PRESENTATION

ON

“A STUDY OF NON PERFORMING ASSETS IN

LEADING NATIONALISED BANKS”.

BY
RAHUL N. KATRE
Under the guidance of
Prof. Dr.Mukul Burghate
(B.E. , MBA, PH. D)
 DEFINITION OF NPA’S
A NPA is a loan or an advance where

Interest and/ or installment of principal remain overdue for a period

of more than 90 days in respect of a term loan,
The debt remains outstanding for 90 consecutive days or more
beyond the scheduled payment date or maturity.
For overdrafts, the account has been inactive for 90 consecutive days a
or deposits are insufficient to cover the interest capitalized during the
period.
The bill remains overdue for a period of more than 90 days in
the case of bills purchased and discounted
The installment or interest remains overdue for two crop seasons in
case of short duration crops and for one crop season in case of long
duration crops.
Presented by RAHUL N. KATRE 2
 CATEGORIES OF NPA’S
Sub-standard asset is one which has been classified as NPA for a period not exceeding
two years. With effect from 31 March 2001, a sub-standard asset is one, which has
remained NPA for a period less than or equal to 18 months

A doubtful asset is one, which has remained NPA for a period exceeding two years. With
effect from 31st March 2001, an asset is to be classified as doubtful, if it has remained
NPA for a period exceeding 18 months.

A loss asset is one where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has been written off, wholly or partly.

Presented by RAHUL N. KATRE 3

 RESEARCH METHDOLOGY
Research methodology is designed in order to solve a research
problem. I have conducted a descriptive research to understand and
develop knowledge on the existing problem of Non-performing Assets.
The broad objectives of the present study are:
•To understand the meaning & nature of NPAs.

•To examine the causes for NPAs in public sector banks.

•To analyze the NPA and its relation with operating profit of the bank

•To study the general reasons for assets become NPAs.

•What is the criterion to recover the advances from the bank.

•What are the methods adopted by the banks to look after NPA

management
Presented by RAHUL N. KATRE 4
 RESEARCH METHDOLOGY
Statement of problem:
The bank will always face the problem of NPA because of poor recovery
of advances granted by the bank and several other reasons like
adopting a poor recovery strategies so when the loan is not recovered
from the bank effectively and efficiently that balance amount will
become the NPA to the bank it may create some huge problem to the
bank’s net profit.
The study of NPA’s become necessary due to the following mentioned
reasons :
• 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
• They limit recycling of funds, set in asset-liability mismatches, etc.

Presented by RAHUL N. KATRE 5

 FACTORS CONTRIBUTING TO NPA’S
1. Willful Default:

2. Improper functioning of Debt Recovery Tribunals:

3. Project appraisal Deficiencies:

4. Ineffective Credit Monitoring:

5. Diversion of Funds:

6. Ineffective legal system:

7. External factors:.

8. Promoter-banker nexus:

9. International development:

10. Operational factors:

11. Strategic Factors:

Presented by RAHUL N. KATRE 6

 IMPACT OF NPAS ON OPERATIONS

• Drain on Profitability

• Impact on capital adequacy

• Adverse effect on credit growth as the banker’s prime focus

becomes zero percent risk and as a result turn lukewarm to fresh

credit.
• Excessive focus on Credit Risk Management

• High cost of funds due to NPA’S

Presented by RAHUL N. KATRE 7

 Data Analysis
FLUCTUATION IN LAST 3 yrs NPA IN SBI

Figure shows
the increase in
return on
assets in the
last three
years.

Presented by RAHUL N. KATRE 8

 Data Analysis
GROSS NPA V/S OPERATING PROFIT

Inference: From the

chart, it is understood
that as the gross NPA
level started decreasing
in recent year, operating
profit started increasing
drastically.

Presented by RAHUL N. KATRE 9

 Data Analysis
COMPARASION WITH OTHER GROUP BANKS

Inference:
Compared to all
other group
banks SBI is in
worst position
with 1.56 NPA
ratio.

Presented by RAHUL N. KATRE 10

Data Analysis

Trend of NPA’s in
different banks in 2008-
09

The SBI is showing

decreasing trend of gross
NPA as compared two last
two years where it was 15%
& 16 % in 2007-08 & 2007-
08

Presented by RAHUL N. KATRE 11

 NPA :– PREVENTIVE MEASURES
• Formation of the Credit Information Bureau (India) Limited (CIBIL)
• Reporting of Frauds to RBI
• Norms of Lender’s Liability – framing of Fair Practices Code with regard to lender’s
liability to be followed by banks.
• Risk assessment and Risk management
• RBI has advised banks to examine all cases of willful default of Rs.1 crore and above and
file suits in such cases. Board of Directors are required to review NPA accounts of Rs.1
crore and above with special reference to fixing of staff accountability.
• Reporting quick mortality cases
• Special mention accounts for early identification of bad debts. Loans and advances
overdue for less than one and two quarters would come under this category.

Presented by RAHUL N. KATRE 12

 NPA MANAGEMENT - RESOLUTION
• Compromise Settlement Schemes
• Restructuring / Reschedulement
• Corporate Debt Restructuring Cell
• Debt Recovery Tribunal (DRT)
• Proceedings under the Code of Civil Procedure
• Board for Industrial & Financial Reconstruction (BIFR)/ AAIFR
• National Company Law Tribunal (NCLT)
• Sale of NPA to other banks
• Sale of NPA to ARC/ SC under Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act 2002 (SRFAESI)

Presented by RAHUL N. KATRE 13

 CONCLUSION
The NPA is one of the biggest problems that the Public Sector Banks are facing
today is the problem of nonperforming assets. If the proper management of the
NPAs is not undertaken it would hamper the business of the banks. In absolute
terms, the last three years have seen an increase in the net NPAs of 25 public
sector banks by 24 per cent. According to the numbers, the last year it saw a 17
percent rise in the sticky assets.

The largest public sector lender, SBI, has seen an increase in the net NPAs by a
whopping 41 percent in 2007-08.As the global slowdown has crept into the
economy, bankers feel that in more loans are going to turn bad in the coming
quarters and therefore they want RBI to relax the deadline for loan
reconstruction.

The reduction of the NPAs would help the banks to boost up their profits, smooth
recycling of funds in the nation. This would help the nation to develop more
banking branches and developing the economy by providing the better financial
services to the nation.

Presented by RAHUL N. KATRE 14

 RECOMMENDATIONS:
1. It is recommended that the proper documentation and verification to be made before sanctioning the
loan.

2. Empowering staff to make decisions related to sanctioning of loans. Constant interactions have to be
maintained with the customers to keep track of their loan payment.

3. Strict measures have to be taken while issuing or sanctioning the loan. The measures can include
verification of job and salary slips, verification of securities and the like.

4. Effective and regular follow-up of the end use of the funds sanctioned is required to ascertain any
embezzlement or diversion of funds.

5. Assisting the borrowers in developing his entrepreneurial skills will not only establish a good relation
between the borrowers but also help the bankers to keep a track of their funds.

6. Some tax incentives like capital gain tax exemption, carry forward the losses to set off the same with other
income of the QIB’S should be granted so as to ensure their active participation by way of investing
sizeable amount in distressed assets of banks and financial institutions.

Presented by RAHUL N. KATRE 15

THANK YOU!

Presented by RAHUL N. KATRE 16