EXECUTIVE SUMMARY

The Major Project Report uadertakea by rre fun given in an exposure into th Non•
Performing Wests of Banks in fndix The project tlut wa.s uadertnken invo Ives Public &
Private Sector Banks in the couatr y. fn this project tlmir Non• Performing meets have been
amlyzed on the bmi.s of various ratios & correFit ion Analysis.

Titre of th study is ••COt\4f•ARAT US ANALYSIS OF NON f•ERFORMlNG ASSETS

As in tkis report study of NPAS is done, so Non Performing meets mean the debt which is
g iven by the Bank is uaable to recover it is carted NPA . Non• Performing Asset [NPA] is a
resut of asset Limb*ity misrmtch. A NPA account ia the bonke of mcoums is an xsset a.s it
indicates the arrnunt receivable from the Defaulters. It rreans if any bank gives loan to the
cintorrer if the interest for tlut ic'ar1 £s not paid by the custo rrer tilt 90 days then tlut account
iz calied as NPA acoum.

As the analysis doc is of bank irig sector so we rrnist krmw about bank tag. Boiñcing Gleans
" Accepting Deposits for the purpose of tending or Invest rrem of deposits of rrnney from the
public, repayable on demand or otherwise arid withdraw by cheqm. drah or otherw tee."

The Objectives urxiertakeri in the study were, to understand the concept of Non•Perforrning
Assets of Puhlic 5 ector arid Private 5 ector Banks, to evahiate the efficiericy in mnmgiag
Non•Performirig Assets of Public Sector and Private Sector Banks via compact ice rat irxs. to
amlyze the various compceit torn of the Non-Performing Assets of Public Sector arid Pri vate
Sector Banks, to study the impact of Non•Performing Assets on profnabil hy of Pub be Sector
arid Pr ivate Sector Banks arid to study the various recovery clunrie Is for Non•Perfor mirig

The arch I\4dhmfoiogy hu:iudes the secondary daa which cornists of th data of NPA
of both the sectors wléch iu.s been taken 6om the official webs he of The Resm ve Bank of
Irxlia arid ratios luve been calculated in excel workshmt arid correlation amlysis luive been
dv in SPSS.

Ever ythiag lms some limitat torn & aho this report is rat free from ft mitat inns & the main
Limitstioiu of the Study are 5 in my study is Used upon 5 eccoidary data. the prat km
operat kms as re lated to NPAS are adopted by the banks are nut learned. The so iut torn are riot
app licabie to every bank. NPAS are ciung irig whh th t irre. The study is done in the pr em
errvironrrem without foresing future deve ioprrems. The study, a.s limhmior . is confeied
oniy to the se iected arid restr icted indicators arid the study is con fined oniy for the perkd of

The Oi*mrvstioiw & Fimiirigs of the study are bred on the results interpreted tlnnugh the
analysis of the ratir:e & correlation ited in tlñs study. From the study rt ivxs been observed
that private sector bank, is having a better rruriagerrem of NPA’s ia all a.spects in
comparison of Pub lie 5 mtor Banks. All the tools wlnther it is Ciross NPA Rntirxs. Net NPA
Rai ios. Provision Rnt ios for NPA. Standed. Sub •Standard. Doubtful, Loss Asset Rnt irxs etc.
Pr ivate Sector Banks lure an upper edge over Public Sector Bank in all of them

Based on the Findings of the study from the interpretation. there are sorre Suggenioi- in
light to them wh éh include trying up li hing business of banking by reducing NPA’s w*h the
be lp of var inns recovery chanrie1s like Lok Adaalat’s, DTR’s, 5AR£AESI Act and many
mme other clunriels.

In light of al1 the above Findings & Suggest ions the Conchidon is tlvic if the coin:ept of
NPAs is taken very hght iy it would be dangeroin for the Indian hauling sector. The NPAs
won id destroy the current profit: imeiest iiu:o rue due to iarge provifions of the NPAs, and
won id affect the smooth fumtioning of the recycling of the funds.
 CHAPTER-1
INTRODUCTION
A strong biirtking sector is importam for flrnirishing ecormmy. One of the most impor tart and
mnjor roles p layed by banking smtor is tlim of lending bimiriess. It is gemrally era:ouraged
became it ha.s the eifect of funds be ing trainferred from the system to productive purposes.
u'hich aho resuhs imo ecormmic grounli. As there are pros and core of everything, the same
is w'nh tending biniriess tlut carr res credit rtsk, which aria frnm the far lure of borrower to
fuifil its comractual ob ligat inns ehher during the course of a trarnact inn or on a future
obligat ion. The fañure of the bank ing sector rnny luve an adverse impact on other sectors.
Non• perfor ming assets are one of the mnjor concern for banks ia India. NPAs refRct the
perforrriarv:e of banks. A high level of NPAs suggests high probabilit y of a large number of
ered h defaults tint affect the profrtabi hty arid net-worth of banks arid also erodes the vaiue of
the meet. The NPA growth involves the necessity of proc isions, which redur:es the ovmah
pro Pns arid shareholders’ vaiue. The issue of Non Performing Assets ha.s been discussed at
leagth for fmancial system all over the world. The problem of NPAs is rat only affect irig the
banks but aho the whn R ecorm my. In fact high revel of NPAs in Indian banks is ririthiag but
a reflect ion of the state of eahh of the industry and tra4e. This project deaLs with
understanding the coin:ept of NPAx its rnagrñtude arid major causes for an mcount becoming
rmn•performing. projection of NPAS over next ymrs in banks arid com luding remarks.
T"lv• ring rn ude of NPAs iuv e a direct impan on Banks profitabiihy legally they are not
allowed to beck income on sur:h accounts arid at the same t iine barges are forced to make
provisions on sinh assets a.s per RBI guidelines The RBt furs adv reed all State Co-operative
Bañks as we 0 as the Cemral Co-oper at ive Banks in the couatr y to ia4opt prudemiul rmrms
from the year ending 3t •(l3•1997. These iuve bun amended a nu mber of t imes site 1997.
As per their gu ideliaes the meaning of NPAs. the rmrm.s regarding assets c1a.o ification and
provisioning Its raw very kacrwn that the banks arid firianc£il institution in India face the
probRm of amp h fleet ion of rmn•performing assets {NPAs} arid the ñsue is becoming mnre
'and more uniriamgeabfe. In order to br irig the shimt ion under comro1, ia torn steps have been
taken. Arrnng all other steps rrnst importam one wa.s the introduction of 5ecur itizat iron arid
Rs:orntr1ntion of Firumcial Arts and Errforcernem of Security Interest Act, 2tD2 by
Par fiamem. which wa.s an important step towards elimimt ion or redur:tion of NPAs.
An asset is cla.ssifkd as rm n•performing *sect tNPAs} if dues in the form of primipal arid
imerest are not paid by the borrower for a per ie'd of 180 days. however u hh effect from
March 2tn4. defau h status would he given to a borrower if daes are aot paid for 'Al days W
any advaiu:e or ered h fac i4ity gramed by bank to a borrower beco rres non -performing, tier
the bank w ñ1 luve to treat all the adva1u:es/credit fa ilit ies granted to tlut borrower as run •
performing w hhout having any regard to the f:ict tlut there rmy still exist s certain advances /
ered * fac*ities luv ing per#irmiag status. The NPA level of our banks is way high than
imerriat iorial standards. One cannot igrmre the fact that a part of the reduction ia N PA’s é
due to the writ irig off ba4 roars by banks. fr›dian banks slmu id take care to ernure that they
g ive roars to credit worthy cintomers. tn th is comext the dictum “prevemion is afways better
than cure”acts as the go iden rule to redine NPA’s.

1.1 INDIAN BAW£NG SECTOR

Bank irig in India ma.s hs orig in v early as the Vedic period. It £s believed that the
tranfit kin from rrnriey leading to bank ing mint have occurred even before Mami, the great
Hindu Jurist, who has devoted a section of his work to depnshs and advaiu:es ar›d laid doum
ruie.s relat ing to rates of imerest . During the Mogul period, the indigermin bankers p layed a
very importam role in lending rromy and finaric ing foreign trade aad commer ce. Duriag the
days of the Enit fridia Company, h wa.s the turn of the ageiu:y hours to carry on the bank irig

year t7 ß6. The others which fo üowed eure the Bank of H iridustan and the Bengal Bank. The
Bank of Hirxhistan is reported to have contimied t ill t 9(ifi white the mher two failed in t he
rneamime. fu the first lutf of the t9th century the Erst fiidin Company esablished three
bank.s: the Bank of Bengiil in t &fl9, the Bank of Bombay in t 840 and the Bank of Madras in
t ß43. These tliree banks ako krmwn es Presideiu:y Banks were iadeperidem un hs and
furictioried well. These three banks were arrialgarnnted ia t92ß and a r›ew bank, the fmper iul
Bank of fndia was established on 27tldanuay t92i . With the Massing of the State Bank of
tridia Act in 1955 the uridertaking of the lmperial Bank of India wxs tnke n over by the ly
cornötuted State Bank of Indiz. The Resmve Bank which is tln Cemrai Bank wo created in
t93S by pa.ssing Reer ve Bank of Indiz Act t 934. lu the wake of the 5 wadeshi Movement. a
rin mber of bartks with Indian management weie established in the coumry narnely. Punjab
Nat ioml Bank LtcL Bank of tridia Ltd, Mamma Bank Ltd, Indian Bank Ltd, the Bnrtk of
Baoda Ltd. the Cemral Bank of Indiz Ltd. On July t9. t9fi9. t4 rmjor banks of the country
u'ere möorialized and in l5th April 1980 six more corninercial pr ivate sector banks were ako
taken over by the goverrnnem
 T"lv• frst bank in Indix though corner vat ice. we estabtslied in 1786. From t786 t ill
today, the journey of Indian Ba'nk irig 5 ystem can be segregated into three dist iiwt uses:
' Early pluse of fndian banks. from 1 7it6 to t9fi9
' Naiomlizaion of banks arid the bartlcing sector reform.s. from t969 to t99l
New phme of Irxlian bartléng systear with the reform.s after t99t

The first bank in Iridix tm General Bank of Indiii, was set up in t786. Bank of
Hindustan 'and Bengal Bank fo liowed. The ist tridia Company established Bank of
fi*• rige I i t 809}, Bank of Bombay (1 ß40}. and Bank of Madras t 1ß4 3j as indeper›deat
un hs and calied them Presidenc j bartks. These three banks were amalganiuted ia t92ß
and the lmperial Bank of fndüi, a bank of pr ivate slurehoider s, rrostly European, wa.s
established. A ßalubad Bank was established. excliis ively by Indiens. in t ßfi5.
Punjab Nat ioml Bnrtk wa.s set up ia t894 u hh headquarters in Lahore. Between t 906
and t9 t 3. Bank of Indiz, Cemral Bank of fndia, Bank of Baroda, Carmra Bank, fr›dian
Bank, and Bank of Mysore were set up. The Reserve Bank of fridia came in 1935.
During the fen.t phw. the growth was very s hw and banks also exper ieaced per red ic
fai tures between l9 t3 and t948. There were approxi rriately t ,t ID banks. rrnst ty s rrialL
To streamliae the fuact ioning and activit ds of commmcial bartks. the Goverrimem of
ladia come up with the Bank ing Companies Act, 1949. which was later clunged to the
Banking Regulation Act, t949 a.s per arrendiag Act of 1965 (Act No. 23 of t 9fi5}.
The Reserve Bank of fndia t RBI} wo vested with exterrüve powers for the supervision
of bank ing in Indiz es the Central bank ing authority. During those days, the general
public ha4 iesser confide1u:e in bartks. Es an after math, deposit rrob ü izut ion wa.s sfow.
Mozeova , the .si¥vings bank facüit§ prov Red @ tle Postd deg rtwm was
campazat rveTl saiez. W Auf wae Wge\ given to tradas.

Phase 2
The government took rriajor initiatives in banking sector reforms afier tridependeiu:e. ln
t955. it not iomhzed the Imperial Bank of tridia arid started offering extea.sive bank irig
fiicilities. especially in rural arid semi•urban areas. The government const huted the State
Bank of India to act in the principal agent of the RBt arid to luiadle banking trainactions
of the Union goverrnnem 'and state govemrrems all over the country. 5 even banks ord
by the Pr ince ly mates were mtiomlized ia t959 ar›d they became subsidiaries of the
14 1 I' a r c
 State Bank of India. fn t9fi9, t4 commercial banks in the country were riot innalized. tn
the second plum of bank irig sector reforms. sevea rrore banks were rrit Penalized in
t980. Whh this, 80 percem of the bank irig sector in fndia carre uader the government

This plum ha.s imroduced many mme predicts aad fiicii hies in the banking sector m part
of the reform.s procms. fn 1991, uader the chair rnanship of M Na sirnlurn, a committee
was at up. which worked for the liheralizat ion of banking practices. Now. the country is
needed with foreign banks and their ATM stat ions. Efforts are be irig put to give a
satisfactory service to customers. Phone bank ing arid at bank tag are iritrodlned. The
cut ire system became mme com'eréent arid swift. Tirre is given importance in al1 money

The fiaaiv:ial system of India has strum a great deal of resilience. It is she hered from
crises trigger ed by extemai rnacrceconomic slacks, which other Est Asian coimtr res
often suffered. Th £s is all due to a flex ible exchange rate regime, the high foreign
exclunge rmerve, the rat •yet fully convertible cup hal recount. arid the fimhed fore iga
exclunge exposure of bañks and their cintomers.

1.1.2 Banking Activities

V Retail barík ing. deaiing directly ofih individuals and srnn0 busiriessex
> Busiams baríkiag, providing eriices to mid•market busiriesses.
I Corporate banlóng. d irected at rarge businms entities.
è Private banícing, pro vidiag wmhh rnnrmgerrent smvices to high net worth iridividimli
P Investmem banking. activit ies in the finmial markets, sur:h es "uriderwrite"
(guararrtee the saie ofi stock and Scud xssues. tra4e for thre own accounts, rnake
markets, and a4vise corporatiorn on caphal market activit res like vergers and

> Merclurit bank ing is the private equity ctivity of investment banks.
V Finn rat smvices. global fix rat irnt hutiorn tha engage in mu hiple act ivrt res sinh
xs hauling arid iasinaiice.
1.1.3 Public Sector Banks
PS£ks ae banks where a rmjority stake t i.e. rrore than 50%1 is held by a goverrnnem. The
shares of thee banks are hsted on stock exciunges. There are a total of 27 P5Bs in lr›dia
[2t mt innatzed banks + 6 State bank group (SBI + 5 assoc ietesj].

In 20t I iDBI bank and in 20t4 Blurat iya Matt*a Bank were init iomtzed with a
m inimu m capital of Rs 5fi0 cr.

Emergeme of public sector banks

The Ceatr al Gover nrnent catered the banking biniriess w h1i the not iomlizntion of the
Imperial Bank of fndia in 1955. A fi0 stake wa.s taken by the Rmerv e Bank of fiidin and
the new bank was named a.s the State Bank of India The seven other state banks became
the subsidiaries of the new bank when rritioml ited on l9 July t9fi0. The next major
nat iorialisation of banks tcok place ia l9fi9 when the goverrimem of Irxlia, under Prirre
M iriister Indira Gandhi. mtiomfised an add hiorril 14 major banks. The total depceits in
the banks mtiomlised in t9fi9 arroumed to SO crores. This rrnve iricrea.md the presence
of mtiomlised banks ia fndiz whh 84a of the total brmhes coming uader government

The next round of mt iorialintion tcok p lace in April I 9&0. The govemrnmt nat iomlised
six banks. The totai depos its of them banks amounted to around 200 crores. This move
led to a furtlm imrease in the number of branches in the mar ket, i1u:reusing to 91 of the
total bran:h rietwor k of the coumry. The object ives behiad nat iomlisat inn were:

ñ To break the oumership and comro1 of banks by a few brakes famil ds,
> To prevem the concemrat inn of weahh arid ecorm mic power.
V To rro bifize sav ings from masses from at purts of the country.
V To cater to the needs of the priority sectors.

Total public sector banks are 27 m iuding tDBt and BMB

Some Pub he Sector Banks ae which comprises mtiomlized banks arid S& and its msociates
are slmwn in the tab R.
 Aliahabx4 Bank
2 Arıdhra Bank
Bank of Baxoda
4 Bank of India
Bank of Maharashtra
Carıara Bank
Cemrai Bank of India

Derıa Bank
şp Indim BanL
Indim Overseas Bank
Oriımtai Bank of Commerce
13 f•ınjab Natiomü Bank
14 Pınjab & Siad Bank
Syrıdicate Bank

I '* I Uruted lfank of media

3 State ol nyÖ faf$8Ö

4 State Bank ol Mymre
5 State hank of l ravmore

I7 i F a e e
1.1.4 Private Sœtor Banks
The privote•oector berths in Iridiu represent part of the human banking sector tlut gs
made up of both pr ivate and public sector banlcs. The "private elector banks" are banks
where greater parts of state or equity ae he id by the pr ivate slureholder s arid rat by
over rrne at.

Barïk irig in Iridia ha been dominated by pub lie ector banks siriœ th t969 when all
mnjor barïks were rat iniuilised by the Indian gover nmem. Houz ver, sire:e liberalisat ion in
governrnent barïkiag po licy in the t99(ls, o id and new private sector barïks luve re•
ernerged. They luve grown fa.ster & b igger over the two decades siriœ liber mis*tion using
the latest techrioiogy. providing corrtemporary inno nations and rronetary terme ar›d
techniques.

The private sector banks are spl h irrto two groups by firiancial reguliitors ta fndia. old and
new. The old pr ivate sector banks ex eted pr tor to the mt iomlisat ion in t969 and lœpt
their indeperideriœ £ecause they were ehher too smnü or speciaüst to be inciuded in
nat imialisatinn. The new private sector banks are thrin tlut iuve gaiœd theä bankiag
licerne sirice the überalisatlon in the t 99(ls.

The banks which were rat mtiomiized at the ti rre of bank mt iomlimt ion tlut took place
dur irig 1969 and i980, are krawn to be the o id pr ivate •sector banks. These were rat
nat iorialized. £ecnuse of their small size arid regioml fccin. Most of the old private •sector
barges are closely he id by certain commuait res their operation are rrost ly restricted to the
area.s in arid around the ir phce of origin. Their Board of directors mainly consist of
locahy prominent perserial hies from trade arid biniriexs circ Rs. Oae of the poshive priims
of these banks is tlut. they lean heavily on service and techrmlogy arid as such. they are
likely to attrmt rrnre business in days to co rre w*h the restructuring of the irxhistry round
the com.
New Private Sector Bank

The banks. which come in operation after t99 t. whh the introdrx:t ion of ecormmic
reform.s arid finaiv: rat sector reform.s ae called "new private-actor banks". Banking
regulation at was then ameiuied in t993. which permhted th eatr y of private-
sector banks in the Indian bank irig actor. However. there were certain cr iteria set for the
 establishmem of the new private tm banks, sorre of those criteria beiag: The bank
slmuld have a minimum at worth of Rs 2tD crores.

t . The promoters hoidiag slmuid be a miaimum of 259£ of the paid-up capital.

2. Rel e Capital, Índia Post, Larsen & Toubro, Shriram Tramport Firorv:e are
compariies Iraq abarílóng licerae with the RBI ur 4er the riew J:o1icy, whiie IDFC
& Baridlun were given a go ahead to start baríkiag smvices lir 20 t5.
3. Wirhia 3 years of the startiag of the opnatiora, the barik shouid oifn slures to pubiic
ar›d their r›et worth must ir›cremed to 3tD nom.

No.

2 Bar›dhan Bank
3 Catholic Syrian Bank td
4 City Union Bank limited
5 DCB Bank Limited
fi Dluniaxmi BanL
7 Federal Bank
HDFC Bartk
IOO Bank
t0 IDFC Bank
Ir«fisInd Bank
12 lamzau & Ka.slnnir Bank hd
t3 Karmtaka Bank itd
t4 Karur Vysya Bank
t5 Kotak Maliiadra Bank hd

17 Nairútai Bank
1
i8 RBL
l9
Tamiiriad Mercarrtiie Bank ltd

1 21
1.2 N'
The three testers “NPA* strike terror ia banking sector arid businms circle
today.NPA is a short form of"Non• Performing Assets*.
fn bank tag. NPA are karis given to doubtM cintorrers who rmy or may rat repay
the loan on t ime. There are two types of assets viz. perfor miag arid rmn•perfor ming.
Performing harm are standard loans on which both the pr try: ip R and imermt are secured and
thre return is guaranteed.
Non Performing msets means the debt which is g ivea by the Bank is uaab ie to
recover h is cahed NPA .Non • Performing Asset [NPA] is a resu h of meet Liabil h j
mismatch. A NPA account in the books of mcounts is an xsset as it irxlicates the arrouat
receivable from th Defaulter s. It rreans if any bank gives loan to the ciato rrer if the interest
for that irian is not paid by the customer t ñi 'm days then that xcount £s calied as NPA

A loans or teases tlut are riot rreet ing hs stnted principal arid interest paymems are
cornidered to he bad. Banks usimliy c1a.uify as riortperforrniag rests any commercial roars
u'hich ae rrnre tlun 'Al dq s overdue and any cornurner roars which are more than t80 days
overdue. More generally, an asset which is rat producing income becomes run-performing.

An must. inc ludiag a lea.sed asset. becomes Non-Per for ming wl<n it cent to generate
imorre for the baak.
A run -per forming asset ’ (NPA) w:c de Peied as a credit Fac il *y ia respect of which the
imermt arid/or instalmcm o I priric ipal ha.s rernafid ’past due’ for a speciPnxi period of
t ime. The specified per rod win reduced in a piused mans a.s under:

u'.e.f. 3 I.IU. 1993

u'.e.f. 3 t.O3. t994
w.e.f. 3 t.O3. 1995 :tmqims
u'.e.f. 3 t.O3. 200t : l8odps
w.e.f. 3 t.O3. 2004 :9Odz

90 days’ delinquency rmrrrn are rat app licab ie to Agricuhure segmem

Whh the effect from March 3 t. 2064. NPA slut be a han or an advme where:
 • term town: Interest *r•d for irntalrnent of principal remain over dv for a period of
rrore than 'Al days.
• Cush credit/overdrnft. The mcoum remit ’out of order’ for a per red o I more
tluia Rdays.
• Bilis: The bill remnirn overdue for a per red of more thin 9fldays from due
date of paymem.
• Other Louis: Any arrouat to be received rernnira overdue for a per k›d of rrore
than 9(idays.
• Agricuhurol Accounts: ln the mse of agricu hure advances, where repaymem is
ixrsed on try:orre 6om aop. An mcoum wih be c lnsified a.s NPA as under:
tf ioan ma.s been gramed for almrt duration crop: interest arid/or instalment of
Principal remains overdue for two crop sea.sore beyond the dae date.
If ioiin he been gramed for long duration crop: Interest arid/or instalrrem of
pr try: ipal remains overdue for one crop semorn be nd due date.
Non •Performing Asset is defined m the loans which ae in jeopardy of be ing defau h. If a
borrower Inc failed to pay interest on prim:ipal paymem for 90 days or rrnre ia case of a
loan. than that han is cornidered to be rmn•performing asset t NPA}.This k ind of thing
can be termed as Non•Per forming Loan. NPAs affect the smooth flow of credit arid
profnability as higlnr NPAs rrean higlnr provis toning which reduces s the prof h. These
are loans arid a3vaiu:es whose t ime period for payment of imerest arid pr hu:ip ie has
exceeded 9 days. In this case th account of person is marked as out of order. If the loan
is gramed to a perm for agricu hural purpose the instalrreat period for interest might
remain due for two iunest secsore. Non-per for ming assets te âs us about the banks a.s the
inst hutiorn of firmrice arid companies judge the ir non•perfor mirig meets through NPA and
higher the NPA rreara fiad perforrmnce of the irntitute of fiance.

1.2.2 NPA as Defined by RBI

Any a.wet arid it aho inc fades leased asset can beco rre Non Performing Asset when
imorre stops to he germated from it for the bank. It is an advance or ioan where:
1i For 90 days’ t ime interest or instalment of pr iacip le arrnurrt may renuin overdue.
2} Th account an overdrafi or cash credit with respect of it may remnin out of order a.s it
is indicated i:elow.
 3j In case the b il is are purchased or discounted tion they remain overdo for rrore than
90days period.
4) Th ir tafrriem for two of the aop scans for short duration of crops rermire
n erdue whether h £s principal or imermt. The instabrreat for long durat ion crops
tlmefore remains overdue whether iLs interest or pr tin:ipal arrouat.
5 i The irntabnem therefore remains overdue for one aop sea.on for long durat ion crops
of prim: ipal or interest.
In respect of a ecur hization trainaction that has been undertaken like in terms of
gu kielines on securit izat inn on dated £ebruar y I . 2tDb. For more tlun 90 days the
arrouat of which I ike of liqu id hy fiici lity wilt remain outstanding.
A de bt obligation where the i:or rower iu.s rmt paid any previously agreed upon interest arid
prim:ipal repayments to the designated tender for an exter«4ed period of tirre. The
rmrtper for ruing xsset is therefore rat yielding any imorre to the tender in the form of
prime ipal and interest paymems.
For exonpie, a mortgage in defau h won id be considered rmn•performing. Afier a pro ionged
per rod of rmn•paymem, the tender w ñ1 force the borrower to liquidate any assets tluit were
p iedged m pat of the debt agrcement. If rin seem.s were pRdged, the tenders might write •off
the asset a.s a ba4 debt arid then eel1 h at a discount to a collection agency.
An asset heco rres rmn•performiag when h cea.see to gerier:ite inco rue for the bank. A rmn •
performing a.met t NPA} is defined generally as a ered h faci lity in respect of which interest
arid / or ir talmem of prime ipai has remained "past due" for two quarters or rrore. An arrourrt
due under any credit facil* y é treated a.s 'est due* when * has rmt been paid w*hia 30 days
fiom the due date. tt wa.s, lmwever, dec ided to disper 'e w*h "pa.st due".
Banlcs sluniid, c1a.ssify an account as NPA ordy if the interest clurged dur ing tiny quarter is
rat serviced fu hy within 90 days from the end of the quarter.

1.2.3 Clarification of Assets

Standard asset is or which dues not disc lose any prob rem and which dces rat carry
rrore tlun rmrmnl r isk attaclnd to business. Thus, in general, ali the currem roars,
agricultural ar›d r›o n•agricultural loans which have rmt beco rue NPA rmy he treated
as standed meet.
A Non•performirig asset auiy be c1a.ssified as sub•standard on the ba.sis of th
fo how ing criterñ t a) An asset which lurk remained overdue for a period rat
excmding 3 years ia respect of both agricu hurai ar›d rmn•ngr Cultural foam slmuid be
treated as substandard. (b} In cite of at types of ter m loans, where irntalinents ae
overdue for a perind rat excmding 3 years. the eatire outstanding in term lnan slmuld
£e treated a.s sub•staridard. (c} An a.wet, where the terms and conditions of the loam
regarding payment of interest arid repayment of pr try:ipai lnive been renegotiated or
rescliedu Rd, after commencement of produr:t ion, shouid be c£unified a.s sub•standard
arid should remain so in such category for at ie*st one year of set refectory
performance under the renegotiated or rwhedufed term.s. tn other words. the
c la.ssificat ion of an not shou id rat be upgraded merely as a resuit of rescinds ting
in tess there is satisfactory comp Mae of the above corid hion.

A Non •Performing Asset auiy be c laws ified zs doubtful on th ba.sis of fo lfnwiag

criteria: As meet which ha.s remained overdue for a per k›d cxc eediag 3 yeas ia
respect of both agr icuhuraJ arid rmn•agricultural loam shou id be treated as doubtful.
fn use of all t ypes of term ioans, where iratalmems ae overdue for mmc than 3
yeas. the emire outst'andiag in term loan slmuld be treated as doubtful. As in the case
of subsstaridard assets. rescheduling dces rmt em hfe a bank to upgrade the quality of
advarv:e automnt éaily.

Lux assets are those wlme toss is kiemified by th bank/ and hor/ RBf/ NABARD
inspectors but the amoimt he rat bun written off who hy or patiy. In otlm words.
an must which is coraidered urrealizabfe and/ or of such litt fe i alue tluit its
corrtinaarice as a doubtful asset is rat worthwhile. slmuld be treated m a ions asset.
Sur:h lrxss xssets will inc rude overdue foam in cases (a} wlnre decrease or execution
pet h ions have been time barred or docurnems are lost or re other legal prcof is
availab ie to claim the debt. (b} where the rre mbers arid the ir suretñs are declared
insolvent or have died levy ing no tang ib ie assets, tc} where the rrem£ers lnive left the
area of operation of the soc iety prefers to the borrower in wlvise mrne the respective
Loan Accoimt whh SCB/ CCB} Raving re property and their sureties have aho no
mmns to pay the dues (d} where the ioan is fict it torn or when grow misut ñ ibution is
rat iced, arid (e} amoums which canrmt be recovered in case of liquidated societies
1.2.4 Types of ïPA

2 NetNPA
1. Gro- NPA:
Gross NPAs are the sum totai of aâ ioan a.sects tlut are classified as NPAs m per RBI
guide lies as on Balaiu:e Sheet date. Gres NPA refkcts the quality of the ionic made
by boñhs It coraists of ali the run standed :nsets iike as sub•standard, doubtful, and

Gros NPAS Batio = Gros NPAS

2. Net NPA:
Net NPAs are those type of NPAs in which the bank has dedm:ted the provision
re garàirig NPAs . Net NPA almws the octuai burden of but linee in Irxüæ bank
balance sheets comain a huge arrnuat of NPAs and the prœen of recovery and write off
of roark is very tirre com uming , the provision the banks luve æ malœ agaiast the NPAs
according to the œmrai barïk guide üries, are quite significam. Tlut is why the differerire
between gross and et NPA is quite high.
It can tte cakulated by fo0owiag

Net NPAs = Gros NPAs - Proviaioræ

G- Adv•nces - Proviaioræ

1.CS Why Assets Becoir CPA

A seveml factors are resporaible forever i crea.sing size of NPAs ia PSB.s. The Indian
banléng iridiatry has one of the highest percems of NPAs compared to iatematioml
revels. A few promiriem reamm for sts l•ecoming NPAs are as under:

F Lack of sincère corpor ete culture.

4 Change in ecormmic po liciesfem'ironrnem.

h Non trarnparem mcoumiag po ücy and J:cor auditiag pro:ticex
 h Lack of coordiriat ion between bartksfFLs.
F Directed landing to certain sectors.
h £añure on part of the promoters to bring in thre portion of equity from the é own
sources or publé Neue dv to market turning unfavourable.
ñ Cr her in for c1a.ssification of assets
F Clwsification of agricultural arid run •agricultural loans is required to be done into

1.2.6 Remon for NPA

An internal study conducted by R& shows that in th order of promi eve. the fol rowing
factor contribute to NPAS.

• Di vmsion of funds for

•' Expa siori/diversificat ion /modernizat ion
•' Tak ing up new project
•' Helping /promoting a.Generate concerns ti rre/cost ovemin during
the project implerrentat ion stage
c Businw Failure
• iñeificiericy ia maiuigerrient

c lmppropr rate Technology/technical problem

• Lack of coordiction among Rnders
ñ External Factor

• Exclunge rate fiur:tuat km

• Accidents arid rritur al ciilamit res, etc.
• Changes in goverrnnem po licies in e xcise/ import duties, poliut ion contro1 orders,

• Liberolimtion of ecormroy/renmval of rmtrictiordreduction of tariffs:-A lage

rnimber of NPA borrowers were uaabfe to compete in a compet h ice market in
which lower prices and greater choices were available to consumers. Further.
 borrowers operating in specific iridiatries have suffered due to polit ical. focal and
x›cial compulsions. compounding procures from liberalization.
• Lux iia›ifitoring of credit oral fafiun to recognize Ex Hy Wordings Sigimls: -It
ha.s bun stnted tlut approval of loan proposal is generally thorough and emh
proposer pxms through rriany leve1s before approval is gramed. However. the
rrorétoring of sorret imes complex ered é files has rat rece ited the attent inn it
dded which meam that eariy warning sigmls were aot recognized arid standard
meets slipped to NPA categor y w hlmut banks be ing able to take proactive
rrea.sures to prevent this. Pardy due to this reason, adverse trends ia borrower’s
performarv:e were rat rated aad the poshion further deteriorated before act ion
w*s taken.
• Over optimistic prona›ters -Prorrnters u'ere oiten opti mist ie in setting up lage
projects arid in sorre mscs were rat fully above boad in their iatemiorn.
procedures did rat always high light these issries. Often projects were
at up w hli the expectation tlvit part of the funding wouid be arranged fern the
cup rtai markets which were booming at the t true of the prpjmt appraisal. When the
cup hat mar kets subsequem fy era.shed. the requisite furxfs couid never be raised,
prommer oftea frost interest arid tenders were ie h stranded whh
hu:omplete/um' table projects
• Directed leering:-Loam to some segment were dictated by Ciovemrrents po licies

• Bigh{y Leveraged bo rrouers:-Sorre borrowers were ur«4ercapha1izod and over

burdened w hh debt to absmb the clung ing ecormmic srtimt ion in the coumry.
Operating whhin a protected marked resu hed economic shuation in the country.
Operat irig wh hia a protected market resu hed in row appreciation of
comrrerciaVmar ket risk.
h f\mating riiiarzmtch: -There are said to £e mnriy cases where roars gramed for
short term.s were used to fund lung term transaction.
fi High Cut of Purnls:-Interest rates m high as 20a were rat url:omrnon. Coupled
with high lever:iging arid falling Dec marL borrowers could not contra to
ervice high cost debt
 h Wilfid Defmi3ters: -There are a number of borrowers who have strateg irnlly
rfr•fmi ited on the ir de bt service ob hgat ion realizing tluit the iegai resource available
to creditors is shw in achieving resu hs.

1.2.7 Import of NPA

NPA means book ing of money in term.s of ba4 asses which occurred due to wrong
clri ice of c lient. Became of the money gett ing blocked the prodigalhy of bank
decreases rat ordy by th amount of NPA but NPA lead to opportunity cost also a.s
that much of profn invested ia sorre return earning project/*set. So NPA doesn’t
afect currem profit but ako future stream of profit. which may lead to loss of
mmc long-term beriefniai opportunity. Armther impact of redintir a in
profnabilh y is low ROI {retur n on investrnmt}. which adversely affect currem
earning of bank.

Mo key is getting bioc ked, decreed profn read to lack of ermugh cash at lurid
which read to borrowing money for shortest period of t ime which read to
addit i+trial cost to the company. Difficult y in operat irig th ferret ions of bank is
armther carve of NPA due to lack of nariey. Routine j•'aymems and dues.

Time and efforts of maiuigement is armther indirect cost which bank has to bear
& to NPA. Time arid efforts of maiuigemem in hand ling arid niaiuiging NPA
wouid have diverted to sorre fruitful actin ities. which wouid iuve g iven good
returns. Now day’s banks iuve special empioyms to dear arid haiulie NPAs. which
rx additénaJ cost to the l•alk.

Bank is facing problem of NPA then h adversely aifect th vaiue of back in term
of market credit. It wifi rose its goodwi li and brand irmge and credit which luve
negative impact to the peopie who are putt ing their rrowy in the links.
1.2.8 NPA Rules for Bank

In line with the irrteriuiticnal practices and as per the recommendation more by the
committee on Financial system t Ouirmnn 5hr i M. Naasirnham), the Reerve Bank
of India 1u.s irrtrodined, ia a plimed mariner, prudential rmrm.s for irico rre
recogn h iron. asset c lassification and provisioning for the a4vmes portfolio of the
'banks so as to rrove towads grenter cornistericy and transparemy in the pub tshed
accounts.
Th po ücy of iricome recognition should £e objective and feed on record of
recovery raiber tlun on any subject ive corrúder at km Likewise, the c1a.ssification of
zssets of banks Ius to be de on the lx is of objective criteria which would emure
a uniform and consistent appücation of rmrms. Aho. the prov isioning shou id be
mude on the tesis of c lassificaóon of msets Sud on the period for whicli the asset
és zem@d non — pezform?ng / o due es aLso avaiTabdity of secur ity W its

Adva

tn respect of advmes granted for agricuhural purposes where interest payrnem is on

haif•year ly Isis synchronizing with harvest, banks slum id uiopt the agricultural
sea.son as the Isis. In other words, if imerest 1u.s rat been paid duriag the last two
seasons of harvest tcovering two 1uF•years} after the price ipal lus become overdue
then sur:h an add iirire slmuld be treated xs NPA. This norm is applicable to all direct
agricu hural advarv:es listed in the Annexure. In respect of agricu hural uivaiv:es other
than those specified in the Annexure. idemifaation of NPA would be done on the
some ba.sis as rmn•agr icultural advaiv:es which at pre.e at ae the t80 days deliiujuericy
norm Crop foam for each sea.son, i iz.. Rabi arid Klur if ha.s to be treated as sepamte
account and IRAC nor rris have to be applied mcor dingly.

Credlt faciTftès gzWed fou atret aJlied agrlukuzaJ ati*itès e rei es for ron-Warm
sector uctiTies should be tzezted cs NPA if amounts of Instalments of pzincipcT and /
oz Interest zeznam outstanding fora pelod of two quartos flora the W date.
tn case of projects t irxListry. p1:ination. etc.} u'here moratorium is g iven for paymem,
[ioan beco rries due on ly afier rrnrator rum or gestatkn per rod is over] such a loan
be:o rms overdue if iratabneat paid on due date. 5imihr ly, in the case of
housing loans or similar advances gramed to staff members where interest is payable
aher recovery of prim:ipal. sinh lrxms slum id he classifed m NPA when there is a
defau h in repayment of prime ipal on due date of payment and overdue enter in z ih £e
the bmis for claret feat ion of assets.
Coiwortium odvomn
tn respect of consort rum advmes each bank is requ red to cla.oify th borrowable
accounts according to hs own recovery i.e.. on the record of recovery of the individual
member banks. The banks paticipat ing in the cornortirrri slriuid therefore, arrange to
get the ir shan of recover j trarnferr ed from the read bank of the condor tium.
fe e O Men As I"roWef• os OT'e ue
Short •term agricu hural 'advances are granted by 5C£ks / CC &s to CC£ks PACS
respectively for the purpose of on-lending. tn respect of sinh a4vaiu:es as well a.s
a4 wcs for other purpoes, if any. gramed under on-fending system, only that
piirticu1ar facil hy which became irregula slmuid be treated as NPA arid rat ali the
other fact lit ice granted to the in Crop loans for each seven. via . Rabi arid Klurif luve
to £e treated as sepurute mcouat arid mcordiagly tRAC rmrm.s iuve to be applied. In
respect of all other direct haris arid a4varv:es granted to a borrower, all such ioaris w ñ1
become NPA even if o we loan A/c beco rms NPA.

In respect où cmh czedit / ou dzaR fizciTity an acœunt stould be tzeated as "out où

œdez’", i€ the outdandmg baTanœ zemams œm muoizs / m exœss où the mt ?oned
6 mit / &aw ing power. In cms where the outstanding balance in the principal
operating vcount is tess than the act road tmit / drawing power, but there are run
ered its cont inuoiniy for six rnmths a.s on the date of Balance Sheet or credits are not
enough to cover the interest debited dur irig the sarrie per rod, these accounts should be
treated es ’but oFozdœ".

Any amoum due to the barïk urider any credit facil*y é "overdue", if *ä rmt paid
on due date fixed by the bank.
 The perfo e of the account zs on the date of Balarv:e Sheet oniy has to £e
takea irrto account for the purpose of NPA. 5ubsequem deve ioprrems shou id rat
be cornider ed for detm mining NPAs. 2. IO. tf imerest arid / or instal rrem of
pr hu:iple have remained uapaid for any two quarters out of the four quarters
eading 3t March of the year coin:emed. th credit f:icility slmuld be treated xs
NPA at luirigh the defau h mny not be comimiousfy for two quarters duriag the

1.2.10 Early Symptoms

By which one can recognize a performing asset turning in to run •performirig a.meet
Four categories of early sympto rris:-

h Non•payrnem of the very first irntiilrnem in case of term ican.

4 Bouncing of cheque due to irauificient baiarv:e in the mcoums.

h Dec lining Current Rat to.

h Paymem which does rmt cover the interest and prime ipii4 amoum of tlut irntalrnent.
h While morñtoring the accounts h is found tlut panial amoimt is diverted to
sister concern or paent company.

4 If irdor motion is received that the borrower 1u.s ehher tart rated the procms of
winding up or are not doing the businms.
h Overdue rece ivab res.
4 Stock statemem rmt submitted on tirre.
h Exterml imn •control1able factor like natural calaméies in the city where
borrower corxhict his business.
h Frequent changes in plan.
4 Non payirimt of wages.
 Use for perennial comfort. stocks arid slmres by borrower.
Avoida1u:e of comact with bank.
Problem betwmn patrms.

Changes in Governmem policies.

Death of borrower.
Competition in the market.

12.11 Preventive Measurement for EA

In va iably. by the t iine banks stat the ir efforts to get invo lved in a rev ival process.
*’s too late to retrieve the sinmt icoi- both in terms of relubil hat ion of the project and
recovery o I bank’s dues. fderrt ificat ion of wealcaess ia the very beg ianing that é.
When the account starts showing first sigm of neatness regardless of the fat tJut h
may riot lnive heco rre NPA. is imperat ive. Avsezsrnem of the potential of rev ival rriay
be done on the Isis of a techrm •economic v iability study. Restr inturing shou id be
atterrlpted where, aEer an objective «smsrrem of the promoter’s imeat icn, banks are
convinced of a turnaround whhin a scheduled timeframe. In respect of totally
unviab ie units as decided by the bank, h is better to fmiliinte winding up/ se hiag of
the uah ea lier, so in to recover wlutever is pra.sibie through regal mean before the
security posrt ion becomes worse.

fdeat fying borrowers with genuine intent from thou who are rmn• smirnis whh re
commhment or stake in rev ival is a clulienge cordrorrt ing bankers. Here the role of
from 6m officials at the branch level is paarrouat a.s they are the ones wlvi luive
irrtelligem inputs with regard to prorrnters’ siacer *y, arid capabil* y to achieve
turnaround. Based on this objective assessment. banks shou id decide a.s quick ly a.s
poxsib R whether it would be worthwhile to commh addit ioiuil firmiu:e.
fn this regard banks rnny consider having ••Specini I nvmtig•tion” of at fiaaricinl
tramnt ion or bris tricks tran.at ten. becks of account in order to certain real factors
tlut comributed to siclmms of th borrower. Banks mny iuve peml of techriica 1
experts w hh proven expertise arid trek record of preparing techrm •ecormmic study
of the project of the borrowers.
Borrowers luving genuine problem due to temporary mismatch in fund fiow or
sudden requ remem of additioml fund may be emertuirmi at branch Rye1, arid for this
purpose a special limit to such type of cases slmuid be decided. This will obviate the
red to route the add hioml funding through the contro h ing offices in deerving
uses. arid help avert rmriy accounts slipping iato NPA category.

Time is a crmial e Rment ia any restrinturing or reiubi litat ion activity. The resporne
decided on the Isis of techno•ecormmic study arid promoter’s commitmem, has to be
adequate in ter rm of extend of additioml funding arid re laxnt torn etc. uader the
restnnturing exercie. The package of a.ssistme rriay he flexible arid bank rriay imk
at the ex h option.

While fiaaric ing. at the time of restr ur:turing the barges rnny riot be gu ided by the
convent ir›nal fund fiow analysis ordy, which couid yield a potemia@ misleading
picture. Appraisal for fresh ered h requ rerrems may £e done by arialyz irig funds
fiow in conjunction with the Cnsh Fiow only on the ixrsis of Funds
Flow.

The general perception arrong Borrower is that it is lack of fire tlut leads to
sickms and NPAs. But the rmy not be the cme all the time. Mariagemem
effect iveriess ia tack ting adverse business condition is a very important aspect that
affects a borrowing ua*’s fortunes. A bank nay comm* addit ir›nal firiarv:e to ari
align unit oniy after basic vfiibil rty of the enterprise aho in the context of quairty of
management xs examined 'and confirmed. Where the defau h is due to deeper
malady, v iabil hy study or im'est igat ive audit slnuid be done — h wñ1 be useful to
luve conn ham appointed as early m poxsib R to examine this aspect. A proper
to:hrs- ecormmic viability study mint thus become the ba.sis on whkh any future
at ion can he cornidered.
Midtipie Firioicring:
A. During the exercise for zssessrrent of viabilit j and restrinturing, a Proginstic
mil unified approach by al1 the tending banks/ Fls in aho sluring of ali relev am
information on the borrower wouid go a long way toward oierah sincess of
rehabilitation exercise, given th probiibility of sincere/failure.
 B. fn some defau h cases. where the ua* is mill working, the bank slum id make sure
diet it captures the cmh frown tthere is a tendency on part of the borrowers to
sw rtch bankers one they defau h, for fear of gett ing thre cash ficrws forfe hed},
aad ernure that such cxsh flows ae used for work ing cup hal purposes T6ward
this end. there situ id be regular fiow of informal ion among consortium members.
A bank which is not part of the cornortiu m. may not he allowed to oifer ered rt
fa ilities to such defau hirig c Items. Current account fac ñ rt res may aho be denied
at non•coraortirnrr banks to .such c lients and vin lation rnny attract penal u:tion.
The Credit Infomiation Bureau of Imlia Ltd. (OBIL i rriay be very useful for
meaning ful infomiat ion exclunge on defaulting borrowers mu:e the setup heco rries

C. fn a forum of tenders. the prior rty of emh leader o ñ1 be differed. Whi R one set of
fenders rnny be w fling to wah for a ionger time to recover hs dues, armther tender
rmy have a minh shorter t imefiame in mind. So it is J:ossibfe tlut th ietter
categor res of fenders rnny be w ñ ling to ex h, even a t a cnvt — by a discounted
ett iement of the exposure. Therefore. any plan for restnnturing/rehabilitat ion
rriaj take this aspect iato account.
D. Corja›rate Debt Restructuring rneciun erm his bun iristitut iomfizod ia 200 i to
provide a ti rnely arid transparem system for restnnturing of the corporate debt of
Rs. 20 crore arid above with the banks and FLs on a volurrtar y ba.sis and outside the
regal frameoor k. Under tlñs system. banks rnny great ly £erief rt in ter rrLs of
restrinturiag of large standard accoimts tpoteat tel NPAs} arid viable sub•staridad
recounts whli consortium/mult ipfe hauling arrangerrems.

IN.12 NPA Marxapement Prnrtices In India

h Formation of the Credit frrforrmtion Bureau (fridinj Limited t CfBiLj

4 Relmse o I Wil ful De fauher’s két. RBf ako releases a list o I borrowers w*h
aggregate oinstariding of Rs 1 crore and above against whom banks have filed
surts for recover y of the ir funds
h Reporting of Frauds to RBt
4 Norms o I Lender’s job il*y — framing of Fair Practices Code with regard to
fender ’s liab il*y to be fo lfowed by banks, which rod rectly prevent :x:coums
turning imo NPAs on account of bank’s own tâiiure
4 Risk msessrnem arid Risk mamgernent
 h RBI lus advised banks to examim all cases of wiFul defau h of Rs. I crme and above
and fi R suhs in such cues. Board of D irectors are required to review NPA accounts
of Rs.I crore arid above w hh special referee to fi xing of staff accoumab ility.

h Special ment ion accounts for eaiy identif<at ion of bad debts. Loam and
a4varv:es overdue for less tlun one arid two quarters wouid co rue under this
cntegmy. However. these mcounts dO fiot need proc gsion ing

lA13 Me sures Initieted By RBI am1 Government of Imlia For Reduction

1. Compronim nttieimnt súhernes •

The RB t Covemrnmt of Índia have been constant iy goadirig the banks to take steps
for arrest irig the iric ideace of fresli NPAs and have aho ben creating iegal and
regulatory env tron rrem to fmilitate the recovery of exist tuq NPAs of banks. More
sigrúficam of them. t woufd i ike to recap hulate at this stage.
The broad framework for compromise or riegot iated senlemem of NPAs adv gsed by
RB t in In iy t995 continaes to be in place. Baríks ae frm to design and imp iemem
the ir oum polic ds for recoier y and write-off incorporuting compromie and riegot iuted
sett iemems with the approval of ther Boardx particular ly for ofd and urresolved cues
Iu I lin g urider the NPA category. The po ücy framework suggested by RBI prov ides for
sett irig up of an indeperidem 5ett ierrem Advisory Committees le ded by a ret red
Judge of the High Court to scrutinize and recorrnnerid compromise proposals.
5pecific guide üries were Àsued in Muy t999 to puhlic sector ban k.s for onet irre run •
discreóormr y and nou •discrimiriatory sett iemem of NPAS of srna0 sector. The súherne
wa.s operat ne up to 5eptember 3O. 20tD. [Public sector baríks recovered Rs. fi68 crore
through compromise sett fement under this scherne. ]
Gu ideliaes were rrodified in July 2tD0 for recoiery of the stock of NPAs of Rs. 5
crme and reis es on 3 I March 1997. [The abo ve guideliaes wliicli were vaüd up to
June 30. 200t hefped the public sector banks to recover Rs. 2fiO0 crme by Septemher

An OTS 5clnme covering advances of Rs. 2S(l00 arid be tow contimies to be in

oJ:eration arid guidelines in pursurmce to the budget arnmmemem of the Hormurab ie
Frame M in ister providing for OT5 for advances up to Rs'i0. (DO in respect of NPAs
of smnlPmargiriai farmers are being &awn up.
 Negotiating for compronin nttieinmts;
The first cr rural step towads meaningful NPA mnriagemem £s to mcept tlut recoveries
are one 's own respornibiiity. To keep the Bank's operating cycie go irig srrnoth ly. h is
emnt tel tint this real izat ten of one's dut res be trarnforrred imo deeds by resort ing to
various methods of reco ver j.
Of the various methods availabR for NPA Mainigernem. Compromise 5ettlemems ae
the rrnst attracti vz, if lundled in a professional mnrner .

Banks are mainly cor›cewd wh h recovery of dues. to the rnuxiinim pauible

extem, at minimum experne. By emer ing into compromise settierrents. the
objective is achieved. A he, a int of executive time is saved because most of the
renal problems / de leys associated whh court ation are avo kied.
iii Projects a heipfui inmge of the Barth
A welf•coric iuded compromise mtt ierrem, which resu hs ia a ' WIN- WfN’ for the
Bank xs well as the borrower, is a strong posit ive propaganda for the Bank. The
imprms ion gemrated is tlut the Bank is capab fe rat oniy of sympathy. hut ako
P•'N
Exjnnfites recycling of funds
Compro misc sett terriers aim at quick recovery. Recovery means funds becoming
availab ie for recycling arid. add h ioml interest gener at ion.

With the NPA revel go ing doum. arid th addit ioml funds becoming availabR for
recycling zs fresh advances, the a.wet qualit y of the Bank is bound to go up.
improved meet quality sigréfes higher profns by redined provisions arid
try:reused interest irico rre. Whh add hiorn to the resm yes. the capital poshion ako
improves. impro ving the Cap*al Adequacy poshirin.

i Compromise invokes toss. since full recovery is rat pcesibR. In fact, fu h recovery
is rmt even eav isaged, but sacrif<e is.
ii tt rnny be v iewed m a reward for defau h. esps: retry if chroréc default cases ae
sett ted by riegot ration.
iii tt may have a derrnnstrat ive effect. arid so rriay vitiate the cuhure of repayment
iv. There is aho the pauibilit y of misuse or. even. nnla fides. sirice assessrnmt of
sitimtion is high ly subjective.

Every compromise propceal needs to be looked at iadividuahy, ev aiuated str ict ly on

merits, arid negotiated properly for max imization of heriefn to the Bank. Ffer›ce, a
straight jmket appromh is riot possib ie. neither is it desirable. to give str ict guidelines
for compromise sett ierrems.

Banks are free to design arid implement thre own policies for restructuring/
reliabi litat ion of the NPA mcoums Reschedulerrem of payrnem of imerest arid
prim: ipal afrer coraidering th De bt smvice coverage ratio. contribution of the promoter
arid availabil rty of secWity

LfikAdalat irot *ut ion he ip banks to set fe d imputes invo iv tag accoums ia “doubt ful”
ar›d “loss” category, with outstanding balance o I Rs.5 lakh For compromise settlemem
uader LokAdalats. Debt Recovery Tribumls have raw been empowered to organize
LokAdalats to decide on cases of NPAS of Rs. t0 lakhs arid above. The public sector
banks lud recovered Rs.4(I.3 & crore m on September 30, 2(l0l . through the forum of
LokAdala. The progrms through this chat is expected to pick up in the coming
years paticu hriy took irig at the recent trot iatives taken by mmc of the pu blic sector
banks arid DRTâ ia Mumbai. So rre of features are
ñ Smug NPAs up to Rs.20 Lakks

The Recovmy of DebLs duc to Banks and Fimncial Insótutians (aireridmem } Act, p*wd
in March 2m0 furs helped in strengtherúag the functioning of DRTs. Provisiorn for
p lacement of more than on Recovery Offcer, power to attach deferidam ’s
property/as.fets beFore judgrrem, penal provisior for disobedierice of TnHirial’s order or
for bremh of any ter rris of the order and appointmem of rece iver whh powers of
 reaiizat ír›n. managerneac protecóon and prmervat tori of property are expected to provide
necessari teeth to the DRTs and speed up the recovery of NPAs ia the t imes to corre.
Though there are O DRTs set up at rriajor centres in the coumry with Appe liate
Tribumfi lmated in five centres vii. A liahabacL ivfu mbai, Deihi. Cnlcuttn and Chernai,
they couid decide oniy 9& t4 cites for Rs.fi2é'4.71 crore pertairúng to public sector
baríks sime òu:ept tori of DRT mecharúsm and til1 5eptember 30. 2D0 t.The amnum
recovered in respect of these cases arrnuated to onfy Rs. 18é'4.3(J crore.
I may a4d tlut fami üaizut run programmes luxe ben offered in NfBM at periodical
intervals to the presidirig offcers of DRTs ia understanding the comp iexit res of
docurremat icn and operat ioruú features and other Rgal has applicable of tndian
banló ng system. RBI on rts pat ha.s suggested to the Gover nmem to corrúder emet rrem
of appropriate peml provisions agairnt obstr ur:tron by borrowers in possexsion of
attmhed propers res by DRT rece ibers. and rmtify borrowers who defauh to lmnour the
decrms pzxsed ugainst them.
5. Circulution of iidòrination on defaulters
The RBI 1u.s put in piace a system for periodical circulation of details of z iifii1 defau hs
of borrowers of banks and firmiu: tal institutiorn. This serves m a caution list whiR
considering requests for new or a4dit ic4vil credit ümits from defau hing borrowing uaiLs
and aho from the directors /proprietors / partrms of these cat h res RBI aiso publishes a
list of borrcrwers t with outstariding aggregat ing Rs. 1 crore and above} agairnt whom
suits luve been fi red by baríks and Fts for recovery of thre fuads. as on 3 Ist March
every year. It is our experience that these mesures luid rmt corrtributed to any
percept ible recoier res from th de fan hirig ent h res. However. they sm ve es negat iie
bzsket of steps shuttiag off fresh ioara to these defuufter s. I strongly believe tiut a reai
breakthrough can corre only if there is a clunge in the repayrrent psyche of the trxlian
borrowers.
6. Recovery Action veritat lnrge NPAS
After a review of peridericy in regad to NPAs by the Honourable Firiance Mirúster. RBt
had dvised the pub üc sector banks to exnmine all curs of wilfui default of Rs I crore
and above and fi te suits in sinh cases. and fi le criminal coses ia regard to wiiful
defauhs. Board of Directors are required to review NPA accoimts of Rs. I cmre and
above with special refereix:e to fuing of staff accoimtability.
On thre part RB t and the Ciovmninem are corrtemplating several support irig Treasures
 An Asset Reconstr ration Company with an uuthor ized capital of Rsd(D0 crore 'and
init tel paid up cap hal Rs. t4tXl crore is to be set up as a trrat for undertaking activhies
re let ing to meet recorntnir:tion. tt wouid negotiate with banks arid fun tel irntitutions
for acquiring distressed assets and develop markets for such mseti Government of
India proposes to go in for Rgal refor no to facil hate the funct ioréng of ARC

The Fformurable £inar›re M inister ia his recent budget spmcli lixs alrea4y arnmuaced
the proposar for a comprehensive leg islat tori on a.sset foreciosure aid 5 ecur h izat icn.
5 irice eriacted by way of Ordiriaiu:e in luz 2(D2 and pmed by Pa liarrent es an An in
December 2m2.
9. C•rja›rate Debl Bmtructurine fCDBi
Corporate Debt Restructuriag rnechanism luz ben inst rtut iomlized in 200t to prov ide
a ti rrely and trarnpareat system for restr inturing of the corporate debts of Rs.20 crore
and above w hh the banks and fiaamial irnthuóorn. The CDR prHess wouid aho
enab te ifib te corporate crit hies to restructure the ir dues outside the e xist ing legal
frarrewor k and redine the iricideace of fresh NPAs. The CDR strinture ha.s been
headquatered ia fDBI. Mumbai and a 5tanding Forum and Core Gmup for
admiri ister irig the mechanism luid already ben put in plme. The exper imem lmwever
has not takea off at the desired ple thnugh rrnre than sis months have lapsed sirice
imroduction. és armoi ced by the Hormurabfe Finarice M irii.ster in the Union Budget
2tD2•(13. RBI ha set up a high R vet Gmup uader the Chairrnuinhip of Shri.
VepaKarresarn. Deputy Goverrmr. RBI to review the imp iementat tori prim:edures of
CDR rreclunism and to make it more effect ive. The Group w ül rev iew the operation of
the CDR 5 cherne, ident ify the operutioml difficu hiex if any. in the srrooth
i mpiernmtation of the scherne and suggest niea.sures to make the operation of the

I IL Credit Information Bureau

tnstitutiomlizat ion of infer rriat ion slurring arrangements through the iy for mod
Cred h fnforrmt ion Bureau of Indd Ltd. tCfBtL} is under way. RBI is conddering the
recomrrendat inns of the S.R. lyer €iroup tCluirman of CiBiL} to operational £m the
scheme of inforrmt ion dissemimt ion on defauh s to th fiaariciai system. The mniri
recomrreridat tens of the Group inc lude dñserriinaticn of iafor mat ion relat ing to suit-
 died accounts zegardle s of the amount clad m the suit oz amount of czedft gzWed
bya oedit Inm?tua«n wx aLso such irzegulaz accounts where tl-e bozzowa Wx given
coraem for disclosure. This. I hope, wouid prevent these who take advamage of lack of
system of inforrnmion sluring amongst tending iastitutiorn to borrow lage ammims
against some meets ar›d property, which luid ia run .email sure contributed to the
incremental NPAs of banks.

RBt is exnminiag the recommendation of Kohli Group on wilful defau hers. tt is

worl0ng out a proper defzah ion co veriag sur:h c la.sees of defau hers so tlut credit denials
to this group of borrowers can he made effective 'and cr imiml prosecution can be made
derrorntrutive agairnt w iiful defau hers.
12. Corjairste £’werimnce
A Cornuhat ive Group under the cluir manslup of Dr. A.5. Ganguly wa.s set up by the
Reserve Bank to review the super visor y role of Boards of banter arid finaiu:tel
irntitutiora and to obtiiin feedback on the funct toning of the Boads vis•â•vis
comp Irene. trarnparemy, disclosures, audit committees etc. and make
reconirreridations for rnnléng the ro ie of Board of Directors more effective whh a view
to minimizing risks arid over-exposure. The Group is fimlizing iLs recommeridat torn
shortly and mny co rre out whh guide hries for effective content arid sUpeIV gsion by bank
board’s over ered * imnagerrem arid NPA prevent ion rnasures.
 RESEAR HMETHODOLDGY
3.1 INTRODUCTION
T"lv• design of any research project requires conskierabfe attention to the research
methods arid the proposed data analysis W hhia this section. we have attempted to
so rue informal ten about how to prodine a research design for a study. We offer a ba.sé
overv iew of the research methods port ion of a research proponl arid then sorre data analysis
templates for different types of dev igas. Our goal is not to arnwer every question. but provide
a head start.

3.2
ñ To urxierstaiid the concept of Non •Performiag Assets of Pub tc Sotor md
Private Sector Banks.
F T6 evaluate the efficiemy ia nnnagiag Non •Performing Assets of Public Sector
atd Pzżvate Secta Banks vo compazatixe zat@.
ñ To analyze the vaioia compost torn of the Non•Performing Assets of Public
Sector and Private Sector Banks.
h T6 study the impact of Non •Per forming Assets on profnab arty of Pub lie 5 ector
arid Private Sector Banks.
h T6 study the var kms recovery ciunne1s for Non-Performing Assets.

3.3 SCOPE OF TLE STUDY

The presem study of tle ron performing msets te corrfiried restr icted to the bour«fary of
public sector md private sector bank of lndia
F To uaderstarid the causes & effects of NPA
F To aruilyze the pa.st trerids of NPA of public & pr ivate ta different sector.
F Bartks can improve their finm ial posit ton or can imreme thre income from
credits w hh the help of this proi t.
F This can aŁso be applicnbfe to know the reasons of iacrease in NPAs.
3.4 RESEARCf-I DESLCN
A reseach design is a frame work or blae print for coridinting reseach procedure gs
mcessay for obtain ing information to soive the problem. Resmrch designed to msist the
decision maker in determining. evaluat irig and selecting the best course of at ion to take in a
g then .situation. Descr ipt ive studies are inuahy the best rretheds for comet ing iafor nuitinn
tlut w 01 derrnnstr ate relut torch ips and descr ibe th world as it ex ists. Descr ipt ive studies are
designed pr imariiy to descr ibe what is go irig or wiut exist.
The research dev ign tlut wi â be roe is Dec riptive Bemsrch.
h Invokes gatlm ing datn tlut deride events and then organizes, tabulates. depicts,
and describes the datx
4 Uses description as a tool to organize data irrto patterns that erner ge during analys is.
h Often uses i renal aids such as graph and charts to aid the rea4er.

3.5 SOURCE OF DATA

Seconder y data refers to the data which As already been generated arid is available
for roe. Th data about NPAs & its compos h ion. c l*•• ificatkn of loan meets. profits &
advances of different banks is taken from the ofFcial webshe of Then Reserve Bank of India
and some other bank ing shew In this research study th rmearcher luve to tance all Public
.Sector BonLs and at Private Secto r Berths 6om the author ized published data of RBI for
the study.

This study covms the per k›d of five years 6om 20t2 to 2016

3.7 DATA AP4ALYSfS

The collected information ha.s been tabulated. anilyzed arid iaterpretat km ha.s been
arr ived on the Isis of stat retreat aiuifys es. Data processing arid analysis luve bun done both
manually and by using computer. Tabular method, ratio analysis arid correlation amlysis
tools have been used. fn th is research various rut ios are cakulated in excel workslnet and
correlation analysis iuve been done through SPSS statistical analysi.s too1.
3.8 LIMITATtON OF STUDY
4 5iiue my study is bmed upon 5ecoriday data. the practicat operaóoris as related to
NPAs are adopted by the banks are rmt iearned.
4 NPAs are clianging w hh the time. Th study is done in the presem envronrrent
whhout foreseeing future deveioprneats.
h The studj is ixrsed on secoridar y data a.s publielied in va torn publicatiom of RBI and
ot er reports. These data are feed on historical accouiiting coricept, which ignores
the impxt of infhtion.
h The study, es ü mhat torn. is corfined only to the se iected and restricted indicators
and the study is confimd on ly for the per k›d of five years.
 DATA ANALYSIS & INTERPRÉTATION
To analyse the data, fret of all we need to study about wiut data analysis and interpretation
ii tt is the procès by which serre and rneaning ae made of the daia gxt1*ered in qimlhativ e
rmeach. md by which the ernergent krmwledge is applied to clients’ prob ierris. This data
ohea talœs the km m of records of group discussion and interviews. but is not ümited to tlñs.
Through prœesses of rev isit ing and immersion in the datx and through comple x et iv hies of
structuriag. re•frarnIng or otherwise expfor irig *, Æ rmearcher tanks for pittems and iræights
relevam to the key research ieues and u.w thme to a4&ens the c üeiit’s brief.

In this clupter sorrie comparative analysis have bun done to achiei e the object ives of th
study. This is accomplished through various ratios ams is and corre rat ion Fetwmn net
pro Pns arid net NPA’s.

4. ICOMPARATIYE RATIOS

4.1.1 Gross N PA’s Ratio f%)

Gross NPA Raöo =

Gros NPA's to Gross Adv races Botio (W j

3h1

2BJ
This analysis iridicates the Gmzs NPA Ratio of Public Sector Banks and Private
Sector Banks from 2ß t2 tiil 20t 6. As we krmw very we ü tlut higher this ratio. mme
dangerous position h is for the hauke
From the above clurt we can chariy uriderstand that rate of growth of Gross NPA of
Public 5 mtor Banks is iacrmsiag size 20t2 to 2ß t6 which is 3.t7 to 9.2ß but in
Private Sector Banks iaitially é decrmses ia 20 t3 from 2.OR to t.77s and after tlut
it also start i crea.siag which raise up to 2. ß3 in 20t 6.
But we can say that i crease ia Cross NPA möo of Pubfic Sector Banks is very
alarmiag which has iacrmsed from 3.t7 to 9J & whereas ia Private Sector Banks
küwshom2.O9A|n2.R3 oUyhomyem2ö2ioAl6.
4 1.2 Net NPA Ratio I %1

Net NPA’s
Net NPA Raöo = XU
Net Advames

Net NPAS to Net Advor*cn Bsho (W j

iroo
u.sv
572
T ües:NeNP*ILido

2flI2
Puh I ic Sector Bank T^I Jyatz Sectar Bank

Rgme2:NWFP BW*n

4 This arialysis iadicates the Net NPA Ratio of Public Sotor Banks 'and Private Sector
Banks ßom 2ß t2 t iß 2ß t6. As we krmw very well tiut higher this rat io, ware
dangerous posit ion it is for the bartki
4 From the above chart we can c Rarly uriderstand tlut rate of growth of Net NPA of
Pub üc and Private Sector Banks is increasing since 20t2 to 20 tfi which is t.69$ to
5.72s and 0fi1 to t.37% respmtively.
4 But we can say that i crease in Net NPA Rntio of Pub lie 5ectm Banks is very
alarmirig which Ines increa.Red by 4.03s wherezs in Private Sector Banks it rises by
0.ßfi only from year 2(i 12 to 20 t6.
 XIX
Gross NPA’s

niiz

24i16 S2A

2flI2 20T 4 2I7Is

4 This aiuilysis indicates the Provision Ratio of Pubiic Sector Banks arid Private Sector
Banks from 20t2 tiil 2(l t6. As we krmw very web that higher this rat to, mnre safe

h From the above chart we can clearly understand that due to increasing mte of Gross
NPA’s of Public arid Private Sector Banks, provisions made by these banks ae
decreeing siace 20t2 to 20t6 which is 47.37 to 40.67% ar›d 75.83a to 52J4%

4 We can say that if provision are decreasing and private sector banks are hm'iag lms
NPA’s a.s compared to Public Sector Banks even then they are mak tag more
provident to the on the safer side.
 Net NPA Ratio (fi 1

..... .. . ....
3.61 2.01

2îJ t 2

Rgure ä: tinylui fi ›â' 14et 14PA Rainsd déc mm BM

interprétation•
ë Tlii.s atuilysLs indicates th re kit rougir ip between gross NPA ratio aid aet NPA rat io.
Tlnse beth aie .vhowuig Area.sing trerid from 201 2 to 20 16 in Pub lie 5 ector Bniiks.
ü Above chart slioivs tlut gros NPA’s are rrnre as oorrlpared to net NPA, whicli meanv
ame prov Asie ns rire mude by pu blic sector brin k.s so as to redme the risk of Jviti
recover y.
4.1.5 Cao+

Yeor Net NPA Bstio (W)

u.oo

2.s

2u \2

4 This analysis indicates the reiatiorahip hetweea gross NPA ratio and rd NPA ratio.
These both are s1*owiag try:reasiag trend from 20t2 to 20 tfi ia Private Sector Banks.
4 Above chart stmws that gross NPA’s are rrore as compared to net NPA, which rrmms
rrore provision are nude by private sector banks so as to reduce the r isk of run
4 2 COMPOSITIOhI OP LO 4M 4SSEZ OF B 4f4W5
4.2.1 Staz+dazd Assets Ratio ( 9â}

Total Standard assets

Stazxfizzd A<seB Ratio = X 100
Gross NPAs

2012 3.40 5 J9
2013 267 5.59
2014 220 5 A3
205 IvZ e.67
206 u u8 3.43

20 \ s 20y6

This analysis indicates the Standard Asst Rntio of Public 5 ector Banks aim Private
Sector Banks from 20 t2 tiii 20t 6. As we krmw very we â that high this raiio, more
a4vamageous it is for the banks.
From the above chart we can clearly understand that the Standard Asset Raiio of
Pub Me arid Private Sector Banks is decreasing corntamiy from 20 t2 to 20 tfi & ha.s
falien down to 3.43'fi from 5 H 9£ for Private Sector Bank & to 0.9& from 3.40
for Public Sector Bank. So, we can determfi th:ir Private Sector bank is in Mficiai
position tlun Pubfic Sector Bank.
 Standard Assets Batio
Total sul›-standard assets
Sulvtandazd besets Ratio = X t ID

2012 0.06 0.26

2013 0.05 0.28
2014 tl.04 0J7
20f 0.04 0J3
2016 ti.04 It. t7

0 D4

20 T6

4 This malysis irxlicates the Sub•Standard Asst Ratio of Public Sector Banks and
Private Sector Banks from 20t2 tilt 20 tfi. As we krmw very we â tlut tower this ratio,
rrore advamageous it is for the banks.
R From the above clurt we can c Raly understand that the 5 ub-Standard Asst Rat to of
Pub lie arid Private Sector Banks is decreasing corntam ly from 20 t2 to 20 t6 & h:u
faâen down to 0. t79£ from 0.26 for Private Sector Bank & to 0.049£ from 0.tXi
for Public Sector Bank. So, we can determine tlut PubMc Sector bank is in Mficiai
position tlun Private Sector Bank.
42.1DoubKifAweBRsòo( }
Total doubtful zssets
Doubtful Assets Raóo = XIX

o.m
2012 0.fl6
2013 0.05 0.OM
u.iJ5
u.un u.w
zuio u.ro u.‹O
Joe: bagÉ/wwwzbr¥gJo

This analysis iridicates the Doubtful Asset Ratio of Public Sectm Banks aad Privats
Sector Baríks from 20t2 till 20 tfi. és we krmw very web that lmser thís ratio. irore
:vivamageous it is for the banks.
From the above chat we can crear iy uriderstaiid tlut the Doubtful Act Ratio of
Pub üc 5 ector Baríks is iricrezsiag slight iy aad Pr ivate 5 ector Banks is showiag
comtam trerid from 20 t2 to 201 fi. Siri:e the mt to for both the banks have a margiml
differerice, tlmefore the ordy thiag which differentiates the baríks is tlut this rat to for
public is iacrea.sing and for Private h is comtat. So, Pr ivate 5 ector Banks gairi
a4vamage from this ratio.
4 2 4 Lose Assets Rafio I %1

Total loss meets

2012 u txls

2014 u.uz
2015
20I& 0.X3 u.ut

0 4J2

2 2 20!3 20t4

Banks from 20 t2 t ñl 2fl l6. As we how v cry well thai lower this rat io, rrore
a4vamageous it is for the banks.
ñ From the above clian we can clear iy understand tha the Loss Asset Ratio of Publ ie
and Private Sector Banks is deaea.sing constant iy 6om 20t2 to 2016 & lurk fatten
down to 0.01& from 0.02% for Pr ivate Sector Bank & to 0.0039fi from 0.(D5% for
Pub tic 5 o:tor Bank. So. we can detemdrie tlut Private Sector hank is in beneficial
position than Pr ivate Sector Bank.
4.3 IMPACT OF P4ON•PERFORMIP4G ASSETS ON PROFITABILITY

Net NPA of Puhiic Secto r

4.3.1 Correlation between It Proi"it & Net EA of Private Sector Bank

Pearson Correlation
Belutioriahip betweisi Net Ptwfit cmi Net NPA
To mtablish re lat ionship between Net Pm Pn and Net NPA Pearson’s Correlzt ion ha.s been
used. Peazsoo's Cozzebzt ion Iâr Publfi Secta Banlcs is •.978 W la Pzñate 8ectoz Ebmlcs é

As we can see that correlation for Pr ivate Sector Banks is equal to 0.869. It rrearn that there
is a push ive relat ion between Net ProfKs arid NPA of Private Sector Bankr It simp ly mean
that as profits iwease, NPA aho iricreze. tt is became of the misrnanagemem on the side of
bank. NPA is direct ly re lated to Totai Advances givea by bank arid brinks mnia source of

imrea.sing m interest imome is try:rea.sing arid profns are aho imre s ing. But *s we krmw
there are two types of Customers (good arid bad). Good cusomers’ reads to in:rease ia profits
by paying interest arid irntahrrems on total a3vimces ti rre lj arid Bad custo rrers iea4s to
imreze in NPA by rat paying interest arid iristallmem on totai adva1u:es timely. This is
because of mismanagement and wrong cho ée of cliem. Tlut is the only reason of positive
relation between NPA and Pro fit. tf the i.s good managerrem by bank tke in case of Public
Sector Banks bank where correlation between Net Profrt and Net NPA is found to be •O.978,
which indicates that amoum of NPA decremes arid Profits wil1 iiu:reuse rrore by the amount
r›rit becoming NPA. So there is negative correlation between profns arid NPA.
4 4 NPA RECt3YERY AN ALYSIS
e of Net Amoimt Recovered

DR7s

?UI4•I5

4.4'$

ñ Abo ve Oiart c feariy slm w iiig NPAs of scheduled commercial 'banks recovered
through var inns ciutirn1s duri tig th study per k›d of 20 i2 to 2016.
R SARFAES t Act is the rrnst effective cluuirie1 of NPA recover j. Ri 13.2fl0 Croies
ueie i ecovered through th £s chan we1 in 20 IS•16. But it i.s in fewer aaxiunts as
compared to in year 20 i 2•13.
 FINDINGS, SUGGESTIONS & CONCLUSION
5. lF]NDANCS
The percentage cluinge in gross NPA to grozs advmes rat to & net NPA to et
a4 varices ratlo ovm the years is iricreming day in and out.
tt states tlut Private sector baríks rnakes rrore provisiom in gross NPA & gross
a4varv:es a.s compared to Public Sector Baríks.
Pub üc se:tor banks iuve mamged to decrease the staiidard asots over the years but
the Privats 5 ector Baríks iuve an irv:rezse in thre Standard Assets.
The subsstandard tots of both the baríks are decrea.sing
Doubtful msets of Public Baríks are firezsirig but thej are constant with Private
Sector Banks
Lms zssets of both baríks are slmwirig darezsing trend.
There is a pnsitive relat tori between NPA & profits of pr ivate sector baríks which gs
due to wrong choice of c lients by Banks.
There is an adverse effect on the Lxjuidity of Baríks.
Banks ae bak irig out to give foarn to the mw cinto rrers due to lnk of furids which
aises duc to NPA.
Effective recovery. wüful defau hs and Defect ive leading prim:ens are th
importar factors wlúch ae respornib te for the risc of NPAs in banks.
NPAS redrx:e the earning capac hy banks and badiy affect the profnability of baríks.
The Naóoml Company Lnw Tr ibunal tNCLTj ha adjudicated irno lveiu:y
resolut tori for companies. The Debt Recovery Tribuml t DRT} ha adjudicated
iaso lvericy rmo iution for iadiv idimls.
52SUGCE ITON
• New body Idle Debt Remover Tribunal should be established & capacity of DRTs
Auld be ered.
• AT banks sbouId keeg stz?ngent check on advmes bemg trade durâfg the tie.
• PubTfi sector sbouId locus froze on recoup ofdoubtful c<sets.
• Pzñate sector dfcs should ivrease theé Income from sources other than izftezest, as
TU f•fPA due to debuh in imaest iwo rr¥• my Sheet the pro€rts dastldTy.
a RBI sbould zev@ existIng czedit agpr4Lsab fY1OfñtO g g\SMILLS.
• Bid sfould imgzo ve upon 'and strengthen theé zeco>e methods.
c Credit appra£sai arid post—loan mon rtor ing are erm tel steps which need to be
commrated by ali th banks.
c There mist be regular fo licrw-up with the customers md h is the duty of banker to
ernure that there is no diversion of funds. This process can i:e taken up at regular

• Persoml vishs slnu id be rrua4e after siinct ion and disbursal of ered * arid furtlm close
mnrñtoriag of the operat torn of the accounts of borrowed uii hs slmu id be doc

c Advances provided by banks need pre svarict toning evaiuat ion arid post -disburserriem
comrol so tiut NPA can decrease.
c Good management needed on the skie of banks to decrnse the revel of NPA.
• Proper se iect ion of borrowers & fo how ups requ ired to get t imely payrrem.
The NPA is one of the biggest problems tlut the lndüm Banks are faciag todøy. ff the proper
mamgemezn of the NPAs is not undertaken it would lumper the brri ass of the banks. If the
com:ept of NPAs is taken vmy fight ly h won id be dangerous for the Indian banking sector.
The NPAs would destroy the current profit: imeiest inco rue due to large Prov istory of the
NPAs, and won id affect the smooth fuøct ioniøg of the recycling of the funds.
Bank.s also redistribute ¥xxses to other borrowers by charging higher imerest røtes. Lower
deprish rates and hìgher terming rules reprms savings aød fi riancial mar keLs. which hampers
ecormmic growth.
Athough Pub tc Sector Banhs luve good substarxlard meets when compared w hh Pr ivate
Sector banks but Private Sector Banks are rrnre efficient than pub lk sector banks with
regard to at the other fmtors which g ive them a good upper harm.
The Non-Performing Assets luve always created a b ig problem for the banks in India. It is
just rat on ly prob rem for the banks but for the ecoørimy ten. The money lrx:ked up in NPAs
luis a direct impact on profnab ñity of the bank a.s Iødian banks ae highly dependent on
to rre from imerest on funds rem. This study slows that extem of NPA is comparatively
vmy high in public sectors banks. Although va torn steps have been talœn by govemrrem to
redlne the NPAs like S4A. t Scheme for 5 intaìmble Structuring of Stressed Asæts} and
fndrndlænuah Scheme but stiil a rot reds to be do we to curb this problem. The NPAs revel
of our banks *s st ü1 high. It is not a ail possible to lure zero NPAs. The bank niaiuigemem
shou id speed up the recovery process. The prob rem of recovery is not with srmll borrowers
but w hh large borrowers ar›d a str ict policy s1ouid be fo liowed for so lv ing this problem. Th
go vemment slould ako make more provisions for faster sett Cement of pending cues and
aho h should reduce the rnaridator y lerxò ng to prior*y sœtm a.s this is the rmjor problem
creat iøg area So the problem of NPA needs lots of smions efforts other wüe NPAs wilt keep
filling the profitability of banks which is not good for the grow iøg Indian ecormmy at aâ.
 BIBLIOGRAPHY
Kanika Goya 1, “E mp ir ical Study of Non•Per for ming Assets Mamgernem of Indian
Pub tc Sector Banks”, APJRB M Vol rime 1, 1s.sue 1, October *010.
fi Prasad arid Veers, “NPAs Reduction Strateg fi for Comrnercio 1 Banks in 1 iuiiâ'.
tnteniat in mil Jéunui1 of Mnmgernent aad Busdim.s Studies Vo1. i t.cue 3. pp. 49-53.

h Price water house Coopers, “Management of noaperfonning meets by tadiari banks”,

IBA Bullet in. Jan. 2(D4.
Chandler y, K. & Sharma, M.. “Per Forrmrice of tadian Public Sector Banks arid
Private Sector Barks. A Co mpaative Study”, tmenut iona1 Journal of tnrmvat ion,
Management aim Tech aofogy. Vo1. 2. No. 3. 201 1.

uddu