Documenti di Didattica
Documenti di Professioni
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ON
BY
ANINDYA SANKAR KUNDU
(08BS0000328)
PROJECT TITLE
FACULTY GUIDE
Prof. RajasreeNandy
ICFAIBusiness School
KOCHI
SUBMITTED BY
(08BS0000328)
Declaration
ANALYSIS ON NON
has been
done
under
the
able
guidance
and
supervision
of
Prof.
I also declare that this project is the result of my own effort and has not been
submitted to any other institution for the award of any Degree or Diploma.
Place: Kochi
Anindya Sankar Kundu
08bs0000328
Acknowledgements
If words are considered to be signs of gratitude then let these words convey the
very same.
I thank Prof. RajasreeNandi, ICFAI Business School, Kochi, who has
sincerely supported me with the valuable insights into the completion of this
project.
I am grateful to all faculty members of ICFAI Business School, Kochi and my
friends who have helped me in the successful completion of this Management
Research Project.
TABLE OF CONTENTS
Declaration
3
Acknowledgments
.
4
Abstract
.
7
1. Project Details
1.1Objective of the project
9
1.2 Research Methodology.
9
1.3Scope of the project
9
1.4 Sampling Methods
10
1.5 Limitations of the project 10
2. Introduction
2.1
12
2.3
2.4
2.5
2.6
22
23
23
24
4. Assets Classifications
4.1 Sub-standard Assets .............................................................................
26
4.2 Doubtful Assets .....................................................................................
30
4.3 Loss Assets ..............................................................................................
31
5. Impact of NPA &Preventive
Measurement for NPA
&
33
34
65
ABSTRACT
The accumulation of huge non-performing assets in banks
hasassumed great importance. The depth of the problem of bad
debts wasfirst realized only in early 1990s. The magnitude of
NPAs in banks andfinancial institutions is over Rs.1, 50,000
crore.
While gross NPA reflects the quality of the loans made bybanks,
net NPA shows the actual burden of banks. Now it is
increasinglyevident that the major defaulters are the big
borrowers coming from thenon-priority sector. The banks and
financial institutions have to take theinitiative to reduce NPAs in
a time bound strategic approach.
CHAPTER-1
Project Details
1.2RESEARCH METHODOLOGY
The research methodology adopted for carrying out the study
were
1.4Sampling Methods
To prepare this Project we took five banks from public sector as
well as five banks from private sector.
10
CHAPTER-2
INTRODUCTIO
N
11
2. Introduction
NPA. The three letters Strike terror in banking sector and
business circle today. NPA is short form of Non Performing
Asset. The dreaded NPA rule says simply this: when interest or
other due to a bank remains unpaid for more than 90 days, the
entire bank loan automatically turns a non performing asset.
The recovery of loan has always been problem for banks and
financial institution. To come out of these first we need to think
is it possible to avoid NPA, no cannot be then left is to look after
the factor responsible for it and managing those factors.
2.1Definitions:
An asset, including a leased asset, becomes non-performing
when it ceases to generate income for the bank.
A non-performing asset (NPA) was defined as a credit facility
in respect of which the interest and/ or instalment of principal
has remained past due for a specified period of time.
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,
from the year ending March 31, 2004. Accordingly, with effect
from March 31, 2004, a non-performing asset (NPA) shall be a
loan or an advance where;
Interest and/ or instalment 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 instalment 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
purposes.
As a facilitating measure for smooth transition to 90 days norm,
banks have been advised to move over to charging of interest
at monthly rests, by April 1, 2002. However, the date of
classification of an advance as NPA should not be changed on
account of charging of interest at monthly rests. Banks should,
therefore, continue to classify an account as NPA only if the
12
13
14
Industrial sickness
Improper project handling , ineffective management , lack
of adequate resources , lack of advance 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 their loans
reducing their profit and liquidity.
Lack of demand
Entrepreneurs in India could not foresee their product
demand and starts production which ultimately piles up
their product thus making them unable to pay back the
money they borrow to operate these activities. The banks
recover the amount by selling of their assets, which covers a
minimum label. Thus the banks record the non-recovered part as NPAs and
has to make provision for it.
Change on Govt. policies
With every new govt. banking sector gets new policies for its operation. Thus
it has to cope with the changing principles and policies for the regulation of
the rising of NPAs.
The fallout of handloom sector is continuing as most of the weavers
Co-operative societies have become defunct largely due to withdrawal of state
patronage. The rehabilitation plan worked out by the Central government to
revive the handloom sector has not yet been implemented. So the over dues
due to the handloom sectors are becoming NPAs.
Marketability
Acceptability
Safety
Transferability.
Re loaning process
Non remittance of recoveries to higher financing agencies
and re loaning of the samehave already affected the
smooth operation of the credit cycle. Due to re loaning to
the defaulters and CCBs and PACs, the NPAs of OSCB is
increasing day by day.
2.7Types of NPA
A] Gross NPA
B] Net NPA
A] Gross NPA:
Gross NPAs are the sum total of all loan assets that are
classified as NPAs as per RBI guidelines as on Balance Sheet
date. Gross NPA reflects the quality of the loans made by
banks. It consists of all the non-standard assets like as substandard, doubtful, and loss assets.
It can be calculated with the help of following ratio:
Gross NPAs Ratio Gross NPAs
Gross Advances
B] Net NPA:
Net NPAs are those type of NPAs in which the bank has
deducted the provision regarding NPAs. Net NPA shows the
actual burdenof banks. Since in India, bank balance sheets
20
CHAPTER-3
21
INCOME
RECOGNITION
3. INCOME RECOGNITION
3.1. Income recognition Policy
The policy of income recognition has to be objective and
based on the record of recovery. Internationally income
from non-performing assets (NPA) is not recognised on
accrual basis but is booked as income only when it is
actually received. Therefore, the banks should not charge
and take to income account interest on any NPA.
However, interest on advances against term deposits,
NSCs, IVPs, KVPs and Life policies may be taken to income
account on the due date, provided adequate margin is
available in the accounts.
Fees and commissions earned by the banks as a result of
re-negotiations or rescheduling of outstanding debts
22
3.3Leased Assets
The net lease rentals (finance charge) on the leased asset
accrued and credited to income account before the asset
became non-performing, and remaining unrealised, should
be reversed or provided for in the current accounting period.
The term 'net lease rentals' would mean the amount of
finance charge taken to the credit of Profit & Loss Account
and would be worked out as gross lease rentals adjusted by
amount of statutory depreciation and lease equalisation
account.
As per the 'Guidance Note on Accounting for Leases'
issued by the Council of the Institute of Chartered
Accountants of India (ICAI), a separate Lease Equalisation
23
25
CHAPTER-4
-Asset Classification
- Provisioning Norms
4. Asset Classification
Categories of NPAs
Standard Assets:
Standard assets are the ones in which the bank is receiving
interest as well as the principal amount of the loan regularly
from the customer. Here it is also very important that in this
case the arrears of interest and the principal amount of loan do
not exceed 90 days at the end of financial year. If asset fails to
be in category of standard asset that is amount due more than
26
Provisioning Norms
General
27
Doubtful assets:
28
Provision
requirement (%)
Up to one year
20
30
(1)
(2)
Outstanding stock of
NPAs as on March 31,
2004.
Advances classified
as doubtful more than
three years on or after
April 1, 2004.
Doubtful assets
31
Period
%age
provision
Up to one year
20
30
More
years
than
of
three 50
Loss assets
32
CHAPTER-5
-
Impact of NPA
Preventive Measurement for
NPA
33
5. Impact of NPA
Profitability:-
Liquidity:-
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.
Timeliness and Adequacy of response:Longer the delay in response, grater the injury to the account
and the asset. Time is a crucial element in any restructuring or
rehabilitation activity. The response decided on the basis of
techno-economic study and promoters commitment, has to be
adequate in terms of extend of additional funding and
relaxations etc. under the restructuring exercise. The package
of assistance may be flexible and bank may look at the exit
option.
Focus on Cash Flows:While financing, at the time of restructuring the banks may not
be guided by the conventional fund flow analysis only, which
could yield a potentially misleading picture. Appraisal for fresh
credit requirements may be done by analysing funds flow in
conjunction with the Cash Flow rather than only on the basis of
Funds Flow.
Management Effectiveness:-
37
forrestructuring/rehabilitation
account.
may
take
this
aspect
into
39
CHAPTER-6
Tools For recovery of npa
40
41
Lok Adalat:
Lok Adalat institutions help banks to settle disputes
involvingaccount in doubtful and loss category, with
outstanding balance of Rs.5 lakh for compromise settlement
under Lok Adalat. Debt recoverytribunals have been
empowered to organize Lok Adalat to decide oncases of NPAs of
Rs. 10 lakh and above. This mechanism has proved tobe quite
effective for speedy justice and recovery of small loans.
Theprogress through this channel is expected to pick up in the
coming years.
6.2Inability to Pay
Consortium arrangements:
Asset classification of accounts under consortium should be
based on the record of recovery of the individual member
banks and other aspects having a bearing on therecoverability
of the advances. Where the remittances by the borrowerunder
consortium lending arrangements are pooled with one bank
and/orwhere the bank receiving remittances is not parting with
the share of othermember banks, the account will be treated as
not serviced in the books ofthe other member banks and
42
6.7General:
These instructions would be applicable to all type of credit
facilitiesincluding working capital limits, extended to industrial
units, provided theyare fully covered by tangible securities.
As trading involves only buying and selling of commodities and
theproblems associated with manufacturing units such as
bottleneck incommercial production, time and cost escalation
etc. are not applicable tothem, these guidelines should not be
applied to restructuring/ reschedulingof credit facilities
extended to traders.
While assessing the extent of security cover available to the
creditfacilities, which are being restructured/ rescheduled,
collateral securitywould also be reckoned, provided such
collateral is a tangible securityproperly charged to the bank and
is not in the intangible form likeguarantee etc. of the promoter/
others.
6.9.2. Provisioning
While there will be no change in the extant norms on
provisioningfor NPAs, banks which are already holding
provisions against some of theaccounts, which may now be
classified as standard, shall continue tohold the provisions and
shall not reverse the same.
47
CHAPTER-7
Special Cases
7.Special Cases
7.1.1.Accounts with temporary deficiencies:
The classification of an asset as NPA should be based on
therecord of recovery. Bank should not classify an advance
account as NPAmerely due to the existence of some
deficiencies which are temporary innature such as nonavailability of adequate drawing power based on thelatest
available stock statement, balance outstanding exceeding the
limittemporarily, non-submission of stock statements and nonrenewal of thelimits on the due date, etc. In the matter of
classification of accounts withsuch deficiencies banks may
follow the following guidelines:
Banks should ensure that drawings in the working
capitalaccounts are covered by the adequacy of current assets,
since currentassets are first appropriated in times of distress.
Drawing power isrequired to be arrived at based on the stock
statement which is current.However, considering the difficulties
of large borrowers, stock statements relied upon by the banks
for determining drawing power should not beolder than three
48
7.2.1.Take-out Finance:
Takeout finance is the product emerging in the context of
thefunding of long-term infrastructure projects. Under this
arrangement, theinstitution/the bank financing infrastructure
projects will have an arrangement with any financial institution
for transferring to the latter theoutstanding in respect of such
financing in their books on a predeterminedbasis. In view of the
time-lag involved in taking-over, thepossibility of a default in
the meantime cannot be ruled out. The norms ofasset
classification
will
have
to
be
followed
by
the
concernedbank/financial institution in whose books the account
stands as balancesheet item as on the relevant date. If the
lending institution observes thatthe asset has turned NPA on
the basis of the record of recovery, it should
be classified accordingly. The lending institution should not
recognizeincome on accrual basis and account for the same
only when it is paid bythe borrower/ taking over institution (if
the arrangement so provides). Thelending institution should
also make provisions against any asset turninginto NPA pending
its takeover by taking over institution. As and when theasset is
taken
over
by
the
taking
over
institution,
the
correspondingprovisions could be reversed. However, the
taking over institution, ontaking over such assets, should make
provisions treating the account asNPA from the actual date of it
becoming NPA even though the accountwas not in its books as
on that date.
52
53
54
CHAPTER-8
Data analysis and
interpretation
55
8.
ANALYSIS
56
BANK
AXIS
HDFC
ICICI
KOTAK
INDUSIND
DEPOSIT
87626
100769
244431
16424
19037
INVESTMENT
33705
49394
111454
9142
6630
ADVANCES
59661
63427
225616
15552
12795
TOTAL
468287
210325
377051
57
Analysis:-
From the above figure we can see that the ICICI Bank
deposit-investment-advances are quite high than other banks
like HDFC,AXIS,INDUSIND,KOTAK
BANK
BOB
BOI
DENA
PNB
UBI
TOTAL
DEPOSIT
152034
150012
33943
166457
103859
606305
INVESTMENT
43870
41803
10282
53992
33823
183770
Analysis:-
ADVANCES
106701
113476
23024
119502
74348
437051
58
deposit-investment-advances:BANK
DEPOSIT
INVESTMENT
ADVANCES
ICICI BANK
244431
111454
225616
PNB
166457
53992
119502
Analysis: -Here we
59
Gross NPA and Net NPA:There are two concepts related to non-performing assets a)
gross and b) net. Gross refers to all NPAs on a banks balance
sheet irrespective of the provisions made. It consists of all the
non-standard assets, viz.
Substandard, doubtful, and loss
assets. A loan asset is classified as substandard if it remains
NPA up to a period of 18 months; doubtful if it remains NPA
for more than 18 months; and loss, without any waiting
period, where the dues are considered not collectible or
marginally collectible.
Net NPA is gross NPA less provisions. Since in India, bank
balance sheets contains a huge amount of NPAs and the
process of recovery and write off of loans is very time
consuming, the provisions the banks have to make against the
NPA according to the central bank guidelines, are quite
significant.
Here, we can see that there are huge differences between gross
and net NPA. While gross NPA reflects the quality of the
loans made by banks, net NPA shows the actual burden
of banks. The requirements for provisions are:
100% for loss assets
100% of the unsecured portion plus 20-50% of the secured
portion, depending on the period for which the account
has remained in the doubtful category
10% general provision on the outstanding balance under
the substandard category.
Here, there are gross and net NPA data for 2007-08 and 200809 we taken for comparison among banks. These data are NPA
AS PERCENTAGE OF TOTAL ASSETS. As we discuss earlier that
gross NPA reflects the quality of the loans made by banks.
Among all the ten banks Dena Banks has highest gross NPA as
a percentage of total assets in the year 2007-08 and also net
NPA. Punjab National Bank shows huge difference between
gross and net NPA. There is an almost same figure between
BOI and BOB.
60
GROSS NPA
NET NPA
BOB
1.46
0.35
BOI
1.48
0.45
DENA
2.37
1.16
PNB
2.09
0.45
UBI
1.82
0.59
GROSS NPA
NET NPA
BOB
1.10
0.27
BOI
1.08
0.33
DENA
1.48
0.56
PNB
1.67
0.38
UBI
1.34
0.10
61
GROSS NPA
NET NPA
AXIS
0.57
0.36
HDFC
0.72
0.22
ICICI
1.20
0.58
KOTAK
1.39
1.09
INDUSIND
1.64
1.31
GROSS NPA
NET NPA
AXIS
0.45
0.23
HDFC
0.68
0.22
ICICI
1.90
0.87
KOTAK
1.55
0.98
62
INDUSIND
1.69
1.25
AGRI
SMALL
OTHERS
PRIORITY
(1)
(2)
(3)
SECTOR
109.12
14.76
86.71
( 1+2+3 )
210.59
HDFC
36.12
110.56
47.70
194.41
709.23
ICICI
981.85
23.35
354.13
1359.34
6211.12
KOTAK
10.00
33.84
4.04
47.87
405.20
INDUSIND
30.44
3.18
30.02
63.64
328.67
TOTAL
1167.53
185.69
522.60
1875.85
7929.28
AXIS
64
NON-PRIORITY
275.06
PRIORITY SECTOR
NPA
BOB
(ADVANCED RS.CRORE )
5469
350
BOI
3269
325
DENA
1160
106
PNB
3772
443
UBI
1924
197
65
Now, when we compare the all public sector and private sector
banks on priority and non-priority sector the figures are really
shocking. Because in compare of private sector banks, public
sector banks numbers are very large.
SECTOR
PRIORITY
PUBLIC
NON PRT
TOTAL
PUBLIC SECTOR
2007-08
2008-09
22954
490
15158
38602
25287
299
14163
39749
NEW PRIVATE
2007-08
2008-09
1468
3
4800
6271
2080
0
8339
10419
66
ANNEXURE-I
REPORTING FORMAT FOR NPA GROSS AND NET NPA
Bibliography
Journals and magazines
Economic and political weekly, October 16, 2004, CARLTON
PEREIRA, Page 4602-4604 INVESTING IN NPAs.
Chartered Financial Analyst, August 2004, B P Dhaka, Page
58-62; SARFAESI ACT: THE DIAGNOSIS.
The chartered Accountant, February 2005, Raj Kumar S
Adukia, Page NO. 978-985; SECURITISATION AN
OVERVIEW
Websites:68
http://www.indiastat.com/banksandfinancialinstitutions/3/perform
ance/16063/nonperformingassetsnpas/377761/stats.aspx
http://www.bankcapitalgroup.net/services-non-performingassets.php
http://rituparnodas.blogspot.com/2009/01/npa-management.html
http://www.finanssivalvonta.fi/en/Statistics/Credit_market/Nonperf
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http://findarticles.com/p/articles/mi_hb5562/is_200905/ai_n3189646
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69