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ASTUDYONMANAGMENETOFNONPERFORMINGASEST

Aprojectreportpreparedinpartialfulfillmentoftheaward
ofthedegreeof
BACHELOROFBUSINESSMANAGEMENTOFMANAGMENETOFBANGLAORE

SUBMITTEDBY
R.ANURADHA
(RegNo.11780470)
Undertheguidanceof
Dr.D.Govindappa

MaharanisArtsCommerce&ManagementCollegeforWomen,
SheshadriRoad,Bangalore560001
201314

ACKNOWLEDGEMENT

ItsmydutytorendermysinceregratitudetoourPrincipalMr.Our
esteemedHODDr.&CoordinatorDr.Govindappa,MaharanisArts
Commerce&ManagementCollegeforWomen,fortheirsupportextended
thoughtoutthecourse.
MysincerethankstomyguideDr.Govindappa.CoordinatorinMaharanis
ArtsCommerce&ManagementCollegeforWomen,forspendingtheir
timelyadviceandsuggestionforcompletionofthisproject.
IwouldliketoextendmyprofoundgratitudetoSriHanumanthappa
ManagerofBashaveshwaracooperativeBankforhisenthusiastic
encouragementandcourtesyforthehelptheyrenderedmeforthehelp
theyrenderedmeforthesuccessfulcompletionoftheProject.
Finally,IamgratefultoMybelovedParentswhohaveconstantlysupportedme
andinspiredmeinthisproject,Itismyformostdutytothankallmy
respondentswhohelpedmetocompletemyfiledworkwithoutwhichthis
project.

Place:Bangalore

Date:

(RegNo.11780470)

R.Anuradha

DECLARATION

IR.AnuradhadeclarethatthisprojectreportentitledManagementof
NonperformingAssetshasbeenPreparedduringtheyear20132014,It
ismyoriginalworkdoneundertheguidanceofDr.Govindappa.,
CoordinatorofMaharanisArtsCommerce&ManagementCollegefor
Women,Bangalore
Ialsoherebydeclarethatthisprojectreporthasnotbeensubmittedtoany
otheruniversityorcollegefortheawardofanydegreeofdiploma.

Place:Bangalore
Date:

(Reg.No.11780470))

R.Anuradha

GUIDECERTIFICATE

It is certified that the dissertation on the title Management of Non


Performing Assets is based on an original project study conducted by
Ms. R. Anuradha under my guidance she has attended the required
guidancesessionsheld.

This authentic report is prepared & presented in partial fulfillment for


award of the degree of Master of Business management from Karnataka
StateOpenUniversity.

ThisProjectreporthasnotbeenpreviouslyformedthebasisfortheaward
to the candidate of any Degree, Diploma, AssociateShip, Fellowship or
similartitleinthisUniversityorinanyotherUniversity.

Date:15.1.2013
Place:Bangalore

(Dr.Govindappa)

LISTOFCONTENETS

ChapterNo

ChapterName

PageNo.

Chapter1

Introduction

Chapter2

ResearchDesign

1827

Chapter3

Profile

2855

Chapter4

Analysis&Interpretation

5686

Chapter5

Findings,Conclusions&

8791

Suggestions

BIBILOGRAPHY
ANNEXURES

117

LISTOFTABLES
Sl.no.

Title

Page

AmountofTotalLoansandAdvance

57

59

3. CompositionofNonPerformingAssets

61

4.

63

5. NPASubClassestoTotalAdvances

65

6. TotalNPAtoTotalAssets

67

7. TotalNPAtoNetProfits

69

8. SectorWiseLoansandAdvances

71

9. NPAceilingandAchievements

73

10.

75

1.

2. CompositionofLoanAssets

TotalNPAtoTotalAdvances

IncrementalGrossNPA

11.IncrementalRatioofGrossNPAtoGrossAdvancesand
Assets

77

12.ClassificationofLoanAssets

79

13.ClassificationofRiskAssets

81

14.QualityofLoanAssetsSartorialAnalysis

83

15.AdvancestoprioritySector

85

LISTOFCHARTS
Sl.No.

Title

Page

1.

AmountofTotalLoansandAdvances

57

2.

CompositionofLoanAssets

58

3.

CompositionofNonperformingAssets

60

4.

TotalNPAtoTotalAdvances

62

5.

NPASubClassestoTotalAdvances

64

6. TotalNPAtoTotalAssets

66

7.

TotalNPAtoNetProfits

68

8.

SectorWiseLoansandAdvances

70

9.

NPACeilingandAchievements

72

10.

IncrementalGrossNPA

74

11.

IncrementalRatioofGrossNPAtoGross

AdvancesandTotalAssets

76

78

80

14.QualityofLoanAssetsSartorialAnalysis

82

15.AdvancestoPrioritySector

84

12.

ClassificationofLoanAssets

13.ClassificationofRiskAssets

Introduction

The Banking Sector and the Financial System are undergoing

metamorphic changes following the process of liberalization,


privatizationandglobalization.Theunderlyingprinciplebehindevery
reform process measures reorientation of monetary policy
techniques, introduction of new money market instruments and
institutions, adaptation of stricter prudential norms and
strengtheningofregulatoryarrangementshasbeenmadetomake
thesystemmorecompetitive,efficientandprofitable.Profitabilityof
thebankingindustryhaswitnessedasteadyimprovement.Thebanks
have begun to focus on minimizing their assetliability mismatches
andonRiskManagementbydevelopingsoundfinancialsystem.

HISTORICALPERSPECTIVE
Bank of Hindustan set up in 1876 was the earliest Indian Bank.
Banking in India on modern lines started with the establishment of
the Presidency banks under Presidency Bank Act 1876 i.e., Bank of
Calcutta, Bank of Bombay and Bank of Madras. IN 1921, all
Presidency Banks were amalgamated for forming the Imperial Bank
of India. Imperial Bank performed all the central banking functions
priortoestablishmentofRBI.
RBIActwaspassedin1934andRBIwasconstitutedasaapexbank
withoutmajorgovernmentownership.
With the enactment of RBI Act the bank was bought under
Governmentcontrol.Laterundertheact,thebankgotwideranging

powers for supervision and control of banks. The act also vested
licensing Prowers and authority to conduct inspection of banks in
India.In1955,RBIacquiredcontrolofImperialBankofIndia,Which
was renamed as State Bank of India. In 1959, State of India took
control of 8 private banks floated in the erstwhile princely states,
makingthemasits100%subsidiary.
RBIwasempoweredin1960toforcecompulsorymergerofweak
banks with strong banks. The total number of banks was then
reduced from 566 in 1951 to 85 in 1969. In July 1969, the
governmentNationalized14banks,havingdepositsof50croresand
above. In 1980, government added 6 more banks with deposit of
more than 200 crores. Nationalization of banks was to make the
banks play the role of a catalyst agent for economic growth of the
country.TheNarasimhanCommitteein1992,suggestedwiderange
of reforms for banking sector to meet with international best
practices. With the amendment of Banking Regulation Act, the
bankingindustrywitnessedtheentryofnewprivatebanks.
DEVELOPMENTSINCOMERCIALBANKING
TheIndianbankingsystemcontinuedtorespondproactivelytothe
challenges in its operating environment during the year 200708.
There was a significant improvement in the performance of the
commercialbankingsystem,measuredintermsofbothoperatingas
wellasnetprofits.AsatendMarch2008,97commercialbanks,196
Regional Rural Banks, 52 scheduled urban cooperative banks were
operatinginIndiaasscheduledbanks.

Simultaneously, in view of the growing concerns about financial


stability, prudential norms have been gradually tightened on par with
international best practices. Banks have been also accorded greater
operational flexibility in conducting their business. As part of the process,
commercial banks have adopted several initiatives to strengthen their
business practicesincludingamongothers,greaterproductsophistication,
increased customer orientation, improved riskmanagement particularly
credit risk management techniques, updating management information
systems, greater focus on electronic banking channels and diversification
intonewbusinessareas.
REFORMSPHASESINTHEBANKINGSECTOR
There have been renewed efforts after Asian economic crises to make
financialsystemsmoreefficientandstableinemergingmarket.InIndia,the
blueprintforfinancialsectorreformhasbeenprovidedbytheNarasimhan
CommitteesIandII.
The first phase of reforms in the banking sector has concentrated on
lowering of statutory preemption, deregulation of deposit and lending
rates, initiation of prudential norms, infusion of competition, greater
disclosure, strengthening and rationalization of the regulatory and
supervisory systems. The licensing of new private sector banks and the
expansion in the number of foreign bank branches has introduced a new
competitive culture in the banking system. Simultaneously, the RBI has
taken on the responsibility of development deep, liquid and transparent
market.

The reform agenda in the second half of the nineties has focused on
structuralissuessuchasdiversificationofownershipofpublicsectorbanks,
strengtheningweakbanksandcorporategovernance.
Therehasbeenanumberofbeneficialimpactsofthereformprocessin
terms of a large and diversified institutional base, better price discovery,
largeravailabilityoffunds,newinfusionoftechnologyanddiversificationof
bankingservicesandgreatertransparency.Moreimportantprofitabilityof
public sector banks has increased while the Indian banking system has
shownresilienceandavoidedthecontagioneffectsoftheglobalcrises.The
introduction of better prudential norms has induced banks to reduce the
proportionofNPAsinthebankingsystem.TheRBIhasbeenmakingefforts
continuously to ensure the convergence of its supervisory norms and
practiceswithinternationalbestpractices.
SCHEDULEDBANKINGSTRUCTUREININDIA

Note:Figuresinthebracketsindicatenumberofbanksineachgroup

PARTB
GENERALINTRUCTIONTOTHEROPIC
NONPERFORMINGASSETS
The high level of NPAs in banks and financial institutions has been a
matterofgraveconcerntothepublic,asbankcreditisthecatalysttothe
economic growth of the country. Any bottleneck in the smooth flow of
credit, one cause for which is the mounting NPAs, is bound to create
adverserepercussionsintheeconomy.
NPAsurfacedsuddenlyintheIndianBankingscenarioaroundtheeighties,
in the midst of turbulent structural changes overtaking the international
bankinginstitutions,andwhentheglobalfinancialmarketswereundergoing
sweeping changes. After it had emerged, the problem of NPAs kept hidden
and gradually kept swelling unnoticed and unperceived, in the maze of
defective accounting standards and opaque balance sheets. Over a decade,
NPAs has posed an alarming threat to the Indian banking industry, sending
distressingsignalsonthesustainabilityandendurabilityoftheaffectedbanks.
Theilleffectsofthissurgingthreathaveneutralizedthepositiveresultsofthe
chainofmeasuresaffectedunderbankingreformsbytheGovernmentofIndia
and RBI in terms of the two Narasimhan Committee Reports in this
contemporary period. Despite various corrective steps administered to solve
andendthisproblem,concreteresultsareeluding.ThusNPAshasbecomea
sweeping and all pervasive virus, confronting universally on banking and

financialinstitutions.

CONCEPTOFNONPERFORMINGASSETS
Thecriticalfactorthatdecidestheperformanceofthebanksandfinancial
institutionsnowdaysisthespottingofnonperformingassets.Banksarenow
requiredtorecognizesuchloansperiodicallyandthenclassifytheassets.
Banks are not allowed to bookany income from NPAs. Also, they have to
make provision for the NPAS, which impacts profitability adversely. The
conceptofclassificationofbankadvancesinseveralcategoriesstartedinlate
1980sbutatthattimetheterminologyofNPAdidnotexist.Itwasintheearly
1990s when AngloAmerican models, which had several blocks of
categorizationsofbanksassets,theconceptofassetclassification,cameinto
existence.Priortotheintroductionofassetclassification,banksinIndiahada
system of their own. However, this accounting system is not in conformity
withinternationalstandards.
Nonperformingassetsareapartofbankingsystemthroughouttheworld.
ItispeculiartopublicsectorbanksandfinancialinstitutionsinIndia.Incidence
of NPAs is higher in public sector banks in comparison to private banks and
foreignbanksinIndia.

TRADITIONALCONCEPTOFNPA
Earlierin1991,therewasnosuchwordasNPAinIndianFinancialSystem.
Before1991,theIndianFinancialSystemfollowedtraditionwayofaccounting
procedures in respect of various accounts strictly or otherwise. The system
pertaining to payment of principal amount and periodical interest are as
under.

Firstthebankorfinancialinstitutionusedtocredittheinterestaccount
and debit the borrowers account on a particular date or a given pre
specified period (monthly / quarterly, half years / yearly), irrespective of
whethertheborrowerpaidtheinterestornot.

Therewasnopromptactionduringthosedaysforrecoveryofprincipal
and the interest. Recovery action for interest and principal amount
normallyinitiatedwereeitherattheendofthefinancialyearorattheend
of expiry of the loan documents. The standards set by the concerned
authority are also not up to the level of international standards. All
borrower accounts were treated in the same manner till recovery
procedures were initiated like filing the suits for recovery of outstanding
interest and loan installments. Once the recovery case/suit are filed, the
advanceswerecategorizedas:

ProtestantBillsaccounts(hereProtestantBillmeansalltheloanswhere
thesuitsarefiledforrecovery).Duetothisitbecomesverydifficulttofind
out the actual amount realized by the way of interest or principal for a
given period of time. Another problem in the traditional concept was
limitationperiodi.e.debtinstrumentoncein3years.Iftimelyactionsare
not taken, the financial institutions and banks have to incur the losses.
Traditionally,conceptofassetclassificationwasabsentbefore1991andas
aresultitaffectedthehealthofthefinancialinstitutionandthebanks.

MODERNCONCEPTOFNPA
Nonperforming assets came into the Indian Financial System consequent
to the introduction of prudential accounting norms. An era of taking profits
waschangedforprovidingforexpectedlosses.Daysofcountingthechickens
beforetheeggshatchareover.
From the financial year 199192, new system for accounting for the
classification of loan and interest came into effect. The financial institutions
andthebanksadoptedincomerecognitionrules.RBIalsotookkeeninterestin
thisregardandlaidtherequisiteguidelines.AsaresultthemethodofAsset
Classification came into force. While introducing these guidelines,
internationalacceptedstandardsofBasleCommitteeRecommendationswere
alsotakenintoconsideration.Asperthelaidnorms,thestandardincomewas
recognizedonlyinrespectofstandardloans.
Steps were taken to debit the borrower account only when the borrower
paystheoutstandinginterestandtheinstallment.Actionsandinitiativesare
taken to recover as and when the interest and the installment became due.
This became mandatory for banks and financial institutions. Due to all these
effortstheassetswereclassifiedasPerformingAssetsandNonPerforming
Assets.
By this method of asset classification, the concept of NPA came into
existenceandnowithasbecomethebuzzwordinthebankingsystem.Soitis
very clear that many steps were taken towards effective and efficient
functioningoffinancialinstitutionsandbanksforreducingthelevelofNPAs.

ASSETCYCLE
Assetcycledepictshowanassetmovestodifferentpositiondepending
upon the recovery, security and risk associated with it. Laxman Rekha of
NPA denotes the boundary line / dividing line between performing zone
and non performing zone of loan assets. If the due amount is recovered
before the next balance sheet date, it remains in the performing zone
otherwise it crosses the Laxman Rekha of NPA and slips into the Non
performingzoneasonthebalancesheetdate.

FIGURESHOWINGASSETCYCLE

PRUDENTIALACCOUNTINGNORMS
InlinewiththeInternationalpracticesandaspertherecommendations
made by the committee on the financial system (Chairman Shri. M.
Narasimhan)theRBIhasimplementedPrudentialAccountingNormssince
financial year 199293 (Circular No. BP.BC. 179/2104392, dated April 27,
1992).
The prudential accounting norm is based on the NPA concept. Non
PerformingAssetsleadstoNPAi.e.NNoincome,PProvisioningandA
Asset Classification. The prudential accounting norms comprises of the
followingthree:
1. Incomerecognition
2. AssetClassification.
3. Provisioning.
INCOMERECOGNITION
1. Forthepurposeofincomerecognition,banksarerequiredtoclassify
theirloanaccountsintotwocategoriesPerformingAssetsandNon
PerformingAssets.
2. If the asset is Performing, income can be recognized even on
accrual basis. If the assets is non performing, interest thereon can
berecognizedonlyoncashbasisi.e.whenitisactuallyrealized.
3. In case of NPAs where interest income has ceased to accrue; the
fees, commission and similar income should not be debited and
takenintoincomeaccount.Itshouldbereversedorprovidedforto
theextendtowhichitiscollected.

4. Ifgovernmentguaranteedadvancesbecomepastdueandthereby
NPA, the interest on such advances should not be taken to income
accountunlesstheinteresthasbecomerealized.
5. Any amount recovered even partially towards interest in case of a
NPAamount,itcanberecognizedasincome,providedsuchcreditin
theaccounttowardsinterestarenotoutoffresh/additionalfacility
sanctioned.
6. In case of rescheduling or negotiating of a loan, the fees, interest,
commission etc, should be recognized on accrual basis over the
period of time covered by the renegotiated or rescheduled
extensionofcredit.

IMPACTOFNPAONBANKSPROFITS7LENDINGPROWESS
The efficiency of a bank is not always reflected only by the size of its
balancesheetbutalsobythelevelofreturnonitsassets.NPAsdonot
generateinterestincomeforthebanks,butatthesametimebanksare
requiredtomakeprovisionsforsuchNPAsfromtheircurrentprofits.
NPAshaveadeleteriouseffectonthereturnonassetsinseveralways
Theyerodecurrentprofitsthroughprovisioningrequirements.
Theyresultinreducedinterestincome
They require higher provisioning requirements affecting profits,
accretion to capital funds and capacity to increase good quality
riskassetsinfuture.
Theylimitrecyclingoffundsandsetinassetliabilitymismatches.

In the context of crippling effect on a banks operations in all


spheres, asset quality has been placed as one of the most
important parameters in the measurement of a banks
performanceundertheCAMELSsupervisoryratingsystemofRBI.
OTHERIMPLICATIONS
The most important business implication of the NPAs is that it
leadstothecreditriskManagementassumingpriorityoverother
aspectsofbanksfunctioning.Thebankswholemachinerywould
thus be preoccupied with recovery procedures rather than
concentratingonexpandingbusiness.
Bank with high level of NPAs would be forced to incur carrying
costsonanonincomeyieldingassets.Otherconsequenceswould
bereductionininterestincome,highlevelofprovisioning,stress
onprofitabilityandcapitaladequacy,gradualdeclineinabilityto
meet steady increase in cost, increased pressure on Net Interest
Margin (NIM) thereby reducing competitiveness, steady erosion
ofcapitalresourcesandincreaseddifficultyinaugmentingcapital
resources.
The lesserappreciated implications are reputation risks arising
out of greater disclosures on quantum and movement of NPAs,
their provisions etc. The nonquantifiable implications can be
psychological like play safe attitude and risk aversion, lower
moraleanddisinclinationtotakedecisionsatalllevelsofstaffin
thebank.

STRATERGIES7MISFOREFFECTIVEMANAGEMENT
OFNONPERFORMINGASSETS

Inthepresentscenario,NPAsareatthecoreofthefinancialproblemsof
the banks and hence ceaseless efforts have to be made to improve the
recovery rate. The task is of twofold: one relates to the realization of
existing bad advances and the other relates to improve the recovery
performance on new lending. Advances which are not NPAs but on the
threshold,shouldbegivenspecialattentionbecauseotherwise,thesemay
become NPAs sooner or later. For the operating functionaries the line of
actioncanbesummarizedasunder.

1. A)DataBankofNPA
Amountwise
Accountwise
Agewise
Securitywise
After setting up the database, the next step is to prioritize the
typesofNPAstobeconsideredforrecovery.Initiallythebankmay
takeupNPAswithlargecreditoutstanding.SimilarlytheNPAswitha
fair chance of settlement compromise should be considered on
aprioritybasis.

B)EvolvesuitablemethodsmostappropriateforeachNPA.

C)Drawatimebondactionplaninvolvingallconcernedofficials.

D) Monitor implementation of action plan till a particular NPA is


extinguished.
Asregardstonewlending,bankshavetobemorealertandcircumvent
so as to bring only good quality assets in their books. In the competitive
environmentoftoday,thetaskisnoteasy.Bankshavetoconstantlyupgrade
theircreditevaluationskillsandsysteminordertosuccessfullymanagetheir
assets.

2.CREDITANDNPAMANAGEMENTPOLICY
AcomprehensiveNPAmanagementpolicyshouldbeputinplacewiththe
viewofpreventingemergenceofNPAs.IntheeraofLPG(liberalization,
privatizationandglobalization)thepolicyshouldbevisionary,progressiveand
preactive.ThebankshouldformulateasuitableCreditDispensationand
RecoveryManagementPolicydependinguponthesizeandcomplexityofthe
existingcreditbusiness,riskphilosophy,existingNPAlevelandcapital.The
mainemphasisisthatthepolicyshouldbeonthemeasurestobetakenatpre
NPAlevel.Thebranchtothecontrollersshouldsubmitactionplanforeach
potentialsickunit,fortakingdecisioninatimebounddecisions.

3.FOCUSONHIGHVALUENPAACCOUNT
High value NPA accounts need pointed endeavors for up gradation /
recovery to bring down NPA level sizably. At the same time it has to be
recognizedthatwearefacingtheproblemofadverseselection.Improvingthe
assetqualityofourcreditappraisalsandpromptactiononcreditauditreports
assume great significance. Similarly effective Human Resource Development

interventionisnecessaryforupgradingtheskillsofoperatingfunctionariesin
creditandNPAmanagementareas.

CREDITMARKETING
Effective credit marketing is a important tool for preventing of NPAs. In
creditmarketingasthebankersarerequiredtogotothemarkettolocatethe
prospectiveborrowersandfinancethemforproductiveactivities,thereisless
incidenceofadvancesbecomingNPA.Thusthebanksarerequiredtodevelop
inhouseexpertisefordevelopingandmarketingofsuchcreditproductsata
competitivepricewithaminimumrisk.

STRATEGIESFORRECOVERYOFADVANCES
Which the norms are basically an accounting treatment for recognizing NPA
andprovidingforthem,thebanksinterestedintherecoveryandrecyclingof
funds has to go beyond that. The strategies that may be adopted for
improving the recovery on a step by step basis is highlighted and that these
arenotinsubstitutiontothewelllaidprocedureofthebankforrecoverybut
asanaidinthatdirection.

1. Establishcontactwiththeborrowerorchiefrepresentative.Understand
thereasonfortheirregularityandhisnotcomingtoyouearlier.
Donotstartwithrepayment.Understandtheproblem.Itcouldbe
withtheunitincludingtheindustrytowhichitbelongsoritcould
be with the individual. It could be or temporary nature or a
prolongedone.
Do something to mitigate the problem. It need not be financial
butcouldbetechnicalormarketingorsomethingelse.

Make the borrower come out with his problem openly that help
youtodevicesuitablestrategytoregularizetheaccount.
Donotlosscontact,askhimtogiveinwritingtheproblemfaced
by him and the help he needs from the bank well accepting his
liability.
They to get a fresh report about his business outside
commitments,borrowingfromothersourcesetc.
Ensuretheavailabilityofthesecurityandthevaluetocoverthe
indebtedness
2. Whenthecontactswiththeborrowersdonotyieldanyresults,the
next best practice is to have influence strategy (subject to the
requirement of secrecy) This may be through the person who
introduced the account or the guarantor who is responsible for
repaymentandotherpersonoflocalitywhocommandsrespect.
3. Ifthisalsofails,furthergrantoftimewillbeharmfultothebank.The
advancescanberecalled,givingspecifictimetoregularizetheaccount.
Whenthereisnoresponsefromtheborrower,thelegalrightavailable
to the bank should be used to enforce its right against the security
available.
4. Compromise and settlement can be resorted subject to the
guidelineswhentheotheralternativeforrecoveryhasfailed.
5. Rehabilitation of sick units under BIFR schemes or otherwise to be
resortedtoonlywhenwarranted,basedonthelaiddownparameters.
6. Finallywherethereisnochanceofrecoverywriteoffisresortedas
thelastmeasure.

RECOVERYTHROUGHCOMPROMISESETTLEMENT

A compromise can be defined as a negotiated settlement in which the


borrower agrees to pay a certain amount to the bank after getting
certain concessions and which will ensure to recover the banks dues to
themaximumextendpossibleataminimumsacrifice.
CASES/CIRCUMSTANCESFORCOMPROMISE
1.

There is inadequate security or deterioration in the quality

ofsecurity.
2.

Thenetworthoftheborrowerand/orguarantorismeager.

3.

Thereisadifficultyinthedisposalofsecurity.

4.

Chances of recovery through the legal process are remote due to

defectivedocument,legalentanglementsetc.
5.

Loansassetshavebeenclassifiedunderdoubtfulandlosscategories.

6.

Thebankhasalreadyprovidedforthesacrificialamount.

7.

The borrower is not willful defaulter and the default is due to

problemsbeyondhiscontrolandthereislesschanceforrevival.
8. The borrower is sincere in liquidation of loan through reasonable
compromise.

ChapterII

DESIGNOFTHESTUDY
INTRODUCTION
The besetting sin of NPA has become a great peril to the creditability of
bankingindustry.TheIndianbankingindustrytoohasbeenthreatenedbythe
NPA menace. Among the various NPA causative factors, defective legal
systems as well as ineffective NPA management are the two prime factors.
Only the Government can bring effective legal system but it will take a long
time.Whereasthebankerscanthemselvesbringabouteffectivemanagement
ofNPAsanditdoesnottaketime.Butthatrequiresaclearunderstandingof
every aspect of NPA management and its implementation in true spirit.
Continuously increase in absolute NPA in the banking industry indicates that
thereislackofNPAmanagementskillsatthefiledlevel.

RESEARCHDESIGNUSED
Adescriptiveandanalyticalresearchdesignhasbeenusedtoidentifythequality,
quantum of loan assets and the techniques for arresting NPAs. The study is
basedonProjectiveTechniquesandDepthInterviews.
Toanalysistheobjective,casestudycouldhavebeenundertakenbutdue
to time constraint Depth Interview and Personal Discussion have been
adopted.Thepopulationforthedepthinterviewincludesprofessionalexperts
andgroupshandlingthecasesofNPAs.Themethodsofresearchutilizedfor
the evaluation and analysis includes comparative statements, ratio analysis,
flowchartsandtrendanalysis.

TITLEOFTHEPROJECT
MANAGEMENTOFNONPERFORMINGASSETS
ATDENABANK

The study has been undertaken on Management of NonPerforming


Assets at DENA BANK. The objective of this study envisages on NPA
managementontheloanportfolioofthebank.Alsoanattempthasbeen
make to identify the techniques and suggest strategies for arresting the
existingNPAsandpreventthereemergenceoffreshNPAsatthebank.

STATEMENTOFTHEPROBLEM
Oneofthecrucialfactorsthatdecidetheperformanceofbanksistospot
and arrest NPAs. They have to make a provision for NPAs, which impacts
profitability adversely. Therefore better understanding and effective
monitoringofNPAisnecessary.FurtherthepresenceofNPAinthebooks
of the banks would mean erosion in the capital base, which affects the
profitabilityandnetworthoftheorganization.Thereforeastudyhasbeen
undertaken at DENA BANK to ascertain the Management of Non
performingAssetsandwaysforarrestingthem.

SCOPEOFTHESTUDY
1. ThestudyisexclusivelyconductedforDENABANK,Branchpatrenahalli,
2. Thestudyisconductedforthebankmentionedonthebasisofrecordsof
last4yearsonly.
3. The study focuses attention mainly on the level and the quality of loan
assetsandvariousmeasuresforarrestingNPAsatthebank.
The trend indicated may differ from year to year due to the changes in the
prudential norms as specified by Reserve Bank of India and other regulatory
authorities.

OBJECTIVESOFTHESTUDY
Primaryobjective
Theprimaryobjectiveofthisstudyistosuggesttechniquesandstrategiesthat
may be used to reduce the existing NPAs and prevent the reemergence of
freshNPAs.

Secondaryobjectives
1. TomeasurethemagnitudeofNPAsatthebank.
2. TostudytheimpactofNPAsonthebanksprofitability.
3. To ascertain the techniques and understand their effectiveness
forarrestingNPAsatthebank.
4. TocomparetheNPAstatusoverthelast4years.
5. In general, the secondary objective of the study is to analysis the
dimensions of NPAs for the last 4 years and with special reference to the
currentfinancialyeari.e.,200910,forfirstthreequarters.

OPERATIONALDEFINITIONOFTHECONCEPTS
NONPERFORMINGASSETS

AnassetincludingaleasedassetbecomesaNPAwhenitceases

togenerateanyincometothebank.NPAhasbeendefinedasacreditfacility
inrespectofwhichtheinterestand/orinstallmentofprincipalhasremained
pastdueforaspecifiedperiodoftime.
PASTDUE
Anamountistreatedaspastduewhenitremainsoutstandingorunpaidfor
30 days beyond the due date. Due to the improvement in payment and
settlement system, recovery climate, up gradation of technology in banking
system, it has been decided by RBI to dispense the past due concept with
effectfromMarch31,2001.HencetoalltheconceptstobecomeNPA,cutoff
dateisSeptember30thoftheyearunderaudit.
OUTOFORDER
Anaccountwillbetreatedasoutoforderiftheoutstandingbalanceremains
continuouslyinexcessofthesanctionedlimit/drawingpower.Incaseswhere
the outstanding balance in the principal operating account is less than the
sanctionedlimit/drawingpower,butthecreditsarenotenoughtocoverthe
interestdebitedduringthesameperiod,theseaccountistobetreatedasout
oforder

OVERDUE
Anyamountduetothebankundercreditfacilityisoverdueifitisnotpaid
ontheduedatefixedbythebank.
SUBSTANDARDASSET
A substandards asset is one that is classified as NPA for a period not
exceeding2years.
DOUBTFULASSET:
A doubtful asset one which has remained NPA for a period exceeding 2
years.
DOUBTFUL1STAGE:
If NPA exist for more than 2 years but does not exceed 3 years than the
assetissaidtobedoubtful1stage.
DOUBTFUL2STAGE:
IfNPAexistformorethan3yearsbutunto5yearsthentheassetissaidto
bedoubtful2stage
DOUBTFUL3STAGE:
If NPA exist for more than 5 years then asset is said to be in doubtful 3
stage.
LOSSASSET
AlossassetisonewherethebankorinternalorexternalauditorsortheRBI
inspectionhasidentifiedlossbuttheamounthasnotbeenwrittenoffwholly.

CREDITRISK
Itistheriskoftheborrowernotadheringtothetermsofrepaymentthat
leadstodelayedpaymentornopayment.
LIQUIDITYRISK
Thevariationinnetincomeandmarketvalueofbanksequitycausedbythe
banksdifficultyinobtainingimmediatefunds,eitherbyborrowingorselling
assets.
INSOLVENCYRISK
Alsoknowasbankruptcy,itistheriskthatthedebtorwillbeunabletopay
itsdebts.
DERVATIVE
Acontractorconvertiblesecuritythatchangesinvaluewithand/orobtains
much of its value from price movements in a related or underlying security,
futureorotherinstrumentsorindex.
CRITICALDUEAMOUNT
Itisthe minimumamountdueinastandardasset,whichif notrecovered
before 31st March of the current financial year, will result in the asset
becomingNPA.
POTENTIALNPA
Itisaloanassetwhichisgoingtobedeclared/classifiedasNPAasonthe
coming balance sheet date due to lacy of recovery of capital adequacy
amount.

CAPITALADEQUACYRATIO
Itistheratioofthecapitalofthebanktoitsriskweightedassets.Itindicates
thecapacityofthebankcapitaltoabsorbunanticipatedlossesthatmayarise
onaccountoftherisksthebankisexposedto.
METHODOLOGY
In this report, an analysis is made for knowing the position of NPAs.
Movement of NPAs, quality of loan assets, risk weightage for NPAs and
sectorialdeploymentofloanassets.
Thefollowingarethetechniquesusedforthesaidpurpose.
1. Trendanalysis.
2. Comparativestatementanalysis.
3. Flowchartanalysis.
4. Ratioanalysis.
SOURCESOFDATA
Primarydata
DepthInterviewandPersonalDiscussionwithbankpersonnelandstatutory
loanmonitoringgroup(SLMG)formedthemainsourcesofprimarydata.

Secondarydata

InternalSecondarydata:

Accounting records like NPA registers; annual records formed the sources
forinternalsecondarydata.

Externalsecondarydata:

RBIcirculars,manuals,journalsandmagazines,librariesandInternetarethe
mainsourcesofsecondarydata.

REFERENCEPERIOD
For the analysis the reference period is four years i.e. from 20062007,
20072008,200809,&200910.

LIMTATIONSOFTHESTUDY
1. Owing to the confidentiality enforced by the bank, variousprecise
informationcouldnotbeobtained.
2. The current trend may be slightly affected due to changes in financial
flexibilities.
3. Timeconstraintisalsooneofthemajorlimitations,furtherconstraintsdue
tofinancialyearending.
4.

PLANOFANALYSIS
Thedatacollectedwascompiled,classifiedandtabulatedforthepurposeof
thestudy.Thisdataisanalyzedandisrepresentedintheformsoftablesand
graphs,makinguseofstatisticaltechniquessuchasaveragesandpercentage
forabetterunderstanding.Basedontheanalysisandthefindingstherefrom,
suggestions and recommendations are provided to the bank for arresting
existingNPAsandpreventreemergenceoffreshNPAs.

Theexternalfactorssuchasfiscalpolicy,bankrate,governmentpolicyetc.,
are as applicable to previous years and this impact is to be professionally
changed.

OVERVIEWOFTHECHAPTERSCHEME
Thestudyreportwillbepresentedinfivechaptersasindicatedbelow:

CHAPTER1
Introductiontocreditmanagement:

PartA

It deals with the Introduction, Historical perspective, Development in


CommercialBanking,ReformsPhasesinthebankingSector,Schedulebanking
Structure.

PartB

ItdealswiththeGeneralintroductiontoNPA,ConceptsofNPA,AssetCycle,
Prudential Accounting Norms, Income recognition, Impact of NPA, Other
implications,Strategies&MISforNPAManagement,Strategiesforrecoveryof
advances

CHAPTER2
ResearchDesign:
It deals with design of the study, statement of the problem, scope of the
study,objectivesofthestudy,operationaldefinitiontocontent,methodology,
sources of data collection, limitations of the study, plan of analysis & an
overviewofchapterscheme.

CHAPTER3

ProfileoftheCompany:
It deals with the profile of the Nalanda credit Cooperative society limited.
History, Mission vision, Bank functions business performance of bank,
IntroductionofBranch,Majoradvancesofbranch,assetclassification,branch
profitabilitymodel,NPAcategories,NPAcausativefactors,NPAmanagement.

CHAPTER4
AnalysisandInterpretationofthedata:
Itdealswiththeanalysisandinterpretationofdatacollectedfrombank.

CHAPTER5
Summaryoffindings,conclusionandsuggestions:
Itpresentsthesummaryofallfindings,conclusionand,suggestions.

BIBLOGRAPHY
ANNEXURE

ChapterIII
NALANDACREDITCOOPERATIVESOCIETYPROFILE

HISTORY
NalandaCooperativesocietyisoneoftheleadingcooperativesocietiesin
Bangalore.Itwasstartedintheyear1995byShriM.Kyathaiah.Ithasbeen
registeredinthecooperativeregisteroffice,Chamarajpet,Bangalore.
FirstitwasstatedinasmallareabypayingRs.600rentpermonthwith
344 members and a Share Amout of Rs. 2,61,900. Over the years, the
Societyhasbeendeveloping,atpresenttheyleaveintheirownbuilding.
The purpose of Nalanda Cooperative society is to develop the SC/ST
category, handicapped people by providing loans which are given for the
domestic purpose like marriages, Children,s education, Loan deposits,
vehicle,suretyloan,Businessimprovementloanetc.
Itinitialstage,thesocietywasgiventhepermissiontooperateinonly6
selected areas i.e. Basveshwaranager, Mahalakshimi Layout, Peena, and
Vijanagar & Rajajinagar. At. Present they have got permission to include
membersfromthewholeBangalorecityfrom12.2.2004.

BOARDOFDIRECTORS
1. President

Chennidevaiah

2. VicePresident

C.Honnapa

3. Director

M.Kyathaiah

4. Director

B.S.Keerthikumar

5. Director

Annadanaiah

6. Director

Basavaraju

7. Director

H.M.Jayakumar

8. Director

Dr.M.K.Siddapa

9. Director

M.Veerabhadraiah

Milestones
OneamongsixPublicSectorsBanksselectedbytheWorldBankfor
sanctioning a loan of Rs. 72.3 crores for augmentation of TierII
Capital under Financial Sector Developmental project in the year
1995.

One among the few Banks to receive the World Bank loan for
technologicalupgradationandtraining.

LaunchedaBondIssueofRs.92.13croresinNov.1996

MaidenPublicIssueofRs.180croresinNov.1996.

IntroducedTelebankingfacilityofselectedmetropolitancenters.

NalandaBankhasbeenthefirstBanktointroduces:
MinorSavingsScheme.

CreditcardinruralIndiaknownasNalandaCreditCooperativeBank

CustomerratingsystemforratingthebankServices.

TypesofAccount

NonResidentExternalRupeeAccount(NRE)

Accounts can be opened by NRIs as Savings Bank and Term


Deposit accounts. The remittances for the account have to be
received in foreign currency and would be converted into Indian
Rupees before being credited to the account at the prevailing
exchangerate.Thebalancesintheaccountarerepatriableinforeign
currencyattheexchangeratesprevailingatthetimeofrepayment.

NonResidentOrdinaryAccounts(NRO)
NRIs can open NRO accounts for the purpose of putting through
bonafied transactions denominated in Indian Rupees. NRO account
maybeopened/maintainedintheformofcurrent,Saving,Recurring
or Fixed deposit account. The requirements laid down in the
directives issue by Reserve Bank of India in regard to resident
accountshallapplytoNROaccounts.

ForeignCurrencyNonResidentAccount(FCNR)
UnderFCNRaccounts,term depositsareacceptedfrom NRIsinany
of the five designated currencies US Dollar, Pound, Sterling, EURO,
AustralianDollarandCanadianDolor.

BranchComputerization

100%Branchesarecomputerized
AllMetroandUrbanBranchesarecomputerized.
All6servicesbranchesarefullycomputerized
All branches handling Government business viz. Director Taxes etc.
arecomputerized.
88TBCbrancheshavebilingualdataprocessingcapabilities.
Kiosksatvariousbranchesprovidingthefollowingfacilities:Passbook
printing,accountsdetailsinquiry,inquiryaboutBanksdifferentetc,

Networking
Bank has set up its own network Nalanda using 470 leased lines, 116
VSATs., dialup lines and 216 ISDN backup for ATMs connecting more than
1035branchesand34officesspreadover100centers.
ATMInstallations
Morethan90ATMshavebeeninstalledbyBankalloverKarnataka.
All ATMs are connected through Nalanda Net and Electra ATM switch
enabling cardholders of any of these ATMS to transact through other
ATMS in the network., which in turn is connected to other domestic
andinternationalATMnetworks.
BankhastiedupwithCorporationBank,CashTreegroupofBanks,Cash
netgroupsofBanks,NationalFinancialswitchandSBI&itsassociates
forATMsharingarrangement.
BanksATMswitchisconnectedtoVISAnetwork,thusenablingthrough
VisaElectronDebitCardissuedbytheBank.
ATM/DEBITCards
) AtPresentmorethan120branches(includingATMbranchesandnon
atmbranches)coveringmorethan115ATMcentersaretechnologically
enabledtoissueATM&DebitCards
) Morethan2.25LacATMandVisaelectronDebitcardshavebeenissued
tothecustomerssofar.

NetworkbasedServices&Applications

DataTransfer
TheNalandanetisextensivelyusedfortransferofdatafromregionstoHO
andfrombranchestoregions.
RemoteSupport
Nalanda Net is also used for the purpose of troubleshooting form a remote
locationthusutilizingtheskilledmanpowermoreeffectivelyandoptimally.
RTGS
Bank is participating in Real Time Gross Settlement (RTGS) system for
interbankandcustomerfundstransfer.
NalandaBillpay
NalandaBillpayhasbeenpilotlaunchedinBangalorein15branches.Itisan
extremelyconvenientservicethatenableyoutopayyourvariousbillsdirectly
fromyourNalandaaccountwithouttheneedforstandinginlongqueues.

Theserviceprovidesforthreeconvenientpaymentmodes:

Autopaywhichactsasastandinginstructiontodebittheaccount

uptoaceiling.

PhonePaywhereinthecustomergetsSMSalertforbillsandissue

paymentinstructions.

Internet Where the customer gets alert on Email and schedules

/confirmspayment.
TheServiceisabsolutelyFree.

Nalandambanking
Nalandambankingofferscustomersaneasy,hasslefreemeanstoaccess
bankinginformationwiththehelpofMobilephones24hoursaday,7days
aweek.Nowourcustomercangettherequiredinformationregardingtheir
bankaccountbyusingSMSfacilityfromtheirmobilephones.Presentlym
bankingprovidesfacilitieslike.
a. BalanceInquiry,b.MiniStatementofaccounts
C. Statusofthechequesissued.
Presentlythisserviceisoperationalinmorethan30branches.

AnyBranchBanking(ABB)
Any Branch Banking facility enables customers to access their accounts from
differentcentersaspertheirneeds.Acustomercannowgetastatementof
his last 5 transaction, make balance inquires, cash deposits and cash
withdrawals, transfer funds, Cash Management Services, Multi City Check
fromhisaccounttoanotheraccountthroughmorethan139branches.

NalandaInternetBanking
Nalanda Internet Banking offers you an easy, hassle free means to access
bankinginformationbyafewkeystrokesonyourkeyboard.
Multicitychequefacility.:Byaavailingthisfacility,thecustomerwillget
theATPARchequebookswhereinchequescanbedrawnatparonanyof
theABBbranches.

InvestorRelations

InvestorrelationsCentre

Nalanda Bank is amongst the first nationalized bank to enter equity


marketinNov.1996.Today,outoftheequitycapitalofRs.186.82.crores.
22.19%is heldbytheGovtofIndia.TheshareoftheBankarelisted with
National stock Exchange, Mubai stock Exchange, Ahemadabad and Delhi
Stock Exchanges. The Shareholder of the Bank have approved the
resolution for delisting of equity share from Delhi & Ahmedabad stock
ExchangesattheExtraordinaryGeneralMeetingheldon16thMarch,2010.
Accordingly, the bank has filed delisting applications to Ahmedabad and
DelhiStockExchangesinthelastweekofMarch2010.
Investor Relations Centre has been set up by the Bank at its Nalanda
Corporate Centre at Bangalore to cater to the any assistance to our
shareholders and Bondholders. The Department is well equipped for any
assistance for dematerialization of share, share transfers, transmission,
changes of address, nonreceipt of dividend, duplicate / missing share
certificatesandothermatterspertainingtothesharesandBonds.

BUSINESSOFTHEPERFORMANCEOFTHEBANK

TOTALBUSINESSMIX

During the Financial year 200910, the Bank achieved Business Mix of
Rs.38371croreasonMarch31,2010,ascomparedtotheBusinessMixof
Rs.32762croreasonMarch31,2009registeringagrowthof17.12%.

The deposite of the Bank ;have grown increased to Rs. 14748 crore as on
March 31, 2010 as compared tp Rs. 11,865 as on March 31, 2009
registeringagrowthof13.05%overthepreviousyearslevel.
The Gross Advanes of the Bank have increased ro Rs. 14748 crore as on
March 31, 2010 as compared to Rs. 11,865 crore as on March 31, 2009,
indicatinganincreaseof24.30%.

ThecompositionofTotalBusinessMixoftheBankforthelasttwoyearsis
asunder:

31stMarch31stMarch(Rupeesnincrore)
BusinessMixasat

2009

2010

TotalDeposit*

20897

23623

TotalAdvance

11865

14748

TotalBusinessMix

32762

38371

(*)Figuresregrouped

DEPOSITEMOBILISATION
The Deposites of the Bank stood at 23623 crore as on March 31, 2010 as
compared to Rs. 20897 crore as on March 31, registering an increase of
13.05%.ThecompositionofDepositsosasunder:

AsonMarch31,2009

AsonMarch31,2010

Deposit

(Rupeesin

Sharein

(Rupeesin

Share

Category

crore)

Total

crore)

Total

in

Deposits
Current

2123.61

10.16%

10.08%

2380.57

Saving

6660.06

31.87%

33.57%

7930.63

Term*

12112.88

57.97%

56.35%

13311.86

Total

20896.55

100.00%

100.00%

23623.06

Deposits

NETPROFIT:

After makingatotal provision ofRs.547.33croresfor NPAs,Depreciation


onInvestment,etc.(Rs.321.18croreduringpreviousyear),theBankposted
anetprofitofRs.72.99crorefortheyear200910againstRs.61crorefor
200809.TheincreaseinNetProfitof19.66%wasachieveddepositsman
increaseby70.41%inprovisionsmadeduringtheyear.

Acomparisonofincome,expensesandprovisionsandcontingenciesofthe
Bankduring20092010and20082009ismgivenhereunder:

Particulars

20082009

20092010

InterestIncome

1725.18

1760.13

NonInterestIncome

311.18

458.99

TotalIncome

2036.36

2219.12

InterestExpended

1038.58

1037.46

OperatingExpenses

615.56

561.34

TotalExpenses

1654.14

1598.80

OperatingProfit

382.22

620.32

Provisions

321.18

547.33

61.00

72.99

Contingencies
NetProfit


BRANCHNETWORK:

During the year 200910, a branch (Metro Sector) was merged with a
nearby branch. 13 loss making branches were converted into Satellite
Offices.TheBankalsoopenedoneExtensioncounteratHyderabad.
TheSectorwisebreakupofbranchnetworkoftheBankason31stMarch
2010isasunder:

Sector

No.ofbranches

Percenttototal

Rural

491*

43.76%

SemiUrban

191

17.02%

Urban

236

21.03%

Metro

204

18.18*

Total

1122

100.00%

*include98SatelliteOffices
ASSETQUALITY&RECOVERYMANAGEMENT:
TheBankcontinueditsvigorouseffortsforimprovementinassetqualities
withdistinctreductioninnonperformingassets(NPAs).TheBankhasput
in place couple of initiative to arrest fresh slippages on one hand and to
reduce level of NPA on other hand. Aggressive actions were taken with
defaulters for settlement/payment of their dues under Banks One time
compromisesettlementscheme.Contactswithindividualborrowerswere
madeinpersonforrecovery/regularizationoftheirNPAaccounts.


NPARecoveryCellshavebeenconstitutedatalltheRegionalOffices.The
committees meet on weekly basis, to identify and pursue the potential
accountsforcompromisedsettlements.
ThelevelofGrossNPAswerereducedtoRs.949.40croresason31stMarch
2010 as compared to Rs.591.00 crores as of 31st March 2009. Thus, the
Bank slashed its Gross NPAs to 6.44% and Net NPAs to 3.04% during the
yearunderreview.
The reduction in Gross NPAs was facilitate by the Banks focus on cash
recoveries(includingrecoveryofRs.77.38.
Crore in written off accounts of impaired accounts. During the year 2009
10, total cash recoveries were effected to the extent of Rs. 304.46 crores
whileinthecorrespondingyeartotalrecoveriesweremadetothetuneof
Rs.252.71crores.Further,therewascashrecoveriesinwrittenoffNPAsof
Rs.77.38croresincreasedfromRs.26.89croresinpreviousyear.
TheBankhasmadeprovisionsforNPAsamountingtoRs.236.91crores
during financial year 200910 in comparison to Rs. 275.57 crores during
previous financial year. The total provisions for NPAs stood at Rs. 499.46
croresason31stMarch,2010.TheNPAcoverageratiowhichwasat46.72%
ason31stMarch,2009hasimprovedto52.61%ason31stMarch2010.

TheComparativepositionofGrossandNetNPAsisgivenbelow.

GrossAdvances
GrossNPAs
GrossNPAtoGross
Advances
NetAdvances
NetNPAs
NetNPAtoNet
Advances
ProvisionsCover

March2008

March2009

Rs.Incrores
March2010

10011.45
1484.01
14.82%

11865.13
1147.54
9.67%

14747.79
949.40
6.44%

9411.79
884.35
9.40%

11308.59
591.00
5.23%

14231.24
432.85
3.04%

39.05%

46.72%

52.61%

VISION2010:
The Bank during 20092010 embarked on an ambitions programme for
vision2010.TheVision2010hasrecasttheBanksMission(recognizingthat
customers are the very rationale of the Banks existence), Vision, Core
values and Guiding Principles for the entire staff of the Bank. The Vision
has identified key drivers of growth as Earning assets with focus on
Agriculture,SMEandRetail segments,noninterestincome, liabilities with
emphasisonlowcostdeposits,containingimpairmentinassets,recoveries
in impaired and writtenoff assets, containing operating expenses and
enhancement of customer service at all levels. The Vision 2010 was
simultaneouslylaunchedbyallofficesoftheBankon15thFeb.2010.

INTRODUCTIONTOPATRENHALLIBRANCH

The Dena Bank, Patrenahalli Branch. It was started in 1980. This

branch has come into existence to meet the demand of customers in


PATRENAHALLIandthesurroundingsareas,whichismajorbusinesscenter
to traders and jewelry merchants. The Corporate Office has extended its
service by establishing the Branch. The Branch except treasury operations
handlesalmostallthebankingoperations.
Inthechangingscenariothisbranchisprovidingtheentirefundandnon
fundfacilities.Especiallythenonfundbusinessareincreasingintherecent
yearsinthisbranch.

MAJORADVANCESOFTHEBRANCH
1. PRIORITYSECTORADVANCES
Thesearemainlyconcernedwiththeprioritysectorofoureconomy.
These are the important sectors, which are essential for the
developmentofournation.Suchadvancesare
Loanstoagriculture.
Loanstosmallscaleindustries(SSIs)
Loanstoprofessionalandselfemployed.
Italsoincludesotherloans,whichareprescribedbytheRBIaccordingto
currentyeardirectives.

2. NONPRIORITYSECTORADVANCES
This constitutes a most important source of revenue to the modern
banking system. This is because only 40 percent of total advances are
meant for priority sector and the remaining 60 per cent can be used for
nonpriority sectors. Even the interest rates are very high in the case of
nonpriority sector compared to the priority sector. This sector comprises
of:
Goldloans
Educationalloans
Housingloans
Staffloans
Otherloans.

ASSETCLASSIFICATION
LoanassetsofabankarebroadlyclassifiedasPerformingAssetsand
NonPerformingAssets.TheNonPerformingAssetsarefurtherdividedinto
substandardassets,doubtfulassetsandlossassets.

STANDARDASSETS

Thisisaperformingasset.Itdoesnotdiscloseanyproblem
anddoesnotcarrymorethannormalrisk.

SUBSTANDARDASSET

ThisisaNPAforaperiodoflessthanorequalto18months.
Insuchcases,thecurrentnetworkoftheborrower/guarantoror
the current market value of the recovery of dues to the bank is
full.

DOUBTFULASSET

This is a NPA for a period exceeding 18 months. For the purpose of


provisioning,adoubtfulassetisagainclassifiedintothefollowingthreesub
categories.

Category
StatusofDoubtfulasset StatusofNPA
Doubtful1(DF1)

Upto1year

Upto3years

Doubtful2(DF2)

Morethan13years

Morethan35years

Doubtfulo3(DF3)

Morethan3years

Morethan5years

LOSSASSET
ThisisaNPA,whichhasbeenidentifiedasalossassetbythebankor
internal or external auditors, or RBI inspectors, but the amount has not
beenwrittenoffwholly.

IDENTIFICATIONSOFNPAsASONMARCH31
CashCredit/

TermLoan

OverDraft

Billspurchased

Other

&Discounted

Accounts

Interestdueup

Installment

Billsdueupto

Installment

toSeptember

and/or

September30th

and/or

30thNot

interestdueup

Notcollected

interestdueup

collectedbefore

toSeptember

BeforeMarch

toSeptember

March31istof

30thNot

31st

30thNot

yearunder

collected

Oftheyear

collected

audit.The

beforeMarch

under

beforeMarch

accountremains 31stoftheyear

Audit.

31stoftheyear

outoforderfor

underaudit

underaudit.

morethan180
days.

Note:Adaptationof90daysnormsforassetclassification.Withaviewof
moving towards international best practices and to ensure greater
transparency, it has now been decided by RBI to adopt 90 days norms to
classifyaloanasNPAasagainst180daysfromtheyearending31March
2008.

ASSETPROVISIONING
Provisiontobemade

Assetcategory

0.25%

StandardAssets

10%

SubStandardAssets

(18Months)

DoubtfulAssets

1. Onsecuredportionofdoubtful
assetsupto1year(Non

20%

performing1830months

excluding)D1

30%

2. 1yearto3years

(3054monthsexcluding)D2

50%

3. Over3years
LossAssetsand

unsecuredportionof

100%

Doubtfulassets

Before calculating provision the following amount is to be deducted


fromthebalanceoutstanding.
1) Interestdebitedandcollectedduringtheyear.
2) Unrealized interest of the corresponding previous year in case of new
NPAaccountidentifiedduringtheyear.
3) DICGE/ECGCcoveravailableinthecaseofdoubtfulandlossassets.
4) Interestsuspenseaccountifany.
Source:NPAPrudentialnormsforBanksandNBFCspp.22.v.Venugopal

BRANCHPROFITABILITYMODEL
The profitability model guides the staff and management to move in
therightdirection.Themodelisdependingonthetwotermscalled:

a) Burden
b) Spread

Burden is the difference on noninterest income and noninterest


expenditure. Spread is the difference of yield on advances and cost of
deposits.

NPACATEGORIES
Dependinguponthechanceofupgradation,NPAcanbegroupedunder
thefollowingtwocategories.
a) FreshNPAs.
b) Hardcore/chronicNPAs.
FRESHNPAs
ThecharacteristicsoffreshNPAsare
1) TheseNPAscanbeboughtbacktothestandardcategorybyrecovering
certaincriticalamount.
2) TheirstatusasNPAsismorethan3years.
3) Thereisnofraudbutsufficientsecurityisavailableintheamount.
4) Thereisabetterchangeofupgradationoftheseassets.
5) SubstandardanddoubtfulIassetwillcomeunderthiscategory.

CHRONICNPAs
ThecharacteristicsofchronicNPAsare
1) These NPAs can be back to standard category by recovering a major
portionoftheNPAamount.
2) TheirstatusasNPAismorethan3years.
3) Thereislesschanceofupgradationoftheseassets.
4) Doubtful2(D2),Doubtful3(D3)andlossassetswillcomeunderthis
category.

NPACAUSATIVEFACTORS
NPAcausativefactorscanbegroupedunderthefollowingthreebroad
categoriesonthebasisofproblemsourcesandthecontrollabilityfrom
thebankerspointofview.

EXTERNALFACTORS
1) Naturalcalamitiesandclimaticconditions.
2) Vagariesingovernmentpoliciesandsociopoliticalpressures.
3) Lackofconductivelegalsystemforloanrecovery.
4) Changeincommerciallawsandpractices.
5) Adverse exchange rate, recession and nonpayment in other
countries.
6) Impact of LPG (liberalization), privatization, and globalization) on
industries.

BORROWALFACTORS
1) Improperchoiceofproject/activities.
2) Inefficientmanagement.
3) Adaptationofinappropriate/absolutetechnology.
4) Attitudeofdefaultwillfully.
5) Resourcecrunch.
6) Strainedlaborrelations.

INTERNATIONALFACTORS

1) Improperselectionoftheborrower.
2) LackofcreditappraisalaswellasNPAmanagementskills.
3) Underfinancingasweeasoverfinancing.
4) Lack of proper followup /post sanction supervision and
ineffectiveMIS.
5) Lackofprofessionalcreditpersonnel.
6) Lackoftransparencyincreditdeliveryandrecovery.
7) Malfeasanceincreditdelivery.
8) Directed lending under subsidy schemes without proper
deliverystream,infrastructureetc.
9) Stitch in time saves time time support or help may save a
genuine unit. Have a head and heart together for a human
approach.
IMPLICATIONSOFNPAs
1. Hamperabilitytorecyclefundscreditcreation.
2. Affectstheprofitabilityofthefinancialinstitution.
3. Time/effort/moneywasted.
4. Affectsviabilityoffewfinancialinstitutionserodingcapitalandreserves.
5. Affectsinvestorsconfidence.
6. Naturallossofapproximately3%ofGDP.
7. HigherlevelofNPAaffectsconfidencelevelofstaffandmanagement.

NPAMANAGEMENT
NPAmanagementmeansmanagingtheloanassetsofabank/financial
institutioninsuchamannerthatthequantumofNPAsarecontainedatthe
bare minimum or at least at the international prescribed level of 5% of
growNPAand2.5%ofnetNPA.
ObjectivesofNPAmanagementmaybe
Tomakemoreassetsperforming
ToreducequantumofNPAs
Tominimizetheamountofprovisioningrequirement.

Thesaidobjectivescanbeachievedby:

Firstlybyarrestingslippageofperformingassets.

Secondlybyupgradationofnonperformingassets.

Thirdlybyliquidatingofnonperformingassets.

INCEPTIONNPA
Sensitivitytopickingupofearlysignalsofsicknessandputtingthem
underclosescrutiny/monitoring.
Strictly abide by system, procedures and develop professionalism
inhandlingriskassets.
PeriodicallyundertakeSWOTanalysisandtimelyremedialmeasures
onwasfooting.
Earlyrehabilitationisgotsanctionedandimplementedifpotentially
viable.

In BIFR reffered accounts if bank is convinced package can be


implementedwithmutualconsentandreportedtoBIFR.
Ifnonviable,fastestexistroutetobeundertaken.
EXISTINGNPAs
Initiateearlylegalactionbutinmajoritycasescompromisessaves
bothalike.
Todaysworthismorethantomorrowsfortune.Earlycompromises
savesbothalike.
Howeverthereshouldbeletupinthefollowing:
Physical verification of mortgaged properties, seized stocks /
machineryandestimatethepresentrealizablevalue.
Immediatedisposalofpledged/hypothecatedstocks.
Scoutforothertangibleundisclosedassets,attachthemto
buildpressure.
Contactthepartyforcompromise.
ForsmallloansmakeuseofLokAdalatsparticularlyinrural
areas.
Donothesitatewriteoffinalleligiblecases.
ManybankssetupspecializedARMbrancheswithskilled
specialistofficers/executives.
GovernmenthasproposedsettingupofAssetReconstruction
Companiestotakeupweakbanks.

ANALYSISANDINTERPRETATION
Inthischapterthedatacollectedkeepinginmindtheobjectiveofthestudy
isanalyzedandinterpretedsoastoarriveataconclusion.Themain
objectiveistosuggeststrategiesandtechniquesforarrestingexistingNPAs
andpreventreemergenceoffreshNPAs.
Thedatacollectedisanalyzedandpresentedintheformoftablesand
graphsmakinguseofstatisticaltechniquessuchasaverages,percentages
andratios.Forthepurposeofcollectingprimarydata,depthinterviewand
personaldiscussionwasheldwithprofessionalexpertsandbankofficials.
Forthepurposeofcollectingsecondarydataannualreports,circularsetc
wereused.
Thefirsteleventablesandgraphsinvolvestheanalysisthevarious
dimensionsofNPAsforlast4years.Therestfourtablesandgraphsinvolve
analysisforthecurrentfinancialyeari.e.200607dividedintothree
quartersforaclearunderstandingofNPAsduringthatperiod.

Thefollowingpageswillnowtakeusthroughtheanalysisofthestudy
undertakenforaclearunderstandingofNPAManagementatNalanda
Bank.

TABLE1
TABLESHOWINGAMOUNTOFTOTAL
LOANSANDADVANCES
YEAR

AMOUNT

%TOBASE

%TO

YEAR

PREVIOUS
YEAR

200607

102.76

100.00

200708

106.92

104.05

4.05

200809

111.11

108.12

4.07

200910

100.76

98.05

10.07

INTERPRETATION

TheabovetableportraystheamountofadvancesmadebyNalanda

Bank. For the last 4 years, i.e. 20072010. Keeping 2007 as the base year
and comparing the previous respective year, we can find the per cent
changeinadvancesmade.

From 100 per cent 200607, the quantum of loans sanctioned has
increased to 104.05 percent, 108.12 per cent and 98.05 per cent for the
year2008,2009and2010respectively.

CHARTNO.1
CHARTSHOWINGAMOUNTOFTOTALLOANSANDADVANCES

Source:TableNo1.
Inference:
Therehasbeennormaljumpinadvancesduring200809i.e.4.07percent
as against 4.05 per cent in 200708 However in the following subsequent
yeari.e.200910,thepercentageadvanceshasreducedto10.07.

TABLE2
TABLESHOWINGCOMPOSITIONOFLOANASSETS
YEAR

P.A.

%TO

%TO

BASE
YEAR

N.P.A.

%TO

%TO

PREVIOUS

BASE

PREVIOUS

YEAR

YEAR

YEAR

200607 94.53

100.00

8.23

100.00

200708 95.15

100.67

0.67

11.76

142.89

42.89

200809 98.33

104.02

3.35

12.78

155.28

12.39

200910 92.20

97.53

6.49

8.56

104.00

51.28

INTERPRETATION
Theabovetableshowsthecompositionofloanassetsasperformingassets
andnonperformingassets.
Considering200607asthebaseyear,wecanobservethatthepercentage
of performing assets is showing an increasing trend i.e. 100.67 percent,
104.02 percent and 97.53 percent for the year 2008, 2009 and 155.28
percentintheyear2010whichisquitesignificant.
Loanassetsintermsofpercentagewhencomparedtorespectiveprevious
year,wecanobservethattherehasbeendeclinei.e.42.19percent,12.39
percentand51.28for2008,2009and2010respectively.

CHARTNO:2
CHARTSHOWINGTHECOMPOSITIONOFLOANASSETS

Source:TableNo:2
Inference:Wecaninferthatthebankhassucceededinarrestingthelevel
ofNPAfrom200809onwardsveryeffectively.

TABLE3
TABLESHOWINGCOMPOSITIONOFNONPERFORMINGASSETS
YEAR

SUB.

%TO

DOUBTFUL %TO

STD

PREVIOUS

PREVIOUS

YEAR

YEAR

%TO

LOSS PREVIOUS
YEAR

200607 1.65

3.70

2.88

200708 2.35

142.42

5.29

142.97

4.12 143.05

200809 2.56

155.15

5.75

155.40

4.47 155.21

200910 1.71

103.64

3.85

104.05

3.00 104.17

INTERPRETATION:
TheabovetableshowsthecompositionofNPAi.e.SubStandard,doubtful
andlossAssets.
Takingtherespectivepreviousyearsasthebaseyearwecanfindthatper
centchangeinNPAs.WecanobservethatNPAinSubStandardcategory
hasshownaincreaseof142.42percentin200708and155.15percentin
200809. Thereafter the trend is decreasing i.e. 103.64 percent for the
year 200910 respectively. The NPA in Doubtful category the bank has
shown a declining trend of 143.05 per cent, 155.21 per cent and 104.17
percentin2008,2009and2010respectively.

CHARTNO:3
CHARTSHOWINGTHECOMPOSITIONOF
NONPERFORMINGASSETS

Source:TableNo:3.
Inference:OveralltheNPAisshowingadecreasingtrendduetorigorous
followupactiontakenbythebankatthefieldlevel.

TABLE4

TABLESHOWINGTOTALNPATOTOTALADVANCES

YEAR

TOTAL

TOTALNPA

ADVANCES

AMOUNT

PERCENT

200607

100.76

8.23

8.00

200708

106.92

11.76

11.00

200809

111.11

12.78

11.5

200910

100.76

8.56

8.5

INTERPRETATIONS
Theabovetableshowsnonperformingassetsaspercentagetototal
advances.Thepercentagetototaladvancesisshowingadecliningtrend
overthelast4yearsi.e.8.00percent,11.00percentand8.5percentfor
theyear2007,2008,2009and2010respectively.

TABLE4
CHARTSHOWINGTHETOTALNPAsTOTOTALADVANCES

Source:TableNo.4
Inference:
Fromtheanalyzeddatawecaninferthatthestrategiesadoptedbythe
bankforarrestingnonperformingassetsareworkingeffectively.

TABLE5
TABLESHOWINGNPASUBCLASSESTOTOTALADVANCES
NPASUBCLASSES
YEAR

TOTAL

SUB

ADVANCES SUB

DOUBTFUL

DOUBTFUL %

LOSS LOSS%

STD%

STD
200607 100.76

1.65 0.016 3.70

0.036

2.88

0.028

200708 106.92

2.35 0.022 5.29

0.049

4.12

0.038

200809 111.11

2.56 0.023 5.75

0.052

4.47

0.040

200910 100.76

1.71 0.017 3.85

0.038

3.00

0.030

INTERPRETATION
TheabovetableshowstheNPAsubclassespercentagetermsi.e.sub
standard,doubtfulandlossassetstototaladvances.Thisgivesusaclear
pictureastowhichofNPAbearamajorportionofburdenonthebank.
FromtheabovetablewecanobservethatDoubtfulcategoryholdsamajor
portionofNPAs.In2007,doubtfulassetsstoodat0.036percentasagainst
0.016percentofsubstandardand0.028oflossassets.Intheyear2010,
doubtfulassetsaccountedfor0.038percentasagainst0.017percentof
substandardand0.030percentoflossassets.

CHART5
CARTSHOWINGTHENPAsSUBCLASSESTOTOALADVANCES

Source:TableNo.5
Inference:
WecaninferthatthebankhastotakennecessarystepsforcurtailingNPAin
doubtfulcategory.Itshouldpreventdoubtfulassetsfrombecominghasassets
andtakenecessarymeasuresfortheirupgradation.

TABLE6
TABLESHOWINGTOTALNPATOTOTALASSETS

YEAR
200607
200708
200809
200910

TOTALASSETS
118.17
128.30
131.10
120.91

AMOUNT
8.23
11.76
12.78
8.56

TOTALNPA
PERENTAGE
6.96
9.17
9.76
7.08

INTERPRETATION
TheabovetablehelpsustodeterminetheimpactofNPAontotalassets
ofthebank.

Intheyear2007,thebank'stotalassetsareaffectedby6.96percent.
Similarlyintheyear2008,2009and2010thebankassetsareaffectedby
9.17percent,and7.08percentrespectively.

CHARTNO.6
CHARTSHOWINGTHEPERCENTAGEOF
TOTALNPAsTOTOTALASSETS

SourceTableNo.6
Inference:
ThetablethusportraysthatthoughtheNPAareincreasing&decreasingbutwhichisagood
sign,in2010thetotalassetsareshowingadecreasingtrendandthusneedsacautious
approach.

TABLE7
TABLESHOWINGTOTALNPATONETPROFITS

YEAR

TOTALN.P.A

NETPROFIT

AMOUNT

PERCENTAGE

200607

14.14

8.23

58.20

200708

14.87

11.76

79.08

200809

15.20

12.78

84.07

200910

14.84

8.56

57.68

INTERPRETATION

TheabovetablehelpsustodeterminetheimpactofNPAontheNet
profitofthebank.In2007thebanksprofitisaffectedby58.20percent
duetoaconsiderableamountofNPAs.Intheyear2009thebankprofitis
adverselyaffected,astotalNPAtonetprofitstandat84.07percentdueto
averyhighlevelofNPAs.
Intheyear2009wecanseeadecreaseinthelevelofNPAtoRs.12.78
lakhsandincreaseinthenetprofittoRs.15.20lakhsasagainst79.08per
centofthepreviousyear.

CHARTNO.7
CHARTSHOWINGTHEPERCENTAGEOF
TOTALNPA'STONETPROFITS

Source:Tableno7
Inference:
Wecanseethatthereisaquantumjumpinnetprofitandaconsiderable
low level NPAs, as a result of which the percentage of NPA to Net Profit
standat57.68percent.

TABLE8
TABLESHOWINGSECTORWISELOANSANDADVANCES

YEAR

PRIORITYSECTOR

N0NPRIORITYSECTOR

200607

90.85

11.91

200708

79.32

27.6

200809

81.95

29.16

200910

89.30

11.46

Total

341.42

80.03

INTERPRETATION

Theabovetableshowssectorwiseloansandadvancesmadebythe
bankinthelast4years.
Thetotalloansandadvancesmadebythebankinlast4yeartoPriority
SectorstandatRs.341.42lakhswhichis1/3oftotaladvancesandthe
remaining2/3oftotaladvancesaremadetowardsNonPrioritysector.

CHARTNO.8
CHARTSHOWINGSECTORWISELOANSANDADVANCES

Source:TableNo.8
Inference:
Fromtheabovedataweconcludethatsectorwiseloansandadvances
hasbeenfluctuatingfromyeartoyear.

TABLE9
TABLESHOWINGNPACEILINGANDACHIEVEMENTS

Half
Year

ceiling

Amount

31.03.09

7.5

%of
Ceiling
Amount
2.56

30.09.09
31.03.10

7.5
7.0

2.55
2.74

Achievement
%of
Amount
Achievement
Amount
7.4
2.52

7.2
2.45
6.8
2.66

INTERPRETATION

Theabovetablegivesthedetailsofceilinglaidandachievementsmadeby
the bank for the year ended 31st March, 2010. As against ceiling limit of
2.56 per cent, 2.55 per cent and 2.74 per cent, the banks achievements
standat2.52percent,2.45percentand2.66percentrespectively.

CHARTNO.9
CHARTSHOWINGTHENPACELINGANDACHIEVEMENTS

SourceTableNO.9
Inference:
FromtheabovewecanconcludethattheNPAceilingandachievementhas
beengrowingyeartoyear.


TABLE10
TABLESHOWINGINCREMENTALGROSSNPA
YEAR

NPA

INCREMENTALNPA

200607

8.23

200708

11.76

3.53

200809

12.78

1.02

200910

8.56

4.22

INTERPRETATION
FromtheabovetablewecanobservethattheGrossNPAhasdeclined
considerably.TheNPAwhichstoodat3.53in2007,1.02intheyear2008,
2009andfurtherhasdrasticallydecreasedto4.22intheyear2010.

CHARTNO10
CHARTSHOWINGINCREMENTALGROSSNPA

Source:TableNo10
Inference:
ByobservingtheabovedataweconcludethatthegrossNPAhasbeendeclined
fromyeartoyear.

TABLE11
TABLESHOWINGINCREMENTALRATIOOFGROSSNPATO
GROSSADVANCESANDTOTALASSETS

INCREMENTAL

INCREMENTALRATIO

YEAR

OFNPAASSETS
N.P.A

Advances

Assets

Advances

Assets

20062007

20072008

3.53

4.16

5.97

0.85

0.59

20082009

1.02

4.19

1.39

0.24

0.73

20092010

4.22

10.35

0.16

0.41

26.37

INTERPRETATION
TheincrementalGrossNPAsaspercentagetoGrossAdvancesof
NalandaBankhasdecreasedfrom0.85to0.24intheyear2007
andthenfurtherdecreasedto0.41percentintheyear2008.
IncrementalNPAtototalassetsinpercentagetermsstandat0.59
andthenremained0.73&26.37forthesubsequentyears.\

CHARTNO.11
CHARTSHOWINGINCREMENTALRATIOOF
NPATOADVANCES&TOTALASSETS

Source:Tableno.11
Inference:
From the above data we came to conclude that the gross NPA as
percentagetoGrossAdvancesofNalandabankhasdecreasedfromyearto
year.

TABLE12
TABLESHOWINGCLASSIFICATIONOFLOANASSETS
PARTICULARS

1STQUARTER

2NDQUARTER 3RDQUARTER

Performingassets

93.14

92.26

95.37

Standardassets

93.14

92.26

95.37

Nonperformingassets

8.38

10.14

10.97

Substandardassets 1.68

2.03

2.19

Doubtfulassets

3.78

4.56

4.93

Lossassets

2.93

3.55

3.84

INTERPRETATION

The above table shows the classification of assets during 2010 for

threequarters.

Wecanobserverthatthestandardassetsarereducingoverthetwo

quartersi.e.Rs.93.14lakhs,Rs.92.26lakhsandinthethirdquarterit

has increased to Rs. 2189.00 lakhs respectively. In contrast we can

alsoobservethattheamountofNPAclassesareincreasingoverthe

pastthreequarterswhichisasymptomofloansgoingbad.


CHARTNO.12
CHARTERSHOWINGTHECLASSIFCATIONOFLOANASSETS

Source:TableNo.12
Inference:
From the above, we can infer that while performing assets are
decreasing, the nonperforming asset is showing a increase in the
respectivequarterwhichneedsacautiousapproachandrigorousfollowup.

TABLE13
TABLESHOWINGCLASSIFICATIONOFRISKASSETS
Risk
Category

FirstQuarter

SecondQuarter

o/s

%of

Provision

Net

o/s

%of

Provision

Net

Amount

Total

Forloss

NPA

amount

Total

Forloss

NPA

93.14

91.74

92.16

90.09

1.68

1.65

0.34

1.34

2.03

1.98

0.41

1.62

3.78

3.73

1.70

2.08

4.56

4.45

2.05

2.51

LossAssets

2.93

2.88

2.93

3.55

3.47

3.55

Total

101.53

100.00

4.97

3.42

102.3

100.00

6.01

4.13

Standard
assets
Sub
Standard
Assets
Doubtful
assets

INTERPRETATION
Thetableshowstheclassificationofriskassetsbythedegreeofriskandvalue
impairment.Inthefirstquarter,wecanobservethatintheNPAcategory,doubtful
assetsconstituteamajorriskoftotaloutstandingamountofRs.3.78lakhsforwhicha
provisionofRs.1.70lakhsismadeandforlossassetswhichstandat2.93lakhsafull
provisionisprovided.
Inthesecondquarter,wecanseethattheloanassetsconstituteamajorportionof
NPAforwhichaprovisionofRs.3.55lakhsismade,followedbydoubtfulassetsfor
whichaprovisionofRs.2.05lakhshasbeenmade.

CHART13
CH
HARTSHO
OWINGC
CLASSFICA
ATIONOFFRISKASSSETS

bleno.13
Source:Tab
nference:
In
Fromtheab
bovestatissticsweco
oncludethaattheclasssificationo
ofriskasseets
b
bythedegr
reeofriskaandvalueimpartmenthasbeeenfluctuatiingfromyeear
to
oyear.


TABLE14
TABLESHOWINGQUALITYOFLOANASSETSSECTORIALANALYSIS
Sector

FirstQuarter

Secondquarter

Amount

Amount

Prioritysector

67.54

67.52

Nonprioritysector

11.68

12.27

Allothersectors

Totalloanassets

101.53

102.3

INTERPRETATION
Theabovetableshowssectorwiseanalysisofqualityofloanassetsfor
firsttwoquartersfortheyearended200910.
ThetotalloansmadebythebankinthefirstquarterstandatRs.101.53
lakhs of which priority Sector amount to Rs. 6754 Lakhs which is 66.52
per cent of total advances. Similarly int he second quarter a Pirority
SectoramountstoRs.67.52lakhsoftotalloansofRs.102.3lakhswhich
standat66.00percent.

CHARTT14
C
CHARTS
HOWING
GSECTO
ORIAL
OANASSSETS
ANALYSSISOFLO

Source
e:TableN
No.14
Inferen
nce:
We caan inter out of totaal loan asssets advaances to Priority Seector
amountttotwothirrdoftotalloanassetss.

TABLOE15
TABLESHOWINGADVANCESTOPRIORITYSECTOR
Priority

Firstquarter

Sector

Limit
Limit
Limit
Amount
Amount
Amount
sanctioned Outstanding sanctioned Outstanding sanctioned Outstanding

advances

SecondQuarter

ThirdQuarter

Agriculture 60

54.91

65

54.02

70

60.37

Small scale 15

13.47

18

13.50

20

9.58

30

22.46

35

22.50

35

23.22

105

89.84

118

90.02

125

92.87

industries
Other
priority
sectors
Total
Priority
Sector
Advances

INTERPRETATION
TheabovetableshowstheadvancestoPrioritySectorduringtheyear200607for
threequarters.
In the first quarter, out of total limit sanctioned of Rs. 105 lakhs, amount
outstandingstandatRs.89.84lakhs,whichis85.56percentoftotallimitsanctioned.
In the second quarter, out of total limit sanctioned of Rs. 118 lakhs amount
outstanding stand at Rs. 90.02 lakhs, which is 76.28 per cent of total sanctioned
amount.
In the third quarter out of the total amount sanctikoned of Rs. 125 lakhs amount
outstandingamountedtoRs.92.87lakhs,whichis7429.percentoftotalamount
sanctioned.

C
CHARTN
O15
CHARTSHOWINGA
ADVANCEESTOPRIORITYSEECTOR

Source:TTableNo1
15
Inference
e:
Weccaninferth
hatinallth
hequarterrstheamountoutstaanding
amounte
edforthreeefourthoffthesancttionedlimitt.

SUMMARYOFFINDING,CONCLUSION&SUGGESTIONS

FINDINGS
Inthischapterfindingsofthisstudyarehighlighted.Thesefindingsare
notedkeepinginviewthebelowsaidobjectives,theseare:
TomeasurethemagnitudeofNPAs
Toascertaintheassetquality
TostudytheimpactofNPAsonbanksprofit
TocomparetheNPAstatusoverthepast4years
ToanalysisthevariousdimensionsofNPAsforthelast4years
Tostudythetechniqueandunderstandtheireffectivenessfor
arrestingNPAsandsuggestnecessarystrategiesforthesame.

9 Wecanfindoutthatthequantumofloansandadvancesmade
duringthelast3yearsisshowingadecreasingtreadinpercentage.
9 Inthecompositionsofloanassets,wecanfindoutthatthe
performingassetsisshowinganincrease.
9 WecanfindthattheDoubtfulAssetsholdamajorityportionofNPAs.
However,thebankhasbeensuccessfulinarrestingfurtherNPAs
frombecomingDoubtfulandthusshowingadramaticdecreasefor
thelastfouryears.
9 ThepercentageofNPAtoTotalAdvanceswecanfindthatthereisa
decliningtrend

9 ThepercentageofNPAsubclassestoTotaladvanceswefindin
absolutetermsthatassetsintheDoubtfulcategoryformamajor
partofNPAs.
9 NPAtoTotaladvancesbeginningfrom2007,Wecanfindthatthere
hasbeenanincreaseanddecreaserespectively.
9 ThepercentageofNPAtoNetProfitforthepast4yearsithasbeen
fluctuatingineveryyear.
9 Thereisasteadyincreaseinloansandadvancesinbothpriority
SectorandNonPrioritySector.
9 IntheCeilingandAchievementsfigures,wecanfindoutthatthe
banksachievementagainstceilingfortheyearended20092010.
9 WecanfindthattheIncrementalGrossNPAisshowingadeclining
trendrespectively.
9 TheGrossNPAasapercentageofIncrementalGrossAdvancesis
showingadecliningtrendwhereasGrossNPAasapercentageof
IncrementalTotalAssetshasincreased.
9 TheNonPerformingassetsisshowingaincreasingtrenddueto
recessionintheeconomyandseverecompetitioninthemarket.
9 WecanfindtheClassificationofRiskAssetsbasedonthedegreeof
rskandvalueimpairment.AlossassetholdsamajorportionofRisk,
bothin1stand2ndquarters.
9 Wecanfindoutthequalityofloanassetssectorwisefor2quarterin
theyear200607
9 Againstthelimitsanctionedtheamountoutstandingintheentire
threequartersstandat3/4thofthesanctionedlimit

CONCLUSION:

Severalinitiativeshavealreadybeentakenbothatthepolicyformulation
tier as well as at the functional tiers of the bank, by the regulatory
authoritiestocurbthealarminggrowthintheabsoluteNPAfigures.Some
of the policies and regulations are still in process of implementation and
require several modifications in the existing framework. These initiatives
haveproducedimpressiveresultinshortspanoftime.Theabsolutefigures
ofNPAshaveincreasedovertheyears.Hence,itisimportantforthebanks
and financial institutions to understand the causes of NPAs, strategies for
arresting NPAs and adopt appropriate measures to prevent them. For
reducing the NPAs and curbing its growth further, one must recover old
NPAs,atleastpartiallyandadoptedpracticesforpreventingreemergence
offreshNPAs.
Onlyastronglegalframework,effectiveprudentialnorms,establishment
of Asset Management Company, loan securitization, debt recovery
tribunals, setting advisory committees and a strict recovery policy at the
strategic level of banking system can achieve these objectives. Further in
theeraofLPCi.e.liberalization,privatizationandglobalization,adaptation
of an appropriate Management information System and Human Resource
Management for better credit appraisal, higher differential and
specializationincreditaspectisofprimeimportance.Alltheseactionscan
leadtodeclineinNPAstomeetinternationalstandards.

SUGGESTIONS:
DuringthecourseofthisprojectitwasclearthatNPAshavevisibleimpact
on the loan portfolio of the Bank affecting their balance sheet, which
ultimatelyaffectstheirprofits.Butitisalsoseenthatbankistryingitsbest
toreducethepercentageofNPAs.
A Humber effort has been made to provide few suggestions to DENA
Bank.Theseareasfollows:
DENABANKneedstostrengtheninternalsystemofriskjudgmentto
eliminate the tendency of delay or postpone the identification of
NPAs,especiallyinrespectofhighvalueaccounts.Thebankmayfixa
minimumcutoffpointtodecidewhatwouldconstituteahighvalue
accountdependingupontheirbusinesslevel.
The bank should strengthen the system for credit risk
evaluation/judgment and finetune their norms of debt equity,
currentratiotoimprovetheborrowersstakeforfacingcyclicalups
anddowns.
Primitive interaction with the borrowers with relatively large dues
should be held at various levels to ascertain their true financial
positionandtotakenecessarycorrectiveaction.
Bank should substantially upgrade their existing Management
Information System for collecting data on loans where the interest
and/orprincipalinstallmentsremainoverdue.

Timelyreview/renewalofborrowedaccounttobegivenprominence
so that these are undertaken before the expiry of their respective
accounts.Fullprovisioningtowardsalreadyimpairedassetsneedsto
beaprioritygoal.
Theloanreviewmechanismistobestrengthened,asatooltobring
about improvement in credit administration. Officials should visit
personallytheborrowerspremisesnotonlyfortherecoveryofloans
but also for guiding and counseling the borrowers for smooth
operationsofbusiness.
Segregate the NPA account into fresh as well as chronic NPAs and
make branch level task force/committee. In case of fresh NPAs,
identifypastdue/overdueamountineachcaseandrecoverthesame
by vigorous follow up In case of genuine fresh NPAs,
rephrase/rescheduleofloanrepaymentfacilitybeprovided.
Additional security / securities be obtained to strengthen the loan
assetandtoreducetheprovisionrequirements.
Thebaddebts,whichareunrecoverable,shouldbewrittenofffrom
thebankbalancesheetbecausemaintenanceofthedeadweightin
thelongrunisveryexpensive.Forthem100percentprovisioningis
providing.
Goforloansecuritization,toraisecapitalfromthemarketifthevaluation
ofthescriptistoolowandifthebankisnotinthepositiontoraiseTierII
capital.Thishastwofoldbenefits:onethebankwillgenerateincremental
profitsandthesecondtheborrowerswillsaveoncost.

BIBELOGRAPHY
REFERENCES:
1) Banks drowned in liquidity Dr. Satish PP. 23.30 (Chartered Financial
AnalystMagazine,Oct.2010)
2) Let the weak banks die: Sevan Commandants pp. 1820 (Business
StandardAnnualBanking,Feb2007)
3) Bankingtheory&PracticeK.D.Basava,P.No.16.2,12theeditionyearof
Publication2009,VidyaVahini,Hubli
4) Money, Banking and Finance Special Statistics pp. 831848
(EconomicalandPoliticalWeekly,Feb22.2007)
5) ICRA (2202 Rating of Structured Obligations Indian Credit Rating
Agency2002http://icraindia.com/services/rating/structurer.htm.
6) RBI(2010c)FinancialInstitutionshttp://www.rbi.org.in,2010
7) CanarabankCreditplanof200809&200910
8) JournalofIndianInstituteBankersBankingPresent&Future
Dr.RakeshMohan,DeputygovernorReserveBankofIndia
9) www.Denabank.com

ANNEXURE
BALANCESHEETASAT31STMARCH2010

Rs.000s,Omitted

Asat
Asat

31.03.2010
31.03.2009

Rs.
Rs.

SCHEDULE

CAPITALANDLIABILITES

CAPITAL
2868232
2868232
1
RESERVESANDSURPLUS
10524155
8169166
2
DEPOSITS
236230589
208965528
3
BORROWINGS
9934
3349823
4
OTHERLIABILITESANDPROVISIONS
15820423
16933123
5

TOTAL
240285872
26543333

ASSETS
14900440
16864496
6
CASHANDBALANCEWITHRESERVE
BANKOFINDIA

2919375
BALACESWITHBANKSANDMONEYAT
7
8171347
CALLANDSHORTNOTICE

INVESTMENTS
8
96969519
85706682
ADVANCES
9
113085870
142312370
FIXEDASSETS
10
2932722
4605276
OTHERASSETS
11
9477946
7793162

240285872
265453333
TOTAL

63877966
71410477
12
CONTENGENTLIABILITIES

17468962
20632133
BELLSFORCOLLECTION

17
SignificantAccountingPolicies
18
NotesformingPartofAccounts

SchedulesreferredtoaboveformanintegralpartofBalancesheet

SCHEDULESFORMINGPARTOFPROFIT&LOSSACCOUNTFORTHEYEARENDED31STMARCH2010
Rs.000s,Omitted

Yearended
31.03.2009

Rs.

8563667

Yearended

31.03.2010

Rs.

9848462

Schedule13INTERSTEARNED

I.
Interest/Discounton

Advance/Bills
7140941

II.
IncomeonInvestments

III.
Interest on Balance with

Reserve

BankofIndiaandotherinter

Bankfunds

IV.
others

TOTAL

SCHEDULE14OTHERINCOME
874431

I.Commission,Exchangeand

Brokerage

1177998
1256007
IIProfitonsaleofInvestmentsless
1253299
2708
0
lossonsaleofinvestments

III.ProfitonSaleoflandBuildings
563221
Andotherassets
IV.ProfitonForeignExchange
252610
Transactions(net)
V.IncomeEarnedbywayof
Dividendsetc
Fromsubsidiaries/companiesand/
15999
orJointventuresabroad/inIndia
1630358
VI.MiscellaneousIncome

Total
4589918
SCHEDULE15INTERESTEXPENDED
I.
InterestonDeposit
II.
Interestonreservebank
ofIndia/Inter
Bankborrowings
III.
Others
Total

8109949
208965528
452458
125684
17251758
858661
848661

1177998
1316
239891

31764
814806

311804

9733828

9795027

172785

89158

467946

501600

10374559

10385785

SCHEDULE16OPERATINGEXPENSES

I.PAYMENTSTOANDPROVISIONSFOREMPLOYEES

3542506

4204129

II.RENT,TAXESANDLIGHTING

455609

421212

III.PRINTINGANDSTATIONERY

84518

73171

IV.ADVERTISEMENTANDPUBLICITY

127663

116587

V.DEPRECIATINONBANKSPROPERTY

324108

310170

VI.DIRECTORSFEESALLOWANCESANDEXPENSES

6088

5053

VII.AUDITORSFEESANDEXPENSES(INCLUDINGBR.AUDITORS)

53746

45063

VIII.LAWCHARGES

24037

32457

IX.POSTAGE,TELEGRAMS,TELEPHONESETC.,

94522

105242

X.REPAIRSANDMAINTENANCE

XI.INSURANCE

XII.OTHEREXPENDITURE

172951

153021

249795

191757

477880

498146

5613423

6156008

TOTAL

THANKINGYOU

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