“A STUDY ON NON PERFORMING ASSET OF

SCHEDULED COMMERCIAL BANKS OF INDIA”

A Dissertation project Submitted for the Degree of MBA(FM)

2018

GANGADHAR MEHER UNIVERSITY

Submitted by:

Soumya Ranjan Sahoo

Roll No. UPG16MFM-036

Under the guidance of

Mr. Manoj ku. Sahoo

 DECLARATION

I do hereby declare that the work incorporated in this dissertation is

original and the dissertation entitled “A STUDY ON NON PERFORMING
ASSET OF SCHEDULED COMMERCIAL BANKS OF INDIA” submitted
by me for the MBA(FM) degree is the record of work carried out by me
during the period from January to March 2018 under the guidance of Mr.
Manoj ku. Sahoo, Department of professional Courses, Gangadhar Meher
university, Sambalpur-768004 and has not been formed the basis for the award
of any degree in this or any other University.

I further declare that the material obtained from other sources has been
duly acknowledged the dissertation.

Date: Soumya Ranjan Sahoo

Place: Sambalpur Roll No: UPG16MFM-036

Mr. Manoj ku. Sahoo

M.A(ECO) Department of Professional Courses

Gangadhar Meher University,

Sambalpur-768004,

Odisha

Phone - 9778588999

CERTIFICATE

This is to certify that the dissertation titled “entitled ’’A STUDY ON NON
PERFORMING ASSET OF SCHEDULED COMMERCIAL BANKS OF
INDIA”, submitted by Soumya ranjan sahoo bearing Roll No: UPG16MFM-036 to
Department of Professional Courses, Gangadhar Meher University, Sambalpur –
768004, Odisha for a MBA(FM) degree, is the product of an authentic research
work undertaken by the candidate under my supervision and guidance.

As far as I know, the materials in this work have not been submitted
previously to any University for obtaining any degree/ diploma. I am satisfied that
this dissertation adequately meets the academic standards for a MBA(FM) Degree.
 ACKNOWLEDGEMENT

A journey is easier when you travel together. Interdependence is certainly more

valuable than independence. This dissertation is the result of almost two years
whereby I have been accompanied and supported by many people. It is a
pleasant aspect that I have now the opportunity to express my gratitude for all
of them.

With a deep sense of gratitude, I wish to express my sincere thanks to my

supervisor, Mr. Manoj ku. Sahoo, Department of Professional Course,
Gangadhar Meher University, Sambalpur, for immense help in planning and
executing the work as my guide and provide his valuable support in the
completion of my project.

I also wish to express a special thanks to Dr. Srinibash Dash (HOD) of

MBA-FM, Department of Professional Course of Gangadhar Meher
University, Odisha for their valuable advice, guidance, suggestion and
direction in preparing the report. I shall forever cherish my association with
their encouragement, perennial approachability, absolute freedom of thought
and action I have enjoyed during the course of the project.

I specially acknowledge with a deep sense of reverence, my gratitude towards

my parents who has always supported me morally as well as economically. At
last but not least I gratitude to my friends who directly or indirectly helped me
to complete this project.
 TABLE OF CONTENTS

Chapter Title Page

No No
1 INTRODUCTION 1-24
1.1 Introduction 2
1.2 Scope of the study 3
1.3 Objective of the study 4
1.4 Sources of data 4
1.5 Time period of the study 4
1.6 Limitation of the study 5
1.7 Banking profile of india 5
1.8 Non Performing Asset 6
1.9 Beneficiaries of the study 9
1.10 NPA as a major challenges for banking industry 9
1.11 Gross NPA & Net NPA 10
1.12 NPA management 10
1.13 Reason for NPA 11
1.14 Impact of NPA on bank performance 12
1.15 Credit default swap 15
1.16 Credit limited notes 16
1.17 Consequences of NPA 16
1.18 Measures to control NPA 17
1.19 Basel norms 21
2 REVIEW OF LITERATURE 25-28
3 RESEARCH DESIGN 30-31
4 ANALYSIS & INTERPRETATION 32-37
5 CONCLUSION 39
BIBLIOGRAPHY 41
 Chapter 1

INTRODUCTION

1
 INTRODUCTION

1.1 “A Study on Non Performing Assets”

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. 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.
During pre-nationalization period and after independence, the banking sector
remained in private hands Large industries who had their control in the management
of the banks were utilizing major portion of financial resources of the banking system
and as a result low priority was accorded to priority sectors. Government of India
nationalized the banks to make them as an instrument of economic and social change
and the mandate given to the banks was to expand their networks in rural areas and to
give loans to priority sectors such as small scale industries, self-employed groups,
agriculture and schemes involving women.
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 Endeavour’s. Similarly, share of
advances of public sector banks to priority sector increased from 14.6% in 1969 to
44%.
The accumulation of huge non-performing assets in banks has assumed great
importance. The depth of the problem of bad debts was first realized only in early
1990s. The magnitude of NPAs in banks and financial institutions is over Rs.1,
50,000 crores. While gross NPA reflects the quality of the loans made by banks, net
NPA shows the actual burden of banks. Now it is increasingly evident that the major
defaulters are the big borrowers coming from the non-priority sector. The banks and
financial institutions have to take the initiative to reduce NPAs in a time bound
strategic approach. Public sector banks figure prominently in the debate not only

2
because they dominate the banking industries, but also since they have much larger
NPAs compared with the private sector banks. This raises a concern in the industry
and academia because it is generally felt that NPAs reduce the profitability of banks,
weaken its financial health and erode its solvency. For the recovery of NPAs a broad
framework has evolved for the management of NPAs under which several options are
provided for debt recovery and restructuring. Banks and FIs have the freedom to
design and implement their own policies for recovery and write-off incorporating
compromise and negotiated settlements.
1.2 Scope Of The Study:
The study is significant for several reasons. First and foremost, it explains causes and
effects of Non-Performing Assets, which contributed to transformational changes in
banking since liberation, i.e., 1991.
In the year 2012-13 was highly challenging for the entire banking industry and
SCHEDULE COMERCIAL BANKS was no exception to it. Though the bank grew
over 17% in total business, the profitability endured due to additional provisioning the
bank made against the increased NPA. The NPA for the Financial Year 2013 was at
Rs. 1000 cr. With this background the bank aims to target is to bring down their gross
NPA to below 3% and net NPA to less than 2% Banking regulators and financial
experts focused their attention to curb the menace of NPA, but it still remains
disturbing the performance of the banks’ progress.
As a part of recovery of Bad Loans, banks today resort to a tactical approach
where they publish loan defaulter’s photos in leading newspapers. But in the month of
August 2013, Calcutta High Court ruled that publishing loan defaulter’s photos in
dailies is illegal. This is a big blow to all commercial banks which are fighting to curb
NPA ratio by initiating this kind of steps to recover bad loans for the defaulting
borrowers.
Even though NPA ratios indicate significant improvements in reduction of
NPA, it may not clearly indicate the clear picture on NPA trends. This study is useful
since it provides an understanding on whether schedule comercial banks could
manage its NPA effectively during this post-millennium period.
1.3 Objectives of the Study:
The proposed objectives of the study are as follows:
 To identify the factors accounting for bad loans.

3
  To examine the norms of the bank for loan processing .
 To analyze the steps to be taken to control NPA.
 To provide suggestion to the branch office for efficient loan recovery and
Non-Performing Assets Management.

1.4 Sources of Data

The data collected is mainly secondary in nature. The sources of data for this study
include the literature published by the Reserve bank of india bulletin ,articles and
books dealing with the current banking scenario and banking system in india.

1.5 Time period of the study:

The time period of the study is covering from 2004-2016. Here, the 12
years data of scheduled commercial banks of india has taken into

consideration for the study.

1.6 Limitation of the study

• The study is limited to the extent of the availability of data.

• The study is based on only secondary data.

1.7 Banking profile:

The growth in the Indian Banking Industry has been more qualitative than
quantitative and it is expected to remain the same in the coming years. Based on
the projections made in the "India Vision 2020" prepared by the Planning
Commission and the Draft 10th Plan, the report forecasts that the pace of
expansion in the balance-sheets of banks is likely to decelerate. The total assets
of all scheduled commercial banks by end-March 2010 is estimated at Rs
40,90,000 crores. That will comprise about 65 per cent of GDP at current
market prices as compared to 67 per cent in 2002-03. Bank assets are expected
to grow at an annual composite rate of 13.4 per cent during the rest of the
decade as against the growth rate of 16.7 per cent that existed between 1994-95

4
and 2002-03. It is expected that there will be large additions to the capital base
and reserves on the liability side.
The Indian Banking industry, which is governed by the Banking Regulation Act
of India, 1949 can be broadly classified into two major categories, nonscheduled
banks and scheduled banks. Scheduled banks comprise commercial
banks and the co-operative banks. In terms of ownership, commercial banks can
be further grouped into nationalized banks, the State Bank of India and its group
banks, regional rural banks and private sector banks (the old/ new domestic and
foreign). These banks have over 67,000 branches spread across the country.
The Public Sector Banks(PSBs), which are the base of the Banking sector in
India account for more than 78 per cent of the total banking industry assets.
Unfortunately they are burdened with excessive Non Performing assets (NPAs),
massive manpower and lack of modern technology. On the other hand the
Private Sector Banks are making tremendous progress. They are leaders in
Internet banking, mobile banking, phone banking, ATMs. As far as foreign
banks are concerned they are likely to succeed in the Indian Banking Industry.
In the Indian Banking Industry some of the Private Sector Banks operating are
IDBI Bank, ING Vyasa Bank, SBI Commercial and International Bank Ltd,
Bank of Rajasthan Ltd. and banks from the Public Sector include Punjab
National bank, Vijaya Bank, UCO Bank, Oriental Bank, Allahabad Bank among
others. ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd,
Citibank are some of the foreign banks operating in the Indian Banking Industry.
1.8 NPA (NON PERFORMING ASSET)
Action for enforcement of security interest can be initiated only if the
secured asset is classified as Non Performing Asset. Non Performing Asset means an
asset or account of borrower, which has been classified by a bank or financial
institution as sub-standard, doubtful or loss asset, in accordance with the directions or
guidelines relating to asset classification issued by RBI. An amount due under any
credit facility is treated as "past due" when it has not been paid within 30 days from
the due date. Due to the improvement in the payment and settlement systems,
recovery climate, up gradation of technology in the banking system, etc., it was
decided to dispense with 'past due' concept, with effect from March 31, 2001.
Accordingly, as from that date, a Non performing asset (NPA) shell be an advance

5
where interest and /or installment of principal remain overdue for a period of more
than 180 days in respect of a Term Loan, the account remains 'out of order' for a
period of more than 180 days, in respect of an overdraft/ cash Credit(OD/CC), the bill
remains overdue for a period of more than 180 days in the case of bills purchased and
discounted, interest and/ or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half years in the case of an advance
granted for agricultural purpose, and any amount to be received remains overdue for a
period of more than 180 days in respect of other accounts.

With a view to moving towards international best practices and to ensure

greater transparency, it has been decided to adopt the '90 days overdue' norm for
identification of NPAs, form the year ending March 31, 2004. Accordingly, with
effect from March 31, 2004, a non-performing asset (NPA) shell be a loan or an
advance where; interest and /or installment of principal remain overdue for a period of
more than 90 days in respect of a Term Loan, the account remains 'out of order' for a
period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC), the bill
remains overdue for a period of more than 90 days in the case of bills purchased and
discounted, interest and/ or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half years in the case of an advance
granted for agricultural purpose, and any amount to be received remains overdue for a
period of more than 90 days in respect of other accounts.

Non-Performing Asset or NPA, It is called such as while it is an "Asset", it

does not bring substantial income to its Owner or is just dormant. Call it a white
elephant if you wish. Basically, it is having something that should work but does not.
It is supposed to make Non- Performing Assets work. The RBI has issued guidelines
to banks for classification of assets into four categories.
A .Standard (Assets):

These are loans which do not have any problem are less risk.

B .Substandard (Assets):
These are assets which come under the category of NPA for a period of less than 12
months. In such cases, the current net worth of the borrower/guarantor or the current
market value of the security charged is not enough to ensure recovery of the dues to

6
the banks in full. In other words, such an asset will have well defined credit weakness
that jeopardize the liquidation of the debt and are characterized by the distinct
possibility that the banks will sustain some loss, if deficiencies are not corrected.
C .Doubtful (Assets):
An asset will be classified as doubtful if it has remained in the substandard
category for a period of 12 months. A loan classified as doubtful has all the weakness
inherent in assets that were classified as substandard , with the added characteristics
that the weakness make collection or liquidation in full, on the basis of currently
known facts, conditions and values-highly questionable and improbable.
Erosion in the value of security can be reckoned as significant when the realizable
value of the security is less than 50% of the value assessed by the bank or accepted by
RBI at the time of last inspection, as the case may be. Such NPAs may be straightway
classified under doubtful category and provisioning should be made as applicable to
doubtful assets. Doubtful assets depending upon their periodicity are further
categorized in undernoted three categories:
Doubtful assets (D-1): A NPA which is remained in sub standard category for a
period ranging from 12 months to 24 months.
Doubtful assets(D-2): A NPA which has remained in doubtful assets category for a
period more than one year& up to three years.
Doubtful assets (D-3): A NPA which has remained in doubtful assets category for
more than three years.
D. Loss (Assets):
A loss asset is one where loss has been identified by the bank or internal or
external auditors or the RBI inspection bought the amount has not been written off
wholly. In others word, such an asset is considered uncollectible and of such little
value that its continuance as a bankable asset is not warranted all though there may b
some salvage or recovery value.
If realizable value of the security as assessed by the bank / approved valuer/
RBI is less than 10% of the outstanding in borrowable accounts, the existence of
security b ignored and the asset should straight away classified as loss asset.

1.9 BENEFICIARIES OF THE STUDY

The outcomes analyzed from this study would be beneficial to various sections
such as:

7
Banks: This study would primarily benefit the banks in identifying the sectors to be
given Priority for lending money.

Future Researchers: The results of the study would also benefit the future
researchers as this Study would enhance their knowledge about the topic. They would
get an insight of the present scenario of this industry as this is the emerging industry
in the financial sector of the economy.

Students: This research would help students in understanding of NPA concept as a

whole.

1.10 NON PERFORMING ASSETS AS A MAJOR ISSUE AND CHALLENGE

FOR BANKING INDUSTRY:

Non-performing Assets are threatening the stability and demolishing bank‘s

profitability through a loss of interest income, write-off of the principal loan amount
itself. RBI issued guidelines in 1993 based on recommendations of the Narashimam
Committee that mandated identification and reduction of NPAs be treated as a
national priority’ because the level of NPA act as an indicator showing the bankers
credit risks and efficiency of allocation of resource. The financial reforms in Indian
bank industry have helped largely to clean NPA which was around Rs 52,000 crores
in the year 2004. The earning capacity and profitability of the bank are highly affected
due to this NPA.

1.11 GROSS NPA AND NET NPA:

Gross NPA is an advance which is considered irrecoverable, for bank has made
provisions, and which is still held in banks' books of account. Net NPA is obtained by
deducting items like interest due but not recovered, part payment received and kept in
suspense account from Gross NPA. The Reserve Bank of India states that, compared
to other Asian countries and the US, the gross non-performing asset figures in India
seem more alarming than the net NPA figure. The problem of high gross NPAs is
simply one of inheritance. Historically, Indian public sector banks have been poor on
credit recovery, mainly because of very little legal provision governing foreclosure

8
and bankruptcy, lengthy legal battles, sticky loans made to government public sector
undertakings, loan waivers and priority sector lending.

Net NPAs are comparatively better on a global basis because of the stringent
provisioning norms prescribed for banks in 1991 by Narashimam Committee. In
India, even on security taken against loans, provision has to be created. Further,
Indian banks have to make a 100 per cent provision on the amount not covered by the
realizable value of securities in case of ''doubtful'' advance, while in some countries; it
is 75 per cent or just 50 per cent. The ASSOCHAM Study titled - Solvency Analysis
of the Indian Banking Sectors, reveals that on an average 24 per cent rise in net non
performing assets have been registered by 25 public sector and commercial banks
during the second quarter of the 2009 as against 2008. According to the RBI,
"Reduction of NPAs in the Indian banking sector should be treated as a national
priority item to make the system stronger, resilient and geared to meet the challenges
of globalization. It is necessary that a public debate is started soon on the problem of
NPAs and their resolution.
1.12 NPA MANAGEMENT:
Action points for Recovery in NPAs:
(a) Personal contacts/follow up for recovery of dues.
(b) Adjustment of liquid securities in the NPAs.
(c) Settlement through compromise.
(d) Sale of assets under SARFAESI act.
(e) Invocation of claim with CGTSME/ECGC.
(f) Sale of NPAs to ARCs/banks/FIs/NBFCs.
(g) Recovery through recovery camps.

Action points for Upgradation of existing NPAs:

(a) Upgradation of accounts by recovering the overdue amount.
(b) Restructuring / rephrasing of accounts wherever possible as per extant
guidelines.
(c) Implementation of rehabilitation/ restructuring package by BIFR/CDR.

Recovery through Legal methods as a last resort:

(a) Filing suits in civil courts.

9
(b) Filing cases in DRTs where our claim is Rs 10.00 lacks and above.
(c) Invoking the provision of Revenue Recovery Act, wherever applicable.
(d) Referring the cases to Lokadalat for settlement through conciliation.
(e) Invoking provisions of section 138 of NI Act where cheques issued towards
repayment of debt is dishonoured for want of funds.
1.13 REASON FOR NPAs:
1. Internal Factors.
2. External factors
Internal factors:
 Funds borrowed for a particular purpose but not use for the said purpose.
 Project not completed in time.
 Poor recovery of receivables.
 Excess capacities created on non-economic costs.
 In-ability of the corporate to raise capital through the issue of equity or other
debt instrument from capital market
 Business failures
 Diversion of funds for expansion\modernization\setting up new projects\
helping or promoting sister concerns.
 Willful defaults, siphoning of funds, fraud, disputes, management disputes,
mis-appropriation etc.
 Deficiencies on the part of the banks viz. in credit appraisal, monitoring and
follow-ups, delaying settlement of payments\ subsidiaries by government
bodies etc.,

External factor:
 Sluggish Legal System
 Tangles Changes that had taken place in labour laws Lack of sincere effort.
 Scarcity of raw material, power and other resources.
 Industrial recession.
 Shortage of raw material, raw material\input price escalation, power shortage,
industrial recession, excess capacity, natural calamities like floods, accidents.
 Failures, nonpayment over dues in other countries, recession in other
countries, externalization problems, adverse exchange rates etc

10
1.14 IMPACT OF NPA ON BANK PERFORMANCE:
The efficiency of a bank is not reflected only by the size of its balance sheet but
also the level of return on its assets. The NPAs do not generate interest income for
banks but at the same time banks are required to provide provisions for NPAs from
their current profits.
The NPAs have deleterious impact on the return on assets in the following ways.

 The interest income of banks will fall and it is to be accounted only on receipt
basis.
 Banks profitability is affected adversely because of the providing of doubtful
debts and consequent to writing it off as bad debts.
 Return on investments (ROI) is reduced.
 The capital adequacy ratio is disturbed as NPAs are entering into its
calculation. The cost of capital will go up.
 The assets and liability mismatch will widen.
 The economic value addition (EVA) by banks gets upset because EVA is
equal to the net operating profit minus cost of capital and It limits recycling of
the funds.
It is due to above factors the public sector banks are faced with bulging NPAs
which results in lower income and higher provisioning for doubtful debts and it will
make a dent in their profit margin. In this context of crippling effect on banks
operation the slew asset quality is placed as one of the most important parameters in
the measurement of banks performance under the Camel’s supervisory rating system.
Profitability:
NPA means booking of money in terms of bad asset, which occurred due to
wrong choice of client. Because of the money getting blocked the prodigality of bank
decreases not only by the amount of NPA but NPA lead to opportunity cost also as
that much of profit invested in some return earning project/asset. So NPA doesn’t
affect current profit but also future stream of profit, which may lead to loss of some
long-term beneficial opportunity. Another impact of reduction in profitability is low
ROI (return on investment), which adversely affect current earning of bank.
Liquidity:
Money is getting blocked, decreased profit lead to lack of enough cash at hand

11
which lead to borrowing money for shortest period of time which lead to additional
cost to the company. Difficulty in operating the functions of bank is another cause of
NPA due to lack of money.
Involvement of Management:
Time and efforts of management is another indirect cost which bank has to
bear due to NPA. Time and efforts of management in handling and managing NPA
would have diverted to some fruitful activities, which would have given good returns.
Now days banks have special employees to deal and handle NPAs, which is additional
cost to the bank.
Credit Loss:
Bank is facing problem of NPA then it adversely affect the value of bank in
terms of market credit. It will lose its goodwill and brand image and credit which
have negative impact to the people who are putting their money in the banks.
Early Symptoms:
By which one can recognize a performing asset turning in to non-performing
asset Four categories of early symptoms:-

1) Financial:
 Non-payment of the very first instalment in case of term loan.
 Bouncing of cheque due to insufficient balance in the accounts. Irregularity in
instalment.
 Irregularity of operations in the accounts.
 Unpaid overdue bills.
 Declining Current Ratio.
 Payment which does not cover the interest and principal amount of that
instalment.
 While monitoring the accounts it is found that partial amount is diverted to
sister concern or parent company.

2) Operational and Physical:

 If information is received that the borrower has either initiated the process
of winding up or are not doing the business.
 Overdue receivables.
 Stock statement not submitted on time.

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  External non-controllable factor like natural calamities in the city where
borrower conduct his business.
 Frequent changes in plan.
 Non payment of wages.
3) Attitudinal Changes:
 Use for personal comfort, stocks and shares borrower
 Avoidance of contact with bank.
 Problem between partners.
4) Others:
 Changes in Government policies.
 Death of borrower.
 Competition in the market
1.15 CREDIT DEFAULT SWAP:
It is a bilateral financial contract in which buyer pays a periodic fee
expressed in fixed basis points on the notional amount in return for a floating payment
contingent on the default of a third party reference credit. The floating payment is
designated to mirror the loss incurred by creditors of the reference credit in the event
of its default. The credit event various from bank to bank and from transaction to
transaction, the credit events are pre defined in the agreement, which includes
i. Bankruptcy,
ii. Insolvency
iii. Rating, and downgrading below agreed threshold
iv. Failure to adjust for new payment obligation and
v. Debt Rescheduling. The credit event triggers the obligation of the
seller of default protection to the purchaser of the same. The investors
who need to protect themselves against default but do not want to sell
them at risk security for accounting, tax and regulatory reasons can buy
a credit default swap.

1.16 CREDIT LIMITED NOTES (CLN):

CLN are known as credit swaps in which buyer makes periodic payments of a
fixed percentage of the reference asset to the seller over the life of the swap. Then the
seller promises a payment in the case of credit default for the reasons viz.,
bankruptcy, delinquency and credit rating down grade. The payments may be either a

13
pre - determined amount and also decrease in the market value of the reference
obligation that may cause the credit event. The seller calls the structure away from the
investor and delivers the defaulting notes against them on the happening of credit
event. The CLN are like bonds in character and are acceptable to certain banks. They
are not allowed to involve in credit default swap.
1.17 CONSEQUENCES OF NPAs:
The contaminated portfolio is definitely a bane for any bank. It puts severe
dent on the liquidity and profitability of the bank where it is out of proportion. The
NPAs in the public sector banks are well above the normal level. The consequences
envisaged during the past several years are many. It has become a difficult task for the
banks to reduce the lending rate due to the presence of large NPAs. Ultimately this is
affecting the competitiveness of the Indian banks. When the bank does not enjoy the
market competitiveness naturally the credit expansion would be slumped and when it
happens, the profitability gets a setback. In this way the vicious circle will go on and
on.
Another important one is the reduction in the availability of funds for further
expansion due to the unproductiveness of the existing portfolio. Sometimes it is found
that the presence of large NPAs discourages banks to accept profitable but risky
proposal loan from the customers. The NPAs also affect the risk taking ability of the
banks. On the whole it affects the credibility of the bank and faces difficulty in raising
fresh capital from the market for future requirements.
1.18 MEASURES TO CONTROL NPAs:
It is proved beyond doubt that NPAs in bank ought to be kept at the lowest level.
Two pronged approaches viz.,
 Preventive management and
 Curative management would be necessary for controlling NPAs.
1. Preventive Management:
a) Credit Assessment and Risk Management Mechanism:
A lasting solution to the problem of NPAs can be achieved only with proper
credit assessment and risk management mechanism. The documentation of credit
policy and credit audit immediately after the sanction is necessary to upgrade the
quality of credit appraisal in banks. In a situation of liquidity overhang the enthusiasm
of the banking system is to increase lending with compromise on asset quality, raising

14
concern about adverse selection and potential danger of addition to the NPAs stock. It
is necessary that the banking system is equipped with prudential norms to minimize if
not completely avoid the problem of credit risk.
b) Organizational Restructuring:
With regard to internal factors leading to NPAs the onus for containing the
same rest with the bank themselves. These will necessities organizational
restructuring improvement in the managerial efficiency, skill up gradation 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.
c) Reduce Dependence on Interest:
The Indian banks are largely depending upon lending and investments. The
banks in the developed countries do not depend upon this income whereas 86 percent
of income of Indian banks is accounted from interest and the rest of the income is fee
based. The banker can earn sufficient net margin by investing in safer securities
though not at high rate of interest. It facilitates for limiting of high level of NPAs
gradually. It is possible that average yield on loans and advances net default
provisions and services costs do not exceed the average yield on safety securities
because of the absence of risk and service cost.
d) Potential and Borderline NPA’s under Check:
The potential and borderline accounts require quick diagnosis and remedial measures
so that they do not step into NPAs categories. The auditors of the banking companies
must monitor all outstanding accounts in respect of accounts enjoying credit limits
beyond cutoff points, so that new sub-standard assets can be check.
2. Curative Management:
The curative measures are designed to maximize recoveries so that banks
funds locked up in NPAs are released for recycling. The Central government and RBI
have taken steps for arresting incidence of fresh NPAs and creating legal and
regulatory environment to facilitate the recovery of existing NPAs of banks. They are:
Debt Recovery Tribunals (DRT): In order to expedite speedy disposal of high value
claims of banks Debt Recovery Tribunals were setup. The Central Government has
amended the recovery of debts due to banks and financial institutions Act in January
2000 for enhancing the effectiveness of DRTs. The provisions for placement of more
than one recovery officer, power to attach dependents property before judgment,

15
penal provision for disobedience of Tribunals order and appointment of receiver with
powers of realization, management, protection and preservation of property are
expected to provide necessary teeth to the DRTs and speed up the recovery of NPAs
in times to come.
a) Lok Adalats:
The Lok adalats institutions help banks to settle disputes involving accounts in
doubtful and loss categories. These are proved to be an effective institution for
settlement of dues in respect of smaller loans. The Lok adalats and Debt Recovery
Tribunals have been empowered to organize Lok adalats to decide for NPAs of Rs. 10
lakhs and above
b) Asset Reconstruction Company (ARC):
Narasimham Committee on financial system (1991) has recommended for setting
up of Asset Reconstruction Funds (ARF). The following concerns were expressed by
the committee.

 It was felt that centralized all India fund will severely handicap in its recovery
efforts by lack of widespread geographical reach which individual bank posses
and.
 Given the large fiscal deficits, there will be a problem of financing the ARF.
 Subsequently, the Narasimham committee on banking sector reforms has
recommended for transfer of sticky assets of banks to the ARC.
 Thereafter the Varma committee on restructuring weak public sector banks has
also viewed the separation of NPAs and its transfer thereafter to the ARF is an
important element in a comprehensive restructuring strategy for weak banks.
 In recognition of the same ARC Bill was passed to regulate Securitization and
Reconstruction of financial assets and enforcement of security interest.
The ICICI BANK has promoted the country’s first Asset Reconstruction
Company. The company is specialized in recovery and liquidation of assets. The
NPAs can be assigned to ARC by banks at a discounted price. The objective of ARC
is floating of bonds and making necessary steps for recovery of NPAs from the
borrowers directly. This enables a onetime clearing of balance sheet of banks.
c) Corporate Debt Restructuring (CDR):
The corporate debt restructuring is one of the methods suggested for the
reduction of NPAs. Its objective is to ensure a timely and transparent mechanism for

16
restructure of corporate debts of viable corporate entities affected by the contributing
factors outside the purview of BIFR, DRT and other legal proceedings for the benefit
of concerned. The CDR has three tier structure viz., a. CDR standing forum b. CDR
empowered group and c. CDR cell.
The Mechanism of the CDR: It is a voluntary system based on debtors and
creditors agreement. It will not apply to accounts involving one financial institution or
one bank instead it covers multiple banking accounts, syndication, consortium
accounts with outstanding exposure of Rs. 20 crores and above by banks and
institutions.
The CDR system is applicable to standard and sub – standard accounts with
potential cases of NPAs getting a priority. In addition to the steps taken by the RBI
and Government of India for arresting the incidence of new NPAs and creating legal
and regulatory environment to facilitate for the recovery of existing NPAs of banks,
the following measures were initiated for reduction of NPAs. Circulation of
Information of Defaulters: The RBI has put in place a system for periodical
circulation of details of willful defaulters of banks and financial institutions. The RBI
also publishes a list of borrowers (with outstanding aggregate rupees one crore and
above) against whom banks and financial institutions in recovery of funds have filed
suits as on 31st March every year. It will serve as a caution list while considering a
request for new or additional credit limits from defaulting borrowing units and also
from the directors, proprietors and partners of these entities.
d) Recovery Action against Large NPAs:
The RBI has directed the PSBs to examine all cases of willful default of Rs. One
crore and above and file criminal cases against willful defaulters. The board of
directors are requested to review NPAs accounts of one crore and above with special
reference to fix staff accountability in individually.
e) Credit Information Bureau:
The institutionalization of information sharing arrangement is now possible
through the newly formed Credit Information Bureau of India Limited (CIBIL) It was
set up in January 2001, by SBI, HDFC, and two foreign technology partners. This will
prevent those who take advantage of lack of system of information sharing amongst
leading institutions to borrow large amount against same assets and property, which
has in no measures contributed to the incremental of NPAs of banks

17
1.19 BASEL NORMS
About Basel norms
Basel is a city in Switzerland which is also the headquarters of Bureau of International
Settlement (BIS). BIS fosters co-operation among central banks with a common goal
of financial stability and common standards of banking regulations. Currently there
are 27 member nations in the committee.
Basel guidelines refer to broad supervisory standards formulated by this group of
central banks- called the Basel Committee on Banking Supervision (BCBS). The set
of agreement by the BCBS, which mainly focuses on risks to banks and the financial
system are called Basel accord.
The purpose of the accord is to ensure that financial institutions have enough capital
on account to meet obligations and absorb unexpected losses. India has accepted
Basel accords for the banking system.
As said earlier, the Basel Committee makes these norms. The Committee’s decisions
have no legal force. Rather, the Committee formulates supervisory standards and
guidelines and recommends statements of best practice in the expectation that
individual national authorities will implement them. In this way, the Committee
encourages convergence towards common standards and monitors their
implementation, but without attempting detailed harmonisation of member countries’
supervisory approaches.
So, India can either accept them or reject them depending on the kind of financial
system it wants. So far, we have implemented or wished to implement all Basel
norms.

Basel I
In 1988, BCBS introduced capital measurement system called Basel capital accord,
also called as Basel 1. It focused almost entirely on credit risk. It defined capital and
structure of risk weights for banks. Naturally if the capital with the banks is adequate
to cover the risks (e.g. a power plant) they have invested in, then the bank is safe.
The minimum capital requirement was fixed at 8% of risk weighted assets (RWA).
RWA means assets with different risk profiles. For example, an asset backed by
collateral would carry lesser risks as compared to personal loans, which have no

18
collateral. India adopted Basel 1 guidelines in 1999. The Basel norms are set up by
the Basel committee on Banking supervision.
It is important to understand that the Basel accords have been the result of cooperation
by the countries over the years.
Basel II
In 2004, Basel II guidelines were published by BCBS, which were considered to be
the refined and reformed versions of Basel I accord. The guidelines were based on
three parameters.
1. Banks should maintain a minimum capital adequacy requirement of 8% of risk
assets,In India, such a practice is equivalent to maintaining a Capital Adequacy ratio
(CAR).
2. Banks were needed to develop and use better risk management techniques in
monitoring and managing all the three types of risks that is credit and increased
disclosure requirements.
Increased disclosure requirements raise the confidence of investors and depositors in
the bank. The more transparent a bank is, the more stable it is deemed to be.
3. Banks need to mandatorily disclose their risk exposure, etc to the central bank.
This is important so that the central bank (RBI in India) is aware of the risks that the
banking system is going through.
There is a practice in India to publish bi-annual Financial Stability reports by the RBI.
The latest report published recently is of June 2014.
Basel II norms in India and overseas are yet to be fully implemented.
Basel III
In 2010, Basel III guidelines were released. These guidelines were introduced in
response to the financial crisis of 2008.
A need was felt to further strengthen the system as banks in the developed economies
were under-capitalized, over-leveraged and had a greater reliance on short-term
funding. Too much short-term funding makes the banks prone to risks. Banks
generally rely on short-term funding because it is profitable.
Also the quantity and quality of capital under Basel II were deemed insufficient to
contain any further risk. This was because the banking system was growing. The
world economy was growing too. Hence, what is sufficient earlier was not sufficient
now.
Basel III norms aim at making most banking activities such as their trading book

19
activities more capital-intensive. The guidelines aim to promote a more resilient
banking system by focusing on four vital banking parameters viz. capital, leverage,
funding and liquidity.
Capital
The capital requirement (as weighed for risky assets) for Banks was more than
doubled. (e.g. 4.5% from 2% in Basel-II accord for common equity)
Leverage
Leverage basically means buying assets with borrowed money to multiply the gain.
The underlying belief is that the asset will return the investor more than the interest he
has to pay on the loan.
Obviously doing so is risky business. Thus the Basel III puts a limit on the banks for
doing this. The numbers are not important here. Getting the concept is important.
Funding and liquidity
Banks can be subjected to a lot of risk if all depositors come and ask all their money
at the same time. This is a hypothetical situation but it has happened in real with
Lehman Brothers – the bank whose collapse gave us the 2008 recession.
So, Basel III puts a requirement for the banks to maintain some liquid assets all the
time. Liquid assets are those which can be easily converted to cash.
In India, this practice can be correlated with that of maintaining CRR and SLR.

Implementation of Basel III norms in India

The RBI has postponed the implementation of these norms to 2019.
It is important to note that it is not easy to implement these norms as it requires
several changes in the present banking system.
There are several challenges in the successful implementation of Basel III norms.
1. Higher capital requirement for banks – The private banks have the autonomy to
raise capital from the markets. But the Public sector banks have to rely on the
government mostly. The government has recently decided to infuse 12000 Cr. rupees
in the PSBs. In the coming years even more will be required.
2. More technology deployment – Implementing the norms would require much
more sophisticated technology and management styles that the Indian banks are
presently using. Upgrading both will impose huge cost on the banks and hurt their
profitability in the coming years.

20
3.Liquidity crunch – Banks would need to invest more on liquid assets. These assets
do not give handsome returns usually which would reduce the bank’s operating profit
margin. Further higher deployment of more funds in liquid assets may crowd out good
private sector investments and also affect economic growth.

21
 Chapter 2

LITERATURE REVIEW

22
2.1 REVIEW OF LITERATURE:
NPA is a burning topic for the banking sector and many authors tried to study
the reasons of NPA, the problems created by NPA and the impact of NPA on the
banking sector, and moreover came to a solution or remedies of the growing problem
of NPA. A number of papers have been written and gone through, and this part of this
paper is attempting to present a review of all those are available in the same area of
non-performing assets of the public sector banks, private sector banks and other
banks. This survey has conducted a study on the existing papers, articles, journals,
and reports provided by different authors, groups and committees from time to time.

Dutta. A (2014): This paper studied the growth of NPA in the public and private
sector banks in India , and analysed sector wise non-performing assets of the
commercial banks. For the purpose of the study data has been collected from
secondary sources such as report on Trend and Progress of Banking in India, RBI,
Report on Currency and Finance, RBI Economic Surveys of India.

Das, S. (2010): In this paper the author has tried to analyse the parameters which are
actually the reasons of NPAs, and those are, market failure, wilful defaults, poor
follow-up and supervision, non-cooperation from banks, poor Legal framework, lack
of entrepreneurial skills, and diversion of funds.
Ahmad, Z., Jegadeeshwaran, M. (2013): The current paper is written on the NPA,
and causes for NPA. Secondary data was collected for a period of five years and
analysed by mean, CAGR, ANOVA and ranking banks. The banks were ranked as per
their performance in managing the NPA‟s. The efficiency in managing the NPA by
the nationalised banks was tested.
Ranjan, R., Dhal, S.C. (2013): This paper explores an empirical approach to the
analysis of the Indian commercial banks' nonperforming loans by regression analysis.
The empirical analysis evaluates as to how the NPLs are influenced by three major
sets of economic and financial factors, i.e., terms of credit, bank size induced risk
preferences and macroeconomic shocks.
Reddy, P.K. (2002): This paper deals with the experiences of other Asian countries in
handling of NPAs. It further looks into the effect of the reforms on the level of NPAs

23
and suggests mechanisms to handle the problem by drawing on experiences from
other countries.

Joseph, A. L. (2014): This paper basically deals with the trends of NPA in banking
industry, the internal, external and other factors that mainly contribute to NPA rising
in the banking industry and also provides some suggestions for overcoming the
burden of NPA.

Kamra, S. D. (2013): This paper analyses the position of NPAs in the selected
nationalised banks namely State Bank of India (SBI), Punjab National Bank (PNB)
and Central Bank of India (CBI). It also focuses on the policies pursued by the banks
to manage the NPAs and suggests a strategy for the speedy recovery of NPAs.

Patidar, S.,Kataria, A. (2012): The study analyzed the percentage share of NPA as
components of priority sector lending, the comparative study was conducted between
SBI and Associates, Old Private Banks and New Private Banks and Nationalized
Banks of the benchmark category, to find out the significant difference of the NPA
and also find out the significant impact of Priority Sector Lending on the Total NPA
of Banks using statistical tools like regression analysis and ratio analysis.

Arora, N., Ostwal, N. (2014): The present paper analyses the classification and
comparison of loan assets of public and private sector banks. The study concluded
that NPAs are still a threat for the banks and financial institutions and public sector
banks have higher level of NPAs in comparison to Private sector banks.

Patnaik, B.C.M., Satpathy,I. (2012): The present paper made an attempt to analyse
the causes of NPAs in working capital loans of Urban Co-operative banks. For the
study purpose borrowers were surveyed through questionnaires, causes were analyzed
and suggestions made to overcome the problem.

Patnaik, B.C.M., Satpathy, I. (2011): The present paper tries to analyze the
quantitative trend and pattern in growth of NPA with reference to the education loan
scheme, in Odisha. An effort was made to find the cause, by questionnaire survey of
the defaulters, who are students of different colleges, suggestions to overcome this
problem was also given by the author.

24
 M. Karunakar et.al (2008), Study the important aspect of norms and
guidelines for making the whole sector vibrant and competitive. The problem of
losses and lower profitability of Non- Performing Assets (NPA) and liability
mismatch in Banks and financial sector depend on how various risks are managed in
their business. Besides capital to risk Weight age assets ratio of public sector banks,
management of credit risk and measures to control the menace of NPAs are also
discussed. The lasting solution to the problem of NPAs can be achieved only with
proper credit assessment and risk management mechanism. It is better to avoid NPAs
at the market stage of credit consolidation by putting in place of rigorous and
appropriate credit appraisal mechanisms.

Nelson M. Waweru et.al (2009), Study that many financial institutions that
collapsed in Kenya since 1986 failed due to non performing loans, this study
investigated the causes of nonperforming loans, the actions that bank managers have
taken to mitigate that problem and the level of success of such actions. Using a
sample of 30 managers selected from the ten largest banks the study found that
national economic downturn was perceived as the most important external factor.
Customer failure to disclose vital information during the loan application process was
considered to be the main customer specific factor. The study further found that Lack
of an aggressive debt collection policy was perceived as the main bank specific factor,
contributing to the non performing debt problem in Kenya.

Kevin Greenidge et.al (2010), study the evaluation of non-performing loans is

of great importance given its association with bank failure and financial crises, and it
should therefore be of interest to developing countries. The purpose of this paper is to
build a multivariate model, incorporating macroeconomic and bank-specific variables,
to forecast non-performing loans in the banking sector of Barbados. On an aggregate
level, our model outperforms a simple random walk model on all forecast horizons,
while for individual banks; these forecasts tend to be more accurate for longer
prediction periods only.

25
 Chapter 3
RESEARCH DESIGN

26
3.1 RESEARCH PROBLEM
Indian banking industry, which was in glory phase once upon a time, has
been facing a lots of challenges on non performing assets at present scenario. Many
banks have kept their NPAs under the control but some banks are not able to control
their NPA levels. They are facing lots of problems. There can be various reasons
behind this NPA. Non-performing assets has been hitting the profitability of the
banks or it can be said that due to NPA, the profitability of the banks are going down
day by day. The subsidiary for this is the functioning of Debt Recovery Tribunal
(DRT) which is a judiciary for the bank for recovery amount from the default
customers. These can be considered as a research problem based on which the
information is collected, the object is measured and the data is analyzed and
interpreted.
3.2 OBJECTIVES OF THE STUDY:
The objective of the project was to find how this Non-Performing Assets generate
and what its impact on the profitability of the bank and how it can be reduced. The
study is addressed to the following objectives:

 To examine the gross NPAs and net NPAs of schedule commercial bank of
india.
 To compare the , gross NPA & net NPA.
 To study the relationship between gross amount and Net amount of schedule
commercial bank of india.
 To suggest measures to manage NPAs in schedule commercial bank of india.
3.3 NEED OF THE STUDY:
The non-performing assets that are not able to generate income for the bank are
the great threat for the banking institution. Rather than generating profit for the bank,
NPA drains off the income earned by the other performing asset by the way of paying
interest to the real owner of the resources. It affects the overall profitability of the
bank adversely by affecting the return on equity and return on asset. There are certain
ways through which it affects the financial institutions are as follows.
Thus, the need of the study of the NPA is must necessary due to these reasons.
These reasons are the crucial for any bank at present. One has to realize these matters
and has to take corrective action against NPA reasons, as for as possible one has to

27
convert all the NPA accounts into PA accounts. As far as the importance of the study
is concern, without the study, one can’t identify the whole gamut of the NPA. To
know, how the account is becoming NPA is must necessary. After identifying the
reason behind the particular NPA account, one can go for a step ahead. That means
for the step of how to convert into PA and how to prevent other account from
becoming NPA. As for as possible, one has to eradicate the reasons.
3.4 HYPOTHESIS OF THE STUDY
H0: There is no significance difference between gross ADVANCES and net
ADVANCES.
H0: There is no significance difference between gross amount and net amount.
3.5 RESEARCH METHODOLOGY
Research methodology is a systematic analysis of data or theoretical
analysis of methods and principles associated with a branch of knowledge. It includes
research design, sampling framework, methods of data collection framework of
analysis and limitation. My research methodology includes gathering relevant data
from the annual reports of schedule commercial banks and RBI bulletins. In this study
the annual reports of RBI for the period of 12 years from 2004-05 to 2015-16 is used.
Regression has been used to determine the relationship between net advance and
gross advance of schedule commercial banks.
Statistical Tool:
Regression:
Regression analysis refers to numerical measure used in measuring the
relationship between the variables.
Collection of Data:
The secondary sources comprised of various audited reports and publications
of the Reserve Bank of India. Detailed information were collected mainly from the
various volumes of the “Statistical Tables Relating to schedule commercial banks”
covering the period from 2004-05 to 2015- 2016 which were published by the
Statistical Department of Reserve Bank of India, website.

28
 Chapter-4

ANALYSIS &
INTERPRETATION

29
1. Gross NPA Ratio:
Gross NPA Ratio is the ratio of gross NPA to gross advances of the Bank. Gross
NPA is the sum of all loan assets that are classified as NPA as per RBI guidelines, the
ratio is to be counted in terms of percentage and the formula for GNPA is as follows:

Gross NPA
Gross NPA Ratio = *100
Gross Advances

2. Net NPA Ratio:

The net NPA Percentage is the ratio of NPA to net advances
in which the provision is to be deducted from the gross advances. The provision is
to be made for NPA account. The formula for that is:

Gross NPA-Provision
Net NPA Ratio = * 100
Gross Advances- Provisions

3. Provision Ratio:
Provisions are to be made for to keep safety against the NPA,& it
directly effect on the gross profit of the Banks. The Provision Ratio is nothing but
total provision held for NPA to gross NPA of the Banks. The formula for that is:

Total Provision
Provision Ratio = * 100
Gross NPAs
[Additional Formulae: Net NPA = Gross NPA – Provision
Therefore, Provision = Gross NPA – Net NPA]

4. Problem Asset Ratio:

It is the ratio of gross NPA to total asset of the bank. The Formula for that is:

Gross NPAs
Problem Asset Ratio = * 100
Total Assets

30
TABLE 1 : GROSS AND NET NPAs OF SCHEDULED COMMERCIAL BANKS
(Amount in ₹ Billion)
Advances Non-Performing Assets (NPAs)
Gross Net
Year
As As As As
(end-
Gross Net Percentage Percentage Percentage Percentage
March) Amount Amount
of Gross of Total of Net of Total
Advances Assets Advances Assets
1 2 3 4 5 6 7 8 9
Scheduled Commercial Banks
2004-05 11526.82 11156.63 593.73 5.2 2.5 217.54 2 0.9
2005-06 15513.78 15168.11 510.97 3.3 1.8 185.43 1.2 0.7
2006-07 20125.1 19812.37 504.86 2.5 1.5 201.01 1 0.6
2007-08 25078.85 24769.36 563.09 2.3 1.3 247.3 1 0.6
2008-09 30382.54 29999.24 683.28 2.3 1.3 315.64 1.1 0.6
2009-10 35449.65 34970.92 846.98 2.4 1.4 387.23 1.1 0.6
2010-11 40120.79 42987.04 979 2.5 1.4 417 1.1 0.6
2011-12 46488.08 50735.59 1423.26 3.1 1.7 650.19 1.3 0.8
2012-13 59718.2 58797.73 1935.09 3.2 2 986.09 1.7 1
2013-14 68757.48 67352.13 2633.72 3.8 2.4 1423.83 2.1 1.3
2014-15 75606.66 73881.6 3233.35 4.3 2.7 1758.41 2.4 1.5
2015-16 81673.45 78964.67 6119.47 7.5 4.7 3498.2 4.4 2.7

Source:www.rbi.org.in

31
 Regression Statistics
Multiple R 0.997042819
R Square 0.994094384
Adjusted R
Square 0.993503822
Standard
Error 1888.197661
Observations 12
ANOVA

Significance
Df SS MS F F
Regression 1 6001465431 6001465431 1683.3034 1.77214E-12
Residual 10 35652904.06 3565290.406
Total 11 6037118335

Standard
Coefficients Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
- -
Intercept 952.7742388 1147.521032 0.830289129 0.4257534 1604.061946 3509.610424 1604.061946 3509.610424
X Variable 1 0.973984671 0.023739465 41.02808052 1.772E-12 0.921089848 1.026879495 0.921089848 1.026879495

The regression statistics show the 𝑟 2 at 0.994 which shows that model is good. The
Adjusted 𝑟 2 is 0.9935 which indicates that 99% of variation in dependent variable i.e.
net advances is explained by the explanatory variable i.e. gross advances and not by
any chance factors. Considering the p-value, H0 is rejected and H1 is accepted and
thus, there is significant relationship between gross advances & net advances.
INTERPRETATION:
Multiple R:-
The degree of relationship between gross advances & net advances is positive.
Multiple r is 0.99, which depict that if independent variable changes then dependent
variable changes to the extent of 99%.
R square:-
It is the proportion of variance in the dependent variable that is explained from the
independent variable. R square of 0.99 depicts that 99% of the variable of this study
supports this model. R square in this case is a strong model for the relevance study.

4.1 SUGGESTIONS TO CONTROL NPA:

The Bank should adopt the following general strategies to control NPAs. The
suggestions are as follows:

32
 Projects with old technology should not be considered for finance Large
exposure on big corporate or single project should be avoided. Operating
staffs’ credit skills should be up graduation.

 There is need to shift banks approach from collateral security to viability of

the project and intrinsic strength of promoters.

 Timely sanction and or release of loans by the bank is to avoid time and cost
overruns. Bank should prevent diversion of funds by the promoters.

 Operating staff should scrutinize the level of inventories/receivables at the

time of assessment of working capital.

 The Credit section should carefully watch the warning signals viz. non-
payment of quarterly interest, dishonor of check etc.

 Effective inspection system should be implemented.

 Identifying reasons for turning of each account of a branch into NPA is the
most important factor for upgrading the asset quality, as that would help
initiate suitable steps to upgrade the accounts.

 The bank must focus on recovery from those borrows who have the capacity
to repay but are not repaying initiation of coercive action a few such borrows
may help.

 The recovery machinery of the bank has to be stream lined; targets should be
fixed for field officers / supervisors not only for recovery in general but also in
terms of upgrading number of existing NPAs.
 In the bank there should be a proper manpower planning.

 Bank should try to establish the branches in competitive market, so it will

increase their profit.

33
CHAPTER-5
CONCLUSION

34
Conclusion:
•It is not possible to eliminate totally the NPAs in the banking business but can only
be minimized. It is always wise it follow the proper policy appraisal, supervision and
follow-up of advances to avoid NPAs.
•The banks should not only take steps for reducing present NPAs, but necessary
precaution should also be taken to avoid future NPAs.

•The bank has achieved its target because the net profit is also increased and there is a
decrease in NPAs. So it is in better position compared to last year

35
BIBLIOGRAPHY

36
BIBLIOGRAPHY:

WEBSITES:

www.shodhganga.inflibnet.ac.in

www.rbi.org.in

www.wikipedia.org

Reference:

1 Das, A., & Ghosh, S (2003), ‘Determinants of Credit Risk’, Paper presented at the
Conference on Money, Risk and Investment held at Nottingham Trent University,
November 2003.

2: The treatment of nonperforming loans in macro economics statistics prepaired by

Adriaan M.Bloem and Corneil N.gorter December 2001

3:Roma Mitra Debnath, Ravi Shankar (2008). Measuring performance of Indian

banks: an application Data Envelopment Analysis.

4: Sahoo et al. (2007). Productive performance evaluation of the banking sector in

India using data envelopment analysis. International Journal of Operations Research,
4(2), 63-79.

5: Karunakar, M., “Are non - Performing Assets Gloomy or Greedy from Indian
Perspective, Research Journal of Social Sciences, 3: 4-12, 2008.

6: B. Sathish Kumar, Non-Performing Assets in Indian Banks, Faculty MBA,

Coimbatore.

7: shodhganga.inflibnet.ac.in/bitstream/10603/2299/10/10_chapter 1.pdf

37