NPAs--A Comparative Analysis on Banks & Financial

Institutions and its Implications

Thesis Submitted to Padmashree Dr. D. Y. Patil University,
Department of Business Management
In partial fulfilment of the requirements for the award of the
Degree of
DOCTOR OF PHILOSOPHY
In
BUSINESS MANAGEMENT
Submitted by
MRS. SUMATHI GOPAL
Enrolment NO: DYP-PHD-066100015.

Research Guide
DR. RAJINDER. S. AURORA
M.Com, MFM, PhD, DHE, UGC-NET

PADMASHREE DR. D.Y. PATIL UNIVERSITY,

DEPARTMENT OF BUSINESS MANAGEMENT,
Sector 4, Plot No. 10,
CBD Belapur, Navi Mumbai 400 614

June 2010
1

NPAs--Comparative Analysis on Banks & Financial Institutions

Non and Implications

Thesis Submitted to Padmashree Dr. D. Y. Patil University,
Department of Business Management
In partial fulfilment of the requirements for the award of the
Degree of
DOCTOR OF PHILOSOPHY
In
BUSINESS MANAGEMENT

Submitted by
MRS. SUMATHI GOPAL
Enrolment NO: DYP-PHD-066100015.

Research Guide
DR. RAJINDER. S. AURORA
M.Com, MFM, Ph.D, DHE, UGC-NET

PADMASHREE DR. D.Y. PATIL UNIVERSITY,

DEPARTMENT OF BUSINESS MANAGEMENT,
Sector 4, Plot No. 10,
CBD Belapur, Navi Mumbai 400 614

June 2010

NPAs--Comparative Analysis on Banks & Financial

Institutions and its Implications

DECLARATION

I hereby declare that the thesis entitled NPAsA Comparative

Analysis on Banks & Financial Institutions and its Implications
submitted for the Award of Doctor of Philosophy in Business
Management at the Padmashree Dr. D.Y. Patil University Department of
Business Management is my original work and the thesis has not
formed the basis for the award of any degree, associate ship, fellowship
or any other similar titles.
Place:
Date:

Signature of the student

Signature of the Guide.

Signature of the Head of the dept.

CERTIFICATE

This is to certify that the thesis entitled NPASA Comparative

Analysis on Banks & Financial Institutions and its Implications
submitted by Ms. Sumathi Gopal is a bonafide research work for the
award of the Doctor of Philosophy in Business Management

at the

Padmashree Dr. D. Y. Patil University Department of Business

Management in partial fulfilment of the requirements for the award of the
Degree of Doctor of Philosophy in Business Management and that the
thesis has not formed the basis for the award previously of any degree,
diploma, associate ship, fellowship or any other similar title of any
University or Institution. Also certified that the thesis represents an
independent work on the part of the candidate.

Place:
Date:

Signature of the
Head of the department

Signature of the Guide

ACKNOWLEDGEMENT
In the first place, I am indebted to the Padmashree Dr. D.Y. Patil
University Department of Business Management, which has accepted
me for their Doctorate program and provided me with an excellent
opportunity to carry out the present research work. I express my sincere
thanks to DR. RAJINDER.S.AURORA, my research guide for providing
valuable inputs, guidance from time to time and taking his precious time
in going through synopsis and the draft proposal meticulously and
helping in doing the research project.
I wish to take opportunity to express my sincere gratitude to director
DR.R.GOPAL for his valuable guidance and support in this endeavour.
Dr RAJINDER. S. AURORA and Dr. R. GOPAL have been a constant
source of inspiration throughout in my completion of the research. I
would also like to thank my family for supporting me in this noble
endeavour and help me to complete this research. Last but not the least
I thank all the respondents, the officials of Banks, and Financial
Institutions, the subject experts and other authorities, and friends who
have helped me directly or indirectly in completing my research project,
without the support of all my well wishers this project would not become
a reality.

Place:

Date:

Signature of the Student

CONTENTS
Chapter No.
1.

TITLE
Introduction to NPAs
1.1

3.

4.

1-11
1-2

1.2

Classification of NPAs

2-5

1.3

Macro Perspective behind NPAs

1.4

Development and Comparisons of Banks

1.5

2.

Theme

Page No.

and NBFI

6-9

Non Banking Financial Company

9-10

1.6

Co-operative Banking Sector

10-11

1.7

Conclusion

11

Review of Literature and Genesis of

Committee

12-43

2.1

Introduction

12

2.2

Review of Literature

13-35

2.3

Committee Reports on Credit

35-40

2.4

Committee Reports on NPA

40-43

2.5

Conclusion

43

Scope of the Study

44-49

3.1

Need the Study

44

3.2

Statement of the Problem

44

3.3

Objectives

45

3.4

Limitations

46

3.5

Methodology

46-48

3.6

Conclusion

48-49

Legal Frame Work and Notification

50-65

4.1

Introduction

50-51

4.2

Purpose of the Act

51-52

5.

4.3

Highlights of the Act

52-61

4.4

Limitations of the Act

61-62

4.5

SARFAESI (Amendment) Ordinance---2004 63

4.6

Conclusion

Analysis of Post Liberalisation Development in Banks

66-96

5.1 Introduction

66

5.2 Classification

66-69

5.3 Development of Public Sector Bank

69-80

5.4

Cooperative Banking Sector

80-84

5.5 Non Banking Financial Company

84-86

5.6

86-96

Private Sector Bank

5.7 Conclusions
6.

64-65

Policies and Stage wise Analysis of Data on NPA

96
97-248

6.1 Introduction

97-99

6.2 Policies and Procedural Analysis

99-134

6.3 Appraisal Stage

134-165

6.4 Section III (Questionnaire)

165-183

6.5 Section IV (Questionnaire)

184-192

6.6 Analysis on Datas collected from Banks,

Facilitators and Borrowers
6.7
7.

Conclusion

192-247
247-248

Management of NPAs in Priority Sector Advances

Of Banks

249-263

7.1 Introduction

249-251

7.2 Action Plan for Management of NPAs

251-253

7.3 Risk Associated with Agricultural Lending 253-257

7.4 Case study

257-262

7.5 Conclusion

262-262

8.

Findings and Conclusions

264-272

8.1 Introduction

264-266

8.2 Major Findings

266-268

8.3 Priority, SSI and Non Priority Sector

Advances

269-271

8.4 Conclusions
9.

Suggestion and Recommendations

271-272
273-276

Appendix

I-XVI

Annexure

XVII-XXVIII

Abbreviation

XXIX-XXXII

Bibliography

XXXIII-XLIV

Chapter No

List of Tables

Page No.

5.1

Advances Granted by the PSB to SSI

5.2

Magnitude and Movement of NPA in Banks 71

5.3

Sector wise NPA of PSB

73

5.4

Bank Group wise NPAs of PSB

75

5.5

Bank Group Wise NPAs in the Other Priority

Sector Credit

5.6

78

Bank Group Wise Gross NPA Assets to total

Assets of Urban Co-operative Bank

5.7

70

82

Percentage of Gross NPA to Gross Advances

& Net NPAs to Net Advances of NBFC

85

5.8

Advances to Priority Sector by Private Bank 89

5.9

Gross NPA/Gross Advances and Net NPA/Net

Advances of Private Bank

92

5.10

Gross NPA and Net NPA in Private Banks

94

5.11

Gross Profit/Loss and Net Profit/Loss

of Private Bank

7.1

95

Flow of institutional credit to agriculture and

allied Activities

252

7.2

Agency wise KCCS issued

254

7.3

Gross and Net NPA of Sanmati

Sahakari Bank Ltd

258

10

Executive Summary
A strong banking sector is important for flourishing economy. The
failure of the banking sector may have an adverse impact on other
sectors. Non-performing assets are one of the major concerns for banks
in India. NPAs reflect the performance of banks. A high level of NPAs
suggests high probability of a large number of credit defaults that affect
the profitability and net-worth of banks and also erodes the value of the
asset. The NPA growth involves the necessity of provisions, which
reduces the overall profits and shareholders value.
The problem of NPAs is not only affecting the banks but also the whole
economy. In fact level of NPAs in Indian banks is nothing but a
reflection of the state of health of the industry and trade. However
lending also carries a risk called credit risk, which arises from the failure
of borrower. Non-recovery of loans along with interest forms a major
hurdle in the process of credit cycle. Though complete elimination of
such losses is not possible, but banks can always aim to keep the
losses at a low level.
Study includes Public Sector Banks, Private Sector Banks, Scheduled
Urban Co-operative Banks and Non Banking Financial Institutions and
includes the views of borrowers, facilitators who are directly or
indirectly

connected

with

the

banks

and

financial

institutions.

Comparative analysis has been carried out between the banks and
analysis is carried out on issues like priority sectors, agricultural
lending, weaker sections, other Priority, Gross and Net Profit and Loss.
11

A detailed study has been worked upon development of banks and

financial institutions. The researcher has made an attempt to rationalise
the causes and preventive measures to be adopted by banks. The Legal
frame work is analysed under the study to bring notice to the regulators
which put in use may reduce the level of NPA. The researcher has
adopted two tests to find out the reliability of the response collected and
secondly Chi-square method to find out the data collected is not biased.
Subsequently case study were analysed and incorporated in the later
chapter of the research and has imparted valuable suggestion to reduce
NPA and increase the profit.
NPA are those loans given by banks or financial institutions which
borrowers default in making payment of principal amount or interest.
When a bank is not able to recover the loan given or not getting regular
interest on such loan, the flow of funds in banking industry is affected.
Also the earning capacity is adversely affected. This has direct and
immediate impact on bank profitability and efficiency. Under the
prudential norms, banks are not allowed to book any income from NPA.
Also they have to make necessary provisions for NPA which affects the
profitability adversely. Lower profitability of banking sector affects its
growth and expansion. NPA is double edged sword. On one hand banks
cannot recognize interest income on NPA and on the other hand, it is a
drain of banks profitability. Moreover profits earned are required to be
diverted for provision on NPA. The high level of NPA is dangerous to the
very existence of banks.

12

Many banks in East Asian countries had to close down due to high level
of NPA. The future picture of Commercial banks more so the banks &
financial institution seem to be brighter. Study suggests that the NPAs
of banks & FI will decline marginally both in terms of Gross and Net
figures over next three years. This may be due to higher provisions,
which the banks have been providing. The real issues are percentage of
NPA declining over the years but the absolute figures seem to be
increasing. A strong banking sector is important for a flourishing
economy. The failure of the banking sector may have an adverse impact
on other sectors. Credit to priority sectors have higher NPAs, due to
increase in outstanding amount in priority sector the banks face
problems in further disbursement and increase their existing profits.
Hence managers of rural and semi-urban branches generally sanction
these loans. In the changed context of new prudential norms and
emphasis on quality lending and profitability, managers should make it
amply clear to potential borrowers that banks resources are scarce and
these are meant to finance viable ventures so that these are repaid on
time and relevant to other needy borrowers for improving the economic
lot of maximum number of households. Hence, selection of right
borrowers, viable economic activity, adequate finance and timely
disbursement, correct end use of funds and timely recovery of loans is
absolutely necessary pre-conditions for preventing or minimizing the
incidence of new NPAs.

13

Chapter 1
INTRODUCTION TO NPAS
1.1 Theme
A strong banking sector is important for flourishing economy.
The failure of the banking sector may have an adverse impact on other
sectors. Non-performing assets are one of the major concerns for banks
in India. NPAs reflect the performance of banks. A high level of NPAs
suggests high probability of a large number of credit defaults that affect
the profitability and net-worth of banks and also erodes the value of the
asset. The NPA growth involves the necessity of provisions, which
reduces the overall profits and shareholders value.
The issue of Non Performing Assets has been discussed at length
for financial system all over the world. The problem of NPAs is not only
affecting the banks but also the whole economy. In fact level of NPAs in
Indian banks is nothing but a reflection of the state of health of the
industry and trade. Granting of credit for economic activities is the
prime duty of banking. Apart from raising resources through fresh
deposits, borrowings and recycling of funds received back from
borrowers constitute a major part of funding credit dispensation activity.
Lending is generally encouraged because it has the effect of funds
being transferred from the system to productive purposes, which results
into economic growth. However lending also carries a risk called credit
risk, which arises from the failure of borrower. Non-recovery of loans
along with interest forms a major hurdle in the process of credit cycle.

14

These loans affect the banks profitability on a large scale. Though

complete elimination of such losses is not possible, but banks can
always aim to keep the losses at a low level.

1.2 CLASSIFICATION OF NPAs

As per the RBI guidelines any loan repayment which is delayed beyond
180 days has to be identified as NPAs. NPAs are further classified into
i.

Substandard Assets

I.e. those which are NPA for a period not exceeding two years (Up to 2
years).
ii.

Doubtful Assets

I.e. Loans which have remained NPA for a period exceeding two years
and which are not considered as loss assets. NPA accounts belonging
to this category are further classified as
D1 When the account remains NPA for 3rd year.
D2 When the account remains NPA for 4th and 5th year.
D3 When the account remains NPA for 6th year onwards.
iii.

Loss Assets

A loss asset is one where loss has been identified but the amount has
not been written off wholly or partly. In other words, such assets are
considered as uncollectible. As per RBI guidelines provisions for NPA
are to be made as under:a)

10% of sub-standard assets

b)

20% for doubtful assets

c)

100% for loss assets

15

As per recent guidelines even on standard assets a provision @

0.25% is required to be made. In this connection following quotation
from Narasimham Committee Report 1998 is worth quoting NPAs in
1992 were uncomfortably high for most of our PSBs and for some, high
enough to warrant concern, especially where the ratio of NPAs to
Capital funds was disturbing high and in some cases exceed net worth
and undermined solvency. If the depositors money in such cases was
not at risk, as it strictly would otherwise have been, it is because of the
implicitly guarantee provided by the state ownership of the banks. Since
1992, there has been some improvement even with a progressive
tightening of the definition in the level of NPAs of the public sector
banks as a group. In spite of some write-off of loss accounts in this
period, gross NPAs, which perhaps reflects the true extent of
contamination of the portfolios, were as high as 23.2% of the total
advances in March 1993 but have since come down from 14.5% in March
1994 to around Rs.20, 000 Crores or 9.2% in March, 1997 To find out the
causes of NPAs in Indian banking sector, the total NPAs are to be
classified into two broad categories viz.
i.

Legacy NPAs

ii.

New NPAs

i. Legacy NPAs
These are the NPAs acquired even before the prudential accounting
norms were introduced. Government has given the task of social
banking to the PSBs and issued guidelines and framed policies whereby
40% of the total advances must go to priority sector. Here only the

16

quantity of advances is emphasized ignoring the quality of lending. The

Narasimham

committee

report

assets

Directed

Credit

has

proportionately higher share in NPA portfolio of banks and has been

one of the factors responsible for erosion in the quality of banks
assets.
In this connection Narasimham Committee Report 1998 quotes
the causes of high proportion of NPAs are varied. Poor credit decision
by bank management, difficult recovery environment and changes both
cyclical and structural in the larger economic environment represent
some of the micro and macro aspects of this. This is not all. Often, as
international experience has shown, a high incidence of NPAs could be
traced by policies of direct credit, not to speak of crude form of behest
lending. There is no inherent mistake in setting out social priorities for
bank lending. Social banking need not conflict with canons of sound
banking but when banks are required by directive to meet specific
quantitative targets, there is, as our experience has shown, the danger
of erosion of the quality of loan portfolio.
ii. New NPAs
a. A critical analysis of NPAs in various banks reveals that in addition to
priority sector, advances to large industries also forms part of NPAs.
The share of small advances of rural sector is very small compared to
the large advances. NPAs in percentage terms in some of the priority
sector advances may be higher but quantum wise, its contribution to
total NPAs is not very significant. Whereas percentage of NPAs in case
of large advances may be lower but it forms the major chunk of the total

17

NPAs. Priority sector advances, as a percentage of NPAs may be higher,

but quantity-wise, are not a high figure. Large advances, as a
percentage of NPAs are lower, but quantity-wise is a higher figure.
b. Non-performing Asset (NPA) has emerged since over a decade as an
alarming threat to the banking industry in our country sending
distressing signals on the sustainability of the affected banks. The
positive results of the chain of measures affected under banking
reforms by the Government of India and RBI in terms of the two
Narasimham Committee Reports in this contemporary period have been
neutralized by the ill effects of this surging threat. Despite various
correctional steps administered to solve and end this problem, concrete
results are eluding. It is a sweeping and all pervasive virus confronted
universally on banking and financial institutions. The severity of the
problem is however actually suffered by Public Sector banks, Private
Sector Banks & Co-operative banks & NBFC

1.3. Macro Perspective behind NPAs

A lot of practical problems have been found in Indian banks, especially
in public sector banks. Viz. the government of India had given a massive
wavier of Rs. 15,000 Crores. Performance and efficiency of the banks are
key elements of the efficiency of a countrys financial sector. It is not
surprising that considerable attention has been focused on the
performance of the banks in India in recent year especially commercial
banks. Emergences of foreign banks and private banks have led a way
in terms of efficiency and strict competition enabled better performance
and efficiency in the banking sector. It is not surprising that public

18

sector banks have higher NPA level than the private Sector banks.
Cooperative sector banks have more NPA than the private sector banks
due to priority lending and strict compliance of regulatory measures.
NBFC comparatively have less NPA they are more cautious at the time
of releasing loans and recovery process. Generally banks indulge in
creative accounting and loan rollovers ever greening to keep the level of
NPA low. The share of NPA is read as interest expenses is greater than
their earnings before interest, taxes, depreciation and amortization

1.4. Development and Comparisons of Banks and Non

Banking Financial Institution
Public banks brought about a structural change in the banking industry
with the commitment of the government to implement social control on
banks to make them realise the national goal of developing the
economy. The major segment of banking sector came under the control
of the government. Social control measures were also implemented
such as priority sector lending targets. This led to the massive
expansion as a banking industry to borrowers across the country. These
developments created a strong network of public Sector banks meant to
bring about a socio economic transformation in the society. The share
of credit to agriculture which constituted a small portion for a long time
improved significantly with the onset of lead bank scheme and district
plan. Indian banking sector have come a long way when it competitive
and complex in nature. The Implementation of Basel II has had a positive
impact on the capital profile of the Public sector banks. In base l

19

Uniform risk rate was equally attached to all advances irrespective of

degree of risk.
In India number of Private banks increased and their financial
operations also increased considerably. Though the banking principles
and rule and regulation followed were the same between Public sector
banks and private sector banks but the competition spirit in banking
sector increased to a greater extent with the result the advances and
selection of borrowers varied with the result the profitability and quality
of the assets varied from public sector to the private sector, Hence the
study involved the comparison between the private sector and the
public sector banks. Private Banks charge high rate of interest and also
issue large number of credit card to the individual as compared to
public sector banks.
Cooperative banks are expected to support economically
backward section of the society especially in rural areas. The advance
or finance provided to the borrowers may be to start new business or for
the purpose of agriculture or farmers. There is a study increase in the
quantity of advances but there should also be increase in the quality of
advances and recovery. The study has been conducted on Urban
Scheduled bank situated. Since the number of cooperative bank is large
in number and they have been classified as Scheduled Urban
Cooperative Bank, State cooperative banks, District Cooperative Bank,
Rural Cooperative banks, Local Cooperative Banks. Hence the research
study has been compared to Public banks, Private Banks along with
Cooperative banks. The Reserve Bank of India is more stringent in

20

framing banking rules and regulations. Inspite of the strict banking laws
the cooperative banks are able to meet the required formalities. The
comparison is required to find out the scope of improvement in
scheduled Urban Cooperative banks so as to be as competitive as
Public Sector banks and Private sector banks Today schedule Urban
Cooperative banks are expected to support all sections of borrowers by
financing them to start a new business or for agricultural purpose the
banks accepts deposits from the members and lend money to needy
persons. Since their main objective is to support priority sector, farmer,
agriculturist, SSI, artisans, small traders and salary earners. Recovery
becomes difficult and leads to NPA. Generally cooperative banks do not
issue credit cards but they issue Kissan card which is may prove to be
doubtful debts.
Non Banking Finance Company is not a regular bank but they
raise the capital through public issues. Hence Reserve Bank of India is
very stringent in passing rules and regulations. The Non Banking
Financial Institution is more careful in lending loans. They prefer only
collateral security and also and along with collateral security they also
insist on Guarantors. The research study involves those Non Banking
Finance who provides general loans .Some Non Banking Finance lend
specific kind of loan which may not be appropriate to the research
study. The comparison enabled to bring about striking features of
success on recovery proceedings and quality of the assets with
reduction in NPA or not.

21

1.5. Non Banking Financial Company

In consolidation of the banking sector, one has to focus on the nonbanking financial sector like NBFCs and Unincorporated Bodies and
thinks in terms of integrating them in financial system along with the
banks. In India, moneylenders, chits and other type of financial
institutions play a very large role in the credit markets for the
unorganised sectors in trade, restaurants, transport, construction, and
service activities. It is to be noted that the market knowledge and
information regarding these activities like retail trade are not fully
available with the commercial banker on updated basis. By and large
public sector banks have been geared to Asset Based Lending rather
lending based on the forecast cash flows. Activities like trade, transport,
hotels and restaurants, constructions etc, there are significant
fluctuations in cash flows on a daily basis. In other words risk
assessment capabilities are not adequate in the context of these
activities. Also funds need to be available to these players without much
paper work and based on personal assessment. Hence, the NBFC
mostly finances these activities in consolidation of banking sector
should focus on integrating credit markets which comprises of banking
and non banking sector. Any consolidation should evaluate the
following:

Reduction in interest cost, and hence benefits the ultimate

consumer;

Enhancing the credit delivery mechanisms;

Introduction of rating processes at retail level;

22

Creating a level playing field when global players enter the Indian
markets;

Reversing the inverse relationship between the size of borrowing

and the cost of borrowing

Hence it is necessary for the Indian financial market to bring about the
restructuring of the banking sector by comparing or merging banking
sector and non banking sector ensure the growth of the economy along
with the adequate availability of the credit to the fast growing sectors of
the economy.

1.6. Co operative Banking Sector

In a competitive environment, the size of the organisation is going to
matter very much as it provides a lot of advantage to the organisation.
The size helps the banks in terms of cost advantage, technological
advancement, competitive pricing, better resistance against market
attacks, portfolio expansion and so on. At times, sheer size helps one to
face the tough environment. Now the Indian banking has moved close to
complete technology banking as it provides many advantages. Starting
from fund transfer to settlements, all are done through technology
banking. Cooperative banks cannot remain silent on this very important
issue Adoption of technology and asset management is not a choice but
a compulsion for survival. Some cooperative bank with a modern
banking facilities, loan modules, etc which enables the cooperative
banks to earn desired profits. Consolidation will surely help cooperative
banks in this direction.

23

There are many operational concerns and problems cropping

with the consolidation of banks. The important one are with regard to
the customers like interest rates of deposits, loans and advances, asset
quality(NPA levels) difference in the competency level of the employees
of the acquirer and acquired banks and so on. These issues need to be
carefully listed out and analysed in order to synchronise ll these
operational issues and make things hassle free for the customers of
both the banks, particularly the acquired bank. The cooperative banks
should maintain high capital adequacy ratio to meet the loss and also
maintain capital to risk weighted assets ratio of the acquired banks.
The study has been compared to Public Banks, Private Banks, Co
operative banks and Non Banking Financial institutions on policies,
appraisal stage, sanctioning stage and disbursement stage and post
disbursement stage. The comparison is also made on level of NPA in
these sectors and also importance is given to priority lending, non
priority lending, SSI, and agricultural lending.

1.7. Conclusions
The research thesis covers all the sectors of the banks and also
financial institutions. Since finance is very important for all the business
houses lending and recovery becomes a complex preposition. Recovery
strategy should be planned meticulously and executed properly. Failing
which may lead to NPA. The comparison of the entire sector will enable
the banks to know which sector contributes maximum NPA and the type
of lending that is the source of NPA.

24

CHAPTER 2
REVIEW OF LITERATURE AND GENISIS OF COMMITTEES

2.1 Introduction
RBI and Govt. of India had appointed various committees and Study
Groups from time to time to study in depth different aspects on Banks
Credit, , Legal Reform and Non-Performing Assets. All these subject
matters are co-related and interconnected to this research study and
hence it is necessary to know, in brief, about the purpose of
appointment of such Committees, their terms of reference and some of
the valuable recommendations made by them. Non- performing Assets
have been plaguing the Indian financial sector since long but were not in
the public domain till early nineties. By that time, significant amount of
loan assets involving uncertainly with respect to ultimate collection
piled up creating concerns with the opinion makers about health of
Indian banking and financial sector. NPAs reflect natural waste of any
economy. In advanced economies the financial markets are well
developed and segmented; with various players operating in identified
niches, catering to various users/risk segments. This constitutes an
effective institutional mechanism for targeting risks to players with
appetite for such risks. Commercial bank is conducted in a highly risk
managed and mitigated ambience, unlike their Indian counterparts who
are often required to take unmitigated risk as a part of business policy.

25

2.2 Review of Literature

Mrs. Mohina satish Kulkarni1- (1986): The author reviewed the progress
made by the scheduled banks since nationalization in financing
agriculture. The study also emphasized on interstate and regional
imbalances. Deals with adoption of multi agency approach and
agricultural credit which will enable disbursement of credit directly or
indirectly to the borrowers and also suggest maximum agricultural
credit is utilized by the rual borrowers. The study mainly deals with
agricultural credit and there was an imbalance between the states and
union territories and the percentage of credit level exceeds rural
populations.
Srinivasan2- (1991) dealt with national level accelerated the flow of credit
to the neglected sector and also brings correlation between state
development and relative human material resource endowment. The
researcher has provided certain recommendations which if practiced by
the public sector banks can reduce the level of NPA.
Chandran

Sankarnarayanan3-(1992):

The

last

two

decades

have

witnessed unprecedented crises in banking sectors across the world,

developed and developing countries alike. The author deals internal
strengths and weaknesses, which matter in handling NPAs of the
Bank, it has also been endeavored to evaluate broadly the various
strategies available for meeting the issue. The study does not aim to

26

work out purpose-related or area-based strategies for managing NPAs.

Desai Maulesh4-(1992): The huge burden of NPA is breaking the back
bone of the banking sector. Credit monitoring and recovery are the
methods

applied

for

NPA

management.

The

research

study

recommends various issues relating to NPA exclusively in the Gujarat

Zone. Author provides insight into warning signal emitted before the
credit becomes NPA. Aspects relating increase in bills receivable
without changing business propositions affects the profitability. The
author has highlighted in order to avoid NPA the bankers should be
careful keeping in mind the warning signals which can avoid the
disastrous situations or alarming contingencies.
H.K Deshpandey5- (1994): Since NPA erodes the profitability of the
banks as well as the industry the author conducted a detail study in
evaluating the credit function at zonal level with special reference to
Ahmedabad zone of Central Bank of India. Non priority Sector was the
prime consideration of the research. The study covered advances to
non-priority sector with special reference to large and small scale
industries. The study provides an insight to performance appraisal and
region wise award for the best performance which will increase the
efficiency and reduce the NPA
T. Gunasekaran6 - (1995). The author highlighted through his research
financing of agriculture by commercial banks in micro level .His study
was restricted to Tanjaur District in Tamil Nadu. The researcher
examined the lending pattern and disbursement of farm finance and

27

their overdues on farm finance by the commercial banks. Overall

comparison of the commercial banks in farm lending with other
institutional partner namely the crop finance. Deals with areas of farm
lending and their improvements in quantitative & qualitative lending
pattern & recovery methods also brings about scheme lending
operations on user which is effectiveness in rural areas.
Kishor Bhoir7-(1999) deals with the various aspects of NPA in public
sector banks... Study highlighted the main reason which turns the
performing advances to non performing ones. The author recommends
remedial measures taken by the public sector banks and compromise
settlement as one of the solutions to the problem faced by the Public
sector banks. The author analyzed internal and external Industrial
sickness. According to the researchers NPA has a multiple effects on
the total working of Indian banking system and the banks looses further
opportunity of investment. The study also emphasized different
categories of borrowers.
Pankaj

B.Trivedi8-(2000):

brings

about

the

causes

and

factors

responsible for lower Profitability and impact of inflation and changes in

price level. It very clearly implies that there is correlation between
efficiency and profitability. The author has made an attempt to suggest
business strategies that PSBs will have to adopt to come out of adverse
effect. The research explains the changes that are necessary in the
present set up of PSBs and their business policies to raise their
operational efficiency and profitability. The author correlates two factors

28

namely efficiency and profitability. The author suggested that week bank
should constantly monitored by Financial Restructuring Authority and
RBI. Such reform will enable to increase the profitability of Public Sector
Banks.
Mr.Kalkoti9-(2003)

.The

bank

faces

various

difficulties

in

good

performance with respect to priority sector .Any defect in the

performance can bring down the profitability of the bank. As a result,
various banking regulations and quality of assets and various measures
to identify the risk has been introduced and also the efforts are made to
bring about the awareness in the industry. The researcher in his study
brings about the performance of MGB with banking credit planning and
parameters useful for improving the flow of credit planning
P.Veerachamy10 - (2006) the bank faces various difficulties in good
performance with respect to priority sector. The researcher in his study
clearly deals with the performance of primary co-operative agricultural
and rural development in Dindigul District in Tamil Nadu.The author
analyzed and examined through his study the impact of overdues of the
banks. The study revealed the external factor and internal factor as to
the cause of borrower not making the due and account becoming NPA.
Socio economic institutional, psychological and political factors. Default
in payment of credit is correlated with literacy and illetracy of a
borrower.
A.A.Ananth11-(2007)-.The Indian banking and financial system has made
commercial progress in extending its geographical spread and

29

functions reach. The study brings about the performance of private

banks in the post liberalization era and analyzing the cause of the poor
performance and suggesting the measures to improve upon it. The
study

highlighted the strength and weakness of only the private sector

banks. Emitted various financial problems and focus on the financial

problems and encourages new technology and new products with the
result the profitability and efficiency can be increased. The parameter
considered in performance and profitability is factors such as spread,
burden and financial leverage have been found to be encouraging.
Gita.A.Kumta12-(2007):

The

study

evolves

modes

for

efficient

management of funds with special reference to inflow, planning

functions and policy changes. The study highlights to identify various
steps taken by various agencies to guide the District Central Cooperative in Maharashtra. The author opined that the cooperative banks
are unable to take the advantages of the liberalization measures unless
the cooperative societies Act and Banking Regulation Act give full
protection to DCCB. The opinion of the author further more highlights
on the fact that unless there is a reliable bench marks the study may not
yield a proper conclusion and also there could be a possibility of
window dressing in the financial statements.
Dr.K.Ramesha13 (2003):Co-operative banks have made substantial
progress in India; the movement cannot be termed as a vibrant one in
regard to cooperative values and philosophy as enunciated in
cooperative principles. While the extension of financial sector reform

30

programme mainly the prudential standards to cooperative banking on

par with commercial banks. The notion of code of good practices
though intuitively appealing the temptation to prescribe universally valid
model codes which do not allow for differences in institutional
development, legislative framework. The paper identifies several broad
areas for the intervention of researchers under three categories, i.e.
prudential standards, professional management and governance and
supervision and regulation against the backdrop of financial sector
reforms.
Rajesh Chakrabharti and Gaurav Chawla14 (2004) Authors suggested
increasingly popular methodology of Data Envelopment Analysis to
evaluate the relative efficiency of Indian Banks in comparison with
Foreign Banks. The result of the study suggests on a value basis, the
foreign banks, as a group, have been considerably more efficient than
all other bank groups, followed by the Indian Private Banks. From the
quantitative performance aspect private banks supersedes the other
bank group. The study emitted their views on regulatory mechanism is
a cause for poor performance aspects like poor quality of goods is a
cause of NPA and emphasizing the level of profitability and in
performance.
Rajesh Chakrabharti15 (2004) the author highlighted the Reforms and
Reorganization in banking industry in India. The banking industry in
India

is

undergoing

transformation

since

the

beginning

of

liberalization. The social objectives rural credit of banking measured in

terms of rural credit are expectedly taking a back seat. Adoption of

31

SARFAESI Act and Basel II norms implies new challenges for Indian
banks as well as regulators. Financial performance of Indian banking
industry has become more competitive and raised issues about
efficiency and regulatory effectiveness.
Dr.Sukhdev Singh16 (2006): The author had suggested the alternative
measures for improvement in the banking industry. The study evaluated
the performance of banks against benchmark and ratio analysis was
employed as the tools. The analysis of the NPA observed the decline in
post liberalisation period .The study insisted that the ideal level
benchmark is less than 1 percent, the segments curtail the growth rate
of NPAs and followed certain policy like counterparts who had not only
arrested the NPA but reduced them.
Arabi.U17 (2007) Keeping in view the alternative sources of finance and
its role in economic development in India, the study aims at evaluating
bank credit role and how it is channelled to the different sectors in India.
The author has made an attempt to understand the effective
performance of credit delivered to different development sectors. The
paper also deliberated the analysis on the bank credit to the various
sectors

like

agriculture,

SSI,

micro

finance,

housing

finance,

infrastructure lending, Government. Finally the author concludes in their

findings the need to further liberalise the interest rate structures to
ensure efficiency in financing the credit to core sectors.
Aastha Bhasin18 (2007) the fast changing and increasingly competitive
financial environment exposes the banks to various types of risks. It is
imperative that financial intermediaries, in particular banks need to not

32

only understand the various types of emerging risks but also the ways
and means to measure and mitigate them. The paper discussed the
important concepts in task management as applicable to banks against
the backdrop of Basel II. The paper thus aimed to develop a basic
understanding on major risks surrounding a banking institution as also
the more popular means of measuring them.
Dr Milind19 (2007): The objective of the paper is to measure the
productive efficiency of banks in developing country. The measurement
of efficiency in this paper is done using Data Envelopment Analysis. The
study shows the mean efficiency score of Indian banks compares well
with the world mean efficiency score and the efficiency of private sector
commercial banks as a group is, paradoxically lower than that of public
sector banks and foreign banks in India and brings an insight to the
existing policy of reducing non-performing assets
S.R.Shinde20 (1999) the importance of Return on Equity (ROE) as an
instrument to judge the financial performance of the bank. The author
has analyzed the component which determines Profit Margin (PM), Asset
Utilization (AU) and Equity Multiplier (EM). The study dealt with the
strategies which may be adopted by the bank management to improve
the PM and the AU which may be ultimately results into higher ROE. The
highlight of the study dealt by the author is major components of
banking risk. The author looked at various tools of financial analysis as
a yard stick to judge the performance of a bank and its management.
P.R.Kulkarni21 (1999) the small scale sector has been assigned an
important role in national economy. Competitiveness of the products of

33

SSI units, particularly in the international market, is dependent on their

prices and quality considerations. Besides providing financial inputs,
the need for extension services assumed importance. In the liberalised
economic era, the role of technology up gradation and modernisation
had assumed significant importance.The paper emphasized light on the
role played by the Government of India and the SIDBI towards achieving
the goal.In view of the priority accorded to technology up gradation and
modernization for SSI sector in the Ninth Plan the initiative should be
taken to bring the awareness of technology up gradation and
modernization needs among small entrepreneurs.
P.T.George, D.Namasivayam, G.Ramachandraiah22 (1999) development
of agriculture can take place only if farmers move from traditional to
modern agriculture, besides a large variety of inputs and services. This
paper tries to put together empirical data on cost of borrowing by the
farmers. This paper also analyzes the impact of the cost of borrowing on
the repayment behaviour of the borrowers. The author emphasized on
issues such as source and type of defaulters, to find out farmers
borrowing cost, identify crop and term loan, different types of
institutional and non-institutional sources.
Shri TCG Namboodiri23 2001-2002 identifies 5Cs, and 7Pswhich are
simple and basic point a banker has to apply his mind and be alert about
while appraising a credit proposal. And also adds the phrase as banker
an employee should act in good faith and without negligence to avoid
the problem by the bank. The author emphasized NPA is really breaking
the backbone of the Indian Commercial banks. Credit appraisal is the

34

best early opportunity available to the bankers to ensure the asset

quality. Study has proved adverse credit selection is one of the major
reasons for the growing number of NPAs. To improve the quality of
credit appraisal is the core study conducted by the author.
K.Ramesha24 (2002) While the growth in terms of deposits and advances
of urban banking sector in the post reforms period has been
appreciable, the vexatious issues such as duality of control, presence of
large number of weak /sick banks, lack of professionalism and
legislative rigidities continue to bother this sector. The author dealt
monetary and credit policy and its implication for Urban Cooperative
Banking Sector. The study reflects major recommendations of the
Madhava Rao Committee. The author in his study mentioned the setting
up of a new supervisory structure for UCBs. The study highlighted the
concept of Scheduled UCB Sector and Scheduled Commercial Banking
Sector. The author has also made a reference of a leading cooperative
bank.
N.B.Shete25 (2003), deals with priority sector advances of banks during
the post reform period addressed two major issues in this article, viz, to
displace evil moneylenders and cheap credit was necessary to allow
poor and rural household to adopt new technologies and to escape the
cycle of poverty and indebtedness and also considers performance of
PSBs lending to priority sector, agricultural advances, advances to SSI,
advances to other priority Sector, weaker section financing. The study
has also dealt with the policy initiation of banking sector reforms. There

35

has been a significant and favourable changes related to reduction of

CRR, and SLR, interest rate deregulation.
Sanjay Choudhari and Arabinda Tripathy26 (2004) in their study made an
attempt to use Data Envelopment Analysis (DEA) to evaluate the relative
performance of public sector banks in India. The authors made an
attempt to evaluate the banks on five indicators namely, Profitability,
Financial Management, Growth productivity, and Liquidity. The analysis
showed that most of the banks form efficient frontier in profitability and
financial indicators compared to productivity, growth and liquidity
indicators. The authors emphasized on lacuna that banks are not giving
importance to other measures such as productivity, growth and liquidity
as compared to profitability and financial management.
Uday S Bose

27

(2005). The growing NPA and its implications on the

banking system need no emphasis. While there have been several

schemes in the past to facilitate the recovery from NPAs, the success of
such efforts in terms of NPA reduction has been far from satisfactory.
SARFAESI Act greatly helps bank in their effort to reduce recovers
money from NPAs. Attempts to provide a glimpse of the Act against this
backdrop. The author has cited certain limitation on the Act and also put
certain light of the Supreme Court landmark Judgement in ordinance
2004.
Pasadilla28 (2005) Philippines has the highest number of Non-Performing
Loans in Asia. As a result, the government provided a legal framework
through which banks can transfer NPA to separate entity called Special
Purpose Vehicles (SPV), which are which private owned Asset

36

Management Companies are. The research paper discussed the

problems and rehabilitation procedures legal bankruptcy reforms and
effectiveness. The author also suggested that banks are trapped
between debtor and Central Bank of the Philippines.
Christian Roland29 (2005). The author focused on the changing intensity
of three policies that are commonly associated with financial repression,
namely interest rate controls, statutory pre-emotions and directed
credit as well as the effects the policies had. The study attempted to
evaluate the reforms that have occurred in the banking sector by
focusing on the changes in three policies that are commonly associated
with financial repression, namely interest rate controls, statutory preemption and directed credit. The indices were used to evaluate the
changing intensity of repressive policies
Kanishka Garg30 (2006) clearly brings some current scenarios in India
which strongly suggest the requirement of a tool that can convert house
equity into liquid cash also brought an alternative measures for
implementation and other related issues that the lenders bank will face,
in the context of Indian laws, regulations and taxations. The study gives
direction and attempts to identify the possible markets for this product
in India. This study enables financial security as well as residential
security but due to problem of regular income at time the repayment of
loan amount becomes difficult has been evolved through this measures.
V.K.Vijaykriushnan31 (2006).Bankers and term lenders had accepted
Debt Service Coverage Ratio (DCSR) as most important indicator of the
repayment capacity of the borrowing entities. The author has made an

37

attempt in the article to identify the change in the instalment is based on

high or low DSCR and analyzed on the basis of the available data and
emphasized DSCR is only indicative methods and new ratios developed
should be sensitive to the liquidity, profitability, and solvency in a
holistic manner.
Dr. Amrit Patel32 (2006) Agriculture has been the most important sector
contributing to the overall economic growth as well as providing
livelihood to very significant proportion of rural population in India. The
articles dealt with the disbursement and percentage growth and
achievements of financing of new farmers. Comparative study is
conducted on Commercial Banks, Cooperative Banks and RRB. The
author highlighted in his study that fragmented work will not give
complete scenario.
D.Rabindran James33 (2006). The study dealt with the measures
suggested by the lenders such as bar-coding of the mark sheet, radio
frequency identification and notation in the degree certificates of the
borrower and also highlighted the role of Bureau of Engineering and
Professional Students (BEAPS). The service rendered by the BEAPS
through these articles reveals that the NPA through educational loan
can be minimised or could even be brought to nil.
Bagchi34 (2006) Commercial banking world over is best with the
dominance of credit risk syndrome. The study reveals that dilution with
reference to security implied reduction of intensity and strength of
relative security. The author highlighted the situation whereby Indian
Commercial Banking is sufficiently resilient and guarded deeds against

38

the major event of dilution risk loss situations. Dilution of risk is the new
term in credit risk family. The study suggested that book-debt or
receivable financing should not be allowed and similarly no advance to
be allowed against the book-debt.
Abhinna Mohan Nanda35 (2006) Fraudster availed finance by creating
mortgages on fictitious title deed to the property or properties and also
mortgage fake title deeds to the non-existent property since no
registration of mortgage is done in banks favour in the office of Subregistrar. The author suggested in his articles a harmonious blend of
equitable and registered mortgage with a very nominal additional cost
with all attendant benefits of both. Banks charge under the suggested
method will be reflected in the Encumbrance Certificate serving as due
notice to the public at large and other banks/ financial institution which
will help in preventing fraud and supplementary recitals to be recorded
at the branch of the bank.
S.Khasnobis36 (2006) A large part of the banking sector growth, has
been on the back of financing consumptions, as reflected in the growth
of retail banking. Growth driver would involve financing the emerging
Small and Medium Enterprise sector of the economy. The evaluation of
the NPA has been blended by the author by the asset companies which
specialise in certain segment of the financial sector. The author
highlighted pre-liberalization and post liberalization effect through these
articles.
S.K.Bagchi37 (2006) Capital Stock in any business organisation is the
buffer against the vicissitudes of risks facing in the market driven

39

environment Basel Committee announced the guidelines on Capital

Adequacy. The author stressed upon the solvency status of the bank
through the concept of capital adequacy. The study also observed the
blend between Innovative Perpetual Debt Instrument and Hybrid Debt
Capital Instrument .The author also highlighted the new area through
which the capital adequacy can be enhanced in banking industry.
M.V. Narayanaswmy, K.Aruna Rao and Srimathi .S.Mayya38 (2007) made
an attempt to construct a scale for measuring the performance of
Primary Agricultural Credit Societies (PACSs) and establish the
robustness of scaling techniques and the scale itself. An attempt is
made to evaluate the performance of co-operatives by using the tools
developed for the co-operative sector which does not seems to be
appropriate. Corporate is an outward looking entity whereas cooperative is an inward looking entity the scaling technique developed in
this paper is both simple and robust and address the problem of nonnormal data.
Henry James39(2007), deals with the

problems on rising volume of

overdue of the loan of the banking system both credit cooperative credit
societies and of commercial banks, but also other regulating agencies
like RBI,NABARD and other policy makers at national level. It also gave
a solution that high overdue payment leads to the bank in inconvenient
position at the time of availing refinance facilities from the external
sources. The author in his research has preferred drought prone areas
since the trend recovery of loan has been worsening. The demand for
the recovery was higher than actual recovery.

40

Sankar Thappa40 (2007) has dealt with the Securitization process at the
time of lending and borrowing money from the banks and financial
institution. Globalization has resulted into rapid transformation of the
financial system all over the world. As a result capital market, money
market and debt market are getting widened and deepened. The study
has involved the process of securitization and five stages involved in
securitization of the assets. The author has also revealed the future for
securitization in India.
John Ferry41 December 2008 projected the most recent phase of the
financial crisis in reference to Basel lI, Pillar II that covers three aspects
for controlling risk viz. responsibility for the board and senior
management stressed the importance of internal control over external
suprvision and sets target for banks capital to match the risk profile of
the banks. Author highlighted liquidity risk management public
disclosure and the role of supervisors.
V.S.Kaveri42 (2008) The Basel Committee on Banking Supervision
published a paper on Compliance Functions in Banks in April 2005,
which discussed certain principles of compliance. The RBI reviewed the
working of compliance system in banks, which was found to be not
effective. Subsequently, the RBI set up a working group to make
suitable recommendations to strengthen the compliance system. These
guidelines

cover

Compliance

Principles,

Process,

Procedures,

Compliance Policy, Compliance Structure, Responsibility of Board and

Senior Management, Compliance Risk, Compliance Programme, etc.
Paper highlighted various aspects of compliance function in banks.

41

Kapil Sharma and P.N.Mishra43 (2008) one of the fundamental issues in

finance is how risk and returns of an investment are related to each
other. The Capital Asset Pricing Model (CAPM) was the first concrete
step towards finding an answer to the issues suggested. CAPM gives an
insight into what kind of risk is related to return, it offers powerful
predictions about how to measure the risk and the relation between
expected return and risk. The paper dealt with the key ideas of the
CAPM, its applications importance in the field of finance and its
weakness.
G.C. Goel44 (2008) The Indian banks need to manage their advances
portfolio in such a manner that risk factor should be minimised at the
early stage of their bearing capacity. The author has resorted to
Alternate Dispute Resolution (ADR) which can entail a fair deal to all
concerned without unlawful means and pro-court bias. The articles has
made an effort to bring awareness to banks and customers for
settlement of NPA dues promptly and also settle various other banking
disputes in the best interest of both the parties
Kamal Das45 (2008) last two decades there has been a crisis due to
volume and growth of NPA that holds the prime resources resulting in
severe strains on the normal resource allocation process essential for
development. The author made a study on the factors associated with
NPA. The study attributes to the macroeconomic factor such as
increasing interest, economic slowdown, and currency devaluation. The
observation of the study led to systematic framework with a clear
objective, flexibility and adequate financial support was required to

42

resolve the distressed situation and for the strategy to succeed,

adequate legal provisions.
S.Sundararaman46 (2008) in hot pursuit of NPA the articles dealt with the
formation and procedural aspect of DRT which also includes the issue
of summons, counter Claim and DRAT (Debt Recovery Appellate
Tribunal).The author had considered various factors for the delay in
pronouncing the judgement. Thus banks and financial institution should
bring about some measures which could bring moral or social
pressures upon the concerned borrowers which can act as deterrent for
unscrupulous disposal of secured assets.
Usha Janakiraman47 (2008) Financial innovations had transferred the
traditional mortgage loan agreement into an instrument that could trade
like stock and bonds. The author observed that losses in the sub-prime
mortgage market triggered reaction in other financial markets and
affected the entire sector shaking the trust and confidence in the
investors in the system as a whole. The paper examined the crisis,
highlighted the areas which are likely to be scrutinized and discussed
while trying to distil the lesson to be drawn and their implications for
policy.
T.Chithralekha and P.S.Nirmala48 (2008) banks face various risks and it
is very essential for the banks to manage risks. Poor risk management
can bring down even well-performing organizations. The paper focused
on

Basel

norms

and

the

various

challenges

and

impacts

of

implementing Basel II in India. For better management of risks, the bank

has to understand these norms and implement them. Author has

43

described the challenges and categorised them into people, financial

and technical challenges.
Naushad. M.Mujawar49 (2009) Lending has always been associated with
credit risk, arises out of the borrowers default in repaying the loan with
the stipulated time. In recent years some UCBs, which are mostly
engaged in retail banking, have faced mergers and strict action by RBI
for having failed to successfully manage their NPAs. The inflating
bubble of NPAs may mar the balance sheets of the banks if they fail to
adopt better credit monitoring practices to prevent further slippage of
NPAs. In the case study, an attempt has been made to tackle the
problem of NPAs. The objective of the study is to understand the
concept of NPA and classification of assets
Satish Chander Gupta50 (2009) healthy competition among the banks
contributes to the growth of the economy. India resorted to liberalization
and deregulation of the banking sector to keep pace with the global
changes and to cope with ongoing reforms in real sector. The paper
blended various factors such as effective management of NPA,
compliance

of

Basel

II

norms,

Proper

implementation

of

risk

management, etc. The author considered certain parameters such as

productivity, efficiency, profitability, return on capital, net interest
margin and return on assets for assessing the level of NPA.
Amit Singh Sisodiya and Ramana Pemmaraju51 (2009).The study covers
Indian banking sectors performance.The analysis of the study shows,
the domestic banking sector has done remarkably well on parameters
like returns, maintaining profitable growth, and risk management,

44

though there warning signal and underlines the fact that banks have
successfully waded through a tough liquidity scenario without
hampering the credit growth. The present study is based on the CAMEL
methodology which evaluates component that is prime importance from
the functioning of the banks perspective. The model examines the
efficiency of banks among parameter like Capital Adequacy, Asset
Quality, Management, Earnings Quality and liquidity.
Tarun Bhatia52 (2009) the global economic crisis had a significant impact
on the economies and financial systems of several countries. The paper
refer to the success of Indian performance is the accumulation of the
capital. Indias banks have maintained healthy capitalisation levels in
the past decade. The author observed that it is necessary and beneficial
for the banks to raise capital through hybrid instruments in order to
maintain a healthy Capital Adequacy ratio. Banks healthy and improved
capitalization cushions the impact of higher NPAs.
R.Vaidyanathan53 (2009) as the economy grows it is necessary to recast
financial system to ensure the growth. The author has made a
comparison between PSB, Private Bank and NBFC. The study made has
been evaluated on the reduction of interest, enhancing credit delivery
mechanism, revising relationship. PSB have been geared to Asset
Based Lending rather than lending based on the forecast cash flows.
Thus the author concludes NBFC need to integrate domestic financial
markets through the system of making UIBs (unincorporated Bodies).
Jagadish. R. Raiyani54 (2010) SSI contributes substantially to the
production, exports and employment in India. The paper dealt with the

45

progress made by SSI and policy laid by the government exclusively for
the socioeconomic objectives. The author has brought in the analysis
the major problem faced by the SSI. Problems, such as scarcity of
power supply, human resources, availability of raw material, etc. are the
cause of obstruction for the growth of SSI. The study reveals one of the
solution to the growth is developing policy by the government with the
result the development can be achieved.
A.S. Ghatpande55 of Bank of Maharashtra had submitted dissertation on
the subject of Recovery of Bank loans an investigation into the
existing judicial process review of costs and time factors and
recommendations. Banks seek intervention of courts for recovery of
dues... The study discussed the theoretical aspects of seeking
intervention of court and analyzed the existing legal system. This is
followed by the application of the legal system for suits filed by banks
and to review the amounts blocked in civil suits. It further classifies the
cases to know the different facts in recovery of Banks dues. Detailed
analysis of the time spent at various stages of suit and general causes
for delay at each stage is explained.
V.K. Sudhakar56: Bank of Baroda had submitted dissertation on the
subject of Policies and Perspectives of NPA Reduction in Public Sector
Banks to The Indian Banks Association, Mumbai, 1997-98.This study
attempted to examine the issue relating to policies and practices
prevailing in the area of NPA reduction. This study also indicated that
though the top management of Public Sector Banks (PSBs) were
enlightened and concerned about the dimensions of NPAs in their bank,

46

the same is not shared by the staff at operational level. NPA reduction
as organizational goals not translated into action in true spirit. The
methods and system followed by most PSBs can at best be categories
as conventional and crude.
Ranjana Kumar57 (2004) speech delivered at the Business Session
Strategies for Managing Risk in Volatile Time, on April 4, 2003 on the
occasion of Banking Summit 2003 organised by the Confederation of
Indian Industries at Mumbai April 3rd to 5th 2003. The address of the
chairperson emphasised on the annual financial inspection and the
process is based on the CAMELS (applicable to all domestic banks)/
CALCS (applicable to Indian operations of banks incorporated outside
India) approach where Capital Adequacy, Asset Quality, Management
Aspects, Earnings, Liquidity and Systems and Control are examined
keeping in view the requirement of Section 22 of the Banking Regulation
Act, 1949. (BRA). Author concluded that implementation of Risk Based
Supervision has been firmly laid by the regulators.
C.Rangarajan Governor58, RBI at the Bankers Training Centre of the
Nepal Rashtra Bank Katmandu on 18th May 1997 addressed in his
speech in respect of direct lending, there is a prescription that 40% of
the net bank credit should go to priority sector such as agriculture,
small scale industries, small business man and programmes for poverty
alleviation without affecting the viability and profitability of the bank.
Speaker emphasized on operational efficiency and allocation efficiency.
Operational efficiency relates to the transaction cost and allocation cost

47

deals with the mobilized funds among competing demand. Governors

speech covered aspects such as Global experience, reforms undertaken
in India, Philosophy, strategy, policy frame work, improvement in
financial health, and institutional strengthening in India.
Dr.Bimal Jalan59, Governor RBI, in s speech titled Banking and Finance
in

the

New

Millennium

delivered

at

22nd

Bank

Economists

Conference,New Delhi,15th February,2001cited As regards internal

factors leading NPAs,the onus rest with the banks themselves.This calls
for organisational restructuring improvement in managerial efficiency,
skill up gradation for proper assessment of creditworthiness and a
change in the attitude of the banks towards legal action which is
traditionally viewed as a last resort. Highlight of the speech was setting
up of independent Settlement Advisory Committees headed by retired
judge of the High Court to scrutinise and recommend compromise
proposals and appointment of Lok Adalat, Debt recovery Tribunal, and
circulation of Information on defaulters, Asset Reconstruction Company
to negotiate with banks and financial institution for acquiring distressed
assets and develop markets for such assets.
G.P.Muniappan60, Deputy Governor, RBI at CII Banking Summit 2002 at
Mumbai on April, 2002 It is not any more Lenders problem alone
equally that of borrowers to was cited in context of SARFAESI Act
being brought into force Mr.Muniappan, in, in his article, The NPA
Overhang: Magnitude, Solutions, and Legal Reforms cocludes at the
end of the articles I am of the opinion that NPAs are avoided at the
initial stage of credit consideration by putting in its place rigorous to

48

appropriate credit appraisal mechanism and mindset of the borrower

needs to change regarding credit utilization and repayment modes.
Deputy Governor concluded in his summit NPAs are avoided at the
initial stages of credit consideration by putting in place rigorous and
appropriate credit appraisal mechanism. Finally both

lenders and

borrowers should realize their role and responsibilities. They should

contribute to healthy financial system.
Report of the Fourth International Conference on Ethiopian Economy61
June 2006. Banks play a very important role in economic development
of every nation. Banks are the main stimulus of the economic progress
of a country. The study deals with the NPAs in commercial banks of
Ethiopia. Essentially deals with the provision for doubtful debts are one
among the most important cause for reducing the profitability of the
bank. And also highlights NPA is a double-edged weapon, which affects
bank profitability due to interest income not being recognized on NPA
accounts and loan loss previously to be created from profit earned.
V.Leeladhar62, Deputy Governer, Reserve Bank of India Bulletin at the
Seminar on Basel II: Implementation Challenges in Banks in association
with the Federal Reserve Bank New York, organised by NIIBM on Jan
15th & 16th, 2007, Mumbai brought an insight for the need and
implementation of Basel. He also emphasised globally stress testing is
becoming an integral part of banks risk management system .For
achieving an effective Basel II implementation in the Indian banking
system and to reap the full benefits of the migration to the revised
framework,

it

is

essential

for

banks

to

ensure

meaningful

49

implementation of the various important elements and concluded his

speech saying board and senior management involment is critical.

2.3

VARIOUS COMMITTEE REPORTS ON CREDIT

1.

Thakkar Committee on Employment Potential (1970)

The then Union Finance Minister Shri Y.B. Chavan, while meeting the
Chairman/ Custodians of the Public Sector Banks on 22nd July 1970
indicated that the committee might be constituted to review the special
credit schemes of banks, with particular reference to their employment
potential. The terms of reference were to identify the types of selfemployed persons who should be considered for special financing.To
evolve guidelines in respect of security, rate of interest, period of
repayments and other terms and conditions.
2.

Tandon Committee (1974)

Till nationalization of the 14 major commercial banks in July 1969, the

main contenders for banks credit were large and medium scale private
industries and internal and external trade. Nationalisation of the major
commercial banks, called for a new policy, both for deposit mobilization
through accelerated branch expansion and for suitable disbursal of
credit. Its terms of reference were to suggest guidelines for commercial
banks to follow up and supervise credit from the point of view of
ensuring proper endures of funds and keeps watch on the safety of the
advances and to suggest the type of operational data and other
information that may be obtained by banks periodically from such
borrowers by the Reserve Bank of India from the lending banks. To
make suggestions for prescribing inventory norms for different
50

industries both in the private and public sectors and indicate the broad
criteria for deviating from these norms.
3.

Puri Committee on SSI (1975)

Consequent to the discussions at the meeting of the Standing

Committee on credit facilities of the Small Scale Industry (SSI) Board
and the discussion that took place at the 33rd meeting of the Board in
September, 1975, regarding credit problems faced by small scale
industries, the Government of India appointed High Powered Committee
under the Chairmanship of Shri I.C.Puri, the Development Commissioner
(SSI), with the following terms of reference: To examine the possibility
of introducing a measure of uniformity in the terms and conditions of
finance and to suggest measures that should be taken by small scale
units to facilitate the flow of institutional finance.
4.

N.K. Ambegaonkar Committee (1976)

At the meeting of the regional consultative committee for the North

Eastern Region, held at Gauhati on 5th July, 1976, it was decided that the
RBI should appoint a small Working group to examine, inter-alia, the
factors impending the flow of bank credit in the Region and make
recommendations for necessary changes in the procedures and
practices of banks so as to bring about rapid and all round banking
development in the region. The terms of reference were to identify the
factors impeding the flow of bank credit in the North Eastern Region. To
recommend, in the context of the socio-economic features of the region,

51

suitable arrangements for expeditious disbursal of credit by commercial

banks
5.

Raj Committee on lending to priority sector (1976-77)

The nationalisation of the 14 major scheduled commercial banks in July.

brought in its wake a rapid growth in branch expansion, particularly in
the rural areas, accompanied by considerable rise in the deposits and
advances. RBI set up a Committee in June 1977 to study all aspects of
the functioning of the Public Sector of Banks under the Chairmanship of
Shri James S. Raj. The terms of reference were to assess the impact of
branch expansion that had taken place since 1969 and to examine
whether any change in the tempo and direction of such expansion is
called for and to inquire into the present pattern of branch expansion of
public sector and to suggest the future course of action keeping in view
the need for rural development and removal of regional imbalances.
6.

Chore Committee (1979)

RBI appointed the Working Group to review the system of cash credit in
all its aspect under the Chairmanship of Mr. K.B. Chore, Additional Chief
Officer, Department of Banking Operations and Development, RBI. The
terms of reference were to review the operation of the cash credit
system in recent years particularly with reference to the gap between
sanctioned credit limits and the extent of their utilization, to suggest
modifications in the system with a view to making the system more
amenable to rational management of fund by commercial banks.

52

7.

Dr. Hate Committee on resources of Co-op Banks (1981)

RBI constituted on 22nd March, 1981, a Study Group called the Study
Group of Development of Resources by State and Central Co-operative
Banks under the Chairmanship of Dr. M.V. Hate, Executive Director, RBI
to make an in-depth study of the problem of surplus resources and
profitable investment of loanable internal resources faced by the State
Co-operative Banks and Central Co-operative Banks The terms of
reference were to define and identify surplus resources with the State
and Central Co-operative Banks and to identify the causes and examine
the effects of this growing problem in relation to interest rate structure
and the concessional refinance facilities available from the RBI.
8.

Dr. M.V. Hate Committee on Rural Credit (1983)

An era of direct involvement of RBI in purveying agricultural credit may

be said to have come to an end with the formation of the National Bank
of Agricultural and Rural Development (NABARD) in July 1982. In line
with the objective of national policies, the bank has also been insisting
on the need for reserving a portion of credit for the weaker section. This
committee briefly recount the technical and managerial assistance the
bank extended to agricultural credit and other related institutions both
within the country and abroad.

9.

Dr.K.S.Krishnaswamy Committee (1985)

53

At the meeting of the Finance Minister with the Chief Executive Officers
of the Public Sector Banks held on 6th March, 1980.The

terms of

reference to identify the specific groups which are to be assisted under

the 20 Point Programme. To identify the ways and means of rendering
assistance to the beneficiaries. To look into the question of fixing subtargets (within the enhanced overall target of 40% for assistance to
priority sectors) to the beneficiaries.
10.

Dr. P.D. Ojha Committee (1988)

Governor, RBI suggested to the Chief Executives of Public Sector Banks

at a meeting held on 17th October, 1987 that a field study would be
carried out with their personal participation in different districts all over
the country and the findings would be discussed in a Seminar. The
terms of reference were to examine and recommend the necessary
procedures for effective co-ordination between the three institutional
agencies viz. Commercial Banks, Regional Rural Banks and Cooperative under the new area approach.
11.

Kapur Committee on Credit Delivery System for SSI (1997)

A Committee was set up by the RBI in December 1997 (under the

Chairmanship of Shri S.L. Kapur) to suggest measures for improving the
Credit Delivery System for SSIs. The recommendations of the
Committee were special treatment to smaller among small industries
and removal of procedural difficulties to facilitate SSI advances

54

12.

Gupta Committee on Agricultural Sector (1998)

The one-man Committee under the Chairmanship of Shri R.V. Gupta,

which examined the problems faced by the borrowers in agricultural
sector, had made several recommendations for ameliorating the
problems in the flow of agricultural credit. The recommendations
relating to several procedural modifications on agricultural credit have
been advised to banks for implementation.

2.4

VARIOUS COMMITTEE REPORTS ON NPA

1.

Narsimhan Committee Reform I (1991)

The development of the financial sector is a major achievement and it

has contributed significantly to the increase in our savings rate,
especially of the household sector. The terms of reference were to
examine the existing structure of the financial system and its various
components and to make recommendations for improving the efficiency
and effectiveness of the system with particular reference to the
economy

of

operations,

accountability

and

profitability

of

the

commercial banks and financial institutions.

2.

Khan Committee on Financial Reforms (1997)

RBI had constituted a 7 member Working Group on 15th Dec. 1997 under
the Chairmanship of Shri S.H. Khan, Chairman and Managing Director of
IDBI, keeping in view the need for evolving an efficient and competitive
financial system. The terms of reference were to review the Role,
Structure and Operations of DFIs and Commercial Banks in the
55

emerging operating environment and suggest changes and to examine

whether DFIs could be given increased access to short term funds and
the regulatory framework needed for the purpose.
3.

Tarapore Committee on Capital A/c Convertibility (1997)

The Union Finance Minister, Shri P. Chidambaram, in his Budget Speech

for 1997-98 had indicated that the regulations governing foreign
exchange transactions need to be modernized and replaced by a new
law consistent with the objective of progressively liberalizing capital
account transactions. Committee on Capital Account Convertibility
under the Chairmanship of Shri S.S. Tarapore was appointed. The terms
of reference were to review the international experience in relation to
Capital Account Convertibility and to indicate the preconditions for
introduction of full Capital Account Convertibility and to specify the
consequences and time frame in which such measures are to be taken.
4. Pannir Selvam Committee on NPA (1998)
Banking Division constituted a 3 Member Committee under the
chairmanship of Shri A.T. Pannir Selvam, Chairman, IBA and Chairman
& Managing Director, Union Bank of India. The terms of reference
assigned to the above Committee were Causes of NPAs, factors for
slump in recovery of loans; measures to be taken for effective recovery
of bank dues and reduction of NPAs and banks anks wise study on
factors responsible for the NPAs and banks specific suggestions for
recovery.

56

5.

Narsimhan Committee Reform II (1998):

Reform of the Indian banking sector is now under way following the
recommendations of the Committee on Financial System (CFS), which
reported in 1991. The second generation of reform could be
conveniently looked at in terms of 3 broad interrelated issues and
actions that need to be taken to strengthen the foundation of the
banking system and structural changes in the system suggested capital
adequacy, asset quality, prudential norms, systems and methods in
banks.
6.

RBI Panel on DRTs (1998)

The RBI had set up Working Group in the month of March 1998 to review
the functioning of Debt Recovery Tribunals under the Chairmanship of
Shri N.V. Deshpandey. The objectives of the panel were to look into
various issues and problems confronting the functioning of DRTs in
expeditious recovery of banks dues and to examine the existing
statutory provisions and suggest necessary amendments to the
Recovery of Debts due to Banks and Financial Institutions Act, 1993 and
Rules framed there under with a view to improving efficacy of legal
machinery,
7.

Special Report on NPA by RBI (July 1999)

In order to study some aspects and issues relating to NPAs in

Commercial Banks, RBI has prepared a report in the Department of
Banking Supervision. Shri A.Q.Siddiqui, Chief General Manager, was in

57

charge of this project whereas, Shri A.S. Rao and R.M. Thakkar, both
Deputy General Managers, assisted this project. This study has been
carried out using the RBI inspection reports on Banks, information /
data obtained from public sector banks and 6 private sectors banks and
those collected from the files on borrowable accounts maintained in
banks for assessing comparative position on NPAs and their recoveries
in banks. The causes for sickness /weak performance and consequently
the account turning NPA in respect of Public sector banks and private
sector banks.

2.5. Conclusions
In this Chapter, attempt is made to learn in brief, purpose, terms of
reference and findings of various Committees, Study Groups, and
Research work relating to the task of Credit, Legal Reforms and NPAs
which is very useful in this present research study. All these tasks are
discussed in detail in following Chapters where ever applicable.

58

CHAPTER 3
SCOPE OF THE STUDY
3.1

The Need for the Study

Need for the research study after observation that generally the authors
take separately Public Sector Banks, Private Sector Banks and
Cooperative Bank. Indeed the researcher have noticed similarities and
dissimilarities in these banks and also would like to perform detailed
study on NBFC along with these sectors and compare their NPA level
and their success.NPA is not only in Indian scenario but it is also
existing in foreign countries. Inspite of legal frame work and regulatory
have been appointed still NPA exist. As the need of time to regain trust
in all the sectors of as well as the Financial Institution the detailed
comparative analysis on policies, Cause for NPA at different stage and
level of NPA on priority, Non priority and SSI has been selected. Many of
the researchers studied the related topic only on Commercial banks or
separately on Private Banks or exclusively on Co operative Banks. It is
necessary to do the comparative analysis on all the sectors to get a fair
view of these related issues.

3.2

Statement of the Problem

The study relates with the credit advances and recovery of loans by
banks and financial institutions. Recovery of loan is very important in
the success of performance of individual banks as well as sectors as a
whole. Failure to recover leads to overdues by the borrower. The
research study has been carried out to find out the measure to reduce
the bad loans in different sectors and the techniques to control the level
59

of bad loan in banking sectors and Financial Institution. In the era of

globalization the entire banking sector and financial institution is facing
lot of problem. These problems include severe competitions, advanced
technology, modern management methods etc. To reduce the bad loan
or nonperforming assets efficient and standardised activities must be
adopted. Bad loans and nonperforming assets can be implemented only
after realising deficiency in the existing system. Hence the strength and
weakness can be studied by comparative analysis in the entire banking
system. The researcher has tried to analyse the gaps in each sector on
financial and non financial issues.

3.3 Objectives of Study

To identify and analyze the trends of loans and advance with

respect to Public sector banks, Private sector banks, Co operative
sector banks and Financial Institutions in India

To understand the cause and factors that are responsible for

lower profitability and operational efficiency &improve the same

To analyze, the trend of NPAs & profitability of banks of Public

sector banks, Private sector banks, Co operative sector and
Financial Institutions

Measures to reduce existing NPAs with respect to different

sectors

To suggest improvement in monitoring and reducing the overdue

60

3.4

Limitation of the Study

The study suffers from the limitations which are inherent due to
economic value and not physical value. The study is based on primary
data which carries its own limitations. The analysis is based on data
published by banks submitted to RBI. The cooperative banks are spread
over widely it is not possible to cover majority of the cooperative banks.
Cooperative banks are further classified into State Cooperative Banks,
Schedule Cooperative Banks, District

Cooperative Banks, Local

cooperative banks and Bhatti petti. The data is related to last 10 years
only. The research study mainly is based on Scheduled Urban
Cooperative banks. The study concentrated only on non performing
assets and related issues. The study is a combination of explanatory
and empirical.

3.5

Methodology of the study:

Methodology relates to plan of study, which includes steps of data

collection, types of Questionnaire, process of data and finally
interpretation of data
Data is collected from public Sector Banks, Private Sector Banks, and
Scheduled Urban Co-operative Sector Banks and NBFC
a. Primary Data:
The Primary data is collected through Questionnaire, which is divided
into two parts:
a. Questionnaire which deals with the general policy of the banks
b. Annexure questionnaire is divided into three stages viz:

PART-A : APPRAISAL STAGE

61

i.

PART B: SANCTION & DISBURSEMENT STAGE

PART C : POST DISBURSEMENT STAGE

Primary data was collected through unstructured Interviews with

Bank Officials from Public Sector Banks, Private sector Banks, and
Scheduled Urban Cooperative Banks & Financial institution. Their
views regarding NPA was collected

ii. Opinions of Banks Facilitators (Chartered Accountant, Advocates,

Industrial borrowers, Individual Borrowers, Collection Agents)
through aforesaid Annexure were collected
b. Secondary Data:

The research is based on Data collected from RBI publications,

Annual Report, Journals & Websites. Secondary data are
collected since 1999 to 2008, Case Study, Court decisions,
Relevant Sections of the provisions of Banking Regulations Act,
SARFEASE

ACT,

Basel

Accord,

Recommendations

and

Conclusions of various Committees / Studies undertaken as well

as PhD thesis also.

3.5.1 Sample Selections

Types of Banks

Public Banks
SBI subsidiaries
Private Sector Banks
Scheduled
Urban
Co-operative
Banks
NBFC (Multi Finance Loan)
Facilitators (Bank Advocates, Bank
Chartered Accountant, Industrial
borrower,
individual
borrower
collection Agent)

Total No. of
Banks
20
07
22
53

Sample size

114
-

30
81

18
07
15
15

62

Samples were collected at random

The questionnaire was presented to bank official with prior appointment.
As far as possible the corporate office or head office or the zonal office
provided the information.In some banks branch manager with the
permission of his higher officials or due to introduction of technology
could provide information for the entire banks. Similarly questionnaire
was presented to other facilitators to find out their views regarding bad
loans and non performing assets

3.5.2.Data Collection
Data analysis was analysed to meet the objectives and were presented
in graphical manner to bring about comparison to meet the above
objectives. Tables of all the Responses were drawn for the data. Simple
Statistical and Graphical method is used to present the facts observed
by the study.
3.6. Conclusion
The distribution of NPAs in the system follows 80-20 rule whereby 20%
by number of borrowers are responsible for 80% of value of impaired
assets and conversely. The large impaired assets comprise industrial
assets having good restructuring potential Arcil experience shows in
value terms more than 60% of the impaired assets are amenable to be
restructured or sold as a going concern. The small assets however have
to be put through a recovery process, where the collateral based
financing system followed in the country offers a fair recovery potential.
The seed of success of managing the impaired asset in any economy
lies in the speed of recycling these assets and their realization into

63

cash. In achieving objective the legal environment should adequately

possess

empowered

system

and

structure,

support

from

the

government and finally accessibility to new domestic and foreign

capital. Only then Indian banking shall be in full throttle to take up on
the challenge to de-stress the system and prepare for future growth by
fueling the SMEs which is the growth engine for Indian economy in the
future era. The long tradition of political consensus with required
legislation, fund support and prompt action helped to resolve the crisis
minimising the loss. It is preferable to opt for a structured model to
handle risky capital separately. The crucial factor is to quickly identify
the problem and approach professionally utilising the lessons from the
past experience prudently and pragmatically.

64

Chapter 4
LEGAL FRAME WORK AND NOTIFICATION

4.1 Introduction
Globalization has resulted into the rapid transformation of the financial
system all over the world1. As a result capital market, money market and
debt market are getting widened deepened. The growth of financial
market has increased the need for innovative instruments for raising
funds. There is increasing from investors, for high quality, low risk
securities. Today the toughest problem faced by the entire banking
industry in India is the NPAs, i.e. the loans, where the principal and
interest cannot be recovered, thus the assets stop earning any income.
The unbearable level of NPAs has led to lower interest income and loan
loss provisioning requirements which have destroyed the profitability of
the banks to great extent. Besides the recycling of funds is restricted,
thus leading to serious asset liability mismatches. The supply of credit
to potential borrowers have been blocked which is having a harmful
effect on the capital formation and hampering the economic activity of
the country. So the NPA problem is an issue of public debate and of
national priority.2
Indias legal system has traditionally been friendly towards borrowers
and famously slow and inefficient. In 1993, Debt Recovery Tribunal
(DRTs) was set up precisely to avert the said problem, to give bank
faster access to justice. In 2002, a major step in empowering banks in

65

their loan recovery effort came in the form of the NPA Ordinance, later
turned into the Securitization and Reconstruction of Financial Assets
and Enforcement of security Interest (SARFAESI) Act. The Act paves the
way for the establishment of Assets Reconstruction Companies (ARCs)
that can take the NPAs off the balance sheets of banks and recover
them.

4.2 Purpose of the Act

Securitization, the process of converting illiquid loans into tradable
securities, has emerged as an important tool for financing worldwide.
Securitization has gained increased acceptance in India over the years.
Securitization emerged as an important tool for fund raising by Indian
Banks and non banking financial institutions. Success of securitization
depends upon proper implementation of the Act. Priority sector lending
requirement of Indian bank was the key driver behind the retail
securitization transaction during 2009.A majority of the retail loan pools
securitised in 2009 were backed by priority sector loan originated by
NBFCs. Transactions through direct assignment route dominated the
market in 2009, as this route facilitates the transfer of priority sector
loans directly to the acquirers loan book instead of investment book
and thereby fulfilling priority sector lending requirement.3
Unlike the developed countries where Mortgage Backed Securities
(MBS) are more prevalent, it is the Asset Backed Securities (ABS) which
has been the main driver of securitization market in India, contributing
more than 50% of total issuance. In India, underlying assets which have

66

been securitized mainly include commercial vehicle loans, car loans,

construction

loans,

consumer durable

farm

equipment

loans, personal

loans,

three-wheeler

loans,

loans, corporate loans,

and

residential mortgage loans. Indias securitisation issuance includes

ABS, MBS, single loan Collateralized Loan Obligation (CLO) and Direct
Assignment of loans. Act empowers bank and financial institutions (FIs)
to seize the assets charged to them without intervention of the courts
and sell them off to realize their loans, which have become NPAs. But
the option approaching the DRT, in case the banks or financial
institutions do not recover the dues by themselves will always remain
open.4

4.3 Highlights of the Act /Features of the Act

4.3. a. 1. In case the borrower of an NPA account fails to pay the dues of
the bank within 60 days from the date of the notice sent by the bank, the
bank can exercise any of the following rights under sub-section 13(4) to
recover his secured debt.
a. Take possession of the secured assets of the borrower and
transfer the same by way of lease, assignment

or sale for

releasing the dues without intervention of the DRT/Court

b. Take over the management of the borrowers concern.
c. Appoint a manager or Court Receiver to manage the secured
assets

67

d. Send notice to a third person who has acquired the assets from
the borrower without the consent of the bank
2. In case NPA account is a consortium account or under multiple
finance the right to enforce securities can be exercised by the
banks/Financial institutions, only when secured creditors representing
not less than three fourth in value on the amount outstanding are
agreeable as laid down in sub-section 13(9).
3. After acquiring the possession of the assets charged to the bank and
selling the same and appropriation of scale proceeds towards the dues
of the bank, then the bank can approach DRT for recovering the balance
amount, if any, from the borrower/ guarantor as laid down in sub-section
13(10)
4. If the bank feels that there can be resistance for acquiring the assets
charged to the bank from the borrower, in such a case the bank can
approach the concerned Chief Metropolitan Magistrate or the District
Magistrate by filing a written request for taking possession of the said
assets.(section 14)
5. After issuance of 60 days notice by the bank to the borrower, the
borrower shall not deal with the assets which are charged to the bank.
However, dealing in the said assets in the said assets in the ordinary
course of business of the borrower is permitted.
6. The provisions of the Act are not applicable to the following
transaction:

68

a. Any security interest created for payment of financial assets not

exceeding Rs. 1 lakh
b. Any security interest created over agricultural lands.
c. Any case in which the amount due is less than 20% of the
principal amount and interest therein.
d. Pledge of movable assets within the meaning of section 172 of the
Indian Contract Act, 1872.
e. Any conditional sale, hire purchase or lease, or any other
contract, in which no security interest has been created.
f. Security created in any aircraft under Aircraft Act, 1934.
g. Security created in a vessel under Merchant Shipping Act,
h. Any rights of unpaid seller under Section 47 of the Sale of Goods
Act, 1930.
i. Any property exempted from attachment under Section 60 of CPC.
7. This Act has permitted to float assets reconstructions companies
which will purchase the NPA accounts from the bank at a discounted
price. They will also take over the assets charged by the bank for the
particular account for necessary recovery action through reconstruction
of the assets or otherwise.
8. Section 17, any person including the borrower may approach DRT by
filing an appeal before the DRT within 45 days from the date on which

69

steps have been taken by the bank. But such an appeal shall not be
entertained by the DRT unless a specified amount of the outstanding
dues of the bank is deposited in the DRT. The right to appeal before
DRAT (Debt Recovery Appellate Tribunal) within 30 days is given under
Section 18 to any person aggrieved by the order of DRT. The ousts the
jurisdiction of the Civil Courts and declares that no injunction shall be
granted in respect of any exercise of rights conferred by this ACT.
4.3. b. After the publication of this Act, several borrowers had filed writ
petitions in the Supreme Court of India, challenging the validity of the
Act. In the landmark case of Mardia Chemical Ltd. & Others vs. Union of
India & Others (2004) 120.Comp.Case 373 (SC), the Supreme Court has
upheld the validity of the Act. Some salient features of the judgement
are:
i. The Court directed that the banks should evolve appropriate
internal mechanism to thoroughly resolve the contentions raised
by the borrower. The bank should apply its mind to the objections
and communicate its reasons to the borrower. This shall be an
act of fairness on the part of the bank.
ii. The court held that banks and financial institution have been
have been provided with guidelines by the RBI laying down the
terms, conditions and circumstances in which the debt is to be
classified as non-performing assets. Hence, there is no arbitrary
illusory. It is also unreasonable and violation of Article 14 of the
constitution.

70

iii. Section 34 of the Act lays down that Civil Courts have no
jurisdiction to entertain any suit in respect of any matter which
DRT or DRAT (Debts Recovery Appellate Tribunal) is empowered
to deal with. The court has upheld the validity of these
provisions.
iv. Accordingly, the Supreme Court upheld the whole of the Act
excluding Section 17 (2).5
4.3. c. The SARFAESI Act and the action of creditors have been
challenged in the courts almost immediately. In a decision in Mardia
Chemicals Vs ICICI case, the Supreme Court upheld the Act in 2004,
tilting the balance for the banks. Meanwhile the RBI has been
encouraging the banks to use the provisions of the SARFAESI Act. Ever
since the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interests (SARFAESI) Act came into play, banks
and financial institutions have had a mixed experience. The initial
brouhaha over this devise to plug the burgeoning non-performing
assets (NPAs) in the country was stonewalled by Mardia Chemicals,
whose legal acumen persuaded the Supreme Court to pass a temporary
order permitting banks to take over the assets hypothecated but not
dispose them. This halfway house still continues. A decision was
expected on September 15, but Mardia Chemicals is proving to be very
tenacious litigant.6
The intent of the Act is to provide a remedy to the secured creditors to
minimise their NPAs. It is nobody's case that any bank or financial

71

institution would take over a cement plant, a boutique or a hotel and

actually run it. It would be handed over to an asset reconstructing
company (ARC) at the earliest opportunity which, in turn, would ensure
that the bank or financial institution obtains its pound of flesh from the
asset. The ultimate aim of the secured creditor would be to ensure that
some money hits the account of the borrower.
The less litigious-minded among the defaulters' list have ensured that
some repayment has been made to creditors who contemplate action
under the SARFAESI Act. Hence, it all boils down to the willingness of
the borrower to pay up. This is precisely the reason why certain
chambers of commerce have suggested that the Act should only be
made applicable to wilful defaulters. Although a thin line of difference
exists between a wilful and a non-wilful defaulter, it remains a fact that a
non-wilful defaulter would prefer to dispose of an asset that is bleeding
him all over than hang on to the asset by taking protection from any
available court in the land.
With a view to help the Banking sector to overcome the mounting non
performing assets, Banks have been vested with enormous powers in
the matter of enforcing their security interest under the Securitization
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002. The Civil Procedure Code 1908 was enacted for
enforcing substantive civil rights and it was ruling the field for several
decades. It was realized later that litigation through the Civil Procedure
Code was virtually defeating the process of rendering justice in view of

72

abnormal delays and technicalities in following the Code. Added to that

enormous increase in litigation caused serious concern and therefore
measures were initiated to have procedures which could render justice
without delay. Banks and financial institutions are the custodians of
public money and there was a need to rotate the money for the public
good. Non-Performing Assets (NPA) is a loss to the economy. When the
SARFAESI Act was enacted in 2002, the NPA stood at Rs. 1.10 lakh
Crores and were threatening the balance of economy. In this
background the Government of India had appointed the Narasimham
Committee for studying and recommending the ways and means for
quick recovery of the public money locked up in NPAs. In furtherance of
the recommendations of the Narasimham Committee, the Recovery of
Debts by Banks and Financial Institutions Act 1993 was enacted with
much hope that the said Act would enable quick recovery of NPAs by
Banks and Financial Institutions. However the Act (DRT Act) failed to
yield the desired result. In Transcore, the Supreme Court itself has taken
note of the failure of the DRT Act by observing Further in cases where
the debt is secured by pledge of shares or immovable properties, with
the passage of time and delay in the DRT proceedings, the value of the
pledged assets or mortgaged properties invariably falls. On account of
inflation, value of the assets in the hands of the bank/FI invariably
depletes which, in turn, leads to asset liability mismatch. These
contingencies are not taken care of by the DRT Act and, therefore,
Parliament had to enact the NPA Act, 2002.Enactment of SARFAESI Act
In the above background the policy makers and legislators realized the

73

need for further measures for the quick recovery of NPAs, and to
empower Banks and Financial Institutions to recover the NPAs without
intervention of judicial process. In that process guidance was found
from Section 69A of Transfer of Property Act and State Finance
Corporation Acts, where there is provision for the sale of secured assets
without the intervention of Courts. In that process Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act 2002 (SARFAESI) was enacted. The SARFAESI Ordinance 2002 was
promulgated on the 21st June 2002 to regulate securitization and
reconstruction of financial assets and enforcement of security interest
and for matters connected therewith or incidental thereto. The
provisions of the Ordinance would enable banks and financial
institutions to realize long-term assets, manage problem of liquidity,
asset liability Articles mismatches and improve recovery by exercising
powers to take possession of securities, sell them and reduce nonperforming

assets

by

adopting

measures

for

recovery

or

reconstruction. SARFAESI Act Section 13 empowers the Banks/

Financial Institutions inter alia to take possession and effect sale of the
secured assets. After the enactment of the SARFAESI Act, like any other
new legislation it was subjected to judicial scrutiny and interpretation to
settle down the legal position. Two most important cases in that process
are Mardia Chemicals Ltd v. Union of India (2004 (4) CTC 759; 2004 (4)
SCC 311) and Transcore v. Union of India & Anr7 2006 (5) CTC 753; AIR
2007 SC 712) wherein the Supreme Court had settled the legal position
substantially with regard to the SARFAESI Act and made the rigor of

74

SARFAESI Act for the recovery of NPAs effective in letter and spirit.
SARFAESI Act is simply a procedural enactment like CPC and it seldom
deals with substantive rights on the properties. In effect SARFAESI Act,
explicitly or by implication overrides all other earlier procedural laws for
the recovery of NPAs. To be more specific Banks and Financial
Institutions
In Transcore case the Supreme Court has held in: In our view, Section
17(4) shows that the secured creditor is free to take recourse to any of
the measures under Section 13(4) notwithstanding anything contained
in any other law for the time being in force, When the Supreme Court
compared State Revenue law with the SARFAESI Act it sent wrong
signals as if the SARFAESI Act overrides even the substantive laws.

The Bench analysed the Rules empowering the Recovery Officer

to put the auction purchaser in possession of the properties.
(Rule 40). The Bench also considered the rules which permitted
the Recovery Officer to put back in possession any person who
other than the defaulter claiming in good faith to be in possession
of the property on his own account or on account of some person
other than the defaulter. (Rules 44 to 47)

3.3.d. Secondly they drew an analogy with the provisions of CPC and
held that the Rules framed under the ITCP Rules largely correspond to
the relevant Rules occurring under Order 21 of the Code of Civil
Procedure relating to the execution of a decree. They held that Rule 39
of the ITCP Rules corresponds to Order 21 Rule 95 C.P.C. which deals
with delivery of possession in occupancy of judgment debtor and Rule

75

40 of the ITCP Rules corresponds to Order 21 Rule 96 C.P.C. They were

of the view that Rule 40 of the ITCP Rules dealing with the case where
the property is in occupation of the tenant or other person entitled to
occupy the same in his own right contemplates only symbolical
possession to the auction purchaser and the tenants (who are strangers
to the decree) cannot be evicted by the Recovery Officer by issuing an
order directing them to vacate the properties forfeiting their rights under
the relevant provisions of the Rent Control Law.

4.4 Limitations of the Act

1. The legislation empowers one party to the dispute, i.e. the creditor
to take action without due judicial process against the other
party.The bank and FIs in their eagerness to recover NPAs may
violate the fundamental rights of the borrowers. The borrowers can
approach the DRTs in case of grievances, but it amounts to post
corrective measure as the Act allows the banks and securitisation
companies to initiate action.
2. In case of enforcement of their claims by banks/FIs under this Act,
they do not examine the validity of the charge nor are they
empowered to do so. Therefore, in the rarest case of defective
charge also the recovery shall take place.
3. The main object of the Act is fast recovery of debts. But the Act
provides for appeal over appeal, which is lengthy judicial process
and leads to delay in execution proceedings.
4. It will be difficult for banks to sell distressed assets as there are
few takers for such assets.

76

5. The Act empowers the banks to take over the management of

defaulting companies. Banks are not skilled enough to run any
business activity with guaranteed success.
6. In case of enforcement of claims in consortium advances the
creditors can enforce only on the consent of the other creditors
having minimum 75% share in the loan whereas enforcement of
claim though DRT/Civil Court can be initiated by a single creditor
by adding other creditors as respondents in the case.
7. In case of sale of seized assets, the seller and the beneficiary will
be the same. The sale of secured assets by banks at a value
enough to cover their dues would be adequately self serving, but it
may appear to be unfair to the stakeholders.
8. The Act provides to take help from the district administrative
machinery for enforcement of security interest is an impractical
stipulation. As our district administrative machinery is even unable
to provide assistance even to the DRTs for the recovery work.
9. Valuation of assets and binding process can trigger legal cases.
There may be lack of unanimity among lenders, as all lenders
holding at least 75% stake in outstanding dues are required to
agree to sell the assets of defaulters.
10. The appointment of a manager for the management of acquired
assets, in consultation with the borrower, whose assets have been
seized by the banks, is a utopian idea.

77

4.5 SARFAESI (Amendment) Ordinance- 2004

In the light of the Supreme Court judgment in the Mardia Chemicals Vs
ICICI Bank Ltd, the Government promulgated the Ordinance to amend
certain sections of the Act, which has been passed by the Parliament in
December, 2004.
Highlights of the changes are as under:
a. Amendment in Section 13: On receipt of the notice if the borrower
makes any representation or raises any objection, the secured
creditor shall consider such representation or objection and shall
communicate within one week of receipt of such representation to
the borrower.
b. Amendment in Section 17: The borrower may make an application
to the DRT if the secured creditors have not accepted his
representation or objection. Any application made by the
borrower shall be dealt with by DRT, as expeditiously as possible
and to be disposed of within 60 days from the date of such
application. If the application is not disposed of by DRT within the
period of 4 months, any party to the applicant may make an
application to the DRAT for directing the DRT for expeditious
disposal of the application.
c. Amendment in Section 18: No appeal shall be entertained by
DART unless the borrower has deposited with it 50% of the
amount of debt due from him, as claimed by the secured creditor
or determined by the DRT, whichever is less. DRAT may reduce
the amount upto 25% of the debt.

78

4.6. Conclusion
1. The Act is term as comprehensive and extraordinary piece of
legislation8. The only way to put a stop to NPA problem is to attack the
problems which are in built in the system like lack of infrastructure,
liberal terms of financing, holding the managers personally responsible
for any laziness and negligence on their part.
2. As Justice B.P.Banerjee puts in: The Act does not provide a magic
wand to remove the sickness in the industry, it can, at the best, be
looked upon a transient phase in the culture of financing9.
3. The Act gives sweeping powers to banks and FIs to seize the assets
charged to them and realize their loans without any intervention of the
Court. It is a tool and not a weapon in the hands of the banks to shoot
the defaulters10. Taking over the defaulters personal assets where the
wilful defaulters has siphoned out the assets under the banks charge
needs to be taken in the long run if the Act fails to deliver the required
result. Since the NPA is an integral part of the operational risk the
government provided a legal frame work through which banks can
transfer the NPAs to a separate entity called Special purpose Vehicles
(SPV) which is private owned Asset Management Companies (AMC).
4. The major originators/issuers of securitisation transactions have been
more private Banks, NBFC and Housing Finance Companies (HFCs).
Major investors in securitisation transaction have been public and
private sector banks, mutual funds and insurance companies. The
single loan CLO transaction involved a bank giving a loan to a corporate
the receivables were then securitized immediately using a Private Trust

79

Company (PTC) structure and formation of a trust. Securitization can

serve as an important capital adequacy management tool for such
banks. Banks can free up capital by securitizing their illiquid loan
assets.
5. In earlier years, securitization was used as a tool to book profit
upfront at the time of transaction as all the risks and rewards were
transferred to the investors. However, in February 2006, the RBI
released guidelines on securitization, which required amortization of
profit over the tenure of the transaction, thereby removing the upfront
profit booking incentive. The guidelines also required the originator to
split the transaction credit enhancements to be reduced from capital
funds.
6. Indian banks are expected to benefit immensely from the judicious
use of the securitization tool to free capital, generate liquidity and
manage assets and liabilities.

80

CHAPTER 5
ANALYSIS OF POST LIBERALIZATION DEVELOPMENT IN BANKS

5.1. Introduction:
Indias commercial banking system consists of non scheduled banks
and scheduled banks. Scheduled banks consist of scheduled
commercial banks and scheduled co-operative banks. The former are
further divided into four categories:
i. Public Sector Banks (which are classified into Nationalised
Banks and State Bank of India (SBI) and its subsidiaries)
ii. Private Sector Banks (which are classified as old Private Sector
Bank and New Private Sector Banks that emerged after 1991.
iii. Foreign Banks in India
iv. Regional Rural Banks (which operate exclusively in rural areas to
provide credit and other facilities to rural areas). The SBI
group of banks consists of eight independently capitalised
banks-seven associate banks and SBI itself.
v. Scheduled Cooperative Banks are further divided into Scheduled
Urban Cooperative Banks and Scheduled State Cooperative
Banks.

5.2. The origination of NPAs in Indian banking landscape can

be broadly classified into two stages:

81

5.2. a. Pre- liberalization era:

In the context of accretion to NPAs in the banking system, contributory
factors during this period were mainly the following:
i. Down swings in agricultural sectors triggered by monsoon
vagaries bringing about all round economic and demand
recession
ii. Industrial licensing: The scale of economy in relation to
international standards was compromised leading to high
capital cost per unit of production. This was often said to be
off-set by lower labour cost, but in reality labour productivity
coupled with application of robotics outweighed the benefit
from labour cost in the Indian context.
iii. Sector wise reservation: Reservation for major sectors for
investment by (GOI) in the public sector structure in post
independence days became necessity due to various reasons
including non-availability of private capital.
iv. Controlled interest rate: In the controlled interest rate regime,
banks were not in a position to price the risk premium. This
led to cross subsidization across the risk profile of the loan
assets. Although additional collaterals were taken risky loan
assets, in the absence of favourable legal system, the banks
were not in a position to realize value from these collaterals.
v. Tariff protection: In the absence of long-term tariff policy, it was
difficult for the banking system to establish viability of the

82

project with any degree of certainty during the loan payback

period.
vi. Role of Development Financial Institutions (DFIs): The DFIs
played a predominant role in the growth financing during the
pre-liberalization era. This model became unsustainable as
they started facing the difficulty in raising funds. In a way the
DFIs in India played the role of Venture Capital (VC) funding
without capturing the possible upside the model. The success
of DFIs can therefore be compared only with VC funding.

5.2. b. Post- liberalization era:

Indias macroeconomic policies were conservative until early eighties.
Accompanied by some liberalization in the form of de-licensing of
select industries permitted change in the product mix within the overall
capacity and creeping relaxation of imports, during mid eighties, the
Indian economy registered the average growth rate of 5.3 percent per
annum (sixth five fear plan), much higher than the average growth of
3.5 percent per annum during the previous three decades. With the
commencement of reform of the economy in 1991, banks were to follow
the Basel Accord. Consequently RBI issued first set of comprehensive
guidelines for Income Recognition and Asset Classification (IRAC) in
April 1992.The central bank, with a cautious move, adopted time based
provisioning method; and averted a near situation by not imposing
write-off the entire loan asset impairment amount based on present
value of realizable cash flow upon recognition of NPA. The banking

83

system in India places significant importance on tracking net NPA as

percentage of gross assets.Net NPA percentage is important for
regulatory purpose; it does not capture the shareholders perspective.
The focus should be on recovery of gross NPA including fully written
off accounts in present value terms using cost of carrying NPA as the
discounting factor at minimum value if not the opportunity cost.

5.3. Development of Public Sector Banks

Prior to the 1991 reforms, Indias Banking system/sector had long been
characterised as highly regulated and financially repressed business.
Increased the degree of financial repression and adversely affected the
countrys financial resource mobilisation and allocation are stated as a
background for the banking sector reforms.
5.3.1. Performance of Banks in lending to Priority Sector

Ever since nationalisation of banks in 1969, directed credit policy has

been an important part of the financial strategy under which the RBI
prescribed three distinct targets for PSBs: 40% of NBC to the priority
sector, which includes agriculture, SSI, and retail trades, self-employed,
etc. It is further classified into two sub targets: 18% of NBC to
agriculture and 10%of NBC to weaker section was fixed. In 1999 the
percentage of SSI advances achieved was 17.3% were as in the year
2002 it dropped to 3.91% and in 2008 the amount of percentage was
10.9% as mentioned below in Table 5.1
84

Table 5.1
Advances Granted by the PSBs to Small Scale Industries
Total SSI Advances
March Ending

(Rs.Crores)

Percentage

1999

42674

17.3

2000

45788

15.6

2001

47909

5.32

2002

49742

3.91

2003

52988

11.1

2004

58278

10.4

2005

67634

9.4

2006

82434

8.1

2007

102550

7.8

2008

148651

10.9

Source: RBI Publication

5.3.1. a. Advance to Other Priority Sector

This segment of PSA includes the credit to transport operators, small
business, professionals, self employed, consumption, housing finance,
education, etc. As on March 1999 this segment of PSAs was 24,448
Crores (9.98% to NBC) which increased to 17% in 2004 and 18.1% in
85

2005 and in 2006 it decreased to 16.1 and in 2007 it further deteriorated

to 15.8% to NBC.
5.3.1. b. Advances to Weaker Sections
The PSBs are required to lend 10% of NBC to identified weaker sections
of the society. Banks to this segment is fluctuating from year to year. In
2003 the percentage dipped to 6.76% and in 2008 it increased to
9.3%.Overall during these period of study the bank could not achieve
10% target but the performance was quiet satisfactory.
5.3.2. Magnitude and Movement of NPAs in Banks
Table 5.2
Magnitude and Movement of Gross NPAs to Gross Advances and Net
NPAs to Net Advances of PSBs
Gross NPAs

Net NPAs

% to Advances

% to Advance

1998-1999

15.89

08.13

1999-2000

14.02

07.42

2000-2001

12.40

06.74

2001-2002

11.09

05.82

2002-2003

09.36

04.54

2003-2004

07.79

02.98

2004-2005

05.53

02.00

2005-2006

03.64

01.32

2006-2007

02.66

01.05

2007-2008

02.23

00.99

Year

86

Source: RBI Publication

A glance through the statistics on the movement of NPAs of PSBs
presented in Table 5.2, since the prudential norms have been introduced
by RBI the study enables the researcher to show the extent to which
PSB has made a progress in reducing their NPA levels. The level of
gross and net NPAs has been sliding down over the years. The gross
NPAs of PSBs has come down from 15.89%in 1998-1999 to 2.23% in
2007-2008.Net NPA has also been sliding down the years. The net NPA
of PSB came down from 8.13% in 1998-1999 to 0.99% in 20072008.Though there is reduction in the level of NPA but still in absolute
term costing there is a loss to the bank by way of loss of profit to the
PSB and also of interest and other miscellaneous charges and litigation
charges. It may be seen from the data that whatever may be the level of
NPA but it erodes the profitability of the bank and in turn the profitability
is eroded from the balance sheet of the individual bank.
5.3.3. Non Performing Assets: Sector wise Analysis
a. Public Sector Banks
Priority Sector or directed credit has its origins in social control policy
of the Government of India since 1967. Later this ratio was increased to
40% which till date the same ratio. The ratio since the liberalization
period remains the same. The rational provided by the Narasimham

87

Committee-I (1991) for its reduction from 40% to 10% while narrowing
the focus of priority sector on small farmers and other low income
groups rest crucially on nonperforming advances. This situation gave
raise NPA. Table 5.3 shows that gross NPA under priority sector is
increasing since 1999 to 2008. In 1999 the gross NPA under priority
sector is 43.70% and in 2008 gross NPA is 63.62%. The share of nonpriority sector shows the reduction in gross NPA. In 1999 the gross
NPA under non-priority is 53.40% and in 2008 it has reduced to 35.63%.
Similarly the share of NPAs in public sector shows reduction of gross
NPA, from 2.90 in 1999 to 0.75 in 2008.From Table 5.3 it clearly shows
the level of NPA in public sector bank is the least and the maximum
contribution of NPA emerges from the priority sector.

Table 5.3
Sector Wise Non Performing Advances of Public Sector Banks Public
Sector Banks
Sector wise NPAs (% to Gross NPAs)
Year Ending
March
1999

Priority
Sector
43.70

Non-Priority
Sector
53.4

Public Sector
2.90

Gross NPAs
(Rs.Crore)
51710

2000

44.50

53.5

2.00

53294

2001

45.43

51.35

3.22

53174.12

2002

44.49

53.54

2.00

56506.34

2003

47.20

50.70

2.10

52807

2004

47.74

51.14

1.12

34989.7

2005

49.05

50.00

0.94

47696.48

2006

54.07

45.11

0.82

41378.23

2007

59.46

39.27

1.27

38601.8

2008

63.62

35.63

0.75

39748.51

88

Source: RBI Publication

It has been seen from the Table 5.4 from 1999 to 2008 SBI has high NPA
as compared to PSB or nationalised in priority sector. The proportion of
gross NPAs in priority sector lending to gross NPA of SBI group was
44.6% in March 1999 and in March 2008 58.49%. Like the public sector
bank even in case of SBI non-priority sector had considerably reduced
as compared to the priority sector. In 1999 the share of SBI under nonpriority sector was 51.9% of its gross NPA and in 2008 it declined
considerably to the extent of 40.88%.The share of SBI under PSB
showed remarkable improvement. In 1999 the share of gross NPA was
3.5% and in 2008 it showed 0.63% under its public sector segment which
is very impressive.

89

Table 5.4
Bank Group wise and Sector wise NPAs (percent of NPAs to Gross NPAs)
Year
Ending
March

Non-

Priority

Public

Priority

Sector

Sector

Sector

SBI

PSB

SBI

PSB

SBI

PSB

1999

44.6

43.7

51.9

53.4

3.5

2.9

2000

45.2

44.5

51.9

51.5

2.8

2.0

2001

44.2

45.4

49.8

51.4

6.0

3.2

2002

45.7

44.5

51.2

53.5

3.1

2.0

2003

47.5

47.2

49.4

50.7

3.1

2.1

2004

47.07

47.54

51.48

51.24

1.45

1.22

2005

47.39

49.05

51.48

50.0

1.13

49.05

2006

54.95

54.07

44.10

45.11

0.95

0.82

2007

57.15

59.46

41.6

39.27

1.50

1.27

2008

58.49

63.62

40.88

35.63

0.63

0.75

Source: RBI Publication

Bank wise data on proportion of NPAs in priority sector advances to
gross NPAs which shows that the PSB ratio on priority sector ranges
from 33% of its NBC and it reached up to as high as 53.3%of its NBC.As
on 2008 OBC in spite of taking over Global trust bank had 41.8 % highest
was 51.3% by Indian Bank on its priority sector The ratio is compared

90

with its NBC value. The ratio in a particular sector is almost identical
since the regulatory body monitors and passes the rules and regulations
on a Uniform basis.
b. Agricultural Lending
Agricultural lending should not exceed one-fourth of the agricultural
sub-target of 18%, i.e.4.5% of NBC for the purpose of computing the
achievements of banks under the 18% targets. As per the available data
OBC had the least NPA during the research period between 1999 to
2008.The level of NPA was 6.61 in 2006.The level of NPA in three banks
During the research period exceeded 30% of agricultural advances.
Bank of India, Indian Overseas Bank and PNB are the three banks which
had the high level of NPA. Out of these three banks Bank of India had
32.01% of NPA in 2008. (As shown In the Appendix 1).The cause of
concern in those banks where NPA in agricultural credit to gross NPA
exceeded 20%.These banks have to take special initiative for reducing
their NPAs proportion in agricultural lending at least to the average
level of PSBs. It is stipulated that 40% of the priority sector credit should
go to agricultural lending (18% of NBC), keeping 40% in view, the
distribution of PSBs according to the percentage share of NPAs in
agricultural advances to NPAs in priority sector credit is calculated. It is
noted that banks wherein NPAs in agricultural credit is contributing
maximum NPA, the reason need to be identified and urgent remedial
measures should be initiated at all level. In case of high or low NPA it
appears to be not a good proposition. In fact to that extent it affects the
profitability of the bank because the net NPA is adjusted from the

91

reserve set aside by the bank and it reduces the profits of the banks
such. With the result it has an impact on the performance of the bank.

c. Small Scale Industries

Under PSB the highest level of NPA was 37.8% to gross NPA and
subsequently it had marginally reduced and in 2008 it reached to the
level of 34% in this segment. The reduction level cannot be termed as
satisfactory situation. The lowest level of SSI under PSB is 12.4% in
1999 and it further reduced and in 2007 it reached to the extent of 5.7%
and in 2008 it showed an increase in the same level and increased to the
tune of 9% in 2008.In the case of SBI group the lowest level of NPA
12.6% in 1999 and subsequently there was a marginal reduction in NPA
level to the extent of 6.31% in 2008 and highest level of NPA in 1999 was
37.8% and in the same segment the least NPA level was 14.1% in 2007
and in 2008 It increased to 15.2 which clearly shows that there is some
fault in the system and which should be monitored and reduced to the
previous level or even lesser than the same. In 2000 the level of gross
NPA of OBC reached to 31.4 and it improved in its health condition
under this segment and reached to the level of 13.7% in 2007 and again
in 2008 it increased to 19.8%. During this period the study also reveals
that Indian bank in the year 1999 it had the gross NPA level to the extent
of 13.2% in 1999 and subsequently it increased to 36.7% in 2006 and
later reduced to 34.0% in 2008. These study shows that these level of
NPAs need to draw up a time bound strategy For reducing their NPA
levels need to draw a time bound strategy for reducing their NPA level in
SSI segment of priority sector advances.(Refer to Appendix 2)
92

4. Other priority Sector

Table 5.5
Bank Group wise NPAs in Other Priority Sector Credit to Gross NPAs of
PSBs (March Ending)
Sr.

Bank

No

Group

Source: RBI Publication

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Lowest

5.6

8.0

5.5

2.4

10.1

8.5

14.4

14.1

12.4

16.1

Average

10.2

11.2

10.4

11.1

11.9

15.5

19.7

25.4

27.4

26.6

Highest

16.0

17.8

12.0

22.1

19.2

22.9

26.0

31.3

31.3

33.9

Lowest

5.6

6.9

5.5

2.4

8.2

9.9

7.1

15.4

15.7

17.1

Average

10.9

11.8

12.1

11.9

11.9

15.5

17.4

22.4

27.5

28.2

Highest

17.7

22.0

22.3

22.2

22.2

29.3

33.3

32.6

36.6

39.9

State
A

Bank
Group

Public
B

Sector
Bank

93

The advances granted to small business, retail trades, roads and water
transport Operators, professionals, educated self-employed, housing,
etc, are usually covered under the other priority (OPS). During the recent
years the share of OPS to NBC of the PSBs has been increasing. During
the reform period (1991-1996) the share of OPS to NBC of the PSB was
8% to 10%, it got slightly reduced in 1997 and 1998.Since then there was
an increase in the OPS advances. In PSB the lowest level of NPA was 2.4
% in 2002 and in the same level it was 17.1% in 2008 this shows an
increase in the level of NPA. In 1999 the ratio of NPA was 5.6% and there
was reduction until 2002 and steep increase in the level of NPA. In the
highest level the PSB shows an increase ratio. In 1999 it had the
percentage of 17.7 and showed an upward tendency of 39.9% of gross
NPA Bank group wise data shows the NPA level in SBI and its
Associates in lower segment it was 5.6% in 1999 and 2.4% in 2002. This
shows that in the year 2002 the performance of the PSB and S.
BIremains the same. In the highest segment in 1999 the NPA showed
16% of its SSI gross NPA and there was reduction in the level of NPA
in2001which showed 12% under SSI category. Subsequently there was
an increase and it reached to the extent of 39.9% under the highest level
in SSI segment. Bank wise data from 1999 to 2004 the ratio of NPA was
under control i.e. the ratio was less than 30%.Since 2005 onwards they
exceeded the limit of 30% gross NPA. Canara bank in the year 2007 had
36.6% proportion under OPS and it reduced drastically to 25.3% in 2008
and Indian Bank in 2006 and 2007 had 31.8% and 39.4% respectively
Union bank of India showed in 2007 31.3% and in 2008 39%, similarly

94

Corporation Bank in 2007 had a gross NPA of 34.9% and in 2008

exhibited a ratio of 39.9%. Union Bank of India showed 31.9 in 2007 and
39.0%. These ratios give an alarming status to the banks. These PSBs
should provide special attention on these sectors without ignoring other
sectoral NPA. (Refer to Appendix 3 and Table 5.5)

5.4 CO-OPERATIVE BANKING SECTOR

5.4.1 The year 2002-03 was marked by a revival in industrial growth with
a buoyant services sector. There has been a reduction in the ratio of
non-performing assets (NPAs) to advances with various initiatives, such
as, improved risk management practices and greater recovery efforts,
driven,

inter

alia,

by

the

recently

enacted

Securitisation

and

Reconstruction of Financial Assets and Enforcement of Security Interest

(SARFAESI) Act, 2002.Co-operative banks recorded moderate growth
with less than satisfactory profitability.
5.4.2. Non-Performing Assets of Rural Co-operatives
a. Problems of NPAs in the commercial banking sector have been a
focus of policy attention in recent years. Given the importance of
rural co-operatives, it would be useful to examine whether this
problem needs special focus in the co-operative sector also.
b. Prudential norms relating to asset classification have been
extended to the StCB and CCBs since 1996-97 and to SCARDBs
and PCARDBs since 1997-98, so as to reflect their true financial
health.

95

5.4.3. Asset Classification and Provisioning Norms:

The asset classification and provisioning norms for Tier I UCBs would
continue to be different from Tier II UCBs as follows: (i) the 180 day loan
delinquency norm for NPAs was extended by one year, i.e., up to March
31, 2009; (ii) the 12-month period for classification of a 'sub-standard'
asset in 'doubtful' category by Tier I UCBs would be made effective from
April 1, 2009 instead of April 1, 2008.

Education loans were earlier

classified as a part of consumer credit for the purpose of capital

adequacy and attracted risk weight of 125 per cent. After a review, UCBs
were advised not to classify education loans as 'consumer credit' for the
purpose of capital adequacy norms. Accordingly the risk weight
applicable

to

educational

loan

would

be

100%

as

against

125%.Scheduled UCBs were advised to submit the structural liquidity

statement and interest rate sensitivity statement through the assetliability managment (ALM) module provided in the off-site surveillance
software (OSS).
5.4.4. Asset quality and recovery performance:
The NPAs to loans ratio of DCCBs improved to 18.5 per cent at endMarch 2007 from 19.8 per cent at end-March 2006. This was mainly due
to decline in NPAs in the substandard category. Substantial asset
slippage was noticed both in the doubtful and loss assets category.
The recovery to demand ratio also improved. Provisions made
significantly exceeded the provisions required. The NPA ratio in respect
of DCCBs varied significantly across the States from 4.8 per cent to 76.4
per cent at end-March 2007. Only in four States (Haryana, Himachal

96

Pradesh, Punjab and Rajasthan), the NPA ratio was less than 10 per
cent, while the NPA ratio was higher than 50 per cent in Jharkhand (76.4
per cent) and Bihar (54.5 per cent). NPAs in two States, viz., Jharkhand
and Tamil Nadu declined in 2006-07 as compared with the previous year.
However, the NPA ratio in three States, Haryana, Himachal Pradesh and
Punjab, which traditionally had relatively lower NPAs (less than 20 per
cent), declined further, while in two States, Uttarakhand and Rajasthan,
the NPA ratio increased. NPAs, as percentage of advances made by
SCARDBs, varied widely across States at end-March 2007 from 100 per
cent in Manipur to 0.03 per cent in Punjab. In as many as seven States
(Assam, Manipur, Orissa, Jammu and Kashmir, Bihar, Gujarat and Uttar
Pradesh), the NPA ratio was more than 50 per cent. In all, the NPA ratio
in only four States (Punjab, Kerala, Madhya Pradesh and West Bengal)
was less than 20 per cent.

Table 5.6
Gross Non-Performing Assets to Total Advance of Urban Cooperative
Banks

1999 2000 2001 2002 2003 2004 2005 2006 2007

2008

11.7

15.5

12.2

16.1

21.9

19.0

22.7

23.2

18.9

NA

Source: RBI Publication

97

Source:RBI Report
Net Non-performing Assets to Total Advance of Urban Cooperative Banks
1999
_

2000

2001

2002

2003

2004

2005

2006

2007

2008

13.0

12.1

12.5

12.3

8.8

7.7

The trend analysis in Table 5.6 shows that there is a fluctuation in the
gross NPA of Scheduled Urban Cooperative bank. In 1999 the level of
gross NPA was 11.7% and subsequently in 2002 it increased to 21.9%
and in 2003 it reduced to 19% and again in 2004 it rose to 22.7% and in
2005 it increased to 23.2%. This shows comparing to other sector of
banks cooperative bank has more NPA since they give preferences to
priority and weaker section of the borrowers. The data for net NPA to

98

total advances is available only from 2003. Hence in trend analysis in

comparison with Gross NPA the data from 2003 onwards is
reflecting.Net NPA is comparatively much less than the gross NPA.2003
the percentage of net NPA was 13.0 and 2005 there is an increase in the
net NPA. Later there was a reduction in the level of NPA and 2008 the
net NPA exhibited 7.7% under the banner of cooperative bank (Refer to
Appendix 4). The Reserve Bank of India Act, 1934 was amended in
January 1997 to provide a comprehensive legislative framework for
regulation of NBFCs. The amended Act, inter alia, provided for
compulsory registration and minimum NOF for all NBFCs. The RBI
revised the approach towards detecting the frauds in the parent body
and reports it to its subsidiaries or Joint ventures. The recovery
performance was excellent. 96.4 % of the assets were free from default
and the gross NPAs formed 3.6% only. In view of large increase in credit
to the commercial real estate sector over the last one year and the
extent of restructured advances in this sector, it would be prudent to
build cushion against likely non-performing assets (NPAs). Accordingly,
it is proposed to increase the provisioning requirement for advances to
the commercial real estate sector classified as standard assets from
the present level of 0.40 per cent to 1 per cent.

5.5. Non Baking Financial company

The recovery performance was excellent. 96.4 % of the assets were free
from default and the gross NPAs formed 3.6% only. Loss assets
accounted for 0.8% only. NBFC is very cautious in lending the loan.

99

Table 5.7
Percentage of Gross NPA to Gross Advance and Net NPA to Net
Advance of NBFC
Year

Gross NPAs to Gross

Net NPAs to Net

Advances

Advances

2001

11.5

5.6

2002

10.6

3.9

2003

8.8

2.7

2004

8.2

2.4

2005

5.7

2.5

2006

3.6

0.5

2007

2.2

0.2

2008

2.1

0*

2009 P

2.7

0*

P: Provisional.
* : Provision exceeds NPA
Source: Half-Yearly Returns.

The trend analysis in Table 5.7 Gross NPA and Net NPA of NBFC clearly
exhibit that there is overall reduction in the Gross and Net NPA since
2001 to 2009.since the Net NPA is calculated after the adjustment made
from the reserves set aside in the balance sheet. In 2001and 2002 the
100

Net NPA is approximately 50% of gross NPA and since 2003 onwards it
is more than 50% difference between Gross NPA and Net NPA.

5.6. Private Sector Banks:

The Private Banks are generally classified as Old Private Banks and
New Private Banks. In this study it has considered as only private
banks and no classification have been made since many merger and
acquisition is taking place.
5.5.1. Weaker section advances made by the private banks with respect
to agricultural credit the trend shows in 2004 ICICI gave agricultural
loan to the extent of 42.43% to the weaker sections. The very same year
Jammu and Kashmir Bank Ltd gave 27.91 % to the weaker sections
against agricultural loan. Bank of Punjab provided 23.62 to the weaker
sections. RBI passed a resolution stating Total credit should be 40% to
be given to the priority sector out of which 18% must compulsorily be
paid to the agricultural sector. As compared to the said level the
advances of weaker section for agricultural purpose is on a higher slab.
Average of a private bank against the agricultural lending to weaker
section fluctuated at a certain period of time. In 2001 3.58% of its
advance and in 2002 it increased to 5.43% and subsequently it
decreased to 1.74 in 2003. Later in 2004 it had shown an increased
trend ranging up to 5.71%.Later in 2005, 2006 and 2007 it shows a dip in
the advances made by the private bank to agricultural sector to weaker
sections. In 2008 there is an increased trend which reached up to 3.50%
of the advances (Refer to Appendix 5)
101

5.5.2. Agricultural Advances:

As per the available data the agricultural advances by the private banks
shows that in the year 2000 the advance provided 10.44% and there is a
steep increase in the year 2004 which shows average lending towards
agriculture is 269.56%.The steep increase is due to high advances made
by HDFC and ICICI to agricultural sector. In 2005 the average reduced to
10.83% and in 2006 it increased to 12.80% of its total lending to
agricultural sector. Similarly 2007 it increased to 13.44% and in 2008 it
progressed to 14.96% to agricultural lending. Agricultural lending is
divided into two categories viz; direct agricultural and indirect
agricultural lending. Indirect agricultural lending shows gradual
progress during the study period. This classification is not available for
the year 1999 and 2000. In 2001 it shows indirect agricultural lending
was 5.58% of its total agriculture. Subsequently it increased to 10.52%
of its total agriculture in 2002. Similarly there was a reduction in indirect
agricultural lending in the year 2003, it reduced to 9.08% of its total
agricultural lending. In the year 2004 it increased to 82.57% due to steep
increase in the advance made by HDFC and ICICI in its agricultural
lending. In 2005 and 2006 the lending rate was moderate and it
increased to 5.62% and 6.03% respectively. In 2007 it increased to 9.21%
of its total agricultural lending and in 2008 it reduced to 6.33% of its
total agricultural advances to weaker Section. Second category of
agricultural lending was on direct agricultural lending. Even in case of
direct advances there is a fluctuation on year to year basis. In 2001 it
shows a trend of 5.24% of its agricultural advances and in 2002 it

102

reduced to 4.89% of its total agricultural advances. In 2003 it increased

to 5.38%.Similar to the total and indirect agricultural advances even the
direct agricultural advances also shows a steep increase in the year
2004. The percentage of direct agriculture is 190.0%. Subsequently in
the year 2005 there is a reduction in the agricultural advances which is
6.99%.Later in the year 2006 it is 8.88% and in 2007 it showed an
increase in the agricultural advances at 9.30%. In 2008 the direct
agricultural advances is 10.7% of its total advances. There is a
correlation between the advances made to the agricultural and
advances provided to the weaker section. The magnitude or the
measurement of NPA is based on the advances made and the amount of
recovery made during the credit period. In 2001 the level of agricultural
NPA was 5.83% and slowly it increased to 12.54% in 2006 and in 2007 it
reduced to 12.25 which is very insignificant and in 2008 it further
reduced to 10.40.The reduction and increase in agricultural lending is
inevitable and since it depends upon the climatic conditions, quality of
the crops etc, there seems to be more contingent factor which leads to
non performing assets. The NPA level under the category of advance
made to the weaker section revealed that performance of recovery
proceedings have shown great improvement level since 2001 to 2008. In
the year 2001 the NPA level under advance to weaker section exhibited
positive movement i.e. in 2001 it was 17.35% and subsequently it
reduced to 8.00%.This reveals that individual private banks could
perform the recovery procedures in better manner as compared to their
advances made to this class of borrowers. (Refer to Appendix6)

103

Priority Sector Bank: Table 5.8

Advances to the Priority Sector by Private Bank as on Last Friday of the
Year
Agriculture
SSI/Small
Enterprise
Other Priority

1999

2000

2001

2002

2003

2004

2005

9.5

9.1

9.6

8.5

10.8

12.3

12.1

18.9

15.7

14.4

13.7

8.3

7.1

13.0

13.9

14.42

14.4

21.3

23.1

2006

2007

2008

13.5

12.8

15.4

5.4

4.2

3.9

13.4

24.5

23.4

22.9

17.5

Source: RBI Publication

The advances to the priority sector by Private Bank is classified as
agricultural, SSI and other Priority Sector. In Table 5.8 Agricultural
advances in 2008 is the highest i.e. 15.4% and lowest is 8.5% in the year
2002.There is a constant increase in the advance made by the private
bank in the agricultural sector except 2007 shows a downward
movement and later it increased in 2008.In case of SSI the trend shows
there is a reduction in the advance made by private bank to the SSI
sector. In the year 1999 it had the highest advance in SSI sector to the
extent of 18.9%. Least is 3.9% in 2007 and in 2008 it increased to 13.4%.
This shows that once again the concentration in SSI unit has increased.

104

In case of other priority sector the trend shows there was an increase
since 1999 to 2005 and since then there is a reduction in the advances
made by the private banks. In 1999 it was13% priority advances and in
2005 it showed the highest level of the advances 24.5% and later it
showed a reduction in the level of advances. It reduced to 17.5% in 2008.
As compared between SSI and Priority sector level of NPA in SSI
showed positive trend i.e. there was reduction in the level of NPA but the
priority sector showed increased level. The average of all the banks NPA
under priority sector was 30.64% in 2001and NPA increased to 45.35%
under priority sector and in 2008 the level of NPA was 41.61%.This
shows there was a reduction in NPA from 2007 to 2008.As compared to
SSI and Priority Sector the level of NPA under priority sector is very
high. The cause of high level NPA in sector shall be analysed in the
sixth chapter of this research. Bank wise analysis shows the level of
NPA in SBI Commercial and International Bank Ltd had 100% NPA under
priority sector during 2006 and 2008.Nainital Bank had 82.78% in 2001
and 70.15% in 2004. Many other banks at various levels had above 50%
NPA during this research period.
5.5.3. Small Scale Industries (SSI)
The general trend in the level of NPA under SSI is reducing since 2001 to
2008. The percentage of NPA is not available for the year 1999 and
2000.The level of NPA in the year 2001 was 17.73% and it marginally
increased to 17.87% in 2002.Since then 2003 onwards there is a
reduction in the level of NPA from 14.65% to 13.12% in 2008. During this

105

research period as compared to Priority Sector, Agricultural lending and

SSI lending the level of NPA under SSI sector is marginal and the
position had shown considerable improvement due to stringent rules
and regulations imposed by the RBI and Basel II norms. Initially banks
like Catholic Syrian Bank, ICICI Bank, Karur Vysya Bank, Development
Bank, City Union bank Ltd, J&K Ltd, Ratnakar Bank Ltd, SBI
international, Sangali Bank and Bank of Punjab showed the level of NPA
above 20%. Nainital showed 47.73% as level of NPA. Subsequently it
reduced to 16.51% under SSI though on a higher level of NPA but as
compared to the position in 2001 it showed remarkable improvement in
2008. Tamilnad Mercantile Bank had 30.07% NPA level under SSI sector
and it reduced to 18.61% in 2008 which though high level as compared
to Public Sector Bank but it reduced to a great extent in the year 2008.
(Refer to Appendix 7)
5.5.4. Other Priority Sector:
The RBI has classified the different sector as priority sector, agricultural
sector, non priority sector, SSI and other priority sector. The cumulative
level of NPA under other priority sector also showed an increasing trend
like priority sector. Under the said classification only the SSI sector
revealed the declining trend. These classifications were not available for
1999 and 2000. In 2001 it has exhibited 9.89% as its level of NPA under
private banks and later increased to 13.00% in the year 2003 and in the
year 2004 it showed downward movement and again 2005 onwards it
revealed upward trend i.e. since 2005 it had 13.5% and in 2006 the level

106

of NPA under OPS (Other Priority Sector) had 15.79%, in 2007 the level
increased to 19.29% and reached 19.47% in 2008. Bank wise analysis
revealed Nainital bank had consistently high level of NPA since 2003
0nwards.39.42%, 40.54%, 40.32%, 42.62%, 34.05% and 36.48% for 2003,
2004, 2005, 2006, 2007 and 2008 respectively. Other private banks had
moderate level of NPA and it can be controlled and reduced with proper
implementation and legal formulation which shall be discussed in the
later chapter. (Refer to Appendix 8)
5.5.5 Gross NPA/Gross Advances and Net NPA/ Net Advance
Table 5.9
Year

Gross NPA (%)

Net NPA (%)

1999

11.5

7.68

2000

9.74

6.25

2001

10.22

6.58

2002

11.22

7.12

2003

10.65

6.57

2004

9.71

5.39

2005

7.12

3.84

2006

4.96

1.93

2007

4.44

1.57

2008

2.48

0.91

Source RBI web site and trend and progress of banking

107

In the aforesaid Table 5.9 comparison is brought about between Gross

NPA and Net NPA as to private banks with respect to the total advance
made by the entire sector. There is certainly reduction in the gross and
net NPA as to its advances. In 1999 the gross NPA was 11.5% in 2000 it
was reduced to 9.77% but in 2001 there was an increase in level of NPA
to 10.22% and in 2002 it increased to 11.22% of the advance made by the
private banks. Since 2003 onwards there is a reduction in the gross NPA
in relation to its advances. In 2008 it touched 2.48% in the NPA level.
The level of NPA reduced in the year 1999,2000 & 2001.In 2002 the level
of NPA increased to 7.12% and then on there was deterioration in the
level of NPA. In 2008 the level of net NPA was 0.91% to its advances.
Hence the legal frame work and recovery procedures are being properly
implemented by the private sector bank.
5.5.6. In the below mentioned table it shows that Private banks Gross
NPA and Net NPA with relation to the total assets. (Gross NPA/Total
Assets & Net NPA/Total Assets) As per the table shown the gross NPA
in 1999 was 5.55% of its total Assets. Later there was a reduction in the
gross NPA level which reduced to 1.32 in 2008.

108

Gross NPA and Net NPA in a Private Sector Banks

This statistics shows that the reserves retained by the bank during this
period could adjust the gross NPA and mitigate majority of the NPA and
reduce its net NPA level. Table 5.10 as stated below.
Table 5.10
YEAR
1999

Gross NPA %
5.55

NET NPA %
3.35

2000

4.45

2.85

2001

4.73

2.97

2002

4.89

3.15

2003

4.87

2.93

2004

4.41

2.22

2005

3.76

1.7

2006

2.81

1.04

2007

1.98

0.87

2008

1.32

0.5

Source RBI web site and trend and progress of banking

109

5.5.7

Table 5.11
Gross Profit/Loss and Net Profit/Loss
Year

Gross Profit

Net Profit

1999

1.42

0.72

2000

1.86

1.34

2001

1.67

0.48

2002

2.35

0.95

2003

2.41

0.84

2004

2.36

0.85

2005

1.48

0.23

2006

1.58

0.50

2007

1.68

-0.02

2008

1.85

0.98

Source RBI web site and trend and progress of banking

The aforesaid Table 5.11 shows the comparison between the Gross
Profit/Loss and Net Profit/Loss. In 1999 the gross profit made by the
private banks were 1.42% and net profit was 0.72 which means in 1999
the net profit earned is 50% of the gross profit. There is no stability in
the profitability of the private banking sector. The earning varies from

110

year to year. Since the profit depends upon various other factors such
as the success of the borrower there is fluctuation in the earning
capacity of the banks. In 2002 the gross profit earned by the private
banking sector was 2.35%, in 2003 the gross profit was 2.41% and 2004
again it reduced to 2.36%. In 2008 the gross profit earned by the private
banks was 1.85%.Similarly the net profit earned by the banks were
0.72% and in 2001 the net profit was 0.48 and again there is a dip in the
profit in the year 2005 0.23% of the profit and in 2007 further there is a
reduction of profit which reveals -0.02.in 2008 it achieved gross profit of
1.98% and net profit was0.98, almost 50% of the gross profit.

5.6. Conclusions:
In many other studies the researchers have done a study separately Public
Sector bank, Private Sector Bank, Cooperative Banks. In this research the
detailed study has been covered by comparison and the position has been
highlighted. Minute details have been included and each sector has been
analyzed. In this chapter secondary data are collected and the analysis
along with the graphical representations has been made. Performances of
public banks are better as compared to other banking sectors. NBFC is
recommended to increase the level of advances to various other sectors.

111

CHAPTER 6
POLICIES AND STAGE WISE ANALYSIS OF DATA ON NPA

6.1. Introduction
This chapter is divided into four parts, namely
Stage I Policies and Procedural Analysis
Stage II Appraisal stage
Stage III Disbursement stage
Stage IV Post Disbursement stage
Sample Collections are carried in the following manner:
Types of Banks

Total No. of

Sample

Banks

size

Public Banks

20

18

SBI subsidiaries

07

07

Private Sector Banks

22

15

Scheduled Urban Co-operative Banks

53

15

NBFC (Multi Finance Loan)

114

30

81

Facilitators (Bank Advocates, Bank

Chartered Accountant, Industrial
borrower, individual borrower
collection Agent)
Samples were collected at random

The questionnaire was presented to bank official with prior appointment.

As far as possible the corporate office or head office or the zonal office
provided the information. In some banks branch manager with the
permission of his higher officials or due to introduction of technology

112

could provide information for the entire banks. Similarly questionnaire

was presented to other facilitators to find out their views regarding bad
loans and non performing assets
6.1. a. Data Collection
Data analysis was analysed to meet the objectives and were presented
in graphical manner to bring about comparison to meet the above
objectives. Tables of all the Responses were drawn for the data. Simple
Statistical and Graphical method is used to present the facts observed
by the study. Apart from the graphical representation the data were
tested through Cornbach Alpha for finding the reliability of the data
collected. Similarly certain variables like agricultural, weaker section,
SSI and Non priority sector were put to CHI-SQUARE testing. The result
of which are exhibited in the following manner
6.1.b.CHI-SQUARE TEST
Which sector contributes maximum NPA in their bank and their
percentage?
SSI

No of

14

Agriculture

31

Weaker

Non-

Section

priority

16

36

Responses
Solution:
The Data Collected is Unbiased.
Every Response can only be any of the one response above, i.e. 1/4.
Total no of Responses are 97 i.e. 97 X 1/4 = 24.5

113

Observed

Desired

(Oi -

Frequency OiF

Frequency Ei

Ei)

SSI

14

24.25

-10.25

105.06

4.33

Agriculture

31

24.25

6.75

45.56

1.88

16

24.25

-8.25

68.06

2.81

36

24.25

11.75

138.06

5.69

(Oi - Ei)

(Oi - Ei)

/Ei

Weaker
Section
Nonpriority

14.71

6.2 Policies and Procedural Analysis

1.
Kindly indicate your

Less than

Rs.25,000

Rs.50,000 to

Rs.1,00,000

Banks business

Rs.25,000

to

Rs.1,00,000

and Above

(deposits + advances)

Rs.50,000

(Rs. in crore)
Co-op Bank

87%

13%

0%

0%

NBFC

42%

14%

29%

14%

Private Sector

43%

13%

25%

19%

Public Sector

0%

0%

12%

88%

Cumulative Score

37%

8%

15%

40%

114

Analysis Reveals
Public Sector is the Dominating player, as it has the maximum share in
terms of the Business. Cumulative score has an equal share from the
co-operative as well as Public Sector Bank. 88% of the public sector
banks have a business above 1, 00,000 Crores. Majority of the Cooperative Banks has a turnover less than 25000 Crores. In case of NDFC
and private Bank less than 50% has the business less than 25000
Crores.29% of NBFC and 25% of Private Banks have business above
50000 Crores and up to 100000 Crores.

Whether your bank has/has not adopted the Following:

q2_a

Integrated Risk management

Division

YES

NO

Co-op Bank

93%

7%

NBFC

100%

0%

Private Sector

100%

0%

Public Sector

100%

0%

Cumulative Score

98%

2%

115

Analysis Reveals
All the banks incorporated the integrated management except few of the
cooperative banks Because of the size of the banks. Total 15 SUC banks
were asked this information out of which 93% had integrated
management and also adopted modern technology. As far as PSB,
Private Banks, NBFC all the banks adopted integrated management. PSB
was 25 in number including. The SBI and its associates, Private banks
were 15 in number and NBFC were 30 in number.

Risk management Policy on NPA

YES

NO

Co-op Bank

100%

0%

NBFC

100%

0%

Private Sector

100%

0%

Public Sector

100%

0%

Cumulative Score

100%

0%

Analysis Reveals
All the Banks under study compulsorily follows the Operational Risk
Management Policy. The question asked was close end questions and

116

100% were in positive reaction stating that their banks have adopted the
necessary operational policy in relation to the NPA policy.

q2_c Operational Risk management Policy on

YES

NO

Co-op Bank

100%

0%

NBFC

100%

0%

Private Sector

100%

0%

Public Sector

100%

0%

Cumulative Score

100%

0%

NPA

Analysis Reveals
All the Banks under study compulsorily follows the Operational Risk
Management Policy. The question asked was close end questions and
100% were in positive reaction stating that their banks have adopted
the necessary operational policy in relation to the NPA policy

117

q2_d Information Technology Policy

YES

NO

Co-op Bank

100%

0%

NBFC

100%

0%

Private Sector

100%

0%

Public Sector

96%

4%

Cumulative Score

98%

2%

Analysis Reveals
Analysis Reveals
All the banks have adopted the information technology to meet the
customers needs and only a small portion of the public sector ban has
not adopted the information technology. As far as NBFC, Private Banks
and Cooperative banks showed 100% for adoption of technology
3

Which method you have planned

Early

Alert

Advance

to use for measurement of NPA?

stage

Stage

Stage

Co-op Bank

74%

13%

13%

NBFC

29%

71%

0%

Private Sector

32%

42%

26%

Public Sector

45%

45%

10%

Cumulative Score

46%

41%

13%

118

Analysis Reveals
Analysis Reveals
Equal Responses have been observed during the Early stage and Alert
Stage, Pertaining to Planning of measurement of NPA. Reasonable
share of 13% have an Intervention an Advanced Stage, which is majorly
contributed by Private sector. NBFC is more stringent in their rules and
shall take appropriate action against the borrowers at an early stage
itself.
4 How would you

Poor

slow

Moderate

Good

Co-op Bank

0%

13%

40%

47%

NBFC

13%

29%

29%

29%

Private Sector

12%

44%

22%

22%

Public Sector

4%

23%

15%

58%

Cumulative Score

7%

27%

24%

42%

assess the progress

of NPA in your Bank

119

Analysis Reveals
42% of the cumulative score says their progress is Good. Almost equal
% has the opinion on Slow and Moderate Progress. Across Groups the
Responses for Poor and Slow are Minor as compare to Moderate and
Good

What

is

the

Less

Above

Above

Above

quantum of losses

than

25%-

50%-75%

75%

because of frauds

25%

50%

Co-op Bank

100%

0%

0%

0%

NBFC

88%

12%

0%

0%

Private Sector

100%

0%

0%

0%

Public Sector

96%

0%

4%

0%

Cumulative Score

97%

2%

1%

0%

in your bank?

120

Analysis Reveals
All the Banks under study had expressed the Quantum of Losses
because of frauds to be less than 25%.In case of private banks and Cooperative Banks all the respondents accepted for fraud less than
25%.As per information provided by the NBFC 13% of fraud lie between
25% and 50%.4% of the public banks were of the opinion that their fraud
lie between 50% and 75% fraud.

What is the status of

Poor

Low

Medium

High

Co-op Bank

7%

33%

53%

7%

NBFC

13%

24%

63%

0%

Private Sector

20%

33%

33%

14%

Public Sector

36%

40%

16%

8%

Cumulative Score

22%

35%

35%

8%

outstanding entries in
priority sector in Bank?

121

Analysis Reveals
Majority of the banks under study belongs to low and medium term
outstanding.High score of outstsanding is against the private banks.the
study revels that 53% of the priority sector outstanding against the
cooperative banks and 63% against NBFC.Private sector shows almost
equal distribution between low and medium outstanding.The study
revels that in case of public sector bank 36% of the respondent banks
informed that their outstanding againt priority sector is poor and 40%
accpt it as moderate outstanding.
Have you responded to RBIs NPA
7

undertaken as part of Risk based

YES

NO

Co-op Bank

87%

13%

NBFC

88%

12%

Private Sector

94%

6%

Public Sector

100%

0%

Cumulative Score

94%

6%

Supervision?

122

Analysis Reveals
Marjory All the Banks under study Responded to RBIs Risk Based
Supervision. Exceptions are Co-operative banks and NBFC, followed by
Private Sector with a minor share. 100% Public Sector banks followed
the Risk Based Supervision. 94% Private Banks, 88% NBFC, And 87% of
Co-operative Banks followed these procedures.

What is your view on the

Low

Medium High

NIL

regulatory measure proposed

by BIS on NPA?
Co-op Bank

14%

72%

14%

0%

NBFC

50%

25%

0%

25%

Private Sector

15%

69%

8%

8%

Public Sector

33%

48%

14%

5%

Cumulative Score

27%

55%

11%

7%

123

Analysis Reveals
Majorly All the Banks under study Expressed Medium and Low View on
the Regulatory measure proposed by BIS on NPA.50% of NBFC is of the
opinion that the regulatory measures proposed by BIS are low, 71% of
the Co-operative Bank ,69% Private Sector banks,48% of the opinion
that the Regulatory measures provided by BSI is medium in nature.14%
each Co-operative Bank and Public Sector Banks is of the opinion that
Regulatory measure proposed by BSI is high level. No NBFC opines the
measures proposed are high.
9

According to you

Less

25% to

50% to

Above

what percentage are

than

50%

75%

75%

the regulatory

25%

measures proposed
by BIS on NPA?
Co-op Bank

25%

37%

13%

25%

NBFC

100%

0%

0%

0%

Private Sector

70%

30%

0%

0%

Public Sector

53%

16%

21%

11%

Cumulative Score

54%

23%

13%

10%

124

Analysis Reveals
Majorly All the Banks under study Expressed that the Percentage is
below 50%. Reasonable share of 23% of cumulative share can be
observed for above 50%. 100% NBFC, 70% Private Bank and 53% Public
sector Banks is of the opinion that 25% are the regulatory measures
proposed by the bank.37% Co-operative Banks, 30% private Banks and
16% ranges between 25% to 50% proposed by BSI on NPA.13% Cooperative Banks and 21% Public Sector Banks are of the opinion that it
ranges between 50% to 75% and 25% Cooperative Bank and 11% are
above 75% proposed by BSI on NPA.
10

What percentage of

Less

25% to

50%

Above

account attributes

than

50%

to

75%

NPA in your bank?

25%

Co-op Bank

87%

13%

0%

0%

NBFC

86%

0%

14%

0%

Private Sector

100%

0%

0%

0%

Public Sector

84%

8%

8%

0%

Cumulative Score

89%

6%

5%

0%

75%

125

Analysis Reveals
Majorly All the Banks under study Expressed that the Percentage is
below 25%.Above 25% to 75%NPA is observed by 11% cumulative,
which is major contributed by NBFC, Co-operative bank followed by
Public Sector under study. 87% Co-operative Bank,86% NBFC, 100%
Private Bank and 84% Public sector has expressed their opinion that
less than 25% of the account outstanding in their bank is NPA.
11

What precautions
does your bank

Collateral Guarantee Guarantee Any other

and

Security

measures

Collateral

adopt in providing

Security

loan to the
customer?
Co-op Bank

11%

11%

78%

0%

NBFC

30%

10%

60%

0%

Private Sector

18%

14%

63%

5%

Public Sector

24%

15%

56%

5%

Cumulative Score

20%

13%

63%

4%

126

Analysis Reveals
Majority of the Banks under study prefers Guarantee & Collateral
Security both. NBFC Focuses approximately 1/3 component as Collateral
Security and nearly 2/3 accepts both Guarantee and collateral
simultaneously.30% of NBFC and 24% Public Sector Bank accepts only
collateral security. Nominal percentage such as 14% private and 15%
public Sector banks accept only Guarantee. High percentage of banks
such as 78% Co-operative Bank, 60% NBFC, 63% Private Sector Bank
and 56% Public Sector Banks accept both Guarantee and collateral
security.
12

What type of loan

Retail

Education

Agricultur

Personal

does your bank

Loan

al Loan

al Loan

Loan

Co-op Bank

29%

24%

26%

21%

NBFC

25%

25%

25%

25%

Private Sector

31%

20%

31%

18%

Public Sector

30%

35%

35%

0%

Cumulative Score

29%

27%

31%

13%

provide to your
customer?

127

Analysis Reveals
Majority of the Banks under study prefers Retail and Agricultural loan.
Public Sector bank doesnt prefer Personal Loan. Almost all the sector
gives equal importance to all kinds of loan except Public Sector Banks..
31% of the private banks gives loan to this category. Public Sector bank
gives equal preferences to educational loan and agricultural loan. 35%
each category the preference is provided by the Public Sector Banks.
NBFC gives equal preference in all the categories.
13

What age group

18 years

Above 25

Above 40

Above

does your bank

to 25

years - 40

years - 60

60

prefer in providing

years

years

years

years

Co-op Bank

11%

54%

35%

0%

NBFC

26%

37%

37%

0%

Private Sector

14%

46%

36%

4%

Public Sector

26%

34%

27%

13%

Cumulative Score

20%

41%

32%

7%

credit to the
customer? Why?

128

Analysis Reveals
Most Preferable age group for providing Loan is 25 - 40, as compared
below 25 and above 60 yrs. 26% of NBFC and public sector banks prefer
to give loan to the age group of 18 years to 25 years. Majority of the COoperative Banks and private banks give preference of loan to borrower
above 25 years and up to the age of 40 years.54% of the Co-operative
banks and 46% of private banks prefer to give loan to borrowers less
than 40 years. 37% of the NBFC gives loan to age between the ages of
40 to 60 years.
1

What are the follow

Sale of

Filing a

Appointing

up measures in

Collateral

suit in the

Recovery

reading the

Security

Court

Agent

Co-op Bank

43%

27%

20%

NBFC

29%

29%

39%

Private Sector

37%

40%

17%

Public Sector

36%

40%

24%

Cumulative Score

37%

36%

24%

outstanding credit?

129

Analysis Reveals
More than 75% prefers to Collateral Security, and Filing suit for
outstanding credit. Appointing of Recovery Agent is most preferred by
NBFC and least preferred by Private Sector.43% of the CO-operative
Banks prefer sale of securities in case of default in the payment of loan
amount.37% in case of Private Banks and 36% in case of Public Sector
Banks.40% each Private Bank and public bank prefer to file a suit in the
court. Maximum preference is given by a recovery agent for the
collection of outstanding dues. 3% NBFC did not respond to this
question and 6% of private sector did not respond to this question.
Does your Bank prefer
15 Mortgage?

Pledge

Mortgage

Co-op Bank

6%

94%

NBFC

0%

100%

Private Sector

32%

68%

Public Sector

23%

77%

Cumulative Score

19%

81%

130

Analysis Reveals
Majority of the Banks under study Prefers Mortgage, over pledge. Pledge
is preferred to some extend only by Public and Private sector Banks.6%
Co-operative Banks prefer only pledge and 32% private banks prefer
pledge and 23% prefer pledge.94% Co-operative Banks prefer mortgage
100% NBFC prefer Mortgage.68% Private Bank and 77% public Banks
prefer mortgage of the property.

16

0-25

26-50

50-75

75-100

Co-op Bank

67%

0%

0%

33%

NBFC

33%

67%

0%

0%

Private Sector

75%

25%

0%

0%

Public Sector

79%

16%

5%

0%

Cumulative Score

73%

21%

3%

3%

What percentage of the

business of the issue of
Credit Card is a cause for
NPA?

131

Analysis Reveals
73% agrees that Issue of credit card has been a cause for NPA for range
of less than 25%. 67% of the Co-operative is of the opinion that if the
credit card is issued it could cause at least less than 25% of NPA. Hence
the cooperative banks do not prefer credit card. They prefer Kissan Card.
NBFC is also of the same opinion like the Co-operative banks. 75% of
private Banks and 79% of the Public Sector banks share the same views
that it could cause less than 75% of NPA if the cards are issued.67% of
NBFC share the same views as that of a private banks.
17

What measures do

Educational

you take while

Background

Age

Monthly

Value

Wages

Of

issuing Credit Card

Asset

to your customer?
Co-op Bank

13%

13%

61%

13%

NBFC

0%

50%

50%

0%

Private Sector

24%

38%

33%

5%

Public Sector

19%

33%

44%

4%

Cumulative Score

18%

34%

43%

5%

132

Analysis Reveals
The Cooperative Banks refer to their Kissan credit card only should be
able to read and write and basic literacy.13% cooperative bank deals
with the educational ad age factor of the card holder. 61% give
importance to the monthly remuneration of the card holder.13%.In case
of default the lender can recover the money from sale of the property.
50% each NBFC gives importance to age and wages in case of issue of
credit card. In case of private banks 24% provide weight age to
educational background,38% weight age to the age of the borrowers and
33% weight age to the monthly income of the borrowers so that the
bankers can avoid the account to be termed as NPA. 19% public sector
bank gives importance to educational background.

18

What is the trend

High

Medium

Low

None

of educational

Risk

Risk

Risk

of the

loan?

above

Co-op Bank

7%

46%

40%

7%

NBFC

0%

100%

0%

0%

Private Sector

20%

60%

7%

13%

Public Sector

15%

54%

31%

0%

Cumulative Score

13%

57%

25%

5%

133

Analysis Reveals
Majority in the study group feels Educational Loan to be of Low and
Medium Risk. 40% and 46% 0f the Cooperative banks feels that risk
involved is either low or medium as the case may be.100% NBFC
respondent feel that it is medium risk. 20% of the private banks opine
the educational rule has high risk than any other kinds and 50% accept
to high risk in business. In case of public banks 54% of the public
sector banks identifies as medium risk and 31% as low risk
19

Which level of

Officer

Manager

management is

General

Vice-

Manager

Presid
ent

made accountable
for not recovering
the outstanding
credit?
Co-op Bank

26%

61%

9%

4%

NBFC

0%

87%

13%

0%

Private Sector

19%

47%

29%

5%

Public Sector

29%

48%

17%

6%

Cumulative Score

23%

55%

17%

5%

134

Analysis Reveals
The Trend observed is the Manager is Primarily held accountable then
followed

by

officer

grade

for

not

recovering

the

outstanding

credit.61,87,47,48,55% respectively holds manager responsible in case of

default by the borrowers.29% of the public bank says that a default
committed by the officer. Later 29% opined that general manager should
be made accountable.
20

Bank

Employee Customer

Co-op Bank

25%

37%

38%

NBFC

33%

17%

50%

Private Sector

13%

20%

67%

Public Sector

26%

43%

31%

Cumulative Score

24%

34%

42%

Who shall be made liable in

case of failure to recover
the outstanding loan
amount?

135

Analysis Reveals
Reasonable share of responses also agrees that employee and bank
shall also be made liable. Cooperative banks under this prevailing
situation equal percentage have stated that the employee and the
customer should be made liable 33% of NBFC is of the opinion that in
case of outstanding amount employee should be made liable and 50%
by the customer. 67% of the responses of the private bank are customer
should be made liable. 43% and 31% of the responses of the public bank
is employee and customer respectively.
21

What level of credit

in case of default

Initial

Will Full

Persistent

Defaulters Defaulters Defaulters

None of
The
Above

CIBIL helps in
bringing awareness
to the bank?
Co-op Bank

17%

17%

58%

8%

NBFC

9%

58%

33%

0%

Private Sector

12%

58%

24%

6%

Public Sector

30%

37%

33%

0%

Cumulative Score

19%

43%

35%

3%

136

Analysis Reveals
The awareness is largely being brought in case of will full Defaulters,
followed by Persistent Defaulters. In case of response received for
cooperative Banks 17% is in favour of the initial default. Similarly 17%
received is in favour of wilful default.58% is in favour of persistent
default. In case of NBFC 58% response received is in favour of wilful
default and 33% is in favour of persistent default. private Banks
response states that majority response is in favour of wilful default i.e.
58% is in favour of wilful default and 24% is in favour of persistent
default. Only 12% responses were under the opinion that initial default
could be a cause of NPA. The response from Public Sector Bank is
almost equal in all level.30% is in favour of initial default, 37% is in
favour of wilful default and 33% is in favour persistent default.

137

22

In realizing the

Recovery

Files

Meeting

Appointm

amount whom

agent

Suit

with

ent of

Borrower

Arbitrator

does your bank

appoint?
Co-op Bank

11%

27%

31%

31%

NBFC

18%

26%

30%

26%

Private Sector

18%

31%

40%

11%

Public Sector

22%

35%

39%

4%

Cumulative Score

18%

31%

36%

15%

Analysis Reveals
Meeting with the Borrower is the Most Preferred way for Recovery. Filing
a suit is the second most preferred option for recovery, dominating by
Public sector banks. Meeting with the borrower is most acceptable
wherein 31% each meeting with borrowers and appointing arbitrator 27%
response prefer to file a suit and 11% prefer to appoint recovery agent. In
case of NBFC 26% each of response goes in favour of filing a suit and
appointing arbitrator,30% response is for meeting the borrower and 18%
in case of recovery agent. In case of private sector 31% is in favour of
filing a suit and 40% is in favour of meeting the borrower. Other category
has only marginal response. In case of public sector banks 35%

138

response is in favour of filing suit in court and 39 % is in favour

appointing an arbitrator. 22% is in favour of appointing recovery agent.
23

Does your bank incur losses

Low

Medium High

since recovery involves a

huge cost thus resulting in
reduction in banks profit?
Co-op Bank

66%

7%

27%

0%

NBFC

0%

100%

0%

0%

Private Sector

13%

75%

6%

6%

Public Sector

65%

27%

8%

0%

Cumulative Score

45%

42%

11%

2%

Analysis Reveals
Majorly Banks under study consider Low and Medium Level contribution
in terms of recovery cost impacting banks profit. 66% of the response is
in favour of low cost involved

in comparison to profitability and 27%

response states high level of cost involved with the result reducing the
profitability of the banks. In case of NBFC 100% response received is in
favour of medium cost involved and to that extent they opine that

139

profitability is reduced. In case of private sector bank 75% response

received highlights medium cost and 13% cost involved is low cost in
recovering the outstanding amount. In case of Public Sector 65%
response received is low cost incurred for recovery procedure and 27%
medium cost involved and 8% high cost involved.
24

Who does the bank

Farmers

Students

issues the Credit

Weaker

Vendors

Section

Cards?
Co-op Bank

50%

0%

0%

50%

NBFC

0%

33%

33%

34%

Private Sector

11%

33%

33%

23%

Public Sector

24%

34%

26%

16%

Cumulative Score

20%

33%

27%

20%

Analysis Reveals
Issuing of Credit Card to Farmers is only encouraged by the Co-op
Banks, followed by Public Sectors. Co-operative Bank issues credit card
i.e. Kissan card to farmers and vendors who are dealing in cultivated
goods as vendors. Private, Public and NBFC have moreover similar

140

opinion pertaining to issuing credit card to students and weaker section.

Cooperative bank have a response of 50% each to farmers and vendors
as aforesaid who are small time vendors selling cultivable goods. NBFC
issues to students, weaker sections and vendors. 34% response in case
of vendors and 33% response in case of students and weaker sections.
Private banks gives equal importance to almost all sections. Weaker
sections and Student received 33% each response and 23% response in
case of vendors and 11% in case of farmers. PSB gives preference in
order of Student, Weaker section, Farmers and Vendors. The percentage
of response is 34%, 26%, 24% and 16% respectively.
25

Which Section of

Farmers

Students Weaker

Vendors

Section

people contribute
maximum credit
card outstanding?
Co-op Bank

63%

0%

0%

37%

NBFC

0%

50%

0%

50%

Private Sector

20%

40%

30%

10%

Public Sector

13%

41%

29%

17%

Cumulative Score

17%

35%

33%

15%

141

Analysis Reveals
As Students and weaker Sections are Preferred in terms of issuing of
credit card, hence their contribution towards outstanding is High, as
compare to farmers and Vendors in case of private banks and PSB. In
case of co-operative sector there is high level of outstanding amount
from the farmers and vendors. As far as NBFC is concerned the analysis
revels that they do not prefer to give to farmers. In Cooperative Bank
farmers outstanding amount is 63% where as vendors outstanding
amount is 37%.In case of NBFC student contribution to outstanding
dues and vendors contribution is equal i.e. 50% each. In case of private
banks all section contribute to the outstanding amount out of which 40%
outstanding amount is from student, 30% from weaker sections, 20%
farmer and 10% from vendor. PSB is similar to private banks wherein all
the sections contributes to outstanding amount against the card.41%
from students,29% from weaker section, 17% from vendor and 13%
against farmers.

26

Any special remedial

Sanction

Monitoring

NPA
Recovery

measures adopted by
the bank in recovery
procedures?
Co-op Bank

16%

48%

36%

NBFC

17%

39%

44%

Private Sector

16%

39%

43%

Public Sector

3%

63%

34%

Cumulative Score

11%

50%

38%

142

Analysis Reveals
Half of the group have adopted remedial measures at Monitoring level,
followed by NPA Recovery level .In case of Co-operative banks the
remedial measures adopted at the time of monitoring is 48% whereas
NBFC and private bank has 39% remedial measures and PSB has made
63% provisions against monitoring stage. During NPA recovery stage
36% in case of co-operative banks, 44% in case of NBFC, 43% in case of
private banks and 34% in case of PSB.2% of the private bank did not
respond.
27

How much time does it take

Within the

Beyond

to recover the money from

Time Limit

Time Limit

Co-op Bank

71%

29%

NBFC

50%

50%

Private Sector

71%

29%

Public Sector

66%

34%

Cumulative Score

65%

35%

your customer?

143

Analysis Reveals
Apart from NBFC, all other amongst the group majorly recover the
money within the Time Limit. Beyond the Time limit is almost 50% in
case of NBFC, rest others have reasonable share. On analysing it is very
evident that NBFC has 50% share in both stages i.e. within time limit and
beyond time limit whereas Co-operative bank has 71%, Private Banks
71% and PSB 66% within time limit. In case beyond time limit Cooperative bank has 29%, Private bank has 29% and PSB has 34%
respectively.
28

Whether a Foreign

India

Currency Loan is also

Foreign

Partly in

Country

India and

available from the Bank,

partly in

if yes, whether it be

Foreign

availed overseas?

Country

Co-op Bank

71%

29%

0%

Private Sector

64%

36%

0%

Public Sector

49%

21%

30%

Cumulative Score

55%

26%

19%

NBFC

144

Analysis Reveals
Majority of the Foreign Currency is given in India only, where as foreign
Country comprises to 26%.NBFC has no foreign currency arrangement.
Hence it shows Nil. Private sector and Public sector has these kinds of
facilities for their customers. Private Banks and PSB also facilitate the
availability of foreign currency loan in India as well as outside India. Cooperative bank need to cater special arrangement for such functions
with the help of RBI and other banks.

Housing
Complex

Commercial
Complex

25%

33%

33%

9%

NBFC

24%

35%

24%

17%

Private Sector

29%

38%

19%

14%

Public Sector

19%

27%

29%

25%

22%

32%

27%

19%

29 Does the bank

finance for the
development of
complex?
Co-op Bank

Agricultural
Under
Land
Developed
areas

Cumulative
Score

145

Analysis Reveals
With respect to financing for developmental Project, Commercial
Projects are most Preferred, followed by Agricultural and Housing
Project. Under the study Cooperative bank preferred 33% commercial
complex loan, 33% finance for the development of agricultural land, 25%
finance for housing complex and 9% for underdeveloped areas. NBFC
prefers to finance for commercial project than housing and agricultural
purpose. Private bank give more preference to commercial development
secondly to housing complex and then to agricultural land and at last to
the underdeveloped areas. Public bank through their study explains that
more preference is given to agricultural land then to the commercial
development land, thirdly underdeveloped areas and lastly for the
commercial purpose.

146

30

Which sector does

Priority

Cooperative

bank prefer to give

Weaker

Commercial

Section

Establishment

loan to their
borrowers?
Co-op Bank

43%

18%

18%

21%

NBFC

20%

27%

6%

47%

Private Sector

43%

17%

17%

23%

Public Sector

30%

25%

27%

18%

Cumulative Score

34%

22%

21%

23%

Analysis Reveals
Every Institution has their own set Priority sector, which they prefer to
Lend over the other sector. The Cooperative banks feedback shows that
they provide more facilities to priority sector than cooperative societies.
Besides this sector to have better viability 21% Co-operative banks
highlighted more preference to the Commercial establishment. 18%
each to weaker and cooperative sector. NBFC has a high preferential
treatment to commercial establishment followed by Cooperative sector.
Since Cooperative movement brings about certain unity amongst the
members NBFC gives second preference to this kind of movement.43%
loan is provided by NBFC to priority sector to the tune of 43% and

147

followed by 23% for commercial establishment and remaining sector

only nominal value of loan is granted. PSB gives maximum preference
to priority sector followed by weaker section, Cooperative sector and
lastly to the commercial establishment. 30% in case of priority
sector,27% in case of weaker section, 25% in case of co-operative sector
and 18% in case of commercial establishments.

31

NonAgriculture Weaker
Section priority

Which sector
contributes
maximum NPA in
their bank and
their percentage?
Co-op Bank

26%

17%

17%

40%

NBFC

0%

40%

0%

60%

Private Sector

13%

30%

17%

40%

Public Sector

12%

39%

20%

29%

Cumulative Score

14%

33%

16%

37%

SSI

Analysis Reveals
NBFC observes a Bigger share of NPA, from Non Priority Sector.
considering the groups cumulative score. Maximum NPA is from Non

148

Priority sector, followed by Agriculture. Maximum NPA in case of

Cooperative bank as per the research study shows Non-priority sector
followed by SSI. Similarly in case of NBFC maximum NPA is from Nonpriority sector followed by agricultural sector.60% from priority sector and
40% from agricultural sector. In case of private sector 40% NPA is from
Non-priority sector and 30% from agricultural sector, 17% from weaker
sections and 13% from SSI. PSB has 39% level of NPA from agricultural
sector, 29% from Non-priority sector, 20% from weaker section and 12%
from SSI.

6.3. PART-A: APPRAISAL STAGE

Part A_1

Lack of critical presentation

Agree

Disagree

Co-operative Bank

87%

13%

NBFC

75%

25%

Private Bank

80%

20%

Public Sector

72%

28%

Cumulative Score

78%

22%

appraisal

149

Analysis Reveals
Majority of the Group Agrees, that there is a lack of critical presentation
Appraisal. Cooperative bank strongly agrees where as PSB has shown a
reasonable amount of disagreement.87%, 75%, 80% and 72% of
Cooperative banks, NBFC, Private Bank and PSB feel one of the causes
for account becoming bad or NPA is the criticality of the business is not
properly presented by the borrower. As compared to critical agreement
proportion of disagreement is very nominal.
Part A_2

Deliberate attempt of

Agree

Disagree

Co-operative Bank

80%

20%

NBFC

75%

25%

Private Bank

87%

13%

Public Sector

60%

40%

Cumulative Score

73%

27%

loose appraisal

150

Analysis Reveals
Majority of the group in the study agrees that there is a deliberate
attempt of loose appraisal. 87% of the private banks strongly agree to
this factor and 40% of the PSB strongly disagrees to this factor. The
analysis shows that the banker is unable to get the clear idea about the
borrowers business and their intention. 80% 0f the co-operative bank
and 75% of the NBFC also agrees along with the private sector banks.
Cumulatively73% of the banks strongly accept regarding the concept of
deliberate attempt of loose appraisal and 27% banks cumulatively
disagrees to this concept.
Part A_3

Submission of unrealistic project

Agree
by the borrower

Disagree

Co-operative Bank

53%

47%

NBFC

62%

38%

Private Bank

80%

20%

Public Sector

56%

44%

Cumulative Score

62%

38%

151

Analysis Reveals
Majority of the Group Agrees, that there are unrealistic projects
submitted by borrower, but Reasonably good Amount of Responses say
that they Disagree. Private Bank strongly agrees where in Co-operative
banks has reasonable disagreement Cumulative score of 62% shows
that the bankers is of the opinion that there are unrealistic project
submission is one of the cause for NPA. Similarly There is a strong
support from the private sector bank to the extent of 80% of the private
banks in the study sample was of the opinion that they present project
submission which may be partially unrealistic or it may be fully
unrealistic.62% of the NBFC, 53% of the Co-operative and 56% agrees to
the views of the private banks. 38% cumulatively disagreed to the views
of projection of unrealistic views.
Part

Preparation of incorrect

A_4

loan repayment schedule

Agree

Disagree

Co-operative Bank

33%

67%

NBFC

62%

38%

Private Bank

67%

33%

Public Sector

16%

84%

Cumulative Score

38%

62%

Analysis Reveals
152

Analysis Reveals
When the question was raised to the respondent the study sample
revealed that majority of the banks disagreed to the incorrect loan
repayment schedule. As per the study conducted the sample shows
private banks strongly agrees but PSB strongly disagrees to this
statement. Cumulative score of 62% disagrees and 38%agreed to this
schedule.67% Private bank and 62% NBFC agreed to default repayment
and 67% Co-operative and 84% PSB disagreed to default repayment.

Part

Incorporation of improper assessment of

A_5

experience of the borrower or his

Agree

Disagree

Co-operative Bank

53%

47%

NBFC

37%

63%

Private Bank

80%

20%

Public Sector

72%

28%

Cumulative Score

65%

35%

capacity to pursue the business activity.

153

Analysis Reveals
Majority of the Group agrees, and reasonable strength responded
disagreement. PSB strongly feels that there is improper assessment
where in NBFC strongly disagrees with it.80% of Private banks and 72%
of PSB agreed to the statement that improper assessment is one of the
factor for bad loan or NPA.63% of the NBFC disagreed and 47%
Cooperative banks disagreed regarding improper assessment of
repayment schedule. Cumulatively 65% of the banks agreed for this
statement and 35% disagreed.

Part

Non-Availability of reliable market

A_6

study to the credit officer

Agree

Disagree

Co-operative Bank

53%

47%

NBFC

37%

63%

Private Bank

50%

50%

Public Sector

56%

44%

Cumulative Score

52%

48%

154

Analysis Reveals
All the Group under study has almost 50 - 50 view, pertaining to non
availability of reliable market study.50% of the Private banks,53% of
Cooperative banks and 56% PSB agrees to the non availability of the
reliable market study and 63% NBFC strongly disagrees to the non
availability and cumulative score of 52% banks agreed and 48%
disagreed.
Part A_7
Non-Availability of Industry wise data on

Agree

Disagree

Co-operative Bank

53%

47%

NBFC

50%

50%

Private Bank

60%

40%

Public Sector

64%

36%

Cumulative Score

59%

41%

demand & Supply to the Credit officer

Analysis Reveals
Majority group in the study agrees to Non availability of Industry wise
data, to which a reasonable strength disagrees. Public sector strongly

155

agrees to the same, to which NBFC strongly disagrees. when the

response was put before the response and 64% PSB and 60% Private
banks agree to the non availability of the industry wise data for
verification and execution of the act and decisions.
Part A_8
Reliance on provisional/ unaudited data

Agree

Disagree

Co-operative Bank

67%

33%

NBFC

50%

50%

Private Bank

93%

7%

Public Sector

56%

44%

Cumulative Score

67%

33%

as submitted by the borrower to Bank.

Analysis Reveals
Majority group in the study agrees that relying on the unaudited and
provisional data is one of the factors for NPA to which a reasonable
strength disagrees. Private bank strongly agrees to the same to which
NBFC disagrees. NBFC have almost 50-50 views on these issues.
Cumulative score of 67% agrees to this fact of unaudited and

156

provisional data and 33% disagree to the fact. 93% of private banks,67%
of Cooperative bank and56% strongly agrees to

this factor for

becoming NPA.50% NBFC disagrees and others agree.

Part A_9
Lack of network/ information system
amongst branches/ banks enabling

Agree

Disagree

Co-operative Bank

80%

20%

NBFC

63%

37%

Private Bank

93%

7%

Public Sector

72%

28%

Cumulative Score

78%

22%

borrowers to enjoying banks funds

from more than one bank.

Analysis Reveals
Majority in the groups agree that there is lack of network system
amongst the branches /banks enabling the borrowers to enjoy the fund
from more than one bank. Multiple borrowing is one of the factors for an
account turning NPA. Cumulative score of 72% banks from the study
group have accepted and 28% disagrees.93% private banks, 80%
157

cooperative banks and 72% PSB agree. In case of NBFC 63% agrees and
37% disagrees to the fact.
Part A_10
Lack of confidence in credit

Agree

Disagree

Co-operative Bank

13%

87%

NBFC

37%

63%

Private Bank

53%

47%

Public Sector

24%

76%

Cumulative Score

30%

70%

officers

Analysis Reveals
Majority group in the study disagrees of having 70% score in the study
group and 30% agrees to this issue as a cause of NPA.87% of
Cooperative banks, 63% of NBFC ,76% of PSB disagreed to this
response when questioned to them.53% of Private banks accepted on
this factor. Majority disagrees of having lack of confidence in the credit
officers and minor strength agrees to it.

158

Part A_11
Lack of knowledge in the subject to

Agree

Disagree

Co-operative Bank

20%

80%

NBFC

25%

75%

Private Bank

40%

60%

Public Sector

32%

68%

Cumulative Score

30%

70%

credit officer

Analysis Reveals
70% cumulative scores disagree to the factor regarding lack of
knowledge in the Subject to credit officers.80% of Co-operative banks
and 75% of NBFC strongly disagreed to the lack of knowledge of the
credit officers. Whereas 68% PSB disagreed. The opinion of the private
banks and public banks were almost identical.40% of private banks
agreed to this factor and 32% of PSB agreed. Minor strength agreed and
majority strength disagreed.

159

Part A_12
Lack of Economy Lack of
economic Study on the Production

Agree

Disagree

Co-operative Bank

73%

27%

NBFC

50%

50%

Private Bank

53%

47%

Public Sector

48%

52%

Cumulative Score

56%

44%

activity of the proposed borrower

Analysis Reveals
Majority in the study sample agrees to the fact regarding the lack of
economic viability on the production activity of the borrowers business.
NBFC has 50-50 views on this factor.73% of the Co-operative banks and
53% of private banks agrees to this issues.52% of the PSB disagrees to
the fact that the lenders have lack of knowledge on the economic
viability of the borrowers business production. Cumulative Score of
56% agrees and 44% disagrees.

160

Part A_13
Fear of staff accountability on account
turning NPA in future in the mind of credit

Agree

Disagree

Co-operative Bank

87%

13%

NBFC

63%

37%

Private Bank

67%

33%

Public Sector

52%

48%

Cumulative Score

65%

35%

officer at the time of appraisal

Analysis Reveals
65% of the study sample agrees for the factor that staff fear for being
held responsible for any account going wrong.35% disagrees on this
response.87% Co-operative banks, 63% NBFC, 67% Private banks and
52% PSB agrees to this responsibility to be shared by the staff. On
analyzing the figures it is found that almost the opinion of PSB agreeing
and disagreeing similar.

161

Part A_14
Absence of right to select good

Agree

Disagree

Co-operative Bank

40%

60%

NBFC

37%

63%

Private Bank

80%

20%

Public Sector

56%

44%

Cumulative Score

56%

44%

borrowers by the credit department

Analysis Reveals
Officer in charge of credit department exclusively does not have the
right to choose the borrowers. They can perform their duties through
certain predetermined policy.60% of the Co-operative Banks disagrees
on this fact. similarly 63% NBFC disagrees on this views.80% of the
Private banks asserts this views and 56% PSB also asserted their views
and agreed to this fact regarding lack of power to choose by the credit
department. Average of the cumulative score shows that 56% agrees
and 44% disagrees to the absence of right to select good borrowers by
the credit department.

162

Part A_15
Non-availability of skilled/ trained staff

Agree

Disagree

Co-operative Bank

33%

67%

NBFC

12%

88%

Private Bank

60%

40%

Public Sector

40%

60%

Cumulative Score

40%

60%

in credit department

Analysis Reveals
60% of the average cumulative score of the sample study disagrees
about the non availability of the skilled staff in the credit department to
which 40% agrees. Sector wise analysis shows that 67% of the Cooperative banks, 88% of the NBFC and 60% of the PSB strongly
disagrees to the fact about the non availability of the skilled staff in the
department. 60% of the private bank agrees to this fact regarding non
availability of the skilled staff in the department is one of the cause for
the account turning NPA.

163

Part A_16
Fraudulent approach of borrowers

Agree

Disagree

Co-operative Bank

46%

54%

NBFC

25%

75%

Private Bank

80%

20%

Public Sector

36%

64%

Cumulative Score

48%

52%

Analysis Reveals
Average of the cumulative score of the study group has almost similar
views about borrowers having fraudulent approach. Cumulative score
shows 52% disagreed and 48% agreed to the fraudulent approach of the
borrowers. Sectoral analysis of the study sample shows that 54% of the
Co-operative bank,75% 0f the NBFC,and 64% of the PSB disagrees to
the fraudulent approach of the banks.80% of the private banks agrees to
the fact that borrowers fraudulent approach can be one of the cause for
NPA in banking industry.

164

Part A_17
Fraudulent and irresponsible attitude of

Agree

Disagree

Co-operative Bank

67%

33%

NBFC

75%

25%

Private Bank

79%

21%

Public Sector

37%

63%

Cumulative Score

59%

41%

bank officials

Analysis Reveals
Average of the cumulative score of group under study agrees to which
41% of the banks disagree and 59% agree with respect to bank official
having fraudulent and irresponsible attitude. 67% of the Co-operative
banks, 75% of NBFC and 79% private banks agrees with fraudulent and
irresponsible attitude of the bank officials but opinion of PSB differ from
these views.63% of PSB disagree with the views of other sectoral banks
and financial institution.

165

Part B: Sanction and Disbursement

Part B_1
Indulgent approach to family/ group
connection/ long standing relationship

Agree

Disagree

Co-operative Bank

33%

67%

NBFC

75%

25%

Private Bank

67%

33%

Public Sector

72%

28%

Cumulative Score

62%

38%

than to the project viability.

Analysis Reveals
On comparison between long relationship and project viability the
majority views highlight the preference of relationship over the project
viability.67% of the study sample under Cooperative banks disagrees
with this views.75% of NBFC sample survey agrees to the concept of
long standing relations to project viability 67% of private banks agrees
and 72% PSB agrees to relationship over project viability.

166

Part B_2
Political interference i.e. pressure to

Agree

Disagree

Co-operative Bank

29%

71%

NBFC

50%

50%

Private Bank

60%

40%

Public Sector

68%

32%

Cumulative Score

55%

45%

sanction loan

Analysis Reveals
Average of the cumulative score of 55% is of the views that there is
political interference for sanctioning the loan and 45% disagreed on this
issue. NBFC gave equal views regarding acceptance and non
acceptance from politicians where as 71% Cooperative banks disagreed
to the political interference and 60% of Private Banks and 68% of PSB
agreed to this views.

167

Part B_3
Political favouritism to particular

Agree

Disagree

Co-operative Bank

73%

27%

NBFC

75%

25%

Private Bank

53%

47%

Public Sector

80%

20%

Cumulative Score

71%

29%

borrower in order to please politicians

Analysis Reveals
Average of 71% of the cumulative score of group under study has
agreed to existence of political favouritism to which 29% disagreed on
these

grounds.73%

favouritism

towards

Cooperative
the

banks

borrower

in

agreed

to

order

to

the

political

please

the

politicians.75%of NBFC,53% of private banks and 80% PSB agreed to

political favouritism to please politician.

168

Part B_4
Delay in decision making in sanction of

Agree

Disagree

Co-operative Bank

87%

13%

NBFC

75%

25%

Private Bank

60%

40%

Public Sector

68%

32%

Cumulative Score

71%

29%

loan

Analysis Reveals
Majority of the group under the study agrees that delay in decision
making in sanction of a loan is a challenge. Cumulative score of 71%
agrees and 29% disagrees to the delay in decision making. 87% of
cooperative banks agree to this views.75% of Cooperative banks,60% of
the private sector, 68% of the PSB agrees to these views. Since there is
a delay in decision making due to indulgence of external and internal
factors there can be a fluctuation in the level of project submitted and
with the result the account may turn NPA. Maximum percentage of
disagreement shown is from Private banks.

169

Part B_5
Delay in disbursement in credit

Agree

Disagree

Co-operative Bank

73%

27%

NBFC

63%

37%

Private Bank

60%

40%

Public Sector

68%

32%

Cumulative Score

67%

33%

facilities i.e. untimely finance

Analysis Reveals
Disbursement of finance at appropriate time is very essential as far as
any project is concerned. When opinions of the different banks within
the study group were conducted the analysis shows that cumulative
score of 67% agrees to the fact there is a delay in disbursement in
finance assistance.33% disagreed to the same. Only 40% private bank
had a major share in disagreeing the fact. Other banks have much less
than 40% disagreement under such circumstances strong disagreement
came from the private sector for delay in disbursement. 73% cooperative
banks 63%NBFC, 60% Private sector; PSB 68% respectively.

170

Part B_6
Disbursement of loan before the
compliance of terms and conditions

Agree

Disagree

Co-operative Bank

53%

47%

NBFC

50%

50%

Private Bank

60%

40%

Public Sector

76%

24%

Cumulative Score

63%

37%

of sanction

Analysis Reveals
Majority of the group agrees that Disbursement of loan before the
compliance exist and cumulative score of 63% agrees and 37%
disagrees to the fact of compliance of the loan account. NBFC has 50%50% views. exactly 50% agrees and 50% disagrees the same. Study
group which comprise of 25 PSB out of which 76% PSB agrees to the
disbursement of loan before the compliance of the terms and conditions
and out of 15 private sector banks 60% agrees to the compliance of the
terms and conditions only after the disbursement of loan. 53% of the
Cooperative banks from the study sample of 15 Urban Schedule Banks

171

agree to the fact that disbursement of loan should be made before

compliance of the terms and conditions. Maximum percentage of study
groups that disagrees is NBFC.

Part B_7
Incomplete and defective legal

Agree

Disagree

Co-operative Bank

60%

40%

NBFC

63%

37%

Private Bank

40%

60%

Public Sector

84%

16%

Cumulative Score

65%

35%

documentation

Analysis Reveals
84% of the PSB under study group consisting of sample size of 25 banks
including SBI and its associates agrees to incomplete and defective legal
documentation. 63% NBFC out of 30 sample study group agrees to the
defective legal documentation and so also may not be complete.60% out
of the study sample of 15 Urban Schedule Co-operative Banks agrees to

172

the incomplete and defective legal documents.60% of the study group

consisting of 15 private banks disagreed to the defective and incomplete
legal document can be the cause of an account becoming NPA during
sanction and disbursement period. Cumulative score of 65% agreed and
35% disagreed on the fact that one of the reason for the account turning
NPA is due to incomplete and defective legal documents.
Part C: Post Disbursement Stage
Part C_1
Unavailability of audited financial

Agree

Disagree

Co-operative Bank

13%

87%

NBFC

25%

75%

Private Bank

67%

33%

Public Sector

24%

76%

Cumulative Score

32%

68%

statements in time.

173

Analysis Reveals
Cumulative score of 68% of the group under study disagrees to the fact
that the audited financial statement is not available in time could be a
cause of NPA. Only 67% of private banks agree to the non availability of
the audited financial account 87% Cooperative banks, 75% NBFC and
76% PSB disagrees to the fact that non availability of the audited
financial statement is a cause of NPA. According to these banks
unaudited statement is not a cause of a factor where a loan becomes
bad or NPA.

Part C_2
Non-submission of stock and other
required periodical statements by the

Agree

Disagree

Co-operative Bank

27%

73%

NBFC

37%

63%

Private Bank

80%

20%

Public Sector

52%

48%

Cumulative Score

51%

49%

borrowers

174

Analysis Reveals
Cumulative score under the study group exhibits 51% agrees and 49%
disagrees to the fact that non submission of stock and other required
statement by the borrowers. 80% Private banks and 52% PSB agree to
the fact that due to non submission of stock and other required
statement by the borrowers where as 73% Cooperative banks and 63%
NBFC disagrees to the non submission of statement and other relevant
information.

Part C_3
Negligent approach by the bank officials in
regards to inspection of stock etc.

Agree Disagree

Co-operative Bank

53%

47%

NBFC

88%

12%

Private Bank

67%

33%

Public Sector

60%

40%

Cumulative Score

63%

37%

175

Analysis Reveals
Cumulative score of the group under the study shows that 63% agrees
at times there could be negligence on the bank officials to which 37%
disagrees. They opine that the officials approach is not negligent. 53%
cooperative banks,87% NBFC,67%Private Banks, 60% PSB agrees to the
fact that feels that one of the factors for an account becoming NPA
could be negligence of bank officials or Banks negligent approach.

Part C_4
Non-submission of stock and other
required periodical statements by the

Agree

Disagree

Co-operative Bank

27%

73%

NBFC

38%

62%

Private Bank

80%

20%

Public Sector

52%

48%

Cumulative Score

51%

49%

borrowers

176

Analysis Reveals
Cumulative score of group under the study 56% agrees regarding the
issue raised to the banks. The issues were with respect to non
submission of stock which 49% disagrees. 37% Co-operative banks,38%
NBFC and 80% PSB agrees to the fact that Cause of account becoming
bad could be due to absence of effective monitoring by the banks.48%
private banks disagrees to this issues raised to the study sample.

Part C_5
Absence of close supervision of loan

Agree

Disagree

Co-operative Bank

40%

60%

NBFC

50%

50%

Private Bank

67%

33%

Public Sector

52%

48%

Cumulative Score

52%

48%

account

177

Analysis Reveals
Cumulative score of the group under study shows 52% agreed for the
absence of close supervision of loan account.48% of the responses
disagreed for the same.60% Cooperative banks disagreed to the fact
that there is absence of close supervision amongst the banks. Similarly
NBFC agreed and disagreed equal in number. The 67% score of private
banks agrees to the absence of close supervision where as 52% PSB
also agrees to the fact like private banks that there is absence of close
supervision of all the accounts by the banks.
Part C_6
Delayed detection of warning signals

Agree

Disagree

Co-operative Bank

47%

53%

NBFC

50%

50%

Private Bank

93%

7%

Public Sector

52%

48%

Cumulative Score

60%

40%

178

Analysis Reveals
Study group is under the impression that there is still delayed detection
of warning signal.60% of the total sample survey conducted agrees to
this views to which total 40% disagrees to this views.93% of private
banks out of sample size of 15 accepts to this delayed detection of
warning signal. Only a small magnitude disagrees to the same. Whereas
52% of the PSB agrees to the delayed detection.

Part C_7
Delay in initiating remedial

Agree

Disagree

Co-operative Bank

60%

40%

NBFC

63%

37%

Private Bank

93%

7%

Public Sector

44%

56%

Cumulative Score

62%

38%

measures and actions

179

Analysis Reveals
62% cumulative score of the group under study agrees that delay in
initiating remedial measures and actions as to 38% of the score disagree
to the fact.

Individual sector wise analysis exhibit that 93% private

banks strongly agrees that there is delay in initiating remedial measures

and only a marginal percentage disagrees to the fact. 62% NBFC also
similar to the private sector is of the opinion there is a delay in initiating
legal and remedial action against the defaulters.60% under the sample
size of SUC bank has the same opinion as that of Private banks and
NBFC Only 56% of the PSB dies agree and feels there is no delay in
remedial measures.

6.4. SECTION III

sec3_1
Out of various steps to reduce NPA level one

YES

NO

Co-operative Bank

67%

33%

NBFC

75%

25%

Private Bank

100%

0%

Public Sector

87%

13%

Cumulative Score

82%

18%

way is to go for compromise settlement. Are

you in favour of this method?

180

Analysis Reveals
Cumulative Score of the group under the study shows that 82% agrees
to the compromise and settle to reduce the level of NPA in their bank to
which 18% were not in favour of compromise or one time settlement.
67% Co-operative banks agrees for compromise and settlement for
reducing the level of NPA. Similarly 75% of the NBFC sample study and
100% of private banks were in favour of settlement to reduce the level of
NPA to which 87% PSB agrees overall from the sample size as
mentioned above. PSB includes even SBI and its 7 associates

sec3_2
Can this method develop a tendency among bank
borrowers to make deliberate attempt of default

YES

NO

Co-operative Bank

40%

60%

NBFC

75%

25%

Private Bank

80%

20%

Public Sector

65%

35%

Cumulative Score

62%

38%

and then ask for concession in interest?

181

Analysis Reveals
Cumulative score of the group under the study shows that 62% agrees
that compromise and settlement can be misused by the borrowers to
which 38% disagrees.80% response from private banks strongly agrees
so also 75% NBFC agrees and similarly 65% of PSB under study groups
agrees to the same.60% Cooperative banks under study group disagrees
to the views presented by other three groups that this settlement can be
misused by the borrowers.
sec3_3
What is your opinion about credit
monitoring system existing presently in

YES

NO

Co-operative Bank

67%

33%

NBFC

50%

50%

Private Bank

80%

20%

Public Sector

61%

39%

Cumulative Score

64%

36%

Indian banking system is it adequate?

182

Analysis Reveals
Cumulative score of the group under the study shows that 64% agrees
that the existing credit monitoring system is adequate to which 36%
disagrees. Private banks strongly agrees with 80% score whereas 67%
Cooperative banks agree to this fact that credit monitoring is adequate.
PSB with 61% agrees to the view that the existing system is adequate to
which

NBFC

shows

equal

opinion

regarding

agreement

YES

NO

Co-operative Bank

80%

20%

NBFC

38%

62%

Private Bank

80%

20%

Public Sector

65%

35%

Cumulative Score

68%

32%

and

disagreement.

sec3_4
Do you feel that improvement in this
system is necessary?

183

Analysis Reveals
Cumulative Score of the group under study shows that 68% feels there
is a need for improvement of the existing credit monitoring system to
which 32% of the study sample disagrees. Cooperative bank and private
bank with score of 80% each agrees that there is a need for
improvement and PSB with a score of 65% agrees for the need to
improve the system. NBFC with a score of 62% disagrees to the need for
improvement.
sec3_5
Do you feel that specialized cadre skilled officer be
YES

NO

Co-operative Bank

53%

47%

NBFC

50%

50%

Private Bank

90%

10%

Public Sector

59%

41%

Cumulative Score

62%

38%

selected and posted in credit department of bank

for better appraisal and delivery of the credit?

184

Analysis Reveals
Cumulative Score of the group under study shows that 62% feels there
is a need for specialised and skilled officer to be selected for the credit
department to which 38% of the study sample disagrees. Cooperative
bank with 53% score agrees and private bank with score of 90% agrees
that there is a need for specialised and skilled officer to selected for the
credit department and PSB with a score of 59% agrees for the need for
specialized and skilled officer. NBFC with a score of 50% disagrees and
50% agrees for specialized and skilled officer in the credit department
sec3_6
Will this selection help bank to reduce the
risk of account becoming NPA in early

YES

NO

Co-operative Bank

67%

33%

NBFC

62%

38%

Private Bank

80%

20%

Public Sector

70%

30%

Cumulative Score

70%

30%

stage or even in future?

185

Analysis Reveals
Cumulative Score of the group under study shows that 70% feels there
is a need for specialised and skilled officer to be selected for the credit
department will reduce the level of NPA to which 30% of the study
sample disagrees. Cooperative bank with 67% score agrees and private
bank with score of 80% agrees that there is a need for specialised and
skilled officer to selected for the credit department with the result the
NPA percentage can be reduced and PSB with a score of 70% agrees for
the need for specialized and skilled officer to bring down the NPA
percentage. NBFC with a score of 62% agrees and 37% disagrees for
reduction in bad loans.
sec3_7
Whether there is a need of a special recovery

YES

NO

Co-operative Bank

60%

40%

NBFC

75%

25%

Private Bank

20%

80%

Public Sector

78%

22%

Cumulative Score

62%

38%

officer in bank for better recovery?

186

Analysis Reveals
Cumulative Score of the group under study shows that 62% feels there is
a need for special recovery officer to be selected for the credit
department will reduce the level of NPA to which 37% of the study sample
disagrees. Cooperative bank with 60% score agrees and private bank with
score of 80% disagrees that there is a need for special recovery officer to
selected for the credit department with the result the NPA percentage can
be reduced and PSB with a score of 78% agrees for the need for special
recovery officer to bring down the NPA percentage. NBFC with a score of
75% agrees and 25% disagrees for reduction in bad loans.
sec3_8
Do you favour appointments of External
Recovery Agents to recover banks hard

YES

NO

Co-operative Bank

47%

53%

NBFC

75%

25%

Private Bank

80%

20%

Public Sector

83%

17%

Cumulative Score

71%

29%

core dues?

187

Analysis Reveals
Cumulative Score of the group under study shows that 71% feels there
is a need for external recovery agent for collection of hard core dues to
reduce the level of NPA to which 29% of the study sample disagrees.
Cooperative bank with 47% score agrees and disagrees with 53% and
private bank with score of 80% agrees that there is a need for recovery
agent for collection of hard core dues to reduce the level of

NPA

percentage can be reduced and PSB with a score of 83% agrees for the
need for recovery agent for collection of dues to bring down the NPA
percentage. NBFC with a score of 75% agrees and 25% disagrees for
reduction in bad loans.
sec3_9
Do you favour cash incentive scheme for

YES

NO

Co-operative Bank

47%

53%

NBFC

50%

50%

Private Bank

80%

20%

Public Sector

74%

26%

Cumulative Score

64%

36%

banks staff for recovery of dues

188

Analysis Reveals
Cumulative Score of the group under study shows that 64% feels there
is a need for incentives to staff is good option and will reduce the level
of NPA to which 36% of the study sample disagrees. Cooperative bank
with 47% score agrees and private bank with score of 80% agrees that
there is a need for incentives to staff

with the result the NPA

percentage can be reduced and PSB with a score of 74% agrees for the
need for incentives to staff shall motivate them to work hard and bring
down the NPA percentage. NBFC with a score of 50% agrees and 50%
disagrees for reduction in bad loans

189

sec3_10
Whether

system

of

credit

audit

i.e.

verification of total proposal financially and

technically by audit people before disbursement

YES

NO

Co-operative Bank

53%

47%

NBFC

75%

25%

Private Bank

50%

50%

Public Sector

83%

17%

Cumulative Score

68%

32%

of loan be introduced in banking industry?

(Above certain limit)

Analysis Reveals
Cumulative Score of the group under study shows that 68% feels there
is a need for introducing a credit audit before disbursement is good
option and will reduce the level of NPA to which 32% of the study
sample disagrees. Cooperative bank with 53% score agrees and private
bank with score of 50% agrees that there is a need for introducing a
credit before disbursement and with the result the NPA percentage can
be reduced and PSB with a score of 83% agrees for the need for audit

190

before the disbursement to bring down the NPA percentage. NBFC with
a score of 75% agrees and 25% disagrees for reduction in bad loans.
sec3_11
Can this system be made compulsory/
statutory like or similar to internal audit

YES

NO

Co-operative Bank

67%

33%

NBFC

100%

0%

Private Bank

40%

60%

Public Sector

70%

30%

Cumulative Score

68%

32%

in the bank?

Analysis Reveals
Cumulative Score of the group under study shows that 68% feels there
is a need for introducing a credit audit before disbursement is good
option and should be made compulsory and will reduce the level of NPA
to which 32% of the study sample disagree. Cooperative bank with 67%
score agrees and private bank with score of 40% agrees and 60%
disagrees that there is a need for

introducing a credit audit before

disbursement is good option and should be made compulsory with the

191

result NPA percentage can be reduced and PSB with a score of 70%
agrees introducing a credit audit before disbursement is good option
down the NPA percentage. NBFC with a score of 100% agrees for
reduction in bad loans.

sec3_12
Whether the scope of separate Rating

YES

NO

Co-operative Bank

67%

33%

NBFC

50%

50%

Private Bank

70%

30%

Public Sector

74%

26%

Cumulative Score

68%

32%

Agencies like ICRA, CRISIL, CARE etc. be

extended for the purpose of giving risk
rating to borrowable parties in order to
sanction loan speedily?

Analysis Reveals
Cumulative Score of the group under study shows that 68% feels that
setting up a separate rating agency for risk rating is required to reduce
the level of NPA to which 32% of the study sample disagrees. Co-

192

operative bank with 67% score agrees and private bank with score of
70% agrees that there is a need for separate rating agency is with the
result the NPA percentage can be reduced and PSB with a score of 74%
agrees for the setting up a separate rating agency to bring down the
NPA percentage. NBFC with a score of 50% agrees and 50% disagrees
for reduction in bad loans.

sec3_13
Whether such risk rating system if introduced
should cover all the aspects of credit
YES

NO

Co-operative Bank

87%

13%

NBFC

50%

50%

Private Bank

90%

10%

Public Sector

83%

17%

Cumulative Score

80%

20%

proposal such as type of product, nature of

industries, market demand and supply,
technology changes, interest structures etc.

Analysis Reveals
Cumulative Score of the group under study shows that 80% feels the
rating System should cover all items such as type of product, nature of
193

the industries, Market demand and supply, technology changes, interest

rate etc. shall reduce the level of NPA to which 20% of the study sample
disagrees. Cooperative bank with 87% score agrees and private bank
with score of 90% agrees that there is a need for rating system with all
the details such as demand, supply, technology etcwith the result the
NPA percentage can be reduced and PSB with a score of 83% agrees
for the need to have systematic rating system which shall bring down
the NPA percentage. NBFC with a score of 50% agrees and 50%
disagrees for reduction in bad loans.
sec3_14
Whether Management Information System on
the performance of various sectors of the
economy as also NPA data covering banks is

YES

NO

Co-operative Bank

60%

40%

NBFC

63%

37%

Private Bank

90%

10%

Public Sector

96%

4%

Cumulative Score

77%

33%

developed in banking industries for better

credit appraisal?

194

Analysis Reveals
Cumulative Score of the group under study shows that 80% agrees that
Management Information system on the performance of various sector
of Economy need to be developed to which 20% of the study sample
disagrees. Cooperative bank with 60% score agrees and private bank
with score of 90% agrees that there is a need for specialised
information system. PSB with a score of 96% agrees for the need for
specialized information system to bring down the NPA percentage.
NBFC with a score of 63% agrees and 37% disagrees for reduction in
bad loans.
sec3_15
Are you in favour of fixing of
YES

NO

Co-operative Bank

64%

36%

NBFC

62%

38%

Private Bank

70%

30%

Public Sector

91%

9%

Cumulative Score

76%

24%

responsible on bank officials when

particular accounts turn NPA?

195

Analysis Reveals
Cumulative Score of the group under study shows that 76% feels there
is a need for fixing of bank officials for an account to become NPA due
to their oversight or negligence etc. reduce the level of NPA to which
24% of the study sample disagrees. Cooperative bank with 64% score
agrees and private bank with score of 70 % agrees that there is a need
for fixing of bank officials with the result the NPA percentage can be
reduced and PSB with a score of 91% agrees for the need for
specialized and skilled officer to bring down the NPA percentage. NBFC
with a score of 62% agrees and 37% disagree for reduction in bad loans
sec3_16
Whether in your opinion strict
appraisal will help to reduce the

YES

NO

Co-operative Bank

93%

7%

NBFC

75%

25%

Private Bank

90%

10%

Public Sector

91%

9%

Cumulative Score

89%

11%

chances of any account turning NPA?

196

Analysis Reveals
Cumulative Score of the group under study shows that 89% feels that
concept of Strict appraisal will reduce the level of NPA to which 11% of
the study sample disagrees. Cooperative bank with 93 % score agrees
and private bank with score of 90% agrees that there is a need for strict
appraisal with the result the NPA percentage can be reduced and PSB
with a score of 91% agrees for the need for specialized and skilled
officer to bring down the NPA percentage. NBFC with a score of 75%
agrees and 25% disagrees for reduction in bad loans.

sec3_17
Whether this Strict Appraisal will become

YES

NO

Co-operative Bank

73%

27%

NBFC

88%

12%

Private Bank

70%

30%

Public Sector

78%

22%

Cumulative Score

77%

23%

harassment to the borrower?

197

Analysis Reveals
Cumulative Score of the group under study shows that 77% feels that
concept of Strict appraisal will become harassment to the borrowers
and will reduce the level of NPA to which 23% of the study sample
disagrees. Cooperative bank with 73% score agrees and private bank
with score of 70% agrees that for strict appraisal will become
harassment for the credit department and PSB with a score of 78%
agrees for the need for harassment to the borrowers. NBFC with a score
of 88% agrees and 12% disagrees

198

6.5. SECTION IV
sec4_1
It is often said that Lawyers/ advocates
delays the hearing of the case before Courts

YES

NO

Co-operative Bank

60%

40%

NBFC

75%

25%

Private Bank

90%

10%

Public Sector

65%

35%

Cumulative Score

70%

30%

by taking dates. Do you agree.

Analysis Reveals
Cumulative Score of the group under study shows that 70% feels that
Lawyers or Advocate is the cause for adjournment which result in delay
in Justice to which 30% of the study sample disagrees. Cooperative
bank with 60 % score agrees and private bank with score of 90% agrees
that lawyers are the cause for the delay in court orders. and PSB with a
score of 65% agrees that advocate is the cause for the delay. NBFC with
a score of 75% agrees and 25% disagrees for the cause of delay.

199

sec4_2
Is it a fact that bank does not provide their
advocates with proper papers/ list of

YES

NO

Co-operative Bank

47%

53%

NBFC

88%

12%

Private Bank

80%

20%

Public Sector

48%

52%

Cumulative Score

59%

41%

securities and documents during hearing

of the case before Court?

Analysis Reveals
Cumulative Score of the group under study shows that 59% feels that
Incomplete documentation and securities delays the Justice and
completion of the court procedures to which 41% of the study sample
disagrees. Cooperative bank with 47% score agrees and private bank
with score of 80% agrees that insufficient papers or securities is a cause
for the delay in court orders and PSB with a score of 48% agrees that
improper documents pose problems to lawyers to get orders. NBFC with
a score of 88% agrees and 12% disagrees for the cause of delay.

200

sec4_3
Is it true that most of the bankers do not

YES

NO

Co-operative Bank

40%

60%

NBFC

50%

50%

Private Bank

70%

30%

Public Sector

61%

39%

Cumulative Score

55%

45%

care to renew loan documents in time?

Analysis Reveals
Cumulative Score of the group under study shows that 55% feels that
Renewal of documentation lacks and delays the Justice and completion
Of the court procedures to which 45% of the study sample disagrees.
Cooperative bank with 40% score agrees and private bank with score of
80% agrees that non renewal or delayed renewal is a cause for the delay
in court orders and PSB with a score of 61% agrees the same. NBFC
with a score of 50% agrees and 50% disagrees for the cause of delay.

201

sec4_4
Do you feel that delay in getting decree
from court to recover banks dues make

YES

NO

Co-operative Bank

60%

40%

NBFC

25%

75%

Private Bank

40%

60%

Public Sector

61%

39%

Cumulative Score

52%

48%

such recovery impossible difficult?

Analysis Reveals
Cumulative Score of the group under study shows that 52% feels that
delay in getting decree from the court to recover dues makes recovery
impossible or difficult to which 48% of the study sample disagrees.
Cooperative bank with 60% score agrees and private bank with score of
40% agrees that delay in getting decree is one of the cause for the delay
in recovery procedures and PSB with a score of 61% agrees the same.
NBFC with a score of 25% agree and 75% disagrees for the cause of
delay.
202

sec4_5
Do you agree that time consuming and
tedious legal procedure is responsible for

YES

NO

Co-operative Bank

67%

33%

NBFC

75%

25%

Private Bank

70%

30%

Public Sector

65%

35%

Cumulative Score

68%

32%

slow recovery of banks overdues?

Analysis Reveals
Cumulative Score of the group under study shows that 68% feels that
lengthy and tedious procedures are the cause for delay in recovery of
the dues. to which 32% of the study sample disagrees. Cooperative bank
with 67% score agrees and private bank with score of 70% agrees that
delay in recovery of the dues is one of the cause for the delay in
recovery procedures and PSB with a score of 65% agrees the same.
NBFC with a score of 75% agree and 25% disagrees for the cause of
delay.
203

sec4_6
Do you agree that outdated laws are the major

YES

NO

Co-operative Bank

67%

33%

NBFC

100%

0%

Private Bank

80%

20%

Public Sector

87%

13%

Cumulative Score

82%

18%

causes for ineffective recovery of banks dues?

Analysis Reveals
Cumulative Score of the group under study shows that 82% feels that
amendment of laws are required to be made often so that recovery
procedures can be made faster to which 18% of the study sample
disagrees. Cooperative bank with 67% score agrees and private bank
with score of 80% agrees that amendment need to be made quite often to
keep pace with the current scenario. PSB with a score of 87% agrees the
same. NBFC with a score of 100% agree for the cause of delay to be
outdated laws.

204

sec4_7
Do you feel that effective working of Board
for Industrial and Financial Reconstruction

YES

NO

Co-operative Bank

60%

40%

NBFC

62%

38%

Private Bank

90%

10%

Public Sector

87%

13%

Cumulative Score

77%

23%

(BIFR) will help banks to recover the long

outstanding dues?

Analysis Reveals
Cumulative Score of the group under study shows that 77% feels that
effective functioning of BIFR will enable the banks to recover long
outstanding dues to which 23% of the study sample disagrees.
Cooperative bank with 60% score agrees and private bank with score of
90% agrees that effective functioning of BIFR will reduce the NPA
level.PSB with a score of 87% agrees the same. NBFC with a score of
62% agree for the reduction of NPA and recovery of dues.
205

sec4_8
Do you feel that the Public Debt Recovery
Act (DRT) be extended or made applicable

YES

NO

Co-operative Bank

93%

7%

NBFC

75%

25%

Private Bank

70%

30%

Public Sector

83%

17%

Cumulative Score

82%

18%

in all the states of India for fast recovery of

banks dues?

Analysis Reveals
All three groups in the study have almost similar views. 80% borrowers
agree that DRT should work more effectively and should be extended to
wider jurisdiction . 86% facilitators opinion shows recovery of due is
possible with efficient functioning and wider coverage of jurisdiction. 82
% banks are also of the same opinion as borrowers and facilitators to
which 20% borrowers, 14% facilitators and 18% banks disagree with the
view efficiency DRT and DRAT.

206

Sec4_9 is an open end question. The question asked was regarding the
reason for considerable delay in getting the decree from the court for
banks dues. Since it is an open end question with three reasons for the
delay the opinion is considered for findings and recommendations
chapter. It is not presented by graphical representation.

6.6. ANALYSIS ON DATAS COLLECTED FROM BANKS,

FACILITATORS AND BORROWERS
APPRAISAL STAGE:
Part A_1
Lack of critical presentation appraisal

Agree

Disagree

Borrower

90%

10%

Facilitator

90%

10%

BANK

78%

22%

207

Analysis Reveals
Borrowers and facilitators have similar stand point as 90% agrees and
10% disagrees. Banks has slight difference where 78% agrees and 22%
disagrees to this views.
Part A_2
Deliberate attempt of loose appraisal

Agree

Disagree

Borrower

90%

10%

Facilitator

80%

20%

BANK

73%

27%

Analysis Reveals
Majority of the group in the study agrees that there is a deliberate
attempt of loose appraisal. 73% banks strongly agree to this factor and
27% of the bank strongly disagrees to this factor. The analysis shows
that the banker is unable to get the clear idea about the borrowers
business and their intention. 80% 0f the facilitator and 90% of the
borrowers also agree along with the banks.

208

Part A_3
Submission of unrealistic project by

Agree

Disagree

Borrower

70%

30%

Facilitator

71%

29%

BANK

62%

38%

the borrower

Analysis Reveals
Majority of the group in the study agrees that there is submission of
unrealistic Project report by the borrowers. 62% banks strongly agree to
this factor and 38% of the bank strongly disagrees to this factor. The
analysis shows that the banker is unable to get the clear idea about the
borrowers business and their intention. 71% 0f the facilitator and 70% of
the borrowers also agree along with the banks.

209

Part A_4
Preparation of incorrect loan repayment

Agree

Disagree

Borrower

60%

40%

Facilitator

45%

55%

BANK

38%

62%

schedule

Analysis Reveals
Borrowers have very different opinion about the repayment plan.60%
borrowers agrees to this statement and 40% disagree to this
opinion.62% banks disagree to which 48% agree to this views.45%
facilitators agree to the defective repayment schedule and 65% disagree
to default in repayment structure.

210

Part A_5
Incorporation of improper assessment of
experience of the borrower or his capacity

Agree

Disagree

Borrower

60%

40%

Facilitator

65%

35%

BANK

65%

35%

to pursue the business activity.

Analysis Reveals
All the three groups in the study has almost same stand bearing a
marginal difference. Opinion of the banks and the facilitators were
identical regarding improper assessment or their capacity to pursue the
business activity.65% each banks and facilitators agreed to this factor of
assessment.60% of the Borrowers agreed to improper assessment.

211

Part A_6
Non-Availability of reliable market

Agree

Disagree

Borrower

60%

40%

Facilitator

63%

37%

BANK

52%

48%

study to the credit officer

Analysis Reveal
Market study to the credit officers.60% of the borrowers agrees to this
fact and 40% disagrees to this statement where as 63% of the facilitators
and 52% of the banks revealed their consent to agree 37% facilitators
and 48% banks disagrees with the non availability of credit officer
Part A_7
Non-Availability of Industry wise data on

Agree

Disagree

Borrower

50%

50%

Facilitator

71%

29%

BANK

59%

41%

demand & Supply to the Credit officer

212

Analysis Reveals
The entire group in the study has different views pertaining to non
availability of industry wise data on demand and supply to the Credit
officer. Borrowers have equal opinion on non availability of data.50%
borrowers agrees and 50% disagrees. 71% facilitators agree to this
views and 29% disagrees.59% opine that there is no proper information
to the credit officers.
Part A_8
Reliance on provisional/ unaudited
data as submitted by the borrower to

Agree

Disagree

Borrower

65%

35%

Facilitator

65%

35%

BANK

67%

33%

Bank.

213

Analysis Reveals
The entire group in the study has different views reliability on the
provisions of the unaudited accounts. Borrowers and Facilitators have
similar views. 65% borrowers and 65% facilitators were having their
identical opinion borrower agrees and 50% disagrees. 67% facilitators
agree to this views and 29% disagrees.59% opine that there is no proper
information to the credit officers.

Part A_9
Lack of network/ information system
amongst branches/ banks enabling

Agree

Disagree

Borrower

75%

25%

Facilitator

80%

20%

BANK

78%

22%

borrowers to enjoying banks funds from

more than one bank.

214

Analysis Reveals
All the group in the study has almost similar stand point.75% of
borrowers agree there is lack of network/information system amongst
banks enabling borrowers to enjoying bank funds from more than one
bank and 80% facilitators have similar views.78% banks from the sample
selected agree to the multiple borrowing and 22% disagree to the
prevailing multiple borrowing.

Part A_10
Lack of confidence in credit

Agree

Disagree

Borrower

50%

50%

Facilitator

36%

64%

BANK

30%

70%

officers

215

Analysis Reveals
All the group in the study has different stand point.50% of borrowers
agree there is lack of confidence in the credit officers and 36%
facilitators agree to this views and 64% disagree regarding the
confidence level of the credit officer.30 % banks from the sample
selected agree to the lack of confidence level on the credit officer and
60% disagree to the issues on lack of confidence in their bank
employees

Part A_11
Lack of knowledge in the subject to

Agree

Disagree

Borrower

50%

50%

Facilitator

37%

63%

BANK

30%

70%

credit officer

216

Analysis Reveals
All the group in the study has different stand point.50% of borrowers
agree there is lack of knowledge in the subject to the credit officers and
37% facilitators agree to this views and 63% disagree regarding the level
of knowledge in the subject to the credit officer.30 % banks from the
sample selected agree to the lack of knowledge in the subject to the
credit officer and 70% disagree to the issues on lack of knowledge in
their bank employees.

Part A_12
Lack of Economic Study on the Production

Agree

Disagree

Borrower

55%

45%

Facilitator

55%

45%

BANK

56%

44%

activity of the proposed borrower

217

Analysis Reveals
All the group in the study has same stand point.55% of borrowers agree
there is lack of Economic Study on the Production activity of the
proposed borrower and 55% facilitators agree to this views and 45%
disagree regarding the lack of Economic Study on the Production
activity of the proposed borrower.56 % banks from the sample selected
agree to the lack of knowledge in the production activity and 44%
disagree to the issues on lack of knowledge in the borrowers activity.

Part A_13
Fear of staff accountability on account
turning NPA in future in the mind of

Agree

Disagree

Borrower

70%

30%

Facilitator

55%

45%

BANK

65%

35%

credit officer at the time of appraisal

218

Analysis Reveals
All the group in the study has different stand point.70% of borrowers
agree there is fear of staff accountability on account turning NPA in
future in the minds of the credit officer and 55% facilitators agree to this
views and 45% disagree regarding the accountability on account turning
NPA.65 % banks from the sample selected agree to the staff
accountability on account turning NPA and 44% disagree to the issues
on lack of knowledge in the borrowers activity.

Part A_14
Absence of right to select good

Agree

Disagree

Borrower

85%

15%

Facilitator

49%

51%

BANK

56%

44%

borrowers by the credit department

219

Analysis Reveals
The entire group in the study has different stand point.85 % of borrowers
strongly agree that the credit department does not have any option to
select by the credit department. And 49% facilitators agree to these
views and 51% disagree regarding the non availability of option to
choose the borrower by the credit department.56 % banks from the
sample selected agree to the non availability of the option by the credit
department 44% disagree. Banks response is very distinct from that of
the borrower.

Part A_15
Non-availability of skilled/ trained staff in

Agree

Disagree

Borrower

55%

45%

Facilitator

55%

45%

BANK

40%

60%

credit department

220

Analysis Reveals
Bank responded 60% against the views of non availability of skilled and
trained staff and only 40% accepted it. Similarly Borrowers opinion and
Facilitators opinion were very similar and 55% agreed to the fact due to
lack of trained and skilled staff were as 45% failed to disagree this issue.
Part A_16
Fraudulent approach of borrowers

Agree

Disagree

Borrower

55%

45%

Facilitator

67%

33%

Bank

48%

52%

221

Analysis Reveals
Average of the study group reveals that 55% of the borrowers admit that
NPA is due to fraudulent approach adopted by the borrowers High
percentage of facilitator is of the opinion that NPA is due to fraud
committed by the borrower. High percentage precisely means 67% of
the facilitator opines this issue. Similarly 48% bank is under the opinion
that fraudulent act of the borrower is one of the causes for NPA in
banking industry.
Part A_17
Fraudulent

and

irresponsible

Agree

Disagree

Borrower

55%

45%

Facilitator

67%

33%

Bank

59%

41%

attitude of bank officials

222

Analysis Reveals
Average of the study group shows 60% response agrees to the
fraudulent and irresponsible attitude of the bank official.55 % of
borrowers strongly agree that there is a fraudulent and irresponsible
attitude of the bank official and 67% facilitators agree to this views and
33% disagree regarding the fraudulent act of the bank official.59% banks
from the sample selected agree to the fraudulent act of the bank official
and 41% disagree.

PART B: SANCTION & DISBURSEMENT STAGE

Part B_1
Indulgent approach to family/ group
connection/ long standing relationship

Agree

Disagree

Borrower

40%

60%

Facilitator

67%

33%

BANK

62%

38%

than to the project viability.

223

Analysis Reveals
Borrowers and facilitators have similar stand point as 90% agrees and
10% disagrees. Banks has slight difference where 78% agrees and 22%
disagrees to this views.
Part B_2
Political interference i.e. pressure to

Agree

Disagree

Borrower

30%

70%

Facilitator

61%

39%

BANK

55%

45%

sanction loan

Analysis Reveals
30 % of borrowers feel that there is a political interference and 70%
disagree to this concept. Banks and facilitators possess similar opinion
61% and 55% agree to this views and 39 % disagree regarding political
interfearance.39 % and 45%facilitators and banks disagree with this
opinion.

224

Part B_3
Political favouritism to particular borrower

Agree

Disagree

Borrower

45%

55%

Facilitator

63%

37%

BANK

71%

29%

in order to please politicians

Analysis Reveals
45 % of borrowers feel that there is a political favouritism to the
borrowers in order to please the politicians and 55% disagree to this
concept. Banks and facilitators possess similar opinion 71% and 63%
agree

to

this

views

and

29

disagree

regarding

political

interfearance.37 % and 29%facilitators and banks disagree with this

opinion.
Part B_4
Delay in decision making in

Agree

Disagree

Borrower

55%

45%

Facilitator

76%

24%

BANK

71%

29%

sanction of loan

225

Analysis Reveals
55 % of borrowers feel that there is a delay in decision making with the
result the project and the business could be termed old and out of
fashion. And 45% disagree to this concept.

Banks and facilitators

possess similar opinion 71% and 76% agree to this views and 29 %
disagree regarding political interference. 24 % and banks disagree with
this opinion.

Part B_5
Delay in disbursement in credit
Agree

Disagree

Borrower

58%

42%

Facilitator

64%

36%

BANK

67%

33%

facilities i.e. untimely finance

226

Analysis Reveals
8 % of borrowers feel that there is a delay in disbursement in credit
facility i.e. untimely finance can be a factor for an account becoming
NPA because when there is a delay the project viability may become
obsolete and out dated. With the result the project and the business
could be termed old and out of fashion and 42% disagree to this
concept. Banks and facilitators possess similar opinion 67% and 64%
agree to this views and 33% banks disagree regarding political
interference 36 % facilitator disagree with this opinion.

Part B_6
Disbursement of loan before the
compliance of terms and conditions of

Agree

Disagree

Borrower

50%

50%

Facilitator

69%

31%

BANK

63%

37%

sanction

227

Analysis Reveals
Borrowers have 50-50 stand in terms of instances where the loans are
Disbursed Even before the compliance of terms and conditions of
sanction. 50% disagree to this concept. 63% Banks and 69% facilitators
possess similar opinion and 37% banks and 31% facilitators disagree
regarding disbursement before fulfilling the conditions. Disbursement
the means the loan sanctioning should be kept ready at the time of final
signature and loan should be immediately disbursed

Part B_7
Incomplete and defective legal

Agree

Disagree

Borrower

55%

45%

Facilitator

65%

35%

BANK

65%

35%

documentation

228

Analysis Reveals
55 % of borrowers feel that there is a defective and incomplete legal
documentation and 45% borrower disagree to this concept. Banks and
facilitators possess similar opinion 65 % each possess the similar
views. 35% of both facilitators as well as banks disagree that there are
instances where incomplete and defective legal documentation are
presented for the purpose of sanctioning loan.

PART C: POST DISBURSEMENT STAGE

Part C_1
Unavailability of audited financial

Agree

Disagree

Borrower

30%

70%

Facilitator

33%

67%

BANK

32%

68%

statements in time.

229

Analysis Reveals
All the three groups share similar views.

32% amongst across the

groups are of the opinion that unavailability of the audited financial

statement is a concern for the cause of NPA, but 68% had different
opinion.30% borrowers had the opinion that submission of unaudited
statement of account could be the cause for NPA. 33% facilitators
opined that submission of unaudited statement can

the problem of

NPA.32% banks are also of the same opinion as borrowers and

facilitators to which 70% borrowers, 67% facilitators and 68% banks
disagreed to the concept of compromise and settlement.
Part C_2
Non-submission of stock and other
required periodical statements by

Agree

Disagree

Borrower

35%

65%

Facilitator

43%

57%

BANK

51%

49%

the borrowers

230

Analysis Reveals
All the three groups have distinct response to this statement. A concern
for the 35% borrowers had the opinion that non submission of
statement of stock and other required periodical statements by the
borrower be the cause for NPA. 43% facilitators opined that non
submission of statement of stock and other relevant document can be
the problem of NPA.51 % banks are also of the same opinion as
borrowers and facilitators to which 65% borrowers, 57% facilitators and
49% banks disagreed to the concept of compromise and settlement.

Part C_3
Negligent approach by the bank officials in

Agree

Disagree

Borrower

50%

50%

Facilitator

55%

45%

BANK

63%

37%

regards to inspection of stock etc.

231

Analysis Reveals
All the three groups have distinct response to this statement. A concern
for the 50% borrowers had the opinion that negligent approach by the
bank officials in regard to inspection of stock can be the cause for NPA.
55% facilitators opined that negligent approach by the officer in-charge
can be the problem of NPA.63 % banks are also of the same opinion as
borrowers and facilitators to which 50% borrowers, 45% facilitators and
37% banks disagreed to the concept of compromise and settlement.

Part C_4
Absence of effective monitoring

Agree

Disagree

Borrower

60%

40%

Facilitator

53%

47%

BANK

56%

44%

232

Analysis Reveals
All the three groups have similar response for absence of effective
monitoring. 60% borrowers had the opinion that absence of effective
monitoring by the bank officials in regard can be the cause for NPA.
53% facilitators opined that absence of strong monitoring approach by
the officer in-charge can be the problem of NPA.56 % banks are also of
the same opinion as borrowers and facilitators to which 40% borrowers,
47% facilitators and 44% banks disagreed to the concept of lack of
effective monitoring by the bank officials.
Part C_5
Absence of close supervision of loan

Agree

Disagree

Borrower

60%

40%

Facilitator

51%

49%

BANK

52%

48%

account

233

Analysis Reveals
All the three groups have different response for absence of close
supervision of loan account. Opinion between facilitator and banks are
close knit. 60% borrowers had the opinion that absence of effective
supervision by the bank officials in regard can be the cause for NPA.
51% facilitators opined that absence of strong monitoring approach by
the officer in-charge can be the problem of NPA.52 % banks are also of
the same opinion as borrowers and facilitators to which 40% borrowers,
49% facilitators and 48% banks disagreed to the concept of lack of
effective supervision of the loan account.

Part C_6
Delayed detection of warning signals

Agree

Disagree

Borrower

65%

35%

Facilitator

76%

24%

BANK

60%

40%

234

Analysis Reveals
Bank and the borrower has almost similar approach.60% borrowers had
the opinion that delayed detection of warning signal can be the cause
for NPA. 51% facilitators agrees that delayed detection of warning signal
can be the source for the loan account becoming NPA.52 % banks are
also of the same opinion as borrowers and facilitators to which 40%
borrowers, 49% facilitators and 48% banks disagreed to the concept of
delayed detection of warning signal is bad.
Part C_7
Delay in initiating remedial

Agree

Disagree

Borrower

65%

35%

Facilitator

78%

22%

BANK

62%

38%

measures and actions

235

Analysis Reveals
63% agrees that there is delay in initiating remedial measures and
actions wherein 37% differed in their approach. Opinion between
borrowers and banks are close knit. 65% borrowers had the opinion that
there is a delay in initiating remedial measures by the officials can be
the cause for NPA. 78% facilitators opined that absence of initiative by
the bank officer for remedial measures can be the problem of NPA.62 %
banks are also of the same opinion as borrowers to which 35%
borrowers, 22% facilitators and 38% banks disagreed to the concept of
delay in remedial measures.
SECTION III
sec3_1

Out of various steps to reduce NPA level

one way is to go for compromise

YES

NO

Borrower

85%

15%

Facilitator

80%

20%

BANK

82%

18%

settlement. Are you in favour of this

method?

236

Analysis Reveals
Banks borrowers and facilitator have slightly similar opinion. Approach
made by borrowers, facilitators and banks are close knit. 85% borrowers
had the opinion that compromise and settlement can be the cause for
NPA. 80% facilitators opined that one time settlement and compromise
by the borrowers to the bank official can reduce the problem of NPA.82
% banks are also of the same opinion as borrowers and facilitators to
which 15% borrowers, 20% facilitators and 18% banks disagreed to the
concept of compromise and settlement with the borrowers.
sec3_2
Can this method develop a tendency
among bank borrowers to make deliberate

YES

NO

Borrower

70%

30%

Facilitator

69%

31%

BANK

62%

38%

attempt of default and then ask for

concession in interest?

237

Analysis Reveals
Banks borrowers and facilitator have slightly similar opinion. Approach
made by borrowers, facilitators and banks are close knit.62% across the
group agrees that borrower may misuses the compromise options. 70%
borrowers had the opinion that compromise and settlement can be
misappropriated and the borrowers may ask for concession or waiver of
interest is a concern and can be the cause for NPA. 69% facilitators
opined that settlement of loan amount by means of compromise by the
borrowers to the bank official can be the problem of NPA. 63% banks
are also of the same opinion as borrowers and facilitators to which 30%
borrowers, 31% facilitators and 38% banks disagreed to the concept of
compromise and settlement can be misused by the borrower by not
making payment deliberately and subsequently asking for relief in the
interest rate.

238

sec3_3
What is your opinion about credit
monitoring system existing presently in

YES

NO

Borrower

70%

30%

Facilitator

55%

45%

BANK

64%

36%

Indian banking system is it adequate?

Analysis Reveals
Banks borrowers and facilitator have slightly different opinion. 70%
borrowers had the opinion that inadequate monitoring of credit on loan
account can be the cause for NPA. 55% facilitators opined that credit
monitoring by banks in India is not appropriate should be improved by
the banks to reduce the problem of NPA.64 % banks are also of the
same opinion as borrowers and facilitators to which 30% borrowers,
45% facilitators and 36% banks disagreed to the concept of inadequate
credit monitoring by banks in India.

239

sec3_4

Do you feel that improvement in this system

YES

NO

Borrower

45%

55%

Facilitator

64%

36%

BANK

68%

32%

is necessary?

Analysis Reveals
Banks borrowers and facilitator have slightly different opinion. 45%
borrowers had the opinion that improvement in the system can reduce
the level of NPA. 64% facilitators opined that system is in adequate and
improvement need to be made to reduce the level of NPA.68 % banks
are also of the same opinion as borrowers and facilitators to which 55%
borrowers, 36% facilitators and 32% banks disagreed to the concept of
inadequate credit monitoring system in India.

240

sec3_5
Do you feel that specialized cadre skilled
officer be selected and posted in credit

YES

NO

Borrower

70%

30%

Facilitator

67%

33%

BANK

62%

38%

department of bank for better appraisal and

delivery of the credit?

Analysis Reveals
All three groups in the study have similar views. 66% average across
the group agrees that specialised and skilled officer can definitely
contribute well. 60% borrowers had the opinion that skilled and efficient
credit officer can reduce the level of NPA. 76% facilitators opined that
efficiency of credit department need to be increased by appointing
skilled officer to reduce the level of NPA.70 % banks are also of the
same opinion as borrowers and facilitators to which 30% borrowers,

241

33% facilitators and 38% banks disagreed to the fact that skilled and
efficient officers appointment shall reduce the level of NPA.
sec3_6
Will this selection help bank to reduce
the risk of account becoming NPA in

YES

NO

Borrower

60%

40%

Facilitator

76%

24%

BANK

70%

30%

early stage or even in future?

Analysis Reveals
All three groups in the study have marginal difference in their views.
60% borrowers had the opinion that selection of skilled and efficient
credit officer can reduce the level of NPA in early stage or in future. 76%
facilitators opined that efficiency of credit department need to be
increased by appointing skilled officer to reduce the level of NPA and
possible to be deducted at early stage itself.70 % banks are also of the
same opinion as borrowers and facilitators to which 40% borrowers,

242

24% facilitators and 30% banks disagreed to the fact that skilled and
efficient officers appointment shall reduce the level of NPA neither at
early stage nor in future.
sec3_7
Whether there is a need of a special
recovery officer in bank for better

YES

NO

Borrower

75%

25%

Facilitator

59%

41%

BANK

62%

38%

recovery?

Analysis Reveals
All three groups in the study have marginal similarities in their views.
75% borrowers had the opinion that selection of recovery officer can
reduce the level of NPA in early stage or in future. 59% facilitators
opined that efficiency of credit department need to be increased by
appointing recovery officer to recover the dues efficiently which in turn

243

will reduce the level of NPA and possible to be deducted at early stage
itself.62% banks are also of the same opinion as borrowers and
facilitators to which 25% borrowers, 41% facilitators and 38% banks
disagreed to the fact that appointment of recovery officer shall not make
any difference in the performance of the banks.
sec3_8
Do you favour appointments of External
Recovery Agents to recover banks hard

YES

NO

Borrower

60%

40%

Facilitator

63%

37%

BANK

71%

29%

core dues?

Analysis Reveals
All three groups in the study have marginal similarities in their views.
60% borrowers agree for appointment of external recovery agency for
hard core due which enable to reduce the level of NPA in early stage or
in future. 63% facilitators opined that appointment of recovery agent can

244

produce better performance to recover the dues efficiently which in turn

will reduce the level of NPA and possible to be deducted at early stage
itself.71 % banks are also of the same opinion as borrowers and
facilitators to which 40% borrowers, 37% facilitators and 29% banks
disagreed to the fact that appointment of recovery agent shall not make
any difference in the performance of the banks or recovery status of the
bank.
sec3_9
Do you favour cash incentive scheme for

YES

NO

Borrower

60%

40%

Facilitator

55%

45%

BANK

64%

36%

banks staff for recovery of dues

Analysis Reveals
All three groups in the study have marginal similarities in their views.
60% borrowers agree for cash incentives for recovery of hard core due

245

which enable to reduce the level of NPA in early stage or in future. 55%
facilitators opined that cash incentives can motivate the staff and can
produce better performance to recover the dues efficiently which in turn
will reduce the level of NPA and possible to be deducted at early stage
itself.64 % banks are also of the same opinion as borrowers and
facilitators to which 40% borrowers, 45% facilitators and 36% banks
disagreed to the fact that cash incentives shall not make any difference
in the performance of the banks or recovery status of the bank.
sec3_10
Whether a system of credit audit i.e.
verification of total proposal financially and
YES

NO

Borrower

45%

55%

Facilitator

65%

35%

BANK

68%

32%

technically by audit people before

disbursement of loan be introduced in
banking industry? (Above certain limit)

246

Analysis Reveals
All three groups in the study have difference in their views. 60%
borrowers agree with the concept of credit audit. Credit audit should be
conducted before the disbursement of the loan amount. 55% facilitators
opined that performance of credit audit at appraisal or disbursement
stage will enable to eliminate the sanction of defective loan account
which in turn will reduce the level of NPA and possible to be deducted
at early stage itself.64 % banks are also of the same opinion as
borrowers and facilitators to which 40% borrowers, 45% facilitators and
36% banks disagreed to the fact that there could be any difference in the
performance of the bank due to credit audit.
sec3_11
Can this system be made compulsory/
statutory like or similar to internal audit in

YES

NO

Borrower

60%

40%

Facilitator

71%

29%

BANK

68%

32%

the bank?

247

Analysis Reveals
All three groups in the study have difference in their views. 60%
borrowers agree with the concept of credit audit. and also agreed that it
should be made as a statutory requirement for better recovery
proceedings.71% facilitators opined that performance of credit audit at
appraisal or disbursement stage will enable to eliminate the sanction of
defective loan account which in turn will reduce the level of NPA and
possible to be deducted at early stage itself. 68 % banks are also of the
same opinion as borrowers and facilitators to which 40% borrowers,
29% facilitators and 32% banks disagreed to the fact that there could be
any difference in the performance of the bank Inspite of making credit
audit as statutory requirement.
sec3_12
Whether the scope of separate Rating
Agencies like ICRA, CRISIL, CARE etc. are
extended for the purpose of giving risk

YES

NO

Borrower

60%

40%

Facilitator

74%

26%

BANK

68%

32%

rating to borrowable parties in order to

sanction loan speedily?

248

Analysis Reveals
All three groups in the study have difference in their views. 60%
borrowers agree with separate credit agencies for credit audit.74%
facilitators opined that performance of credit agencies at appraisal or
disbursement stage will enable to eliminate the sanction of defective
loan account which in turn will reduce the level of NPA and possible to
be deducted at early stage itself. 68 % banks are also of the same
opinion as borrowers and facilitators to which 40% borrowers, 26%
facilitators and 32% banks disagreed to the fact that there could be no
difference it the success of the bank
sec3_13
Whether such risk rating system if introduced
should cover all the aspects of credit proposal
such as type of product, nature of industries,

YES

NO

Borrower

50%

50%

Facilitator

73%

27%

BANK

80%

20%

market demand and supply, technology

changes, interest structures etc.

249

Analysis Reveals
All three groups in the study have difference in their views. 50%
borrowers agree to the audit and rating system to cover all the factors
73% facilitators opined that performance of credit rating by agencies at
appraisal or disbursement stage will enable to reduce the level of NPA
and banks are also of the same opinion as borrowers and facilitators to
which 50% borrowers, 27% facilitators and 20% banks disagreed to the
fact that there could be no difference to the success
sec3_14

Whether Management Information System on

the performance of various sectors of the
economy as also NPA data covering banks is

YES

NO

Borrower

45%

55%

Facilitator

80%

20%

BANK

80%

20%

developed in banking industries for better

credit appraisal?

250

Analysis Reveals
All three groups in the study have difference in their views. 45%
borrowers agree to the concept of Management Information System on
the various sectors of the economy for better credit appraisal.80 %
facilitators opined that MIS and information system will be helpful in
increasing the performance of the bank. 80% banks are also of the same
opinion as borrowers and facilitators to which 55% borrowers, 20%
facilitators and 20% banks disagreed to the fact that there could be no
difference to the success
sec3_15
Are you in favour of fixing of responsible on
bank officials when particular accounts turn

YES

NO

Borrower

75%

25%

Facilitator

82%

18%

BANK

76%

24%

NPA?

251

Analysis Reveals
All three groups in the study have difference in their views. 75%
borrowers agree to the concept of fixing the responsibility on the bank
officials in case of account turning NPA .82 % facilitators opined that
responsibility to hold bank officer or officials more vigilant. 76% banks
are also of the same opinion as borrowers and facilitators to which 25%
borrowers, 18% facilitators and 24% banks disagreed to the fact that
there could be no difference shall be made in case the officials are held
responsible.
sec3_16
Whether in your opinion strict appraisal
will help to reduce the chances of any

YES

NO

Borrower

75%

25%

Facilitator

88%

12%

BANK

89%

11%

account turning NPA?

252

Analysis Reveals
All three groups in the study have slightly similar views. 75% borrowers
agree to the concept that strict appraisal can reduce the account turning
NPA. 88% facilitators opinion shows that having 89% banks are also of
the same opinion as borrowers and facilitators to which 25% borrowers,
12% facilitators and 11% banks disagreed to the fact that there should
be strict appraisal to reduce the level of NPA.
sec3_17

Whether this Strict Appraisal will become

YES

NO

Borrower

85%

15%

Facilitator

56%

44%

BANK

77%

23%

harassment to the borrower?

253

Analysis Reveals
All three groups in the study have slightly similar views. 75% borrowers
agree to that strict appraisal being a kind of harassment can reduce the
account turning NPA. 88% facilitators opinion shows that strict
appraisal can be a source of harassment to the borrowers. 89% banks
are also of the same opinion as borrowers and facilitators to which 25%
borrowers, 12% facilitators and 11% banks disagreed to the fact that
strict appraisal shall be a cause of harassment to the borrowers.
SECTION IV

sec4_1
It is often said that Lawyers/ advocates
delays the hearing of the case before Courts

YES

NO

Borrower

80%

20%

Facilitator

73%

27%

BANK

70%

30%

by taking dates. Do you agree.

254

Analysis Reveals
All three groups in the study have slightly similar views. 80% borrowers
agree that due to delay attitude of the advocates or lawyers by taking
adjournment the justice is postponed indefinitely. 73% facilitators
opinion shows that the court order is delayed due adjournment opted by
advocates or lawyers.70% banks are also of the same opinion as
borrowers and facilitators to which 20% borrowers, 27% facilitators and
30% banks disagreed to the fact that advocates or lawyers are the cause
for delayed court order.
sec4_2
Is it a fact that bank does not provide their
advocates with proper papers/ list of

YES

NO

Borrower

65%

35%

Facilitator

61%

39%

BANK

59%

41%

securities and documents during hearing

of the case before Court?

255

Analysis Reveals
All three groups in the study have slightly similar views. 65% borrowers
agree that banks do provide advocates or lawyers with complete and
proper document during hearing of the case before the court. 61%
facilitators opinion shows that the court order is delayed due to
improper documentation or papers at the time of court hearing.59 %
banks are also of the same opinion as borrowers and facilitators to
which 20% borrowers, 27% facilitators and 30% banks disagreed to the
fact that advocates or lawyers are not provided with required
documents or incomplete papers during the court proceedings.
sec4_3
Is it true that most of the bankers do not

YES

NO

Borrower

60%

40%

Facilitator

55%

45%

BANK

55%

45%

care to renew loan documents in time?

256

Analysis Reveals
All three groups in the study have slightly similar views. 60% borrowers
agree that banks do not renew the loan account from time to time.55%
facilitators opinion shows that non renewal of loan account and
upgradation of document is a cause of NPA.55 % banks are also of the
same opinion as borrowers and facilitators to which 40% borrowers,
45% facilitators and 45% banks disagreed that non renewal of the loan
account is no barriers for the success of the bank.
sec4_4
Do you feel that delay in getting decree
from court to recover banks dues make

YES

NO

Borrower

65%

35%

Facilitator

55%

45%

BANK

52%

48%

such recovery impossible or difficult?

257

Analysis Reveals
All three groups in the study have different views. 65% borrowers agree
that delay in getting the decree creates recovery of loan amount difficult
or impossible.55% facilitators opinion shows that delay in court order
leads to impossibility or difficult in recovering due from the borrowers.
.52 % banks are also of the same opinion as borrowers and facilitators to
which 35% borrowers, 55% facilitators and 48% banks disagreed that
delay in decree is a concern for recovery.
sec4_5
Do you agree that time consuming and
tedious legal procedure is responsible for

YES

NO

Borrower

60%

40%

Facilitator

68%

32%

BANK

68%

32%

slow recovery of banks overdues?

258

Analysis Reveals
All three groups in the study have identical views. 60% borrowers agree
that tedious and time consuming legal procedure are one of the factors
for

account

turning

NPA.68%

facilitators

opinion

shows

that

cumbersome and delayed procedure could be the cause for NPA.68 %

banks are also of the same opinion as borrowers and facilitators to
which 40% borrowers, 32% facilitators and 32% banks disagreed for
delayed legal and lengthy procedure.
sec4_6
Do you agree that outdated laws are the major

YES

NO

Borrower

40%

60%

Facilitator

67%

33%

BANK

82%

18%

causes for ineffective recovery of banks dues?

259

Analysis Reveals
All three groups in the study have different views. 40% borrowers agree
that out dated laws need to be amended at a lucid intervals.67%
facilitators opinion shows that old and outdated laws need to be
amended..82 % banks are also of the same opinion as borrowers and
facilitators to which 60% borrowers, 33% facilitators and 18% banks
disagreed that regarding outdated laws.
sec4_7
Do you feel that effective working of Board for
Industrial and Financial Reconstruction (BIFR)

YES

NO

Borrower

60%

40%

Facilitator

76%

24%

BANK

77%

23%

will help banks to recover the long outstanding

dues?

260

Analysis Reveals
All three groups in the study have different views. 60% borrowers agree
effective working of BIFR will enable bank to recover long outstanding
dues. 76% facilitators opinion shows BIFR should function more
effectively to enable recovery faster. . 77 % banks are also of the same
opinion as borrowers and facilitators to which 40% borrowers, 24%
facilitators and 23% banks disagree with the efficiency of BIFR.
sec4_8
Do you feel that the Public Debt Recovery Act
(DRT) be extended or made applicable in all the

YES

NO

Borrower

80%

20%

Facilitator

86%

14%

BANK

82%

18%

states of India for fast recovery of banks dues?

261

Analysis Reveals
All three groups in the study have almost similar views. 80% borrowers
agree that DRT should work more effectively and should be extended to
wider jurisdiction. 86% facilitators opinion shows recovery of due is
possible with efficient functioning and wider coverage of jurisdiction. 82
% banks are also of the same opinion as borrowers and facilitators to
which 20% borrowers, 14% facilitators and 18% banks disagree with the
view efficiency DRT and DRAT.

6.7. Conclusions
In this chapter the analysis have been carried out in two parts:
Comparison between the banks (PSB, Private Banks, Co-operative
Banks and NBFC)
Comparisons between the Borrowers, Facilitators and Banks.

262

In both the comparison the analysis has been classified into three stages
and four sections. In section II there are open end questions which are
considered for findings and conclusions in chapter no 8 and 9 in this
research thesis. The views of respondents are taken for the suggestion
they are not exhibited in the graphical representations. All close end
questions are presented in graphical representation.
Unstructured interviews conducted with bank officials are also projected
in chapter no. 7 and 8 in the following chapters in this thesis. The
policies practised by the banks have been presented in this chapter
which gives clear idea as to what percentage of response from the banks
have been received and what is their opinions available and the
implementations of policies by a particular sectors.

263

CHAPTER 7
MANAGEMENT OF NPAs IN PRIORITY AND NON PRIORITY SECTOR
ADVANCES OF BANKS

7.1 Introduction
Priority sector was regarded as a Peoples Sector by the policy
makers, regulators and banks till 1990. As stated earlier, during 19691991, institutional viability was neglected, risk management practices
missing, credit provided under concessional interests rates and loans
were wrongly allocated. Combining all these factors resulted in decline
in profit margins and increased over dues. The NC-I tried to correct
these weaknesses by introducing the priority sector credit targets from
40-10 percent. The GoI did not accept this recommendation. In Indian
economy feels that the high level of the NPAs and low productivity of
capital that the economy had in the late 1980s and early 1990s was
caused by directed credit. Government of India and the RBI have not
denied this views directly, but attempted to mitigate the risks by
reforming priority sector credit by widening/ expanding the scope,
definition and liberalized interests rates, etc.
7.1. a. Findings of the Studies/Reports
The main factors responsible for increasing NPAs in priority sector
advances as reported by studies conducted by the PSBs were: poor
management and failure to detect the causes of incipient sickness; lack
of management capability of the borrowers; absence of regular visits to
units by the branch staff to monitor the operations; and lack of proper
infrastructure in the areas. Some of the reports and studies on NPAs

264

show that the problem of NPAs is perceived as post-sanction

inadequacy in supervision, monitoring and follow-up of the end- use of
the funds .This perception may not be altogether wrong, but the real
problem lies elsewhere. According to many bankers who were and are
associated with priority sector advances, felt that, the accounts
becoming NPAs is primarily due to undue delay in project appraisal and
project implementation. The causes of NPAs external to banks as
identified by these studies are factors beyond the scope of activities and
operational control of the credit agencies. These are:
(i)

The environment in which the credit agencies functions and

extend finance to all the activities in the rural areas,

(ii)

The susceptibility of large parts of the country to repeated

droughts in the rain fed areas under floods resulting in
extensive crop damages impaired the repaying capacity of the
borrowers and disrupt the credit delivery systems at all levels;

(iii)

The inadequate income generation capacity affects recoveries

mostly in resource-poor and backward areas;

(iv)

The inadequacy of arrangements for marketing of agricultural/

rural produce, and, lack of transportation also affects recovery
of loans; and

(v)

The increasing participation of banks in weaker section

financing mostly through government-sponsored programmes
and also political interference undermine the credit discipline.

As far as factors internal to the credit systems are concerned, these

studies found that the structural weakness of the credit agencies,

265

deficiencies in the loan policies and procedures, ineffective supervision

and improper monitoring of the end and the use of credit, poor customer
service and lack of rapport with borrowers commutatively lead to
accounts becoming NPAs. While granting loans, the integrity of the
borrowers is not properly assessed. Needless to state that default in
lending adversely affected recycling of credit, squeezed-up the
resources and is closely linked with the banks heading towards a state
of financial un-sustainability. In order to combat the problems of
defaults as well as to ensure financial viability, the RBI and NABARD
have brought out several policy and institutional measures.
If NPA recovery rate is high, further disbursement would be
automatically high. If NPA rises beyond particular limits, the health of
the banking system would be jeopardized. The recycling fund should be
made healthy and strong credit monitoring system should be performed
at appropriate time and place for detection of loan account turning bad.
An effective monitoring along with SARFEASI and Basel Accord would
change the situation of NPAs in the Indian Banking system at par with
international standard and bring resilience for strong and vibrant
financial system to realize the objectives of the reform measures
implemented.

7.2. Action Plans for management of NPAs

Identification of activities and solvency state of borrowers for hiring
their package of service monitoring since initial stages and incentives to
staff for recovering efficiently and reward for long associations and
liaisoning with the government and other recovery officers.

266

7.2. a. Financing Small and Marginal Farmers

Agriculture has been the most important sector contributing to the
overall economic growth as well as providing livelihood to a very
significant proportion of rural population in India, besides having been
an instrument of food security to children and women in particular. After
countrys Independence, Government of India and Reserve Bank of India
both are committed to expand and deepen the rural financial
intermediaries in the country sides so as to facilitate the rural
households easy access to credit for farm sector development.
Table7.1
Flow of institutional credit to agriculture and allied activities Rs. Crore
Institutional

02-03

03-04

04-05

05-06

06-07

07-08

08-09

Cooperative 23716 26959

31424

39786

42480

48258

35747

20435

25312

25852

Credit from
Banks
RRBS

6070

7581

12404

15223

Commercial

39774 52441

81481

125477 166485 181087 202856

Banks
Grand Total

69560 86981 125309 180486 229400 254657 264455

As per Table 7.1 in the year 2006-07, commercial banks were advised to
grant relief of two percentage points in the interest rate on the principal
amount up to Rs.1 lakh on each crop loan granted by banks during
kharif and Rabi of 2005-06, and credit the relief so granted to the
borrowers account before March 31, 2006... On analysing the availability
of the institutional credit to agricultural and other activities there is a
facilities provided by the Commercial banks, RRB and Cooperative

267

banks. The credit limit has increased from 23716 to 48258 in the year
2007-08 and subsequently due to changing scenario of the banks due to
farmer suicide and there was a reduction by the Cooperative Banks. The
credit created was only 35747 in 2008-09.RRB increased its institutional
credit limit from 6070 in 2002-03 to 25852 in 2008-2009. Commercial bank
released a credit from 399774 in 2002-2003 increased to 202856 in 200809.Total credit increased from 69560 to 264455 in 2008-09.
As mentioned in Table 7.2 in the next page the Kissan Credit Card (KCC)
Scheme was introduced in 1998-99 to enable the farmers to purchase
agricultural inputs and draw cash for their production needs. During
2007-08, 84.7 lakh KCCs amounting with limits aggregating Rs. 88,264
Crores were issued. During 2008-09 (till February 2009), a total of 47.26
lakh KCCs amounting with limits aggregating Rs. 26,828 Crores were
issued. Total KCC issued by the Cooperative banks, RRB and
Commercial banks amount to 808.00 lakh since 1998-99 to 2008-09.out
of this Cooperative banks issued 358.63 lakh and 336.74 by Public
Sector Commercial Banks and RRB issued 112.63 lakh. Major KCC is
issued by the Cooperative banks to help the farmers though involve risk
associated with farming.

7.3. Risks Associated with Agricultural Lending

7.3. a. Profitability and Risk of On-Farm Lending
The major factors that affect banker and farmer behaviour in on-farm
lending operations are the expected profitability of and the risks related
to on-farm investments. Risks can be of different natures and include

268

those associated with the impact of unfavourable weather on production

(drought, hail, floods etc.) diseases and pests damage, economic risks
due to uncertain markets and prices, productivity and management risks
related to the adoption of new technologies.
Table7.2
Agency-wise KCCs issued
(Lakh)
Year

Co-operative

RRBs

Banks

Public sector

Total

commercial banks

1998-99

1.56

0.06

6.22

7.84

1999-00

35.95

1.73

13.66

51.34

2000-01

56.14

6.48

23.90

86.52

2001-02

54.36

8.34

30.71

93.41

2002-03

45.79

9.64

27.00

82.43

2003-04

48.78

12.75

30.94

92.47

2004-05

35.56

17.29

43.95

96.8

2005-06

25.98

12.49

41.65

80.12

2006-07

22.97

14.06

48.08

85.11

2007-08

20.91

17.73

46.06

84.7

2008-09#

10.63

12.06

24.57

47.26

Total

358.63

336.74

808.00

112.63

Source: NABARD # Up to February 28, 2009

7.3. b. Market and price risks
Price uncertainty due to market fluctuations is particularly severe
where information is lacking and where markets are imperfect, features
that are prevalent in the agricultural sector in many developing
countries.

269

7.3. c. Risk of loan: collateral limitations

Problems associated with inadequate loan collateral pose specific
problems to rural lenders. Land is the most widely accepted asset for
use as collateral, because it is fixed and not easily destroyed. It is
often prized by owners above its market value and it has a high scarcity
value in densely populated area. Small holder farmers with land that has
limited value, or those who have only usufruct rights, are less likely to
have access to bank loans.
7.3. d. Moral hazard risks in distorted credit
Potentially serious risk problems have raised from the effects of failed
directed credit programs. The impact on the loan repayment discipline
is pervasive. Borrowers, who have witnessed the emergence and
demise of lending institutions, have been discouraged from repaying
their loans. Further people have repeatedly received government funds
under the guise of loans". Loan clients have been conditioned to
expect concessionary terms for institutional credit.
7.3. e. Risk from changes in domestic and international policies:
Policy changes and state interventions can have a damaging impact on
both borrowers and lenders. For the latter they can contribute significantly
to covariant risks. Many low-income economies under the structural
adjustment program have slashed their farming subsidies. This has had,
for instance, a serious effect on the costs and the demand for
fertilizer. Reducing government expenditures as an essential part of
structural

adjustment

programs

may

also

affect

employment

opportunities in the public sector. Costs may even reduce agricultural

270

production levels, if extension services are suddenly discontinued.

7.3. F.Subsidised Interest Rate
It was assumed that most farmers were too poor to save, that informal
financial markets were dominated by monopolist money lenders who
charged usurious interest rates, and that commercial banks were too
conservative to lend to most farmers.
7.3. g. Policy Framework
Agricultural insurance has a significant role in farming, in particular for
small farmers. However, its applicability in any given situation is defined
by the test as to whether it is the most cost-effective means of
addressing a given risk.
7.3. h. Governments role
Government should refrain from imposing/ dictating stipulations on
banks viz, resource allocations; directed/ targeted/ sub-targeted
credit; fixation of interest rates; restricting geographical area for
financing; loan write offs/interest waiver; Government sponsored
programs linked with subsidy for farmers & with no consideration to
provision of backward & forward linkages as well as supported by
technical feasibility & financial viability of credit based farm sector
projects.
7.3. i. Housing loans fraud in banks:
Miscreants will always try to exploit such a situation by observing the
process of sanction of loan by banks and the lacunas in the system. As
it is said that strength of the chain lies in the weakest link, so whichever
271

is the weakest point of our processing of proposal will be vulnerable to

fraud. The magnitude is also increasing on account of financial sector
reforms and globalization. E-Banking has added a new dimension of
frauds as necessary security awareness, knowledge and expertise is not
available with people in operation side. Fierce competitions amongst the
banks to excel performance and to grab more and more business from
others have made the banks to let loose internal control system, norms
and procedures.

7.4. Case Study

7.4. a.Sanmati Sahakari Bank Ltd
Sanmati Sahakari Bank Ltd; selected for the present study was
set up in Ichalkaranji in 1996. The bank won four First Prizes at
district level and one National Level Awards in the Innovation in
Cross Selling category during 2007-2008.Out of the four prizes,
two important prizes are The Best Bank Management Prize and
The Best Recovery Management Prize.
Though the bank was established in 1996, the study covered the
period of seven years 2002-2008.For the present study, to
examine the NPA management of the sample bank, the data
regarding asset classification, gross and net NPA have been
analyzed.. The banks major loan segments are allied sector, auto
loans, retailing,
financial

year

housing, personal
2007-08

the

bank

and educational.
had

participated

In the
in

the

competition held by Kholhapur District Urban Cooperative Banks

272

Cooperative Association Ltd; through the category of Small

Banks having deposits below Rs.50Crores. The study focused on
the asset classification, computation, of gross NPAs and Net
NPAs, their comparison with gross advances and net advances
respectively and also the movement of gross and net NPAs
through the study period as stated in Table 7.3
Table 7.3
Gross and Net NPA of Sanmati Sahakari Bank Ltd. (Rs. In lakh)
Year (End March)

Gross NPA

Net NPA

2002

27.85 (8.13)

19.29 (5.77)

2003

46.11 (10.81)

32.16 (7.78)

2004

76.12 (13.20)

37.26 (6.93)

2005

96.07 (13.79)

42.21 (6.56)

2006

88.05 (9.98)

13.59 (1.59)

2007

95.65 (8.54)

61.15 (6.320

2008

150.30 (11.31)

26.08 (2.03)

Note: Figures in the bracket shows percentage to total loan outstanding

Source: Records of sanmati bank Ltd.
It can be seen that the standard assets of the Sanmati Sahakari Bank as
per prudential norms by RBI. It can be seen that standard assets i.e.
performing assets ranged between 86.21% (2005) and 91.74% (2002).
The mean value of Sanmati Standard Assets stood 89.16%.This mean
that the bank has got good revenue generating power because 89% of
loan is disbursed which have been giving the bank regular and steady
income in terms of interest. Sanmati Bank remained alert about the

273

alarming signals of NPAs and achieved good consistency in maintaining

its asset quality. Certain assets show that they are under the shadow of
NPA. This shows bank management has been very careful in preventing
their assets from slippage to NPAs. Gross and Net NPA both are in grey
zones in managing the quality of assets of a bank. Comparatively net
NPA is in danger area. Inability to keep it under control leads to NPA.
For Cooperative bank Gross NPA should never increase beyond 15%
and Net NPA 10%. Gross NPA has increased from 27.85 Lakh in 2002 to
150.30 Lakh in 2008.It has increased almost 5.40 times. However the
percentage of gross NPA has increased to 1.39 times over the same
period. Further Net NPA has increased from 19.29 in 2002 to 26.08 Lakh
in 2008.The highest value of Gross NPA touched 13.79 in 2005 whereas
the percentage of Net NPA to net advance reached 7.78% in 2003.Thus
from the available information it can be inferred that Sanmatis
Management of Net NPA is quiet rigorous than its Gross NPAs. On the
basis of available data it may be concluded that on an average remained
Monitoring system of NPA both Gross as well as net is appreciable. On
the whole it may be concluded that the monitoring of Sanmati Bank is
quiet satisfactory.
7.4. b. Lehmans fall- a study on Financial Institution
A study carried out by the Federal Reserve Bank of Minneapolis
revealed that preceding the collapse of Lehman brothers lenders made
as much return as the equity investors. During 1926- 1970, US equity
investors received a return of 7% point more than what bondholders
had. But during 1982-1999 the same had fallen to less than 1%.Indeed a

274

study carried out by the Credit Suisse revealed that equity investment in
the US yielded almost close to zero return in real terms during 20002008.This is quiet contrary to the expectations of the US investors.
Since 1802goverment control they have been enjoying a return in
excess of an average of 4% over government bondholders. Following
such untruly profit without proper supervision and credit bubble finally
burst. Improved financial literacy results in better understanding of
financial products both assets and liabilities products by the customer.
Such knowledgeable consumers make more discerning choice of
investments and other financial products.
7.4. C.The collapse of the Global Trust Bank
On July 24, 2004, RBI imposed 3 month moratorium on withdrawals
exceeding Rs. 10000/- for depositors of the Global Trust Bank (GTB).
Depositors were caught by surprise and close to a run on the bank
ensued. The government allayed the fears of the depositors within 48
hours though announcing the merger of the bank with Oriental Bank of
Commerce (OBC) a healthy profit making public sector banks. Collapse
of a private bank is not a new concept. Nedungadi Bank BenarasState
Bank within two preceding years to GTB. The fall of GTB is special for
several reasons. For one, unlike the failures, GTB is a new PSB started
in 1994with several high profile investors, including the International
Finance Corporation. The case also raises troubling questions about the
supervisory mechanism in India. At the time of its collapse, GTB had a
portfolio, 20% of which was made of NPAs. Its total losses amounted to a
whopping Rs. 272 Crores in 2003-04.The RBI was aware of the problems

275

of GTB since at least 2001-02.In March 2002, RBIs special audit found
that GTB had a negative net worth, a quiet different figure from GTBs
own audited results showing a net worth of Rs.400 Crores. The RBI
forced GTB to change its auditors and complained about the old auditors
to the institute of the Chartered Accountant of India.GTB was in RBIs
close inspection since then and in September, 2003 the apex bank
expressed satisfaction at its positive operating profits.
The financial mismanagement is only one portion of the fact. The banks
promoter, Ramesh Gelli, had been indicted of close relationship with
Ketan Parekh, master mind behind a major stock market scam. The
promoters had been blamed for rigging the stock price of GTB before a
proposed merger with the UTI bank in 2001.Gelli was forced to step
down as GTB chairman after these findings. He made his way back to the
GTB board yet again. These issues raise important questions about
corporate governance in the banks and the efficacy of the regulators in
the system.
Merging failing banks with healthy private sector banks seems to be
favoured strategy of the RBI and government. Benares State Bank was
merged with the Bank of Baroda and Nedungadi Bank with Punjab
National Bank. With the merger of GTB with the several times larger
OBC, a bank with Zero NPAs and a profit of Rs.686 Crores in 2003-04,
confirms the pattern. Apparently OBC was on a look out for a bank with
strong presence in the south and GTB fitted the bill in that regard.
Clearly the government will not let private bank depositors suffer.

276

Notwithstanding the moral hazard issues pointed by many, probably

best serves the depositors. The effect on the PSB with which they are
merged and on the financial system as a whole can be maintained if
monitored properly by the regulators.

7.5. Conclusions
The retail loan has contributed significantly in credit growth of the
banks in past few years. It has also fuelled overall economic growth.
Assets impairment in housing loan in India so far is much less than
other sector and there is no systemic finance bubble as such. Since
retail loan is different ball game and banks have no previous experience,
it is necessary that banks should put in place required risk management
system so that credit is given to right person and default is kept to
minimum. With setting up of CIBIL credit history of the borrowers will
come handy to manage operational risks. Housing Finance is an
emerging area having a huge potential for the deployment of bank
funds. It is also social responsibility of the government to provide
shelter to the people and therefore a lot of initiatives are being taken by
the government to provide houses to the public. Systems and
procedures of public sector banks are very good, if followed properly,
the chances of fraud will be minimized upto a great extent. Nevertheless
above mentioned precautions will enable the bankers to curb frauds and
public money can be saved.
The traditional canons of lending and investment VIZ liquidity, safety and
profitability hold good even today. Liquidity through inflow of funds by

277

way of payment of interest and repayment of instalment by borrowers

can be ensured by lending to those who can repay the loans. Safety of
loans can be ensured by taking adequate and realisable security with
required margins. Thus in absolute terms both gross NPA and net NPA
increased despite extension of certain advances bank need to exercise
better risk management and vigil to avoid future slippage in asset
quality, the regulator highlighted in their annual report. According to
Committee on Financial Sector Assessment, which under took some
survey and revealed that Indian banking system could withstand
significant shocks arising from the credit quality, interest rate and
liquidity conditions. As domestic banks cater to the needs of
globalization of Indian business, bank need to maintain quality of the
assets under risk based supervision. Hence regulatory body should be
more vigilant in monitoring be it in priority sector or SSI or non priority
sector.

278

CHAPTER 8
FINDINGS AND CONCLUSIONS
8.1. Introduction
Banking in has transformed itself from a sluggish business to a dynamic
industry since the economic liberalisation of the 1990s.The mighty PSBs
dominated until 1990s and enjoyed strong system support and the
benefits of government ownership. They still hold 70% of the sectors
assets. Private banks have focused on leaner retail banking operations,
and are wilfully moving away from the bank brand hub with more focus
on the other channels like online banking mobile banking etc. New
private sector banks in the country are leading from the front with the
nifty technology and sophisticated management, while the PSB have
well documented processes, with multiple levels of controls and
approvals, and are more branch-oriented.PSB has not experienced the
kind of losses that financial institutions of other countries have faced.
Supported by the strong economic growth of the past, prudent
regulations, absence of complex financial products and low defaulters
ratio, the sector managed to withstand the global financial turmoil.
Indian banks have proved to be efficient users of capital and compare
positively with the banking sector in other emerging markets on metrics
like profitability and NPAs.
8.1. a. NPA is those loans given by banks or financial institutions which
borrowers default in making payment of principal amount or interest.

279

When a bank is not able to recover the loan given or not getting regular
interest on such loan, the flow of funds in banking industry is affected.
Also the earning capacity is adversely affected. This has direct and
immediate impact on bank profitability and efficiency. Under the
prudential norms, banks are not allowed to book any income from NPA.
Also they have to make necessary provisions for NPA which affects the
profitability adversely. Lower profitability of banking sector affects its
growth and expansion. NPA is double edged sword. On one hand banks
cannot recognize interest income on NPA and on the other hand, it is a
drain of banks profitability. Moreover profits earned are required to be
diverted for provision on NPA. The high level of NPA is dangerous to the
very existence of banks. Many banks in East Asian countries had to
close down due to high level of NPA.
8.1. b. Since there is slow down in economy since last two years, credit
off take has come down significantly. While there is plenty of liquidity,
the fear of NPA resulted in banks exhibiting a definite reluctance to lend.
Such situation has had an adverse effect on profitability as income by
way of interest on advances reduces, whereas due to excess liquidity in
the system, interest expenditure on deposits increases.

8.1. c. Public sector banks in India are covering nearly 85% of Indian
banking. Inspite of various private sector banks, and starting of new
private sector banks, the PSBs are dominating as far as banking
business in India is concerned. The profitability and operational

280

efficiency of each PSB is different from that of others and most of them
are having poor efficiency and profitability.
8.1. d. Organizational restructuring for improving governance of the
banks and enhancement in management involvement and efficiency.
Financial restructuring refers to injecting capital by the government with
required and necessary conditions. Systemic restructuring provides for
legal changes and institutional building for supporting the restructuring
process.

8.2. Major findings on the basis of the primary data and

secondary data
8.2. a. PSB is the dominating player as it has maximum share in terms of
the business. The banks have incorporated the integrated risk
management exception to this are some small cooperative banks purely
because of their size.
8.2. b.The banks and NBFC has incorporated the operational risk
management as suggested by RBI and Basel II. Inspite of the policies
laid down by regulators for prevention of frauds the banks are of the
opinion that still the fraud persist by the borrowers.
8.2. c. NBFC focus on Collateral security and guarantee, with the result
NBFC has least percentage of NPA and all the banks and the financial
institutions follow the securitisation process which has been discussed
in length in chapter 5 of this thesis. The banks and the FI should
consider these factors while accepting the collateral securities viz:
8.2. d. Bank is of the opinion Credit card outstanding is one of the
causes for NPA especially in private sector. Private Banks issue credit

281

card to weaker sections and students and outstanding amount against

these cards under these category is high.
8.2. e. Educational loan is the least risk based since they are issued
against the collateral securities. Similarly the Finance Minister beside
bar-coding the mark sheets the suggestion put forward by the banks
and financial institution include radio-frequency identifications (REFID)
for the loan availed or a notation in the degree certificates of the
borrower that would provide the loan details. This will enable the bank
to plan their repayment mode.
8.2. f. CIBIL enables to get information about defaulters but the small
banks find it difficult to enrol as a member because of high membership
fees.
8.2. g. The banks prefer to lend loans to priority and agricultural sector
as per the RBI norms and maintain the percentage notified by the RBI. In
order to minimise the agricultural risk the banks and FI insist on
insurance crops to the agricultural borrowers.
8.2. h. Precautionary measures to be taken by the banks against the
borrowers fraudulent act with respect to housing loan is discussed
under chapter 6 of this thesis.
8.2.i. Political interference and political favouritism for sanctioning has
been a cause strongly supported by the private banks and disagreed by
the Cooperative banks NBFC and public sector were neutral in its
approach. Delay in sanctioning as well as disbursement of loan is one of
the causes which was strongly agreed by Cooperative bank and
disagreed by private banks. These factors can be arrested by the Credit

282

Monitoring Officer by scrutinizing thoroughly all documents and

rejecting if there is a default in fulfilling the policy and procedures by the
borrowers. Delay in sanctioning and disbursement of loans is a cause of
NPA.
8.2. j. A realistic and timely action or check would help the banks and
borrowers to maintain good functional relationship despite difference of
opinion. However the bankers should be firm in conveying their
decisions which think are in the best interest of the borrowers and bank
at the earliest without wasting much of the borrower time. If these
policies are not followed there could be delay and fluctuation in the
economic conditions may cause imbalances and the entire act of the
borrower and the bank may become futile. Failure to perform this act
can cause reduction in the profit of the banks.
8.2. k. Unstructured interviews were carried out with banks officials and
it was found that some banks give preference to community members.
Management tries to help their community without giving preference
financial strength of the borrowers officer can enable reduction strongly
recommended by the Public Sector Bank and disagreed by the Private
Bank Compulsory credit audit is opined by the banks and NBFC except
the private banks. According to PSB, private Banks and Cooperative
Banks felt strict appraisal shall be a source of reduction in NPA NBFC
disagreed with this fact of reduction. Complicated and delayed legal
procedures are the cause of NPA.

283

8.3. Priority, SSI and Non-Priority Sector Advances of Banks

during Post-Reform Period
8.3. a. If the distribution of NPAs was proportionate to the distribution of
banks credit the total NPAs would be less than they are in fact. The
problem of NPA cannot be substantiated only due to priority sector.
Political personalities and traders and corporate houses manage to
commit default and avail priority loans. As such priority sector may have
a greater tendency of NPA in all the banks still they account only for a
small portion of gross NPA.
8.3.b. Impact was high during first phase of reform period, subsequently
the flow of credit to priority sector reduced significantly. RBI passed a
rule in their notification that priority lending should be 40% out of which
18% shall be for agricultural advances 10% for SSI. Since agricultural
and weaker section did not get much attention there is a credit crunch
and which showed an impact in the beginning of post reform period.
Agricultural advances increased from 1999 to 2008. There has been a
constant reduction in the percentage of advance provided to the SSI. In
1999 the percentage of SSI advances achieved was 17.3% were as in the
year 2002 it dropped to 3.91% and in 2008 of percentage was 10.9%.
8.3.c. The trend analysis shows that there is a fluctuation in the gross
NPA of Scheduled Urban Cooperative bank. In 1999 the level of gross
NPA was 11.7% and subsequently in 2002 it increased to 21.9% and in
2003 it reduced to 19% and again in 2004 it rose to 22.7% and in 2005 it
increased to 23.2%. This shows comparing to other sector of banks

284

cooperative bank has more NPA since they give preferences to priority
and weaker section of the borrowers.
8.3. d. The trend analysis of Gross NPA and Net NPA of NBFC clearly
shows that there is overall reduction in the Gross and Net NPA since
2001 to 2009.since the Net NPA is calculated after the adjustment
made from the reserves set aside in the balance sheet. In 2001and
2002 the Net NPA is approximately 50% of gross NPA and since 2003
onwards it is more than 50% difference between Gross and Net NPA.
8.3.e. Several Committees, Task Forces and Research Studies have
identified the main causes for the increasing of NPAs in priority sector
advances of the banks. The banks face NPAs due to external and
internal factors. External factors are due to non viable activities in
rural areas. The internal factors are due to faulty assessment of the
loan, ineffective supervision and absence of timely action, etc.
External factors are more dangerous than internal factors. External
factors are natural calamities, wrong selection of borrowers etc.
8.3.f. In the management of NPAs reduction of NPA is healthy practice
than curing it at a later date. Reward for the bank staff and punishment
for the defaulter borrowers. The banker should realize that they have
lent the loan and should also recover personally and should not
depend on some external factor. Recovery of loan is the sole
responsibility of bankers who agreed to grant loan. On the other hand
a combination of directed lending and social banking relegated
profitability and competitiveness to the background. The net result
was unsustainable NPAs and consequently a higher effective cost of

285

banking service. One of the main causes of NPAs into banking sector
is the directed loans system under which commercial banks are
required a prescribed percentage of their credit (40%) to priority
sector. The problem India faces is not lack of strict prudential norms
but

8.4. Conclusions
Bhagirathi Gramvikas Pratishthan, a Registered Voluntary organization
working in the Kokan Region of Maharashtra, Specifically working in
the Area of Rural Development. As a part of routine Project planning,
Bhagirathis Team had done a Baseline Survey to identify the financial
requirements of Rural Populations, and the purpose of requirement.
After the Detailed analysis, they found that; The Financial requirement
of Rural Person or a Farmer is quite less. I.e. amount ranging between
Rs. 5,000/- to Rs. 20,000/.
The Challenges a Rural Person encounters specifically for availing the
loan is the Time Taken for Disbursement, as well as multiple visit to
Bank for availing the Loan is not a viable option. As the rural person or
farmer has to travel to a long distance, due to which the loss of time and
money for travel is one of the major reason, along with the disturbance
in routine farm activity. All these Factors make the loan Disbursement a
Painful task for the Rural Customer. Over and above this, at times the
Designated Bank official will have a Negative Perception towards the
Farmer and Agro allied activity, which further increases the frustration
of rural customer while availing the loan. All these Findings were
286

analyzed, and a Recommendation was given to Saraswat Bank. And

Bhagirathis Team also suggested that; Rural People are basically very
much sensitive and Emotional, Keeping these things in Mind, if the
Loans are disbursed in single Visit and also Bank officials Good
Behaviour which would make the rural customer feel Respected and his
dignity is maintained. As the Rural Customer would make all his efforts
to maintain the relation with the bank, and he will ensure that the Dues
are always paid on time. Following Bhagirathis Recommendation,
Saraswat

Bank

had

implemented

the

Concept

of

Single

Day

Disbursement of Loans to Rural Customers. And it has been greatly

welcomed by the customers and appreciated. Seeing the Response from
the Rural Customers, Saraswat Banks Senior Officials are also assured
and Confident about the Timely repayment by these customers in future.

Source:
Personal Interaction with Dr. Prasad Deodar, President Bhagirathi
Gramvikas Pratishthan, Sindhudurg, Maharashtra.
(Website: www.bhagirathgram.org)

287

CHAPTER 9
SUGGESTION & RECOMMENDATIONS
9.1. The future picture of Commercial banks more so the banks &
financial institution seem to be brighter. Study suggests that the NPAs
of banks & FI will decline marginally both in terms of Gross and Net
figures over next three years. This may be due to higher provisions,
which the banks have been providing. The real issues are percentage of
NPA declining over the years but the absolute figures seem to be
increasing. A strong banking sector is important for a flourishing
economy. The failure of the banking sector may have an adverse impact
on other sectors.
9.2. Credit to priority sectors have higher NPAs, due to increase in
outstanding amount in priority sector the banks face problems in further
disbursement and increase their existing profits. Hence managers of
rural and semi-urban branches generally sanction these loans. In the
changed context of new prudential norms and emphasis on quality
lending and profitability, managers should make it amply clear to
potential borrowers that banks resources are scarce and these are
meant to finance viable ventures so that these are repaid on time and
relevant to other needy borrowers for improving the economic lot of
maximum number of households. Hence, selection of right borrowers,
viable economic activity, adequate finance and timely disbursement,
correct end use of funds and timely recovery of loans is absolutely

288

necessary pre-conditions for preventing or minimizing the incidence of

new NPAs.
9.3. RBI should provide a Credit Code Number to each borrower & that
should be quoted by the borrower at the time of taking loans. Similarly
these numbers should be exhibited in a separate website which may be
accessed by the banks or by the financial institutions. This will reduce
the multiple borrowings by the Individual borrower. At the time of
opening an account he should be asked to quote the Credit code
number. This measure will reduce the multiple borrowing & with the
result the creditors can assess the creditability of the borrowers & his
repayment capacity.
9.4. RBI should bring about a notification with respect to Guarantor his
credit code number can also be verified and the solvency state of the
guarantor should be authenticated by the banker were he maintains his
savings account .RBI should set up a Flying Squad department to
introspect credit audit to be conducted by the credit auditors at random
on a regular basis.
9.5. Each auditor should be assigned a particular set of banks for a
limited period & should be in rotation, which shall reduce the
favouritism & obligations from either side. The RBI should maintain a
site exclusively where a creditor gets detaild information along with his
existing loan and solvency state. Similarly RBI should maintain in its
site Red, Amber and Green. It enables the creditor to know that whether

289

the borrower is a defaulter, or casual defaulter or a regular in honouring

his commitment
9.6. The landmark change in rural banking was achieved when the
scheme of social control was adopted in 1967, and it was given a boost
by the nationalisation of banks, in 1969.With the nationalization of banks
focus shifted to rural India which constituted the bulk of the neglected
sector. The premise of creating infrastructure in rural India for which
credit mechanism has been developed can be achieved if we are able to
create bankable projects and invite private sector to participate in the
growth.
9.7. The project based approach in the rural sector will not only allow
the micro sector (farmers /smallholders) to link to SME (agro
processing) and the large scale segment but also extend commercial
banks, cooperative banks and financial institution. So far the banks
have ventured agrarian financing only covering priority sector credit.
Developing an SPV also involves special activity. There is a need to
develop a vision and implementation framework for public private
partnership (PPP) in Indian agriculture across the food value chain.
Thus the banks and FI can help the borrowers in rural India by
developing infrastructure through macro and micro project. Thus
following steps become crucial for the development by the bank.
Developing proper institutional mechanisms for agricultural
sector
Creating an appropriate legal Frame Work

290

 Data base development (farmers, crops, pricing land mapping)

with respect to contract
To fix the title of the land, as there are no sacrosanct
documentary proof to the charge of the land
Institutional mechanism for taping the inflow of the cash of the
farmers
Scientific methods for assessing the creditworthiness of the
rural entrepreneur/farmer/developer
Proper marketing of banking products and schemes
Scientific methods for risk mitigation
9.8. Therefore, the future vision strategy is very crucial for developing a
proper mechanism for integrating the PSB, Private Bank, Cooperative
Banks and NBFC for the needs of rural India for achieving holistic
growth in banking industries.
9.9. Future scope of study the researcher can take long term or term
lending, Rural Cooperative banks or state cooperative banks and make a
comparative study on these sectors of the banks and Financial
Institutions.

291

Appendix 1
NPAs Agriculture/Gross NPAs
Name of the
Sr.No Banks

1999

2000

India Group

15.1

14.90 14.90 13.80 17.50 16.50 15.36 17.46 18.93 21.82

Bank of India

13.32 18.62 13.80 11.69 14.08 19.10 17.88 21.34 20.57 32.01

Canara Bank

10.87 15.93 16.60 20.17 15.55 13.99 10.34 18.69 15.36 18.72

Indian Bank

8.74

Punjab

2007

2008

8.21

11.20

9.32

11.87 29.40 17.58 16.97 11.78

15.11 12.12 11.20 10.72 10.29 19.87

9.47

9.93

13.77 19.09 30.48

17.60 15.15 13.70 12.65 12.35 20.60 13.57 16.96 17.64 19.59

16.79 15.35 20.50 23.36 20.90 21.23 18.14 15.71 12.17 13.84

12.15 10.78 18.20 10.48 10.78 25.36

7.14

6.61

8.88

13.06

12.29 11.59 10.10 11.09 12.46 13.36 19.95 19.77 29.34 27.52

Corporation
Bank

11

2006

Allahabad
Bank

10

2005

Oriental Bank
of Commerce

2004

Bank of
Maharashtra

2003

Union Bank of
India

2002

State Bank of

National Bank
6

2001

14.52 15.66 13.80 14.64 12.84 10.50

9.93

7.23

10.39

13.2

11.17 10.35 11.60

7.10

7.81

8.16

30.72

Indian
Overseas
Bank

12

13

9.72

10.66 24.15

Bank of
Baroda

15.59 15.96 16.70 14.39 15.13 16.44 14.08 14.68 20.48 22.11

Dena Bank

11.80 12.88

7.90

8.09

8.74

20.10 12.92 11.85 12.87 22.04

292

14

United Bank of
India

15

13.43 16.78 15.00 15.08 19.01 20.36 20.81 19.69 18.10 17.56

Central Bank
of India

13.02 10.91 10.70 11.74 13.60

13.59

15.4

17.52

22.8

16

Andhra Bank

11.38 10.48 11.27 16.71 16.18 17.30 10.11

9.67

4.70

3.42

17

Punjab and
8.28

8.33

21.65 39.28

Sind Bank
18

8.93

8.31

6.96

9.92

22.1

10.73 56.86

Syndicate
Bank

13.76 13.36 14.63 15.03 15.55 14.11 11.07 12.42 12.78 14.01

19

Uco Bank

16.58 13.37 16.72 15.17 14.33 12.21

20

Vijaya Bank

13.62 13.35 17.71 16.96 16.60 23.46 12.48

21

The IDBI LTD

10.7

14.73 17.51 21.11

6.55

8.69

10.75

0.5

5.3

3.1

Source: RBI Publication & WWW.rbi.org.in

293

Appendix 2
Distribution of PSBs According to percentage of NPAs in SSI to NPAs Priority Sector
Lending
Percentage of NPAs in SSI to Gross NPAs
Sr.

Name of the

No

Bank

1999 2000 2001 2002 2003 2004

2005

2006 2007 2008

India Group

19.4

19.1

18.8

18.6

18.1

15.0

12.36

12.1

10.8

10.1

Bank of India

12.4

10.7

15.6

15.4

18.3

19.1

19.1

21.3

21.9

22.9

Canara Bank

18.7

22.0

31.8

22.5

24.2

14.0

12.9

24.0

10.1

4.72

Indian Bank

13.2

14.3

19.8

18.2

23.8

29.4

35.8

36.7

34.3

34.0

Punjab
17.1

23.6

21.1

19.4

14.7

19.9

24.3

25.4

29.2

27.4

24.1

20.7

17.2

16.2

19.6

20.6

18.1

14.7

13.4

17.4

18.4

19.9

27.5

21.9

21.8

21.2

20.3

18.6

15.3

15.5

of Commerce

27.5

31.4

14.5

26.6

21.2

25.4

19.0

14.5

13.7

19.8

Allahabad

18.4

17.5

14.4

14.3

14.6

13.4

18.5

13.0

14.3

12.5

10

Corporation

18.0

16.3

17.8

11.2

12.4

10.5

9.7

7.11

5.7

9.0

11

Indian
20.3

20.6

20.9

20.9

20.2

24.2

25.1

27.4

33.2

26.6

Baroda

22.2

16.9

18.7

17.5

18.8

16.4

18.4

20.8

13.8

12.4

Dena Bank

21.4

14.1

13.6

17.8

19.7

20.1

19.3

19.3

17.3

10.2

State Bank of

National Bank
6

Union Bank
of India

Bank of
Maharashtra

Oriental Bank

Overseas
Bank
12

13

Bank of

294

14

United Bank
of India

24.1

20.7

17.2

16.2

19.6

20.4

20.5

19.1

18.1

23.2

of India

24.5

23.5

22.7

23.4

23.0

22.1

23.9

22.6

20.2

27.1

16

Andhra Bank

23.9

22.6

22.6

24.3

22

18.9

17.3

14.9

9.7

18.9

17

Punjab and
18.7

18.8

21.1

19.4

14.7

12.9

7.2

21.1

14.4

18.0

Bank

24.2

23.2

22.9

22.5

19.7

19.2

18.1

13.4

43.5

9.8

19

Uco Bank

23.9

24.8

16.4

14.3

16.3

11.0

12.1

12.9

33.4

11.8

20

Vijaya Bank

14.9

14.8

22.8

15.8

15.3

15.5

11.8

5.8

56.4

6.6

21

The IDBI LTD

0.9

4.9

3.1

15

Central Bank

Sind Bank
18

Syndicate

Source: RBI Publication & WWW.rbi.org.in

295

Appendix 3
Proportion of NPA in Other priority Sector Credit to Gross NPAs of Public Sector Banks
Percentage of NPAs in Other Priority Sector to Gross NPAs (March Ending)
Sr.
No

Name of the Bank

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

State Bank Group

10.2

11.2

10.4

11.1

11.9

15.5

19.7

25.4

27.4

26.6

Bank of India

8.7

6.9

11.0

10.1

10.5

12.9

14.5

18.1

23.8

29.2

Canara Bank

8.2

13.0

12.0

7.6

14.6

14.5

18.8

18.2

36.6

25.3

Indian Bank

7.0

7.5

8.9

8.9

13.2

24.2

29.8

31.8

39.4

17.1

Punjab National
5

Bank

9.1

11.2

13.5

14.4

13.0

12.4

12.8

18.5

25.7

25.3

Union Bank of India

16.8

21.7

18.5

22.2

26.9

29.3

21.3

28.9

31.3

39.0

17.7

22.0

16.5

15.7

17.3

19.3

20.2

19.1

27.9

34.6

Bank of
7

Maharashtra
Oriental bank of

Commerce

9.6

14.7

22.3

9.1

8.7

12.1

8.0

11.3

15.65

21.4

Allahabad bank

12.7

12.1

13.2

13.3

14.9

22.5

21.8

29.9

27.7

31.8

10

Corporation bank

11.0

18.0

14.5

14.9

16.1

22.6

30.5

26.0

34.9

39.9

Indian Overseas
11

Bank

8.9

8.1

8.7

7.8

6.2

11.7

14.2

17.2

21.9

24.8

12

Bank of Baroda

9.8

10.6

9.3

8.9

8.8

9.9

11.1

15.4

19.8

31.3

13

Union Bank of India

15.0

14.1

14.2

13.8

15.1

17.0

21.3

28.9

31.3

39.0

16.8

21.7

18.5

22.2

26.9

29.3

33.3

32.6

29.4

30.6

15.6

15.5

15.3

15.5

16.4

18.8

23.0

21.5

24.4

20.4

United Bank of
14

India
Central Bank of

15

India

296

16

Andhra Bank

14.2

14.1

14.04

17.04

15.65

20.79

27.08

25.11

23.84

14.35

Punjab and Sind

17

Bank

17.2

11.4

9.66

8.23

21.53

10.24

6.83

14.66

34.49

23.94

18

Syndicate Bank

9.30

13.4

14.84

14.85

14.63

17.36

23.10

29.50

43.47

35.88

19

Uco Bank

17.4

17.7

22.29

17.87

18.83

19.91

21.33

24.27

33.35

39.40

20

Vijaya Bank

12.0

12.1

17.06

19.13

35.55

19.35

25.24

47.71

56.38

60.84

21

The IDBI LTD

Source: RBI Publication & WWW.rbi.org.in

297

Appendix 4
Table: Loans Sanctioned and Disbursed under RIDF
(As at end-March 2009)
Source: NABARD.
RIDF

Year

No. of
Projects

1
I

2
1995

3
4,168

4
2,000

5
1,906

6
1,761

Ratio of loans
disbursed to loans
sanctioned
(Per cent)
7
92.4

II

1996

8,193

2,500

2,636

2,398

91.0

III

1997

14,345

2,500

2,733

2,454

89.8

IV

1998

6,171

3,000

2,903

2,482

85.5

1999

12,106

3,500

3,434

3,055

89.0

VI

2000

43,168

4,500

4,489

4,071

90.7

VII

2001

24,598

5,000

4,582

4,053

88.5

VIII

2002

20,887

5,500

5,950

5,142

86.4

IX

2003

19,548

5,500

5,639

4,870

86.4

2004

17,190

8,000

7,717

6,198

80.3

XI

2005

29,875

8,000

8,301

5,728

69.0

XII

2006

42,279

10,000

10,601

5,771

54.4

XIII

2007

36,948

12,000

12,749

5,057

39.7

XIV

2008

85,527

14,000

14,719

3,013

20.5

3,65,003

86,000

88,359

56,052

63.4

Total

Corpus Loans Sanctioned

(Rs. Crores)
(Rs. Crores)

Loans
Disbursed
(Rs. Crores)

Separate window of Bharat Nirman Programme

XII

2006

4,000

4,000

4,000

100.0

XIII

2007

4,000

4,000

4,000

100.0

XIV

2008

4,000

4,000

4,000

100.0

12,000

12,000

12,000

100.0

Total

Source: NABARD.

298

Appendix 5
Advances of private Bank to Agriculture & weaker Sections as on last reporting Friday 0f March
Weaker Section Advances
Sr.
No

Name of the Bank

2001

2002

2003

2004

2005

2006

2007

2008

2.72

6.09

0.93

0.00

1.45

1.6

1.69

1.63

0.08

4.93

0.05

0.01

0.67

0.7

3.29

3.79

Catholic Syrian Bank

1

Ltd
Development Credit

Bank Ltd.

HDFC Bank Ltd

6.23

0.00

0.00

0.10

1.0

0.70

2.30

ICICI Bank Ltd

0.65

7.55

0.00

42.43

0.07

0.5

0.80

0.72

6.82

0.00

0.32

0.13

0.5

1.11

2.03

3.75

9.41

4.30

1.02

4.12

4.5

4.17

4.16

6.45

0.00

0.00

0.09

0.31

UTI Bank Ltd/Axis

5

Bank Ltd

Karur Vysya Bank Ltd

Indus Ind Bank

Tamilnad Mercantile

Bank Ltd

1.59

8.78

0.00

1.34

2.39

6.9

6.27

6.56

Danalakshmi Bank Ltd

1.94

7.04

2.09

1.65

0.67

3.2

6.43

7.18

10

Lakshmi Vilas Bank

4.02

11.58

3.76

0.37

5.33

5.1

6.59

6.92

0.00

6.53

14.68

4.36

8.24

3.16

7.2

6.50

9.06

3.27

8.83

2.46

2.53

1.9

1.12

1.42

1.65

13.04

3.59

2.04

3.16

3.8

3.86

2.65

Kotak Mahindra Bank

11

Ltd

12

Fedral Bank Ltd

13

Yes Bank Ltd

14

Bank of Rajasthan
Vysya Bank/Ing Bank

15

Ltd

16

Centurion Bank Ltd

0.00

0.00

23.62

3.39

0.8

0.53

0.24

17

City Union Bank Ltd

4.5

2.66

0.82

0.64

1.36

1.7

1.54

1.83

Jammu and Kashmir

18

Bank Ltd

12.1

3.07

3.62

27.91

3.04

3.1

3.13

6.03

19

Karnataka Bank Ltd

1.3

2.04

2.04

4.18

2.07

1.7

1.37

1.26

1.11

10.12

10.2

NA

NA

Ganesh Khurwad
20

Bank Ltd

299

Lord Krishna Bank

21

Ltd

0.13

0.29

0.9

1.03

NA

22

Nainital Bank Ltd

9.1

6.40

5.10

0.19

3.08

2.4

1.24

8.2

23

Ratnakar Bank Ltd

2.7

1.71

1.51

0.09

0.98

1.8

2.23

2.41

SBI Commercial &

24

International Bank Ltd

0.00

0.00

25

South Indian Bank Ltd

2.60

2.17

1.94

2.87

3.42

2.7

4.05

4.49

26

Sangli Bank Ltd

3.94

4.28

5.08

0.28

2.28

2.0

7.63

NA

2.04

7.32

5.35

10.32

4.84

5.1

NA

NA

United Western India

27

Ltd

28

Bank of Punjab

0.00

0.00

23.62

3.39

0.8

0.53

0.24

29

Global Trust Bank

0.00

0.10

0.00

NA

NA

NA

NA

30

IDBI Bank Ltd

0.00

0.00

0.00

NA

NA

NA

NA

0.16

0.00

0.32

0.13

0.5

NA

NA

UTI Bank Ltd/Axis

31

Bank Ltd

Source: RBI Publication & WWW.rbi.org.in

300

Appendix 6
Non-Performing Assets in Advances to Weaker Section Under Priority Sector with reference to Private
Sector Banks
Sr.
No

1
2

Name of the Bank

Catholic Syrian Bank
Ltd
Development Credit
Bank Ltd.

HDFC Bank Ltd

ICICI Bank Ltd

UTI Bank Ltd/Axis
Bank Ltd
Karur Vysya Bank Ltd

5
6
7
8
9
10
11
12

Indus Ind Bank Ltd

Tamilnad Mercantile
Bank Ltd
Danalakshmi Bank Ltd
Lakshmi Vilas Bank
Ltd
Kotak Mahindra Bank
Ltd
Fedral Bank Ltd

13

Yes Bank Ltd

14

Bank of Rajasthan Ltd

Vysya Bank/Ing Bank
Ltd
Centurion Bank Ltd

15
16
17
18
19

City Union Bank Ltd

Jammu and Kashmir
Bank Ltd

2001

2002

2003

2004

2005

2006

2007

2008

67.23

49.24

44.09

26.49

28.70

51.2

32.09

61.94

0.43

79.66

27.03

1.94

0.75

64.66

0.01

0.03

27.18

0.00

_
2.56

_
5.52

_
5.80

0.00
5.70

_
5.88

_
3.75

__
3.75

_
3.75

13.00

4.79

1.76

6.1

9.23

4.48

0.8

3.19

15.62

39.82

25.99

3.14

10.85

9.09

3.85

1.72

0.99

0.24

0.70

_
18.36

_
13.19

_
11.72

_
11.99

_
9.07

_
6.79

_
4.60

_
5.70

30.73

31.93

39.72

31.67

23.34

15.71

11.06

29.88
_

_
_

14.8
NA

6.55
_

5.74
_

3.36
_

6.94
_

1.3
_

7.22

7.34

13.91

7.83

2.83

4.67

3.20

0.69

30.99

6.21

23.29

14.03

12.78

13.34

13.32

1.77

8.3

6.3

8.77

4.7

5.07

1.28

9.95

10.04

20

Karnataka Bank Ltd

Ganesh Khurwad Bank
Ltd

5.61

8.77

NA

NA

21

Lord Krishna Bank Ltd

16.19

19.67

23.61

NA

NA

22

Nainital Bank Ltd

11.92

10.21

8.28

5.78

10.09

1.27

23

15.27

12.6

13.38

15.71

27.19

21.33

14.68

24

Ratnakar Bank Ltd

SBI Commercial &
International Bank Ltd

25

South Indian Bank Ltd

29.62

15.53

27.17

28

35.24

40

9.34

7.10

26

Sangli Bank Ltd

United Western India
Ltd

24.85

14.68

20.17

18.51

16.67

17.10

NA

12.61

14.77

24.32

13.14

15.65

23.29

NA

NA

27
28

Bank of Punjab

10

NA

NA

NA

NA

NA

29

Global Trust Bank

NA

NA

NA

NA

NA

30

IDBI Bank Ltd

UTI Bank Ltd/Axis
Bank Ltd

11.90

NA

NA

NA

NA

NA

NA

0.00

NA

NA

NA

31

Source: RBI Publication & WWW.rbi.org.in

301

Appendix 7
Sectorwise Non Performing Assetsof Private Sector Bank As on 31st March -----(SSI)

Sr.

Name of the Bank

2001

2002

2003

2004

2005

2006

2007

2008

Catholic Syrian

21.19 23.62 21.92 22.29 22.30 19.95 26.76 19.78

No
1

Bank Ltd
2

Indus Ind Bank

19.87 10.67 13.95 7.35

3.78

4.81

1.04

0.81

HDFC Bank Ltd

9.73

4.48

3.28

8.91

12.23

ICICI Bank Ltd

21.92 3.04

2.48

3.27

1.83

1.60

0.03

0.31

UTI Bank Ltd/Axis

5.52

4.04

10.94 11.38 3.70

6.59

3.04

12.02 11.30 7.59

5.66

Bank Ltd
6

Karur Vysya Bank

20.27 27.52 24.97 28.37 31.03 24.40 26.37 24.16

Ltd
7

Bank of Rajasthan

7.60

16.61 7.25

Tamilnad

30.07 28.34 25.72 27.51 26.48 30.19 20.38 18.61

9.54

11.3

11.81 9.82

16.56

Mercantile Bank
Ltd
9

Danalakshmi Bank

10.92 9.16

9.19

20.93 18.88 17.48 14.74 13.05

Ltd
10

Lakshmi Vilas

19.65 22.32 26.92 21.17 23.80 22.71 23.82 10.99

Bank
11

Kotak Mahindra

0.00

7.47

Bank Ltd
12

Fedral Bank Ltd

11.72 13.39 15.62 13.97 14.74 13.95 12.48 9.12

13

Yes Bank Ltd

14

Development

26.47 32.54 33.09 25.36 14.26 18.79 38.98 12.57

credit Bank
15

Vysya Bank/Ing

15.90 16.64 11.23 16.45 11.27 14.80 15.77 6.99

Bank Ltd

302

16

Centurion Bank

0.32

4.40

0.00

3.57

2.67

18.30

Ltd
17

City Union Bank

24.10 30.05 27.51 27.92 21.41 12.60 4.58

7.46

27.27 32.30 21.49 17.69 20.22 15.86 5.69

8.37

Ltd
18

Jammu and
Kashmir Bank Ltd

19

Karnataka Bank

18.07 19.34 17.50 17.97 20.62 19.32 15.87 16.76

Ltd
20

Ganesh Khurwad

16.84 9.64

13.45 6.82

14.79 16

8.90

9.49

NA

NA

Bank Ltd
21

Lord Krishna Bank 12.47 9.47

9.47

10.54 2.85

NA

Ltd
22

Nainital Bank Ltd

47.73 38.11 19.16 14.42 10.96 8.24

23

Ratnakar Bank Ltd

24.22 16.77 21.74 22.02 25.47 26.38 26.79 29.58

24

SBI Commercial &

20.57 7.21

4.15

17.96 0.71

10.78 16.51
_

International Bank
Ltd
25

South Indian Bank

18.13 27.86 16.06 38.56 18.41 13.56 13.88 23.04

Ltd
26

Sangli Bank Ltd

20.57 7.21

27

United Western

7.33

4.15

17.96 0.71

23.36 11.53 13.87 15.88 16.42 NA

_
NA

India Ltd
28

Bank of Punjab

25.05 12.17 8.06

29

Global Trust Bank

7.54

30

IDBI Bank Ltd

31

UTI Bank Ltd/Axis

NA

NA

NA

43.03 21.46 11.79 NA

NA

NA

NA

10.21 3.44

7.86

NA

NA

NA

5.52

5.66

10.94 11.38 3.70

NA

NA

4.04

7.69

4.40
NA

Bank Ltd
Source: RBI Publication & WWW.rbi.org.in

303

Appendix 8

Source: RBI Publication & WWW.rbi.org.in

Sectorwise Non Performing Assets of Private Sector Bank As on 31st March -----Other
Priority
Name of the
Sr.No Bank

2001

2002

2003

2004

2005

2006

2007

2008

Catholic Syrian
1

Bank Ltd

24.67 24.31 23.43 26.94 26.64 27.61 38.19 34.95

Indus Ind Bank

0.15

4.72

1.86

HDFC Bank Ltd

0.00

ICICI Bank Ltd

0.20

0.01

0.05

6.54

0.22

0.91

6.50

3.93

5.37

6.18

11.58 11.20

11.15 10.95 11.31 14.78

8.84

14.09 22.45 13.46

7.07

10.42

9.23

7.11

7.65

29.88 11.80

5.28

0.11

0.59

14.03

4.68

0.00

1.46

0.08

17.85

6.29

6.36

7.02

10.46

8.94

UTI Bank
Ltd/Axis Bank
5

Ltd
Karur Vysya

Bank Ltd
Bank of

Rajasthan
Tamilnad
Mercantile Bank

Ltd

13.36 13.58 17.11

Danalakshmi
9

Bank Ltd

15.61 13.46 18.68 40.40 18.74

0.75

35.92 23.46

Lakshmi Vilas
10

Bank

5.80

7.35

10.88 20.20 18.50 24.03 21.69 20.62

Kotak Mahindra
11

Bank Ltd

12

Fedral Bank Ltd

13

Yes Bank Ltd

23.19 38.49

35.74

4.95

0.89

11.99 15.36 18.72 21.00 21.69 29.56 43.73 51.86

_

9.45

11.37

5.92

4.53

5.14

3.20

25.70 33.70 13.46 18.81 20.08

9.53

24.98

Development
14

credit Bank

18.26 11.40

Vysya Bank/Ing
15

Bank Ltd

8.66

304

Centurion Bank
16

Ltd

3.81

3.07

2.85

0.28

7.09

6.7

7.4

7.31

9.86

9.33

7.99

9.18

11.60

City Union Bank

17

Ltd
Jammu and
Kashmir Bank

18

Ltd

18.89 20.28 20.28 18.47 30.36 25.41 24.33 30.53

Karnataka Bank
19

Ltd

5.96

6.49

5.67

6.04

7.28

11.16 12.98 13.76

10.69 11.40 13.71

9.87

15.73 16.90

NA

NA

1.41

3.62

3.86

3.81

NA

Ganesh
Khurwad Bank
20

Ltd
Lord Krishna

21

Bank Ltd

1.85

2.47

4.37

Nainital Bank
22

Ltd

18.03 15.83 39.42 40.54 40.32 42.62 34.05 36.48

Ratnakar Bank
23

Ltd

15.50 12.28 20.60 20.48 14.33 33.82 32.28 23.62

SBI Commercial
& International
24

Bank Ltd

0.00

4.05

South Indian
25

Bank Ltd

10.57 11.24

8.97

18.92 14.60 18.22 46.33 49.61

26

Sangli Bank Ltd

10.66

9.76

8.53

6.31

6.40

6.47

49.06

NA

United Western
27

India Ltd

8.36

8.50

10.29 13.75 24.18 24.62

NA

NA

28

Bank of Punjab

1.15

1.53

1.24

2.76

0.94

NA

NA

NA

Global Trust
29

Bank

0.29

0.00

NA

NA

NA

NA

30

IDBI Bank Ltd

7.06

23.83

NA

NA

NA

NA

6.54

0.22

0.19

0.00

1.46

0.08

NA

NA

UTI Bank
Ltd/Axis Bank
31

Ltd

305

Appendix 8-A - Comparison with other priorities

Advances of private Bank to Agriculture & weaker Sections
Weaker Section Advances
Sr
.
N
o

Name of the Bank

2001

2002

2003

2004

2005

2006

2007

2008

2.72

6.09

0.93

0.00

1.45

1.6

1.69

1.63

0.08

4.93

0.05

0.01

0.67

0.7

3.29

3.79

Catholic Syrian
1

Bank Ltd
Development Credit

Bank Ltd.

HDFC Bank Ltd

6.23

0.00

0.00

0.10

1.0

0.70

2.30

ICICI Bank Ltd

0.65

7.55

0.00

42.43

0.07

0.5

0.80

0.72

6.82

0.00

0.32

0.13

0.5

1.11

2.03

3.75

9.41

4.30

1.02

4.12

4.5

4.17

4.16

6.45

0.00

0.00

0.09

0.31

1.59

8.78

0.00

1.34

2.39

6.9

6.27

6.56

UTI Bank Ltd/Axis

5

Bank Ltd
Karur Vysya Bank

Ltd

Indus Ind Bank

Tamilnad Mercantile

Bank Ltd
Danalakshmi Bank

Ltd

1.94

7.04

2.09

1.65

0.67

3.2

6.43

7.18

10

Lakshmi Vilas Bank

4.02

11.58

3.76

0.37

5.33

5.1

6.59

6.92

0.00

6.53

14.68

4.36

8.24

3.16

7.2

6.50

9.06

3.27

8.83

2.46

2.53

1.9

1.12

1.42

1.65

13.04

3.59

2.04

3.16

3.8

3.86

2.65

Kotak Mahindra
11

Bank Ltd

12

Fedral Bank Ltd

13

Yes Bank Ltd

14

Bank of Rajasthan
Vysya Bank/Ing

15

Bank Ltd

16

Centurion Bank Ltd

0.00

0.00

23.62

3.39

0.8

0.53

0.24

17

City Union Bank Ltd

4.5

2.66

0.82

0.64

1.36

1.7

1.54

1.83

306

Jammu and Kashmir

18

Bank Ltd

12.1

3.07

3.62

27.91

3.04

3.1

3.13

6.03

19

Karnataka Bank Ltd

1.3

2.04

2.04

4.18

2.07

1.7

1.37

1.26

Ganesh Khurwad
20

Bank Ltd

10.1
_

1.11

10.2

NA

NA

0.13

0.29

0.9

1.03

NA

9.1

6.40

5.10

0.19

3.08

2.4

1.24

8.2

2.7

1.71

1.51

0.09

0.98

1.8

2.23

2.41

0.00

0.00

25 Ltd

2.60

2.17

1.94

2.87

3.42

2.7

4.05

4.49

26 Sangli Bank Ltd

3.94

4.28

5.08

0.28

2.28

2.0

7.63

NA

2.04

7.32

5.35

10.32

4.84

5.1

NA

NA

28 Bank of Punjab

0.00

0.00

23.62

3.39

0.8

0.53

0.24

29 Global Trust Bank

0.00

0.10

0.00

NA

NA

NA

NA

30 IDBI Bank Ltd

0.00

0.00

0.00

NA

NA

NA

NA

0.16

0.00

0.32

0.13

0.5

NA

NA

Lord Krishna Bank

21

Ltd

22

Nainital Bank Ltd

23 Ratnakar Bank Ltd

SBI Commercial &
International Bank
24 Ltd
South Indian Bank

United Western
27 India Ltd

UTI Bank Ltd/Axis

31 Bank Ltd

Source: RBI Publication & WWW.rbi.org.in

307

Sir / Maam,
I am a Research Scholar registered with Padamshree Dr. D.Y.Patil
Universitys Department of Management Studies, CBD Belapur for Ph.D.
The Research Work is being carried out under the guidance of Dr.
Rajinder S. Aurora. The topic of my research is NPAs-A comparative
Analysis on Banks & Financial Institutions & its Implications. As a part
of my research work I am required to substantiate my hypothesis
through primary data. I am writing to you in this connection. I shall be
highly obliged if you could spare some time from your busy schedule
and respond to the questionnaire attached herewith. We would like to
assure you that the data collected would be used only for the purpose of
research and the same shall be kept confidential.
Looking forward to your support in this regard and thanking you in
anticipation, I remain
Yours truly,
Mrs. Sumathi Gopal
Research Scholar
Annexure-QUESTIONNAIRE-1

Research Topic: Impact of NPAs on Profitability of Banks - A

Comparative Study of Public, Private and Co-operative Banks and Other
Financial Institutions - With Reference To Indian Economy)
Name of the Research Guide: Dr. Rajinder S. Aurora of Dr. D. Y. Patil
Institute of Management Studies Belapur, Navi Mumbai.
*******

308

Name of the Bank & Address:

______________________________________________________________
______________________________________________________________
Please tick marks ( ) in the relevant columns
1. Kindly indicate your Banks business (deposits + advances) (Rs. in
crore)

Less than Rs.25,000

Rs.25,000 to Rs.50,000

Rs.50,000 to Rs.1,00,000

Rs.1,00,000 and Above

2. Whether your bank has/has not adopted the following:

No

Yes

Integrated Risk management Division

Risk management Policy on NPA
Operational Risk management Policy on NPA
Information Technology Policy
3. Which method you have planned to use for measurement of NPA?
Early stage

Alert Stage

Advance Stage

4. How would you assess the progress in measurement of NPA in your

banks?
Poor

Slow

Moderate

Good

309

5. What is the quantum of losses because of frauds in your bank?

Less than 25%
75%

Above 25%- 50%

Above 50%-75%

Above

6. What is the status of outstanding entries in priority sector in Bank?

Poor

Low

Medium

High

7. Have you responded to RBIs NPA undertaken as part of Risk based

Supervision?
Yes

No

8. What is your view on the regulatory measure proposed by BIS on

NPA?
Low

Medium

High

NIL

9. According to you what percentage are the regulatory measures

proposed by BIS on NPA?
Less than 25

25% to 50%

50% to 75%

Above

75%
10. What percentage of account attribute NPA in your bank?
Less than 25%
75%

25%-50%

50%-75%

Above

11. What precautions does your bank adopt in providing loan to the
customer?
Collateral
Security

Guarantee

Guarantee and

Any other

Collateral Security
measures
12. What type of loan does your bank provide to your customer?
Retail Loan
Loan

Educational Loan

Agricultural Loan

Personal

310

13. What age group does your bank prefer in providing credit to the
customer? Why?
18 years to
60
25 years

Above 25 years

Above 40 years

Above

-60 years

years

40 years

14. What are the follow up measures in reading the outstanding credit?
Sale of Collateral Security
Recovery

Filing a suit in the Court

Appointing
Agent

15. Does your Bank prefer Mortgage?

Pledge

Mortgage

16. What percentage of the business of the issue of Credit Card is a

cause for NPA?
0-25

26-50

50-75

75-100

17. What measures do you take while issuing Credit Card to your
customer?
Educational Background
Ass

Age

Monthly Wages

Value Of

18. What is the trend of educational loan?

High Risk
above

Medium Risk

Low Risk

None of the

19. Which level of management is made accountable for not recovering

the outstanding credit?

Officer

Manager

General Manager

Vice-President

311

20. Who shall be made liable incase of failure to recover the outstanding
loan amount?
Bank

Employee

Customer

21. what level of credit in case of default CIBIL helps in bringing

awareness to the bank ?
Initial Defaulters Will Full Defaulters Persistent Defaulters None of The
Above
22. In realizing the amount whom does your bank appoint?
Recovery agent Files Suit

Meeting with Borrower

Appointment of
Arbitrator

23. Does your bank incur losses since recovery involves a huge cost
thus resulting in reduction in banks profit?
Low

Medium

High

NIL

24.Whom does the bank issues the Credit Cards?

Farmers
25.

Which

Students
Section

of

Weaker Section
people contribute

endors

maximum

credit

card

outstanding?
Farmers

Students

Weaker Section

Vendors
26. Any special remedial measures adopted by the bank in recovery
procedures?
Sanction

Monitoring

NPA Recovery

312

27. How much time does it take to recover the money from your
customer?
Within the Time Limit

Beyond Time Limit

28. Whether a Foreign Currency Loan is also available from the Bank, if
yes, whether it be availed overseas?

India
Country

Foreign Country

Partly in India and partly in Foreign

29. Does the bank finance for the development of complex?

Housing Complex Commercial Complex Agricultural Land
Under
Developed
areas
30. Which sector does bank prefer to give loan to their borrowers?
Priority
Establishment

Cooperative

Weaker Section

Commercial

31. Which sector contributes maximum NPA in their bank and their
percentage?
SSI
priority

Agriculture

Weaker Section

Non-

313

ANNEXURE- Questionnaire 2
INTERVIEW FOR THE PURPOSE OF RESEARCH ON NPA/ BAD LOANS
FOR PH.D.
NAME: _______________________________________________________
STATUS

: __________________________________________________

ADDRESS : ___________________________________________________
__________________________________________________
QUALIFICATION: _______________________TEL. NO.________________
SECTION I
Following are some of the causes of any Bank Account turning NPA/
BAD. In case you disagree with any of the cause please give reason in
support.
PART-A : APPRAISAL STAGE
1)
2)
3)
4)

Please Put

Lack of critical presentation appraisal

Agree

__________________________________________________

Disagree

Deliberate attempt of loose appraisal

Agree

__________________________________________________

Disagree

Submission of unrealistic project by the borrower

Agree

__________________________________________________

Disagree

Preparation of incorrect loan repayment schedule

Agree

__________________________________________________

Disagree

Incorporation of improper assessment of experience of

the borrower or his capacity to pursue the business
activity.
__________________________________________________
7) Non-Availability of reliable market study to the credit
officer
__________________________________________________
8) Reliance on provisional/ unaudited data as submitted by
the borrower to Bank.
__________________________________________________
9) Lack of network/ information system amongst branches/
banks enabling borrowers to enjoying banks funds from
more than one bank.
__________________________________________________
10) Lack of confidence in credit officers
__________________________________________________
5)

Agree
Disagree
Agree
Disagree
Agree
Disagree
Agree
Disagree
Agree
Disagree

314

11) Lack of confidence in credit officers

__________________________________________________

Agree

12) Lack of knowledge in the subject to credit officer

__________________________________________________

Agree

13) Fear of staff accountability on account turning NPA in

future in the mind of credit officer at the time of appraisal
__________________________________________________
14) Absence of right to select good borrowers by the credit
department
__________________________________________________
15) Non-availability of skilled/ trained staff in credit
department
__________________________________________________
16) Fraudulent approach of borrowers
__________________________________________________

Agree

17) Fraudulent and irresponsible attitude of bank officials

__________________________________________________

Agree

Disagree
Disagree
Disagree
Agree
Disagree
Agree
Disagree
Agree
Disagree
Disagree

PART B: SANCTION & DISBURSEMENT STAGE

1) Indulgent approach to family/ group connection/ long
standing relationship than to the project viability.
__________________________________________________
2) Political interference i.e. pressure to sanction loan
__________________________________________________

Agree

3) Political favouritism to particular borrower in order to

please politicians
__________________________________________________
4) Delay in decision making in sanction of loan
__________________________________________________

Agree

5) Delay in disbursement in credit facilities i.e. untimely

finance
__________________________________________________
6) Disbursement of loan before the compliance of terms and
conditions of sanction
__________________________________________________
7) Incomplete and defective legal documentation
__________________________________________________

Agree

Disagree
Agree
Disagree
Disagree
Agree
Disagree
Disagree
Agree
Disagree
Agree
Disagree

315

PART C : POST DISBURSEMENT STAGE

1) Unavailability of audited financial statements in time.
__________________________________________________
2) Non-submission of stock and other required periodical
statements by the borrowers

Agree
Disagree
Agree
Disagree

__________________________________________________
3) Negligent approach by the bank officials in regards to
inspection of stock etc.

Agree
Disagree

__________________________________________________
4) Absence of effective monitoring
__________________________________________________
5) Absence of close supervision of loan account
__________________________________________________
6) Delayed detection of warning signals
__________________________________________________
7) Delay in initiating remedial measures and actions
__________________________________________________

Agree
Disagree
Agree
Disagree
Agree
Disagree
Agree
Disagree

SECTION II
PART A
In your opinion are three any causes other than mentioned above
1)

________________________________________________________

2)

________________________________________________________

3)

________________________________________________________

4)

________________________________________________________

5)

________________________________________________________

PART B
Which in your opinion and experience are the main causes responsible
for any account turning NPA out of causes mentioned above. (Only five
in each of the following category)

316

1)

Any account going bad at an early stage

1)

________________________________________________________

2)

________________________________________________________

3)

________________________________________________________

4)

________________________________________________________

5)

________________________________________________________

2)

Any account going bad at an early stage

1)

________________________________________________________

2)

________________________________________________________

3)

________________________________________________________

4)

________________________________________________________

5)

________________________________________________________
SECTION III

1.

YES/NO

Out of various steps to reduce NPA level one way is to go

for compromise settlement. Are you in favour of this
method?

2.

Can this method develop a tendency among bank YES/NO

borrowers to make deliberate attempt of default and then
ask for concession in interest?

3.

What is your opinion about credit monitoring system YES/NO

existing presently

in

Indian banking

system, is

it

adequate?
YES/NO

4.

Do you feel that improvement in this system is necessary?

5.

Do you feel that specialized cadre skilled officer be YES/NO

selected and posted in credit department of bank for better
appraisal and delivery of the credit?

6.

Will this selection help bank to reduce the risk of account YES/NO
becoming NPA in early stage or even in future?

7.

Whether there is a need of a special recovery officer in YES/NO

bank for better recovery?

317

8.

Do you favour appointments of External Recovery Agents YES/NO

to recover banks hard core dues?

9.

Do you favour cash incentive scheme for banks staff for YES/NO
recovery of dues

10.

Whether a system of credit audit i.e. verification of total YES/NO

proposal financially and technically by audit people before
disbursement of loan be introduced in banking industry?
(Above certain limit)

11.

Can this system be made compulsory/ statutory like or YES/NO

similar to internal audit in the bank?

12.

Whether the scope of separate Rating Agencies like ICRA, YES/NO

CRISIL, CARE etc. be extended for the purpose of giving
risk rating to borrowal parties in order to sanction loan
speedily?

13.

Whether such risk rating system if introduced should YES/NO

cover all the aspects of credit proposal such as type of
product, nature of industries, market demand and supply,
technology changes, interest structures etc.

14.

Whether

Management

Information

System

on

the YES/NO

performance of various sectors of the economy as also

NPA data covering banks be developed in banking
industries for better credit appraisal?
15.

Are you in favour of fixing of responsible on bank officials YES/NO

when particular accounts turns NPA?

16.

Whether in your opinion strict appraisal will help to YES/NO

reduce the chances of any account turning NPA?

17.

Whether this Strict Appraisal will become harassment to YES/NO

the borrower?

318

SECTION - IV
1. It is often said that Lawyers/ advocates delays the hearing of the YES/NO
case before Courts by taking dates. Do you agree.
2. Is it a fact that bank does not provide their advocates with proper YES/NO
papers/ list of securities and documents during hearing of the
case before Court?
3. Is it true that most of the bankers does not care to renew loan
documents in time?
4. Do you feel that delay in getting decree from court to recover
banks dues make such recovery impossible difficult?
5. Do you agree that time consuming and tedious legal procedure is
responsible for slow recovery of banks overdues?
6. Do you agree that outdated laws are the major causes for
ineffective recovery of banks dues?
7. Do you feel that effective working of Board for Industrial and
Financial Reconstruction (BIFR) will help banks to recover the
long outstanding dues?
8. Do you feel that the Public Debt Recovery Act (DRT) be extended
or made applicable in all the states of India for fast recovery of
banks dues?
9. What in your opinion are the main reasons for considerable delay
in getting decree from the Court of law for Banks dues?
i)

______________________________________________________

_________________________________________________________
ii) ______________________________________________________
_________________________________________________________
iii)______________________________________________________
_________________________________________________________

319

Abbreviation
ABC: Adjusted Bank Credit
ABS: Asset Backed Securities
AFCs: Assets Financing Companies
ALM: Asset Liability Management
AMC: Asset Management Company
ANBC: Adjusted Net Bank Credit
ARC: Asset Reconstruction Company
BCBS: Basel Committee on Banking Supervision
BFS: Board for Financial Supervision
BIS: Beaureu of international Settlement
CADP: Common area development programme
CAPM: Capital Assets Pricing Model
CAR: Credit Adequate Ratio
CARE: Credit Analysis and Research Ltd
CCF: Credit Conversion Factor
CFSA: Committee on financial sector assessment
CIBIL: Credit Information Bureau Ltd
CLO: Collateralized Loan Obligation
CPs: Commercial Papers
CPC: Civil Procedure Code
CRR: Cash Reserve Ratio
CRAR: Capital Risk Weighted Asset Ratio
CRISIL: Credit Rating Information Service of India Ltd
DDP: Dessert development programme
DEA: Data Envelopment Analysis
DFI: Development Financial Institution

320

DICGC: Deposit Insurance and credit Guarantee Corporation

DPAP: Draught prone area programme
DRDA: District rural development agency
DRT: Debt Recovery Tribunal
DRAT: Debt Recovery Applet Tribunal
DGA: Duration Gap Analysis
ECAIs: External Credit Assessment Institutions
ECGC: Export Credit Guarantee Corporation
FDI: Foreign Direct Investment
FI: Financial Institution
GOI: Government of India
GTB: Global Trust Bank
HFC: Housing Finance Company
IRDP: integrated rural development programme
IRAC: Income Recognition and Asset Classification
IRS: Interest rate swaps
KCCS: Kissan Credit Card Scheme
KYC: Know your Customer
LGD: Laws given default
MBS: Mortgaged Backed Securities
MFAL: Marginal farmers agricultural labourers
MOU: Memorandum of Understanding
MPBF: Maximum Permissible Bank Finance
MSME: Micro Small and medium enterprise
NABARD: National Bank for Agricultural and Rural Development Bank
NBC: Net Bank Credit
NBFC: Non Banking Financial Companies
NBFI: Non Banking Financial Institution

321

NC: Narasimham Committee

NGO: Non Governmental Organisation
NHB: National Housing Banks
NPA: Non Performing Asset
OBC: Oriental Bank of Commerce
OPS: Other Priority Sector
OSS: Off-Site Surveillance Software
OTS: One Time Settlement
PACS: Primary Agricultural Credit Societies
PEO: Programme evaluation Organization
PLR: Prime Lending Rate
PSA: Priority Sector Advances
PSB: Public Sector Bank
PTC: Private Trust Company
PCBs: Primary Cooperative Banks
RFIs: Rural Financial Institutions
RIDF: Rural Infrastructure Development Fund
ROA: Return on Asset
RRB: Regional Rural Bank
SACP: Special Agricultural Credit Plan
SARFAESI: Securitization and reconstruction of financial asset and
Enforcement of Security Interest
SCB: Scheduled Commercial Bank
SEB: Salary Earners Bank
SFDA: Small farmers development agency
SGSY: Swarna Jayanti Gram Swarozgar Yojna
SHGs: Self Help Groups
SIDBI: Small Industry Development Bank of India

322

SLR: Statutory liquid Ratio

SME: Small and medium enterprise
SPV: Special Purpose Vehicle
SSI: Small Scale Industry
STCBs: State Cooperative Banks
TAFCUB: Task Force for Cooperative Urban Bank
TGA: Traditional Gap Analysis
UCB: Urban Cooperative Bank
VC: Venture Capital
WPI: Whole Sale Price Index

323

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U.K. Sarma, (1989) Former Executive Director, RBI, text of speech

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C.H. Hanumantha Rao, (1989) S.P. Gupta and K.L. Dutta 14

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Estimates of

credit have

been made

by

D.K.Desai

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Institutional Credit requirements of Agricultural Production 2000

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8. Pankaj B.Trivedi8- (2000) Business Strategy for Public Sector
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11. A.A.Ananth11-

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325

12. Gita A. Kumta12- (1997) Fund Management in District central

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13. K.Ramesha13 (2001) Monetary and Credit policy: Implications for
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14. Rajesh Chakrabarti and Gaurav Chavla14 (2004) Bank Efficiency in
India since the Reforms: An Assessment, Research Paper
15. Rajesh Chakrabharti15 (2004), Banking in India- Reforms and
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16. Dr.Sukhdev Singh16 (2006) Performance of Banking Sectors in
Comparison

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Benchmarks

Indian

Banker,

IBA

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Published by IBA, Vol I- No.4, April, pp 33-35

17. Arabi. U17 (2007) Bank Credit Flow Performance in India: An
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18. Aastha Bhasin18 (2007) Understanding Risks in Banking: A Note
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19. Dr. Milind Sathye19 (2007) Research Paper Presented- Efficiency of
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20. S.R.Shinde20 (1999)-Risk Management: ROE as a measure of Bank
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26. Sanjay Choudhari and Arabinda Tripathy26 (2004)-To Evaluate Data
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27. Uday S. Bose27 Vinimaya Vol.xxv No.4 (2004-2005) SERFAESI ACT:
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28. Pasadilla28, (2005) Special Purpose Vehicle and Insolvency
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29. Christian Roland29 (2005) paper prepared for Ninth Capital
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327

30. Kanishka Garg30 (2006) Reverse Mortgage Loans: The Scope

Market and Implementation in India- Vinimaya, Vol.XXII, No.2, NIBM
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31. V.K.Vijaykrishnan31 (2006).Debt Service Coverage Ratio (DSCR)
A

Misleading

Ratio-Searching

Holistic

Ratio

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32. Dr. Amrit Patel32 (2006) Financing Small and Marginal Farmers:
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33. D.Rabindran James33 (2006) Educational Loan Scheme: Mitigating
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34. Bagchi34 (2006) Dilution Risk: A silent Killer under Banking Credit
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35. Abhinna Mohan Nanda35 (2006) Frauds in Mortgages: Prevention
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36. S.Khasnobis36 (2006) NPAs: Emerging Challenges Indian Banker,
IBA Journal, Published by IBA, Vol I- No.11, November, pp 17-20
37. S.K.Bagchi37

(2006)

Multi

Tier

Bank

Capital

under

Risk

Management: How effective in Indian Banking System, Indian

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31-34

328

38. M.V. Narayanaswmy, K.Aruna Rao and Srimathi .S.Mayya38 (2007)

A statistical Model for Performance Evaluation of Primary
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39. Henry James39: Prajnan Vol.XXXV No.1 (2006-07) Repayment
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40. Sankar Thappa40 (2007) Securitization, Vinimaya, Vol.XXVII, No.2,
pp 60-63
41. John Ferry41: Dead in the Water? Risk.Net December 2008
42. V.S.Kaveri42

(2008)

Compliance

Risk

in

Banks:

Concept,

Assessment and Management, Vinimaya Vol.XXVIII, No 3, NIBM

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47. Usha Janakiraman47 (2008) From Sub-Prime Mortgage crisis to

Current Global Financial Crisis: An Analysis, Vinimaya, Vinimaya,
Vol.XXIX, No.3, Octobber-December pp 05-16
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No.3, Octobber-December pp 27-38
49. Naushad. M.Mujawar49 (2009) Management of NPAs in Urban
Cooperative Banks Professional Banker, Icfai Journal, Published
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50. Satish Chander Gupta50 (2009) Competition in Banking Sector:
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51. Amit Singh Sisodiya and Ramana Pemmaraju51 (2009) Indian
Banking Sector: Signs of Resilience The Analyst, Chartered
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52. Tarun Bhatia52 (2009) Healthy Capitalisation: Cushioning the
Crisis The Analyst, Chartered Financial Analyst, October, pp 5859, 62-63
53. R.Vaidyanathan53 (2009) Consolidation of Banks: Challenges
Ahead The Analyst, Chartered Financial Analyst, October, pp 6970 &72
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Professional Banker, Icfai Journal, Published by Icfai University
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330

55. Ghatponde55: Recovery of Bank loans an investigation into the

existing judicial process review of costs and time factors and
recommendations to The Indian Banks Associations, 1991-92
56. V.K. Sudhakar56: Bank of Baroda had submitted dissertation on the
subject of Policies and Perspectives of NPA Reduction in Public
Sector Banks to The Indian Banks Association, Mumbai, 1997-98.
57. Ranjana Kumar57 (2004) Move towards Risk Based Supervision of
Banks: The Role of the Central Banker and the Market Players,
Vinimaya, Vol. XXIV, No.1, NIBM Publication, pp 5-12
58. C.Rangarajan58 Governor, RBI, Speech at the Bankers Training
Centre of the Nepal Rashtra Bank Katmandu on 18th May 1997,
59. Dr.Bimal Jalan59, Governor RBI, in s speech titled Banking and
Finance in the New Millennium delivered at 22nd Bank Economists
Conference, New Delhi, and 15th February, 2001
60. G.P.Muniappan60, Deputy Governor, RBI at CII Banking Summit
2002 at Mumbai on April, 2002.
61. Research Report OF Fourth International Conference on Ethiopian
Economy61June (2006): A Study on Non-Performing Assets with
Special Reference to Commercial Banks Ethiopia
62. V.Leeladhar62, Deputy Governer, Reserve Bank of India at the
Seminar on Basel II: Implementation Challenges in Banks in
association with the Federal Reserve Bank New York, organised by
NIIBM on Jan 15th & 16th, 2007

331

63. RBI, Report of the Committee on banking Sector Reforms

(Narasimham Committee)
64. NABARD Report of the Committee on the Rural Credit, (V.S.Vyas
Committee),Mumbai
65. RBI Trend and Progress of Banking in India (Various Years)
66. Report of the various Committees

CHAPTER 4
1)

Sankar Thappa Securitization, Vinimaya, Vol. XXVII No.2, 20062007, pp 60

2)

Uday Bose SARFAESI Act: An Effective Recovery Tool,

Vinimaya, Vol.XXV, NO.4, pp 44

3)

Rajesh Mokashi, The Analyst: Chartered Financial Analyst,

October, 2009 ICFAI University Publication pp87.

4)

Ibid (3)

5)

Ibid (2)

6)

Mohan.R. Lavi, Scratching the Surface of SARFAESI, Article,

Financial Express, 2005

7)

Ibid (7)

8)

IBA Bulletin, July 2003

9)

Banerjee B.P. Guide to the SARFAESI Act, 2002, Wadhwa

Publication.

10) Vinimaya, June 2003, NIBM, Pune

332

11) Chalam (1999), Gopal, Securitization-General Principle, the

Management Account, October 1999.
12) Paramasivam Thirumoorthy, Future Flow Securitization- An
Innovative Financing Technique.
13) For Indian infrastructure Sector (2003), Management and
Accounting Research, Vol 7 Nos. 1&2, July December 2003.
14) Gordan, E and K. Natrajan (1997), Emerging Scenario of financial
Services, Himalaya Publication House, 1997
15) Guruswamy.S. (2004), Financial Services and Markets, Vijoy Nicole
Imprint Pvt. Ltd, 2004
16) Khan.M.Y. (2004), Financial Services, Tata McGraw Hill, 2004
CHAPTER 5
References:
1.

In the 1960s and 1970s the CRR was 5% but was raised to 15% in early
1991.The SLR was 25% in 1970 and was increased to 38.5% in 1991nearly to the level of its upper limit of 40%

2.

With respect to priority sector or directed lending, priority sector

target of 33% of total advances was introduced in 1974 with the ratio
gradually being raised to 40% in 1985.These were the sub-targets for
agriculture, small farmers weaker section credit.

3.

S.Khasnobis, (2006) NPAs: Emerging Challenges, Indian Banker, IBA

Publication, November 2006, Vol.I-No.11, pp17-20

4.

RBI report on Trend and Progress of banking in India: 1997-1998 pp27

5.

Nephis Law relating to Non Banking Financial Companies, A Nabhi

Publication, 1994, pp. 1, 3, 5

333

6.

Reserve Bank of India Bulletin, August 97, p. 591

7.

Machiraju H.R.: Indian Financial System, Vikas Publishing House Pvt.

Limited, 1998, p. 7.1

8.

CMIE, Monthly Review of Indian Economy, Dec. 1997, pp. 129-131.

9.

Reserve Bank of India Bulletin, July 1998, p. 581

10. CMIE, Monthly Review of Indian Economy, May 1999, pp. 119.
11. CMIE, Monthly Review of Indian Economy, June 1999, pp. 110.

CHAPTER 7
1.

Shete. N.B., Priority Sector Advances of Banks during the PostReform Period, Prajnan, VOL.XXXI, No. 1, 2002-2003, NIBM, Pune,
pp21-37

2.

Gulati, Ashok and Seema Bathla, Institutional Credit to Indian

Agriculture: Defaults and policy Options, Occasional paper 23,
NABARD, Mumbai, August 2002

3.

Shete. N.B. Agricultural Lending Revisited, Working Paper, NIBM,

Pune, September 2002

4.

Dr.M.S.Phogat, Housing Loan Frauds in banks, The Indian

Banker, VOL.I No 5, May 2006, pp 19-20

5.

Dr.Amrit Patel, Financing Small and Marginal Farmers, The

Indian Bankers, VOL.I-No 4, April 2006, 24-32

6.

Prasanta Kumar Mallik, Housing Loan Frauds in banks, The

Indian Banker, VOL.I- No 4, April 2006, 20-23

334

7.

RBI Guidance Note on Credit Risk Market, 12th October, 2002

8.

Bank for International Settlements Consultative Document, April

2003

9.

Dr.K.K.Ammannaya Managing Capital for Risk Coverage The

Indian Banker, Vol.III No 12, December 2008.

10.

The Analyst Chartered Financial Analyst the Icfai University

Press, October 2009

335