Since the introduction of economic liberalization and financial sector reforms,

Banks areunder growing pressure to bring down their NPAs so as to improve their
performance andviability. What is bothering the bankers today is the management
of Non-performing Assets.Over the period this problem has aggravated alarmingly
and therefore needs urgent remedialactions, so in this context a good number of
circular instruction/guidelines have been issuedby bank/Reserve Bank of
India.Reserve Bank of India, in the year 1991, appointed a committee under the
Chairmanship ofSh. M.Narsimham to examine and give recommendation for
Income Recognition, AssetClassification and Provisioning of loan assets of Banks
and Financial Institutions. TheCommittee examined the issues and recommended
that a policy of Income Recognitionshould be objective and based on record of
recovery rather than on subjective considerations.On the basis of the
recommendations of the Narsimhan Committee, RBI had issuedguidelines to all
Scheduled Commercial Banks on Income Recognition, Assets Classificationand
Provisioning in April, 1992 which have been modified from time to time by the
RBI onthe basis of experience gained and suggestions received from various
quarters. ThePrudential Norms for Income Recognition, Asset Classification and
Provisioning have comeinto effect from the accounting year 31.03.1993.Similarly,
guidelines were issued by the Reserve Bank of India in March, 1994 to All
IndiaFinancial Institutions viz. IDBI,ICICI, IFCI, AXIS Bank and IIBI. Separate
guidelines werealso issued by the RBI on Prudential Norms to Non-Banking
Financial Companies in June,1994 and to Regional Rural banks in March, 1996.
They have adopted these guidelines forthe purpose of Income Recognition and
Assets Classification from the accounting year 1995-96. However, guidelines
relating to provisioning for RRBs have been made effective fromthe financial year
ended 31.03.1997. The definition of NPAs is also gradually becomingtough for
RRBs to cover all advances like Commercial Banks. Although most oftheguidelines relating to RRBs are similar to that of Commercial Banks, they have
been madeapplicable in a phased manner for RRBs.INDIAN BANKS
FUNCTIONALLY diverse and geographically widespread, have playeda crucial
role in the socio- economic progress of the country. Banks extend credit to
different
7. types of borrowers for many different purposes. For most customers, bank
credit is theprimary source of available debt financing. For banks good loans are
the most profitable assets. Return comes in the form of loaninterest, fee income
and investment and the most prominent assumed risk is credit risk.Credit risk
involves inability or unwillingness of customer or counterpart to meetcommitments
in relation to lending once a loan is overdue and ceases to yield income itwould
become a Non Performing Asset.Proper management and speedy disposal of NPAs
is one of the most critical tasks of bankstoday. The problem of Non Performing

Assets [NPAs] in banks and financial institutions hasbeen a matter of grave

concern not only for the banks but also the real economy in general, asNPAs can
choke further expansion of credit which would impede the economic growth of
thecountry. Any bottleneck in the smooth flow of credit is bound to create adverse
repercussionsin the economy. NPAs are not therefore the concern of only lenders
but also the public atlarge.Granting of credit for economic activities is the prime
duty of banking. Apart from raisingresources through fresh deposits, borrowings
and recycling of funds received back fromborrowers constitute a major part of
funding credit dispensation activity. Lending is generallyencouraged because it has
the effect of funds being transferred from the system to productivepurposes, which
results into economic growth. However lending also carries a risk calledcredit risk,
which arises from the failure of borrower. Non-recovery of loans along withinterest
forms a major hurdle in the process of credit cycle. Thus, these loan losses affect
thebanks profitability on a large scale. Though complete elimination of such losses
is notpossible, but banks can always aim to keep the losses at a low level.Nonperforming Asset (NPA) has emerged since over a decade as an alarming threat to
thebanking industry in our country sending distressing signals on the sustainability
andinsurability of the affected banks. The positive results of the chain of measures
affectedunder banking reforms by the Government of India and RBI in terms of the
two NarasimhanCommittee Reports in this contemporary period have been
neutralized by the ill effects ofthis surging threat. Despite various correctional
steps administered to solve and end this
8. problem, concrete results are eluding. It is a sweeping and all pervasive virus
confronteduniversally on banking and financial institutions. The severity of the
problem is howeveracutely suffered by Nationalised Banks, followed by the SBI
group, and the all IndiaFinancial Institutions.
STATE BANK OF INDIA
SBI is the largest bank in India with deposits of Rs 3, 67,000 crore as on March 31,
2005. It dominates the Indian banking sector with a market share of around 20% in
terms of total banking sector deposits. The increasing focus on upgrading the
technology back-bone of the bank will enable it to leverage its reach better,
improve service levels, provide new delivery platforms, and improve operating
efficiency to counter the threat of competition effectively. Once the core banking
solution (CBS) is fully implemented, it will cover over 10,000branches and ATMs
of the State Bank group, and emerge as the strongest technology enabled
distribution network in India. The increasing integration of SBI with its associate
banks (associates) and subsidiaries will further strengthen its dominant position in
the banking sector and position it as the country s largest universal bank.
Resource-raising capabilities SBIs funding profile is strong, underpinned by its

strong retail deposit base. The bank is facing increasing competition in its
metropolitan and urban franchise. SBIs strong franchise gives it access to a steady
source of stable retail funds, which constitute around 59% of the total resources as
on March 31, 2005 (56% as at March 31, 2004).Savings deposits have shown a
strong three-year growth of 19%. Thus, despite a reduction in the proportion of
current account deposits, low-cost deposits have continued to constitute over 40%
of total deposits as at March 31, 2005. The banks cost of deposits (excluding
IMD) has significantly reduced to 4.70% for the 2004-05 (refers to financial year
from April1 to March 31), compared with 5.48% in 2003-04. The banks liquidity
position is very strong due to healthy accretion to deposits, large limits in the call
market, and significant surplus SLR investments. SBI will maintain its strong
funding profile and a low cost resource position in view of its strong retail base and
wide geographical reach.
Earnings profile to remain good
SBI will maintain a good earnings profile in the medium term despite high
pressure on yields due to the increasing competition in the banking sector. SBIs
earning profile is characterized by consistency in the return on assets (PAT/Average
Assets), at around 1% per annum for the past three years, and diverse income
streams. To maintain yields and pursue credit growth, the bank is aggressively
targeting retail finance and small and medium enterprises (SMEs).The banks core
fee income of 1% of average funds deployed bolsters its revenue profile. However,
with the opening of government business like tax collection to other banks and
increased competition, the growth in fee income is expected to slow down. The
banks operating expense at 2.44% of average funds deployed in 2004-05 is in line
with other public sector banks. The banks cost structure is rigid as fixed employee
cost accounted for 74% of the operating expenditure in 2004-05. Thus, despite
good asset growth and technology efficiency gains, the banks operating costs will
remain high in the medium term. To be able to reap the full benefits of technology
implementation, the bank will have to reduce or redeploy work force; since this is a
sensitive issue, it is expected to happen gradually.
Comfortable capital position
SBI is adequately capitalized with a tier I capital adequacy ratio of 8.04% and a
large capital base of Rs 240.72 billion as at March 31, 2005. The bank has
considerably improved its net worth coverage for net NPAs to 4.4 times as at
March 31, 2005 due to lower slip pages reflecting an improving asset quality,
witnessed across the entire banking sector. The capitalization levels of SBI are
adequate to address the asset side risks and support the business growth in the
medium term.

Management strategies
In retail finance, the bank has leveraged its corporate relationships, pursued
business growth selectively, and has not competed based on interest rate. The bank
has taken initiatives like on-line tax returns filing and faster transfer of funds to
protect its dominant position in the government business. The bank also has a clear
technology strategy that will enable it to compete with the new generation private
sector banks in customer service and operational efficiency.
Asset quality to remain at average levels
The bank continues to have a high level of gross NPAs at 5.95% of gross advances
as at March 31, 2005, compared with 4.9% for all scheduled commercial banks
(SCBs) taken together. The bank is facing challenges to improve the quality of
assets originated, as can be seen in the consistently higher levels of slippages
(additions to NPAs) at 2.71% in 2004-05.
To contain NPAs and ensure credit growth, the bank has decided to focus on
financing the retail (personal) segment as well as SMEs. The share of retail
advances has increased to24.73% (Rs 522.08 billion) of total advances as at
September 30 2005. In the retail loan segment, SBI is targeting primarily the
housing loans segment, which constitutes Rs. 283.41billion (54.3%) of total retail
loans. The NPAs in retail finance are low currently; however they are steadily
increasing (especially in the housing finance portfolio) and have started showing
signs of stress. SBIs retail portfolio has grown at over 37% CAGR in the last two
years and hence a significant portion of the portfolio is largely unseasoned. The
housing finance portfolio has a 12-month, lagged gross NPA of 4.34% as at March
31, 2005.The bank will face significant challenges in the medium term to develop
effective credit appraisal and collection systems in order to contain NPAs in retail
finance. SBIs asset quality is expected to remain at average levels, as the banks
large and diverse asset portfolio reflects of the asset quality of the banking system.
Business description
SBI along with its associate banks offer a wide range of banking products and
services across its different client markets. The bank has entered the market of term
lending to corporate and infrastructure financing, traditionally the domain of the
financial institutions. It has increased its thrust in retail assets in the last two years,
and has built a strong market position in housing loans.
SBI, through its non-banking subsidiaries, offers a host of financial services, viz.,
merchant banking, fund management, factoring, primary dealership, broking,

investment banking and0020credit cards. SBI has commenced its life insurance
business by setting up a subsidiary, SBI Life Insurance Company Limited, which is
a joint venture with Cardiff S.A., one of the largest insurance companies in France.
SBI currently holds 74% equity in the joint venture.
Industry prospects
To leverage benefits such as access to low cost resources and the facility to provide
a larger gamut of services, a number of finance companies such as Kotak Mahindra
Finance Limited and HDFC Limited have promoted banks. Simultaneously, yet
another emerging trend is that of foreign banks promoting NBFCs to benefit from
regulatory flexibility available to such entities in areas like absence of statutory
liquidity ratio and cash reserve ratio requirements, priority sector requirements,
and corporate exposure limits.
New private sector banks capture market share
With technological edge and a strong marketing thrust, private sector banks have
been stealing market share in retail deposits and the corporate fee business from
public sector banks. Together with some foreign banks, these private banks have
also aggressively entered the retail asset financing space, hitherto the domain of
non-banking finance companies.
Given their focus on cross selling and optimizing their customer base, they now
offer the entire range of products and services on the asset and liability side to
retail and whole sale customers
Asset quality to improve
Banks have not yet fully resolved the stress in the asset quality of their legacy
corporate loan portfolios, however. Though slippages to NPAs and provisioning
were high for some banks in FY2004, as they moved to the 90-day norm for
recognizing and provisioning for NPAs, the treasury gains enabled significant
provisioning to be made with the result that net NPAs for most public sector banks
are now less than 3%.
Going forward, steady growth in gross domestic product should help improve the
banks asset quality and increase corporate lending. The securitization and
reconstruction of financial assets and enforcement of security interest (Sarfaesi)
Act should also help banks in limiting slippages and improving NPA recoveries.

Better Capitalization levels

Banks have demonstrated a fair amount of flexibility in raising fresh equity capital
through public issues in recent years, thereby improving their capitalization levels.
The steady accruals to net worth and falling non-performing asset levels have
resulted in an improvement in the capitalization position of banks in recent years.
Challenges ahead
Competition from new private sector and foreign banks remains a key challenge
for public sector banks. They need to reorient their staff and effectively utilize
technology platforms to retain customers and reduce costs. They also need to
fortify their credit risk management systems to mitigate the risks arising from
small-ticket lending to the retail, small and medium enterprises, and services
segments.
Consolidation and emergence of universal banking groups
The cap on foreign ownership of banks has already been raised from 49% to 74%.
The competition in the sector could get further intensified if the 10% cap on voting
rights is also relaxed. New private sector banks are expanding their geographical
coverage and making inroads into government business. The new private and
foreign banks will continue to gain market share from public sector banks because
of their efficient cost structures, technological edge, focused marketing approach
and operational freedom. However, the emergence of newer players would be
restricted if the private ownership of banks is capped at low levels. Mergers among
PSBs would create banks with even larger balance sheets and customer base.
However, the integration process in such mergers is expected to be complex and
time long drawn.
These would also be driven by Go I due to provisions of Banking Companies
(Acquisition and Transfer of Undertakings) Act 1969, and hence political scenario
will impact the timing and permutations possible. Strategic alliances between
banks and other financial sector players such as insurance companies and mutual
funds are also likely as banks attempt to enhance their product range, leverage on
economies of scale and reduce costs.
19. NPA SOME ASPECTS AND ISSUES1. The NPAs of banks in India are
considered to be at higher levels than those in other countries. This issue has
attracted attention of public as also of international financial institutions and has

gained further prominence in the wake of transparency and disclosure measures

initiated by RBI during recent years.2. The NPA Management Policy document of
SBI lays down to contain net NPAs to less than 5% of banks total loan assets in
confirmity with the international standard. It is, therefore necessary that as per
guidelines provided in NPA Management Policy document, every effort be made at
all levels to cut down the NPAs. All this requires greater efforts and teamwork.3. It
is essential to keep a constant watch over the non-performing assets not just to
keep it performing but also that once they become non-performing, effective
measures are initiated to get full recovery and where this is not possible, the
various means are to be initiated to get rid off the NPAs from the branch books.4.
NPAs adversely affect the wealth condition of the branch advances as also the
profitability of the branch. Some of the reasons for this are as under: (a) Interest
cannot be applied on the loan accounts classified as NPAs. (b) The Branch has to
pay interest to central office on outstanding classified as NPA. (c) The Branch has
to incur cost in supervision and follow up of such advances. (d) Provision has to be
made on NPAs at Bank level.5. Under Income Recognition, Assets Classification
and provisioning, NPA may be Sub standard, Doubtful or loss assets. 6) Once the
assets are classified as NPA, the Branch Manager has to take all the necessary steps
to get the dues recovered there-under to maintain the good health of advances and
the higher profitability at the-Branch. This requires management of NPAs in such a
Planned and scientific manner that the percentage of NPAs to the total advances
will be minimum.
20. RECOGNITION OF INCOME ON NON-PERFORMING LOANS
(NPLS)Stricter regulations have been laid down by supervisory authorities in many
countries withregard to income recognition on Non-Performing Loans (NPLs). The
suspension of interestpayments is required on loans that are classified as nonperforming [substandard, doubtfuland loss].Any uncollected interest payments on
NPLs are considered non-accrued interest. Previouslyaccrued, but uncollected
interest is reversed out of income. Failure to do so would overstateincome.
Uncollected interest is normally put in a memorandum account. NPLs are
restoredon an accrual basis only after full settlement has been made on all
delinquent principal andinterest. It would, therefore, be useful, if the accounts carry
a footnote, explaining theaccounting policies followed with regard to recognition
of
income
on
NPLs.
NARSIMHAN
COMMITTEES
RECOMMENDATIONSCommittee on Financial System (CFS) Narsimhan
committee which reported in 1991,meanwhile major changes have taken place in
the domestic, economic and institutionalscience, indicating the movement towards
global integration of financial services. Committeehas presented second generation
reforms. a) To strength the foundation of financial system. b) Related to this,
streamlining procedures, upgrading technology and human resource development.

c) Structural changes in the system.1. It is recommended that an asset be classified

as doubtful if it is in the sub standard category for 18 months in the first instance
and eventually for 12 months as loss if it
21. has been so identified but not written off. These norms, which should be
regarded as the minimum, may be brought into force in a phased manner.2.
Corporations and FIs should avoid the practice of "ever greening" by making fresh
advances to their troubled constituents only with a view to settling interest dues
and avoiding classification of the loans in question as NPAs. The committee notes
that the regulatory and supervisory authorities are paying particular attention to
such breaches in the adherence to the spirit of the NPA definitions and are taking
appropriate corrective action.3. The committee believes that objective should be to
reduce the average level of net NPAs for all banks to below 5% by the year 2000
and 3% by 2002. These targets cannot be achieved in the absence of measure to
tackle the problem of backlong NPAs on one time basis and the implementation of
strict prudential norms and management efficiency.4. There is no denying the fact
that any effort at financial restructuring in the form of having off NPAs portfolio
from the books of the corporation or measures to initiate the impact of high level of
NPAs must go hand with operational restructuring. Cleaning up the balance sheets
of banks would thus make sense only if simultaneous steps are taken to prevent of
limit the reemergence of new NPAs.5. Direct credit has a proportionately higher
share in NPA portfolio of corporations and has been one of the factors in erosion in
the quality of asset portfolio. There is a continuing need of Financial Corporations
to extend Credit to SSI sector, which is important segment of national economy but
on commercial considerations and on basis of credit worthiness. Government feels
reluctant to accept the recommendation for reducing the scope of directed credit
under priority sector because timy sector of industry and small businesses have
problems with regard to obtaining credit and some remaining may be necessary for
this sector. A poverty alleviation and employment generation schemes. Given the
special needs of these sectors, the current practice may continue.6. With regard to
income recognition in India, income stops occurring when interest/installment of
principal is not paid within 180 days. However, we should
22. move towards international Practices in this regard and introduce the norm
of 90 days in a phased manner by the 2002.7. As an incentive to Bank is to make
specific provision, the consideration be given to making such provisions tax
deductible.8. Banks should pay greater attention to asset liability management to
avoid mismatch and to cover, among others, liquidity and interest rate risks.9. It
should be encouraged to adopt statistical risk management techniques like value at
risk in respect of balance sheet term which are susceptible to market price
fluctuation, Forex rate volatility and interest rate changes. While the RBI and IDBI
may initially, prescribe certain normative models for market risk management, the

ultimate objective should be that of building up their models and RBI blacklisting
them for their validity on a periodical basis.10. There is a need for a greater use of
computerized system than at present. Computerization has to be recognized as an
indispensable tool for improvement in customer service, the institution and
operation of better control systems, greater efficiency in information
technology.11. State Financial Corporations at present are over regulated and over
administered. Supervision should be based on evolving prudential norms and
regulations which should be adhered to rather than excessive control over
administrative and other aspects of organisation and functioning. Internal audit and
internal inspection systems should be strengthened.12. The main issues with regard
to operations of Banks are to ensure operational flexibility and measure of
competition and adequate internal autonomy in matters of loan sanctioning and
internal administration.13. This calls for some re-examination and the present
relevance of directed credit programme ablest in respect of those who are able to
stand on their own feet and to whom the directed credit programmes with the
element of interest concessionality that has accompanied has become a source of
economic rent. It is recommended that directed credit sector be redefined to
comprise the small and marginal farmers, the tiny sector of industry, small business
and transport operators, village and cottage industry, rural artisans and other
weaker sections. The credit target for this redefined
23. priority sector should hence forth be fixed at 10% of aggregate credit which
would be broadly in line with the credit flows to these sectors at present.14. The
committee believes that the balance sheets of banks and FIs should be made more
transparent and full disclosure made in Balance sheet. This is to be done in phased
manner.
24. Das (1990) has compared the various efficiencyREVIEW OF
LITERATURE measures of public sector banks by applying data envelopment
analysis model and concluded that the level of NPAs significant negative Verma
(1999) has concluded thatrelationship with efficiency estimates. Bergerhigh
level of NPAs leads to operational failure of the bank. and young (1997) has
examined the relationship between problem loan and bank efficiency by employing
Granger-causality technique and found that high level of problem loans cause
banks of increase spending on monitoring, working out and / or selling off these
loans and possibly becomes more diligent in administering the portion of their
existing Gupta (1997) has alsoloan portfolio that is currently performing.
concluded that NPAs on protifability of banks and leads to liquidity Kaveri(1995)
has alsocrunch and slow down in the growth in GDP etc. examined the impact of
NPAs on profitability by taking profit making and six loss making banks and
concluded that loss making banks maintained Kwanhigher NPAs in the loan

portfolio which led them to show losses. and Eisenbeis (1994) also concluded that
there is negative relationship Toor (1994) analysed that poorbetween efficiency
and problem loans. recovery management leads to reduction in yield on advanced
that poor recovery management leads to reduction in yield on advances, reduced
productivity loss in the credibility and put detrimental impact on the Murthy
(1988) has examined that default bringpolicies of the banks. down the return
accruing and to them, reduces effective rate of interest and reduces the funds
recalculation and increase their dependence on
ACCORDING TO S,
RAJexternal sources thereby increasing the costs. KUMAR (2002) the
SARFAESI act and the could primarily used as powerful bargaining tool while
negotiating with defaulter. This puts bank on stronger ground in salvaging sticky
loan
25. To study the position of non performing assets inOBJECTIVE OF
STUDY To To know the impact on NPAon strategic banking variable.SBI
group know the reason for an asset becoming NPA
26. RESEARCH METHODOLOGYMeaning of Research Research is defined
as a scientific & systematic search for pertinent information on aspecific topic.
Research is an art of scientific investigation. Research is a systemized effortto gain
new knowledge. It is a careful inquiry especially through search for new facts in
anybranch of knowledge. The search for knowledge through objective and
systematic method offinding solution to a problem is a research.PROBLEM
STATEMENTThe research problems, in general refers to sum difficulty with a
researcher experience in thecontest of either a particular a theoretical situation and
want to obtain a salutation for same.The present Dissertation has been undertaken
to do the Problem of NPA inState Bank of India.RESEARCH DESIGN TYPES OF
RESEARCH DESIGN DESI EXPLORATORY DESCRIPTIVE EXPERIMENTAL
RESEARCH RESEARCH DESIGN DESIGN
27. The present study is descriptive in nature, as it seeks to discover ideas and
insightto bring out new relationship. Research design is flexible enough to provide
opportunity forconsidering different aspects of problem under study. It helps in
bringing into focus someinherent weakness in enterprise regarding which in depth
study can be conducted bymanagement.SAMPLING DESIGN:A sample design is
a definite plan for obtaining a sample from the sampling frame. It refersto the
technique or the procedure that is adopted in selecting the sampling units from
whichinferences about the population is drawn. Sampling design is determined
before thecollection of the data.DATA COLLECTION TYPES OF DATA
PRIMARY SECONDRY DATA DATAPRIMARY DATA: - METHODS OF
PRIMARY
DATAOBSERVATION
INTERVIEW
QUETIONAIRE
SCHEDULEMETHOD METHIOD METHOD METHOD

 28. SECONDARY DATA: -The secondary data on the other hand, are those
which have already been collected bysomeone else and which have already been
passed through the statistical processes. When theresearcher utilizes secondary data
then he has to look into various sources from where he canobtain them. For e.g.
Books, magazine, newspaper, Internet, publications and reports. In thepresent
study use of secondary data collected from website..
29. REASONS FOR RISE IN NPAsFACTORS FOR RISE IN NPAs The
banking sector has been facing the serious problems ofthe rising NPAs. But the
problem of NPAs is more in public sector banks when compared toprivate sector
banks and foreign banks. The NPAs in PSB are growing due to external as wellas
internal factors.EXTERNAL FACTORS Ineffective recovery tribunalThe Govt.
has set of numbers of recovery tribunals, which works for recovery of loans
andadvances. Due to their negligence and ineffectiveness in their work the bank
suffers theconsequence of non-recover, their by reducing their profitability and
liquidity. Wilful DefaultsThere are borrowers who are able to payback loans but
are intentionally withdrawing it.These groups of people should be identified and
proper measures should be taken in order toget back the money extended to them
as advances and loans. Natural calamitiesThis is the measure factor, which is
creating alarming rise in NPAs of the PSBs. every nowand then India is hit by
major natural calamities thus making the borrowers unable to payback there loans.
Thus the bank has to make large amount of provisions in order tocompensate those
loans, hence end up the fiscal with a reduced profit. Mainly ours farmersdepends
on rain fall for cropping. Due to irregularities of rain fall the farmers are not
toachieve the production level thus they are not repaying the loans Industrial
sicknessImproper project handling , ineffective management , lack of adequate
resources , lack ofadvance technology , day to day changing govt. Policies give
birth to industrial sickness.Hence the banks that finance those industries ultimately
end up with a low recovery of theirloans reducing their profit and liquidity.
30. Lack of demandEntrepreneurs in India could not foresee their product
demand and starts production whichultimately piles up their product thus making
them unable to pay back the money theyborrow to operate these activities. The
banks recover the amount by selling of their assets,which covers a minimum label.
Thus the banks record the nonrecovered part as NPAs andhas to make provision for
it. Change on Govt. policiesWith every new govt. banking sector gets new
policies for its operation. Thus it has to copewith the changing principles and
policies for the regulation of the rising of NPAs. eg. Thefallout of handloom sector
is continuing as most of the weavers Co-operative societies havebecome defunct
largely due to withdrawal of state patronage. The rehabilitation plan workedout by
the Central govt to revive the handloom sector has not yet been implemented. So
theover dues due to the handloom sectors are becoming NPAs.INTERNAL

FACTORS Defective Lending processThere are three cardinal principles of bank

lending that have been followed by thecommercial banks since long. i. Principles
of safety ii. Principle of liquidity iii. Principles ofprofitabilityi. Principles of safety
By safety it means that the borrower is in a position to repay the loanboth principal
and interest. The repayment of loan depends upon the borrowers:a. Capacity to
payb. Willingness to payCapacity to pay depends upon: 1. Tangible assets 2.
Success in business Willingness to paydepends on: 1. Character 2. Honest 3.
Reputation of borrower The banker should, there foretake utmost care in ensuring
that the enterprise or business for which a loan is sought is a
31. sound one and the borrower is capable of carrying it out successfully .he
should be a personof integrity and good character. Inappropriate technologyDue
to inappropriate technology and management information system, market
drivendecisions on real time basis can not be taken. Proper MIS and financial
accounting system isnot implemented in the banks, which leads to poor credit
collection, thus NPA. All thebranches of the bank should be computerised.
Improper swot analysisThe improper strength, weakness, opportunity and threat
analysis is another reason for rise inNPAs. While providing unsecured advances
the banks depend more on the honesty, integrity,and financial soundness and credit
worthiness of the borrower. Banks should consider theborrowers own capital
investment. it should collect credit information of the borrowersfrom a. From
bankers b. Enquiry from market/segment of trade, industry, business. c.
Fromexternal credit rating agencies. Analyse the balance sheet True picture of
business will berevealed on analysis of profit/loss a/c and balance sheet. Purpose
of the loan When bankersgive loan, he should analyse the purpose of the loan. To
ensure safety and liquidity, banksshould grant loan for productive purpose only.
Bank should analyse the profitability,viability, long term acceptability of the
project while financing. Poor credit appraisal systemPoor credit appraisal is
another factor for the rise in NPAs. Due to poor credit appraisal thebank gives
advances to those who are not able to repay it back. They should use good
creditappraisal to decrease the NPAs. Managerial deficienciesThe banker should
always select the borrower very carefully and should take tangible assetsas security
to safe guard its interests. When accepting securities banks should consider the
1.Marketability 2. Acceptability 3. Safety 4. Transferability.
32. The banker should follow the principle of diversification of risk based on
the famous maximdo not keep all the eggs in one basket; it means that the banker
should not grant advancesto a few big farms only or to concentrate them in few
industries or in a few cities. If a newbig customer meets misfortune or certain
traders or industries affected adversely, the overallposition of the bank will not be
affected. Like OSCB suffered loss due to the OTM Cuttack,and Orissa hand loom
industries. The biggest defaulters of OSCB are the OTM(117.77lakhs), and the

handloom sector Orissa hand loom WCS ltd (2439.60lakhs). Absence of regular
industrial visitThe irregularities in spot visit also increases the NPAs. Absence of
regularly visit of bankofficials to the customer point decreases the collection of
interest and principals on the loan.The NPAs due to wilful defaulters can be
collected by regular visits. Re loaning processNon remittance of recoveries to
higher financing agencies and re loaning of the same havealready affected the
smooth operation of the credit cycle. Due to re loaning to the defaultersand CCBs
and PACs, the NPAs of OSCB is increasing day by day.
33. IMPACT OF NPAS ON BANKS:-In portion of the interest income is
absorbed in servicing NPA.NPA is not merely non-remunerative. It is also cost
absorbing and profit eroding.In the context of severe competition in the banking
industry, the weak banks are atdisadvantage for leveraging the rate of interest in the
deregulated market and securingremunerative business growth. The options for
these banks are lost. "The spread is the breadfor the banks". This is the margin
between the cost of resources employed and the returntherefrom." This is the
margin between the cost of resources employed and the returnthereform. In other
words it is gap between the return on funds deployed (Interest earned oncredit and
investments) and cost of funds employed (Interest paid on deposits). When the
interest rates were directed by RBI, as heretofore, there was not option forbanks.
But today in the deregulated market the banks decide their lending rates
andborrowing rates. In the competitive money and capital Markets, inability to
offer competitivemarket rates adds to the disadvantage of marketing and building
new NPA has affected theprofitability, liquidity and competitive functioning of
banks and finally the psychology of thebankers in respect of their disposition
towards credit delivery and credit expansion. 1. Impact on Profitability "The
efficiency of banks 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. 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
34. They limit recycling of funds, set in asset-liability mismatches, etc.There
is at times a tendency among some of the banks to understate the level of NPAs
inorder to reduce the provisioning and boost up bottom lines. It would only
postpone theprocess.In the context of crippling effect on a banks operations in all
spheres, asset quality has beenplaced as one of the most important parameters in
the measurement of a banks performanceunder the CAMELS supervisory rating
system of RBI.Between 01.04.93 to 31.03.2001, SBI Group incurred a total

amount of Rs. 31251 Crorestowards provisioning NPA. This has brought Net NPA
to Rs. 32632 Crores or 6.2% of netadvances. To this extent the problem is
contained but a what cost?This costly remedy is made at the sacrifice of building
healthy reserves for future capitaladequacy.The enormous provisioning of NPA
together with the holding cost of such non-productiveassets over the years has
acted as a severe drain on the profitability of the SBI Group. In turnSBI Group are
seen as poor performers and unable to approach the market for raisingadditional
capital. Equity issues of nationalized banks that have already tapped the market
arenow quoted at a discount in the secondary market. Other bans hesitate to
approach the marketto rise new issues. This has alternatively forced SBI Group to
borrow heavily from the debtmarket to build Tier II Capital to meet capital
adequacy norms putting severe pressure ontheir profit margins; else they are to
seek
the
bounty
of
the
Central
Government
for
repeatedRecapitalization.Considering the minimum cost of holding NPAs at 7%
p.a. (reckoning average cost of fundsat 6% plus 1% service charge) the net NPA of
Rs. 32632 Croces absorbs a recurring holdingost of Rs. 2300 Crores annually.
Considering the average provisions made for the last 8 yearswhich works out to
average of Rs. 3300 crores from annum, a sizeab business.
35. In the face of the deregulated banking industry, an ideal competitive
working is reached,when the banks are able to earn adequate amount of noninterest income to cover their entireoperating expenses i.e. a positive burden. In
that event the spread factor i.e. the differencebetween the gross interest income and
interest cost will constitute its operating profits.Theoretically even if the banks
keeps 0% spread, it will still break even in terms of operatingprofit and not return
an operating loss. The net profit is the amount of the operating profitminus the
amount of provisions to be made including for taxation. On account of the
burdenof heavy NPA, many nationalised banks have little option and they are
unable to lowerlending rates competitively, as a wider spread is necessitated to
cover cost of NPA in the faceof lower income from off balance sheet business
yielding non-interest income.The following working results of SBI Group an
identified well manged nationalised banksfor the last two years and for the first
nine months of the current financial year, will berevealing to prove this
statement.Non-interest income fully absorbs the operating expenses of this banks
in the currentfinancial year for the first 9 months. In the last two financial years,
though such income hassubstantially covered the operating expenses (between 80
to 90%) there is still a deficit left.The strength of SBI Group is indentified by the
following positive feature: 1. Its sizeable earnings under of non-interest income
substantially/totally meets its non-interest expenses. 2. Its obligation for
provisioning requirements is within bounds. (Net NPA/Net Advances is 1.92%)It is
worthwhile to compare the aggregate figures of the 19 Nationalised banks for the

yearended March, 2001, as published by RBI in its Report on trends and progress
of banking inIndia. Interest on Recapitalization Bonds is a income earned form the
Government, who hadissued the Recapitalization Bonds to the weak banks to
sustain their capital adequacy under abailout package. The statistics above show
the other weaknesses of the nationalised banks in
36. addition to the heavy burden they have to bear for servicing NPA by way of
provisioning andholding cost as under: Their operating expenses are higher due
to surplus manpower employed. Wage costs total assets is much higher to PSBs
compared to new private banks or foreign banks. Their earnings from sources
other than interest income are meagre. This is due to failure to develop off balance
sheet business through innovative banking products. 2. Impact on Liquidity of the
SBI Group Though SBI Group are able to meet norms of Capital Adequacy, as per
RBI guidelines, the facts that their net NPA in the average is as much as 7% is a
potential threat for them. RBI has indicated the ideal position as Zero percent Net
NPA. Even granting 3% net NPA within limits of tolerance the SBI Group are
holding an uncomfortable burden at 7.1% as at March 2001. They have not been
able to build additional capital needed for business expansion through internal
generations or by tapping the equity market, but have resorted to II-Tier capital in
the debt market or looking to recapitalistion by Government of India. 3. Impact on
Outlook of Bankers towards Credit Delivery. The fear of NPA permeates the
psychology of bank managers in the SBI Group 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 implements 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 in a low C/D Ratio around
50 to 54% for the industry. The fear psychosis also leads to excessive securityconsiousness 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 37. confidence). a tendency towards laxity in the standards of credit appraisal
comes to thefore. It is well know that the existence of collateral security at best
may convert the creditextended to productive sectors into an investment against
real estate, but will not preventthe account turning into NPA. Further blocked
assets and real estate represent the mostilliquid security and NPA in such advances
has the tendency to persist for a longduration.SBI Group have reached a dead-end
of the tunnel and their future prosperity depends onan urgent solution for handling
this hovering threat.4. Impact on Productivity:High level of NPAs effect the

productivity of the banks by increasing the cost of fundsand by reducing the

efficiency of banks employees. Cost of funds is increased becausedue to nonavailability of sufficient internal sources they have to rely on external sourcesto
fulfill their future financial requirements. Productivity of employees is also
reducedbecause it keeps staff busy with the task of recovery of overdue. Instead of
devoting timefor planning for development through more credit and mobilization
of resources thebranch staff would primarily be engaged in preparing a large value
of returns andstatements relating to sub-standard, doubtful and loss assets,
preparing proposal for filingof suits, waivement of legal action, compromise, write
off or in preparing DICGC claimpapers etc.5. Impact on other Variables:High level
of NPAs also leads to squeezing of interest spread, when asset becomes anNPA for
the first time it adversely affects the spread by not contributing to the
interestincome and from the second year onwards it will have its impact on the
bottom line of thebalance sheet because of provisioning to be made for it and not
have incremental effecton the spread.Now a days Govt. does not encourage liberal
capital support to be given to banks. Banksare required to bring their own capital
by issuing share to the public, whereas high levelof NPAs leads to lower profits
hence less or no profits available for equity shareholdershence lower EPS and fall
in the value of share. During the year 2001-02 share of 12
38. public sector banks were traded on the NSE out of which share value of
three PSBs havedecreased. Low market value of shares has also forced the banks
to borrow heavily debtmarket to build Tier II capital to meet capital adequacy
norms, putting severe pressure ontheir profit margins.6. Qualitative aspects of the
Micro Level Impact of NPAs:High incidence of loan defaults shakes the
confidence of general public in the soundnessof banking setup and indirectly
effects the capacity of the banking system to mop up thedeposits. It is a blot on the
credibility of the banking system. It also leads to loss of trustof foreign suppliers.
Reputed foreign suppliers do not accept letter of credit opened biIndian banks or
confine their transaction to top Indian banks only. Moreover, it putsnegative effect
on granting of autonomy to PSBs whreas it is must for banks in thiscompetitive
environment. Banks having positive net profits for the last three years, NetNPA
level below 9%, owned funds of Rs. 100 Crore, CAR of > 8% are the 4 condition
tobe fulfilled to get autonomous status, which becomes difficult in the situation of
hugelevel of NPAs. Inadequate recovery also inhibits the banks to draw refinance
from higher levelagency. The eligibility of a bank to draw refinance from
NABARD is linked to the %ageof recovery to demand in respect of direct, medium
and long term loans for agricultureand allied activities. It implies that refinance
facility would be progressively reduceddepending on the position of NPAs and also
on the No. of years in which a banks branchremains in a particular category of
default. Due to fear of NPAa banks are being takenaway from the basic function

for which these were established it is becoming more &more risky and less
remunerative. They are floating their subsidiaries to manage mutualfunds,
factoring, insurance business, Good money is spent to recover bad
money.Deterioration in the quality of loan assets and inability to come with new
products makesthe Indian banks uncompetitive globally. Due to high cost, they
cannot reduce lendingrate to meet the economys demand of low lending rate. It is
also biggest threat for capitalaccount convertibility.
39. 7. Some areas of Macro-Economic Impact:It is not only the banks which
are affected higher level of NPAs but it is the economy as awhole which pays for it.
Banks are not putting enough resource in lending due to fear ofdefault. Once the
credit to various sectors of the economy slow down, the economy isbadly hit.
There is slowdown in growth in GDP, industrial output and fall in the profitmargins
of the corporate and consequent depression in the market. Further high level
ofNPAs can result in adding to the inflationary potential in the economy and
eroding theviability of the credit system as a whole. Not only this, burden of NPAs
is to be borne by the society as a whole. When capitalsupport is given to PSB on
A/c of losses booked and/ or erosion of capital due to NPAs, itcomes out of either
Govt. budgetary resources or from the public as perLiberalization policy, whether
this money is from tax revenues or from the hard earnedsaving of the investing
public, in fact, the society is bearing the cost of theseNPAs. Moreover, Govt. holds
majority of shares in PSBs in some banks 100% capital isin its hand. Any dividend
declared would have gone to the Govt. and which can be spenton the welfare and
development program.
40. GUIDELINES BY RBIGuidelines of Government and RBI for Reduction
of NPAs1. Compromise settlement schemes: The RBI/Government of India have
been constantly goading the banks to take steps for arresting the incidence of fresh
NPAs and have also been creating legal and regulatory environment to facilitate the
recovery of existing NPAs of banks. More significant of them, I would like to
recapitulate at this stage.* The broad framework for compromise or negotiated
settlement of NPAs advised by RBI in July 1995 continues to be in place. Banks
are free to design and implement their own policies for recovery and write-off
incorporating compromise and negotiated settlements with the approval of their
Boards, particularly for old and unresolved cases falling under the NPA category.
The policy framework suggested by RBI provides for setting up of an independent
Settlement Advisory Committees headed by a retired Judge of the High Court to
scrutinise and recommend compromise proposals.* Specific guidelines were issued
in May 1999 to public sector banks for one time nondiscretionary and non
discriminatory settlement of NPAs of small sector. The scheme wasoperative up to
September 3, 2000. [Public sector banks recovered Rs. 668 crore
throughcompromise settlement under this scheme].* Guidelines were modified in

July 2000 for recovery of the stock of NPAs of Rs. 5 croreand less as on 31 March
1997. [The above guidelines which were valid up to June 30, 2001helped the
public sector banks to recover Rs. 2600 crore by September 2001].* An OTS
Scheme covering advances of Rs. 25000 and below continues to be inoperation and
guidelines in pursuance to the budget announcement of the Honble
FinanceMinister providing for OTS for advances up to Rs. 50,000 in respect of
NPAs ofsmall/marginal farmers are being drawn up.
41. 2. Lok Adaltas: Lok Adalats 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.3.
Debt Recovery Tribunals: The Recovery of Debts due to Banks and Financial
Institutions (amendment) Act, passed in March 2000 has helped in strengthening
the functioning of DRTs. Provisions for placement of more than one Recovery
Officer, power to attach defendants property/assets before judgement, penal
provisions for disobedience of Tribunals order or for breach of any terms of the
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 the times to come. 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 DRT mechanism and till September 30, 2001. The amount
recovered in respect of these cases amounted to only Rs. 1864.30 crore.
42. 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. I may add that familiarisation
programmes have been offered in NIBM at periodical intervals to the presiding
officers of DRTs in understanding the complexities of documentation and
operational features and other legalities applicable of Indian banking system. 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
decree passed against them.4. Circulation of information on defaulters: The RBI

has put in place a system for periodical circulation of details of willful defaults of
borrowers of banks and financial institutions. This serves as a caution list while
considering requests for new or additional credit limits from defaulting borrowing
units and also from the directors/proprietors/partners of these entities. RBI also
publishes a list of borrowers (with outstanding aggregating Rs. 1 crore and above)
against whom suits have been filed by banks and FIs for recovery of their funds, as
on 31st March every year. It is our experience that these measures had not
contributed to any perceptible recoveries from the defaulting entities. However,
they serve as negative basket of steps shutting off fresh loans to these defaulters. I
strongly believe that a real breakthrough can come only if there is a change in the
repayment psyche of the Indian borrowers5. Recovery action against large NPAs:
After a review of pendency in regard to NPAs by the Honble Finance Minister,
RBI had advised the public sector banks to examine all cases 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
43. the Government are contemplating several supporting measures including
legal reforms, some of them I would like to highlight.6. Corporate Debt
Restructuring (CDR): Corporate Debt Restructuring mechanism has been
institutionalised in 2001 to provide a timely and transparent system for
restructuring of the corporate debts of Rs. 20 crore and above with the banks and
financial institutions. The CDR process would also enable viable corporate entities
to restructure their dues outside the existing legal framework and reduce the
incidence of fresh NPAs. The CDR structure 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 Honble 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.7. Credit Information Bureau: Institutionalisation of information sharing
arrangements through the newly formed Credit Information Bureau of India Ltd.
(CIBIL) is under way. RBI is considering the recommendations of the S.R.Iyer
Group (Chairman of CIBIL) to operationalise the scheme of information
dissemination on defaults to the financial system. The main recommendations of
the Group include dissemination of information relating to suit- filed accounts

regardless of the amount claimed in the suit or amount of credit granted by a credit
institution as also such irregular accounts where the borrower has given consent for
disclosure. This, I hope, would prevent those who take advantage of lack of system
of information sharing amongst lending institutions to borrow large
44. amounts against same assets and property, which had in no small measures
contributed to the incremental NPAs of banks.8. Proposed guidelines on willful
defaults/diversion of funds: 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.9.
Corporate Governance: A Consultative Group under the chairmanship of Dr. A.
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-a-vis compliance, transparency, disclosure, audit committees etc. and
make recommendations for making the role of Board of Directors more effective
with a view to minimising risks and overexposure. 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. 10. Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: The Act provides, inter alia for
enforcement of security interest for realisation of dues without the intervention of
courts or tribunals. The Security Interest (Enforcement) Rules, 2002 has also been
notified by Government to enable Secured Creditors to authorise their officials to
enforce the securities and recover the dues from the borrowers. As on June 30,
2004, 27 public sector banks had issued 61, 263 notices involving outstanding
amount of Rs. 19,744 crore, and had recovered an amount of Rs. 1,748 crore from
24,092 cases.
45. PROBLEMS LOAN RECOVERY1. Inadequate security and Erosion in
value of security: Generally, banks tend to find that there is a major gap in the
valuation of the security, as carried out at the time of providing the loan and at the
time of loan recovery. The value of the security has generally deteriorated over the
period and according to experts, it may further deteriorate by almost 10-50% if
quick action is not taken for its immediate sale.2. Political interferences: Political
interference in the day -to-day functioning of public sector banks created a number
of problems for them. The populist policies of the national level politicians, such as
waiver in repayment only added to these problems.3. Slow legal procedure: Before
the establishment of DRTs in 1993, the banks had to approach the normal courts to
recover their dues. There were provisions under various acts which hampered the
smooth takeover and sale of secured assets. The legal process could take years to
be completed, with the borrower having ample scope for delaying the takeover of

assets. A number of loopholes provided the borrower with opportunities to delay or

ignore repayment of loans. During this period, it was said by some unscrupulous
businessmen that - "there is no difference between equity and debt - you never
have to repay either of them ".4. Swamping of DRTs with cases: Once DRTs were
established to quicken the pace of recovery procedures, the pace of recovery
improved quite a bit. However, the DRTs were soon drowned in the ever increasing
number of cases. The pending number of cases with the DRTs increased manifold
during the period 1993-2002.
46. 5. Misuse of BIFR/SICA: This was one of the favourite methods of willful
defaulters to delay repayment. If the defaulters company is declared sick and taken
for financial reconstruction under BIFR, it is not possible to undertake any
recovery proceeding against the company .The procedure of financial
reconstruction can take a number of years together, thereby delaying recovery to a
great extent.6. Transfer of property Act, English mortgage: Under provisions of
Section 69 of Transfer of Property Act, mortgagee can take possession of
mortgaged property and sell the same without the intervention of the Court only in
the case of English Mortgage. In addition, mortgagee can take possession of
mortgaged property where there is specific provision in mortgage deed and it is
situated in the towns of Mumbai, Kolkata and Chennai only. In other cases,
intervention of the court is required. However, this is very slow and time
consuming process and by the time bank /FI is able to get possession; the asset
either does not exist or has become valueless.
47. ANALYISIS ANDINTERPRETATION
48. STATE BANK OF INDIA TOTAL ASSET 2003- 2004- 2005- 2006- 2007YEAR 04 05 06 07 08 TOTAL ASSET(RS. CR) 407185 459883 494029 566565
721526 800000 700000 600000 500000 400000 YEAR 300000 TOTAL
ASSET(RS. CR) 200000 100000 0 1 2 3 4 5 6 YEARInterpretation:-Above graph
show that total assets of SBI is increased in 2004-05 by52658 crore, in 2007-08
increased by 154961rs. crore. So assets of the SBI bankincreased from last five
year.
49. GROSS NPA YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 _GROSS
NPA(RS.CR) 12667 12456 9628 9998 12837 _GROSS NPA(RS.CR) 14000 12000
10000 8000 _GROSS 6000 NPA(RS.CR) 4000 2000 0 2003- 2004- 2005- 20062007- 04 05 06 07 08Interpretation:- above graph shows that Non-performing
assets of SBI decreasedfrom 2003-04 to2006-07 and increased in 2007-08. There
are so many reason ofincreases of npa NET NPA
50. YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 NET NPA(RS. CR.)
5442 5349 4906 5258 7424 NET NPA(RS. CR.) 8000 7000 6000 5000 4000 NET
NPA(RS. 3000 CR.) 2000 1000 0 2003- 2004- 2005- 2006- 2007- 04 05 06 07

08Interpretation :-above graph show that net NPA decreasd from 2003-04 to 200506 andincreased in 2006-07 to 2007-08.
51. GROSS NPA (RATIO%) YEAR 2003-04 2004-05 2005-06 2006-07 200708 GROSS NPA(RATIO%) 7.75 5.96 3.61 2.92 3.04 8Interpretation : Above graph
shows that the gross NPA (Ratio%)of SBI is decreasedfrom 2004-05 to 2006-07
and increased in 2007-08. 7 6
52. NET NPA(RATIO%) YEAR 2003-04 2004-05 2005-06 2006-07 2007-08
NET NPA(RATIO%) 3.48 2.65 1.88 1.56 1.78 4 3.5 3 2.5 YEAR 2 NET 1.5
NPA(RATIO%) 1 0.5 0 1 2 3 4 5 6Interpretation: Above graph shows that the net
NPA(Ratio%) of SBI is decreased from2004-05 to 2006-07 and increased in 200708 PROVISION COVER
53. YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 PROVISION COVER
57.04 59.45 49.04 47.41 45.04 PROVISION COVER 70 60 POVISION COVER
% 50 40 PROVISION COVER 30 20 10 0 2003-04 2004-05 2005-06 2006-07
2007-08 yEARInterpretation: Above graph shows that in 2003-04 provision cover
of NPA is 57.04%and increased in 2004-05. It decreased from 2005-06 to 2007-08.
State Bank of Patiala
54. YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 GROSS NPA(%) 1.82
1.65 1.38 2.14 1.42 NET NPA(%) 1.35 1.23 0.99 0.83 0.6 2.5 2 1.5 GROSS
NPA(%) 1 NET NPA(%) 0.5 0 2003- 2004- 2005- 2006- 2007- 04 05 06 07
08Interpretation: Above graph shows that the gross NPA of SBP is decreased
from2003-04 to 2005-06,increased in 2006-07 and again decreased in 2007-08.
The net NPAdecreased from 2003-04 to 2007-08. FINDINGS 1. REASON OF
NPA IN BANK: 55. Lack of expertise Non-inspection of borrower Default by customer
Lack of trained Poor credit collection Imbalance of inventories Change in
consumer preference 2 Lack of commitment to recovery staff Impact of
profitability Govt. Policies IMPACT OF NPA ON BANK Impact on
outlook of Banker to wards credit delivery Liquidity Impact of productivity
RECOMMANDATIONS
56. Credit administration: A banks have to strengthen their credit
administrative machinery and put in place effective credit risk
Bettermanagement systems to reduce the fresh incidence of NPAs. Inspection:
We shall keep a close watch on the manner in which NPA Cash Recovery: We
should also insist thatreduction is taking place. cash recoveries should more
than offset the fresh write-offs in NPAs. Perception: The mindset of the borrowers
needs to change so that a culture of proper utilization of credit facilities and timely
repayment Financial System: As you are aware, one of the mainis developed.
reason for corporate default is on account of diversion of funds and corporate

entities should come forward of avoid this practice in the Coordinator:

Extendinginterest of strong and sound financial system. credit involves lenders
and borrowers and both should realize their role and responsibilities. They should
appreciate the difficulties of each other and should endeavor to work contributing
to a healthy financial Shortage of time :-system. LIMITATION OF STUDY
57. .Time is very short for research ,so that is very difficult can get the
Information not sufficiently available Theknowledge about everything . source of
data collection is secondary so the information available is No direct source of
information available Thenot sufficient. information is collected from indirect
sources so in some information Secondary data:- Information is not reliabledata
is not available. because of secondary data CONCLUSION
58. A strong banking sector is important for a flourishing economy. The failure
of thebanking sector may have an adverse impact on other sectors.Over the years,
much has been talked about NPA and the emphasis so far has been onlyon
identification and quantification of NPAs rather than on ways to reduce and
upgradethem.There is also a general perception that the prescriptions of 40% of net
bank credit topriority sectors have led to higher NPAs, due to credit to these sectors
becoming sticklymanagers of rural and semi-urban branches generally sanction
these loans. In the changedcontext of new prudential norms and emphasis on
quality lending and profitability,mangers should make it amply clear to potential
borrowers that banks resources are scareand these are meant to finance viable
ventures so that these are repaid on time andrelevant to other needy borrowers for
improving the economic lot of maximum numberof households. Hence selectionof
right borrowers, viable economic activity, adequatefinance and timely
disbursement, correct and use of funds and timely recovery f loans isabsolutely
necessary pre conditions for preventing of minimizing the incidence of newNPAs.
59. BIBLIOGRAPHY1. Finance India, September 2005 pp-957-9612. Charted
Financial Analysis, October 2005 pp-643. Charted Financial Analysis, October
2007 pp-31-314. Charted Financial Analysis, November 2007 pp-8-95. Charted
Financial Analysis, August 2004 B.P. Dhaka pp-47-526. Business Today, May
2006 pp-347. Charted Financial Analysis, December 2005 pp-25-288. RBI
Bulletin, July 1999 pp-34-369. RBI Bulletin, January 2004 pp-17-1910. Alok
Majumdar, NPAs: Recovery Blues, Treasury Management (Dec. 2000) pp 4649Books : KOTHARI C.R Indian Financial System , VK publication ,pp-100105Website:1.
www.centurionbop.co.in/news/press_190505.html12.
www.domainb.com/management/m_a/20060904_vijay_kalantri.html2