Analysis of NPA:Scheduled Commercial Banks

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Presented by Prem Lal Roll no. 639 6/13/12

Objective of the research

To study of the concept of Non Performing Asset in Indian perspective. To study NPA standard of RBI To study the Reasons for & Impact of NPAs To evaluate the efficiency in managing Non Performing Asset by different types of banks, i.e. Public, Private and foreign banks using NPA ratios & comparing NPA with profits To check the proportion of NPA of different types of banks in different categories.

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Research Design
The

research design that will be used is Descriptive Research. Involves gathering data that describe events and then organizes, tabulates, depicts, and describes the data. Use of visual aids such as graphs and charts to aid the reader

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DEFINITION OF NPAS

A NPA is a loan or an advance where;

Interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan, The account remains out of order in respect of an overdraft/ cash credit The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted The installment or interest remains overdue for two crop seasons in case of short duration crops and for one crop season in case of long duration crops

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Categories of NPAs

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Provisioning Norms

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EXTERNAL FACTORS CONTRIBUTING TO NPAS

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INTERNAL FACTORS CONTRIBUTING TO NPAS

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The RBI has summarized the factors contributing to higher level of NPAs

Diversion of funds, which is for expansion, diversification, modernization, undertaking new projects and for helping associate concerns. This is also coupled with recessionary trends and failures to tap funds in capital and debt markets. Business failures (such as product, marketing etc.), which are due to inefficient management system, strained labour relations, inappropriate technology/ technical problems, product obsolescence etc. Recession, which is due to input/ power shortage, price variation, accidents, natural calamities etc. The externalization problems in other countries also lead to growth of NPAs in Indian banking sector. Time/ cost overrun during project implementation stage. Governmental policies such as changes in excise duties, pollution control orders etc. Willful defaults, which are because of siphoning-off funds, fraud/ misappropriation, promoters/ directors disputes etc. Deficiency on the part of banks, viz, delays in release of limits and payments/subsidies by the Government of India.

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IMPACT OF NPAS ON OPERATIONS

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EARLY SYMPTOMS

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DATA ANALYSIS
NET

NPAs OF BANKS: 2000-01 to 2010-11

NET NPAs OF BANKS 12

10

8 (in Rs. crore)

0 years

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Composition of NPAs of public sector banks

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Composition of NPAs of Private Sector Banks

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COMPARISON OF NET NPA OF OLD AND NEW PRIVATE SECTOR BANKS: 2000-01 to 2009-10

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Classification of Loan Asset of Public Sector Banks in percentage

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Classification of Loan Asset of Private Sector Banks in percentage

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Classification of Loan Asset of Foreign Sector Banks in percentage

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Comparison of Net Profit and Net NPA -Public Sector Banks

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Comparison of Net Profit and Net NPA -Private Sector Banks

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Comparison of Net Profit and Net NPA -Foreign Banks

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Trend of Non-Performing Assets as percentage of Advances

Gross npa (in percent ) Net npa (in percent )

Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 20010-11

Public Private Foreig S n chedu Public Private Foreig S n chedu S ector S ector banks led S ector S ector banks led banks banks Comme banks banks Comme rcial rcial Banks Banks
12.37 11.09 9.36 7.79 5.53 3.64 2.66 2.23 1.97 2.19 2.23 8.37 9.64 8.07 5.84 3.77 2.45 2.17 2.47 2.89 2.74 2.25 6.84 5.38 5.25 4.62 2.85 1.95 1.77 1.75 3.8 4.26 2.54 11.4 10.4 9.1 7.2 5.2 3.29 2.51 2.25 2.25 2.39 2.25 6.74 5.82 4.53 2.98 2.06 1.32 1.05 0.99 0.94 1.09 1.09 5.44 5.73 4.95 2.84 1.85 1.01 0.96 1.09 1.29 1.01 0.56 1.82 1.89 1.76 1.49 0.86 0.83 0.97 1.21 1.81 1.82 0.67 6.2 5.5 4.5 2.9 2 1.22 1.01 1 1.05 1.11 0.97

Mean 5.55 S tandad deviation 3.93

4.61 2.84

3.73 1.7

5.29 3.59

2.6 2.13

2.43 1.98

1.38 0.47

2.5 1.98

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Recovery of Non Performing assets

Year

Lok Adalats Amount Involved

DRTs Involved

SARFAESI ACT Recovery Amount Involved 4735 3463 3020 3348 3133 3540 8517 9058 7263 12067 14249 10231 3363 3749 4429 3982 4269 3958

Total Recovery % Involved 16934 18972 15224 20220 31281 20526 8363 7318 7625 7426 7514 7649 49.38 38.57 50.08 36.72 24.02 37.26

Recovery Amount

Recovery Amount

2005-06 2144 2006-07 758 2007-08 2142 2008-09 4023 2009-10 7235 Average 3260

265 106 176 96 112 151

6273 9156 5819 4130 9797 7035

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Relationship between GDP Growth and NPA

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Relationship between real interest rate and NPA

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size and soundness of the indian banking sector

R eturn Bn a king on R eturn a sset to Inv estm on e G rosson GP D R A O nt Adv ness npa a s C AR R 7 .4 2 1 1 .0 7 .9 8 .1 5 .2 1 .8 2 7 .6 5 1 1 .0 7 .7 8 .2 3 .3 1 .3 2 8 .6 0 1 5 .0 7 .2 8 .9 2 .5 1 .3 2 8 .8 6 1 2 .1 7 .3 8 .9 2 .3 1 3 9 .8 3 1 3 .1 7 9 .9 2 .3 1 .2 3 9 2 1 5 .0 6 .6 9 .3 2 .4 1 .6 3 8 .5 3 1 .1 7 .3 9 .2 3 1 .8 2

y r ea 2 0 -0 04 5 2 0 -0 05 6 2 0 -0 06 7 2 0 -0 07 8 2 0 -0 08 9 2 0 -1 09 0 Av g era e sta rd nda dev tion ia

8 .7

0 5 .0

0 6 .4

0 5 .9

1 4 .1

0 1 .5

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MAJOR FINDINGS
The

fund blocked in as Gross NPA is huge i.e. amt 59926 crore during the year 2009-10. But there is no time frame and follow up to recover the blocked amount. The NPA level during the study period is quite alarming but it is positive sign to note that the percentage of NPAs is reducing i.e. it was 3.6 in 2005-06 and came down to 2.19 in 2009-10. The non performing assets came down considerably i.e. from 3.7 percent in 2005-06 to 2.1 percent in 2009-10. Indicating a positive trend of financial soundness.

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 Sector

wise analysis of NPAs shows that the proportion of NPAs for the priority sector loan has increased on an average i.e. 57.1 percent compared to 41.7 percent to non priority sector and only 0.94 percent to public sector. Specific recovery targets wise monthly, quarterly, and annually were fixed, but these targets neither monitored properly nor achieved regularly.

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SUGGESTIONS
Third

Basel Committee report on banking supervision should be completely implemented in regular practices of the bank IFRS accounting practices need to be adopted to have more transparent and effective accounting system. Introducing KYC norms effectively & client profile cards to have proper monitoring system. It is better to discourage too ambitious loan proposal where ambitious projects and over enthusiastic promoters involved, it may take longer gestation period to implement the project & which invents high risk.

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 NPAs

management cell can be constituted at Head Office and Branch Offices to monitor the cases. To look into the NPA Portfolio of every branch. The problem should be identified very early so that companies can try their best to stop an asset or A/C becoming NPA. Banks should evaluate the SWOT analysis of the borrowing companies i.e. how they would face the environmental threats and opportunities with the use of their strength and weakness, and what will be their possible future growth in concerned to financial and operational performance.
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