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PROJECT REPORT
ON
COMPARATIVE ANALYSIS ON
BANKS
REQUIRMENT OF PG PROGRAME
research
Ahmadabad
SUBMITTED BY:
JIGAR J. SONI ( 5 )
Session: 2007-
2009
Page 1
PROJECT REPORT
ON
COMPARATIVE ANALYSIS ON
NON PERFORMING ASSETS
BANKS
REQUIRMENT OF PG PROGRAME
research
Ahmadabad
SUBMITTED BY:
JIGAR J. SONI ( 5 )
Page 2
Session: 2007-2009
Page 3
RESEARCH
Code:-2911
Project title:
COMPARATIVE ANALYSIS ON
By:
Jigar J. Soni
Nirav N. Gusai
Sciences
Syndicate house
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Manipal-576 104
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our original work and not submitted for the award of any other
Reg.No:
Name
520781709
JIGAR J. SONI
Date:
Place:
Page 6
ANNEXURE –C (EXAMINER’S
CERTIFICATE
examiner
Name:- Name:-
Qualification: -
Qualification:-
Designation: -
Designation:-
Page 7
CERTIFICATE)
supervision and that no part of this report has been submitted for
the award of any other degree, Diploma , fellowship or other
similar titles or prizes and that the work has been published in
Name Reg. no
Certified
Qualification)
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ACKNOWLEDGEMENT
ACKNOWLEDGEMENT
With a deep sense of gratitude I express we thanks to all those who have
I am also indebted to all lecturers, friends and associates for their valuable
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INTRODUCTION
INTRODUCTION
assumed great importance. The depth of the problem of bad debts was
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
first realized only in early 1990s. The magnitude of NPAs in banks and
banks, net NPA shows the actual burden of banks. Now it is increasingly
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
evident that the major defaulters are the big borrowers coming from the
non-priority sector. The banks and financial institutions have to take the
non-priority sector. The banks and financial institutions have to take the
because they dominate the banking industries, but also since they have
because they dominate the banking industries, but also since they have
much larger NPAs compared with the private sector banks. This raises a
much larger NPAs com pared with the private sector banks. This raises a
NPAs reduce the profitability of a banks, weaken its financial health and
NPAs reduce the profitability of a banks, weaken its financial health and
the management of NPAs under which several options are provided for
the management of NPAs under which several options are provided for
debt recovery and restructuring. Banks and FIs have the freedom to
debt recover y and restructuring. Banks and FIs have the freedom to
design and implement their own policies for recover y and write-off
design and implement their own policies for recovery and write-off
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RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
Type of Research
study were
Guidelines
Impact of NPAs
Preventive Measures
Sampling plan
To prepare this Project we took five banks from public sector as well as
The basic idea behind undertaking the Grand Project on NPA was
to:
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The data collected for the study was secondary data in Nature.
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)))
((
CONTENTS
CHAPTER
PAGE
CHAPTER
NO.
NO.
NO.
NO.
Introduction to NPAs
2
Research Methodology
Scope of Research
Sc
Type of Research
Objective of Study
Data Collection
Introduction to Topic
Definition
Types of NPAs
Income Recognition
Reporting of NPAs
4 Provisioning Norms
Prsioning Norms
General
Floating provisions
Leased Assets
Early Symptoms
Preventive Measurement
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Timeliness
Management Effectiveness
Multiple Financing
Willful default
Inability to Pay
Special Cases
Role of ARCIL
8 Analysis
Analysis
Deposit- Investment-Advances
Non-Priority Sector
10 Bibliography
Bibliography
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Introduction to the topic
The three letters 哲 PA_ Strike terror in banking sector and business circle
today. NPA is short form of 哲 on Performing Asset_. The dreaded NPA rule
says simply this: when interest or other due to a bank remains unpaid for
more than 90 days, the entire bank loan automatically turns a non
performing asset. The recovery of loan has always been problem for
banks and financial institution. To come out of these first we need to think
is it possible to avoid NPA, no can not be then left is to look after the factor
Definitions:
Definitions:
which the interest and/ or instalment of principal has remained ‘past due’
greater transparency, it has been decided to adopt the ‘90 days’ overdue’
norm for identification of NPAs, from the year ending March 31, 2004.
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Interest and/ or instalment of principal remain overdue for a
harvest seasons but for a period not exceeding two half years
and
NPA only if the interest charged during any quarter is not serviced fully
within 180 days from the end of the quarter with effect from April 1, 2002
and 90 days from the end of the quarter with effect from March 31, 2004.
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HISTORY OF INDIAN BANKING
banking services such as accepting deposits and making loans. There are
The word bank is derived from the Italian banca, which is derived from
German and means bench. The terms bankrupt and "broke" are similarly
derived from banca rotta, which refers to an out of business bank, having
business in open areas, or big open rooms, with each lender working from
have occurred even before Manu, the great Hindu Jurist, who has
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trade and commerce. During the days of the East India Company,
business. The General Bank of India was first Joint Stock Bank to
In the first half of the 19th century the East India Company
1921. With the passing of the State Bank of India Act in 1955 the
The Reserve Bank of India which is the Central Bank was created
bestowed Reserve Bank of India (RBI) with wide ranging powers for
Page 18
3. At book value.
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Page 20
importantly, the sector has become very competitive with the entry
Pay roll
transaction volumes --
offices
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1981- 1990 Regulator (read RBI) led IT introduction in Banks
(ALPMs)
New private banks are set up with CBS/TBA form the start
MNC banks
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An amount due under any credit facility is treated as 菟 ast due_ when it
is not been paid within 30 days from the due date. Due to the
dispense with 菟 ast due 田 oncept, with effect from March 31, 2001.
advance where
ii. The account remains ‘out of order ‘ for a period of more than 180
iii. The bill remains overdue for a period of more than 180 days in case
iv. Interest and/or principal remains overdue for two harvest season
but for a period not exceeding two half years in case of an advance
overdue ‘norms for identification of NPAs ,from the year ending March
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i. Interest and/or installment of principal remain overdue for a
ii. The account remains ‘out of order ‘ for a period of more than
iii. The bill remains overdue for a period of more than 90 days
season but for a period not exceeding two half years in case
Out of order
power. in case where the out standing balance in the principal operating
account is less than the sanctioned amount /drawing power, but there are
credit are not enough to cover the interest debited during the same
Overdue
Any amount due to the bank under any credit facility is ‘overdue’ if it
The banking sector has been facing the serious problems of the
rising NPAs. But the problem of NPAs is more in public sector banks
when compared to private sector banks and foreign banks. The NPAs in
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EXTERNAL FACTORS :-
----------------------------------
Willful Defaults
There are borrowers who are able to payback loans but are
Natural calamities
NPAs of the PSBs. every now and then India is hit by major natural
reduced profit.
Mainly ours farmers depends on rain fall for cropping. Due
Industrial sickness
Page 26
Lack of demand
them unable to pay back the money they borrow to operate these
which covers a minimum label. Thus the banks record the non
With every new govt. banking sector gets new policies for its
INTERNAL FACTORS :-
---------------------------------
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There are three cardinal principles of bank lending that have been
i. Principles of safety
i. Principles of safety :-
a. Capacity to pay
b. Willingness to pay
1. Tangible assets
2. Success in business
1. Character
2. Honest
3. Reputation of borrower
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The banker should, there fore take utmost care in ensuring that the
Inappropriate technology
a. From bankers.
Page 29
business.
while financing.
Poor credit appraisal is another factor for the rise in NPAs. Due to
poor credit appraisal the bank gives advances to those who are not
Managerial deficiencies
[Comparative analysis on NPA of Private & Public sector Banks]
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The banker should always select the borrower very carefully and
1. Marketability
2. Acceptability
3. Safety
4. Transferability.
risk based on the famous maxim 電 o not keep all the eggs in one
not be affected.
the OTM (117.77lakhs), and the handloom sector Orissa hand loom
Re loaning process
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Due to re loaning to the defaulters and CCBs and PACs, the NPAs
1. Owners do not receive a market return on there capital .in the worst
case, if the banks fails, owners loose their assets. In modern times
balance.
interest rates, lower deposit rates and higher lending rates repress
Non performing asset may spill over the banking system and contract the
money stock, which may lead to economic contraction. This spill over
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The three letters Strike terror in banking sector and business circle today.
NPA is short form of 哲 on Performing Asset_. The dreaded NPA rule says
simply this: when interest or other due to a bank remains unpaid for more
than 90 days, the entire bank loan autom atically turns a non performing
asset. The recovery of loan has always been problem for banks and
possible to avoid NPA, no can not be then left is to look after the factor
harvest seasons but for a period not exceeding two half years
and
interest charged during any quarter is not ser viced fully within 180 days
from the end of the quarter with effect from April 1, 2002 and 90 days from
the end of the quarter with effect from March 31, 2004.
Page 33
power, but there are no credits continuously for six months as on the date
of Balance Sheet or credits are not enough to cover the interest debited
order'.
Overdue’:
Overdue’:
Types of NPA
A] Gross NPA
B] Net NPA
A] Gross NPA:
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Gross NPAs are the sum total of all loan assets that are classified as
reflects the quality of the loans made by banks. It consists of all the
Gross NPAs
Gross Advances
B] Net NPA:
B] Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the
provision regarding NPAs. Net NPA shows the actual 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
INCOME RECOGNITION
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The policy of income recognition has to be objective and based on
should not charge and take to income account interest on any NPA.
KVPs and Life policies may be taken to income account on the due
Reversal of income:
reversed or provided for if the same is not realised. This will apply
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In respect of NPAs, fees, commission and sim ilar income that have
Leased Assets
The net lease rentals (finance charge) on the leased asset accrued
The term 'net lease rentals' would mean the amount of finance
charge taken to the credit of Profit & Loss Account and would be
should be transferred ever y year to the Profit & Loss Account and
provided the credits in the accounts towards interest are not out of
concerned.
Interest Application:
Reporting of NPAs
each year after completion of audit. The NPAs would relate to the
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being reported.
PARTICULARS
1) Gross Advanced *
2) Gross NPA *
adjustment
NPAs.
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Asset Classification
-------------------------------
-------------------------------
Categories of NPAs
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Standard Assets:
Standard assets are the ones in which the bank is receiving interest as
well as the principal amount of the loan regularly from the customer. Here
it is also very important that in this case the arrears of interest and the
principal amount of loan does not exceed 90 days at the end of financial
year. If asset fails to be in category of standard asset that is amount due
more than 90 days then it is NPA and NPAs are further need to classify in
sub categories.
further into the following three categories based on the period for which
the asset has rem ained non-performing and the realisability of the dues:
( 1 ) Sub-standard Assets
( 2 ) Doubtful Assets
( 3 ) Loss Assets
(3)
( 1 ) Sub-standard Assets:--
With effect from 31 March 2005, a sub standard asset would be one,
which has remained NPA for a period less than or equal to 12 month. The
following features are exhibited by sub standard assets: the current net
banks in full; and the asset has well-defined credit weaknesses that
jeopardise the liquidation of the debt and are characterised by the distinct
possibility that the banks will sustain some loss, if deficiencies are not
corrected.
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( 2 ) Doubtful Assets:--
( 2 ) Doubtful Assets:--
that were classified as sub-standard, with the added characteristic that the
improbable.
With effect from March 31, 2005, an asset would be classified as doubtful
( 3 ) Loss Assets:--
:--
A loss asset is one which considered uncollectible and of such little value
may be some salvage or recovery value. Also, these assets would have
or the RBI inspection but the amount would not have been written-off
wholly.
Provisioning Norms
------------------------------------------
------------------------------------------
Page 42
General
the difference.
requirements between the RBI and the bank is above certain cut off
levels so that the bank and the statutory auditors take into account
the assessment of the RBI while making provisions for loan loss,
etc.
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realisation of the security and the erosion over time in the value of
below:
Loss assets:
Loss assets:
The entire asset should be written off. If the assets are permitted to
remain in the books for any reason, 100 percent of the outstanding should
be provided for.
Doubtful assets:
Doubtful assets:
the realisable value of the security to which the bank has a valid
of the secured portion depending upon the period for which the
requirement (%)
Page 44
Up to one year
20
30
31,2005.
2006.
April 1, 2004.
category.
year period commencing from the year ending March 31, 2005, with
Page 45
securities available.
Standard assets:
Standard assets:
Page 46
Floating provisions:
overall financial strength of the banks and the stability of the financial
sector, banks are urged to voluntarily set apart provisions much above the
Leases are peculiar transactions where the assets are not recorded in the
Leases are peculiar transactions where the assets are not recorded in the
books of the user of such assets as Assets, whereas they are recorded in
books of the user of such assets as Assets, whereas they are recorded in
the books of the owner even though the physical existence of the asset is
the books of the owner even though the physical existence of the asset is
Sub-standard assets : -
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ICAI, 'Gross book value' of a fixed asset is its historical cost or other
amount substituted for historical cost in the books of account or financial
the Gross Book Value of the leased asset in the balance sheet of the
adjusted in the 'net book value' of the leased assets. The amount of
Doubtful assets :-
100 percent of the extent to which the finance is not secured by the
depending upon the period for which asset has been doubtful:
Period
%age of provision
Up to one year 20
Loss assets :-
Page 48
The entire asset should be written-off. If for any reason, an asset is
allowed to remain in books, 100 percent of the sum of the net investment
in the lease and the unrealised portion of finance income net of finance
Circumstances
remains in default for more than two quarters (180 days at present), the
above.
Page 49
In respect of advances under rehabilitation package approved by
respect of dues to the bank on the existing credit facilities as per their
sanctioned need not be made for a period of one year from the date of
disbursement.
requirements.
requirements.
Page 50
made for doubtful assets, realisable value of the securities should first be
hereunder:
Example
Outstanding Balance
Rs. 4 lakhs
DICGC Cover
50 percent
doubtful
remained doubtful
Outstanding balance
Page 51
Unrealised balance
unsecured portion)
advance
secured portion)
Example I
the least
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Realisable value of Security Rs.1.50 lakh
security
uncovered portion:
Provision Required
portion
Rs.2.12 lakh
Example II
the least
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security
uncovered portion:
portion
Rs.11.25 lakh
Take-out finance
Take-out finance
(RERFA)
Page 54
should treat the full amount of the Revaluation Gain relating to the
Impact of NPA
Profitability:-
by the amount of NPA but NPA lead to opportunity cost also as that
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NPA doesn’t affect current profit but also future stream of profit,
Liquidity:-
hand which lead to borrowing money for shot\rtes period of time which
and dues.
Involvement of management:-
Time and efforts of management is another indirect cost which bank has to
bear due to NPA. Time and efforts of managem ent in handling and
managing NPA would have diverted to some fruitful activities, which would
have given good returns. Now day’s banks have special employees to
Bank is facing problem of NPA then it adversely affect the value of bank in
terms of market credit. It will lose it’s goodwill and brand image and credit
which have negative impact to the people who are putting their money in
the banks .
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A] Internal Factor
Page 57
B] External Factor
[ A ] Internal Factors:-
[ A ] Internal Factors:-
Internal Factors are those, which are internal to the bank and are
controllable by banks.
[ B ] External Factors:-
External factors are those, which are external to banks they are not
controllable by banks.
Page 58
• Natural calamities
• Industrial sickness
• Business failure
• Inefficient management
• Obsolete technology
• Product obsolete
Early symptoms by which one can
to Non-performing asset
Page 59
---------------------------------------------------
---------------------------------------------------
( 1 ) Financial:
Irregularity in installment.
Payment which does not cover the interest and principal amount of
that installment.
Overdue receivables.
( 3 ) Attitudinal Changes:
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( 4 ) Others:
Death of borrower.
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process, it’s too late to retrieve the situation- both in terms of rehabilitation
the ver y beginning that is : When the account starts showing first signs of
weakness regardless of the fact that it may not have become NPA, is
becomes worse.
Identifyi
ng borrowers with genuine intent from those who are non- serious with no
the role of frontline officials at the branch level is paramount as they are
the ones who has intelligent inputs with regard to promoters’ sincerity, and
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In this regard banks may consider having 鉄 pecial Investigation_ of all
may have penal of technical experts with proven expertise and track
at branch level, and for this purpose a special limit to such type of cases
should be decided. This will obviate the need to route the additional
funding through the controlling offices in deserving cases, and help avert
Longer the delay in response, grater the injury to the account and the
The package of assistance may be flexible and bank may look at the exit
option.
:-
While financing, at the time of restructuring the banks may not be guided
by the conventional fund flow analysis only, which could yield a potentially
misleading picture. Appraisal for fresh credit requirements may be done by
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analyzing funds flow in conjunction with the Cash Flow rather than only on
Management Effectiveness:-
Management Effectiveness:-
leads to sickness and NPAs. But this may not be the case all the time.
very important aspect that affects a borrowing unit’s fortunes. A bank may
commit additional finance to an aling unit only after basic viability of the
economic viability study must thus become the basis on which any future
Multiple Financing:-
B. In some default cases, where the unit is still working, the bank
default, for fear of getting their cash flows forfeited), and ensure
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that such cash flows are used for working capital purposes. Toward
While one set of lenders may be willing to wait for a longer time to
with the banks and FIs on a voluntar y basis and outside the legal
arrangements.
Page 65
Page 66
Credit Default
Inability to Pay
Willful default
Unviable
Viable
Lok Adalat
Rehabilitation
Rehabilitation
Debt Recovery
Debt Recovery
Compromise
Compromise
Tribunals Securitization
Act
Asset
Consortium Finance
Reconstruction
Rephasement of
Fresh Issue of
Conversion
Term Loan
into WCTL
into WCTL
[Comparative analysis on NPA of Private & Public sector Banks]
Page 67
most efficient manner. Legal ways and means are there to over come and
Willful Default :-
B] Securitization Act
C] Asset Reconstruction
Lok Adalat:
cases of NPAs of Rs. 10 lakh and above. This mechanism has proved to
be quite effective for speedy justice and recover y of small loans. The
Page 68
recovery of NPAs in the times to com e. DRTs which have been set up by
been able make much impact on loan recovery due to variety of reasons
Inability to Pay
Consortium arrangements:
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
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
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Background
Background
and also due to certain internal reasons. For the revival of the corporate
as well as for the safety of the money lent by the banks and FIs, timely
Objective
purview of BIFR, DRT and other legal proceedings, for the benefit of
corporate that are affected by certain internal and external factors and
Page 70
Structure:
CDR system in the country will have a three-tier structure:
body of all financial institutions and banks participating in CDR system. All
will lay down policies and guidelines, guide and monitor the progress of
The Forum will also provide an official platform for both the
evolve policies and guidelines for working out debt restructuring plans in
members in the system. The Forum will elect its Chairman for a period of
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one year and the principle of rotation will be followed in the subsequent
whole-time officer to guide and carry out the decisions of the CDR
Standing Forum.
A CDR Core Group will be carved out of the CDR Standing Forum
Group will consist of Chief Executives of IDBI, ICICI, SBI, Bank of Baroda,
The CDR Standing Forum shall meet at least once every six
months and would review and monitor the progress of corporate debt
restructuring system. The Forum would also lay down the policies and
guidelines to be followed by the CDR Empowered Group and CDR Cell for
also review any individual decisions of the CDR Empowered Group and
CDR Cell.
The CDR Standing Forum, the CDR Empowered Group and CDR
financial institutions and banks shall share the administrative and other
Page 72
Empowered Group effective and broad based and operate efficiently and
however, a bank / financial institution has only one Executive Director, the
panel may consist of senior officials, duly authorized by its Board. The
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corporate.
and accepted by the Empowered Group, the company would be put on the
collectively or individually.
CDR Cell:
The CDR Standing Forum and the CDR Empowered Group will be
assisted by a CDR Cell in all their functions. The CDR Cell will make the
calling for proposed rehabilitation plan and other information and put up
the matter before the CDR Empowered Group, within one month to decide
whether rehabilitation is prima facie feasible, if so, the CDR Cell will
facie feasible, the lenders may start action for recovery of their dues.
adequate members of staff for the Cell will be deputed from banks and
financial institutions. The CDR Cell may also take outside professional
help. The initial cost in operating the CDR mechanism including CDR Cell
will be met by IDBI initially for one year and then from contribution from
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the financial institutions and banks in the Core Group at the rate of Rs.50
lakh each and contribution from other institutions and banks at the rate of
borrowers will be made to the CDR Cell. It shall be the responsibility of the
by the CDR Standing Forum and place for the consideration of the
reasons the period can be extended maximum upto 180 days from the
Other features:
The scheme will not apply to accounts involving only one financial
institution or one bank. The CDR mechanism will cover only multiple
Page 75
will get priority. This approach would provide the necessary flexibility and
triggered by (i) any or more of the secured creditor who have minimum
Legal Basis
Legal Basis
The debtors shall have to accede to the DCA, either at the time of original
Page 76
guidelines.
Stand-Still Clause:
days, or 180 days by both sides. Under this clause, both the debtor and
legal action during the 'stand-still' period, this would be necessary for
abide by the various elements of CDR system. Further , the creditors shall
secured creditors.
Page 77
aforesaid first two stages [paragraph 5(a) and (b) above] would not
the sacrifice involved. For the purpose, the future interest due as
per the original loan agreement in respect of an account should be
Page 78
involved.
CDR
for the specified period, provided the loan / credit facility is fully secured.
the specified period subject to the condition that the amount of sacrifice, if
written off or provision is made to the extent of the sacrifice involved. For
the purpose, the future interest due as per the original loan agreement in
appropriate to the risk category of the borrower (i.e., current PLR + the
with the present value of the dues expected to be received under the
present value terms, as at (b) above, the amount of sacrifice should either
Even in cases where the sacrifice is by way of write off of the past interest
Page 79
The sub-standard accounts at (ii) (a), (b) and (c) above, which have
be upgraded to the standard categor y only after the specif ied period,
i.e., a period of one year after the date when first payment of interest or
performance during the period. The amount of provision made earlier, net
of the amount provided for the sacrifice in the interest amount in present
period.
During this one-year period, the sub-standard asset will not
performance during the one year period is not evidenced, the asset
payment schedule.
Page 80
assets even though the modification of terms might not jeopardise the
and/or of interest could take place, with or without sacrifice, as part of the
Page 81
fully secured.
category subject to the condition that the amount of sacrifice, if any, in the
off or provision is made to the extent of the sacrifice involved. For the
purpose, the future interest due as per the original loan agreement in
appropriate to the risk category of the borrower (i.e., current PLR+ the
with the present value of the dues expected to be received under the
present value terms, as at (b) above, the amount of sacrifice should either
for the specified period, provided the loan/credit facility is fully secured.
for the specified period subject to the condition that the amount of
Page 82
terms, is either written off or provision is made to the extent of the
sacrifice involved. For the purpose, the future interest due as per the
the present value at a rate appropriate to the risk category of the borrower
(i.e., current PLR + the appropriate credit risk premium for the borrower-
category) and compared with the present value of the dues expected to be
present value terms, as at (b) above, the amount of sacrifice should either
Even in cases where the sacrifice is by way of write off of the past interest
category only after the specified period i.e., a period of one year after the
provision made earlier, net of the amount provided for the sacrifice in the
reversed after the one year period. During this one-year period, the sub-
governed as per the applicable prudential norms with reference to the pre-
Page 83
General:
commercial production, time and cost escalation etc. are not applicable to
properly charged to the bank and is not in the intangible form like
Income recognition
extant instructions. In other words, while the accounts of the project may
Page 84
become ‘non performing’ as per the extant delinquency norm of 180 days.
The delinquency norm would become 90 days with effect from 31 March
2004.
past, should reverse the interest if it was recognised as income during the
following:
Funded Interest:
done strictly on cash basis, only on realisation and not if the amount of
interest overdue has been funded. If, however, the amount of funded
instrument:
for the amount of income so recognised to offset the effect of such income
Page 85
that may be necessary for the depreciation in the value of the equity or
norms. This norm would also apply to zero coupon bonds or other
Provisioning
Provisioning
for NPAs, banks which are already holding provisions against some of the
Page 86
Special Cases
Special Cases
limits on the due date, etc. In the matter of classification of accounts with
Page 87
relied upon by the banks for determining drawing power should not be
older than three months. The outstanding in the account based on drawing
power calculated from stock statements older than three months, would be
period of 180 days even though the unit may be working or the borrower's
other data from the borrowers, the branch should furnish evidence to show
soon. In any case, delay beyond six months is not considered desirable as
limits have not been reviewed/ renewed within 180 days from the due
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
performing status.
Page 88
becomes a problem credit and not others. Therefore, all the facilities
value of the security is less than 50 per cent of the value assessed by the
bank or accepted by RBI at the time of last inspection, as the case may
approved values/ RBI is less than 10 per cent of the outstanding in the
system, only that particular credit facility granted to PACS/ FSS which is in
default for a period of two harvest seasons (not exceeding two half
years) /two quarters, as the case may be, after it has become due will be
classified as NPA and not all the credit facilities sanctioned to a PACS/
FSS. The other direct loans & advances, if any, granted by the bank to the
will become NPA even if one of the credit facilities granted to the same
Ad
vances against term deposits, NSCs eligible for surrender, IVPs, KVPs
and life policies need not be treated as NPAs. Advances against gold
ornaments, government securities and all other securities are not covered
by this exemption.
become overdue and hence NPA, with reference to the date of debit of
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interest. They become overdue after due date for payment of interest, if
uncollected.
need not be considered as overdue from the first quarter onwards. Such
Agricultural advances
past due for two harvest seasons but for a period not exceeding two half-
items 1.1, 1.1.2 (i) to (vii), 1.1.2 (viii)(a)(1) and 1.1.2 (viii)(b)(1) of Master
delinquency norm.
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well as fresh short-term loan may be treated as current dues and need not
two harvest seasons but for a period not exceeding two half years.
remains in default for more than two quarters. With effect from March 31,
Take-out Finance:
Take-out Finance:
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arrangem ent with any financial institution for transferring to the latter the
the asset has turned NPA on the basis of the record of recovery, it should
income on accrual basis and account for the same only when it is paid by
the borrower/ taking over institution (if the arrangement so provides). The
lending institution should also make provisions against any asset turning
into NPA pending its take over by taking over institution. As and when the
taking over such assets, should make provisions treating the account as
NPA from the actual date of it becoming NPA even though the account
whereby, in the event of default, EXIM Bank will pay the guaranteed
amount to the bank within a period of 30 days from the day the bank
invokes the guarantee after the exporter has filed claim with ECGC.
EXIM Bank, the advance may not be treated as a non-performing asset for
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Export Project Finance:
the actual importer has paid the dues to the bank abroad but the bank in
documentar y evidence that the importer has cleared the dues in full by
depositing the amount in the bank abroad before it turned into NPA in the
books of the bank, but the importer's country is not allowing the funds to
be made after a period of one year from the date the amount was
Ban
respect of which the terms have been re-negotiated unless the package of
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ROLE OF ARCIL :-
system, namely, State Bank of India (SBI), ICICI Bank Limited (ICICI) and
IDBI Bank Limited (IDBI) to come together to set-up the first ARC. Arcil
of registration dated August 29, 2003, issued by the Reserve Bank of India
(RBI) and operates under powers conferred under the Securitization Act,
(h) (ia) of the Recovery of Debts due to Banks and Financial Institutions
non-perform ing assets (NPAs) upon acquisition from Indian banks and
financial institutions. As the first ARC, Arcil has played a pioneering role in
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ANALYSIS
For the purpose of analysis and comparison between private sector and
public sector banks, we take five-five banks in both sector to compare the
the non performing assets in priority sector and non priority sector, gross
– advances.
to these we can understand the where the bank stands in the competitive
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Baroda and Bank of India are almost the similar in numbers and Dena
Bank is stands for last in public sector bank. When we compare the
private sector banks with public sector banks among these banks, we can
But when we compare the private sector bank ICICI Bank with the public
sector banks ICICI Bank is more deposit-investment figures and first in the
all banks.
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DEPOSIT
INVESTMENT
ADVANCES
100000
150000
200000
250000
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DEPOSIT
INVESTMENT
ADVANCES
100000
120000
140000
160000
180000
20000
40000
60000
80000
DEPOSIT
INVESTMENT
ADVANCES
100000
150000
200000
250000
ICICI
PNB
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There are two concepts related to non-performing assets_ gross and net.
provisions made. It consists of all the non standard assets, viz. sub
remains NPA for more than 18 months; and loss, without any waiting
Net NPA is gross NPA less provisions. Since in India, bank balance
sheets contains a huge amount of NPAs and the process of recovery and
write off of loans is very time consuming, the provisions the banks have to
make against the NPA according to the central bank guidelines, are quite
significant.
Here, we can see that there are huge difference between gross and net
NPA. While gross NPA reflects the quality of the loans made by
banks, net NPA shows the actual burden of banks. The requirements
depending on the period for which the account has remained in the
doubtful category
standard category.
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Here, there are gross and net NPA data for 2006-07 and 2007-08 we
NPA reflects the quality of the loans made by banks. Among all the ten
banks Dena Banks has highest gross NPA as a percentage of total assets
in the year 2006-07 and also net NPA. Punjab National Bank shows vast
difference between gross and net NPA. There is almost same figures
YEAR 2006-07
BOB
1.46
0.35
BOI
1.48
0.45
DENA
2.37
1.16
PNB
2.09
0.45
UBI
1.82
0.59
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2.5
2
1.5
GROSS NPA
NET NPA
0.5
2007-08
BOB
1.10
0.27
BOI
1.08
0.33
DENA
1.48
0.56
PNB
1.67
0.38
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UBI
1.34
0.10
1.2
1.4
1.6
1.8
GROSS NPA
NET NPA
0.2
0.4
0.6
0.8
2006-07
AXIS
0.57
0.36
HDFC
0.72
0.22
ICICI
1.20
0.58
KOTAK
1.39
1.09
INDUSIND
1.64
1.31
1.2
1.4
1.6
1.8
GROSS NPA
NET NPA
0.2
0.4
0.6
0.8
2007-08
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BANK GROSS NPA NET NPA
AXIS
0.45
0.23
HDFC
0.68
0.22
ICICI
1.90
0.87
KOTAK
1.55
0.98
INDUSIND
1.69
1.25
1.5
GROSS NPA
NET NPA
0.5
0
INDUSIND KOTAK ICICI HDFC AXIS
profitability and efficiency. In the long run, it eats up the net worth
of the banks. We can say that NPA is not a healthy sign for
financial institutions. Here we take all the ten banks gross NPA
compare in private sector banks AXIS and HDFC Bank are below
average of all banks and in public sector BOB and BOI. Average of
these five private sector banks gross NPA is 1.25 and average of
sector banks.
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GROSS NPA :-
1. 5
0.5
I C I C I I N DU S I N D KO T AK H DF C A XI S B OI B O B UB I D E NA P N B
public sector banks all these five banks are below this. But in
private sector banks there are three banks are above average. The
Private sector banks net NPA average is 0.71 and in public sector
NPA shows actual burden of banks. IndusInd bank has highest net
1.2
1.4
0.2
0.4
0.6
0.8
ICICI INDUSIND KOTAK HDFC AXIS BOI BOB UBI DENA PNB
When we further bifurcate NPA in priority sector and Non priority sector.
ICICI Bank has the highest NPA in both sector in compare to other private
sector banks. Around 72% of NPA is with ICICI Bank with Rs.1359 crore
Page 106
in priority sector and around 78% in non priority sector. We can see that
in private sector banks , banks has more NPA in non priority sector than
priority sector.
BANK AGRI
SMALL
OTHERS
PRIORITY
NON-
(1)
(2)
(3)
SECTOR
PRIORITY
( 1+2+3 )
PRIORITY
NON-PRIORITY
1000
2000
3000
4000
5000
6000
7000
NPA
(ADVANCED RS.CRORE )
BOB
5469
350
BOI
3269
325
DENA
1160
106
PNB
3772
443
UBI
1924
197
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PRIORITY
NPA
1000
2000
3000
4000
5000
6000
When we talk about public sector banks they are more in priority sector
banks give more loans to Agriculture , small scale and others units and as
a result we see that there are more number of NPA in public sector banks
than in private sector banks. BOB given more advanced to priority sector
But when there are comparison between private bank and public sector
bank still ICICI Bank has more NPA in both priority and non priority sector
with the comparison of public sector banks. Large NPA in ICICI Bank
because the strategy of bank that risk-reward attitude and initiative in each
sector. Above we also discuss that ICICI Bank has highest deposit-
Now, when we compare the all public sector banks and public sector
banks on priority and non-priority sector than the figures are really
SECTOR
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Here, there are huge difference between private and public sector banks
2007-08 which is almost 66% rise than previous year. In public sector
banks the numbers are not increased like private sector banks.
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