ON
MANAGEMENT OF
IN BANKS
SUBMITTED BY
MAYANK VERMA
(04BS1211)
SUBMITTED TO
ACKNOWLEDGEMENT
2
The objective of the Management Research Project (MRP) is to widen
the knowledge base or deepen the understanding of the latest trends
and developments in the chosen field of management, gain experience
in application of concepts, tools and techniques and to develop an
overall managerial perspective.
An understanding study like this will never be possible with the efforts
of a single person and gracious help from various sources will
contribute tremendously towards the completion of this project work.
Mayank Verma
04 BS 1211
IBS – Gurgaon.
3
• The need for managing NPA’s
4
PROPOSED METHODOLOGY
INTRODUCTION
5
Banking sector reforms in India has progressed promptly on aspects
like interest rate deregulation, reduction in statutory reserve
requirements, prudential norms for interest rates, asset classification,
income recognition and provisioning. But it could not match the pace
with which it was expected to do. The accomplishment of these norms
at the execution stages without restructuring the banking sector as
such is creating havoc. This research paper deals with the problem of
having non-performing assets, the reasons for mounting of non-
performing assets and the practices present in other countries for
dealing with non-performing assets.
To a certain extent the banking sector has achieved this mandate. Lead
Bank Scheme enabled the banking system to expand its network in a
planned way and make available banking series to the large number of
population and touch every strata of society by extending credit to
their productive endeavors. This is evident from the fact that
population per office of commercial bank has come down from 66,000
in the year 1969 to 11,000 in 2004. Similarly, share of advances of
6
public sector banks to priority sector increased form 14.6% in 1969 to
44% of the net bank credit. The number of deposit accounts of the
banking system increased from over 3 crores in 1969 to over 30 crores.
Borrowed accounts increased from 2.50 lakhs to over 2.68 crores.
It's a known fact that the banks and financial institutions in India face
the problem of swelling non-performing assets (NPAs) and the issue is
becoming more and more unmanageable. In order to bring the
situation under control, some steps have been taken recently. The
Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 was passed by Parliament, which is an
important step towards elimination or reduction of NPAs.
Meaning of NPAs
7
An asset is classified as non-performing asset (NPAs) if dues in the form
of principal and interest are not paid by the borrower for a period of
180 days. However with effect from March 2004, default status would
be given to a borrower if dues are not paid for 90 days. If any advance
or credit facilities granted by bank to a borrower become non-
performing, then the bank will have to treat all the advances/credit
facilities granted to that borrower as non-performing without having
any regard to the fact that there may still exist certain advances /
credit facilities having performing status.
4. Non performing loans may spill over the banking system and
contract the money stock, which may lead to economic contraction.
This spillover effect can channelize through illiquidity or bank
8
insolvency; (a) when many borrowers fail to pay interest, banks may
experience liquidity shortages. These shortages can jam payments
across the country, (b) illiquidity constraints bank in paying depositors
e.g. cashing their paychecks. Banking panic follows. A run on banks by
depositors as part of the national money stock become inoperative. The
money stock contracts and economic contraction follows (c)
undercapitalized banks exceeds the banks capital base.
The loans for the weaker sections of the society and the waiving of the
loans to farmers are another dimension of the politicization of bank
lending.
Most of the depositor’s money has been frittered away by the banks at
the instance of politicians, while the same depositors are being made
to pay through taxes to cover the losses of the bank.
9
The origin of the problem of burgeoning NPAs lies in the quality of
managing credit risk by the banks concerned. What is needed is having
adequate preventive measures in place namely, fixing pre-sanctioning
appraisal responsibility and having an effective post-disbursement
supervision. Banks concerned should continuously monitor loans to
identify accounts that have potential to become non-performing.
10
Undoubtedly the world economy has slowed down, recession is at its
peak, globally stock markets have tumbled and business itself is
getting hard to do. The Indian economy has been much affected due to
high fiscal deficit, poor infrastructure facilities, sticky legal system,
cutting of exposures to emerging markets by FIIs, etc.
11
problem is however acutely suffered by Nationalised Banks, followed by
the SBI group, and the all India Financial Institutions.
Table No. I
%-age
%-age
of
NPA Statistics - All of Net
Total Gros Net Gross
Scheduled Commercial Net NPA to
Advanc s Advanc NPA to
Banks........................... NPA net
es NPA es total
....... (Amount in Crores) advance
advanc
Year s
es
5081 2573
1997-98 352697 325522 14.4 7.3
5 4
5872 2789
1998-99 399496 367012 14.7 7.6
2 2
6040 3021
1999-2000 475113 444292 12.7 6.8
8 1
6388 3263
2000-2001 558766 526329 11.4 6.2
3 2
12
The gross NPA and net NPA for PSBs as at 31.03.2001 are 12.39% and
6.74% are higher than the figures for SCBs at 11.4%and 6.2%.
Comparative figures for PSBs, SBI Group and Nationalised Banks are as
under.
Table -2 :
%-age of %-age of
NPA of PSBs… Gross Net
Total Gross Net
(Amount in Crores) NPA to NPA to
Advances NPA NPA
Year total net
advances advances
1996-97 244214 43577 20285 17.8 % 9.2 %
1997-98 284971 45563 21232 16.0 % 8.2 %
1998-99 325328 51710 24211 15.9 % 8.1 %
1999-2000 380077 53033 26188 14.00 % 7.9%
2000-2001 442134 54773 27967 12.39 % 6.74%
Table -3:
%-age of %-age of
NPA of Nationalised Gross Net
Total Gross Net
Banks…. (Amount in NPA to NPA to
Advances NPA NPA
Crores) Year total net
advances advances
1997-98 166222 30130 14441 16.88 8.91
1998-99 188926 33069 15759 16.02 8.35
1999-2000 224818 33521 17399 13.99 7.80
2000-2001 264237 34609 16096 12.19 7.01
13
State Bank of India and its seven associate banks have underestimated
their NPAs by Rs 3,029.29 Crore. Such deception of NPA statistics is
executed through the following ways.
The international rating agency Standard & Poor (S & P) conveys the
gloomiest picture, while estimating NPAs of the Indian banking sector
between 35% to 70% of its total outstanding credit. Much of this, up to
35% of the total banking assets, as per the rating agency would be
accounted as NPA if rescheduling and restructuring of loans to make
them good assets in the book are not taken into account. However RBI
has contested this dismal assessment. But the fact remains that the
14
infection if left unchecked will eventually lead to what has been
forecast by the rating agency. This invests an urgency to tackle this
virus as a fire fighting exercise.
Financial institutions have not far lagged behind. NPAs of ten leading
institutions have reported a rise of 11.89 per cent, or Rs 1,929 Crore, to
Rs 18,146 Crore during the year ended March 2000 from Rs 16,217
Crore last year. The NPA statistics of the three leading Financial
Institutions for the last two years are given in Table-5 IDBI tops the list
by notching up bad loans worth Rs 7665 Crore by March 2000. In fact,
its NPAs have gone up by Rs 1,185 Crore from Rs 6,490 Crore in the
previous year. IFCI followed with NPAs of Rs 4,103 Crore, but it reported
fall of Rs 134 Crore from the previous year's level of Rs 4,237 Crore.
ICICI's NPAs went up to Rs 3,959 Crore from Rs 3,623 Crore in the
previous year.
15
In the peak crisis period in early Nineties, when the first Series of
Banking Reforms were introduced, the working position of the State-
owned banks exhibited the severest strain. Commenting on this
situation the Reserve Bank of India in its web-site has pointed
out as under:
"Till the adoption of prudential norms relating to income recognition,
asset classification, provisioning and capital adequacy, twenty-six out
of twenty-seven public sector banks were reporting profits (UCO Bank
was incurring losses from 1989-90). In the first post-reform year, i.e.,
1992-93, the profitability of the PSBs as a group turned negative with
as many as twelve nationalised banks reporting net losses. By March
1996, the outer time limit prescribed for attaining capital adequacy of
8 per cent, eight public sector banks were still short of the prescribed."
16
Global Developments and NPAs
However lending also carries credit risk, which arises from the failure of
borrower to fulfill its contractual obligations either during the course of
a transaction or on a future obligation.
A question that arises is how much risk can a bank afford to take ?
Recent happenings in the business world - Enron, WorldCom, Xerox,
Global Crossing do not give much confidence to banks. In case after
case, these giant corporate became bankrupt and failed to provide
investors with clearer and more complete information thereby
introducing a degree of risk that many investors could neither neither
anticipate nor welcome. The history of financial institutions also reveals
the fact that the biggest banking failures were due to credit risk.
17
Why NPAs have become an issue for banks and
financial institutions in India?
To start with, performance in terms of profitability is a benchmark for
any business enterprise including the banking industry. However,
increasing NPAs have a direct impact on banks profitability as legally
banks are not allowed to book income on such accounts and at the
same time banks are forced to make provision on such assets as per
the Reserve Bank of India (RBI) guidelines.
Also, with increasing deposits made by the public in the banking
system, the banking industry cannot afford defaults by borrower s since
NPAs affects the repayment capacity of banks.
Further, Reserve Bank of India (RBI) successfully creates excess
liquidity in the system through various rate cuts and banks fail to utilize
this benefit to its advantage due to the fear of burgeoning non-
performing assets.
Impact on Profitability
Between 01.04.93 to 31.03.2003 Commercial banks incurred a total
amount of Rs.31251 Crores towards provisioning NPA. This has brought
Net NPA to Rs.32632 Crores or 6.2% of net advances. To this extent the
problem is contained, but at what cost? This costly remedy is made at
the sacrifice of building healthy reserves for future capital adequacy.
18
The enormous provisioning of NPA together with the holding cost of
such non-productive assets over the years has acted as a severe drain
on the profitability of the PSBs. In turn PSBs are seen as poor
performers and unable to approach the market for raising additional
capital. Equity issues of nationalised banks that have already tapped
the market are now quoted at a discount in the secondary market.
Other banks hesitate to approach the market to raise new issues. This
has alternatively forced PSBs to borrow heavily from the debt market to
build Tier II Capital to meet capital adequacy norms putting severe
pressure on their profit margins, else they are to seek the bounty of the
Central Government for repeated Recapitalisation.
19
inability to offer competitive market rates adds to the disadvantage of
marketing and building new business.
20
Interest on Recapitalisation Bonds is a income earned from the
Government, who had issued the Recapitalisation Bonds to the weak
banks to sustain their capital adequacy under a bail out package. The
statistics above show the other weaknesses of the nationalised banks
in addition to the heavy burden they have to bear for servicing NPA by
way of provisioning and holding cost as under:
21
The fear of NPA permeates the psychology of bank managers in the
PSBs in entertaining new projects for credit expansion. In the world of
banking the concepts of business and risks are inseparable. Business is
an exercise of balancing between risk and reward. Accept justifiable
risks and implement de-risking steps. Without accepting risk, there can
be no reward. The psychology of the banks today is to insulate
themselves with zero percent risk and turn lukewarm to fresh credit.
This has affected adversely credit growth compared to growth of
deposits, resulting a low C/D Ratio around 50 to 54% for the industry.
The fear psychosis also leads to excessive security-consciousness in
the approach towards lending to the small and medium sized credit
customers. There is insistence on provision of collateral security,
sometimes up to 200% value of the advance, and consequently due to
a feeling of assumed protection on account of holding adequate
security (albeit over-confidence), a tendency towards laxity in the
standards of credit appraisal comes to the fore. It is well known that
the existence of collateral security at best may convert the credit
extended to productive sectors into an investment against real estate,
but will not prevent the account turning into NPA. Further blocked
assets and real estate represent the most illiquid security and NPA in
such advances has the tendency to persist for a long duration.
"The efficiency of a bank is not always reflected only by the size of its
balance sheet but by the level of return on its assets. NPAs do not
generate interest income for the banks, but at the same time banks
are required to make provisions for such NPAs from their current
profits”
22
NPAs have a deleterious effect on the return on assets in several ways -
• They erode current profits through provisioning requirements
• They result in reduced interest income
• They require higher provisioning requirements affecting profits
and accretion to capital funds and capacity to increase good
quality risk assets in future, and
• They limit recycling of funds, set in asset-liability mismatches, etc
23
RBI guidelines on income recognition
(interest income on NPAs)
24
are consistent with Accounting Standard 9, `Revenue Recognition'. For
this purpose, the guidelines issued by the RBI for treating certain
assets as NPAs seem to be based on an assumption that the collection
of interest on such assets is uncertain.
Therefore complying with AS 9, interest income is not recognized based
on uncertainty involved but is recognized at a subsequent stage when
actually realized thereby complying with RBI guidelines as well.
In order to ensure proper appreciation of financial statements, banks
should disclose the accounting policies adopted in respect of
determination of NPAs and basis on which income is recognized with
other significant accounting policies.
Doubtful Assets: Asset that has remained NPA for a period exceeding
18 months is a doubtful asset.
25
In terms of RBI guidelines, as and when an asset becomes a NPA, such
advances would be first classified as a sub-standard one for a period
that should not exceed 18 months and subsequently as doubtful
assets.
It should be noted that the above classification is only for the purpose
of computing the amount of provision that should be made with respect
to bank advances and certainly not for the purpose of presentation of
advances in the banks balance sheet.
The Third Schedule to the Banking Regulation Act, 1949, solely governs
presentation of advances in the balance sheet.
26
In case of loss assets, guidelines specifically require that full provision
for the amount outstanding should be made by the concerned bank.
This is justified on the grounds that such an asset is considered
uncollectible and cannot be classified as bankable asset.
For instance, for NPAs which are up to 1-year old, provision should be
made of 20% of secured portion, in case of 1-3 year old NPAs up to
30% of the secured portion and finally in case of more than 3 year old
NPAs up to 50% of secured portion should be made by the concerned
bank.
27
Management of NPAs
"The quality and performance of advances have a direct bearing on the
profitability and viability of banks. Despite an efficient credit appraisal
and disbursement mechanism, problems can still arise due to various
factors. The essential component of a sound NPA management system
is quick identification of non-performing advances, their containment at
minimum levels and ensuring that their impingement on the financials
is minimum.”
28
Exchange of credit information among banks would be of immense help
to them to avoid possible NPAs. There is no substitute for critical
management information system and market intelligence.
29
Measures for faster legal process
Lok Adalats
Lok Adalat institutions help banks to settle disputes involving accounts
in "doubtful" and "loss" category, with outstanding balance of Rs.5 lakh
for compromise settlement under Lok Adalats. Debt Recovery Tribunals
have now been empowered to organize Lok Adalats to decide on cases
of NPAs of Rs.10 lakhs and above. The public sector banks had
recovered Rs.40.38 crore as on September 30, 2001, through the forum
of Lok Adalat. The progress through this channel is expected to pick up
in the coming years particularly looking at the recent initiatives taken
by some of the public sector banks and DRTs in Mumbai.For more
details about Lok Adalats please refer to page Lok Adalat
Though there are 22 DRTs set up at major centres in the country with
Appellate Tribunals located in five centres viz. Allahabad, Mumbai,
Delhi, Calcutta and Chennai, they could decide only 9814 cases for
Rs.6264.71 crore pertaining to public sector banks since inception of
30
DRT mechanism and till September 30, 2003.The amount recovered in
respect of these cases amounted to only Rs.1864.30 crore.
Looking at the huge task on hand with as many as 33049 cases
involving Rs.42988.84 crore pending before them as on September 30,
2001, I would like the banks to institute appropriate documentation
system and render all possible assistance to the DRTs for speeding up
decisions and recovery of some of the well collateralised NPAs involving
large amounts. RBI on its part has suggested to the Government to
consider enactment of appropriate penal provisions against obstruction
by borrowers in possession of attached properties by DRT receivers,
and notify borrowers who default to honour the decrees passed against
them.
31
of willful default of Rs 1 crore and above and file suits in such cases,
and file criminal cases in regard to willful defaults. Board of Directors
are required to review NPA accounts of Rs.1 crore and above with
special reference to fixing of staff accountability.
On their part RBI and the Government are contemplating several
supporting measures including legal reforms, some of them I would like
to highlight.
Legal Reforms
The Honourable Finance Minister in his recent budget speech has
already announced the proposal for a comprehensive legislation on
asset foreclosure and securitisation. Since enacted by way of
Ordinance in June 2002 and passed by Parliament as an Act in
December 2002.
32
has been headquartered in IDBI, Mumbai and a Standing Forum and
Core Group for administering the mechanism had already been put in
place. The experiment however has not taken off at the desired pace
though more than six months have lapsed since introduction. As
announced by the Hon'ble Finance Minister in the Union Budget 2002-
03, RBI has set up a high level Group under the Chairmanship of Shri.
Vepa Kamesam, Deputy Governor, RBI to review the implementation
procedures of CDR mechanism and to make it more effective. The
Group will review the operation of the CDR Scheme, identify the
operational difficulties, if any, in the smooth implementation of the
scheme and suggest measures to make the operation of the scheme
more efficient.
33
RBI is examining the recommendation of Kohli Group on willful
defaulters. It is working out a proper definition covering such classes of
defaulters so that credit denials to this group of borrowers can be made
effective and criminal prosecution can be made demonstrative against
willful defaulters.
Corporate Governance
A Consultative Group under the chairmanship of Dr. A.S. Ganguly was
set up by the Reserve Bank to review the supervisory role of Boards of
banks and financial institutions and to obtain feedback on the
functioning of the Boards vis-à-vis compliance, transparency,
disclosures, audit committees etc. and make recommendations for
making the role of Board of Directors more effective with a view to
minimising risks and over-exposure. The Group is finalising its
recommendations shortly and may come out with guidelines for
effective control and supervision by bank boards over credit
management and NPA prevention measures. The report of the group is
now published and discussed in another page.
34
step is mainly with a view to alerting management to the prospects of
such an account turning bad, and thus taking preventive action well in
time. An asset may be transferred to this category once the earliest
signs of sickness/irregularities are identified. This will help banks look
at accounts with potential problems in a focused manner right from the
onset of the problem, so that monitoring and remedial actions can be
more effective. Once these accounts are categorised and reported as
such, proper top management attention would also be ensured.
35
On the other hand managing credit risk is a much more forward-looking
approach and is mainly concerned with managing the quality of credit
portfolio before default takes place. In other words, an attempt is made
to avoid possible default by properly managing credit risk.
Credit rating agencies generally slot companies into risk buckets that
indicate company's credit risk and is also reviewed periodically.
36
Associated with each risk bucket is the probability of default that is
derived from historical observations of default behavior in each risk
bucket.
Stock prices are an important (but not the sole) indicator of the credit
risk involved. Stock prices are much more forward looking in assessing
the creditworthiness of a business enterprise. Historical data proves
that stock prices of companies such as Enron and WorldCom had
started showing a falling trend many months prior to it being
downgraded by credit rating agencies.
37
by high fixed interest charges, non-payment of which results into a
default.
Reserve Bank of India (RBI) has issued capital adequacy norms for the
Indian banks. The minimum CAR which the Indian Banks are required to
meet at all times is set at 9%. It should be taken into consideration that
the bank's capital refers to the ability of bank to withstand losses due
to risk exposures.
38
should atleast be 8% of their risk-weighted assets. This infact helps
bank to provide protection to the depositors and the creditors.
39
in the decade after the current accord was introduced, necessitating its
review and updation.
40
adequacy and acceptance of market discipline implying public
disclosure to allow market participants to assess key information about
a bank's risk profile and level of capitalisation. These constitute the
three pillars under the second accord. Thus the underlying implication
of the new accord is greater risk sensitivity. The new accord embodies
the principles of "flexibility, menu of approaches, and incentives for
better risk management" as against the current accord's prescription of
"one size fits all".
41
multiplied by a factor of 0.15 set by the Committee, produces the
capital requirement.
In the AMA, banks may use their own method for assessing their
exposure to operational risk, so long as it is sufficiently
comprehensive and systematic. The extent of detailed standards
and criteria for use of the AMA are limited in order to accommodate
the rapid evolution in operational risk management practices that
the Committee expects to see over the coming years.
42
elements are increasingly seen as necessary for effective
management of banking organisations and for effective banking
supervision, respectively.
43
One should also not forget that the banks are faced with the problem of
increasing liquidity in the system. Further, Reserve Bank of India (RBI)
is increasing the liquidity in the system through various rate cuts.
Banks can get rid of its excess liquidity by increasing its lending but,
often shy away from such an option due to the high risk of default.
Cash Reserve Ratio (CRR) is the reserve which the banks have to
maintain with itself in the form of cash reserves or by way of current
account with the Reserve Bank of India (RBI), computed as a certain
percentage of its demand and time liabilities. The objective is to ensure
the safety and liquidity of the deposits with the banks.
On the other hand, Statutory Liquidity Ratio (SLR) is the one which
every banking company shall maintain in India in the form of cash, gold
or unencumbered approved securities, an amount which shall not, at
the close of business on any day be less than such percentage of the
total of its demand and time liabilities in India as on the last Friday of
the second preceding fortnight, as the Reserve Bank of India (RBI) may
specify from time to time.
A rate cut (for instance, decrease in CRR) results into lesser funds to be
locked up in RBI's vaults and further infuses greater funds into a
system. However, almost all the banks are facing the problem of bad
loans, burgeoning non-performing assets, thinning margins, etc. as a
result of which, banks are little reluctant in granting loans to corporate.
44
As such, though in its monetary policy RBI announces rate cut but, such
news are no longer warmly greeted by the bankers.
The main purpose of this notice is to inform the borrower that either
the sum due to the bank or financial institution is paid by the borrower
or else the former will take action by way of taking over the possession
of assets. Besides assets, banks can also takeover the management of
the company. Thus the bankers under the aforementioned Act will have
the much needed authority to either sell the assets of the defaulting
companies or change their management.
45
But the protection under the said Act only provides a partial solution.
What banks should ensure is that they should move with speed and
charged with momentum in disposing off the assets. This is because as
uncertainty increases with the passage of time, there is all possibility
that the recoverable value of asset also reduces and it cannot fetch
good price. If faced with such a situation than the very purpose of
getting protection under the Securitisation Act, 2002 would be defeated
and the hope of seeing a must have growing banking sector can easily
vanish.
I. China:
46
(a) Causes:
(i) The State Owned Enterprises (SOE’s) believe that there the
government will bail them out in case of trouble and so they continue
to take high risks and have not really strived to achieve profitability
and to improve operational efficiency.
(ii) Political and social implications of restructuring big SOE’s force the
government to keep them afloat
(iii) Banks are reluctant to lend to the private enterprises because while
an NPA of an SOE is financially undesirable, an NPA of a private
enterprise is both financially and politically undesirable
(b) Measures:
(i) Reducing risk by strengthening banks, raising disclosure standards
and spearheading reforms of the SOE’s by reducing their level of debt
(iii) The government which bore the financial loss of debt ‘discounting’.
Debt/equity swaps were allowed in case a growth opportunity existed
(iv) Incentives like tax breaks, exemption from administration fees and
clear cut asset evaluation norms were implemented. The AMCs have
been using leases, transfers, restructuring, debt- for-equity swaps and
asset securitization, among other methods, to dispose of non-
performing loans
47
II. Korea:
(a) Causes:
(i) Protracted periods of interest rate control and selective credit
Allocations gave rise to an inefficient distribution of funds
(b) Measurers:
(i) The speedy containment of systemic risk and the domestic credit
crunch problem with the injection of large public funds for bank
recapitalization
(v) The objective of the central bank was solely defined as maintaining
price stability. The Financial Supervisory Commission (FSC) was created
(1998) to ensure an effective supervisory system in line with universal
banking practices.
III. Japan:
48
(a) Causes:
(i) Investments were made real estate at high prices during the boom.
The recession caused prices to crash and turned a lot of these loans
bad
(ii) Legal mechanisms to dispose bad loans were time consuming and
expensive and NPAs remained on the balance sheet
(b) Measures:
(i) Amendment of foreign exchange control law (l997) and the threat of
suspension of banking business in case of failure to satisfy the capital
adequacy ratio prescribed
III. Pakistan :
(a) Causes:
49
(i) Culture of "zero equity" projects where there was minimal due
diligence was done by banks in giving loans coupled with collusive
lending and poor corporate governance
(iv) Directed lending where the senior management of the public sector
banks gave loans to political heavy weights/ military commanders.
(b) Measures:
(i) The top management of the banks was changed and appointment of
independent directors in the board of directors
50
Conclusion
51
The process of planning strategies for containing NPAs so far is
primarily by RBI and Government of India. Even 10 years after
deregulation, the initiative has not shifted to PSBs, who are exclusively
looking to RBI/GOI for ready-made solutions. On its part RBI has taken
every conceivable steps at its level. RBI has also pointed out as under:-
As regards internal factors leading to NPAs, the onus for containing the
same rests with the banks themselves. This would necessitate
organisational restructuring, improvement in managerial efficiency,
skill upgradation for proper assessment of credit-worthiness and a
change in the attitude of the banks towards legal action, which is
traditionally viewed as a measure of the last resort.
52
The above remarks of RBI, in effect, are explicitly, addressed towards
the individual banks. Now what are the internal factors? Has any PSB at
its level identified these factors?
53
accretion of Rs.868.19 during year 2001-2002, resulting in a overhang
of Rs.3126.77 Crores (Gross NPA ) out of total credit outstandings at
Rs.34369.42 Crores as at 31.03.2002.
54
"Under the RBI-OTS scheme (ended on 30th September 2001), the
Bank approved one-time settlement for Rs.1,059 crore in respect of
3.31 lakh accounts. Also under SBI-OTS scheme (ended on 31st
December 2001), which was for settlement of NPAs with outstandings
up to Rs.1 crore, the Bank approved OTS for Rs.32.94 crore in respect
of 0.19 lakh accounts. Similarly, under the RBI-OTS-II scheme for
settlement of small loans up to Rs.25,000, the Bank approved OTS for
Rs. 21.02 crore in respect of 16,000 accounts and recovered Rs.16.84
crore. At end-March 2002, the Bank's gross and net NPA stood at
11.95% and 5.63%, respectively, as against 12.93% and 6.03%,
respectively in the previous year."
The above narrative does not specify the quantum of Gross/Net NPA in
terms of amount. But as the aggregate credit of SBI is stated officially
as Rs.120806.46 Crores and Gross NPA at 11.95%, it is possible to
calculate and arrive at its Gross NPA in terms of amount as at
31.03.2002 at Rs.14430 Crores approximately. But the amount
provided by SBI against this overhang and the amount of its net NPA
cannot be ascertained. As also Recoveries in NPA and fresh additions to
NPAs in the year. To this extent there is lack of transparency.
55
into non-performing ones." Upgradation of appraisal skill is a innocuous
statement. What are the specific ingredients, the overlooking of which
result in NPA? Could not SBI one of the Global-sized organisations
impart KM management tools in tackling this problem and bring out
guidelines for grass-root level implementation? Why not take the rank
and file into confidence to add knowledge inputs through research and
investigation on a wider scale from the base level?
Individual banks are not firm with finding a policy towards a lasting
solution. They are happy if comparative figures depict some progress
by way of percentage reduction of Gross/Net NPA. Otherwise there is
no commitment or concern for a permanent solution.
Also, the passing of the Securitisation Act, 2002 came as a bonanza for
investors in banking sector stocks that in turn resulted into an
improvement in their share prices.
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(i) recapitalization of banks with Government aid,
(ii) disposal and write off of NPAs,
(iii) increased regulation.
BIBLIOGRAPHY
Journals
Chartered Financial Analyst, October 2005
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ICFAI Finance Journal
Newspapers
Economic Times
Business Standard
Financial Express
Websites
www.rbi.org
www.icicibank.com
www.indiabudget.nic.in
www.indiainfoline.com
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