Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
DEPARTMENT OF MANAGEMENT
Submitted By:- REHAN QADIR M.B.A 4TH SEM ROLL NO. RT1901 A06 Reg. No. 10901714
Index
Sr. No. 1. Particulars Introduction Non Performing Assets Concept Types of N.P.A Difficulties with N.P.A Review Of Literature Profile of the Bank History Obejectives of the bank Page No. 3-14
2. 3.
15-17 18-21
4.
Research Methodology Obejectives of the study Scope of the study Sources of data Findings And Recmmendations Causes of Non Performing Assets in bank Causes of an Account becoming N.P.A Treatment of account as N.P.A
22-24
25-31
32-38
7.
39
CHAPTER 1 Introduction
A strong banking sector is important for flourishing economy. One of the most important and major roles played by banking sector is that of lending business. It is generally encouraged because it has the effect of funds being transferred from the system to productive purposes, which also results into economic growth. As there are pros and cons of everything, the same is with lending business that carries credit risk, which arises from the failure of borrower to fulfill its contractual obligations either during the course of a transaction or on a future obligation. The failure of the banking sector may have an adverse impact on other sectors. Non- performing assets are one of the major concerns for banks in India. NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. The NPA growth involves the necessity of provisions, which reduces the over all profits and shareholders value. The issue of Non Performing Assets has been discussed at length for financial system all over the world. The problem of NPAs is not only affecting the banks but also the whole economy. In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade.This project deals with understanding the concept of NPAs, its magnitude and major causes for an account becoming non-performing, projection of NPAs over next years in banks and concluding remarks. The magnitude of NPAs have a direct impact on Banks profitability legally they are not allowed to book income on such accounts and at the same time banks are forced to make provisions on such assets as per RBI guidelines The RBI has advised all State Co-operative Banks as well as the Central Co-operative Banks in the country to adopt prudential norms from the year ending 31-03-1997. These have been amended a number of times since 1997. As per their guidelines the meaning of NPAs, the norms regarding assets classification and provisioningIts now very known that the banks and financial institutions in India face the problem of amplification of non-performing assets (NPAs) and the issue is becoming more and more unmanageable. In order to bring the situation under control, various steps have been taken. Among all other steps most important one was the introduction of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by Parliament, which was an important step towards elimination or reduction of NPAs.
An asset is classified as non-performing asset (NPAs) if dues in the form of principal and interest are not paid by the borrower for a period of 180 days, However with effect from March 2004, default status would be given to a borrower if dues are not paid for 90 days. If any advance or credit facility granted by bank to a borrower becomes nonperforming, then the bank will have to treat all the advances/credit facilities granted to that borrower as non-performing without having any regard to the fact that there may still exist certain advances / credit facilities having performing status. The NPA level of our banks is way high than international standards. One cannot ignore the fact that a part of the reduction in NPAs is due to the writing off bad loans by banks. Indian banks should take care to ensure that they give loans to credit worthy customers. In this context the dictum prevention is always better than cure acts as the golden rule to reduce NPAs.
warrants a better understanding of risks in lending. The Board has to decide a strategy keeping in view the regulatory norms, the business environment, its market share, the risk profile, the available resources etc. The strategy should be reflected in Board approved policies and procedures to monitor implementation. The essential components of sound NPA management are i) ii) iii) quick identification of NPAs, their containment at a minimum level, ensuring minimum impact of NPAs on the financials.
Types Of NPA:
The RBI has issued the guidelines to banks for classification of assets in to following categories. Standard Asset is one which does not disclose any problems and which does not carry more than normal risk attached to the business/banks. These are loans which do not have any problem are less risk. Such an asset is not a non-performing asset. In other words, it carries not more than normal risk attached to the business.
Standard assets:-
: An asset that has remained an NPA for a period exceeding 12 months is a doubtful asset. These are NPA exceeding 12 months. Under doubtful NPA there are three sub categories: D1 i.e upto 1 year: 20% provision is made by banks. D2 i.e upto 2 year: 30% provision is made by bank D3 i.e upto 3 year: 100% provision made by bank.
Doubtful NPA
With effect from March 31, 2005, an asset is required to be classified as doubtful, if it has remained NPA for more than 12 months. The 12-month period of classification of a substandard asset in doubtful category is effective from April 1, 2009. A loan classified as doubtful has all the weaknesses inherent as that classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loss Assets:- A loss asset is one where loss has been identified by the bank or internal
or external auditors or by the Co-operation Department or by the Reserve Bank of India inspection but the amount has not been written off, wholly or partly. In other words, such an asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. Here loss is identified by the banks concerned, by internal auditors, by external auditors, or by the Reserve Bank India upon inspection. These NPA which are identified unreliable by internal inspector of bank or auditors or by RBI. Under this 100% provision is made.
Effects
of NPA on Bank:
1. Restriction on flow of cash done by bank due to the provisions of fund made against NPA. 2. Drain of profit. 3. Bad effect on Goodwill. 4. Bad effect on equity value.
The Maclegan Committee (1914), which is the historical document in the annals of cooperative movement, has examined the performance of credit cooperatives. It stated that when the funds are kept rotating, any loaning function of the bank can gear up successfully and serve very useful purpose. Unless the loans are repaid punctually, cooperation is both financially and educationally an illusion. Kalyani (1970) emphasized on a longer period for the repayment of long term loans in India. He added that the total burden of interest would be relatively higher in the long period than in the shorter period, but then this burden would be spread over quite a long period, making it easier for the borrower to repay his loan in easy installments, thereby resulting in lesser overdue. The All India Rural Credit Review Committee (1972) strongly stated that there is an utter lack of administrative supervision, staff of right type and the requisite scale of and, therefore, a full check on the utilization of loans is rather difficult. Further it pointed out that the cooperative system had remained stagnant both in respect of coverage of credit as well as borrowing members as proportion to the total number of members. Cooperative credit was short of standards of timeliness, adequacy and dependability. Generally the over dues were heavy and were rising from year to year. Datey, the Chairman of the Report of the study team on over dues in cooperative credit institutions (1974) studied the problem of over dues in cooperative banks and remarked. About three fourths of over dues arose due to willful default besides internal reasons. And he suggested that stern action on recalcitrant borrowers should be taken up.
Economic Survey (2005-2006), Monetary and Banking Developments: According to this survey, the target for institutional credit for agriculture by all the agencies was fixed at Rs.105,000 cores for the year 2004-05,ensuring 30% growth over previous years achievement. The overall achievement by all agencies during 2004-05 was 1, 15,243 cores, equivalent to 32% growth over the previous years achievement. It further highlighted that while the Commercial Banks and Regional Rural Banks over performed vis--vis their target of Rs 57000 crores and 8500 crores, there was a shortfall of over Rs.8000 crores by Cooperative Banks vis--vis their target of 39,000 crores, attributing the same to low resource base and inefficient recovery system, thereby leading to excessive Overdue. The position of NPAs has significantly improved in Scheduled Commercial Banks due to wider options available to these for recovery of their dues on one hand and sale of their NPAs to Asset Reconstruction Co(India) limited (ARCIL) on the other hand. This resulted in NPAs declining by 6487 crores between March 2004 and end March 2005. Bagchi, (2006). made an attempt to analyze the performance of Cooperative Credit Institutions especially Primary Agriculture Credit Societies, and observed that PACS could not match up to the increasing requirements of growth dimensions in the Agri /Rural developments in the Post Independence Period, although till the late 50s, they were the only available source of institutional rural finance. According to the RBI Report on Trend and Progress of Banking in India 2004-05, released on 24-11-05, the Cooperative Credit Institutions had extended an amount of Rs.39, 638 crores to Agri-Allied sectors i.e., about half of credit advanced by Commercial Banks (72,886 crores) and double the amount advanced by RRBs (11,718 crores). The dismal performance of Cooperative Banks was due to unnecessary State Government intervention and above all the inefficient loan recovery system leading to NPAs.
CHAPTER 3
Values & Principles:"Cooperatives" A cooperative is an system voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.
Principles:
Democratic member Control Members Economic Participation Autonomy and Independence Education, Training and Information Cooperation among Cooperatives Concern for Community
HISTORY
The Jalandhar Central Co-operative Bank ltd., Jalandhar is a premier bank in the Punjab State. The bank was registered in 1909 under the co-operative societies Act. Among others Rai Bhahadur Dass and Khan Bahadur Khan Ahmad Shah were the promoters of this. Khan Bahadur Khan Ahmad Shah was the first president of the bank. This Bank was started with very small share contribution Rs.2.00 Lacs in a rented building. In 1924, the present building situated on G.T Road, JalandharCity was constructed and commissioner Jalandhar inaugrated this building. Initially, the membership of the bank comprised individuals as well as cooperative institutions but after 1969 the individual share holders were retire.
MISSION
Promotion and sustenance of economic interest & providing easy finance, cost effective and quality banking services ot customer & PACs.
AREA OF OPERATION:
In the area of this bank, there were five unions that were functioning as credit institutions for co-operative societies. In 1956, all these unions were absorbed in the bank. The area of the operation of the bank is jalandhar district that comprises three Tehsils i.e Nakodar, Phillaur and Jalandhar. In 1956, the total number of branches of the bank were two in number this number stands at 72 now out of these branches, 7 are in Urban areas, 22 in semiurban areas and 43 in rural areas.
OBEJECTIVES
OF THE BANK:
The main objectives of the bank as mentioned in its byelaws is to facilitate the operation of the affiliated co-operative societies in pursuance of this object, the bank has laid down in its byelaws to undertake the following activities: To carry on banking and credit business. To promote economic interest of the members of the bank and public-in accordance with co-operative principles. To provide credit facilities to its members on as convenient and suitable facilities.
Chapter 4
RESEARCH METHODOLOGY
For accomplishing the objectives of the study, both secondary and primary data will be analyzed.
1. Secondary Data:
The Secondary Data for three years from 2006 to 2008 will be used for the purpose of this study. The data will be collected from: (1) The Annual Accounts, Audit Reports, and Inspection Reports of the selected DCCBs. (2) Publications of Reserve Bank Of India. (3) Publications of NABARD. (4) Economic Surveys (5) Existing literature and other scholarly works.
2. Observation:
Banks.
observation and interaction with the officials of NABARD and State Cooperative
Tools of Analysis:
Consistent with the objectives of the study, different accounting techniques such as Ratio analysis, etc., will be utilized. In addition to these, simple statistical techniques like averages, graphs, percentages may be used aiming at the achievement of study objectives and findings of the existing studies.
ii. Postponement of problem in order to show higher earnings. iii. Manipulation of debtors using political influence.
Internal factors:
1. Funds borrowed for a particular purpose but not use for the said purpose. 2. Project not completed in time. 3. Poor recovery of receivables. 4. Excess capacities created on non-economic costs. 5. In-ability of the corporate to raise capital through the issue of equity or other debt instrument from capital markets. 6. Business failures. 7. Diversion of funds for expansion\modernization\setting up new projects\ helping or promoting sister concerns. 8. Willful defaults, siphoning of funds, fraud, disputes, management disputes, mis-appropriation etc. 9. Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-ups, delay in settlement of payments\ subsidiaries by government bodies etc
External factors:
1. Sluggish legal system
Long legal tangles Changes that had taken place in labour laws Lack of sincere effort.
2. Scarcity of raw material, power and other resources. 3. Industrial recession. 4. Shortage of raw material, raw material\input price escalation, power shortage, industrial recession, excess capacity, natural hazards like floods, accidents. 5. Failures, non payment\ over dues in other countries, recession in other countries,
externalization problems, adverse exchange rates etc. 6. Government policies like excise duty changes, Import duty changes etc. Some Other Reasons: Failure to bring in Required capital Too ambitious project Mis management Unwanted Expenses Over trading Imbalances of inventories Lack of proper planning Dependence on single customers Lack of expertise Improper working Capital Mgmt.
II.
Computerisation of loan monitoring In computerised branches, it is possible to computerise the loan monitoring system so that accounts, which show signs of sickness or weakness can be monitored more closely than other accounts.Personal visit and face-to-face discussion By inspecting the unit the banker is able to see for himself where the problem lies - either production bottlenecks or income leakage or whether it is a case of willful default. During discussion with the borrower, the banker may come to know details relating to breakdown in plant and machinery, labour strike, change in management, death of a key person, reconstitution of the firm, dispute among the partners etc. All these factors have a bearing on the functioning of the unit and on its financial status.
Reasons Behind NPA:1. Lack of proper pre enquiry by the bank for sanctioning a loan to a customer. 2. Non- performance of the business or the purpose for which the customer has taken the loan. 3. Willful defaulter. 4. Loans sanctioned for the agriculture purposes. 5. Change in govt. policies leads to NPA.
CONCLUSION
The Indian banking sector is facing a serious problem of NPA. The extent of NPA is comparatively higher in public sectors banks. To improve the efficiency and profitability, the NPA has to be scheduled. Various steps have been taken by government to reduce the NPA. It is highly impossible to have zero percentage NPA. But at least Indian banks can try competing with foreign banks to maintain international standard. I would suggest 3 ways of solving this problem of NPAs. They are recapitalization of banks with Government aid, disposal and write off of NPAs, increased regulation.
Various steps have been taken by the government to recover and reduce NPAs. Some of them are. 1. One time settlement / compromise scheme 2. Lok adalats 3. Debt Recovery Tribunals 4. Securitization and reconstruction of financial assets and enforcement of Security Interest Act 2002. 5. Corporate Reconstruction Companies 6. Credit information on defaulters and role of credit information bureaus
Chapter7 BiBliography
Data from the bank and internet from following links. http://pbcooperatives.gov.in/DCCB.htm http://www.thehindubusinessline.com/2005/07/09/stories/2005070902430600.htm http://www.newkerala.com/nkfullnews-1-88540.html http://www.scribd.com/doc/17156683/NPA-Management-project-in-state-bank-of-mysore http://www.rbi.org.in/scripts/bs_viewmastercirculars.aspx http://www.taxmann.net/FEMAOnlineweb/FEMA_Online/FemaRBImasterCircular.aspx?pId=80 502