Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
ON
I would like all those who have contributed in completing this project. First of all, I
I would like to thank my entire beloved family & friends for providing me support,
as and when required, without which this project would not have completed on
time.
CONTENTS
D e s c r i p t i o n Page No.
A c k n o w l e d g e m e n t ( i ) ( i )
C o n t e n t s w i t h p a g e n o . ( i i )
L i s t o f t a b l e s ( i i i )
L i s t o f f i g u r e s ( i i i )
E x e c u t i v e S u m m a r y 5
C e r t i f i c a t e o f c o m p l e t i o n 6
I n t r o d u c t i o n t o t o p i c 7
O b j e c t i v e s 1 4
L i t e r a t u r e r e v i e w 1 5
I n d i a n B a n k i n g I n d u s t r y 3 4
R e s e a r c h M e t h o d o l o g y 4 8
A n a l y s i s & I n t e r p r e t a t i o n 5 0
F i n d i n g s & I n f e r e n c e s 5 6
L i m i t a t i o n s 5 7
R e c o m m e n d a t i o n s a n d C o n c l u s i o n 5 9
A p p e n d i c e s 6 0
B i b l i o g r a p h y 6 1
LIST OF TABLES
L I S T O F T A B L E S
S . n o T a b l e t i t l e Page No.
1 Table 1 PSB’s betting on restructuring 2 5
2 Figure 2 % of cumulative provisions made on Gross NPA s 2 7
3 R e s e a r c h R e p o r t
EXECUTIVE SUMMARY
For the purpose of analysis and comparison between Public and private
sector banks, We have taken five banks from both sectors to compare the
non-performing assets of banks. For understanding we further bifurcate
the non-performing assets in priority sector and non-priority sector, gross
NPA and net NPA in percentage as well as in rupees, deposit – investment–
advances.
This is to certify that I Aishani Ahuja Bcom(H) – 2nd semester (morning) from Jagannath
International Management School ,has completed her project on the topic “A study on the
impact of NPA’s on the Banking Sector under my guidance . Her work is appreciable.
Project Guide:
Ms Dikshita Kathuria
Assistant Professor
CHAPTER I
INTRODUCTION TO THE TOPIC
“An organization, usually a corporation, chartered by a state or federal government,
which does most or all of the following: receives demand deposits and time deposits,
honors instruments drawn on them, and pays interest on them; discounts notes,
makes loans, and invests in securities; collects checks, drafts, and notes; certifies
depositor's checks; and issues drafts and cashier's checks.”
DEFINITION OF BANKING
In general terms, “The business activity of accepting and safeguarding money
owned by other individuals and entities, and then lending out this money in order
to earn a profit”
So we can say that Banking is a company, which transacts the business of
banking. The Banking Regulations Acts defines the business as banking by
stating the essential function of a banker.
The term banking is defined as “Accepting for the purpose of leading or
investment, deposits of money from the public, repayable on demand or
otherwise and withdrawal by cheque, draft, order or otherwise.”
CO-OPERATIVE BANKS
The Co-operative banks have a history of almost 100 years. The Co-operative
banks are an important constituent of the Indian Financial System, judging by the
role assigned to them, the expectations they are supposed to fulfill, their number,
and the number of offices they operate. The co-operative movement originated in
the West, but the importance that such banks have assumed in India is rarely
paralleled anywhere else in the world. Their role in rural financing continues to be
important even today, and their business in the urban areas also has increased
phenomenally in recent years mainly due to the sharp increase in the number of
primary co-operative banks.
Some of the co-operative banks are quite forward looking and have developed
sufficient core competencies to challenge state and private sector banks.
According to NAFCUB the total deposits & landings of Co-operative Banks is
much more than Old Private Sector Banks & also the New Private Sector Banks.
This exponential growth of Co-operative Banks is attributed mainly to their much
better local reach, personal interaction with customers, and their ability to catch
the nerve of the local clientele.
Though registered under the Co-operative Societies Act of the Respective States
(where formed originally) the banking related activities of the co-operative banks
are also regulated by the Reserve Bank of India. They are governed by the
Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act,
1965.
CO-OPERATIVE BANKS FINANCE RURAL AREA AS UNDER
©. Farming
©. Cattle
©. Milk
©. Hatchery
©. Personal finance
CO-OPERATIVE BANKS FINANCE URBEN AREA AS UNDER
©. Self-employment
©. Industries
©. Small scale units
©. Home finance
©. Consumer finance
©. Personal finance
FACTS ABOUT CO-OPERATIVE BANK
©. Some cooperative banks in India are more forward than many of the state and
private sector banks.
©. According to NAFCUB the total deposits & landings of Cooperative Banks in
India is much more than Old Private Sector Banks & also the New Private Sector
Banks.
©. This exponential growth of Co operative Banks in India is attributed mainly to
their much better local reach, personal interaction with customers, and their
ability to catch the nerve of the local client.
OBJECTIVE
LITRATURE REVIEW
India’s Rs 77 trillion (US$ 1.30 trillion)-banking industry is well at par with global
standards and norms. Prudent practises and conventional framework adopted by
the regulator, Reserve Bank of India (RBI), have insulated Indian banks from the
global financial crisis.
The country has 87 scheduled commercial banks with deposits worth Rs.71.6
trillion (US$ 1.21 trillion) as on 31 May, 2013. Of this, 26 are public sector banks,
which control over 70 per cent of India’s banking sector, 20 are private banks and
41 are foreign banks. Of the total, 41 banks are listed with a total market
capitalisation of Rs.9.35 trillion (US$ 158.16 billion) as per the recent statistics.
Key Statistics
According to the RBI’s ‘Quarterly Statistics on Deposits and Credit of
Scheduled Commercial Banks’, September 2012, Nationalised Banks
accounted for 52.0 per cent of the aggregate deposits, while the State
Bank of India (SBI) and its Associates accounted for 22.3 per cent. The
share of New Private Sector Banks, Old Private Sector Banks, Foreign
Banks, and Regional Rural Banks in aggregate deposits was 13.6 per
cent, 4.8 per cent, 4.3 per cent and 2.9 per cent, respectively.
Nationalised Banks accounted for the highest share of 50.9 per cent in
gross bank credit followed by State Bank of India and its Associates (22.1
per cent) and New Private Sector Banks (14.7 per cent). Foreign Banks,
Old Private Sector Banks and Regional Rural Banks had shares of around
4.9 per cent, 4.9 per cent and 2.6 per cent, respectively.
India's foreign exchange (forex) reserves stood at US$ 280.19 billion for
the week ended July 12, 2013, according to data released by the central
bank. The value of foreign currency assets (FCA) - the biggest component
of the forex reserves – stood at US$ 252.14 billion, according to the
weekly statistical supplement released by the RBI.
The number of mobile banking transactions doubled to 5.6 million in
January 2013 from 2.8 million in January 2012. The value of these
transactions increased three-times to Rs 625 crore (US$ 105.73 million)
during the month from Rs 191 crore (US$ 32.31 million) in the
corresponding month last year.
Moreover, non-resident Indians (NRIs) parked deposits aggregating US$
14.18 billion in the financial year ended March 2013, depicting an increase
of 19 per cent over the previous year.
Recent Developments
India's leading infrastructure development and finance company
Infrastructure Leasing & Financial Services Limited (IL&FS), has inked a
Memorandum of Understanding (MoU) with Industrial and Commercial
Bank of China (Asia) Limited (ICBC (Asia)), for mutual cooperation in
infrastructure project development services and financial services related
thereto.
The new service will initially be offered in West Bengal, Bihar and
Jharkhand through 8,300 authorised agents. It will be made available
across India by 2014-15.
Public sector lender SBI intends to make a strong position in refinance
market in 2013. The bank offers lowest lending rates for buying homes.
The fast growing market of ‘home loans transferred from other banks’
consists 25 per cent of the total home loans disbursed by the bank in
FY13. SBI made Rs 30,000 crore (US$ 5.08 billion) of home loans in
2012-13.
Meanwhile, US-based Customers Bancorp Inc (CUBI) has plans to infuse
US$ 51 million in multiple securities of Religare Enterprises Ltd. Religare
is currently aspiring for a banking licence to enter the banking industry.
Standard assets 0 . 2 5 %
Substandard assets 1 0 %
O ld p ri va t e b a n k s 3 8 4 0 5 . 3 %
Financial institutions 1 4 3 1 5 7 9 . 7 %
T o t a l 731 766 4 . 8 %
To facilitate the speedy recovery of NPAs, the RBI came up with the idea of a
one-time settlement scheme for outstanding loans in FY01. PSB’s have
recovered about Rs 8bn from 2lakh accounts in the last fiscal. Although, the
scheme was extended till June 30, 2009, the response was not very
encouraging, partly due to the legal impediments. However, the scheme actually
gave the bankers an opportunity to make contact with borrowers, which were
earlier in touch with only legal advisors or accountants. Empowering banks to
enforce their charge without intervention of court could result in expeditious
recovery of bad debts in future.
Apart from this scheme, the government has designed major policy reforms in
order to enhance the efficiency of the banking system. It has decided to set up 7
more debt recovery tribunals (DRTs) in addition to the existing 22 and 5 appellate
tribunals. It has also proposed to bring in legislation for facilitating foreclosure
and enforcement of securities in case of default. Replacement of SICA (Sick
Industrial Companies Act) was another major step. The RBI has already asked
banks to file criminal cases against borrowers who are willful defaulters. These
initiatives are expected to aid banks to quickly recover their dues from the
borrowers.
NPA analysis
( R s m ) Gross NPAs Gross NPAs as a % Net NPAs as a % of Provision coverage*
of total loans t o t a l l o a n s
P r i v a t e s e c t o r b a n k s
ICICI Bank 4 , 2 1 0 6 . 0 % 2 . 2 % 6 3 . 4 %
HDFC Bank 1 , 4 6 8 3 . 2 % 0 . 4 % 8 5 . 9 %
UTI Bank 2 , 2 5 8 4 . 7 % 3 . 8 % 1 9 . 7 %
IDBI Bank 1 , 5 0 0 4 . 8 % 3 . 1 % 3 6 . 0 %
P u b l i c s e c t o r b a n k s
S B I 158,750 1 4 . 0 % 6 . 0 % 5 6 . 9 %
Union Bank 4 , 8 4 7 5 . 6 % 2 . 0 % 6 4 . 7 %
B O B 41,860 1 5 . 3 % 6 . 8 % 5 5 . 8 %
F I s
I C I C I 59,880 9 . 9 % 4 . 9 % 5 0 . 2 %
H D F C 3 , 0 0 1 2 . 3 % 0 . 9 % 6 2 . 4 %
* Figure 2 % of cumulative provisions made on Gross NPAs
Although ratio of net NPAs to net advances have been declining in the past two
years, it hardly offers any comfort. This is due to the fact that in absolute terms
NPAs are still very high (Rs 766 bn). Therefore, it will be a challenge for banks to
overcome this problem. For this, the internal control system and risk
management system are required to be strengthened by banks. There should be
a system for timely detection of NPAs. An important means for positioning
appropriate risk management techniques is the MIS development, which requires
building up of strong database and other information sets.
The growing NPAs are a source of worry for the Finance Minister too. Looking at
the changing scenario in the world markets, the problem becomes more ironical
because Indian banking at this juncture cannot afford to remain unresponsive to
the global requirements.
However, the outlook for the current fiscal looks bleak. Industrial production has
slowed down and the recent economic data point to a recession. Credit off take is
also lackluster. It does seem, at this point, that NPA levels of banks would not
come down significantly during the current year. Prashant K Reddy
(Research paper)
The paper deals with the experiences of other Asian countries in handling of
NPAs. It further looks into the effect of the reforms on the level of NPAs and
suggests mechanisms to handle the problem by drawing on experiences from
other countries. Financial sector reform in India has progressed rapidly on
aspects like interest rate deregulation, reduction in reserve requirements, barriers
to entry, prudential norms and risk-based supervision. But progress on the
structural-institutional aspects has been much slower and is a cause for concern
the sheltering of weak institutions while liberalizing operational rules of the game
is making implementation of operational changes difficult and in effective.
Changes required to tackle the NPA problem would have to span the entire
gamut of judiciary, polity and the bureaucracy to be truly effective.
SubhashisKundu (Research paper)
Banking sector reforms in India has progressed promptly on aspects like interest
rate deregulation, reduction in statutory reserve requirements, prudential norms
for interest rates, asset classification, income recognition and provisioning. But it
could not match the pace with which it was expected to do. The accomplishment
of these norms at the execution stages without restructuring the banking sector
as such is creating havoc. This research paper deals with the problem of having
non-performing assets. The reasons for mounting of non-performing assets and
the practices present in other countries for dealing with non-performing assets.
Non Performing Assets (ARTICLE)
Genesis of Asset Reconstruction Company
Most countries in the grip of systemic financial and economic crisis have
attempted system-wide clean up of NPAs as a part of restructuring of their
banking system. Often, solutions to a system-wide clean up of NPAs result in
creation of Asset Reconstruction Companies (ARCs), which are typically public/
government owned. ARCs act as debt aggregators and engage in acquisition of
NPAs. Thus ARCs take away the distraction by isolating NPAs from the banking
system and act as "bad bank". This leaves rest of the banking system free to act
as "good bank" and return to equity markets and normal banking business.
Governments encourage transfer of assets to ARCs through creation of
supportive environment. Governments may also provide special powers to ARCs
that are not otherwise available to banking system.
Indian scenario;
The problem of recovery from NPAs, in the Indian banking system, was
recognized by the Government of India (GOI) as far back as in 1997, when the
"Narasimham Committee" was appointed. The Narasimham Committee Report
mentioned that an important aspect of the continuing reform process was to
reduce the high level of NPAs as a means of banking sector reform. It was
expected that with a combination of policy and institutional development, new
NPAs in future could be lower; however, the problem of the huge backlog of
existing NPAs still remained. This problem of NPAs, impinged severely on banks
performance and their profitability. The Report envisaged creation of an "Asset
Recovery Fund" to take the NPAs off the lender's books at a discount. Unlike in
some countries where ARCs have been set up post financial crises and for the
purpose of bailout, in India, the GOI proactively initiated certain measures to
control NPAs.
2.1 HISTORY
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 10,000 branches 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.
Shri Prabhu had also worked in domestic treasury and handled initial public offering
of Canara Bank as well as various other assignments including integration work
relating to domestic as well as forex treasury. During his tenure with Canara Bank,
he was appointed by the RBI as a member of the Advisory Group on Foreign
Exchange Management Act Regulations relating to Services like remittances etc.
Prior to joining the Union Bank of India, Mr. Raman was with the Bank of India for
over 34 years and had exposure to different segments including Corporate Banking,
International Business and Human Resources Management. Mr. Raman served in
different parts of the country including Mumbai, New Delhi, Ahmedabad, Pune,
Hyderabad, Bhubaneshwar and Nagpur in different capacities including as Zonal
Manager in Orissa and Gujarat.
Mr. Raman also had two stints Overseas - at Jersey (UK) from 1983 to 1987 and as
Chief Executive of Bank of India’s US Operations from June 2005 to October 2008,
during which period the Center showed spectacular progress.
He has worked in different districts of Assam and Meghalaya spanning more than a
decade in District Administration. In addition he has experience in areas such as
Health and Family Welfare, Tourism, Planning and Programme Implementation,
Agriculture and Industries . He was also Finance Secretary of Assam for two
years. He has also served in various Central Ministries such as Commerce and
Industry, Tourism and the Department of Personnel and Training.He is also
Government of India nominee director on the Board of IFCI Ltd.
.......................................................
Government of India nominee on the recommendation of RBI.
SHRI K. SIVARAMAN
Nominated by Government of India, on the recommendation of Reserve Bank of
India, as Director with effect from 27th February, 2007, under sub-section (3) of
section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act,
1970. He is a retired Senior Executive from Reserve Bank of India. He has a post
graduate degree in Statistics ( M.Sc. from Banaras Hindu University, Varanasi,
India) He has more than 37 years experience in the Banking Industry with
specialisation in Banking Supervision, Development Finance, Training and Financial
Sector Reforms. Additionally, he is a Certified Associate of Indian Institute of
Bankers.
........................................................
He is also involved in the Cooperative Society movement in Navi Mumbai and is the
key member of the action committee formed by Navi Mumbai Municipal Corporation
and Citizens to implement Municipal tax etc.
........................................................
DEBASIS GHOSH
Government nominated Officer Employee Director, effective 22nd November, 2005,
under Clause (f) of sub-section (3) of Section 9 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970. He is a Science Graduate and
an MBA. Additionally, he has separate Diplomas in Computer Science and Rural
Development apart from a Post Graduate Diploma in Marketing Management. His
professional qualification is CAIIB. He is a Direct recruited Officer since 1985 and
handled different gamut of Banking covering areas like International Banking,
Recovery of NPAs, Priority Sector Advances and Rural Financing, Credit,
Relationship Banking, Merchant Banking and Risk Management Department.
Currently, he is Vice President, Union Bank of India Officers' Federation and
General Secretary of Delhi State Unit. He serves on a number of Committees of the
Board.
........................................................
Government Nominee Director under General Category
SMT. RANI SATISH
Nominated by Government of India as a part-time non-official Director with effect
from 2nd January, 2007, under sub-section 3(h) and (3-A) of section 9 of the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. She is a
Post Graduate in Political Science and has been involved in various social welfare
activities spanning over three decades, particularly in the fields of education,
culture, social welfare, women empowerment and NGO activities.
........................................................
Government Nominee Director under General Category
SHRI ASHOK SINGH
Nominated by Government of India as a part-time non-official Director effective 19th
February, 2008 under sub-section 3(h) and (3-A) of section 9 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970. He is a graduate
in the faculty of Science and a post graduate in Law from Lucknow University.
He is a social worker and a trade union leader actively associated with Congress
party from his youth. Presently he is a member of AICC Mughalsarai ( Chandoli)
and Vice Chairman, Labour Cell, AICC .He currently holds important positions in
several trade / labour unions and federations at the national level such as
Chairman, Labour Cell, PCC, Uttar Pradesh Congress Committee, President, U.P.
State Branch of INTUC, Indian National Sugar Mill Workers' Federation, President,
Indian National Defence workers' Federation, Vice President, Indian National
Electricity Workers' Federation and INTUC He is the Vice Chairman of National
committee on child labour. He is also a member on the Board of Trustee of the
Employees Provident Fund managed by the Ministry of Labour, Government of
India, member on the Board of Governors of the Indian Institute of Management,
Lucknow, member, National Committee on sugar,under the Ministry of Labour,
Member Court of the University, Allahabad and Governing Body , National Council
of Rural Institutes, Hyderabad, Govt. of India. Shri Singh was appointed to act as a
delegate representing several trade unions to attend a number of the international
labour conference. Shri Singh is a Chairman of standing Committee for effective co-
ordination between Industry & Technical Education Institutions constituted by
Government of India, Ministry of Human Resource Development and Committee for
monitoring the extension of social security to the construction workers under
Ministry of labour.
He was AICC Observer for Nagaland State in the President Election held in the
year 2007and also the Chairman of the National Youth Council, Indian National
Trade Union Congress (INTUC). 1994-95
SBI’s funding profile is strong, underpinned by its strong retail deposit base. The
bank is facing increasing competition in its metropolitan and urban franchise. SBI’s
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 bank’s
cost of deposits (excluding IMD) has significantly reduced to 4.70% for the 2004-05
(refers to financial year from April 1 to March 31), compared with 5.48% in 2003-04.
The bank’s 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.
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. SBI’s
earning profile is characterised 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 bank’s 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 bank’s operating expense at 2.44% of average
funds deployed in 2004-05 is in line with other public sector banks. The bank’s
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 bank’s 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.
The bank’s fund based and fee income earnings are diversified across industries,
regions, asset classes, and customer segments.
Strong diversification in income streams will ensure that the bank’s earnings
remain relatively stable, despite the decline in profitability in some segments.
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 slippages 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.
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 to 24.73% (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. 283.41 billion (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. SBI’s 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. SBI’s asset quality is expected to remain at average
levels, as the bank’s 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 corporates 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 and credit cards. SBI has commenced its life insurance
business by setting up a subsidiary, SBI Life Insurance Company Limited, which
is a joint venture with CardiffS.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.
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 wholesale customers
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 recognising 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.
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.
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.
- Axis Bank
- ICICI Bank
RESEARCH METHODOLOGY
NPA always affect the profit of bank and also the prestige of bank. So here the
research problem is to identify the causes for the NPA and to identify the action
plan to reduce the NPA.
SECONDARY DATA
A secondary data is that data that is required to conduct the study and can be
obtained from books, journals, magazines, records etc. Secondary data is data
taken by the researcher from secondary sources, internal or external. Secondary
data is collected from following sources: -
1) Magazines and journals
2) Company websites.
3) Internet
4) Books
LIMITATION
Many constraints were involved in doing this study. Some of them are as follows.
The most significant limitation has been the individuals involved in this
study were very busy and did not spare much time in discussion.
The sample size selected for the survey was too small as compared to
large population.
The project was carried out only in the Delhi, so findings on data gathered
can be best true for Delhi only and not applicable to other parts of state
and country.
Indian stock market is a market where sentiments play a major role in price;
hence 100% accurate predictions cannot be made about its future path
CHAPTER-IV
DATA ANALYSIS AND FINDINGS
TOTAL ASSET
Y E A R 2007-08 2008-09 2009-10 2010-11 2011-12
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
YEAR
GROSS NPA
14000
12000
10000
8000 _GROSS
6000 NPA(RS.CR)
4000
2000
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08
NET NPA
8000
7000
6000
5000
4000
NET NPA(RS.
3000 CR.)
2000
1000
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08
Interpretation :-above graph show that net NPA decreasd from 2003-04 to
2005-06 and increased in 2006-07 to 2007-08.
GROSS NPA(RATIO%)
8
7
6
5
4
GROSS
3 NPA(RATIO%)
2
1
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08
Interpretation : Above graph shows that the gross NPA (Ratio%)of SBI is
decreased from 2004-05 to 2006-07 and increased in 2007-08.
NET NPA(RATIO%)
3.5
2.5 YEAR
2
NET
1.5 NPA(RATIO%)
0.5
0
1 2 3 4 5 6
PROVISION COVER
Y E A R 2007-08 2008-09 2009-10 2010-11 2011-12
PROVISION COVER 57.04 59.45 49.04 47.41 45.04
PROVISION COVER
70
POVISION COVER %
60
50
40
PROVISION COVER
30
20
10
0
2003-04 2004-05 2005-06 2006-07 2007-08
yEAR
2.5
2
1.5 GROSS NPA(%)
1 NET NPA(%)
0.5
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08
Interpretation: Above graph shows that the gross NPA of SBP is decreased
from 2003-04 to 2005-06,increased in 2006-07 and again decreased in 2007-
08. The net NPA decreased from 2003-04 to 2007-08.
Govt. Policies
Impact of profitability
Liquidity
Impact on outlook of Banker to wards credit delivery
Impact of productivity
LIMITATIONS
Many constraints were involved in doing this study. Some of them are as follows.
The major limitaion involved is that the project cannot be carried out on
primary research as gathering data from banks is very difficult.
NPA is a vast topic so all the factors cannot be considered
Profitability and liquity cannot be judged only on the basis of NPA.
RECOMMENDATION
Financial System: As you are aware, one of the main reason for
corporate default is on account of diversion of funds and corporate entities
should come forward of avoid this practice in the interest of strong and
sound financial system.
CONCLUSION
A strong banking sector is important for a flourishing economy. The failure of the
banking 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 only on identification and quantification of NPAs rather than on ways to
reduce and upgrade them.
There is also a general perception that the prescriptions of 40% of net bank
credit to priority sectors have led to higher NPAs, due to credit to these sectors
becoming stickly managers of rural and semi-urban branches generally sanction
these loans. In the changed context of new prudential norms and emphasis on
quality lending and profitability, mangers should make it amply clear to potential
borrowers that banks resources are scare and these are meant to finance viable
ventures so that these are repaid on time and relevant to other needy borrowers
for improving the economic lot of maximum number of households. Hence
selectionof right borrowers, viable economic activity, adequate finance and timely
disbursement, correct and use of funds and timely recovery f loans is absolutely
necessary pre conditions for preventing of minimizing the incidence of new
NPAs.
APPENDICES
(A) TEXT BOOKS
1.) Financial Management by P.N. Reddy, H.R. Appannaiah and
B.G.Satyaprasad.
2.) Financial Management by Prassana Chandra (Tata Mc Graw Hill
Publications).
3.) Business Research Methods by O.R. Krishnaswami and B.G.
Satyaprasad.
4.) Law and Practice of Banking by H.R. Appannaiah, P.N. Reddy and
S.Vijayendra.
5.) Greater Kashmir.
6.) Hand book of banking information by N S Tour.
(B) WEBSITES
1.) www.jkbank.net
3.) www.rbi.org