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Project report on Non Performing Assets of banks

(SUBMITTED TO PUNJAB TECHNICAL UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR MASTERS DEGREE IN BUSINES ADMINISTRATION

Supervised by: ISHA MEHRA MAM

Submitted by:Simerjit kaur Class MBA 4th Roll no: - 95323565261

Swami Satyanand College of Management and Technology

Contents
Chapters Page no.

Chapter no. 1 Introduction to the bank HDFC Chapter no. 2 Introduction to the topic.NPA Types of NPA Causes for NPA. Factors responsible for rise in NPA Impact of NPA Income recognition Preventive Measurement for NPA Management of NPA Early symptoms Steps or Initiatives Taken By RBI to curtail NPAS Steps to follow up and avoid slippage from PAS to NPAS Chapter no. 3 Review of literature Chapter no. 4 Research methodology Chapter no. 5 Data Analysis and interpretation Chapter no. 6 Conclusion and Recommendations Bibliography

CHAPTER: 1 Introduction of the Bank

WE UNDERSTAND YOUR WORLD


History
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI'S liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. also has a large corporate client base for its housing related experience in the financial markets, Indian environment. HDFC Bank began operations in 1995 with a simple mission: to be a World Class Indian Bank. We realized that only a single minded focus on product quality and service excellence would help us get there. Today, we are proud to say that we are well on our way towards that goal. HDFC has developed significant expertise in retail mortgage loans to different market segments and credit facilities. With its a strong market reputation, large shareholder base

and unique consumer franchise, HDFC was ideally positioned to promote a bank in the

INTRODUCTION
NON PERFORMING ASSETS (NPA) WHAT IS A NPA (NON PERFORMING ASSET) 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 Interest and/or instalment of principal remain overdue for a period of more than 180 days in respect of a term loan, The account remains out of order for a period of more than 180 days, in respect of an overdraft/cash credit (OD/CC) The bill remains overdue for a period of more than 180 days in case of bill purchased or discounted. 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

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 Naps, from the year ending March 31, 2004, a non performing asset shell be a loan or an advance where; Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan, The account remains out of order for a period of more than 90 days, in respect of an overdraft/cash credit (OD/CC) The bill remains overdue for a period of more than 90 days in case of bill purchased or discounted. 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 Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts Out of order An account should be treated as out of order if the outstanding balance remains continuously in excess of sanctioned limit /drawing power. in case where the out standing balance in the principal operating account is less than the sanctioned amount /drawing power, but there are no credits continuously for six months as on the date of balance sheet or credit are not enough to cover the interest debited during the same period ,these account should be treated as out of order. Overdue:-Any amount due to the bank under any credit facility is overdue if it is not paid on due date fixed by the bank.

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

Causes for NPA.


Failure to bring in required capital. Too ambitious project. Longer gestation period.
Un wanted expenses

Over trading Imbalances of inventories. Lack of proper planning. Dependence on single customer Lack of expertise. Improper working capital management. Mismanagement. Diversion of funds Poor quality management Heavy borrowings. Poor credit collection. Lack of quality control. Wrong selection of borrowers. Poor credit appraisal. Unhelpful in supervision. Tough stand on issue. Too in flexible attitude. System overloaded. Non inception of units. Lack of motivation. Delay in sanction. Lack of trained staff. Lack of delegation of work.

Lack of commitment of recovery. Lack of technical, personnel and zeal to, Lack of infrastructure. Fast changing technology. Unhelpful attitude of government. Changes in customer perception. Increase in material cost. Government policies. Credit policies. Taxation laws. Civil commotion. Political hostility Sluggish legal system. Changes related to banking amendment act.

Factors responsible for rise in NPA


The banking sector has been facing the serious problems of the rising NPAS. But the problem of NPAS is more in public sector banks when compared to private sector banks and foreign banks. The NPAS in PSB are growing due to external as well as internal factors. EXTERNAL FACTORS Ineffective recovery tribunal The Govt. Has set of numbers of recovery tribunals, which works for recovery of loans and advances. Due to their negligence and ineffectiveness in their work the bank suffers the consequence of non-recover, their by reducing their profitability and liquidity. Wilful Defaults There are borrowers who are able to payback loans but are intentionally withdrawing it. These groups of people should be identified and proper measures should be taken in order to get back the money extended to them as advances and loans. Natural calamities This is the measure factor, which is creating alarming rise in NPAS of the PSBS. every now and then India is hit by major natural calamities thus making the borrowers unable to pay back there loans. Thus the bank has to make large amount of provisions in order to compensate those loans, hence end up the fiscal with a reduced profit. Mainly ours framers depends on rain fall for cropping. Due to irregularities of rain fall the framers 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 no recovered part as NPA; S 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 govt to revive the handloom sector has not yet been implemented. So the over dues due to the handloom sectors are becoming NPAS. INTERNAL FACTORS Defective Lending process There are three cardinal principles of bank lending that have been followed by the commercial banks since long. Principles of safety Principle of liquidity

Principles of profitability 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: Capacity to pay 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 computerised. 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 From bankers

Enquiry from market/segment of trade, industry, business. From external credit rating agencies. Analyse 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 analyse the purpose of the loan. To ensure safety and liquidity, banks should grant loan for productive purpose only. Bank should analyse 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 NPA;S. 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 increase 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 wilful defaulters can be collected by regular visits. Re loaning process Non remittance of recoveries to higher financing agencies and re loaning of the same have already affected the smooth operation of the credit cycle. Due to re loaning to the defaulters and CCBS and PACS the NPAS of OSCB is increasing day by day.

Impact of NPA
Profitability:NPA means booking of money in terms of bad asset, which occurred due to wrong choice of client. Because of the money getting blocked the prodigality of bank decreases not only by the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in some return earning project/asset. So NPA doesnt affect current profit but also future stream of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in profitability is low ROI (return on investment), which adversely affect current earning of bank. Liquidity:Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to borrowing money for shot\rtes period of time which lead to additional cost to the company. Difficulty in operating the functions of bank is another cause of NPA due to lack of money. Routine payments and dues. Involvement of management:Time and efforts of management is another indirect cost which bank has to bear due to NPA. Time and efforts of management in handling and managing NPA would have diverted to some fruitful activities, which would have given good returns. Now days banks have special employees to deal and handle NPAS, which is additional cost to the bank. Credit loss:-Bank is facing problem of NPA then it adversely affect the value of bank in loss:terms of market credit. It will lose its goodwill and brand image and credit which have negative impact to the people who are putting their money in the banks.

INCOME RECOGNITION Income recognition - Policy The policy of income recognition has to be objective and based on the record of recovery. Internationally income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, the banks should not charge and take to income account interest on any NPA. However, interest on advances against term deposits, NSCS, IVPS, KVPS and Life policies may be taken to income account on the due date, provided adequate margin is available in the accounts. Fees and commissions earned by the banks as a result of re-negotiations or rescheduling of outstanding debts should be recognised on an accrual basis over the period of time covered by the re-negotiated or rescheduled extension of credit. If Government guaranteed advances become NPA, the interest on such advances should not be taken to income account unless the interest has been realised. Reversal of income: If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realised. This will apply to Government guaranteed accounts also. In respect of NPAS, fees, commission and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods, if uncollected.

Leased Assets
The net lease rentals (finance charge) on the leased asset accrued and credited to income account before the asset became non-performing, and remaining unrealised, should be reversed or provided for in the current accounting period. The term 'net lease rentals' would mean the amount of finance charge taken to the credit of Profit & Loss Account and would be worked out as gross lease rentals adjusted by amount of statutory depreciation and lease equalisation account. As per the 'Guidance Note on Accounting for Leases' issued by the Council of the Institute of Chartered Accountants of India (ICAI), a separate Lease Equalisation Account should be opened by the banks with a corresponding debit or credit to Lease Adjustment Account, as the case may be. Further, Lease Equalisation Account should be transferred every year to the Profit & Loss Account and disclosed separately as a deduction from/addition to gross value of lease rentals shown under the head 'Gross Income'. Appropriation of recovery in NPAs Interest realised on NPAS may be taken to income account provided the credits in the accounts towards interest are not out of fresh/ additional credit facilities sanctioned to the borrower concerned. In the absence of a clear agreement between the bank and the borrower for the purpose of appropriation of recoveries in NPAS (i.e. towards principal or interest due), banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner. Interest Application:

There is no objection to the banks using their own discretion in debiting interest to an NPA account taking the same to Interest Suspense Account or maintaining only a record of such interest in Performa accounts. Reporting of NPAs Banks are required to furnish a Report on NPAS as on 31 st March each year after completion of audit. The NPAS would relate to the banks global portfolio, including the advances at the foreign branches. The Report should be furnished as per the prescribed format given in the Annexure I. While reporting NPA figures to RBI, the amount held in interest suspense account, should be shown as a deduction from gross NPAS as well as gross advances while arriving at the net NPAS. Banks which do not maintain Interest Suspense account for parking interest due on non-performing advance accounts, may furnish the amount of interest receivable on NPAS as a foot note to the Report. Whenever NPAS are reported to RBI, the amount of technical write off, if any, should be reduced from the outstanding gross advances and gross NPAS to eliminate any distortion in the quantum of NPAS being reported.

Asset Classification
Categories of NPAS Standard Assets: Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Here it is also very important that in this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end of financial year. If asset fails to be in category of standard asset that is amount due more than 90 days then it is NPA and NPAS are further need to classify in sub categories.

Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained nonperforming and the reliability of the dues: a) Sub-standard Assets b) Doubtful Assets c) Loss Assets Sub-standard Assets: A sub-standard asset was one, which was classified as NPA for a period not exceeding two years. With effect from 31 March 2001, a sub-standard asset is one, which has remained NPA for a period less than or equal to 18 months. In such cases, the current net worth of the borrower/ guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. Doubtful Assets: A doubtful asset was one, which remained NPA for a period exceeding two years. With effect from 31 March 2001, an asset is to be classified as doubtful, if it has remained NPA for a period exceeding 18 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values highly questionable and improbable. With effect from March 31, 2005, an asset would be classified as doubtful if it remained in the sub-standard category for 12 months.

Loss Assets: A loss asset is one where the bank or internal or external auditors have identified loss or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Provisioning Norms
General In order to narrow down the divergences and ensure adequate provisioning by banks, it was suggested that a bank's statutory auditors, if they so desire, could have a dialogue with RBI'S Regional Office/ inspectors who carried out the bank's inspection during the previous year with regard to the accounts contributing to the difference. Pursuant to this, regional offices were advised to forward a list of individual advances, where the variance in the provisioning requirements between the RBI and the bank is above certain cut off levels so that the bank and the statutory auditors take into account the assessment of the RBI while making provisions for loan loss, etc. The primary responsibility for making adequate provisions for any diminution in the value of loan assets, investment or other assets is that of the bank managements and the statutory auditors. The assessment made by the inspecting officer of the RBI is furnished to the bank to assist the bank management and the statutory auditors in taking a decision in regard to making adequate and necessary provisions in terms of prudential guidelines. In conformity with the prudential norms, provisions should be made on the nonperforming assets on the basis of classification of assets into prescribed categories as detailed in paragraphs 4 supra. Taking into account the time lag between an account becoming doubtful of recovery, its recognition as such, the realisation of the security and

the erosion over time in the value of security charged to the bank, the banks should make provision against sub-standard assets, doubtful assets and loss assets as below:

Loss assets: The entire asset should be written off. If the assets are permitted to remain in the books for any reason, 100 percent of the outstanding should be provided for. Doubtful assets: 100 percent of the extent to which the advance is not covered by the realisable value of the security to which the bank has a valid recourse and the realisable value is estimated on a realistic basis. In regard to the secured portion, provision may be made on the following basis, at the rates ranging from 20 percent to 50 percent of the secured portion depending upon the period for which the asset has remained doubtful: Period for which the advance has been Provision considered as doubtful Up to one year One to three years More than three years requirement (%) 20 30 50

Additional provisioning consequent upon the change in the definition of doubtful assets effective from March 31, 2001 has to be made in phases as under: As on 31.03.2001, 50 percent of the additional provisioning requirement on the assets which became doubtful on account of new norm of 18 months for transition from substandard asset to doubtful category.

As on 31.03.2002, balance of the provisions not made during the previous year, in addition to the provisions needed, as on 31.03.2002. Banks are permitted to phase the additional provisioning consequent upon the reduction in the transition period from substandard to doubtful asset from 18 to 12 months over a four year period commencing from the year ending March 31, 2005, with a minimum of 20 % each year. Note: Valuation of Security for provisioning purposes With a view to bringing down divergence arising out of difference in assessment of the value of security, in cases of NPAs with balance of Rs. 5 crore and above stock audit at annual intervals by external agencies appointed as per the guidelines approved by the Board would be mandatory in order to enhance the reliability on stock valuation. Values appointed as per the guidelines approved by the Board of Directors should get collaterals such as immovable properties charged in favour of the bank valued once in three years. Sub-standard assets: A general provision of 10 percent on total outstanding should be made without making any allowance for DICGC/ECGC guarantee cover and securities available. Standard assets: From the year ending 31.03.2000, the banks should make a general provision of a minimum of 0.25 percent on standard assets on global loan portfolio basis. The provisions on standard assets should not be reckoned for arriving at net NPAs. The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions - Others' in Schedule 5 of the balance sheet.

Floating provisions:

Some of the banks make a 'floating

provision' over and above the specific provisions made in respect of accounts identified as NPAS. The floating provisions, wherever available, could be set-off against provisions required to be made as per above stated provisioning guidelines. Considering that higher loan loss provisioning adds to the overall financial strength of the banks and the stability of the financial sector, banks are urged to voluntarily set apart provisions much above the minimum prudential levels as a desirable practice. Provisions on Leased Assets: Sub-standard assets 10 percent of the 'net book value'. As per the 'Guidance Note on Accounting for Leases' issued by the ICAI, 'Gross book value' of a fixed asset is its historical cost or other amount substituted for historical cost in the books of account or financial statements. Statutory depreciation should be shown separately in the Profit & Loss Account. Accumulated depreciation should be deducted from the Gross Book Value of the leased asset in the balance sheet of the lessor to arrive at the 'net book value'. Also, balance standing in 'Lease Adjustment Account' should be adjusted in the 'net book value' of the leased assets. The amount of adjustment in respect of each class of fixed assets may be shown either in the main balance sheet or in the Fixed Assets Schedule as a separate column in the section related to leased assets. Doubtful assets 100 percent of the extent to which the finance is not secured by the realisable value of the leased asset. Realisable value to be estimated on a realistic basis. In addition to the

above provision, the following provision on the net book value of the secured portion should be made, depending upon the period for which asset has been doubtful: Period Up to one year One to three years More than three years Loss assets The entire asset should be written-off. If for any reason, an asset is allowed to remain in books, 100 percent of the 'net book value' should be provided for. Guidelines for Provisions under Special Circumstances Government guaranteed advances With effect from 31 March 2000, in respect of advances sanctioned against State Government guarantee, if the guarantee is invoked and remains in default for more than two quarters (180 days at present), the banks should make normal provisions as prescribed in paragraph 4.1.2 above. As regards advances guaranteed by State Governments, in respect of which guarantee stood invoked as on 31.03.2000, necessary provision was allowed to be made, in a phased manner, during the financial years ending 31.03.2000 to 31.03.2003 with a minimum of 25 percent each year. Advances granted under rehabilitation packages approved by BIFR/term lending institutions: In respect of advances under rehabilitation package approved by BIFR/term lending institutions, the provision should continue to be made in respect of dues to the bank on the existing credit facilities as per their classification as sub-standard or doubtful asset. %age of provision 20 30 50

As regards the additional facilities sanctioned as per package finalised by BIFR and/or term lending institutions, provision on additional facilities sanctioned need not be made for a period of one year from the date of disbursement. In respect of additional credit facilities granted to SSI units which are identified as sick [as defined in RPCD circular No.PLNFS.BC.57 /06.04.01/2001-2002 dated 16 January 2002] and where rehabilitation packages/nursing programmes have been drawn by the banks themselves or under consortium arrangements, no provision need be made for a period of one year. Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs, and life policies are exempted from provisioning requirements. However, advances against gold ornaments, government securities and all other kinds of securities are not exempted from provisioning requirements. Treatment of interest suspense account: Amounts held in Interest Suspense Account should not be reckoned as part of provisions. Amounts lying in the Interest Suspense Account should be deducted from the relative advances and thereafter, provisioning as per the norms, should be made on the balances after such deduction. Advances covered by ECGC/DICGC guarantee In the case of advances guaranteed by DICGC/ECGC, provision should be made only for the balance in excess of the amount guaranteed by these Corporations. Further, while arriving at the provision required to be made for doubtful assets, realisable value of the securities should first be deducted from the outstanding balance in respect of the amount guaranteed by these Corporations and then provision made as illustrated hereunder.

Example Outstanding Balance DICGC Cover doubtful Value of security (excludes worth of Rs.) Provision required to be made Outstanding balance Less: Value of security held Unrealised balance Less: DICGC (50% of unrealisable balance) Net unsecured balance Rs. 1.25 lakhs unsecured portion) Provision for secured portion of advance Total provision required to be made Advance covered by CGTSI guarantee In case the advance covered by CGTSI guarantee becomes non-performing, no provision need be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion should be provided for as per the extant guidelines on provisioning for non-performing advances. Two illustrative examples are given below: Example I Asset classification status: Doubtful More than 3 years; Rs. 0.75 lakhs (@ 50 percent of secured portion) Rs. 2.00 lakhs Provision for unsecured portion of advance Rs. 1.25 lakhs (@ 100 percent of Rs. 4.00 lakhs Rs. 1.50 lakhs Rs. 2.50 lakhs Cover Rs. 1.25 lakhs Rs. 4 lakhs 50 percent doubtful held Rs. 1.50 lakhs

Period for which the advance has remained More than 3 years remained

CGTSI Cover

75% of the amount outstanding or 75% of the unsecured amount or Rs.18.75 lakh, whichever is the least

Realisable value of Security Balance outstanding Less security Unsecured amount Less CGTSI cover (75%) portion: Realisable value

Rs.1.50 lakh Rs.10.00 lakh of Rs. 1.50 lakh Rs. 8.50 lakh Rs. 6.38 lakh

Net unsecured and uncovered Rs. 2.12 lakh Provision Required Secured portion Total provision required Example II Asset classification status CGTSI Cover Doubtful More than 3 years; 75% of the amount outstanding or75% of the unsecured amount or Rs.18.75 lakh, whichever is the least Realisable value of Security Balance outstanding Less security Unsecured amount Less CGTSI cover (75%) Rs. 30.00 lakh Rs. 18.75 lakh Realisable value Rs.10.00 lakh Rs.40.00 lakh of Rs. 10.00 lakh Rs.1.50 lakh Rs. 0.75 lakh (@ 50%) Rs. 2.12 lakh ( 100%) Rs. 2.87 lakh Unsecured & uncovered portion Rs.2.12 lakh

Net unsecured and uncovered Rs. 11.25 lakh

portion: Provision Required Secured portion Total provision required Take-out finance The lending institution should make provisions against a 'take-out finance' turning into NPA pending its take-over by the taking-over institution. As and when the asset is takenover by the taking-over institution, the corresponding provisions could be reversed. Reserve for Exchange Rate Fluctuations Account (RERFA) When exchange rate movements of Indian rupee turn adverse, the outstanding amount of foreign currency denominated loans (where actual disbursement was made in Indian Rupee) which become overdue goes up correspondingly, with its attendant implications of provisioning requirements. Such assets should not normally be revalued. In case such assets need to be revalue as per requirement of accounting practices or for any other requirement, the following procedure may be adopted: The loss on revaluation of assets has to be booked in the bank's Profit & Loss Account. Besides the provisioning requirement as per Asset Classification, banks should treat the full amount of the Revaluation Gain relating to the corresponding assets, if any, on account of Foreign Exchange Fluctuation as provision against the particular assets. Rs.10.00 lakh Rs. 5.00 lakh (@ 50%) Rs.11.25 lakh (100%) Rs. 16.25 lakh Unsecured & uncovered portion Rs.11.25 lakh

Preventive Measurement for NPA


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

recovery of banks dues. Identification of weakness in the very beginning that is : When the account starts showing first signs of weakness regardless of the fact that it may not have become NPA, is imperative. Assessment of the potential of revival may be done on the basis of a techno-economic viability study. Restructuring should be attempted where, after an objective assessment of the promoters intention, banks are convinced of a turnaround within a scheduled timeframe. In respect of totally unviable units as decided by the bank, it is better to facilitate winding up/ selling of the unit earlier, so as to recover whatever is possible through legal means before the security position becomes worse. Identifying Borrowers with Genuine Intent:Identifying borrowers with genuine intent from those who are non- serious with no commitment or stake in revival is a challenge confronting bankers. Here the role of frontline officials at the branch level is paramount as they are the ones who has intelligent inputs with regard to promoters sincerity, and capability to achieve turnaround. Base don this objective assessment, banks should decide as quickly as possible whether it would be worthwhile to commit additional finance. In this regard banks may consider having Special Investigation of all financial transaction or business transaction, books of account in order to ascertain real factors that contributed to sickness of the borrower. Banks may have penal of technical experts with proven expertise and track record of preparing techno-economic study of the project of the borrowers. Borrowers having genuine problems due to temporary mismatch in fund flow or sudden requirement of additional fund may be entertained at branch level, and for this purpose a special limit to such type of cases should be decided. This will obviate the need to route the additional funding through the controlling offices in deserving cases, and help avert many accounts slipping into NPA category. Timeliness and Adequacy of response:-

Longer the delay in response, grater the injury to the account and the asset. Time is a crucial element in any restructuring or rehabilitation activity. The response decided on the basis of techno-economic study and promoters commitment, has to be adequate in terms of extend of additional funding and relaxations etc. under the restructuring exercise. The package of assistance may be flexible and bank may look at the exit option. Focus on Cash Flows:While financing, at the time of restructuring the banks may not be guided by the conventional fund flow analysis only, which could yield a potentially misleading picture. Appraisal for fresh credit requirements may be done by analyzing funds flow in conjunction with the Cash Flow rather than only on the basis of Funds Flow. Management Effectiveness:The general perception among borrower is that it is lack of finance that leads to sickness and NPAS. But this may not be the case all the time. Management effectiveness in tackling adverse business conditions is a very important aspect that affects a borrowing units fortunes. A bank may commit additional finance to an align 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: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.

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. 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. 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


Credit Default

Replacement of Repayment Period

Inability to Pay

Willful default

Fresh Issue of Conversion Unviable Viable Compromise Finance into WCTL Consortium Debt Restructuring Rehabilitation Corporate Term Loan

Lok Adalat Debt Recovery Fresh Tribunals WC Limit Sole Banker

Securitization Asset Reconstruction Act

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. Wilful 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 defendants property/assets before judgment, penal provision for disobedience of tribunals order or for breach of any terms of order and appointment of receiver with power of realization, management, protection and preservation of property are expected to provide necessary teeth to the DRTs and speed up the recovery of NPAs in the times to come. DRTs which have been set up by the Government to facilitate speedy recovery by banks/DFIs, have not been able make much impact on loan recovery due to variety of reasons like inadequate number, lack of infrastructure, under staffing and frequent adjournment of

cases. It is essential that DRT mechanism is strengthened and vested with a proper enforcement mechanism to enforce their orders. Non observation of any order passed by the tribunal should amount to contempt of court, the DRT should have right to initiate contempt proceedings. The DRT should empowered to sell asset of the debtor companies and forward the proceed to the winding up court for distribution among the lenders Inability to Pay Consortium arrangements: Asset classification of accounts under consortium should be based on the record of recovery of the individual member banks and other aspects having a bearing on the recoverability of the advances. Where the remittances by the borrower under consortium lending arrangements are pooled with one bank and/or where the bank receiving remittances is not parting with the share of other member banks, the account will be treated as not serviced in the books of the other member banks and therefore, be treated as NPA. The banks participating in the consortium should, therefore, arrange to get their share of recovery transferred from the lead bank or get an express consent from the lead bank for the transfer of their share of recovery, to ensure proper asset classification in their respective books. \Corporate debt restructuring (CDR): Background In spite of their best efforts and intentions, sometimes corporate find themselves in financial difficulty because of factors beyond their control and also due to certain internal reasons. For the revival of the corporate as well as for the safety of the money lent by the banks and FIs, timely support through restructuring in genuine cases is called for. However, delay in agreement amongst different lending institutions often comes in the way of such endeavours. Based on the experience in other countries like the U.K., Thailand, Korea, etc. of putting in place institutional mechanism for restructuring of corporate debt and need for a similar mechanism in India, a Corporate Debt Restructuring System has been evolved, as under

MANAGE MENT OF NPA


Since NPA have been adverse effects over return on assets and capital adequacy ratio of banks, each public sector bank has formulated its own NPA management policy and is to recover NPA in its own way. A reduction in the gross and net NPA s indicates a significant improvement in the management of NPAs .The present methods of dealing with NPAs includes both legal remedies but since the bank experiences a considerable deal in getting the results .On legal remedies of late non legal remedies are also gaining popular with the bankers. The measures adopted by the Indian banks are as follows:Resolution strategy framework suits filled and BIFR are the two most common approaches to resolution of NPA in public sector banks.Rehabiliation and settlement have been considered in few cases. Data available on resolution strategies adopted by public sector banks suggest that compromise settlement schemes with in the borrower are found to be more effective than legal measures , 1) Debt recovery tribunals: - Debt recovery tribunals were set up in 1992. These tribunals can entertain the cases for recovery of debts. 2) Lok Adalats: - The lok adalat helps to resolve disputes between parties by conciliation, meditation, compromise, settlement schemes. 3) Credit Information Bureau:- It was incorporated in January 2004 by SBI India .Association with 3 more institutions now banks and financial institutions are required to submit the list of suit filed cases of Rs-10 millions CIBIL. 4) Legal Measures:-The following legal and regulatory measures are instituted for the settlement of NPAs. A) SARFAESI ACT:- The securitization and reconstruction of financial assets and enforcement of security interest act permits the secured creditors (if 75% of the secured creditors agree) in enforce security interest in relation to the under lying security with out reference to the court after giving 60 days notice to the defaulting borrowers .The act

gives the sweeping powers to secured creditors such as taking over the possession of secured assets of the borrowers including the right to transfer by way of lease ,assignment or sale, take over the management of secured assets. B) Assets Reconstruction co.:-The setting of assets Reconstruction Company may be another channel to discount the NPAs of the bank of such an agency and to developing the process of such an agency and to developing the process of securitization on of banks loans assets for providing liquidity. Secondary market of derivates based on securitized assets could also be developed as in individuals country. C) Revenue recovery Act:- In some states revenue recovery act has been made applicable to banks . Since this is also expenditure process of adjudicating claims, banks may be noticed to cover the act by State.

Early symptoms by which one can recognize a performing asset turning in to Non-performing asset
Four categories of early symptoms:( 1 ) Financial: Non-payment of the very first instalments in case of term loan. Bouncing of cheque due to insufficient balance in the accounts. Irregularity in instalments. Irregularity of operations in the accounts. Unpaid over due bills. Declining Current Ratio. Payment which does not cover the interest and principal amount of that instalment. While monitoring the accounts it is found that partial amount is diverted to sister concern or parent company. (2) Operational and Physical: If information is received that the borrower has either initiated the process of winding up or are not doing the business. Overdue receivables. Stock statement not submitted on time. External non-controllable factor like natural calamities in the city where borrower conduct his business.

Frequent changes in plan. Non payment of wages. (3) Attitudinal Changes: Use for personal comfort, stocks and shares by borrower. Avoidance of contact with bank. Problem between partners. (4) Others: Changes in Government policies. Death of borrower. Competition in the market.

Steps or Initiatives Taken By RBI to curtail NPAS


Recognising the fact that the origin of nonperforming could be at the initial stage if loan decision making .RBI had impressed upon banks from time to time to strengthen credit supervision. After sanction and dispersal of credit, banks are required to closely monitor the operations of the borrower units and accounts by way o ostentation of periodic stock operation statements brought down, end use etc. In the cases sickness nursing back the sick units etc. Problem accounts above a certain outstanding balance are required to be monitored individually by designated senior officials of the bank. In respect of accounts where the classification of assets of the banks are required to take prompt steps to recover the dues and staff accountability is required to be examined. Banks have also been advised to take decisions regarding findings of some expeditiously and to effectively follow up the cases of suit filed and decreased accounts .During periodic discussions with bank management special emphasis is given on monitoring of large NPA accounts at the highest level in the banks and also on reductions of NPA through up gradation recovery and compromise settlements. RBI has advised and accordingly bank board have laid down policies in regard to credit etc. Banks has constituted recovery cells recovery branches and NPA management departments and fixed recovery targets. Policies evolved and steps taken in this regard are critically examined .During the annual on sight inspection of banks. The off sights returns also provide RBI and insights into the quality credit portfolio at quarterly intervals. Introduction of prudential norms on income recognition, asset classification, provisioning. During 1992-93 and other steps initiated apart from beginning in transparency in the loan portfolio of banking industry have significantly contributed towards improvement of the pre sanction appraisal and post sanction appraisal which is reflected in lowering of the levels of fresh accretion of non performance advances of banks after 1992.

RBI impressed upon the banks to strengthen the credit appraisal and credit supervision. Adoption of 90 days norm for recognition of loan impairment as against the current norms of 180 days effective March 2004. Reduction in transition period of sub standard assets to doubt full category to 12 months effective from March 2005. Revision in the norms in terms of new barrel capital accord after 2005. In cases of incipient sickness detailed guidelines have been issued to banks to take steps for avoiding sickness nursing back the sick units etc. During periodic description with bank description with bank management special emphasis is given on monitoring of large NPA accounts at the highest in the banks and also on reduction of NPAs through up gradation recovery and compromise settlements. RBI has advised and accordingly banks laid down policies in regard to credit dispensation, recovery of credit etc. Policies evolved and steps taken are critically examined during the annual on sight inspection of banks.

Steps to follow up and avoid slippage from PAS to NPAS


The sanction of loan should with in the stipulated time as per head office guidelines all information should be collected about the borrower at the time of sanctioning the loan. At the time of fixation of repayment period, generation of income, surplus repaying capacity and gestation period allowed should be taken into consideration. The amount should be disbursed according to the borrower he should neither be under financed nor over financed. All necessary requirement in the loan sanctioned should be complied with before realizing the loan limit. The business premises of the borrower should be visited regularly .Any short comings if found should be informed higher officials of banks. End use of funds is to be verified it means that the banker should always ensure that the purpose for which the loan was disbursed has been served or not that is same things has been purchased or not. Recovery reminders should be sent regularly to the borrower and that too well in time i.e. before the date when his instalments become due. Loans and limits should be reviewed and renewed timely. A complete and proper set of security documents duly filled and signed by all borrowers should be obtained. In case of natural the repayment should be rescheduled The safety, security, documentation, proper stamping etc.should be ensured will before the disbursement of loans.

Chapter 2 Review of literature

Review of literature
1.) Kumar S.B (1998):-IN liberalizing economy banking and financial sector get high priority. Indian banking sector of having a serious problem due to non performing assets. The financial reforms have helped largely to clean NPA was around RS. 52000 cores. In the year 2004. The earning capacity and profitability of the bank are highly affected due to this. NPA is defined as an advance for which interest or repayment of principal or both remain out standing for a period of more than two quarters. The level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of resources. 2.) Reddy R.B (2002):- banks and financial institutes have made significant contributions to almost all the sectors of the Indian economy like agriculture, industry, trade, employment and infrastructure. The ever increasing trends in deposits and credit speak volumes for the performance of Indian banks and FIS. However, the NPA in the credit portfolios have become a thorn in the flesh during a last one decade or so. NPA not only affect the productivity but also sully the image of Indian banking. The quality of loan assets is the most important factor for the basic viability of the banking system. NPA not only eat into profitability and hamper their ability to recycle funds but also shake the public confidence which is crucial for existence of any financial institution. The present trends of NPA are alarming and calls for rigorous and concerted efforts by banks and financial institutes as well as government. 3.).KUNDU S.(2004):- Non performing loans epitomize bad invested .they miss allocate credit from good projects ,which do not receive funding to failed projects .Bad invest ment ends up in misallocation of capital and by extension ,labour and natural resources . The economy performs below its production potential. NPA loans may spill over the banking system and control the money stock, which may lead to economic contraction. This spill over effect cans channels through liquidity or bank insolvency A .when many borrowers fail to pay interest banks may experience liquidity shortage. These shortages can jam payments across the country.

B. Liquidity constraints bank in paying deposits e.g. cashing their pay check. Banking panic follows a run on banks by depositor as part of the national money stock. Contracts and economic contraction follows. C. undercapitalized banks exceed the banks capital base. There are 3 ways of solving this problem of NPA .They are 1. Recapitalization of banks with government aid 2, disposal and write off NPA. 3. Increased regulations. 4.) Shajahan M.K (2005):- NPA reflect the health of the banking system . So it is a matter of some significance when the reserve bank discloses as it does in its latest report on trend and progress of banking in India that between ends March 1996 and 1997. NPA of public sector banks were brought down by almost one half. Closely connected with the magnitude of NPA is the proportion of NPA attributable to the priority sector. Have according to RBI almost one half of all NPA of public sector banks are accounted for by the priority sector. 5.) Mishra S. (2007):-The NPA is considered as an important parameter to judge the performance and financial health of banks. The level of NPA is one of the drivers of financial stability and growth of the banking sector. 6.) Ahmed V.J (2008):- The growth competition and sluggish growth in economy coupled with poor credit deposit ratio. The large volume of non performing assets in the balance sheet and lack of automation and professionalism in operations have been flaring up the country. The level of non performing loan is recognized as an indicator for assessing banks credit risk, assets quality and efficiency in allocation of resources to production sector.

Chapter 4. Research methodology

Research methodology

Research is defined as a scientific and systematic search for pertinent information on a specific topic. It is a systematic collection, recording, analysis, and interpretation and reporting of information about various facts of a phenomenon .Under study several steps go together into making of research project. To be precise it involve following steps: Formulating and classifying the topic. Critically reviewing the literature. Development of hypothesis. Preparing the research design.

Data collection. Analyzing data. Writing, presenting submitting the project reports.

Data Collection Primary data:Primary data is first hand information which is collected a fresh and thus happens to be original in character. The primary data was collected by the way of well framed questionnaire .Questionnaire was administered together the information relation to NPA.On the basis of question arises; I have made the tables and pie charts. Sample Size is 50. Secondary Data:Secondary data are those which have already been passed through the statistical process. The data which pre essential for this study relating to management of NPA was bared on secondary source of data ,This data was collected from materials provided by bank ,annual reports, management reports , magazines , journals, RBI circulars and some essential books on banking was referred.

Objectives of the study

1) To know its meaning. 2) To study causes responsible. 3) To know norms given by RBI. 4) To know the measure taken at various levels for management of NPA. 5) To know the impact of NPA on banks. Scope of study:The study mainly covers meaning of NPA, then classification and provisioning, factor responsible for the emergence of NPA, impact of NPA in banks and Management of NPA through resolution. Strategy framework credit information bureau, legal measures and compromise settlement schemes. The study has been conducted at HDFC Tarn Taran branch.

Chapter 5. Data Analysis and interpretation

Data Analysis and Interpretation

Question no. 1 Since how long is the HDFC branch is functioning? 1) .2 years 2.) 2-3 years 3) 3-5 years 4.) 5 year + Year 2 year 2-3 year 3-5 year 5 year + Total No. of respondents 2 6 14 28 50 Percentage % 4 12 28 56 100

2 ye r a 2-3 yea r 3-5 yea r 5 ye r+ a

Interpretation:-we can observe that 56% of branches for functioning since 5 years and all other branches are functioning from a minimum period of 3-5 years.

Question no 2 Since how long the presence of NPA is observed in your HDFC branch? Year 0-1 1-2

2-3 3-4 5 + above Year 0-1 1-2 2-3 3-4 5 and above Total No. of respondents 3 5 8 14 20 50 Percentage % 6 10 16 27 40 100

0-1 1-2 years 2-3 years 3-4 years 5 +years

Interpretation:-From the above it can be interpreted that in nearly 40% of branches NPAS and present since 5 years and above. And in 28% of branches NPAS are present between 3-4 years and in rest of branches NPAS are present from 3 years.

Question no. 3

What is the appointment value of NPA in your branch? Amount 1-10

10-20 20-30 30-50 50 and above Amount 0-10 10-20 20-30 30-50 50 and above Total No. of respondents 2 5 8 13 22 50 Percentage % 4 10 16 26 44 100

0-10 10-20. 20-30 30-50 50 and abov e

Interpretation:-From the above table it can be interpreted that in nearly 44% branches NPAS are above 50 lacs. Another 26% of branches have NPAS of about 30-50 lacs in rest of branches NPAS up to 30 lacs are found. Question no.4 Which is the main cause responsible for the presence of NPA? 1) Proper selection of borrowers 2) Deficiency in processing 3) Improper appraisal of assets 4) Lack of supervision and follow up 5) Natural calamities

6) Will full default of borrower

Causes Improper borrowers.

selection

No. of respondents of 6

Percentage 12

Deficiency in processing. 4 Improper appraisal of assets 4 Lack of supervision and 8 follow up Natural calamities Wilful default of borrower Total 28 50

8 8 16 56 100

Improper selection of borrowers. Deficiency in processing Improper appraisal of assets Lack of supervision and follow up Natural calamities Willful default of borrower

Interpretation:-From the above table it can be interpreted that in 56% off the branches wilful is the main cause of the emergence of NPAS .In 16% branches lack of supervision and follow up is the main cause of NPAS. Then it is followed by many causes.

Question no.5 Do you think that NPA can be controlled? 1. Definitely yes 2. Yes 3. Cant say 4. No 5. Definitely no Result Definitely yes yes Cant say No Definitely no Total No. of respondents 25 19 6 0 0 50 Percentage % 50 38 12 0 0 100

Definitely yes yes Cant say No Definitely no

Interpretation: - From the above table, it can be interpreted that really 50% of respondents have told that definitely NPA can be controlled and another 38% respondents say that NPAS can be controlled , while 12% of respondents could not make any decision . Question no. 6

To what extent NPA has been converted into good assets? 1) 1 2) 2 3) 3 4) 5 5) >5

Result 1 2 3 4 5 >5 Total

No. of respondents 0 4 5 9 9 23 50

Percentage % 0 8 10 18 18 46 100

1 2 3 4 5 above than 5

Interpretation: - From the above table, It can be interpreted that 46% of NPA have been converted into good assets to the extent of 5% or more. Question no. 7 Which is the most appropriate measure to reduce the level of NPAS? 1) Constant dialogue with borrowers 2) Self involvement 3) Lok adalat

4) Debt recovery 5) Tribunals Measures No. of respondents 1) ) Constant dialogue with 6 borrowers 2) Self involvement 3) Lok adalat 4) Debt recovery 5) Tribunals Total 7 10 12 15 50 Percentage % 12 14 20 24 30 100

Constant dialogue with borrowers ) Self involvement ) Lok adalat Debt recovery Tribunals

Interpretation

:- From the above it can be interpreted that 30% branches debt recovery

tribunals are the most appropriate measure for reducing the level of NPAS . In 24% branches lok adalat in 20% branches SARFAESI ACT is the most appropriate measure for reducing the level of NPA S. Question no.8 To what extent the profitability has been affected by NPAS? %age profit affected by NPA 0-5 5-10 10-20 20 and above

% profit affected by NPA 1 .0-5 2. 5-10 3. 10-20 4. 20 and above Total

No. of respondent 20 15 10 5 50

Percentage % 40 30 20 10 100

0-5 5-10. 10-20. 20 and above

Interpretation:-we can observe that 40% of respondents have told that profitability is affected to the extent of 0-5 % due to NPAS and other 30% respondents think that profitability is affected to the extent of 5-10% while other 20% of respondents think that profitability is affected to the extent of 10-20% and the remaining 10% of respondents think that profitability is affected to the extent of more than 20%.

Question no.9 Has the profitability improved after adopting NPA reduction techniques?

Result Definitely improved Improved Cant say Not improved Definitely not improved Result 1) definitely improved 2) Improved 3) cant say 4) not improved 5) definitely not improved Total No. of respondent 25 15 5 5 0 50 Percentage % 50 30 10 10 0 100

definitely improved Improved ) cant say not improved definitely not improved

Interpretation :-In the above table ,it can be interpreted that 50% of respondents say that profitability has been improved after adopting NPA reducing techniques and 10% of respondents say that profitability has been improved while the remaining 10% of respondents could not make any decisions.

CHAPTER 6

Conclusion and Recommendations.

Conclusion

The problem of non performing assets has been a major issue for the banking industry. There are various reasons for the emergence of non performing assets like will full default lack of demand, industrial sickness, improper appraisal system etc. The problem of NPAS not only affects the profitability of the bank but also affects its image in the market. The banks are taking various steps for controlling the level of NPAS. The RBI which is the apex body for controlling the level of NPA has been giving guidelines and getting norms for the bank in order to control the incidents of defaults.

Recommendations
It is the recommendation that the proper documentation and verification to be made before sanctioning the loan. Regular visits should be made in the business premises of the borrower. Empowering staff to make decisions related to sanctioning of loans. Constant interactions have to be maintained with the customer to keep track of their loan payments. Strict measures have to be taken while issuing or sanctioning the loan . The measures can includes verification of job and salary slips, verification of securities and the like. All the banks are trying to reduce NPA through various techniques and it is suggested that there measures have to be continue.

Bibliography

Varshnay P.N Banking law and practice publishers. Sultan Chand and Sons. 19th edition. Sharma R.K, Singh Jaswant, Gupta K Shashi, Banking Insurance of foreign trade laws and procedures. Published by Kalyani publishers. Chandra Prassana Financial Management Published by Tata MC Graw hill Publishers. Aggarwal Monica Banking theory and Practice, Published by Kalyani Publishers. RBI Bulletins. Websites. WWW.RBI.ORG.IN WWW.BANKING.COM