PRESENTATION BY TEAM 6 PRATEEK GUPTA SAMIR RUSTOGI

NPA is 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 in respect of an overdraft/ cash credit The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted The installment or interest remains overdue for two crop seasons in case of short duration crops and for one crop season in case of long duration crops

Presented by Team 6

Assets Which has remained NPA for a period less than or equal to 12 months. Doubtful Assets Which has remained in the sub-standard category for a period of 12 months Loss Assets where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.
Substandard

Presented by Team 6

Standard Assets general provision of a minimum of 0.25% Substandard Assets 10% on total outstanding balance, 10 % on unsecured exposures identified as sub-standard & 100% for unsecured doubtful assets. Doubtful Assets 100% to the extent advance not covered by realizable value of security. In case of secured portion, provision may be made in the range of 20% to 100% depending on the period of asset remaining sub-standard Loss Assets 100% of the outstanding

Presented by Team 6

Poor Credit discipline Inadequate Credit & Risk Management Diversion of funds by promoters Funding of non-viable projects In the early 1990s PSBs started suffering from acute capital inadequacy and lower/ negative profitability. The parameters set for their functioning did not project the paramount need for these corporate goals. The banks had little freedom to price products, cater products to chosen segments or invest funds in their best interest

Presented by Team 6

Since 1970s, the SCBs functioned as units cut off from international banking and unable to participate in the structural transformations and new types of lending products. Audit and control functions were not independent and thus unable to correct the effect of serious flaws in policies and directions Banks were not sufficiently developed in terms of skills and expertise to regulate the humongous growth in credit and manage the diverse risks that emerged in the process

Presented by Team 6

Inadequate mechanism to gather and disseminate credit information amongst commercial banks Effective recovery from defaulting and overdue borrowers was hampered on account of sizeable overhang component arising from infirmities in the existing process of debt recovery, inadequate legal provisions on foreclosure and bankruptcy and difficulties in the execution of court decrees.

Presented by Team 6

 Drain

on Profitability Impact on capital adequacy Adverse effect on credit growth as the bankers prime focus becomes zero percent risk and as a result turn lukewarm to fresh credit. Excessive focus on Credit Risk Management High cost of funds due to NPAs

Presented by Team 6

All SCBs average Net NPA Ratio for 2005-06 is 1.22 (As per RBIs Statistics) The banks have been able to report lower NPA percentage mostly by providing against or writing off NPAs. The provision to certain extent was facilitated by higher profits on account of treasury management The better Net NPA ratio was also facilitated by higher credit off take resulting in larger asset portfolio/ book size.

Presented by Team 6

 Formation

of the Credit Information Bureau (India) Limited (CIBIL) Release of Wilful Defaulters List. RBI also releases a list of borrowers with aggregate outstanding of Rs.1 crore and above against whom banks have filed suits for recovery of their funds Reporting of Frauds to RBI Norms of Lenders Liability framing of Fair Practices Code with regard to lenders liability to be followed by banks, which indirectly prevents accounts turning into NPAs on account of banks own failure
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 Risk assessment and Risk management RBI has advised banks to examine all cases

of wilful default of Rs.1 crore and above and file suits in such cases. Board of Directors are required to review NPA accounts of Rs.1 crore and above with special reference to fixing of staff accountability. Reporting quick mortality cases Special mention accounts for early identification of bad debts. Loans and advances overdue for less than one and two quarters would come under this category. However, these accounts do not need provisioning
Presented by Team 6

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 Banks

are free to design and implement their own policies for recovery and write off incorporation compromise and negotiated settlements with board approval Specific guidelines were issued in May 1999 for one time settlement of small enterprise sector. Guidelines were modified in July 2000 for recovery of NPAs of Rs.5 crore and less as on 31st March 2007.
Presented by Team 6

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A NPA is eligible for sale to other banks only if it has remained a NPA for at least two years in the books of the selling bank The NPA must be held by the purchasing bank at least for a period of 15 months before it is sold to other banks but not to bank, which originally sold the NPA. The NPA may be classified as standard in the books of the purchasing bank for a period of 90 days from date of purchase and thereafter it would depend on the record of recovery with reference to cash flows estimated while purchasing The bank may purchase/ sell NPA only on without recourse basis If the sale is conducted below the net book value, the short fall should be debited to P&L account and if it is higher, the excess provision will be utilized to meet the loss on account of sale of other NPA.
Presented by Team 6

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Presented by Team 6

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Presented by Team 6

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BANKS 2001- 2002- 2003 2004- 20052 3 -4 5 6 87 SCBs 28 PSBs 4.60 4.89 4.00 4.21 3.30 3.50 2.52 2.73 1.86 2.09

20 OPBs
9 NPBs 30 FBs

5.20
3.90 2.41

4.34
3.76 2.44

3.64
2.42 2.13

3.15
1.56 1.43

2.50
0.96 0.96
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BANKS 2001- 2002- 2003 2004- 20052 3 -4 5 6 87 SCBs 28 PSBs 2.30 2.42 1.90 1.93 1.20 1.28 0.92 0.95 0.66 0.72

20 OPBs
9 NPBs 30 FBs

3.23
2.10 0.81

2.51
2.116 0.79

1.17
1.10 0.66

1.39
0.80 0.42

0.91
0.43 0.40
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BANKS 2001- 2002- 2003 2004- 20052 3 -4 5 6 87 SCBs 28 PSBs 10.40 11.09 8.80 9.36 7.20 7.79 5.20 5.53 3.30 3.70

20 OPBs
9 NPBs 30 FBs

11.01
8.86 5.38

8.86
7.64 5.25

7.59
4.99 4.62

5.97
3.59 2.85

4.30
1.70 1.90
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BANKS 2001- 2002- 2003 2004- 20052 3 -4 5 6 87 SCBs 28 PSBs 5.50 5.82 4.40 4.53 2.90 2.99 2.00 2.06 1.20 1.30

20 OPBs
9 NPBs 30 FBs

7.13
4.94 1.89

5.54
4.63 1.76

3.85
2.36 1.48

2.74
1.85 0.86

1.60
0.80 0.80
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Presented by Team 6

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