CHAPTERIZATION

Chapter 1
1

INTRODUCTION

INDIAN BANKING INDUSTRY

IMPORTANCE OF NPA MANAGEMENT

OBJECTIVE

LEITERATURE REVIEW

RESEARCH DESIGN

Chapter 2
2

DIFFERENT TOOLS AND GUIDELINES USED TO REDUCE NPAs.

TYPES OF NPAS

ASSET CLASSIFICATION

IMPACT OF NPA

Chapter 3
3

TECHNIQUES USED FOR MANAGEMENT OF NPAs

EARLY SYMYOMS

REASONS FOR AN ACCOUNT BECOMING NPA

PREVENTIVE MEASUREMENT FOR NPA

PROCEDURES FOR NPAIDENTIFICATION AND RESOLUTION IN INDIA

Chapter 4
4
1
2

COMPOSITIONS OF NPAs OF BANK SECTOR WISE

FINDINGS AND ANALYSIS
CONCLUSION

REFERENCE
BIBLIOGRAPHY / WEBLIOGRAPHY

INTRODUCTION TO NPA
MEANING OF NPA:
Non Performing Asset means an asset or account of borrower, which has been classified by a
bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the
directions or guidelines relating to asset classification issued by RBI.
An amount due under any credit facility is treated as "past due" when it has not been paid
within 30 days from the due date. Due to the improvement in the payment and settlement
systems, recovery climate, up gradation of technology in the banking system, etc., it was
decided to dispense with 'past due' concept, with effect from March 31, 2001. Accordingly, as
from that date, a Non performing asset (NPA) shell be an advance where
i.
ii.
iii.
iv.

v.

Interest and /or installment of principal remain overdue for a period of more than
180days in respect of a Term Loan
The account remains 'out of order' for a period of more than 180 days, in respect
of an overdraft/ cash Credit (OD/CC),
The bill remains overdue for a period of more than 180 days in the case of bills
purchased and discounted
Interest and/ or installment 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 purpose, And
Any amount to be received remains overdue for a period of more than 180 days in
respect of other accounts.

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) shell be a loan or an advance where;
i.
ii.
iii.
iv.

v.

Interest and /or installment of principal remain overdue for a period of more than
90days 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 installment 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 purpose, and
Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts

1.1 INDIAN BANKING INDUSTRY

INTRODUCTION:
Banking in India originated in the last decades of the 18th century. The oldest bank
inexistence in India is the State Bank of India, a government-owned bank that traces its
origins back to June 1806 and that is the largest commercial bank in the country. Central
banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over
these responsibilities from the then Imperial Bank of India, relegating it to commercial
banking functions.
After India's independence in 1947, the Reserve Bank was nationalized and given broader
powers. In 1969 the government nationalized the 14 largest commercial banks; the
government nationalized the six next largest in 1980.Currently, India has 96 scheduled
commercial banks (SCBs) - 27 public sector banks (that is with the Government of India
holding a stake), 31 private banks (these do not have government stake; they may be publicly
listed and traded on stock exchanges) and 38 foreign banks. They have a combined network
of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating
agency, the public sector banks hold over 75percent of total assets of the banking industry,
with the private and foreign banks holding18.2% and 6.5% respectively
EARLY HISTORY:
Banking in India originated in the last decades of the 18th century. The first banks were The
General Bank of India which started in 1786, and the Bank of Hindustan, both of which are
now defunct. The oldest bank in existence in India is the State Bank of India, which
originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank
of Bengal. This was one of the three presidency banks, the other two being the Bank of
Bombay and the Bank of Madras, all three of which were established under charters from the
British East India Company. For many years the Presidency banks acted as quasi-central
banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of
India, which, upon India's independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865and
still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That
honor belongs to the Bank of Upper India, which was established in 1863, and which
survived until 1913, when it failed, with some of its assets and liabilities being transferred to
the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to
Lancashire from the Confederate States, promoters opened banks to finance trading in Indian
cotton. With large exposure to speculative ventures, most of the banks opened in India during
that period failed. The depositors lost money and lost interest in keeping deposits with banks.
Subsequently, banking in India remained the exclusive domain of Europeans for next several
decades until the beginning of the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoired'Escompte de Paris opened a branch in Calcutta in 1860 and another in Bombay
in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC

established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly
due to the trade of the British Empire, and so became a banking center.
The Bank of Bengal, which later became the State Bank of India, the first entirely Indian joint
stock bank was the Oudh Commercial Bank, established in1881 in Faridabad. It failed in
1958. The next was the Punjab National Bank, established in Lahore in 1895, which has
survived to the present and is now one of the largest banks in India. Around the turn of the
20th Century, the Indian economy was passing through a relative period of stability. Around
five decades had elapsed since the Indian Mutiny, and the social, industrial and other
infrastructure had improved. Indians had established small banks, most of which served
particular ethnic and religious communities
. The presidency banks dominated banking in India but there were also some exchange banks
and a number of Indian joint stock banks. All these banks operated in different segments of
the economy. The exchange banks, mostly owned by Europeans, concentrated on financing
foreign trade. Indian joint stock banks were generally undercapitalized and lacked the
experience and maturity to compete with the presidency and exchange banks. This
segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the
times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into
separate and cumbersome compartments."The period between 1906 and 1911, saw the
establishment of banks inspired by the Swedish movement.
The Swedish movement inspired local businessmen and political figures to found banks of
and for the Indian community. A number of banks established then have survived to the
present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank
and Central Bank of India. The fervor of Swedish movement lead to establishing of many
private banks in Dakshina Kannada and Udupi district which were unified earlier and known
by the name South Kanara( South Kanara ) district. Four nationalized banks started in this
district and also a leading private sector bank. Hence undivided Dakshina Kannada district is
known as "Cradle of Indian Banking".

FROM WORLD WAR I TO INDEPENDENCE:

The period during the First World War (1914-1918) through the end of the Second World War
(1939-1945), and two years thereafter until the independence of India were challenging for
Indian banking. The years of the First World War were turbulent, and it took its toll with
banks simply collapsing despite the Indian economy gaining indirect boost due to war-related
economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in
the following table:

Post-independence

The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal,
paralyzing banking activities for months. India's independence marked the end of a regime of
the Laissez-faire for the Indian banking. The Government of India initiated measures to play
an active role in the economic life of the nation, and the Industrial Policy Resolution adopted
by the government in 1948 envisaged a mixed economy. This resulted in to greater
involvement of the state in different segments of the economy including banking and finance.
The major steps to regulate banking included:
In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.
In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or branch of an existing
bank could be opened without a license from the RBI, and no two banks could have
common directors.
However, despite these provisions, control and regulations, banks in India except the State
Bank of India, continued to be owned and operated by private persons. This changed with the
nationalization of major banks in India on 19 July 1969.
Nationalization
By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer,
and a debate had ensued about the possibility to nationalize the banking industry. Indira
Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual
conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank
Nationalization." The paper was received with positive enthusiasm. Thereafter, her move was
swift and sudden, and the GOI issued an ordinance and nationalized the 14 largest
commercial banks with effect from the midnight of July 19, 1969.
Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of
political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the
Banking Companies (Acquisition and Transfer of Undertaking)Bill, and it received the
presidential approval on 9 August 1969.A second dose of nationalization of 6 more
commercial banks followed in 1980.
The stated reason for the nationalization was to give the government more control of credit
delivery. With the second dose of nationalization, the GOI controlled around 91% of the
banking business of India. Later on, in the year 1993, the government merged New Bank of
India with Punjab National Bank. It was the only merger between nationalized banks and
resulted in the reduction of the number of nationalized banks from 20 to 19. After this, until
the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth
rate of the Indian economy. The nationalized banks were credited by some; including Home
minister P. Chidambaram, to have helped the Indian economy withstand the global financial
crisis of 2007-2009.

Liberalization

In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust Bank (the first of such new
generation banks to be set up), which later amalgamated with Oriental Bank of Commerce,
Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the
rapid growth in the economy of India, revitalized the banking sector in India, which has seen
rapid growth with strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks.
The next stage for the Indian banking has been setup with the proposed relaxation in the
norms for Foreign Direct Investment, where all Foreign Investors in banks may be given
voting rights which could exceed the present cap of 10%, at present it has gone up to
74%with some restrictions. The new policy shook the Banking sector in India completely.
Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home
at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of
working for traditional banks. All this led to the retail boom in India. People not just
demanded more from their banks but also received more. Currently (2007), banking in India
is generally fairly mature in terms of supply, product range and reach-even though reach in
rural India still remains a challenge for the private sector and foreign banks.
In terms of quality of assets and capital adequacy, Indian banks are considered to have clean,
strong and transparent balance sheets relative to other banks in comparable economies in its
region. The Reserve Bank of India is an autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupee is to manage volatility but
without any fixed exchange rate-and this has mostly been true. With the growth in the Indian
economy expected to be strong for quite some time-especially in its services sector-the
demand for banking services, especially retail banking, mortgages and investment services
are expected to be strong. One may also expect M&A s, takeovers, and asset sales. In March
2006, the Reserve Bank of India allowed Warburg Pinc us to increase its stake in Kotak
Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold
more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake
exceeding 5% in the private sector banks would need to be vetted by them.
In recent years critics have charged that the non-government owned banks are too aggressive
in their loan recovery efforts in connection with housing, vehicle and personal loans. There
are press reports that the banks' loan recovery efforts have driven defaulting borrowers to
suicide.

RECENT HISTORY OF INDIAN BANKING:

Indian banking system, over the years has gone through

various phases after establishment of Reserve Bank of India in 1935 during the British rule,
to function as Central Bank of the country. Earlier to creation of RBI, the central bank
functions were being looked after by the Imperial Bank of India.
With the 5-year plan having acquired an important place after the independence, the Govt.
felt that the private banks may not extend the kind of cooperation in providing credit support,
the economy may need. In 1954 the All India Rural Credit Survey Committee submitted its
report recommending creation of a strong, integrated, State-sponsored, State-partnered
commercial banking institution with an effective machinery of branches spread all over the
country.
The recommendations of this committee led to establishment of first Public Sector Bank in
the name of State Bank of India on July 01, 1955by acquiring the substantial part of share
capital by RBI, of the then Imperial Bank of India. Similarly during 1956-59, as a result of reorganization of princely States, the associate banks came into fold of public sector banking.
Another evaluation of the banking in India was undertaken during 1966 as the private banks
were still not extending the required support in the form of credit disbursal, more particularly
to the unorganized sector. Each leading industrial house in the country at that time was
closely associated with the promotion and control of one or more banking companies. The
bulk of the deposits collected, were being deployed in organized sectors of industry and trade,
while the farmers, small entrepreneurs, transporters , professionals and self-employed had to
depend on money lenders who used to exploit them by charging higher interest rates.
In February 1966, a Scheme of Social Control was set-up whose main function was to
periodically assess the demand for bank credit from various sectors of the economy to
determine the priorities for grant of loans and advances so as to ensure optimum and
efficienttilisation of resources.
The scheme however, did not provide any remedy. Though a no. of branches were opened in
rural area but the lending activities of the private banks were not oriented towards meeting
the credit requirements of the priority/weaker sectors.
On July 19, 1969, the Govt. promulgated Banking Companies (Acquisition and Transfer of
Undertakings) Ordinance 1969 to acquire 14 bigger commercial bank with paid up capital of
Rs.28.5 cr, deposits of Rs.2629 cr, loans of Rs.1813 cr and with 4134 branches accounting for
80% of advances. Subsequently in 1980, 6 more banks were nationalised which brought91%
of the deposits and 84% of the advances in Public Sector Banking.

During December1969, RBI introduced the Lead Bank Scheme on the recommendations of
FK Nariman Committee. Meanwhile, during 1962 Deposit Insurance Corporation was
established to provide insurance cover to the depositors. In the post-nationalization period,
there was substantial increase in the no. of branches opened in rural/semi-urban centres
bringing down the population per bank branch to 12000appx. During 1976, RRBs were
established (on the recommendations of M. Narasimham Committee report) under the
sponsorship and support of public sector banks as the 3rdcomponent of multi-agency credit
system for agriculture and rural development.
The Service Area Approach was introduced during 1989.While the 1970s and 1980s saw the
high growth rate of branch banking net-work, the consolidation phase started in late 80s and
more particularly during early 90s, with the submission of report by the Narasimham
Committee on Reforms in Financial Services Sector during 1991.In these five decades since
independence, banking in India has evolved through four distinct phases:
Foundation phase can be considered to cover 1950s and 1960s till the nationalization of
banks in 1969. The focus during this period was to lay the foundation for a sound banking
system in the country. As a result the phase witnessed the development of necessary
legislative framework for facilitating re-organization and consolidation of the banking
system, for meeting the requirement of Indian economy. A major development was
transformation of Imperial Bank of India into State Bank of India in 1955 and nationalization
of 14 major private banks during 1969.
Expansion phase had begun in mid-60s but gained momentum after nationalization of banks
and continued till 1984. A determined effort was made to make banking facilities available to
the masses. Branch network of the banks was widened at a very fast pace covering the rural
and semi-urban population, which had no access to banking hitherto. Most importantly, credit
flows were guided towards the priority sectors. However this weakened the lines of
supervision and affected the quality of assets of banks and pressurized their profitability and
brought competitive efficiency of the system at low ebb.
Consolidation phase: The phase started in 1985 when a series of policy initiatives were
taken by RBI which saw marked slowdown in the branch expansion. Attention was paid to
improving house-keeping, customer service, credit management, staff productivity and
profitability of banks. Measures were also taken to reduce the structural constraints that
obstructed the growth of money market.
Reforms phase:
The macro-economic crisis faced by the country in 1991 paved the way for extensive
financial sector reforms which brought deregulation of interest rates, more competition,
technological changes, prudential guidelines on asset classification and income recognition,
capital adequacy, autonomy packages etc.

BANKING IN INDIA: 2009-10

The Indian banking system is financially stable and resilient to the shocks that may arise due
to higher non-performing assets (NPAs) and the global economic crisis, according to a stress
test done by the Reserve Bank of India (RBI).Significantly, the RBI has the tenth largest gold
reserves in the world after spending US$ 6.7billion towards the purchase of 200 metric tons
of gold from the International Monetary Fund (IMF) in November 2009.
The purchase has increased the country's share of gold holdings in its foreign exchange
reserves from approximately 4 per cent to about 6 per cent. Following the financial crisis,
new deposits have gravitated towards public sector banks. According to RBI's 'Quarterly
Statistics on Deposits and Credit of Scheduled Commercial Banks: September 2009',
nationalized banks, as a group, accounted for 50.5 per cent of the aggregate deposits, while
State Bank of India (SBI) and its associates accounted for 23.8 percent.
The share of other scheduled commercial banks, foreign banks and regional rural banks in
aggregate deposits were 17.8 per cent, 5.6 per cent and 3.0 per cent, respectively. With
respect to gross bank credit also, nationalized banks hold the highest share of 50.5 percent in
the total bank credit, with SBI and its associates at 23.7 per cent and other scheduled
commercial banks at 17.8 per cent. Foreign banks and regional rural banks had a share of
5.5per cent and 2.5 per cent respectively in the total bank credit.
The report also found that scheduled commercial banks served 34,709 banked centers. Of
these centers, 28,095 were single office centers and 64 centers had 100 or more bank offices.
The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again. NRI
fund inflows increased since April 2009 and touched US$ 45.5 billion on July 2009, as per
the RBI's February bulletin. Most of this has come through Foreign Currency Non-resident
(FCNR) accounts and Non-resident External Rupee Accounts. India's foreign exchange
reserves rose to US$ 284.26 billion as on January 8, 2010, according to the RBI's February
bulletin.

INDUSTRY ANALYSIS
S.W.O.T. ANALYSIS OF INDIAN BANKING INDUSTRY:
1. STRENGTH
Indian banks have compared favorably on growth, asset quality and profitability with
other regional banks over the last few years. The banking index has grown at a
compounded annual rate of over 51 per cent since April 2001 as compared to a
27percent growth in the market index for the same period.
Policy makers have made some notable changes in policy and regulation to help
strengthen the sector. These changes include strengthening prudential norms,
enhancing the payments system and integrating regulations between commercial and
co-operative banks.
Bank lending has been a significant driver of GDP growth and employment.

The vast networking & growing number of branches & ATMs. Indian banking system
has reached even to the remote corners of the country.
The government's regular policy for Indian bank since 1969 has paid rich dividends
with the nationalization of 14 major private banks of India.
In terms of quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets relative to other banks incomparable
economies in its region.
India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is
with the Government of India holding a stake)after merger of New Bank of India in
Punjab National Bank in 1993, 29 private banks (these do not have government stake;
they may be publicly listed and traded on stock exchanges) and 31 foreign banks.
They have a combined network of over 53,000 branches and 17,000 ATMs. According
to a report by ICRA Limited, a rating agency, the public sector banks holdover 75
percent of total assets of the banking industry, with the private and foreign banks
holding 18.2% and 6.5% respectively.
Foreign banks will have the opportunity to own up to 74 per cent of Indian private
sector banks and 20 per cent of government owned banks.

WEAKNESS
PSBs need to fundamentally strengthen institutional skill levels especially in sales and
marketing, service operations, risk management and the overall organizational
performance ethic & strengthen human capital.
Old private sector banks also have the need to fundamentally strengthen skill levels.
The cost of intermediation remains high and bank penetration is limited to only a few
customer segments and geographies.
Structural weaknesses such as a fragmented industry structure, restrictions on capital
availability and deployment, lack of institutional support infrastructure, restrictive
labour laws, weak corporate governance and ineffective regulations beyond
Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus.
Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in
PSU banks below 51% thus choking the headroom available to these banks for raining
equity capital.
Impediments in sectorial reforms: Opposition from Left and resultant cautious
approach from the North Block in terms of approving merger of PSU banks may
hamper their growth prospects in the medium term.
OPPORTUNITY
The market is seeing discontinuous growth driven by new products and services that
include opportunities in credit cards, consumer finance and wealth management on
the retail side, and in fee-based income and investment banking on the wholesale
banking side. These require new skills in sales & marketing, credit and operations.
Banks will no longer enjoy windfall treasury gains that the decade-long secular
decline in interest rates provided. This will expose the weaker banks.
With increased interest in India, competition from foreign banks will only intensify.
Given the demographic shifts resulting from changes in age profile and household
income, consumers will increasingly demand enhanced institutional capabilities and
service levels from banks.
New private banks could reach the next level of their growth in the Indian banking
sector by continuing to innovate and develop differentiated business models to
profitably serve segments like the rural/low income and affluent/HNI segments;
actively adopting acquisitions as a means to grow and reaching the next level of
performance in their service platforms. Attracting, developing and retaining more
leadership capacity

 Foreign banks committed to making a play in India will need to adopt alternative
approaches to win the race for the customer and build a value-creating customer
franchise in advance of regulations potentially opening up post 2009. At the same
time, they should stay in the game for potential acquisition opportunities as and when
they appear in the near term. Maintaining a fundamentally long-term value-creation
mindset.
Reach in rural India for the private sector and foreign banks.
With the growth in the Indian economy expected to be strong for quite some time
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong.
The Reserve Bank of India (RBI) has approved a proposal from the government to
amend the Banking Regulation Act to permit banks to trade in commodities and
commodity derivatives.
Liberalization of ECB norms: The government also liberalized the ECB norms to
permit financial sector entities engaged in infrastructure funding to raise ECBs. This
enabled banks and financial institutions, which were earlier not permitted to raise
such funds, explore this route for raising cheaper funds in the overseas markets.
In an attempt to relieve banks of their capital crunch, the RBI has allowed them to
raise perpetual bonds and other hybrid capital securities to shore up their capital. If
the new instruments find takers, it would help PSU banks, left with little head room
for raising equity. Significantly, FII and NRI investment limits in these securities have
been fixed at 49%, compared to 20% foreign equity holding allowed in PSU banks.
THREATS
Threat of stability of the system: failure of some weak banks has often threatened the
stability of the system.
Rise in inflation figures which would lead to increase in interest rates.
Increase in the number of foreign players would pose a threat to the PSB as well asthe
private players.

PEST ANALYSIS OF INDIAN BANKING INDUSTRY:

PEST analysis of any industry investigates the important factors that affect the industry
and influence the companies operating in the sector. PEST stands for Political, Economic,
Social and Technological analysis. The PEST Analysis is a tool to analyze the forces that
drive the industry and how those factors can influence the industry.
POLITICAL FACTORS
Government and RBI policies affect the banking sector. Sometimes looking into the political
advantage of a particular party, the Government declares some measures to their benefits like
waiver of short-term agricultural loans, to attract the farmers votes. By doing so, the profits
of the bank get affected. Various banks in the cooperative sector are open and run by the
politicians. They exploit these banks for their benefits. Sometimes the government appoints
various chairmen of the banks. Various policies are framed by the RBI looking at the present
situation of the country for better control over the banks.
FOCUS ON REGULATIONS OF GOVERNMENT: Banking is least affected as
compare to other developed economy which is attributed to Reserve Bank of India for
its robust policy framework, stricter prudential regulations with respect to capital and
liquidity. This gives India an advantage in terms of credibility over other countries.
Government affects the performance of banking sector most by legislature and
framing policy government through its budget affects the banking activities
securitization act has given more power to banking sector against defaulting
borrowers.
MONETARY POLICY: Monetary Policy 2009-2010Bank Rate: The Bank Rate has
been retained unchanged at 6.0%.Repo Rate It has been reduced under the Liquidity
Adjustment Facility (LAF) by 25 basis points from 5.0% to 4.75% with immediate
effect. Reverse Repo Rate: It has been reduced under LAF by 25 basis points from
3.5% to3.25% with immediate effect. RBI has retained the option to conduct
overnight or longer term repo/reverse repo under the LAF depending on market
conditions and other relevant factors. Cash Reserve Ratio: CRR has been retained
unchanged at 5.0% of NDTL.
FDI LIMIT: The move to increase Foreign Direct Investment FDI limits to 49 percent
from 20 percent during the first quarter of this fiscal came as a welcome
announcement to foreign players wanting to get a foot hold in the Indian Markets by
investing in willing Indian partners who are starved of net worth to meet CAR norms.
Ceiling for FII investment in companies was also increased from 24.0 percent to 49.0
percent and have been included within the ambit of FDI investment
BUDGET MEASURES:
Budget Provisions:1. Increase Farm Credit:The FM has further increase the farm credit
target for 2009-10 at Rs 325000 crore compared to Rs 287000 crore
targeted in 2008-09.

2. Subvention of 1% to be paid as incentive to farmers: The Budget

continued the Interest subvention scheme for short-term crop loans up
to Rs 300000 per farmer at the interest rate of 7% per annum. Also
additional subvention of 1% to be paid from this year, as incentive to
those farmers who repay short-term crop loans on schedule. Also
additional allocation of Rs 411 crore over Interim Budget 2009-10
was made for the same.
3. Debt Waiver for Farmers: The Union Budget 2009-10 extended the
debt waiver scheme by six more months for farmers owing more than
2 hectare of land. The Union Budget 2008-09 allowed these farmers
25% rebate on loan if they repay 75%of their overdue within
stipulated period of 30th June 2009. Currently this facility has been
extended from 30th June, 2009 to 31st December, 2009.
Setting up of separate task force for those not covered under the debt waiver scheme:
The government also announced that it will set up a task force to examine the issue of debt
taken by a large number of farmers in some regions of Maharashtra from private money
lenders who were not covered by the loan waiver scheme announced last year.
OTHER PROVISIONS
1. The threshold for non-promoter public shareholding for all listed
companies to be raised in a phased manner.
2. To allow scheduled commercial banks setting up off-site ATMs without
prior approval subject to reporting.
3. To provide banking facilities in under-banked/un-banked areas in the
next three years. A sub-committee of State level Bankers Committee
(SLBC) would identify and formulate an action plan for the same.
4. The Ministry has also granted Rs 100 crore of grants in aid to ensure
provision of at least one Centre/Point of Sales (POS) for banking
services in each of the un-banked blocks.

BUDGET IMPACT: The Union Budget 2008-09 has focused on farm credit. The
agriculture sector has recorded a growth of about 4% per annum with substantial
increase in plan allocations and capital formation in the sector. The one-time bank
loan waiver of nearly Rs 71000crore (Rs 710 billion) to cover an estimated 40 million
farmers was one of the major highlights of the last Budget. This Union Budget has
provided further six months extension of 25% rebate on loan for farmers owing more
than 2 hectare of land. With Government bearing this burden, banks would not be
affected much. It will only help banks to clear their most stubborn NPA accounts on
banks book. Moreover the emphasize on hiking promoter shareholding in Public
sector banks, expanding network with ATM's, opening of banking centre in un-banked
blocks are some of the positive moves for the sector
On the flipside, the spike in government borrowings is set to adversely affect the treasury
income of banks in general and public sector banks in particular, through rise in yields on
government securities.

 OUTLOOK: The Union Budget 2009-10 has not granted much of new grants/stimulus
to the banking sector as a whole. However it has increased the Government borrowing
to Rs 451093crore (Rs 4510.93 billion) compared to Rs 361782 crore (Rs 3617.82
billion) targeted in the Interim Budget 2009-10.This is likely to push the Bond yields
high moving forward. Despite ample liquidity in the system, the 10 year benchmark
yield has zoomed above 7% levels owing to rise in borrowing target. Hardening of
yields is likely to affect treasury profits of banks in general and Public sector banks in
particular.
ECONOMIC FACTORS
Banking is as old as authentic history and the modern commercial banking are traceable to
ancient times. In India, banking has existed in one form or the other from time to time. The
present era in banking may be taken to have commenced with establishment of bank of
Bengal in 1809 under the government charter and with government participation in share
capital. Allahabad bank was started in the year 1865 and Punjab national bank in1895, and
thus, others followed. Every year RBI declares its 6 monthly policy and accordingly the
various measures and rates are implemented which has an impact on the banking sector. Also
the Union budget affects the banking sector to boost the economy by giving certain
concessions or facilities. If in the Budget savings are encouraged, then more deposits will be
attracted towards the banks and in turn they can lend more money to the agricultural sector
and industrial sector, therefore, booming the economy. If the FDI limits are relaxed, then
more FDI are brought in India through banking channels
GROWING ECONOMY / GDP Indian economy has registered a growth of more that
9 per cent for last three year and is expected to maintain robust growth rate as
compare to other developed and developing countries. Banking Industry is directly
related to the growth of the economy. The contributions of various sectors in the
Indian GDP for 2007-2008 are as follows:
1. Agriculture: 17%
2. Industry: 29%
3. Service Sector: 54%
It is great news that today the service sector is contributing more than half of the Indian GDP.
It takes India one step closer to the develop economies of the world. Earlier it was agriculture
which mainly contributed to the Indian GDP. The Indian government is still looking up to
improve the GDP of the country and so several steps have been taken to boost the economy.
Policies of FDI, SEZs and NRI investment have been framed to give a push to the economy
and hence the GDP.
LOW INTEREST RATES: Reserve Bank of India controls the Interest rate, which is
based on several monetary policies. Recently RBI has reduced the interest rate which
stimulates the growth rate of banking industry. As on September 11, 2009 Bank Rate
was 6.00 per cent, the same as on the corresponding date of last year. Call money
rates (borrowing & lending) were in the range of 1.50/3.47 per cent as compared with
5.25/11.00 per cent on the corresponding date of last year.
INFLATION RATES: Inflation represents a rise in general level of prices of goods
and services over a period of time. It leads to erosion in the purchasing power of
money. Resultantly, each unit of currency buys fewer goods and services Different
fiscal and monetary policies have curbed the Inflation rate from the high of 12.63 per

cent to 3.92 per cent. To fight against the slowdown of the Economy, Government of
India & Reserve Bank of India took many fiscal as well as monetary actions. Clubbed
with fiscal & monetary actions, decreasing commodity prices, decreasing crude prices
and lowering interest rate, we expect that Indian Economy could again register a
robust growth rate in the year2009-10. Inflation stands at 3.92 per cent on 7th
February 2009 against a high of 12.63per cent on 9th August 2008.

AGRICULTURE CREDIT: Agriculture has been the mainstay of our economy with
60% of our population deriving their sustenance from it. In the recent past, the sector
has recorded a growth of about 4%per annum with substantial increase in plan
allocations and capital formation in the sector. Agriculture credit flow was Rs 2,
87,000 crore in 2008-09. The target for agriculture credit flow for the year 2009-10 is
being set at Rs.3, 25,000 crore. To achieve this, I propose to continue the interest
subvention scheme for short term crop loans to farmers for loans up to Rs.3 lakhs per
farmer at the interest rate of 7% per annum. For this year, the government shall pay an
additional subvention of 1% as an incentive to those farmers who repay their short
term crop loans on schedule. Thus, the interest rate for these farmers will come down
to 6% per annum. For this, I am making an additional Budget provision of Rs 411
crore over Interim BE.
DEBT RELIEF FOR FARMERS: The one-time bank loan waiver of nearly Rs 71,000
crore to cover an estimated 40million farmer was one of the major highlights of the
last Budget. Under the Agricultural Debt Waiver and Debt Relief Scheme (2008),
farmers having more than two hectares of land were given time up to 30th June, 2009
to pay 75% of their over dues. Due to the late arrival of monsoon, I propose to extend
this period by six months up to 31stDecember, 2009.
SOCIO CULTUREAL FACTORS
Socio culture factors also affect the business. They show in which people behave in country.
Socio-cultural factors like taboos, customs, traditions, tastes, preferences, buying and
consumption habit of people, their language, beliefs and values affect the business. Banking
industry is also operates under this social environment and it is also affect by this factor.
These factor are changing continuously peoples life style, their behavior, consumption
Pattern etc. is changing and also creating opportunities and threat for banking industry. There
is some socio-culture factors that affect banking in India have been analyzed below.
TRADITIONAL MAHAJAN PRATHA: Before the birth of the banks, people of
India were used to borrow money local moneylenders, shahukars, shroffs. They were
used to charge higher interest and also mortgage land and house. Farmers were
exploited by these shahukars. But farmers need money. So, they did not have any
choice other than going to shahukar and borrowing money from them in spite of
exploitation by these people. But after emergence of banks attitude of people was
changed. Traditional mahajan pratha still exist in India specially in rural areas. This
affects the banking sector. Rural people afraid to go to bank to borrow money instead
they prefer to borrow from shahukar with whom they have relationships from the time of
their fore fathers. Banking infrastructure is also week in some interior areas of India. So, this is
reason it still exist.

 SHIFT TOWARDS NUCLEAR FAMILY: Attitude of people of India is changing.

Now, younger generation wants to remain separate from their parents after they get
married. Joint families are breaking up. There are many reasons behind that. But
banking sector is positively affected by this trend. A family need home consumer
durables like freeze, washing machine, television, bike, car, etc. so, they demand for
these products and borrow from banks. Recently there is boost in housing finance and
vehicle loans. As they do not have money they go for installments. So, banks satisfy
nuclear families wants.
CHANGE IN LIFE STYLE: Life style of India is changing rapidly. They are
demanding high class products. They have become more advanced. People want
everything car, mobile, etc. what their forefather had dreamed for. Now teenagers also
have mobile and vehicle. Even middle class people also want to have well furnished
home, television, mobile, vehicle and this has opened opportunities for banking sector
to tap this change. Everything is available so it has become easy to purchase anything
if you do not have lump sum.
POPULATION: Increase in population is one of the important factors, which affect
the private sector banks. Banks would open their branches after looking into the
population demographics of the area. Percentage of deposit in any branches of banks
depends upon the population demographic of that area. The population of India is
about 102.90 is expected to reach about 119.70 cores in 2011. About 70% of
population is below 35years of age. They are in the prime earning stage and this
increase the earning of the banks. Total Deposits mobilized by the Private Sector
Banks increased from Rs, 2,52,335 crore as on 31stMarch 2004 to Rs. 3,12,645 crore
as on 31st March 2005. Deposits showed a subdued growth during 2004-05.Income
distributions also affects the operations and overall business of private sector banks.
LITERACY RATE: Literacy rate in India is very low compared to developed
countries. Illiterate people hesitate to transact with banks. So, this impacts negatively
on banks. But there is positive side of this as well i.e. illiterate people trust more on
banks to deposit their money; they do not have market information. Opportunities in
stocks or mutual funds. So, they look bank as their sole and safe alternative.

TECHNOLOGICAL FACTORS
TECHNOLOGY IN BANKS: Technology plays a very important role in banks
internal control mechanisms as well as services offered by them. It has in fact given
new dimensions to the banks as well as services that they cater to and the banks are
enthusiastically adopting new technological innovations for devising new products
and services.

 ATM: The latest developments in terms of technology in computer and

telecommunication have encouraged the bankers to change the concept of branch
banking to anywhere banking. The use of ATM and Internet banking has allowed
anytime, anywhere banking facilities. Automatic voice recorders now answer
simple queries, currency accounting machines makes the job easier and self-service
counters are now encouraged. Credit card facility has encouraged an era of cashless
society. Today MasterCard and Visa card are the two most popular cards used world
over. The banks have now started issuing smartcards or debit cards to be used for
making payments. These are also called as electronic purse. Some of the banks have
also started home banking through telecommunication facilities and computer
technology by using terminals installed at customers home and they can make the
balance inquiry, get the statement of accounts, give instructions for fund transfers, etc.
Through ECS we can receive the dividends and interest directly to our account
avoiding the delay or chance of losing the post.

IT SERVICES & MOBILE BANKING: Today banks are also using SMS and Internet
as major tool of promotions and giving great utility to its customers. For example
SMS functions through simple text messages sent from your mobile. The messages
are then recognized by the bank to provide you with the required information. All
these technological changes have forced the bankers to adopt customer-based
approach instead of product-based approach Technology advancement has changed
the face of traditional banking systems. Technology advancement has offer 24X7
banking even giving faster and secured service.
CORE BANKING SOLUTIONS: It is the buzzword today and every bank is trying to
adopt it is the centralize banking platform through which a bank can control its entire
operation the adoption of core banking solution will help bank to roll out new product
and services.

1.2 Importance of NPA management

The accumulation of huge non-performing assets in banks has assumed great importance. The
depth of the problem of bad debts was first realized only in early 1990s. The magnitude of
NPAs in banks and financial institutions is over Rs.1, 50,000 Crores. While gross NPA
reflects the quality of the loans made by banks, net NPA shows the actual burden of banks.
Now it is increasingly evident that the major defaulters are the big borrowers coming from
the non-priority sector.
The banks and financial institutions have to take the initiative to reduce NPAs in a time
bound strategic approach. Public sector banks figure prominently in the debate not only
because they dominate the banking industries, but also since they have much larger NPAs
compared with the private sector banks. This raises a concern in the industry and academia
because it is generally felt that NPAs reduce the profitability of banks, weaken its financial
health and erode its solvency. For the recovery of NPAs a broad framework has evolved for
the management of NPAs under which several options are provided for debt recovery and
restructuring.
Banks and FIs have the freedom to design and implement their own policies for recovery and
write-off incorporating compromise and negotiated settlements.
The prudential norms for income recognition should be based on record of recovery
and therefore SCBs/CCBs should not take unrealized income to profit and loss
accounts. However in the case of certain states where the state co-op act provides for
taking such unrealized interest to income head in the P & L A/C. it is necessary for
those SCBs to make full provisioning for equivalent amount by charging to P & L
A/C. In other words, the SCBs which are charging for interest to all overdue loans and
if such interest remains unrealized the same may be taken to income account provided
matching provision is fully made for the same by charging to P & L A/C. Accrued
interest taken to income account in the previous year should also be provided in full in
case the same becomes overdue.
Fee, commission and other income may be treated as the income only when the
account is classified as standard; besides, a matching provision should be created to
the extent such items were treated as income in the previous year but not realized in
the subsequent year.
Fee and commission earned by banks as a result of renegotiation or scheduling of
outstanding debts should be recognized on an accrual basis over the period of time
covering the renegotiated of credit.
Even in the case of credit facilities backed by Government guarantee, overdue interest
can be taken to P & L A/C. only in case of matching provision is made.
The bills purchased should be treated as overdue if the same remain unpaid. Interest
may be charged to such bills and the same may be P & L A/C provided matching
provision is made

1.3 Objectives
The basic idea behind undertaking the Grand Project on NPA was to:
To evaluate NPAs (Gross and Net) in different banks.
To study the past trends of NPA
To calculate the weighted of NPA in risk management in Banking
To analyze financial performance of banks at different level of NPA
To evaluate profitability positions of banks
To evaluate NPA level in different economic situation.
To Know the Concept of Non Performing Asset
To Know the Impact of NPAs
To Know the Reasons for NPAs
To learn Preventive Measures
To study of the concept of Non Performing Asset in Indian perspective.
To study NPA standard of RBI
To study the Reasons for & Impact of NPAs
To evaluate the efficiency in managing Non Performing Asset of different
types of banks (Public, Private and Foreign banks) using NPA ratios &
comparing NPA with profits.
To check the proportion of NPA of different types of banks in different
categories.

1.4 Literature Review:

 (Reddy, 2004). Reddy (2004) critically examined various issues pertaining to terms of
credit of Indian banks. In this context, it was viewed that the element of power has no
bearing on the illegal activity. A default is not entirely an irrational decision. Rather a
defaulter takes into account probabilistic assessment of various costs and benefits of his
decision.
Mohan (2003)1 conceptualised lazy banking while critically reflecting on banks
investment portfolio and lending policy.
Mohan (2004) emphasised on key lending terms of credit, such as maturity and interestterms of loans to corporate sector. The Indian viewpoint alluding to the concepts of
credit culture owing to Reddy (2004) and lazy banking owing to Mohan (2003a) has
an international perspective since several studies in the banking literature agree that
banks lending policy is a major driver of non-performing loans (McGoven, 1993,
Christine 1995, Sergio, 1996, Bloem and Gorters, 2001).
Muniappan, (2002). The problem of NPAs is related to several internal and external
factors confronting the borrowers .The internal factors are diversion of funds for
expansion/diversification/modernisation, taking up new projects, helping/promoting
associate concerns, time/cost overruns during the project implementation stage, business
(product, marketing, etc.) failure, inefficient management, strained labour relations,
inappropriate technology/technical problems, product obsolescence, etc., while external
factors are recession, non-payment in other countries, inputs/power shortage, price
escalation, accidents and natural calamities.
Rajaraman and Vasishtha (2002) in an empirical study provided an evidence of
significant bivariate relationship between an operating inefficiency indicator and the
problem loans of public sector banks.
Das and Ghosh (2003) empirically examined non-performing loans of Indias public
sector banks in terms of various indicators such as asset size, credit growth and
macroeconomic condition, and operating efficiency indicators.
Kaveri (2001) studied the non-performance assets of the various banks and suggested
various strategies to reduce the extent of NPAs. In view of the steep rise in fresh NPA
advances, credit should be strengthening. RBI should use some new policies/strategies to
prevent NPAs.
Kumar (2006) studied the bank nationalization in India marked a paradigm shift in the
focus of banking as it was intended to shift the focus from class banking to mass
banking. Internationally also efforts are being made to study causes of financial inclusion
and designing strategies to ensure financial inclusion of the poor disadvantaged. The
banks also need to redesign their business strategies to incorporate specific plans to
promote financial inclusion of low income group treating it both a business opportunity
as well as a corporate social responsibilities.

1.5 Research Design

The research design that will be use is Descriptive Research.

Involves gathering data that describe events and then organizes, tabulates, depicts,
and describes the data.
Uses description as a tool to organize data into patterns that emerge during
analysis.
Often uses visual aids such as graphs and charts to aid the reader.
Using of hypothesis testing.
1) Test of Correlation:
a) H0:There is no significant correlation between profits & NPAs of Public Sector
Banks for last 10 years
H1: There is correlation between profits & NPAs of Public Sector Banks for last
10years
b) H0:There is no significant correlation between profits & NPAs of Private Sector
Banks for last 10 years
H1: There is correlation between profits & NPAs of Private Sector Banks for
last10 years
c) H0:There is no significant correlation between profits & NPAs of Foreign Banks
for last 10 years
H1: There is correlation between profits & NPAs of Foreign Banks for last 10
years
2) ANNOVA Test:
H0: There is no significant difference in NPAs of different types of banks among
various sectors.
H1: There is significant difference in NPAs of different types of banks among various
sectors.

Scope of the Study:

To understand the concept of NPAs in Indian banking industry.
To understand the causes & effects of NPA
To analyze the past trends of NPA of public, private & foreign banks in different sector.

Source of data collection:

The data collected for the study was secondary data in Nature.

Sampling plan:

To prepare this Project I would like to take five banks from public sector as well as five banks
from private sector.
Study Period: 10 years (1990-91 to 2010-11)

Limitations of this study can be:

The limitations that can be arising in my study are:
1. It was critical for me to gather the financial data of the every bank of the Indian Banks so
the better comparative analyses of the banks are not possible.
2. Since my study is based on the secondary data, the practical operations as related to the
NPAs are adopted by the banks are not learned.
3. Since the Indian banking sector is so wide so it may not possible for me to cover all the
banks of the Indian banking sector.
4. There are some data which are available for just 3 years while the same data for its
counterparts were available for 10 years. So, exact comparison was not possible.

Beneficiary of the study:

The outcome analyzed from this study would be beneficial to various sections such as:
Banks: this study would definitely benefits the banks in a way that directs them as
to which sector should be given priority for lending money.
Further Researchers: The major beneficiaries from the project would be the researchers
themselves as this study would enhance their knowledge about the topic. They get an
insight of the present scenario of this industry as this is the emerging industry in the
financial sector of the economy.
Student: To get the understanding of NPA concept as a whole
Reason behind doing this research: I am interested in the banking sector and I want to
make my future in the banking sector so decided to make my research study on the banking
sector. I analyzed first the factors that are important for the banking sector and I came to
know that providing credit facility to the borrower is one of the important factors as far as the
banking sector is concerned. On the basis of the analyzed factor, I felt that the important issue
right now as far as the credit facilities are provided by bank is non performing assets. I started
knowing about the basics of the NPAs and decided to study on the NPAs. So, I chose the
topic COMPOSITION OF NPAs OF BANK SECTOR WISE.

2. DIFFERENT TOOLS AND

GUIDELINES

(USED TO

REDUCE NPAs)

The guidelines also provide for Accounts with temporary deficiencies. The
classification of an asset as NPA is required to be based on the record of recovery.
Bank is not required to classify an advance account as NPA merely due to the
existence of some deficiencies which are temporary in nature such as non-availability
of adequate drawing power based on the latest available stock statement, balance
outstanding exceeding the limit temporarily, non-submission of stock statements and
non-renewal of the limits on the due date, etc. In the matter of classification of
accounts with such deficiencies banks follow the following guidelines:
a. Banks is required to ensure that drawings in the working capital accounts are
covered by the adequacy of current assets, since current assets are first
appropriated in times of distress. Drawing power is required 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 can be up to three months old. The outstanding in
the account based on drawing power calculated from stock statements older
than three months, would be deemed as irregular. A working capital borrowal
account becomes NPA if such irregular drawings are permitted in the account
for a continuous period of 90 days even though the unit may be working or the
borrower's financial position is satisfactory.
b. Regular and ad hoc credit limits are required to be reviewed/ regularised not
later than three months from the due date/date of ad hoc sanction. In case of
constraints such as non-availability of financial statements and other data from
the borrowers, the branch is required to furnish evidence to show that renewal/
review of credit limits is already on and would be completed soon. In any case,
delay beyond six months is not considered desirable as a general discipline.
Hence, an account where the regular/ ad hoc credit limits have not been
reviewed/ renewed within 180 days from the due date/ date of ad hoc sanction
will be treated as NPA.
As regards the upgradation of loan accounts classified as NPAs, the policy is simple.
As soon as the arrears of interest and principal are paid by the borrower in the case of
loan accounts classified as NPAs, the account should no longer be treated as nonperforming and may be classified as standard accounts. With regard to upgradation of
a restructured/ rescheduled account which is classified as NPA separate guidelines will
be applicable.

The asset classification of borrowal accounts where a solitary or a few credits are
recorded before the balance sheet date should be handled with care and without scope
for subjectivity. Where the account indicates inherent weakness on the basis of the
data available, the account should be deemed as a NPA. In other genuine cases, the

banks are required to furnish satisfactory evidence to the Statutory Auditors/Inspecting

Officers about the manner of regularisation of the account to eliminate doubts on their
performing status.
Another important point regarding asset classification is that it has to be borrowerwise and not facility-wise. It is difficult to envisage a situation when only one facility
to a borrower/one investment in any of the securities issued by the borrower becomes
a problem credit/investment and not others. Therefore, all the facilities granted by a
bank to a borrower and investment in all the securities issued by the borrower are
required to be treated as NPA and not the particular facility/investment or part thereof
which has become irregular.
If the debits arising out of devolvement of letters of credit or invoked guarantees are
parked in a separate account, the balance outstanding in that account also should be
treated as a part of the borrowers principal operating account for the purpose of
application of prudential norms on income recognition, asset classification and
provisioning.
Asset classification of accounts under consortium is required to be based on the record
of recovery of the individual member banks and other aspects having a bearing on the
recoverability of the advances. Where the remittances by the borrower under
consortium lending arrangements are pooled with one bank and/or where the bank
receiving remittances is not parting with the share of other member banks, the account
will be treated as not serviced in the books of the other member banks and therefore,
be treated as NPA.
The banks participating in the consortium are therefore, required to arrange to get their
share of recovery transferred from the lead bank or get an express consent from the
lead bank for the transfer of their share of recovery, to ensure proper asset
classification in their respective books.
In respect of accounts where there are potential threats for recovery on account of
erosion in the value of security or non-availability of security and existence of other
factors such as frauds committed by borrowers it is not prudent that such accounts
should go through various stages of asset classification. In cases of such serious credit
impairment the asset are straightaway classified as doubtful or loss asset as
appropriate.

2.1 TYPES OF NPA

1. Gross NPA

2. Net NPA

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 nonstandard assets like as sub-standard, doubtful, and loss assets. It
can be calculated with the help of following ratio:
Gross NPAs Ratio = Gross NPAs Gross Advances

Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs.
Net NPA shows the actual burden of banks.
Since in India, bank balance sheets contain 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 NPAs according to the central bank guidelines, are quite significant.
That is why the difference between gross and net NPA is quite high. It can be calculated
by following:
Net NPAs = Gross NPAs Provisions /Gross Advances - Provisions

2.2 Asset classification

RBI guidelines for asset classification:

1. Standard assets:
An account (loan or investment) is classified as Performing Asset if it does
not disclose any problems and carry more than normal risk attached to the business
All loan facilities which are regular .

2. Sub-standard:
Effective from year ended March 31, 2005, assets are classified substandard
if they remain non-performing for less than or equal to 12 months. They have well
defined credit weaknesses and are characterised by the distinct possibility that the
bank will sustain some loss if the deficiencies are not rectified.
The account, where the terms of loan agreement relating to payment of
interest and repayment of principal have been negotiated or rescheduled after
commencement of production, should be classified as sub-standard and retained as
such for at least one year of satisfactory performance under the renegotiated terms.

3. Doubtful:
Effective from year ended March 31, 2005, assets are classified doubtful if
they remain non-performing for more than 12 months. They have all the weaknesses
inherent in sub-standard assets with the added characteristic that collection or
liquidation of the dues is highly improbable. As in the case of sub-standard asset,
rescheduling does not entitle a bank to upgrade the quality of the account
automatically.

4. Loss:
These are assets where loss has been identified by the bank or internal / external
auditors or RBI inspection, but the amount has not been written off, wholly or in part.
Such assets are considered uncollectible and of so little value that their continuance as
bankable assets is not warranted, even though there may be some salvage or recovery
value.

Guidelines for asset classification:

Assets are to be classified generally on the basis of well-defined credit
weaknesses and the extent of dependence on collaterals for realisation of dues. Net
worth of borrower / guarantor should not be taken into account while determining
whether an advance is NPA. Banks should bear in mind the following

RBI guidelines for asset classification:

(i) Identification of assets as NPA on on-going basis

Banks should identify assets as NPA on an on-going basis. They should evolve a
system to eliminate the tendency to delay or postpone identification of NPA,
particularly in respect of high-value accounts.
They should internally resolve doubts regarding asset classification within one month
of the date by which the account would have been classified as NPA as per prescribed
norms.
(ii) Treatment of accounts as NPA
a) Record of recovery
The classification of an asset as NPA has to be done on the record of recovery. Banks should
not classify an account as non-performing due to the existence of temporary deficiencies
such as balance exceeding limit, non-availability of adequate drawing power, non-submission
of stock statement or non-renewal of accounts on due date. If an account is regularised before
the balance sheet date by repayment of overdue through genuine sources (not by sanction of
additional facilities or transfer of funds between accounts), the account need not be treated as
NPA. It should, however, be ensured that the account remains in order subsequently and a
solitary credit made in the accounts near about the balance sheet date to extinguish the
overdue interest or instalment of principal is not reckoned as the sole criterion for treating the
account as a standard asset. In other genuine cases, banks must furnish to the Statutory
Auditor / RBI Inspecting Officer satisfactory evidence of regularisation of the account.
b) Classification as NPA for arrears in submission of stock statements
Outstanding in the account based on drawing power calculated from stock statements older
than three months would be considered as irregular. A working capital account will be
classified as NPA if such irregular drawings are allowed for more than 90 days.
(iii) Classification as NPA for non-review or non-renewal of limit
An account, where regular/ad-hoc credit limits are not reviewed or not renewed,
Within 90 days from the due date or date of ad-hoc sanction will be classified as NPA.

Provision on types of asset

Provision is allocating money every year to meet possible future loss.

2.3

Impact of NPA

1. Profitability:
NPA means booking of money in terms of bad asset, which occurred due
to wrong choice of client. Because of the money getting blocked the prodigality of
bank decreases not only by the amount of NPA but NPA lead to opportunity cost
also as that much of profit invested in some return earning project/assets. So NPA
doesnt affect current profit but also future stream of profit, which may lead to
loss of some long-term beneficial opportunity. Another impact of reduction in
profitability is low ROI (return on investment), which adversely affect current
earning of bank.
2.

Liquidity:
Money is getting blocked, decreased profit lead to lack of enough cash at
hand which lead to borrowing money for shortest period of time which lead to
additional cost to the company. Difficulty in operating the functions of bank is
another cause of NPA due to lack of money, and also face problem for Routine
payments and dues.

3. Involvement of management:
Time and efforts of management is another indirect cost which bank has to
bear due to NPA. Time and efforts of management in handling and managing NPA
would have diverted to some fruitful activities, which would have given good
returns. Now days banks have special employees to deal and handle NPAs, which
is additional cost to the bank.
4.

Credit loss:
Bank is facing problems of NPA then it adversely affects 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.

TECHNIQUES USED FOR MANAGEMENT OF NPAs

3.1 EARLY SYMPTOMS

By which one can recognize a performing asset turning in to non-performing asset
Four categories of early symptoms:1) Financial:

Non-payment of the very first installment in case of term loan.

Bouncing of cheque due to insufficient balance in the accounts.
Irregularity in installment.
Irregularity of operations in the accounts.
Unpaid overdue bills.
Declining Current Ratio.
Payment which does not cover the interest and principal amount of
that installment.
While monitoring the accounts it is found that partial amount is
diverted to sister concern or parent company.

2) Operational and Physical:

If information is received that the borrower has either initiated the
process of winding up or are not doing the business.
Overdue receivables.
Stock statement not submitted on time.
External non-controllable factor like natural calamities in the city where
borrower conduct his business.
Frequent changes in plan.
Nonpayment of wages.
3) Attitudinal Changes:
Use for personal comfort, stocks and shares by borrower.
Avoidance of contact with bank.
Problem between partners.
4) Others:
Changes in Government policies.
Death of borrower.
Competition in the market

3.2 REASONS FOR AN ACCOUNT BECOMING

NPA
1. Internal factors
2. External factors

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, misappropriation etc.
9) Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-ups,
delaying 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 calamities like floods, accidents.
5) Failures, nonpayment\ 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., The RBI has
summarized the finer factors contributing to higher level of NPAs in the Indian
banking sector as:
Diversion of funds, which is for expansion, diversification, modernization, undertaking
new projects and for helping associate concerns. This is also coupled with recessionary
trends and failures to tap funds in capital and debt markets.
Business failures (such as product, marketing etc.), which are due to inefficient
management system, strained labour relations, inappropriate technology/ technical
problems, product obsolescence etc.

 Recession, which is due to input/ power shortage, price variation, accidents, natural
calamities etc. The externalization problems in other countries also lead to growth of
NPAs in Indian banking sector.
Time/ cost overrun during project implementation stage.
Governmental policies such as changes in excise duties, pollution control orders etc.
Willful defaults, which are because of siphoning-off funds, fraud/ misappropriation,
promoters/ directors disputes etc.
Deficiency on the part of banks, viz, delays in release of limits and payments/ subsidies
by the Government of India.

PREVENTIVE MEASUREMENT FOR NPA:

1.

Early Recognition of the Problem: Invariably, by the time banks start

their efforts to get involved in a revival process, its too late to retrieve the
situation- both in terms of rehabilitation of the project and recovery of banks
dues. Identification of weakness in the very beginning that is: When the account
starts showing first signs of weakness regardless of the fact that it may not
have become NPA, is imperative. Assessment of the potential of revival may
be done on the basis of a techno-economic viability study. Restructuring
should be attempted where, after an objective assessment of the promoters
intention, banks are convinced of a turnaround within a scheduled timeframe.

In respect of totally unviable units as decided by the bank, it is better to

facilitate winding up/ selling of the unit earlier, so as to recover whatever is
possible through legal means before the security position becomes worse.
I
Iddeennttiif f yyiinnggBBoorrrroowweerrsswwiitthhGGeennuuiinneeIInntteenntt::
Identifying borrowers with genuine intent from those who are non- serious with
nocommitment or stake in revival is a challenge confronting bankers. Here the role of
frontline officials at the branch level is paramount as they are the ones who haveintell
igent inputs with regard to promoters sincerity, and capability to achieve
turnaround. Based on this objective assessment, banks should decide as quickly aspossible
whether it would be worthwhile to commit additional finance.In this regard banks may
consider having
Special Investigation
of all financialtransaction or business transaction, books of account in order to ascertain real
factors thatcontributed to sickness of the borrower. Banks may have penal of technical
experts withproven expertise and track record of preparing techno-economic study of the
project of the borrowers.Borrowers having genuine problems due to temporary mismatch in
fund flow or suddenrequirement of additional fund may be entertained at branch level, and
for this purpose aspecial limit to such type of cases should be decided. This will obviate the
need to routethe additional funding through the controlling offices in deserving cases, and
help avertmany accounts slipping into NPA category.
TiimmeelliinneessssaannddAAddeeqquuaaccyyoof f rreessppoonnssee::
Longer the delay in response, grater the injury to the account and the asset. Time is acrucial
element in any restructuring or rehabilitation activity. The response decided onthe basis of
technoeconomic study and promoters commitment, has to be ad
equate interms of extend of additional funding and relaxations etc. under the
restructuringexercise. The package of assistance may be flexible and bank may look at the
exit option.
FFooccuussoonnCCaasshhFFlloowwss::
While financing, at the time of restructuring the banks may not be guided by theconventional
fund flow analysis only, which could yield a potentially misleading picture.Appraisal for
fresh credit requirements may be done by analyzing funds flow inconjunction with the Cash
Flow rather than only on the basis of Funds Flow.
MMaannaaggeemmeennttEEf f f f eeccttiivveenneessss::
The general perception among borrower is that it is lack of finance that leads to sicknessand
NPAs. But this may not be the case all the time. Management effectiveness intackling adverse
business conditions is a very important aspect that affects a borrowing
units fortunes. A bank may commit additional finance to an aling unit only after basic

viability of the enterprise also in the context of quality of management is examined

andconfirmed. Where the default is due to deeper malady, viability study or investigativeaudit
should be done

it will be useful to have consultant appointed as early as possibleto examine this aspect. A
proper techno- economic viability study must thus become thebasis on which any future
action can be considered.
MMuullttiipplleeFFiinnaanncciinngg::

During the exercise for assessment of viability and restructuring, a

Pragmatic andunified approach
by all the lending banks/ FIs as also sharing of all relevantinformation on the borrower would
go a long way toward overall success of rehabilitation exercise, given the probability of
success/failure.

In some default cases, where the unit is still working, the bank should make sure that
it captures the cash flows
(there is a tendency on part of the borrowers to switchbankers once they default, for fear of
getting their cash flows forfeited), and ensurethat such cash flows are used for working
capital purposes. Toward this end, thereshould be regular flow of information among
consortium members. A bank, which isnot part of the consortium, may not be allowed to offer
credit facilities to suchdefaulting clients. Current account facilities may also be denied at nonconsortiumbanks to such clients and violation may attract penal action. The
Credit InformationBureau of India Ltd.(CIBIL)
may be very useful for meaningful informationexchange on defaulting borrowers once the
setup becomes fully operational.

In a forum of lenders, the priority of each lender will be different. While one set of lenders
may be willing to wait for a longer time to recover its dues, another lendermay have a much
shorter timeframe in mind. So it is possible that the letter categoriesof lenders may be willing
to exit, even a t a cost

by a discounted settlement of theexposure. Therefore, any plan for restructuring/rehabilitation

may take this aspect intoaccount.

Corporate Debt Restructuring

mechanism has been institutionalized in 2001 toprovide a timely and transparent system for
restructuring of the corporate debt of Rs.20 crore and above with the banks and FIs on a
voluntary basis and outside the legalframework. Under this system, banks may greatly benefit
in terms of restructuring of large standard accounts (potential NPAs) and viable sub-standard
accounts withconsortium/multiple banking arrangements.
PROCEDURES FOR NPA IDENTIFICATION ANDRESOLUTION IN INDIA:
1.
Internal Checks and Control
Since high level of NPAs dampens the performance of the banks identification of potential
problem accounts and their close monitoring assumes importance. Though mostbanks have
Early Warning Systems (EWS) for identification of potential NPAs, theactual processes
followed, however, differ from bank to bank. The EWS enable a bank toidentify the borrower
accounts which show signs of credit deterioration and initiateremedial action. Many banks
have evolved and adopted an elaborate EWS, which allowsthem to identify potential distress
signals and plan their options beforehand, accordingly.The early warning signals, indicative
of potential problems in the accounts, viz. persistentirregularity in accounts, delays in
servicing of interest, frequent devolvement of L/Cs,units' financial problems, market related
problems, etc. are captured by the system. Inaddition, some of these banks are reviewing their
exposure to borrower accounts everyquarter based on published data which also serves as an
important additional warningsystem. These early warning signals used by banks are generally
independent of risk rating systems and asset classification norms prescribed by RBI.The
major components/processes of a EWS followed by banks in India as brought out bya study
conducted by Reserve Bank of India at the instance of the Board of FinancialSupervision are
as follows:

Designating Relationship Manager/ Credit Officer for monitoring account/s

Preparation of `know your client' profile

Credit rating system

Identification of watch-list/special mention category accounts

Monitoring of early warning signals

Relationship Manager/Credit Officer
The Relationship Manager/Credit Officer is an official who is expected to have
completeknowledge of borrower, his business, his future plans, etc. The Relationship
Manager hasto keep in constant touch with the borrower and report all developments
impacting the borrowable account. As a part of this contact he is also expected to conduct
scrutiny andactivity inspections. In the credit monitoring process, the responsibility of
monitoring acorporate account is vested with Relationship Manager/Credit Officer.
Know your client' profile (KYC)
Most banks in India have a system of preparing `know your client' (KYC)
profile/creditreport. As a part of `KYC' system, visits are made on clients and their places of
business/units. The frequency of such visits depends on the nature and needs of relationship.
Credit Rating System
The credit rating system is essentially one point indicator of an individual credit exposureand
is used to identify measure and monitor the credit risk of individual proposal. At thewhole
bank level, credit rating system enables tracking the health of banks entire creditportfolio.
Most banks in India have put in place the system of internal credit rating. Whilemost of the
banks have developed their own models, a few banks have adopted creditrating models
designed by rating agencies. Credit rating models take into account varioustypes of risks viz.
financial, industry and management, etc. associated with a borrowableunit. The exercise is
generally done at the time of sanction of new borrowable accountand at the time of review
renewal of existing credit facilities.
Watch-list/Special Mention Category
The grading of the bank's risk assets is an important internal control tool. It serves theneed of
the Management to identify and monitor potential risks of a loan asset. Thepurpose of
identification of potential NPAs is to ensure that appropriate preventive / corrective steps
could be initiated by the bank to protect against the loan asset becomingnon-performing.
Most of the banks have a system to put certain borrowable accountsunder watch list or
special mention category if performing advances operating underadverse business or
economic conditions are exhibiting certain distress signals. Theseaccounts generally exhibit
weaknesses which are correctable but warrant banks' closerattention. The categorization of
such accounts in watch list or special mention category provides early warning signals
enabling Relationship Manager or Credit Officer toanticipate credit deterioration and take
necessary preventive steps to avoid their slippageinto non performing advances. Early
Warning Signals It is important in any early warningsystem, to be sensitive to signals of

credit deterioration. A host of early warning signalsare used by different banks for
identification of potential NPAs. Most banks in India havelaid down a series of operational,
financial, transactional indicators that could serve toidentify emerging problems in credit
exposures at an early stage. Further, it is revealedthat the indicators which may trigger early
warning system depend not only on default inpayment of installment and interest but also
other factors such as deterioration inoperating and financial performance of the borrower,
weakening industry characteristics,regulatory changes, general economic conditions, etc.
Early warning signals can beclassified into five broad categories viz.a)
Financialb)
Operationalc)
Bankingd)
Management ande)
External factors.
Financial
related warning signals generally emanate from the borrowers' balance sheet,income
expenditure statement, statement of cash flows, statement of receivables etc.Following
common warning signals are captured by some of the banks having relativelydeveloped
EWS.
Financial warning signals

Persistent irregularity in the account

Default in repayment obligation

Devolvement of LC/invocation of guarantees

Deterioration in liquidity/working capital position

Substantial increase in long term debts in relation to equity

Declining sales


Operating losses/net losses
Rising sales and falling profits

Disproportionate increase in overheads relative to sales

Rising level of bad debt losses Operational warning signals

Low activity level in plant

Disorderly diversification/frequent changes in plan

Nonpayment of wages/power bills

Loss of critical customer/s

Frequent labor problems

Evidence of aged inventory/large level of inventory

Management related warning signals

Lack of co-operation from key personnel

Change in management, ownership, or key personnel

Desire to take undue risks

Family disputes


Poor financial controls

Fudging of financial statements

Diversion of funds
Banking related signals

Declining bank balances/declining operations in the account

Opening of account with other bank

Return of outward bills/dishonored cheques

Sales transactions not routed through the account

Frequent requests for loan

Frequent delays in submitting stock statements, financial data, etc.

Signals relating to external factors

Economic recession

Emergence of new competition

Emergence of new technology

2. Legal and regulatory regime:
Lokadalats

The institution of Lokadalat constituted under the Legal Services Authorities Act, 1987helps
in resolving disputes between the parties by conciliation, mediation, compromise oramicable
settlement. It is known for effecting mediation and counseling between theparties and to
reduce burden on the court, especially for small loans. Cases involving suitclaims up to Rs. l
million can be brought before the Lokadalat and every award of theLokadalat shall be
deemed to be a decree of a Civil Court and no appeal can lie to anycourt against the award
made by the Lokadalat. Several people of particular localitiesvarious social organizations are
approaching Lokadalats which are generally presidedover by two or three senior persons
including retired senior civil servants, defensepersonnel and judicial officers. They take up
cases which are suitable for settlement of debt for certain consideration. Parties are heard and
they explain their legal position.They are advised to reach to some settlement due to social
pressure of senior bureaucratsor judicial officers or social workers. If the compromise is
arrived at, the parties to thelitigation sign a statement in presence of Lokadalats which is
expected to be filed in courtto obtain a consent decree. Normally, if such settlement contains
a clause that if thecompromise is not adhered to by the parties, the suits pending in the court
will proceed inaccordance with the law and parties will have a right to get the decree from the
court. Ingeneral, it is observed that banks do not get the full advantage of the Lokadalats. It
isdifficult to collect the concerned borrowers willing to go in for compromise on the daywhen
the Lokadalat meets. In any case, we should continue our efforts to seek the help of the
Lokadalat.
Enactment of SRFAESI Act
The "The Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act" (SRFAESI) provides the formal legal basis and regulatoryframework for setting
up Asset Reconstruction Companies (ARCs) in India. In additionto asset reconstruction and
ARCs, the Act deals with the following largely aspects,
Securitization and Securitization Companies

Enforcement of Security Interest

Creation of a central registry in which all securitization and asset reconstructiontransactions

as well as any creation of security interests has to be filed.The Reserve Bank of India (RBI),
the designated regulatory authority for ARCS hasissued Directions, Guidance Notes,
Application Form and Guidelines to Banks in April2003 for regulating functioning of the
proposed ARCS and these Directions/ GuidanceNotes cover various aspects relating to
registration, operations and funding of ARCS andresolution of NPAs by ARCS. The RBI has
also issued guidelines to banks and financialinstitutions on issues relating to transfer of assets
to ARCS, consideration for the sameand valuation of instruments issued by the ARCS.
Additionally, the Central Governmenthas issued the security enforcement rules
("Enforcement Rules"), which lays down theprocedure to be followed by a secured creditor

while enforcing its security interestpursuant to the Act. The Act permits the secured creditors
(if 75% of the securedcreditors agree) to enforce their security interest in relation to the
underlying securitywithout reference to the Court after giving a 60 day notice to the
defaulting borrowerupon classification of the corresponding financial assistance as a nonperforming asset.The Act permits the secured creditors to take any of the following measures:

Take over possession of the secured assets of the borrower including right totransfer by way
of lease, assignment or sale;

Take over the management of the secured assets including the right to transfer byway of
lease, assignment or sale;

Appoint any person as a manager of the secured asset (such person could be theARC if they
do not accept any pecuniary liability); and

Recover receivables of the borrower in respect of any secured asset which hasbeen
transferred. After taking over possession of the secured assets, the securedcreditors are
required to obtain valuation of the assets. These secured assets maybe sold by using any of
the following routes to obtain maximum value.

By obtaining quotations from persons dealing in such assets or otherwiseinterested in buying

the assets;

By inviting tenders from the public;

Institution of CDR
Mechanism
The RBI has instituted the Corporate Debt Restructuring (CDR) mechanism forresolution of
NPAs of viable entities facing financial difficulties. The CDR mechanisminstituted in India is
broadly along the lines of similar systems in the UK, Thailand,Korea and Malaysia. The
objective of the CDR mechanism has been to ensure timely andtransparent restructuring of
corporate debt outside the purview of the Board for Industrialand Financial Reconstruction
(BIFR), DRTs or other legal proceedings. The framework is intended to preserve viable
corporate affected by certain internal/external factors andminimize losses to creditors/other
stakeholders through an orderly and coordinatedrestructuring programme. RBI has issued
revised guidelines in February 2003 withrespect to the CDR mechanism. Corporate

borrowers with borrowings from the bankingsystem of Rs. 20crores and above under multiple
banking arrangement are eligible underthe CDR mechanism. Accounts falling under standard,
sub-standard or doubtfulcategories can be considered for restructuring. CDR is a nonstatutory
mechanism basedon debtor-creditor agreement and inter-creditor agreement. Restructuring
helps inaligning repayment obligations for bankers with the cash flow projections as
reassessed atthe time of restructuring. Therefore it is critical to prepare a restructuring plan on
thelines of the expected business plan along with projected cash flows.
Increased Powers to NCLTs and the Proposed Repeal of BIFR
In India, companies whose net worth has been wiped out on account of accumulatedlosses
come under the purview of the Sick Industrial Companies Act (SICA) and need tobe referred
to BIFR. Once a company is referred to the BIFR (and even if an enquiry ispending as to
whether it should be admitted to BIFR), it is afforded protection againstrecovery proceedings
from its creditors. BIFR is widely regarded as a stumbling block inrecovering value for
NPAs. Promoters systematically take refuge in SICA - often there isa scramble to file a
reference in BIFR so as to obtain protection from debt recoveryproceedings. The recent
amendments to the Companies Act vest powers for revival andrehabilitation of companies
with the National Company Law Tribunal (NCLT), in placeof BIFR, with modifications to
address weaknesses experienced under the SICAprovisions. The NCLT would prepare a
scheme for reconstruction of any sick companyand there is no bar on the lending institution
of legal proceedings against such companywhilst the scheme is being prepared by the NCLT.
Therefore, proceedings initiated byany creditor seeking to recover monies from a sick
company would not be suspended bya reference to the NCLT and, therefore, the above
provision of the Act may not havemuch relevance any longer and probably does not extend to
the tribunal for this reason.However, there is a possibility of conflict between the activities
that may be undertakenby the ARC, e.g. change in management, and the role of the NCLT in
restructuring sick companies. The Bill to repeal SICA is currently pending in Parliament and
the process of staffing of NCLTs has been initiated