Debtors Turnover (Debtors/Gross Sales) 1.18 Months 1.25
Months Creditors Turnover (Creditors/Purchases)1.86 Months 1.59 Months Dividend
Pay-out Ratio 17 15.37



1. Management philosophy and commitment to maximize shareholders returns

2. Upgraded product design and development facilities to develop new products and
aid diversification
3. Ongoing activities to support up gradation of operational performance and rise in
4. Team of talented and committed professionals available to improve companies
performance Weakness
1. Competition from cheap imports
2. Low customer base

1. UFSL has initiated development of products for diesel application. This will
provide tremendous scope for diversification and growth
2. Acquisition of AMTEC to provide opportunities to access global OEMs
3. Opportunity to support AMTECs operations by supplying products from India
4. The introduction of new emission norms will provide UFSL opportunity to develop
injection systems and thereby upgrade the status of the company from product to
system supplier.

Threats, Risks & Concerns

1. Constant pressure to be cost competitive to meet customer expectations
2. Relentless pressure to maintain profitability due to rising input/raw material prices
3. Increasing popularity of alternative fuel vehicles, such as Hybrid, Hydrogen
powered, CNG and LPG vehicles poses new challenges for the company


For ICICI the past half has been a trying period more so because of the adverse
environmental conditions such as the depressed equity markets and the volatile
currency markets. However, its retail thrust and a perceptible shift in financing from
manufacturing projects to corporate finance will put it in good stead for the quarters to
come. Its growing importance in the telecom and infrastructural sectors, which have
huge potential, will be a key driver of growth for the future


Winning is a habit that is assiduously cultivated at
ICICI Securities Limited (i-SEC). Be it deals,
mandates or awards, we manage them all in our quite and efficient way.

For us winning awards is a matter of pride and honour. Each new award is a
manifestation of our hard work and commitment to our clients.

Since inception, i-SEC’s expertise has been time and again widely recognized by both
domestic and international agencies.

Our Fixed Income team for the last two years (CY 2004 and 2005) has been adjudged
the “Best Bond House” in India by both Asiamoney and Finance Asia. The equities
team was adjudged the ‘Best Indian Brokerage House-2003’ by Asiamoney. The
Corporate Finance team, according to Bloomberg topped the M&A league tables in


The dematerialized form of shareholding and the depository mode of trade (scrip less
trade) have been in operation in developed financial markets for over 15 years. In
India, the first depository commenced operation a decade back and is relatively new.
The Indian financial market is in need of both scrip-based and scrip less trade, but the
investing community, which is used scrip-based trade, is bound to take some time to
accept the latter. The scrip less trading, till now a domain of the western world,
institutional investors and GDR holders is now mandatory even for small investors.
All those who hold physical share certificates have to get them dematerialized. If they
do not, they will be forced to do so at the time of sale.

The countless numbers of conservative Indians have to digest

it, whether they like it or not. First, the institutional investors succumbed. Then the
high net worth individuals, trading in more than a certain numbers of shares, were
forced to give in. now, it is the turn of the small investors of select-companies.

With their share certificates being replaced by small slips and receipts, naturally
the average investors will have their share of fears and apprehensions. It is necessary
to educate and convince these investors about the benefit of Demat rather than forcing
them to take part in the game.
To make ICICI Direct the dominant online share trading by world class people and
This we hope to achieve by:
 Understanding the needs of customers and offering them superior product and
 Leveraging technology to service customers quickly and conveniently.
 Developing and implementing superior risk management and investment
strategic to offer sustainable and stable return to our shareholder.
 Providing and enabling environment to foster growth and learning for our
2.4 Company’s mission:
To judged by their sales and earnings growth rates than on the absolute value of their
sales and earnings. Look for companies that consistently grow faster than there peers.
Investors prefer companies that increase profit margins -- the percentage of
sales that they keep -- every year. This is accomplished either by lowering expenses or
raising prices. Look for companies that consistently find ways to squeeze more profits
out of sales than their peers.
The financial health of a company is dependent on a combination of profitability,
short-term liquidity and long term liquidity. Companies, which are profitable, but
have poor short term or long term liquidity measures, do not survive the troughs of the
trade cycle


The dematerialized form of shareholding and the depository mode of trade

(scrip less trade) have been in operation in developed financial markets for
over 15 years. In India, the first depository commenced operations a decade
back and is relatively new. The Indian Financial Markets is in need of both
scrip-based trade, but the investing community, which is used to scrip-based
and scrip less trade, is bound to take some time to accept the latter. The scrip
less trading, till now a domain of the western world, institutional investors and
GDR holders is now mandatory even for small investors. All those who hold
physical share certificates have to get them dematerialized. If they do not,
they will be forced to do so at the time of sale.

A process by which the physical certificates of an investor are taken back

by the company / registrar and actually destroyed and an equivalent number
of securities are credited in the electronic holdings of the investor.

Offers services to clients dealing in Government securities through the SGL

A/C. besides holding the securities, ICICI Capital Services Ltd.

 Provides records update based on the transactions made by the

 Collects and credits the benefits and proceeds from sale to the clients’
account; and
 Supplies periodical reports on the transactions and holding of the

Next function activates when an investor buys or sells in the market.


1. An investor gets order executed and makes payment to the broker.

2. Investor instructs his Depository Participant to expect credit on settlement

day. Broker instructs his DP to debit his Clearing Member account on
settlement day.
3. Before settlement day Broker makes payment to clearinghouse through
Clearing Bank.

4.On settlement day Clearing house releases shares to broker’s Clearing

Member account which is then transferred to investors account through NSDL
(National Securities Depository Limited). Investor gets credit in his account.


1. An investor gets order executed.

2. Investor instructs his Depository Participant to debit his account with

immediate effect. The shares move from investors account to Brokers
Clearing Member account via NSDL. A Broker clearing member accounts
is credited.

3. Before settlement day broker transfers shares from his clearing member
account to Clearinghouse via NSDL. His account is debited.

4. On settlement day Broker receives payment from clearing house which he

passes on to the investor.

ICICIDirect.com is a truly online share-trading site. This means that from the
time you punch in a buy or sell trade on your computer to the final settlement
in your account, everything happens completely online. The 3-in-1 e-invest
account integrates your brokerage, bank and one or more depository
accounts to make sure that you can do the otherwise cumbersome share
trading from the comfort of your home or office, at absolutely any time of the
day…or night.


First an investor has to approach a DP and fill up an account opening form.

The account opening form must be supported by copies of any one of the
approved documents to serve as proof of identity (POI) and proof of address
(POA) as specified by SEBI. Besides, production of PAN card in original at the
time of opening of account has been made mandatory effective from April 01,

All applicants should carry original documents for verification by

an authorized official of the depository participant, under his signature.

Further, the investor has to sign an agreement with DP in a depository

prescribed standard format, which details rights and duties of investor and DP.
DP should provide the investor with a copy of the agreement and schedule of
charges for their future reference. The DP will open the account in the system
and give an account number, which is also called BO ID (Beneficiary Owner
Identification number).

The DP may revise the charges by giving 30 days notice in

advance. SEBI has rationalised the cost structure for dematerialisation by
removing account opening charges, transaction charges for credit of
securities, and custody charges vide circular dated January 28, 2005.

Further, SEBI has vide circular dated November 09, 2005

advised that with effect from January 09, 2006, no charges shall be levied by
a depository on DP and consequently, by a DP on a Beneficiary Owner (BO)
when a BO transfers all the securities lying in his account to another branch of
the same DP or to another DP of the same depository or another depository,
provided the BO Account/s at transferee DP and at transferor DP are one and
the same, i.e. identical in all respects. In case the BO Account at transferor
DP is a joint account, the BO Account at transferee DP should also be a joint
account in the same sequence of ownership.
Anil Kaul, ceo – Retail

Ashish Kaul, marketing & analysist

Rajendra Sharma, equity Analysist & MIS

Rohit Dhabolkar, marketing & Branding

Sanjiv Saraff, product Manager

Abhijit Ghosh, Sales zonal heads

Dharmesh dixit, project & operation.

Prasanan keshavan, Customer service & operation

Raman Addanki, Legal risk & Complain

Manoj kabra, Audit & cost control.

Harendra Kumar, Research

Joseph Abraham, HR.

Shikha sing, Compensation & Benefits.

Sujata kapoor, Talent Management.

Aloma Sing, Strategic & Sourcing.

Malachi Lopes, HRIS

Sanjita Chougle, Payroll.

Santosh Nayak, Administration.



Dr. Nammita Rajput (2010) in her research paper title “ Profitability and Non-
performing Assets: Indian perspective” analyze the nature extent and magnitude of
NPAs of SCBs ,as a group. This study also analyses the impact of NPAs on the
profitability of PSBs operating in Indian . Further , the study could provide useful
insights to assess if the changes in efficiency of banks have been in the desirable
direction and also useful in regulation and formulation of policies. The analysis
concluded that there is a diminishing trend in the ratios of NPAs as GNP and NNPAs.
There is a high degree of negative correlation between NPA Ratios with ROA.
Kaveri (2001) Studied the non- performing assets of various banks and
suggested various strategies to reduce the extent of NPAs.

Dong ( 2002) reviews the nature of NPAs in the Indian banking System and
discusses the key design features that would be important for the Assets
Reconstruction Companies to play an effective role in resolving such NPAs.

Muniappan (2002) expressed that the problem of NPAs is related to several

internal and external factors confronting the borrowers. The internal factors are
diversion of funds for expansion, diversification and mode mis action ; taking up new
projects, helping promotion associate concerns time ,cost overruns during the project
implementation stage, business failure , inefficient management , strained labour
relations, inappropriate technology problems, products obsolescence, etc. Which
external factors are recession , non-payment in other countries ,inputs / power
shortage, price escalation, accidents and natural calamities.

Dr. Janardhan G. Naik (2006) pointed out on the problems of NPAs to face the
challenges before the banking sector.

Chaitanya, V.K (2004) proposed a view that Non Performing Assets are one of the
major concerns for banks in India. NPAs reflect the performance of banks. A high level of
NPAsuggests high profitability of a large number of credit defaults that affect the
profitability and net worth of banks and also erodes the value of the assets . The NPAs
growth involves the necessity of provisions, which reduces the overall profits and
shareholder value. The problem ofNPAs is not only affecting the banks but also the whole
economy. The researcher discusses the concept of NPAs, its magnitude and
major causes for an account becoming non performing . The projection of NPA over
the next three years in public sector banks.

K. Veerakumar (2012) presented a research paper on “ NPAs in priority

Sector: A Threat to Indian Scheduled Commercial banks. In this paper he analysed to
gain in sights into the position of NPAs in priority sector advances by scheduled
commercial Banks(SCBs) i.c. public, old and new private and foreign banks have
been considered. To analyze ratio analysis, Average , percentage, olynomial Trend
analysis co- efficient correlation and multiple linear regression analysis and ‘t’ test
have been used.
Gourav Vallabh , Anoop Bhatia and Saurabh MIshra (2004) in their article
have made an attempt to analyse the movement of non- performing assets of public
and private banks along with foreign banks operating in India during the year 1994-95
to 2003-04, impacted by macro- economy factors and bank specific factors, using
regression techniques and Anova model. The observation was that NPA decrease with
increased priority sector loans to total loans and public sector loans were affected by
macroeconomic variables at large . But this research didn’t take interest rates ,
inflation rate in consideration.
Bercoff, Giovanniz and Grimardx (2002) in their study if Argentinean banks
tried to measure NPAs by using accelerated failure model encompassing the various
bank related parameters as well as macroeconomic variable. Some bank specific
parameters in their study were ratio of net worth , net assets , bank’s specific
parameters in their study were ratio of net worth to net assets, bank’s exposure to peso
loans, and type of bank such as foreign , private or public. Macroeconomic factors in
this study were credit growth , reserve adequacy (import/ reserves),foreign interest
rate and monetary expansion. The study established that variables such as operating
cost , exposure to peso loans, credit growth and foreign interest rate , had a negative
effect on NPAs. The macroeconomic variables such as money multiplier and reserve
adequacy had a positive impact on NPAs.

A.S. Ramasastri and N.K. Unnikrishna (2005) said that NPAs are largely
fallout of banks’ activities with regard to advances, both at the management and
implementation level, the credit appraisal system, monitoring of end- usage of funds.
It also depends on the over all economic environment for recovery of defaulted loans.

Since the overall environment is more or less same for all banks, non-performing
loans of individual banks are mainly a result of management controls and systems put
in place y them and recovery procedures. They concluded that higher than average
credit expansion can further strengthen banks if there is a good credit appraisal
system, strict recovery procedures and over all checks and balances by the top
management. Renu Jatana (2009) in her research paper title , “ Impact of NPAs on
profitability of banks” had analysed the impact of NPAs on profitability of public
sector banks and private sector banks with special reference and comparison of four
banks like SBBJ, Oriental Bank of commerce , ICICI bank and Bank of Rajasthan.
And at last she conclude that among the four selected banks ICICI is performing well
in managing the NPA as regard their profitabilityin comparison to other banks.

Mahipal Singh Yadav (2011) had analyzed in his research paper title , “ Impact
of NPAs on profitability and productivity of public sector banks in India”. The impact
of NPAs on profitability of PSBs at aggregate and sectoral level and also evaluate the
impact of NPAs on profitability with other variables and examine the impact of NPAs
on efficiency and productivity of the year 1994-95 to 2005-06. The simple linear
regression function is used to analyse the impact of NPAs on profitability of PSBs
.Statistically result revealed that the present level of NPAs in PSBs affects fifty
persent profitability of the banks and its impact has gone to increase at very large
extent when it works with other strategic banking variables.
“ Performance of Indian Public Sector Banks with Special Referance to NPA”
article is written by Sandeep Sharma & Rajesh Sharma . In this paper researchers
have made an attempt to analyze how efficiently public sector banks have been
managing their NPA. They have used least square method as statistical tool for
projection of trend. Paper shows that PSBs have enough capital in hand to deal with
future contingencies. Gross NPA and Net NPA as percentage of advances are
continuously declining which shows the efficiency of PSBs.
Dr. B. Chandra Mohan , “ NPA’s side effect and it’s curative Muntra” article is
written. In this article , researcher study the factors responsible for growth of NPAs
from lenders and borrowers perspective and also examine the impact of NPAs on
profitability and other strategic banking variables . In support of the objective of the

Research there is a primary research questionnaire administration method in the field
through stratified random sampling method covering the four districts of Odisha
through regional , geographical , economic, cultural , lingual and settlement wise. In
the conclusion , he said that the banks should not be loaded with twin objectives of
profitability and social welfare which are mutually incongruent. This calls for a strong
political will only then can banks be able to find satisfactory solution of the problem.
Ms. Kanika Goyal (2010) has written an article on “ Empirical Study of Non-
Performing Assets and Management of Indian Public sector Banks” . Under this
article she analysed the trend of gross NPAs , Net NPAs ,Asset quality of asset, health
of diverse categories of loan assets, sector wise NPA ect. The data has been analysed
using percentage method and statistical tools such as descriptive statistics, correlation
and regression analysis, adjusted co- efficient of determination, one way ANOVA and
post loc – Iukey HSD procedure.Kajal Chaudhary and Monika Sharma have
written an article on Performance of Indian Public Sector Banks and Private Sector
Banks: A Comparative Study”. Under this article researcher compare the performance
of public and private banks in India, trend in NPA level and also suggest various
measures for NPA management. At last researcher concluded that an efficient
management information system should be developed. The bank staff involved in
sanctioning the advances should be trained about the proper documentation and
gkarge of securities and motivated to take measures in preventing advances turning
into NPA . PSBs must pay attention on their functioning to complete private banks.
A Report on “ Non- Performing Assets- Challenge to the Public Sector Banks”
submitted by Sarvajeet S. Patil. The main objective of the report is to know why
NPAs are the great challenge to public sector banks and also understand impact of
NPAs and know what steps are taken by banks to reduce the NPAs? The data is
analysed and edited them and turned them in the useful tabulation. Gross ratio
analysis, Net ratio, provision ratio, problem asset ratio, capital adequacy ratio,
doubtful asset ratio, loss asset ratio are used. At last report concluded that the nets
have increased very drastically after 2001,in 1997 the gross NPAs of the Indian
banking sector was 47,300 crore where as in 2001 the figure was 63,883 and which

Increased at faster rate in 2003 with 94,905 crore. The PSbs involve it nearly 50% of share
in the NPA. Prof.G.V.Bhavani Prasad and D.Veena in their research paper “NPA Indian Banking
Sector Trend and issue’’ has evaluated the operational performance of SCBs in India since 2000,
NPAs Trends and issues. The study is diagnostic, expioratory in nature and makes use of secondary
data. The statistical tools like averages, percentages, mean and standard deviations are used to
analyze the data. And concluded that new private sector banks and foreign banks started with clear
state abd latest technologies, the public sector banks and old private sector bamks had to overcome
the old private sector banks had to overcome the old system and employee resistance and introduce
the new systems and processes nad norms to catch up with the competition.
Review of Literature which have higher NPA can lose the confidence of the customer and also it
would affect the liquidity, profitability Pallab Sikdar And Manish Makkad (2013)1 attempted to put
and solvency position of the bank. forward the means of interpreting credit risk from existing
levels of bank NPAs. Their research highlights the significant Scope of the Study steps taken and
procedures implemented by major Indian T he study analyzed the management of NPA in Syndicate
commercial banks, within the public and private sector, Bank only. The study is based on the
secondary data. The towards recovery of loans and advances slipping into the period of study is 5
year (2010-11to 2014-15). NPA bracket. The researcher found that the problem of NPAs can be
tackled only with proper credit assessment and risk Objectives of the Study management
mechanism. The following are the objectives of the study.
Zahoor Ahmad, M.Jegadeeshwaran (2013)2analyzed the 1.To analyze the gross and net NPA.
non-performing asset management in nationalized bank. .For
the study researcher collected the data for a period of five 2.To analyze the sector wise NPA.
years and analyzed by mean, CAGR, ANOVA and ranking. 3.To analyze the impact of Gross
NPAon Net Profit. The study revealed that there is significant difference in the
level of NPA's of nationalized banks which reflect their Hypothesis of the Study
varied efficiency in the management of nonperforming H0: There is no significant difference
between Gross and Net assets. NPA
Namita Rajput, Monika Gupta, MR. Ajay Kumar Chauvan H1: There is significant difference
between Gross and Net (2012)3had discussed NPA, Factors contributing to NPA, NPA Magnitude
and Consequences. By using analytical
perspective, the researcher observed that NPAs affected H0: There is no significant difference in
sector wise no significantly to the performance of the banks in the present performing assets.

scenario. On the other hand, factors like better credit culture, H1: There is significant difference in
sector wise non- managing the risk and business conditions which lead to performing assets.
Lowering of NPAs. The empirical findings using observation

Action for enforcement of security interest can be initiated only if the secured asset is
classified as Nonperforming asset.

Non performing asset means an asset or account of borrower ,which has been
classified by bank or financial institution as sub –standard , doubtful or loss asset, in
accordance with the direction or guidelines relating to assets classification issued
by RBI .

An amount due under any credit facility is treated as “past due” when it is not been
paid within 30 days from the due date. Due to the improvement in the payment and
settlement system, recovery climate, up gradation of technology in the banking
system etc, it was decided to dispense with “past due “concept, with effect from
March 31, 2001. Accordingly as from that date, a Non performing asset shell be an
advance where

i. Interest and/or installment of principal remain overdue for a period of more

than 180 days in respect of a term loan,

ii. The account remains ‘out of order ‘ for a period of more than 180 days ,in
respect of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 180 days in case of bill
purchased or discounted.

iv. Interest and/or principal remains overdue for two harvest season but for a
period not exceeding two half years in case of an advance granted for
agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than 180
days in respect of other accounts

With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt ’90 days overdue ‘norms for

identification of NPAs ,from the year ending March 31,2004,a non performing
asset shell be a loan or an advance where;

i. Interest and/or installment of principal remain overdue for a period of

more than 90 days in respect of a term loan,

ii. The account remains ‘out of order ‘ for a period of more than 90 days ,in
respect of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 90 days in case of
bill purchased or discounted.

iv. Interest and/or principal remains overdue for two harvest season but for
a period not exceeding two half years in case of an advance granted for
agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than

90 days in respect of other accounts

Out of order

An account should be treated as out of order if the outstanding balance remains

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


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


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


 Ineffective recovery tribunal

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

 Willful Defaults

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

 Natural calamities

This is the measure factor, which is creating alarming rise in NPAs of the
PSBs. every now and then India is hit by major natural calamities thus making the
borrowers unable to pay back there loans. Thus the bank has to make large amount of
provisions in order to compensate those loans, hence end up the fiscal with a reduced

Mainly ours farmers depends on rain fall for cropping. Due to irregularities of
rain fall the farmers are not to achieve the production level thus they are not repaying
the loans.

 Industrial sickness

Improper project handling , ineffective management , lack of adequate

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

 Lack of demand

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

 Change on Govt. policies

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

The fallout of handloom sector is continuing as most of the weavers Co-

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



 Defective Lending process

There are three cardinal principles of bank lending that have been followed by the
commercial banks since long.

i. Principles of safety
ii. Principle of liquidity
iii. Principles of profitability

i. Principles of safety :-

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

a. Capacity to pay

b. Willingness to pay

Capacity to pay depends upon:

1. Tangible assets
2. Success in business

Willingness to pay depends on:

1. Character
2. Honest
3. Reputation of borrower

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

Due to inappropriate technology and management information system, market driven

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

 Improper SWOT analysis

The improper strength, weakness, opportunity and threat analysis is another reason
for rise in NPAs. While providing unsecured advances the banks depend more on the
honesty, integrity, and financial soundness and credit worthiness of the borrower.

 Banks should consider the borrowers own capital investment.

 it should collect credit information of the borrowers from_

a. From bankers.
b. Enquiry from market/segment of trade, industry, business.
c. From external credit rating agencies.
 Analyze the balance sheet.

True picture of business will be revealed on analysis of profit/loss a/c and balance sheet.

 Purpose of the loan

When bankers give loan, he should analyze the purpose of the loan. To ensure safety and
liquidity, banks should grant loan for productive purpose only. Bank should analyze the
profitability, viability, long term acceptability of the project while financing.

 Poor credit appraisal system

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

 Managerial deficiencies

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

1. Marketability

2. Acceptability

3. Safety

4. Transferability.

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

Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand loom industries. The
biggest defaulters of OSCB are the OTM (117.77lakhs), and the handloom sector Orissa
hand loom WCS ltd (2439.60lakhs).

Absence of regular industrial visit

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

 Re loaning process

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


1. Owners 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 may affect a broad pool of shareholders.

2. Depositors do not receive a market return on saving. In the worst case if the bank fails,
depositors loose their assets or uninsured balance.

3. Banks redistribute losses to other borrowers by charging higher interest rates, lower deposit
rates and higher lending rates repress saving and financial market, which hamper economic

4. Non-performing loans epitomize bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital, and by extension, labour and natural resources.

Non performing asset may spill over the banking system and contract the money stock, which may
lead to economic contraction. This spill over effect can channelize through liquidity or bank
a) When many borrowers fail to pay interest, banks may experience liquidity shortage. This can
jam payment across the country,
b) Illiquidity constraints bank in paying depositors
.c) Undercapitalized banks exceeds the banks capital base.
The three letters Strike terror in banking sector and business circle today. NPA is short form
of “Non Performing Asset”. The dreaded NPA rule says simply this: when interest or other due to a
bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non
performing asset. The recovery of loan has always been problem for banks and financial institution.
To come out of these first we need to think is it possible to avoid NPA, no can not be then left is to
look after the factor responsible for it and managing those factors.

 Interest and/or instalment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural
purposes, and
 Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.

As a facilitating measure for smooth transition to 90 days norm, banks have been advised to move
over to charging of interest at monthly rests, by April 1, 2002. However, the date of classification of
an advance as NPA should not be changed on account of charging of interest at monthly rests.
Banks should, therefore, continue to classify an account as NPA only if the interest charged during
any quarter is not serviced fully within 180 days from the end of the quarter with effect from April
1, 2002 and 90 days from the end of the quarter with effect from March 31, 2004.
An account should be treated as 'out of order' if the outstanding balance remains
continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding
balance in the principal operating account is less than the sanctioned limit/drawing power, but there
are no credits continuously for six months as on the date of Balance Sheet or credits are not enough
to cover the interest debited during the same period, these accounts should be treated as 'out of
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on
the due date fixed by the bank.


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

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

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

 Credit loss:-

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


Reasons can be divided in to two broad categories:-
A] Internal Factor
B] External Factor

[ A ] Internal Factors:-

Internal Factors are those, which are internal to the bank and are controllable by
 Poor lending decision:

 Non-Compliance to lending norms:

 Lack of post credit supervision:

 Failure to appreciate good payers:

 Excessive overdraft lending:

 Non – Transparent accounting policy:

[ B ] External Factors:-
External factors are those, which are external to banks they are not controllable by

 Socio political pressure:

 Chang in industry environment:

 Endangers macroeconomic disturbances:

 Natural calamities

 Industrial sickness

 Diversion of funds and willful defaults

 Time/ cost overrun in project implementation

 Labour problems of borrowed firm

 Business failure

 Inefficient management

 Obsolete technology

 Product obsolete

Types of NPA

A] Gross NPA
B] Net NPA

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

Gross NPAs Ratio  Gross NPAs

Gross Advances

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

Net NPAs  Gross NPAs – Provisions

Gross Advances - Provisions


 Early Recognition of the Problem:-

Invariably, by the time banks start their efforts to get involved in a revival process,
it’s too late to retrieve the situation- both in terms of rehabilitation of the project and
recovery of bank’s dues. Identification of weakness in the very beginning that is :
When the account starts showing first signs of weakness regardless of the fact that it
may not have become NPA, is imperative. Assessment of the potential of revival may
be done on the basis of a techno-economic viability study. Restructuring should be
attempted where, after an objective assessment of the promoter’s intention, banks are
convinced of a turnaround within a scheduled timeframe. In respect of totally
unviable units as decided by the bank, it is better to facilitate winding up/ selling of
the unit earlier, so as to recover whatever is possible through legal means before the
security position becomes worse.

 Identifying Borrowers with Genuine Intent:-

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

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

Borrowers having genuine problems due to temporary mismatch in fund

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

Timeliness and Adequacy of response:-

Longer the delay in response, grater the injury to the account and the asset. Time is a
crucial element in any restructuring or rehabilitation activity. The response decided
on the basis of techno-economic study and promoter’s commitment, has to be
adequate in terms of extend of additional funding and relaxations etc. under the
restructuring exercise. The package of assistance may be flexible and bank may look
at the exit option.
 Focus on Cash Flows:-
While financing, at the time of restructuring the banks may not be guided by the
conventional fund flow analysis only, which could yield a potentially misleading
picture. Appraisal for fresh credit requirements may be done by analyzing funds flow
in conjunction with the Cash Flow rather than only on the basis of Funds Flow.

 Management Effectiveness:-

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

 Multiple Financing:-

A. During the exercise for assessment of viability and restructuring, a Pragmatic

and unified approach by all the lending banks/ FIs as also sharing of all
relevant information on the borrower would go a long way toward overall
success of rehabilitation exercise, given the probability of success/failure.

B. In some default cases, where the unit is still working, the bank should make
sure that it captures the cash flows (there is a tendency on part of the
borrowers to switch bankers once they default, for fear of getting their cash
flows forfeited), and ensure that such cash flows are used for working capital
purposes. Toward this end, there should be regular flow of information among
consortium members. A bank, which is not part of the consortium, may not be
allowed to offer credit facilities to such defaulting clients. Current account
facilities may also be denied at non-consortium banks to such clients and
violation may attract penal action. The Credit Information Bureau of India
Ltd.(CIBIL) may be very useful for meaningful information exchange on
defaulting borrowers once the setup becomes fully operational.

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

D. Corporate Debt Restructuring mechanism has been institutionalized in 2001

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

Tools for recovery of NPAs

Inability to Pay t Willful default

Unviable Viable a
Rehabilitation Lok Adalat t
Sole Banker
Consortium Finance

Corporate Debt

CONVERSI Fresh WC Rephasement of

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

 Willful Default :-
A] Lok Adalat and Debt Recovery Tribunal

B] Securitization Act

C] Asset Reconstruction

Lok Adalat:

Lok Adalat institutions help banks to settle disputes involving account in

“doubtful” and “loss” category, with outstanding balance of Rs. 5 lakh for

compromise settlement under Lok Adalat. Debt recovery tribunals have been
empowered to organize Lok Adalat to decide on cases of NPAs of Rs. 10 lakh and
above. This mechanism has proved to be quite effective for speedy justice and
recovery of small loans. The progress through this channel is expected to pick up in
the coming years.

 Debt Recovery Tribunals(DRT):

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

 Inability to Pay

Consortium arrangements:
Asset classification of accounts under consortium should
be based on the record of recovery of the individual member banks and other aspects having a
bearing on the recoverability of the advances. Where the remittances by the borrower under

consortium lending arrangements are pooled with one bank and/or where the bank receiving
remittances is not parting with the share of other member banks, the account will be treated as not
serviced in the books of the other member banks and therefore, be treated as NPA. The banks
participating in the consortium should, therefore, arrange to get their share of recovery transferred
from the lead bank or get an express consent from the lead bank for the transfer of their share of
recovery, to ensure proper asset classification in their respective books.

Corporate debt Restructuring (CDR):

In spite of their best efforts and intentions, sometimes corporate find themselves in
financial difficulty because of factors beyond their control and also due to certain
internal reasons. For the revival of the corporate as well as for the safety of the
money lent by the banks and FIs, timely support through restructuring in genuine
cases is called for. However, delay in agreement amongst different lending
institutions often comes in the way of such endeavours.

Based on the experience in other countries like the U.K., Thailand, Korea, etc. of putting in
place institutional mechanism for restructuring of corporate debt and need for a similar mechanism
in India, a Corporate Debt Restructuring System has been evolved, as under :

The objective of the Corporate Debt Restructuring (CDR) framework is to ensure timely and
transparent mechanism for restructuring of the corporate debts of viable entities facing problems,
outside the purview of BIFR, DRT and other legal proceedings, for the benefit of all concerned. In
particular, the framework will aim at preserving viable corporate that are affected by certain internal
and external factors and minimize the losses to the creditors and other stakeholders through an
orderly and coordinated restructuring programme.




Data has been collected from the annual reports of the respective private sector banks. The
basis studying trend of NPAs is ratio of Gross Non- Performing Assets (GNPAs) and ratio of Net
Non-Performing Assets (NNPAs). Both are shown in terms of percentage.
Ratio of GNPAs = Gross NPAs / Gross Advance. The following table shows the year wise Gross
and ratio of Gross NPAs of the three selected banks.

Table I: Gross NPAs and ratio of Gross NPAs of Banks (Rs. in Crores)
Source: Annual Reports


2014-15 1999.39 1.02 9475.33 3.62 1806.3 0.94
2015-16 2334.64 0.97 9607.75 3.22 2393.42 1.06
2016-17 2989.28 1 10505.8 3.03 3146.41 1.22
2017-18 3438.38 0.9 15094.7 3.78 4110.19 1.34
2018-19 4392.83 0.94 26221.3 5.82 60.88 1.67
Average 3030.9 0.97 14181 3.89 2303.44 1.25

From the Table 1 it is evident that the NPA problem is more acute in case of ICICI bank.
The time series data shows an increase of NPAs in respect of all the banks expect Axis Bank in
2015-16. The GNPA of HDFC Bank is increased from Rs. 1999.39 crores to Rs. 4392.83 crores in
2015-16. On the other hand in case of ICICI Bank the GNPA is increased from Rs. 9475.33 crores
in 2012-13 to Rs. 26221.25 crores in the reference period.. The GNPA situation in Axis Bank is Rs.
1806.30 crores in 2012-13 and increased to Rs. 4110.19 crores in 2014-15 but in 2015-16 it reduced
to Rs. 60.88 crores. The top management of HDFC Bank has kept the ratio of NPAs under control
and the average NPAs ratio is 0.97%. The increasing trend of GNPAs ratio is somehow reduced in
2012-13 and 2013-14 in case of ICICI Bank but from 2014-15 it is again uprising. The ratio of
NPAs of Axis Bank is ever increasing. Although the NPAs ratio is not alarming one (average
1.25%) but management should note that it is increased year after year. The following Figure 1
shows vividly the ratio of NPAs of HDFC Bank, ICICI Bank and Axis Bank.

From the above figure it is clear that the ratio of Gross NPAs in case of ICICI Bank is worst one
among the three banks.
The following paragraph shows the magnitude of net NPAs and ratio of net NPAs.
Ratio of NNPAs = Net NPAs / Net Advance. The following table shows the year wise Net NPAs
and ratio of Net NPAs of selected banks.
Net Advance = Gross Advance – Provisions for NPAs

Table II: Net NPA and Ratio of Net NPA of Banks (Rs. in Crores)


2014-15 352.33 0.2 1860.84 0.73 472.64 0.25
2015-16 468.95 0.2 2230.56 0.77 704.13 0.32
2016-17 820.03 0.3 3297.96 0.97 1024.62 0.4
2017-18 896.28 0.2 6255.53 1.61 1316.71 0.44
2018-19 1320.37 0.28 12963.08 2.98 25.22 0.7
Average 771.592 0.236 5321.594 1.412 708.664 0.422

Source: Annual Reports

Table II shows that the magnitude of net NPAs of all the banks has been consistently
increased during the years of study except 2015-16 in case of Axis Bank. In case of HDFC Bank
net NPAs was Rs. 352.33 crores in the year 2012-13 and rose to Rs. 1320.37 in 2015-16. On the
other hand, it increased from Rs. 1860.84 crores to Rs. 12963.08 crores in five years in case of
ICICI Bank. The net NPAs of Axis Bank was Rs. 472.64 crores in 2012-13 and it rose to Rs.
1316.71crores in 2014-15 with a sudden drop to Rs. 25.22 crores in 2015-16. The average net
NPAs of both HDFC Bank and Axis Bank are below 1% where as in case of ICICI Bank is more
than 1%. The following Figure 2 shows the ratio of Net NPAs of the three selected banks from the
year 2012 to 2015-16.

We now try to examine whether the NPAs have any significant impact on the net profit of the
respective banks.
The following Table III shows the Pearson’s correlation coefficient between net profit and gross

Table III: Correlation coefficient between Gross NPA and Net Profit (Rs. in Crores)
Source: Annual Reports


GNPA Net Profit GNPA Net Profit GNPA Net Profit
2014-15 1999.39 5167.07 9475.33 6465.26 1806.3 4242.21
2015-16 2334.64 6726.28 9607.75 8325.47 2393.42 5179.43
2016-17 2989.28 8478.4 10505.8 9810.48 3146.41 6217.67
2017-18 3438.38 10215.9 15094.7 11175.4 4110.19 7357.82
2018-19 4392.83 12296.2 26221.3 9726.29 60.88 8223.66

0.992747 0.448265 -0.158704

From the Table III it has been seen that the Pearson’s Correlation Coefficients are 0.992747,
0.448265 and (-) 0.158704 in case of HDFC Bank, ICICI Bank and Axis Bank respectively. The
negative correlation coefficient between net profit and gross NPAs means an increase in GNPAs
will decrease net profit of the bank. It is a logical conclusion because profitability of a bank
depends upon the recovery of loans and existence of bad loan will jeopardize it. But in case of
HDFC Bank and ICICI Bank, the correlation coefficients are positive. Does it indicate more NPAs
lead to more profit? The answer is certainly not. The magnitude of gross advance is increased year
after year and so the interest income and consequently profit of the bank also. Most of the borrower
pays their installments timely. Only a small portion failed to discharge their liability. If the NPAs
were big enough the profit will decrease. So it is seen that net profit as well as NPAs both are
increased simultaneously and a positive correlation exist between them. But it is the fact that
absence of the NPAs will boost up the profit of the banks. Besides, income from a variety of
financial services like stock broking services, investment banking, mutual funds, life and general
insurance, custodian services, issue of credit cards etc. have a positive effect on net profit.

The following Figure 3 shows the correlation coefficient between net profit and gross NPAs.
It has been seen that correlation coefficient is positive in case of HDFC Bank and ICICI Bank
whereas in case of Axis Bank it is negative.


According to the above chart the percentage of respondents having bank account is considerably
very high i.e., 98% and the main reason behind it is that people feel themselves secure while
depositing huge amounts of their money in banks and also get interest on such money from the
bank, and can demand their money back as and when needed. There are also people who do not
keep their money deposited in the bank and one of the major reason we were told by the
respondents is that they don’t have savings whatever they earn gets spent.


BOI 17


According to the above fig HSBC has got the highest percentage as compared to the other banks as
having maximum number of customers and the reason told by the respondents was that the bank
being the first and old in the state is being trusted by the people because of the kind of services and
facilities it provides to its customers. HSBC has also got the good percentage of customers in the
state as it is the other fully reliable bank in the state. BOI and other banks the state also have good
business spread all over the state of T.G.






According to the survey only 60% of respondents agreed that they have taken the facility of loans
from their respective banks, and almost 40% of them were those who didn’t had taken the facility of
loan from bank.


BOI 12
NIL 28


The above chart describes that the maximum number of loans and advances have been raised
through ICICI BANK as 32% of respondents said that they have taken loan from HSBC bank.
After ICICI BANK plays major role in advancing loans to the people as it contributes 18% of the
whole sample size. But the majority of people denied and told that they haven’t taken loan from any
bank. BOI with Other banks contribute less percentage towards loans and advances given to people.




While asking about the repayment of loan to respondents majority agreed that they are repaying
their loan at regular intervals which contributes almost 48% of the whole sample size and 40% of
them have not taken the facility of loan and 12% of the whole respondents were those who were not
repaying of their loan due to some reasonable problems.




According to the above chart when respondents were asked about the present status of their loan
majority of them who have taken loan from the bank know the status of their loan and are repaying
it at regular intervals in installments. 40% of respondents have not taken the loan at all from bank.
About 12% were those who don’t know the status of their loan as they didn’t disclosed the fact that
why they were not able to know the status of their loan and told there are some personal reasons.






In above chart about 70% respondents agreed about their interest in opening bank accounts in future
and the main reason they told was that they feel safe and secure to keep their money with bank
rather than keeping it at their own custody. 40% of respondents were those who are not interested to
open bank accounts in future the reason they told that either they have a number of existing
accounts in banks or they are satisfied with their existing bank accounts.


BOI 13


The above chart shows the response of people towards those banks in which they would like to
open their bank accounts in near future, according to above chart it clearly reveals that people
prefer to have their money in ICICI BANK and the main reason behind it is that ICICI BANK is
one of the oldest financial institution existing in the state of ap. Other major portion of chart is
covered by hsbc as it is also one of the trusted banks in the state, banks like boi and other private
banks have less portion as compared to ICICI BANK and hsbc this clearly indicates that ICICI
BANK and hsbc are working up to the expectations of people.





The above chart shows that the interest of people towards the banks as it shows the percentage of
family members of respondents having bank accounts, and the major portion of the chart indicates
that family members are having bank accounts belonging from the same family and there is very
less portion of people who do not have any other bank account accept one that of respondent




In the above chart we can clearly see that people are enjoying good experience with their bank
because of the kind of facilities and services they provide.

10 Deposits growth CAGR (from FY16 to
21% 13% 23% 18% 11% 14% 100%

The above graph shows CAGR ratio from the year 2018-2019HSBC has 35
%.it indicates moving well.

12 DEPOSIT-INVESTMENT-ADVANCES (RS.CRORE) of both sector banks and
comparison among them, year 2018-2019.


HSBC 87626 33705 59661

AXIS 100769 49394 63427
ICICI 244431 111454 225616
KOTAK 16424 9142 15552
INDUSIND 19037 6630 12795
TOTAL 468287 210325 377051

The above graph shows deposits & investments from the year 2018-2019 HSBC has 87626



HSBC 152034 43870 106701

BOI 150012 41803 113476
DENA 33943 10282 23024
PNB 166457 53992 119502
UBI 103859 33823 74348
TOTAL 606305 183770 437051

The above graph shows deposits & investments from the year 2018-2019HSBC has152034 &



HSBC 244431 111454 225616
PNB 166457 53992 119502

The above graph shows deposits & investments from the year 2018-2019HSBC &PNB has 244431
& 166457.
The above graph shows deposits & investments from the year 2018-2019HSBC &PNB has 111454
& 53992.


HSBC BANK 244431 111454 225616

PNB 166457 53992 119502

The above graph shows deposits & investments from the year 2018-2019HSBC &PNB has 152034
& 43870.

16 Gross NPA & NET
NPA 2018-2019

1.46 0.35
BOI 1.48 0.45

DENA 2.37 1.16

PNB 2.09 0.45

UBI 1.82 0.59

The above graph shows GROSS NPA & NET NPA from the year 2018-2019HSBC has 1.46 &



The data collected through Questionnaire based on NPA’s particularly with special reference
to ICICI BANK clearly reveal that people showed positive response especially for HSBC. In the
state of Telangana HSBC being the oldest and first financial institution is highly trusted and
successful bank in the state of Telangana .
Now concluding especially regarding NPAs with special reference to HSBC bank, If bank
has provided huge amounts of loans and advances to its customers and huge amount out of these
have turned into NPAs. The bank authorities provided me the list of number of its customers who
have turned into NPAs and have been declared as defaulters as not being able to repay the loans
raised by them. I personally went to them to fill my questionnaire and some of them totally
disagreed with being the defaulters and even some of them totally disagreed with the fact that they
have raised the loan from the bank; this clearly shows their intention and reveals that the fault lies
with them. A few disclosed that due to failure of their purpose for which loan was raised was not
In case of NPAs bank has taken several steps in order to make the recovery of NPAs. In the
first quarter of current financial year 2016 bank has recovered almost 70% of NPAs which is
positive sign for the bank.
Bank should maintain proper record of the loans and advances given out to its customers
with time period mentioned and there should be proper credit management in order to gauge and
control the loans provided to customers. Defaulters should be given proper time and should be
motivated to pay their respective debts to bank. Otherwise a strict action needs to be taken because
NPA one of the major threat faced by each and every bank in the country and public sector banks
have got the highest NPAs as compared to private banks and international financial institutions.

 ICICI BANKis the highly trustable bank of the state of Telangana.
 Percentage of recovery of NPAs was the highest in the country at the end of the first
quarter of current year.
 Bank has huge number of customers in the whole state besides the competitors like
ICICI, BOI, and HDFC etc.

1. Bank should have its own independence credit rating agency which should evaluate
the financial capacity of the borrower before than credit facility.
2. Special accounts should be made of the clients where monthly loan concentration
report should be made.
3. There should be proper monitoring of the restructuring accounts because there is
every possibility of the loan slipping into NPAs category again.
4. Proper training is important to the staff of the bank at the appropriate level either
ongoing process. That how they should deal with the problem of NPAs and what steps
should be taken to reduce the NPAs.
5. It is recommended that the proper documentation and verification to be made before
sanctioning the loan.
6. Constant interactions have to be maintained with the customers to keep track of their
loan payment.
7. Strict measures have to be taken while issuing or sanctioning the loan. The measures
can include verification of job and salary slips, verification of securities and the like.
8. When all possible attempts for recovery is failed only option is to proceed with legal
action and this should be speedy otherwise this will be costly.
9. It is also wise for the bank to carryout special investigative audit of all financial and
business transactions and books of accounts of the borrower company when there is
possibility of the diversion of the funds and mismanagement.
10. Independent settlement procedure should be more strict and faster and the decision
made by the settlement committee should be binding both borrowers and lenders and
any one of them failing to follow the decision of the settlement committee should be
punished severely.
11. The bank should come out with new and innovative methods to recovered NPA and
should motivate customers to pay their dues in time.
12. Wilful Default of Bank loans should be made a Criminal Offence.


 Pandey, I.M. (2006), Financial Management, 7th Ed. New Delhi: Vikas
Publishing House Pvt. ltd
 Kotler, P. (2006), Marketing Management, 12th Ed. New Delhi: Pearson
Publishers Ltd.
 Gupta, Shashi K.(2007), Financial Management, 5th Ed. Ludhiana: Kalyani
 Risk Management by Indian institute of banking and finance. (Macmillan).

 IBA Bulletin (January 2016), (February 2017), Monthly journal published by Indian Banks’



 Annual report of The HSBC LTD,TELANGANA.

 Magazines such as Business Economics.
 Newspapers such as Greater Telangana (Corporate Section), bank dairy, bank
magazine, catalogue etc.
 Yearly journals of The HSBC LTD, TELANGANA.