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2 CAPSTONE PROJECT – A study of Non Performing Assets on Indian Private Banks CERTIFICATION/THESIS APPROVAL BY FACULTY ADVISOR TO. PDF | A major threat to banking sector is prevalence of NPAs. An asset which ceases 15+ million members; + million publications; k+ research projects. 𝗣𝗗𝗙 | During FY , a comparative study was made to investigate banks' a research project was undertaken during FY and.

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project report on NPA - Free download as Word Doc .doc /.docx), PDF File .pdf) , Text File .txt) or read online for free. Project on Npa - Free download as Word Doc .doc /.docx), PDF File .pdf), Text File .txt) or read online for free. project made under the head NON. of non-performing assets cannot be reduced and the bank will incur losses to a great Improper project handling, ineffective management, lack of adequate.

Other Loans: Any amount to be received remains overdue for a period of more than 90 days. Agricultural Accounts: In the case of agriculture advances, where repayment is based on income from crop.

An account will be classified as NPA as under: Thefallout of this momentous regulatory measure for the management of the CBs was to divert itsfocus to profitability, which till then used to be a low priority area for it. Asset quality assumedgreater importance for the CBs when Maintenance of high quality credit portfolio continues to bea major challenge for the CBs, especially with RBI gradually moving towards convergence withmore stringent global norms for impaired assets.

Asset quality problems are at the root of otherfinancial problems for banks, leading to reduced net interest income and higher provisioningcosts.

If loan losses exceed the Bad and Doubtful Debt Reserve, capital strength is reduced. Reduced income means less cash, which can potentially strain liquidity. Market knowledge thatthe bank is having asset quality problems and associated financial conditions may cause outflowof deposits. Thus, the performance of a bank is inextricably linked with its asset quality.


This is all the more important for the CBs, which are at a disadvantage of the commercial banksin terms of professionalized management, skill levels, technology adoption and effective riskmanagement systems and procedures.

Management of NPAs begins with the consciousness of agood portfolio, which warrants a better understanding of risks in lending. The Board has todecide a strategy keeping in view the regulatory norms, the business environment, its marketshare, the risk profile, the available resources etc. The strategy should be reflected in Boardapproved policies and procedures to monitor implementation. The essential components of soundNPA management are: Classification of loans In India bank loans are classified on the following basis: Performing Assets: Non-Performing assets: Any loan repayment, which is overdue beyond days or two quarters, isconsidered as NPA.

Asset classificationAssets can be categorized into Four categories namely 1 Standard 2 Sub -Standard 3 Doubtful 4 Loss the last three categories are classified as NPAs based on the period forwhich the asset has remained non-performing and the realisability of the dues.

The loan accounts which are regular and do not carry more than normal risk. Within standard assets, there could be accounts which though have not become NPA but are irregular. Such accounts are called as special Mention accounts. With effect from In other words, such an asset will have well defined credit weakness that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

With effect from 31 march , an asset is to be classified as doubtful, if it has remained NPA or sub standard for a period exceeding 12 months earlier it was 18 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weakness make collection or liquidation in full,- on the basis of currently known facts, conditions and values- highly questionable and improbable.

A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recoverable value.

When a Sub Standard account is classified as Doubtful or Loss without waiting for 12 months: Out of Order: The date of NPA will be the actual date on which slippage occurred, as mentionedbelow: Income Recognition — Policy 1. The Policy of income recognition has to be objective and based on the record of recovery. Internationally income from non-performing asset NPA is not recognized on accrual basis but is booked as income only when it is actually received.

Therefore, the banks should not charge and take to income account interest on any NPA. On an account turning NPA, banks should reverse the interest already charged and not collected by debiting profit and loss account, and stop further application of interest. However, banks may continue to record such accrued interest in a memorandum account in their books. However, interest on advances against term deposits, NSCs, IVPs, KVPs, and Life policies may be taken to income account on the due date, provided adequate margin is available in the accounts.

If government guaranteed advances become NPA, the interest on such advances should not be taken to income account unless the interest has been realized.

If any advance, including bills downloadd and discounted, become s NPA as at the close of any year, the entire interest accrued and credited to income account in the past periods, should be reversed or provided for if the same is not realized.

This will apply to government guaranteed accounts also. So RBI directive now requires the banks to makeprovisions in their balance sheet for all non-standard loss assets. Provisioning is made on alltypes of assets i. Standard, Sub Standard, Doubtful and loss assets.

Standard Assets: RBI vides its circular dated For all types of standard assets it has been reduced to a uniform level of 0. The provisions on standard assets should not be reckoned for arriving at net NPAs. Sub Standard Assets: Doubtful assets: In case of doubtful assets, while making provisions, realizable value of security is to be considered.

In case of secured portion, the rate of provision depends on age of the doubtful assets as under: Loss Assets: While making provisions on NPAs, amount lying in suspense interest account and derecognized interest should be deducted from gross advance and provisions be made on the balance amount. Overall provisions: Banks should achieve this norm not later than end-September The failure of the banking sectormay have an adverse impact on other sectors. Non-performing assets are one of the majorconcerns for banks in India.

The only problem that hampers the possible financial performanceof the public sector banks is the increasing results of the Non- performing Assets.

The Non-performing Assets impacts drastically to the working of the banks. The efficiency of a bank isnot always reflected only by the size of its balance sheet but by the level of return on its assets. NPAs do not generate interest income for the banks, but the same time banks are required tomake provisions for such NPAs from their current profits. They erode current profits through provisioning requirements.

They result in reduced interest income. They require higher provisioning requirements affecting profits and accretion to capital.

They limit recycling of funds, set in assets-liability mismatches, etc. Adverse impact on Capital Adequacy Ratio. Bad effect on Goodwill. Bad effect on equity value. The RBI has also develop many schemes and tools to reduce the NPA assets byintroducing internal checks and control scheme, relationship mangers as stated by RBI who havecomplete knowledge of the borrowers, credit rating system , and early warning system and so on.

Though RBI has taken number of measures to reduce the level of the Non performingAssets the result is not up to expectations. To improve NPAs each bank should be motivated tointroduce their own precautionary steps. Before lending the banks must evaluate the feasiblefinancial and operational prospective results of the borrowing companies or customer. They mustevaluate the borrowing companies by keeping in considerations the overall impacts of all thefactors that influence the business.

A high level of NPAssuggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. Other Causes a Lack of Infrastructure b Fast changing technology c Un helpful attitude of Government d Changes in consumer preferences e Increase in material cost f Government policies g Credit policies h Taxation laws I Civil commotion j Political hostility k Sluggish legal system l Changes related to Banking amendment Act 34 Early symptoms by which one can recognize a performing asset turning in to Non-performing assetFour categories of early symptoms: 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.

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 35 Attitudinal Changes: Use for personal comfort, stocks and shares by borrower Avoidance of contact with bank Problem between partnersOthers: Changes in Government policies Death of borrower Competition in the market 36 The NPA may be classified as standard in the books of the downloading bank for a periodof 90 days from date of download and thereafter it would depend on the record of recoverywith reference to cash flows estimated while downloading.

Identification of weakness in the very beginningthat is: When the account starts showing first signs of weakness regardless of the factthat it may not have become NPA, is imperative. Assessment of the potential of revivalmay be done on the basis of a techno-economic viability study. Identifying Borrowers with Genuine Intent: Identifying borrowers with genuine intent from those who arenon- serious with no commitment or stake in revival is a challenge confronting bankers. Based on this objective assessment, banks should decide as quickly aspossible whether it would be worthwhile to commit additional finance.

Banks may have penal of technical experts with proven 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 sudden requirement of additional fund may be entertained 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 many accounts slipping into NPA category.

Timeliness and Adequacy of response: Longer the delay in response, grater the injury to the account andthe asset.

Time is a crucial element in any restructuring or rehabilitation activity. Thepackage of assistance may be flexible and bank may look at the exit option. Focus on Cash Flows: While financing, at the time of restructuring the banks may not beguided by the conventional fund flow analysis only, which could yield a potentially misleadingpicture.

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. Management Effectiveness: The general perception among borrower is that it is lack of financethat leads to sickness and NPAs.

But this may not be the case all the time. Management 40 A bank may commit additional finance to an align unit only afterbasic 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 investigative auditshould be done — it will be useful to have consultant appointed as early as possible to examinethis aspect. A proper techno- economic viability study must thus become the basis on which anyfuture action can be considered.

Multiple Financing: 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 switch bankers once they default, for fear of getting their cash flows forfeited , and ensure that such cash flows are used for working capital purposes. Toward this end, there should be regular flow of information among consortium members. A bank, which is not part of the consortium, may not be allowed to offer credit facilities to such defaulting clients.

Current account facilities may also be denied at non-consortium banks to such clients and violation may attract penal action. CIBIL may be very useful for meaningful information exchange 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 lender may have a much shorter timeframe in mind. So it is possible that the letter categories of lenders may be willing to exit, even a t a cost — by a discounted settlement of the exposure. Corporate Debt Restructuring mechanism has been institutionalized in to provide a timely and transparent system for restructuring of the corporate debt of Rs. RBI also releases a list of borrowers with aggregate outstanding of Rs.

Reporting quick mortality cases Special mention accounts for early identification of bad debts. Loans and advances overdue for less than one and two quarters would come under this category.

More significant of them, I would like to recapitulate at this stage. Banks are free to design and implement their own policies for recovery and write-off incorporating compromise and negotiated settlements with the approval of their Boards, particularly for old and unresolved cases falling under the NPA category. The policy framework suggested by RBI provides for setting up of an independent Settlement Advisory Committees headed by a retired Judge of the High Court to scrutinize and recommend compromise proposals.

Specific guidelines were issued in May to public sector banks for onetime non-discretionary and non-discriminatory settlement of NPAs of small sector.

The scheme was operative up to September 30, Negotiating for compromise settlements;The first crucial step towards meaningful NPA management is to accept that recoveries are onesown responsibility. To keep the Banks operating cycle going smoothly, it is essential that thisrealization of ones duties be transformed into deeds by resorting to various methods of recovery. Of the various methods available for NPA Management, Compromise Settlements are the mostattractive, if handled in a professional manner.

Advantagesi Saves money, time and manpowerBanks are mainly concerned with recovery of dues, to the maximum possible extent, at minimumexpense. By entering into compromise settlements, the objective is achieved.

The impression generated is that theBank is capable not only of sympathy, but also empathy. Recovery means funds becoming available forrecycling and, additional interest generation. Improved asset quality signifieshigher profits by reduced provisions and increased interest income. With additions to thereserves, the capital position also improves, improving the Capital Adequacy position.

Besides the above, compromise offers the best option when, i. The documents are defective and cannot be rectified, ii. The borrowers become untraceable and recovery can be only though guarantors.

Disadvantages i. Compromise involves loss, since full recovery is not possible. In fact, full recovery is not even envisaged, but sacrifice is.

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It may be viewed as a reward for default, especially if chronic default cases are settled by negotiations. It may have a demonstrative effect, and so may vitiate the culture of repayment iv. There is also the possibility of misuse or, even, malafides, since assessment of situation is highly subjective. Practical aspects of compromise settlements Every compromise proposal needs to be looked at individually, evaluated strictly on merits, and negotiated properly for maximization of benefit to the Bank.

Hence, a straight jacket approach is not possible, neither is it desirable, to give strict guidelines for compromise settlements. Restructuring and RehabilitationA.

The public sector banks had recovered Rs. The progress through this channel is expected to pick up in the coming years particularly looking at the recent initiatives taken by some of the public sector banks and DRTs in Mumbai. Though there are 22 DRTs set up at major centers in the country withAppellate Tribunals located in five centers viz.

The amount recovered in respect of these cases amounted to only Rs. Looking at the huge task on hand with as many as casesinvolving Rs. I may add that familiarizationprogrammes have been offered in NIBM at periodical intervals to the presidingofficers of DRTs in understanding the complexities of documentation and operationalfeatures and other legalities applicable of Indian banking system. RBI on its part hassuggested to the Government to consider enactment of appropriate penal provisionsagainst obstruction by borrowers in possession of attached properties by DRTreceivers, and notify borrowers who default to honour the decrees passed againstthem.

Circulation of information on defaulters The RBI has put in place a system for periodical circulation of details of willful defaults of borrowers of banks and financial institutions. RBI also publishes a list of borrowers with outstanding aggregating Rs.

It is our experience that these measures had not contributed to any perceptible recoveries from the defaulting entities. However, they serve as negative basket of steps shutting off fresh loans to these defaulters.

I strongly believe that a real breakthrough can come only if there is a change in the repayment psyche of the Indian borrowers. An Asset Reconstruction Company with an authorized capital of Rs. It would negotiate with banks and financial institutions for acquiring distressed assets and develop markets for such assets. Government of India proposes to go in for legal reforms to facilitate the functioning of ARC mechanism 48 Legal Reforms The Honorable Finance Minister in his recent budget speech has alreadyannounced the proposal for a comprehensive legislation on asset foreclosure andSecuritization.

Corporate Debt Restructuring CDR Corporate Debt Restructuring mechanism has been institutionalized in to provide a timely and transparent system for restructuring of the corporatedebts of Rs. The CDRprocess would also enable viable corporate entities to restructure their dues outsidethe existing legal framework and reduce the incidence of fresh NPAs. Theexperiment however has not taken off at the desired pace though more than sixmonths have lapsed since introduction.

TheGroup will review the operation of the CDR Scheme, identify the operationaldifficulties, if any, in the smooth implementation of the scheme and suggest measuresto make the operation of the scheme more efficient. CIBIL is under way.

RBI isconsidering the recommendations of the S. The main recommendations of the Group include dissemination of information relating to suit-filed accounts regardless of the amount claimed in the suit or amount of credit granted by a credit institution as also such irregular accounts where the borrower has given consent for disclosure. This, I hope, would prevent those who take advantage of lack of system of information sharing amongst lending institutions to borrow large amounts against same assets and property, which had in no small measure contributed to the incremental NPAs of banks.

It is working out a proper definition covering such classes of defaulters so that credit denials to this group of borrowers can be made effective and criminal prosecution can be made demonstrative against willful defaulters. Taiwanese financial institutions have been encouraged to merge though withlimited success and form bank based AMCs through the recent introduction of FinancialHolding Company Act and Financial Institution Asian countries, the magnitude of NPAs inAsian financial institutions was brought to light.

Driven by the need to proactively tackle thesoaring NPA levels the respective Governments embarked upon a program of substantial reform. This involved setting up processes for early identification and resolution of NPAs. The tablebelow provides a cross country comparison of approaches used for NPA resolution. Deferred loss write-offprovisions have been instituted to provide breathing space for lenders to absorb NPA write-offs.

Credit Risk MitigationAs part of the overall credit function of the bank, early recognition of loans showing signs ofdistress is a key component. Credit risk management focuses on assessing credit risk andmatching it with capital or provisions to cover expected losses from default. Early Warning SystemsLoan monitoring is a continuous process and Early Warning Systems are in place for staff tocontinuously be alert for warning signs.

Asset Management CompaniesTo resolve NPA problems and help restore the health and confidence of the financial sector, thecountries in South East Asia have used one broad uniform approach, i. This broad approach was locally adapted and used with a varying degree of efficacyacross the region. For example, while in some countries a centralized government sponsoredAMC model has been used, in others a more decentralized approach has been used involving thecreation of several "bank-based" AMCs.

Additionally, theefficacy of bankruptcy and foreclosure laws has varied in various countries. A number of factorsinfluenced the successful resolution of NPAs through sale to AMCs and some of these keyfactors are discussed below 51 Increasing willingness to sell NPAs to AMCs Bottlenecks often persist on account of reluctance of lenders to transfer assets to the AMCs atvalues lower than the book value to prevent a hit to their financials.

Banks in Malaysia wereencouraged to transfer their assets to Danaharta - AMC in Malaysia by providing them withupside sharing arrangements and the facility to defer the write-off of financial loss on transfer for5 years. These incentives coupled with the directive of the Central Bank to make adjustments inthe book values of the assets not transferred to Danaharta after Danaharta identifies them weresufficient to ensure effective sale to the AMC.

Consequently there is an increasingnumber of NPA auctions by the banks. Effective resolution strategyA significant dimension influencing NPA resolution and investor participation is the ease ofimplementation of recovery strategies. AMCs like Danaharta have been provided with a strongplatform to affect the resolution of NPAs with clearly laid down creditors rights.

Danaharta hasbeen allowed to foreclose property without reference to the Court and thus has been able todispose collateral swiftly by using the tender route. Special resolution mechanisms that haveinvolved minimal intervention of the Court have also served to entice investor interest in theNPA market in certain countries like Taiwan. Appointment of Special AdministratorsIn Malaysia, it has been able to exercise considerable influence over the restructuring processthrough the appointment of special administrators that have prepared workout plans and haveexercised management control over the assets of the borrower during plan preparation andimplementation stages.

Internationally,restructuring of NPAs often involves significant operational restructuring in addition to financialrestructuring. The operational restructuring measures typically include the following areas: Once the restructuring measures have been agreed by stakeholders, a complete restructuringplan is prepared which takes into account all the agreed restructuring measures.

This includesestablishment of a timetable and assignment of responsibilities. Usually, lenders will alsoestablish a protocol for monitoring of progress on the operational restructuring measures. Thiswould typically involve the appointment of an independent monitoring agency. As seen from theAsian experience, in general, NPA resolution has been most successful when Flexibility in modes of asset resolution restructuring, third party sales has been provided to lenders.

Performance targets set for banks to get them to resolve NPAs by a certain deadline. Difficulties with the Non-Performing Assets: Owners do not receive a market return on their capital. In the worst case, if the bank fails,owners lose their assets. In modern times, this may affect a broad pool of shareholders. Depositors do not receive a market return on savings. In the worst case if the bank fails,depositors lose their assets or uninsured balance. Banks also redistribute losses to otherborrowers by charging higher interest rates.

Lower deposit rates and higher lending rates represssavings and financial markets, which hampers economic growth.

Nonperforming loans epitomize bad investment. They misallocate credit from good projects,which do not receive funding, to failed projects. Bad investment ends up in misallocation ofcapital and, by extension, labour and natural resources. The economy performs below itsproduction potential. Nonperforming loans may spill over the banking system and contract the money stock, whichmay lead to economic contraction.

This spillover effect can channelize through illiquidity orbank insolvency; a when many borrowers fail to pay interest, banks may experience liquidityshortages.

These shortages can jam payments across the country, b illiquidity constraints bankin paying depositors e. Banking panic follows. A run on banks bydepositors as part of the national money stock become inoperative. Lending by banks has been highly politicized. It is common knowledge that loans are given tovarious industrial houses not on commercial considerations and viability of project but onpolitical considerations; some politician would ask the bank to extend the loan to a particularcorporate and the bank would oblige.

In normal circumstances banks, before extending any loan,would make a thorough study of the actual need of the party concerned, the prospects of thebusiness in which it is engaged, its track record, the quality of management and so on. Since thisis not looked into, many of the loans become NPAs. The loans for the weaker sections of the society and the waiving of the loans to farmers areanother dimension of the politicization of bank lending.

Research operations 55 Research Operations 1. Significance of the study The main aim of any person is the utilization of money in the best manner since the India is country where more than half of population has problem of running the family in the most efficient manner.

However Indian people faced large number of problem till the development of full-fledged banking sector.

The Indian banking sector came into the developing nature mostly after the government policy. The banking sector has really helped the Indian people to utilize the single money in the best manner as they want. The banks not only accept the deposits of the people but also provide them credit facility for their development. Indian banking sector has the nation in developing the business and service sectors.

Due to the improvement in the payment and settlement systems, recovery climate, up gradation of technology in the banking system, etc. 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, form the year ending March 31, Call it a white elephant if you wish.

Basically, it is having something that should work but does not. It is supposed to make Non- Performing Assets work. The RBI has issued guidelines to banks for classification of assets into four categories. Standard Assets: These are loans which do not have any problem are less risk. Substandard Assets: These are assets which come under the category of NPA for a period of less than 12 months.

Doubtful Assets: These are NPA exceeding 12 months. Loss Assets: Where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. The outcomes analyzed from this study would be beneficial to various sections such as: This study would primarily benefit the banks in identifying the sectors to be given priority for lending money.

Future Researchers: The results of the study would also benefit the future researchers as this study would enhance their knowledge about the topic. They would get an insight of the present scenario of this industry as this is the emerging industry in the financial sector of the economy.

This research would help students in understanding of NPA concept as a whole. The financial reforms in Indian bank industry have helped largely to clean NPA which was around Rs 52, crores in the year The earning capacity and profitability of the bank are highly affected due to this NPA.

Net NPA is obtained by deducting items like interest due but not recovered, part payment received and kept in suspense account from Gross NPA. The problem of high gross NPAs is simply one of inheritance. Historically, Indian public sector banks have been poor on credit recovery, mainly because of very little legal provision governing foreclosure and bankruptcy, lengthy legal battles, sticky loans made to government public sector undertakings, loan waivers and priority sector lending.

Net NPAs are comparatively better on a global basis because of the stringent provisioning norms prescribed for banks in by Narashimam Committee. In India, even on security taken against loans, provision has to be created. Further, Indian banks have to make a per cent provision on the amount not covered by the realizable value of securities in case of ''doubtful'' advance, while in some countries; it is 75 per cent or just 50 per cent.

The ASSOCHAM Study titled - Solvency Analysis of the Indian Banking Sectors, reveals that on an average 24 per cent rise in net non performing assets have been registered by 25 public sector and commercial banks during the second quarter of the as against According to the RBI, "Reduction of NPAs in the Indian banking sector should be treated as a national priority item to make the system stronger, resilient and geared to meet the challenges of globalization.

It is necessary that a public debate is started soon on the problem of NPAs and their resolution. According to a study by Brownbridge , most of the bank failures were caused by non- performing loans. Arrears affecting more than half the loan portfolios were typical of the failed banks.

Many of the bad debts were attributable to moral hazard: Under such circumstances, the holders of loans can make an allowance for a normal share of non-performance in the form of bad loan provisions, or they may spread the risk by taking out insurance. Enterprises may well be able to pass a large portion of these costs to customers in the form of higher prices. For instance, the interest margin applied by financial institutions will include a premium for the risk of nonperformance on granted loans.

Eventually, the economy reaches a trough and turns towards a new expansionary phase, as a result the risk of future losses reaches a low point, even though banks may still appear relatively unhealthy at this stage in the cycle. According to Gorter and Bloem non-performing loans are mainly caused by an inevitable number of wrong economic decisions by individuals and plain bad luck inclement weather, unexpected price changes for certain products, etc.

Under such circumstances, the holders of loans can make an allowance for a normal share of nonperformance in the form of bad loan provisions, or they may spread the risk by taking out insurance. Petya Koeva , his study on the Performance of Indian Banks. During Financial Liberalization states that new empirical evidence on the impact of financial liberalization on the performance of Indian commercial banks.

The analysis focuses on examining the behavior and determinants of bank intermediation costs and profitability during the liberalization period. The empirical results suggest that ownership type has a significant effect on some performance indicators and that the observed increase in competition during financial liberalization has been associated with lower intermediation costs and profitability of the Indian banks.

For measuring efficiency of banks we have adopted development envelopment analysis and found that public sectors banks are more efficient then other banks in India Brijesh K.

Saho et. Our broad empirical findings are indicative in many ways. First, the increasing average annual trends in technical efficiency for all ownership groups indicate an affirmative gesture about the effect of the reform process on the performance of the Indian banking sector.

Second, the higher cost efficiency accrual of private banks over nationalized banks indicate that nationalized banks, though old, do not reflect their learning experience in their cost minimizing behavior due to X-inefficiency factors arising from government ownership.

This finding also highlights the possible stronger disciplining role played by the capital market indicating a strong link between market for corporate control and efficiency of private enterprise assumed by property right hypothesis. And, finally, concerning the scale elasticity behavior, the technology and market-based results differ significantly supporting the empirical distinction between returns to scale and economies of scale, often used interchangeably in the literature.

Roma Mitra et. This paper tries to model and evaluate the efficiency of 50 Indian banks. The Inefficiency can be analyzed and quantified for every evaluated unit.

The aim of this paper is to estimate and compare efficiency of the banking sector in India. The analysis is supposed to verify or reject the hypothesis whether the banking sector fulfils its intermediation function sufficiently to compete with the global players. The results are insightful to the financial policy planner as it identifies priority areas for different banks, which can improve the performance.

This paper evaluates the performance of Banking Sectors in India.

Project on Npa

Satish Kumar , in his article on an evaluation of the financial performance of Indian private sector banks wrote Private sector banks play an important role in development of Indian economy. After liberalization the banking industry underwent major changes. The economic reforms totally have changed the banking sector.

RBI permitted new banks to be started in the private sector as per the recommendation of Narashiman committee. The Indian banking industry was dominated by public sector banks. But now the situations have changed new generation banks with used of technology and professional management has gained a reasonable position in the banking industry.

Karunakar et.

The problem of losses and lower profitability of Non- Performing Assets NPA and liability mismatch in Banks and financial sector depend on how various risks are managed in their business. Besides capital to risk Weightage assets ratio of public sector banks, management of credit risk and measures to control the menace of NPAs are also discussed.

The lasting solution to the problem of NPAs can be achieved only with proper credit assessment and risk management mechanism. It is better to avoid NPAs at the market stage of credit consolidation by putting in place of rigorous and appropriate credit appraisal mechanisms.

Nelson M. Waweru et. Using a sample of 30 managers selected from the ten largest banks the study found that national economic downturn was perceived as the most important external factor. Customer failure to disclose vital information during the loan application process was considered to be the main customer specific factor. The study further found that Lack of an aggressive debt collection policy was perceived as the main bank specific factor, contributing to the non performing debt problem in Kenya.

Kevin Greenidge et. The purpose of this paper is to build a multivariate model, incorporating macroeconomic and bank-specific variables, to forecast non-performing loans in the banking sector of Barbados. On an aggregate level, our model outperforms a simple random walk model on all forecast horizons, while for individual banks; these forecasts tend to be more accurate for longer prediction periods only.

Indian banking industry, which was in glory phase once upon a time, has been facing a lots of challenges on non performing assets at present scenario. They are facing lots of problems. There can be various reasons behind this NPA. Non-performing assets has been hitting the profitability of the banks or it can be said that due to NPA, the profitability of the banks are going down day by day.

The subsidiary for this is the functioning of Debt Recovery Tribunal DRT which is a judiciary for the bank for recovery amount from the default customers. These can be considered as a research problem based on which the information is collected, the object is measured and the data is analyzed and interpreted.

The objective of the project was to find how this Non-Performing Assets generate and what its impact on the profitability of the bank and how it can be reduced. The study is addressed to the following objectives: The non-performing assets that are not able to generate income for the bank are the great threat for the banking institution.

Rather than generating profit for the bank, NPA drains off the income earned by the other performing asset by the way of paying interest to the real owner of the resources. It affects the overall profitability of the bank adversely by affecting the return on equity and return on asset. There are certain ways through which it affects the financial institutions are as follows: Thus, the need of the study of the NPA is must necessary due to these reasons.

These reasons are the crucial for any bank at present. One has to realize these matters and has to take corrective action against NPA reasons, as for as possible one has to convert all the NPA accounts into PA accounts. To know, how the account is becoming NPA is must necessary.

Project Reports on Non performing Assets (NPAs) in Banking Industry

After identifying the reason behind the particular NPA account, one can go for a step ahead. As for as possible, one has to eradicate the reasons of NPAs. Thus, it is highly importance to study NPA in detail. Being a project scope will be based on the day-to-day teamwork operations. The data will be collected from various aspects of loans and advances in various private banks of Jalandhar and Phagwara Punjab.

There exists a relationship between NPAs and profitability of private banks. The recovery mechanisms adopted by private banks are effective. The relevant data was collected from both primary and secondary sources. Census method of data collection was applied to collect primary information. Research population for the study comprised of private banks operating in Jalandhar and Phagwara Punjab. The response rate for the present study came to be The secondary sources comprised of various audited reports and publications of the Reserve Bank of India.

A structured questionnaire assessing work system, recovery system, processing loan applications and other impeding factors associated with loan portfolio was used to collect primary information from the private banks.

Items based on 5-point Likert scale and multiple chioce questions were included in the questionnaire. The analyses of primary data were conducted through descriptive statistics, factor analysis, Pearson correlation and one-sample t-test.

The secondary data was analyzed through column charts, line charts, bar charts and percentages. The secondary data was available for 9 years only.

The present study is confined to Jalandhar and Phagwara areas only. The conclusions of the study are based on the responses of the banks and secondary information. Thus, some amount of subjectivity might remain. After survey Factorial profile of recovery mechanism adopted for NPA by banks Table: Factor analysis was run on the recovery mechanism adopted by private banks for reducing NPAs which completed in two rounds after deleting two items, one with communality below 0.

Pearson correlation was applied to test this hypothesis. The value of coefficient of correlation r obtained was. Since the significance value was above 0. Thus this hypothesis is rejected. This hypothesis was tested through one sample t-test. Overall mean calculated was 2. Both the factors were found to be insignificant, thus hypothesis stands rejected. This implies that the recovery mechanism adopted by private banks to reduce NPAs is not effective. Table 1.

Advances Assets Amount cr. We can also visualize the trend of private sector banks by using gross advances, gross NPAs and ratios of gross NPA to gross advances and total assets. We can clearly see from the above table that the gross advances are increasing continuously and there is an increase of over percent as compared to and This clearly shows that apart from the presence of private sector banks also get a great opportunity to prove them. The amount of gross NPAs shows a mix kind of trend over a period- as till and from to there is a continuous increase in gross NPA amount while there is a decrease in it from a period ranging from to But if we see the last three years data, we can clearly see that there is an increase in gross NPA to total assets and gross NPA to gross advances which means that the asset quality is diminishing instead of improving.

Thus, if we compare both public and private sector banks we can say that public sector banks are better than private sector banks as the efficiency and asset quality of public sector banks had shown a continuous improvement if compare relatively to private sector banks.

Advances Total Amount cr. Assets 5. That means only in last years the efficiency and asset quality of private sector banks is questionable otherwise in all other previous years the banks had shown a continuous improvement. As, if we see overall performance of the private sector banks we can say that there is a wide improvement as the net NPA ratios changes from 5. Thus, after comparing both the gross and net NPA ratio, if we compare Private sector banks are much more efficient than other sector banks.

The trend of NPA in last nine years was analyzed through secondary data. The percentages of both gross and net NPA to gross and net advances were found to increase during first two years but continuously decrease after — If we analyze the loan assets of private sector banks, we can say that if we compare the first year and last year for sub standard assets we can say that there is a decrease in it of health is improving but overall analysis for sub-standard assets shows that after year there is a continuous increase in the amount of sub-standard assets i.

But, the doubtful assets have declined from 5. The loss assets also have shown a decreasing trend from year Thus, we can say that except the sub- standard assets category the other two categories of non-performing assets have improved over the period of study.

But overall there is rise in net NPA from to But in the year , the percentage of Sub Sub--Standard asset is highest among all the year. In percentage of sta standard ndard asset has reduced by 0. The percentage of doubtful asset has reduced to a great extent amongst mongst all. So the private sector banks have managed to reduce the doubtful asset. While on the other hand for new private sector banks net NPA to net advances ratio is fluctuating over the years.

Old private sector banks which is passing from lower growth rate in recent past, starts performing better than their new counterparts. Old private sector banks are more efficient than that of new private sector banks in managing NPA.

Project Summary

In later years from to there is increase in NPA of priority sector. In case of non-priority sector, the average advances made are We can see the declining trend in NPA of non-priority sector from to , this as a result of securitization Act, It has reduced by Improved asset quality signifieshigher profits by reduced provisions and increased interest income.

Recent recordssay that State Bank of Patiala is networked by its service outlets. The Non-performing Assets impacts drastically to the working of the banks. Standard Assets: During the time of theestablishment, the state owned Bank was known as Patiala State Bank. Subsequently, anAct was passed in the Parliament of India in May The Inefficiency can be analyzed and quantified for every evaluated unit. This resulted in making the State Bank of India more powerful,because as much as a quarter of the resources of the Indian banking system were controlleddirectly by the State.

Ultimately this is affecting the competitiveness of the Indian banks. Bad effect on equity value.

WALLACE from New York
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