INTRODUCTION - Knowledge Hub
ABSTRACT
There are several other worries about the banking sector, mainly confusion over ownership and control. Sometime soon India will be forced to apply the norms of developed countries and many banks (including some of the biggest) will show very poor return ratios and dozens of banks will be bankrupt. When that happens, the two popular reasons to defend bad banks will disappear.
The historical performances of the stock prices are compared with the performance of the market (Nifty). Both the historical data of the stock prices and the market is used for analysis. The internal factors contributing for the performance of these specific stock prices is not included in the scope of the study. The scope of the study is confined to the performance of these specific stock prices in comparison to the prevailing market conditions.
A quantitative measure of the volatility of a given stock, mutual stock prices, or portfolio, relative to the overall market, usually the S&P 500. Specifically, the performance the stock, stock prices or portfolio has experienced in the last 5 years as the S&P moved 1% up or down. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile
CHAPTER – I
INTRODUCTION
INTRODUCTION:
The liberalization of financial sector in India is exposing Indian commercial banks in a new economic environment that has characterized by increased competition and new regulatory requirements. The paradign shift of attitude of finacial institutions towards the short term financing has also changed the complexion of scheduled commerical bank.The growing competition and sluggish growth in economy coupled with poor credit deposit ratio, the large volume of non-performing assets in the balance sheet and lack of automation and professionalization in operation have been flaring up the banking situation in the economy.The level of non-performing loans is recognised as an indicator for assessing banks credit risk,asset quality and efficiency in allocation of resources to productive sectors.The committee on financial system has expressed concern over the erosion in the quality of assets of which non-performing advances constitutes the bulk. The fund lock up in NPAs is not available for productive use.The present book is an attempt to diagnose assest quality and level of non performing assets of commercial banks with refernce to backward region.
It is a new area to dispose the NPLs in use of foreign capitals.We should provide a perfectly legal environment for that.re are five kinds of collaborations with foreign companies.And there are also ten main legal problems.We should solve the legal problems we are facing as quickly as possible.
Keywords: legal aspects of foreign non-performing assets disposal of
Keywords:: Foreign capitals NPLs Disposal Legal problems
With the accession to the WTO, China's opening up has entered a new stage, China's absorption and utilization of foreign investment areas and ways to enter a new stage. Absorption and utilization of foreign capital involved in the disposition of bad assets is a new field. Effective in attracting and utilizing foreign capital participation in the work of non-performing assets disposal, you can and learn from the advanced Experience of foreign countries and cultivate professional talents, deepening reform, expanding opening up the financial sector and improve the efficiency of non-performing assets disposal to promote the disposal of non-performing assets to work for China's financial asset management companies gain experience, the prospects are very broad.
Absorption and utilization of foreign capital in China in the past experience has shown that a good legal environment is an important guarantee for effective in attracting foreign investment. But the four financial asset management companies since the establishment of the practice has shown that the imperfections of the legal environment is increasingly becoming the progress and effects of restricting the disposal of assets one of the issues that the ability to dispose of non-performing assets to provide a sound legal environment has in fact become the rule of law the process of facing a test. To absorb foreign investment in order to regulate the disposal of assets Trade and Economic Cooperation, Ministry of Finance, Bank of China released the formulation of 'financial asset management companies to absorb foreign investment in asset restructuring and disposal of the Provisional Regulations' (hereinafter referred to as 'Provisional Regulations'), defined the state encourages absorption of foreign investment in non-performing assets disposal policy. However, 'Interim Provisions' no energy, but also because of their lower rank, the law and could not effectively address the absorption and utilization of foreign capital in the existing legal issues. Absorption of foreign investment in non-performing assets disposal, different from the traditional forms of foreign direct investment, there is specificity. Therefore, in order to effectively using foreign investment to participate in non-performing assets disposal, it is necessary well to address the disposal of non-performing assets in the use of foreign capital in the process of facing legal issues.
From a legal point of view, financial asset management company has a form of property assets include: claims against the debtor to enjoy and related security interest; equity; have the ownership or disposition of physical assets; have a disposition of intellectual property. Absorption and utilization of foreign capital disposal of non-performing assets, not only can take the traditional 'introduction to' the way, foreign-invested by foreign capital, according to Chinese law, to cooperate; also be taken to 'go out' the way, from financial asset management companies will invested in foreign assets in its possession in the local use of foreign investment, cooperation, which in addition to compliance with local laws relating to, but also abide by Chinese investment abroad requirements.
The specific use of foreign investment the way of cooperation: (a), will be equity, debt and the related security interests in the sale or transfer directly to the foreign investors; transferee become the new shareholders, creditors and beneficiaries of a security right. (B), to the transfer of financial assets management companies with foreign-owned physical assets. (C), in the original basis, financial asset management companies set up foreign-invested enterprises and foreign. (D), financial asset management companies to non-performing assets for investment, and foreign joint venture asset management companies and related services for the disposal of assets of the company or the establishment of foreign-owned service company, dispose of bad assets. (5), financial asset management companies to non-performing assets for investment purposes, the formation of joint ventures with foreign investment funds and fund management companies.
A high level of non-performing assets compared to similar lenders may be a sign of problems, as may an sudden increase. However this needs to be looked at in the context of the type of lending being done. Some banks lend to higher risk customers than others and therefore tend to have a higher proportion of non-performing debt, but will make up for this by charging borrowers higher interest rates, increasing. A mortgage lender will almost certainly have lower non-performing assets than a credit card specialist, but the latter will have higher spreads and may well make a bigger profit on the same assets, even if it eventually has to write off the non-performing loans.
NEED FOR THE STUDY
Indians need to be vigilant in the years to come for market opportunities particularly with the competition envisaged in thing sector. In 2000 and beyond, the key elements is that’s should strive to achieve significant increase productivity, efficiency and offs and accumulation of NPA As in their loan portfolio. The unfortunately high level NPAs are adversely affecting the profitability, liquidity and solvency position offing sector.
OBJECTIVES OF THE STUDY
The main objectives of the project study are to examine the position the NPAs in thing sector and the sub objectives of the study are as follows.
1. To study the causes and growth of NPA as INS.
2. To analyze the asset distribution pattern of these
3. To study the impact of NPA as one efficiency and probability.
4. To suggest ways to reduce NPA as.
SCOPE OF THE STUDY
The present study covers examination of policies and procedure of managing NPAs year wise NPAs consist of substandard, doubtful assets and loss assets.
And an attempt was made to suggest ways and means to improve the position to reduce of NPAs in the value.
DATA SOURCES AND METHODOLOGY
The present study is a case method of research needed data is collected from secondary sources such as reports and also taken by annual reports of ICICI ., for the period from
The collected data on NPAS this selected clarified, analyzed and tabulated systematic way for the data analysis various statically tools are employed such as tabulation, percentages, trend analysis and bar diagrams and comparative analysis.
LIMITATIONS OF THE STUDY
INCLUDE MORE POINTS
Though the present study is very comprehensive in nature it is subjected to the following limitations.
1. The study is based on secondary sources annual reports anding finance.
2. The study is limited only period of 6 years.
3. Geographical area is limited to HYD only.
CHAPTER – II
LITERATURE REVIEW
ASSET CLASSIFICATION AND NPA NORMS
ASSET CLASSIFICATION
While new private banks are careful about their asset quality and consequently have low non-performing assets (NPAs), public sector banks have large NPAs due to wrong lending policies followed earlier and also due to government regulations that require them to lend to sectors where potential of default is high. Allaying the fears that bulk of the Non-Performing Assets (NPA) was from priority sector, NPA from priority sector constituted was lower at 46 per cent than that of the corporate sector at 48 per cent.
Loans and advances account for around 40 per cent of the assets of SCBs. However, delay/default in payment of interest and/or repayment of principal has rendered a significant proportion of the loan assets non-performing. As per RBI‟s prudential norms, a Non-Performing Asset (NPA) is a credit facility in respect of which interest/installment has remained unpaid for
more than two quarters after it has become past due. “Past due” denotes grace period of one
month after it has become due for payment by the borrower.
Regulations for asset classification
Assets are classified into four classes - Standard, Sub-standard, Doubtful, and Loss assets. NPA consist of assets under three categories: sub-standard, doubtful and loss. RBI for these classes of assets should evolve clear, uniform, and consistent definitions. The banks should classify their assets based on weaknesses and dependency on collateral securities into four categories:
i. Standard Assets:
It carries not more than the normal risk attached to the business and is not an NPA. Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Here it is also very important that in this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end of financial year. If asset fails to be in category of standard asset that is amount due more than 90 days then it is NPA and NPAs are further need to classify in sub categories.
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ii. Sub-standard Asset:
A sub-standard asset is one which has remained NPA for a period less than or equal to 12 months from 31.3.2005. In such case the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.
Iii.Doubtful Assets:
With effect from 31.3.2005, an asset is to be classified as doubtful, if it has remained NPA for a period exceeding 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristics that the weaknesses make collection or liquidation in full, - on the basis of currently known facts, conditions and values- highly questionable and improbable. Under this category there are three stages:
D-I Doubtful up to one year
D-II Doubtful for further two years
D-III Doubtful beyond three years.
iv. Loss Assets:
An asset identified by the bank or internal/ external auditors or RBI inspection as loss asset, but the amount has not yet been written off wholly or partly. The banking industry has significant market inefficiencies caused by the large amounts of Non Performing Assets (NPA) in bank portfolios, accumulated over several years. Discussions on non-performing assets have been going on for several years now. One of the earliest writings on NPA defined them as "assets which cannot be recycled or disposed off immediately, and which do not yield returns to the bank, examples of which are: Overdue and stagnant accounts, suit filed accounts, suspense accounts and miscellaneous assets, cash and bank balances with other banks, and amounts locked up in frauds".
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Guidelines for the classification of assets
Classification of assets into above categories should be done taking into account the degree of well defined credit weaknesses and the extent of dependencies on collateral security for the Realization of dues.
Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs especially in respect of high value of accounts.
Account with temporary Deficiencies:
The classification of an asset as NPA should be based on the record of recovery. Bank should not classify an advance account as NPA merely due to the existence of some deficiencies, which are temporary in nature as such as non– availability of adequate drawing power based on latest stock.
Asset classification to be borrower– wise and not facility-wise:
It is difficult to envisage a situation when only one facility to a borrower becomes a problem credit and not others. Therefore, all the facilities granted by a bank to a borrower will have to be treated as NPA and not the particular facility or a part thereof, which has become irregular.
Advances under consortium arrangements:
Asset classified of accounts under consortium should be based on the record of recovery of the individual member banks and other aspects having bearing on the recoverability of the advances. Accounts where there is erosion in the value of security can be reckoned as significant when the realizable value of the security is less than 50 percent of the value assessed by the bank or accepted by RBI at the time of last inspection, as the case may be. Such NPAs may be straightway classified under doubtful category and provisioning should be made as applicable to doubtful assets.
[pic]MANAGING NPA:
The primary aim of any business is to make profits. Therefore, any asset created in the
course of the conduct of business should generate income for the business.
This applies equally to the business of banking. The banks the worlds over deal in money, by accepting deposits (liabilities) and out of such deposits (liabilities) lend/create loans (assets). If for any reason such assets created do not generate income or become sticky and difficult of recovery, then the very position of the banks in repaying the deposits (liabilities) on the due dates would be at stake and in jeopardy. Banks with such assets portfolio would become weak and naturally such weak banks will lose the faith and confidence of the investors.
With the introduction of prudential norms for income recognition, assets classification and provisioning, banks have become quite sensitive and are taking all possible steps to strengthen their assets acquisition and monitoring systems.
There is also a growing awareness to bring down non-performing assets as these are having adverse impact on their profitability due to de-recognition of interests as well as requirement of heavy loan loss provisions on such assets. Therefore it would be prudent for banks to manage their assets in such a manner that they always remain healthy, generate sufficient income and capable of repayment/recovery on the due dates.
Management of performing/non-performing assets in banks has become an `art and science' and virtually `a battle of wits' between the banker and the borrower with the latter demanding write off or at least a major sacrifice from the bankers side irrespective of whether he is in a position to pay or not.
Management of non-performing assets of the financial sector was put on fast track recently with the Union Cabinet approving the promulgation of an ordinance to facilitate securitization and reconstruction of financial assets.
Besides enabling banks and financial institutions to create a market for the securitized assets and improve their asset liability management, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance would also assist in setting up Asset Reconstruction Companies. Though this is a welcome development, the bankers have to do their basic homework and to utilize this opportunity to clean up and recover their dues at an early date.[pic][pic][pic]NPA MANAGEMENT2 0 10
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6. Agricultural Advances
7.
8. In respect of advances granted for agricultural purpose where interest and / or installment of principal remains unpaid after it has become past due for two harvest seasons but for a period not exceeding two half years , such an advance should be treated as NPA.
9.
10. Where the natural calamities impair the repaying capacity of agricultural borrowers, banks may decide on their own as a relief measure-conversion of the short–term production loan into a term or re-schedulement of the repayment period.
11.
12. In such cases of conversation or re-schedulement, the term loan as well as fresh short-term
13. loan may be treated as current dues and need not be classified as NPA.
14. Restructuring /rescheduling of loans:
15. A standard asset where the terms of the loan arrangement regarding interest and principal have been renegotiated or rescheduled after the commencement of production should be as sub- standard and should remain in such category for at least one year of satisfactory performance under the renegotiated or restructured terms. In case of substandard and doubtful assets also, rescheduling does not entitle a bank to upgrade the quality of advances automatically unless there is satisfactory performance under the rescheduled–renegotiated terms.
16. Exceptions :
17. As trading involves only buying and selling of commodities and the problems associated with manufacturing units such as bottleneck in commercial production, time and cost escalation etc. are not applicable to them.
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19. NPA MANAGEMENT2 0 10
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22. NPA Norms
23. Provisional Norms:
24. Banks will be required to make provisions for bad and doubtful debts on a uniform and consistent basis so that the balance sheets reflect a true picture of the financial status of the bank. The Narsimham Committee has recommended the following provisioning norms
25. (i) 100 per cent of loss assets or 100 per cent of out- standings for loss assets;
26. (ii) 100 per cent of security shortfall for doubtful assets and 20 percent to 50 per cent of the
27. secured portion; and
28. (iii) 10 per cent of the total out standings for substandard assets.
29. A provision of 1% on standard assets is required as suggested by Narsimham Committee II, 1998. Banks need to have better credit appraisal systems so as to prevent NPA from occurring. The most important relaxation is that the banks have been allowed to make provisions for only 30 per cent of the "provisioning requirements" as calculated using the Narsimham Committee recommendations on provisioning. The encouraging profits recently declared by several banks have to be seen in the light of provisions made by them. To the extent that provisions have not been made, the profits would be fictitious.
30. Disclosure Norms:
31. Banks should disclose in balance sheets maturity pattern of advances, deposits, investments and borrowings. Apart from this, banks are also required to give details of their exposure to foreign currency assets and liabilities and movement of bad loans. These disclosures were to be made for the year ending March 2000. In fact, the banks must be forced to make public the nature of NPA being written off.This should be done to ensure that the taxpayer‟s money given to the banks, as capital is not used to write off private loans without adequate efforts and punishment of defaulters.
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CHAPTER – III
COMPANY PROFILE
COMPANY PROFILE
ORGANISATION PROFILE:
A) INDUSTRIL PROFILE
B) COMPANY PROFILE
INTRODUCTION OF BANKING
“Bank is an institution whose Debts widely accepted in settlement of other people’s debts to each other”.
The banking company in India defined the Band , in the companies Act.1949, as the one “which transacts the business of banking which means the accepting for the purpose of lending to invests of deposits of money form the public. The deposits, which repayable on demand withdrawal by check, draft orders.
TYPES OF BANKING
Several types of banks have come in to existence performing different specialized functions based upon the functions performed by them; banks may be classified into different types;
1) COMMERCIAL BANKS:
They are a joint stock bank which acts as different kinds of deposits from the public and grant short term loans. There main aims Is to provide security of funds to depositors and make profits for their share holders. As their deposits are mainly for short periods, they can not lend money for long periods. They mainly finance business and trade for short periods to meet their day – to – day transactions. They may provide finance in the form of cash credits our drafts or loans. They also provide finance by discounting bills of exchange.
2) INDUSTRIAL BANKS
These banks are also called investment banks. They provide long terms finance to industries ranging over a few decades. They finance long term projects and developmental plans. T hey receives long term projects deposits from the public. They may also raise funds by the issue of shares debentures. They specialized in the undertake industrial finance the new issue of shares, debentures and securities of new enterprises.
3) AGRICULTURE BANKS
The commercial industrial banks are not able to meet the financial requirements of agriculture. Agriculture requires both short term and long term finance. Frames requires short term finance to buy seeds, fertilizers, implements etc.,
4) CO-OPERATIVE BANKS:
The banks are formed to supply credit to members on ea
sy terms. They do not aim at profit in their operations. They attract depositors from the farmers and promote thrift by offering slightly higher rates of interests than commercial banks. They provide credit facility to needy framers and small scale industries.
5) EXCHANGE BANKS:
The specialized in financing the import and export trade of the country. They purchase bills from exporters and sell them to importers. They provide remittance facilities and trade information to their clients.
6) SAVEINH BANKS:
These banks collect small and scattered savings of the low and middle income group people. These banks receive small amounts, deposits and withdrawals are restricted. Bank offer minimum interest on these deposits.
7) CENTRAL BANK:
The central bank controls the entire banking system in the country. It operates the currency and credit system in the country. It acts as an agent and adviser to the government and works in the best interests of the nation with out any profit motive in ts operations.
Historically, a bank has been a place where depositors could park money and borrowers could borrow. The typical spread of the bank was raising money through deposits and leading it to corporate clients. This made the relationship with the retail consumer rather passive. But with banks recognizing the power of the country’s middle class, this relationship is becoming very active.
The commercial banking structure in India consists of:
• Scheduled Banks in India
• Unscheduled Banks in India
Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which sof theriria laid down vide section42 (6)(a) of the act.
As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches. The scheduled commercial banks in India comprises of State bank of India and its associates (8), nationalized banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks.
“Scheduled banks in India” means the State Bank of India constituted under the State Bank of India Act,1955(23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies(Acquisition and Transfer of Undertakings) Act, 1970 (5 of1970), 223.18lakhs the main sources of the funds were long-term deposits were
“Under section 3 of the banking companies (acquisition and transfer of undertakings) act, 1980 (40 of 1980), or any other bank being a bank included in the second schedule to the reserve bank of India act, 1934 (2 of 1934), but does not include of a co-operative bank”.
“Non-schedule bank in India” means a banking company as in clause (c) of section 5 of the banking regulation act, 1949 (10 of 1949). Which is not a schedule bank”
The following are the schedule public sector banks in India:
● State bank of India
● State bank of banker and Jaipur
● State bank of Hyderabad
● State bank of Indore
● State bank of Mysore
● State bank of Patiala
● State bank of Saurashtra
● State bank of Travancore
● Andhra bank
● Allahabad bank
● Bank of Baroda
● Bank of India
● Bank of Maharashtra
● Canara bank
● Central bank
● Central bank of India
● Corporation bank
● Dean Bank
● Indian overseas bank
● Indian Bank
● Oriental Bank of Commerce
● Punjab National Bank
● Punjab State and Sind Bank
● Syndicate Bank of India
● Unit Bank of India
● UCO Bank
● Vijaya Bank
The Following are the scheduled private sector Banks in India:
● Vysya Bank Ltd
● UTI Bank Ltd
● Indusind Bank Ltd
● ICICI Banking Corporation Bank Ltd
● Global trust Bank Ltd
● ICICI Bank Ltd
● Bank of Punjab Ltd
● IDBI Bank Ltd
The following are the scheduled foreign banks in India:
● American Express Bank Ltd
● ANZ Gridlays Bank Ple
● Bank of America NT&SA
● Bank of Tokyo Ltd
● Baque National Plc
● Citi Bank N.C
● Deutsche Bank A.G
● Hong Kong and Shanghai Banking Corporation
● Standard Charted Bank
● The Chase Manhattan Bank Ltd
● Dresdner Bank A.G
Current scenario:
The Indian banking sector during the December quarter posted mixed results. Although this was on expected lines, some of the banks showed a huge variation. We have tried to understand the trend in the December quarter results. We have informed four analytic groups to understand the result pattern. These are the public sector (PSU), public sector ex-SBI, private sector and private sector ex-ICICI bank. Our universe of banks for the said study is as follows:
Top 10 large Banks in INDIA:
| | | |
|2005 Rank |2004 Rank |Bank |
| | | |
| | | |
|1 |1 |ICICI |
|2 |7 |HSBC |
|3 |3 |ANB Amro |
|4 |6 |Corporation bank |
|5 |15 |Andhra bank |
|6 |2 |City bank NA |
|7 |21 |Punjab national Bank |
|8 |9 |Standard charted |
|9 |13 |UTI Bank |
|10 |12 |Vysya bank |
(Source: KPMG Annual Bank Survey)
INSURANCE IN INDIA
The insurance sector in India has come a full circle from being on open competitive market to nationalization and back to a liberalized market again. Tracing the development in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.
A BRIET HISTORY OF THE INSURANCE SECTOR
The business of life insurance in India in its existing from started in India in the year 1818 with the establishment of the oriental life insurance company in Calcutta.
Some of the important milestones in the life insurance business in India are:
►1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.
►1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non – life insurance businesses.
COMPANY PROFILE
ICICI Bank is India’s second –largest bank with total assets of about ram esRs.1, 676.59 bn (US$ 38.5 bn) at March 31, 2005 and profit after tax of Rs. 20.05 bn (US$ 461 mn) for the year ended March 31,2005 (Rs. 16.37 bn(US $376 mn)in fiscal 2004).
ICICI Bank has a network of about 573 branches and extension counters and over 2,000 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the asset management.
ICICI bank set up its international banking group in fiscal 2002 to cater to the cross border needs of clients and leverage on its domestic banking strengths to offer products internationally. ICICI bank currently has subsidiaries in the United Kingdom, Canada and Russia, branches in Singapore and Bahrain and representative offices in the United States, China, United Arab Emirates, Bangladesh and South Africa.
ICICI Bank’s equity shares are listed in India on he Bombay Stock Exchange and the National Stock Exchange of India Limited and it American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).
History:
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was it’s wholly – owned subsidiary. ICICI’s shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank’s acquisition of Bank of Madura Limited in an all – stock amalgamation in fiscal 2001. And secondary market sale by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the world Bank, the Government of India and representatives of Indian industry.
Objective:
The principal objective was to create a development financial institution for providing medium-tem and ling – term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank
In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the firs Indian company and the first bank or financial institution from non – Japan Asia to be listed o the NYS
Structure:
After consideration of various corporate structuring alternatives in the context go the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI formed the view that the merger of ICICI Bank would be the optimal strategic alternative for the both entities, and would create the optimal legal structure for the ICICI Groups universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments systems and provide transaction banking service. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations , scam less access to ICICI‘ s strong corporate relationship built up over fie decades, entry into view business segments, higher market share in various business segments, particularly fee-based service, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the boards of Directors of ICICI retail finance subsidiaries, ICICI personal financial services limited and ICICI capital service Limited, with ICICI Bank.
ICICI Bank at the present scenario:
India has never had it good before booming economy reflects in the rise of SENSEX past the 10,000 mark, projections of an 8-plus percent GDP growth, the revival of manufacturing and rising foreign investments have delivered growth in the banking sector.
During the recent survey conducted by the KPMG with respect to the India’s top banks, ICICI bank holds its slot in the list of top banks.
Top 10 Banks By Growth In Business
|BANK |%Growth |
|UTI Bank |53 |
|ICICI Bank |47 |
|ABN Amro |38 |
|State Bank of Indore |34 |
|Allahabad Bank |32 |
|Oriental Bank Of Commerce |32 |
|ICICI Bank |30 |
|Nainital Bank |29 |
|Union Bank Of India |28 |
|State Bank of Mysore |27 |
(KPMG Annual Survey)
ICICI Bank Executive Director CHANDRA KOCHHAR the royal challenge award in February 2006 for standing 2nd in growth in Business. She says “Ninety Seven Per cent of request of are fulfilled with in our promised period”
TOP 10 BANKS BY GROWTH IN PAT
|BANK | |
| |%GROWTH |
|Centurion |459 |
|BNP Paribas |213 |
|American express Bank |170 |
|HSBC |71 |
|ICICI Bank |31 |
|Indian overseas Bank |27 |
|Punjab national Bank |27 |
|ICICI Bank |22 |
|UTI Bank |20 |
|Union Bank of India |19 |
ICICI Bank in News: Chairman Speaks
They say elephants dance. DUNDAPUR VAMAN KAMATH thinks otherwise. Since leading ICICI bank’s first foray into the retail business five years ago. Managing Director and CEO Klamath has turned ICICI Bank into the fastest growing bank in the industry. At Rs.62, 063 corers, the bank has the largest retail portfolio and is the leader in home and car loans. The most diversified universal ankh, it boasts more than 15 million customer accounts. 600 branches and a network of 2000 ATM’s across the country. Its life and general insurance subsidiaries have become the biggest private insurers in just five years. Similarly, ICICI bank’s asset management business, with a corpus of Rs. 22,600 corer, is among the fastest growing mutual funds and second only to UTI Mutual fund in terms of size.
In fact, the bank’s growth emanates from every business segment it is in. no wonder, it turns up as the fastest growing (large) bank on the study of best banks in India. ICICI bank’s growth be affected by a sudden tightening of liquidity? “Factors driving the growth in retail are very fundamental like affordability, rising income levels and the buoyancy in the overall economy.” Says Chanda Kochhar, executive director, ICICI Bank. Going forward, the bank is also betting big on its international operations. In just one year of its launch, ICICI Bank became the biggest Indian Bank in Singapore.. In the UK too, the bank has turned profitable in the first full years of its operations.
“The last four year have seen dramatic changes, making customer’s convenience a critical aspect of baking “. No wonder that banks are today emerging as payment gateways, investment advisors and providers of convenience. So whatever be your need spending or saving you can get it under a single roof. “Banking is an evolutionary process, and with more experience, banks will undergo greater change so as to evolve as transaction partners and advisors to their clients. And quality of service will be a key fermentation”. KV.KAMATH CEO
CHAPTER – III
CONCEPT OF NAPs
SIGNIFICANCE OF MANAGEMENT OF NPAS:
Managing of Non-performing assets (NPAs) is on of the most significant and complex tasks which the Indianan industry is facing high level of NPAs call of high provisioning for the same thus profitability and operation are severely affected. This makes further lending increasing difficult. The reasons for mounting of NPAs are non-recovery of loans which are categorized at NPAs. The non-recovery man by due top may reasons like default, draught, reasons, beyond control of borrower, lack of proper follow – up.
Beside, the Indian legal system is also on of the reason because it is empathically towards the borrowers and works against interred. Despite most of the loans being backed by securities are enable to enforce their claim on the collateral when the loan the “Non-performing assets”.
Banks whether they are public sector, private, sector they have to tackle non performing assets to ensure their performance and to lead the back with profits.
The managerial cadre capacity with in each organization ought to be improved and encouraged t able to take the responsibility for covering the dues and improving efficient management required autonomy and support to be ought to be provided. Inc case public sector lending and under government sponsored schemes rather ten fixing target, the need under the service areas of each branch should be assessed and purpose base lending should under taken.
It has been proved beyond doubt the NPAs is ought to be kept at the lowest level what needs to be addressed is the is saw to how recovery. This can be tackled from stage of initiation of loan.
Proposal and ought to be carried forward scrutinizing the merit of the proposal monitoring usage and development thought the compromise route has often been misused smaller is the cases with write off so also provisioning requirements have resulted in crating an even – greeting affect on loan lending further repay a loan to privet it form truing into an NPAs
A modest attempt has been it present study on management on NPAs in Icici .,
INTRODUCTION NON-PERFORMANCE ASSETS:
What is a performing asset?
A Loan /Advance asset is considered to be 'performing1 as long as prompt realization of the interest /installments fin case of term loans) which are credited to the advance account periodically.
What is a Non Performing Asset?
Loan/Advance assets will be deemed to be a Non-Performing Asset when there is
a) A default in payment of interest amounts OR
b) The repayment of principal (in case of Term Loans) has become past due or both remain unpaid for a period of two quarters or more.
SCOPE:
The scope of the study has been limited to the aspects of NPAs in ICICI only for the year 2009-10 and an attempt was made to suggest the ways and means to improve the position and reduce the level of NPAs in ICICI
PURPOSE:
The purpose of the study is to make an analysis of the NPAs in ICICI and to know why and how they should be reduced.
CALCULATION OF NPAs:
According to RBI directives, alls are required to maintain NPAs both on gross and net basis. It is generally express in the percentage term.
NPAS= [gross or net NPAs/total advances] X 100
Where net NPAS = Gross NPAs less provision for NPAs
NPA = Lower Amount/Total NPA*100
The aforesaid definition suggests that the ratio is designation as “non performing assets to total assets” but in reality it is worked but in case of credit only i.e. non performing credit is related to total credit.
Asset classification
The assets classification in to four categories, depending on the period the are laying as NPAs as under.
Standard assets: standard assets is one which does not disclose any problem and does not carry more then normal risk attached to the business such an assets is not an NPAs as discussed earlier.
Substandard assets: substandard assets are one, which has been classified as NPA for a period no it exceeding 18 months (IV) advance granted under rehabilitation packages.
Doubtful assets: A doubtful assets is one which has remained NPA for a period not exceeding 18 months sub-standard category where on account is DA category has been rescheduled, the account should be upgraded merely as a result of rescheduling, unless there is satisfactory compliance of the renegotiated of rescheduled terms for at least one year before up gradation.
For practical purposes, we need to have certain bench marks in this regard it has there fore then decided that asset should be treated as doubtful asset if the following criteria are satisfied.
The realizable value of tangible security plus the retainable / receivable portion ECGC cover, it available is less than 20% of the is the value of secured production as described above is 1 lacks other.
Loss asset: A loss asset is one where loss has been identify by the or internal or external auditors or the RBI inspectors but the amount has not been written off, wholly or partly in other works such as asset is considered un collective and of such little value that may be some salvage or recovery value. It is likely that thin could be come salvage value for the security available in a loan account which is now ever insignificant as compared to the total out standing whether the value of security in insignificant or not has to be decided on case –to – case basis if the realizable value of security, as assessed by the branch approved value / RBI inspection is less than 10% of the out standing in the borrow accounts, the existence of security should be ignored for the purpose of assets classification such an account should be classified as loss assets provided for fully.
➢ All those accounts in protested bill account where there is no tangible security / ECGC cover should be classified as loss assets and provision of 100% on out standing is to be made.
➢ Brought recalled debts accounts are supposed to the fully squared and ethnically speaking there should be no unsacred portion after the introduction of IRAC norms, personal watch of borrowers and guarantors is not to be reckoned for assessing security value accordingly many of borrower’s and guarantor’s net.
Summarized RBI Guide lines For NPAs Classification and Provision:
|NO’s |Assets Category |Provision to be held |
|1 |Standard |Nill |
|2 |Sub- standard(18 months) |10% |
|3 |On secured Portion of Doubtful Asset upto 1 years | |
| |1 year to 3 years |20% |
| |Over 3 years |30% |
| | |50% |
|4 |Loss Assets and Un-secured Portion of Doubtful Assets |100% |
Provisioning for Loans and Advances:
Taking into account the time lay between an account the lay between an account becoming doubtful to recovery its recognition, as such, the realization of the security and the erosion overtimes in the value of security charged to the, it has been decided that a provision should be made against, sub standard, doubtful and loss assets.
Which arriving at provisions in respect of doubtful and loss assets, balances in
1. Interest not collected account (INCA) and
2. Interest suspense account, if any and
3. It realized interest of previous year should be deducted for the O/s in a borrow account and provision on the remaining balance as per percentage indicate the table.
Provision of sub-standard accounts:
The branches could make a standard provision of 10% on sub standard assets without making any allowances.
Provision for doubtful Assets:
The realizable value of the security to which the has valid recourse is to be estimated on a realistic basis.
Net worth of borrower/ guarantor should not be taken for arriving at secure d portion.
The period of calculation of provision on secured portion of O/s should be reckoned on the basis to assets as NPA. However in respect of additional factors institutions, sanctioned under rehabilitations package approved by BIFR/term lending provision need not be made for a period of one year format the date of disbursement.
COMPREHENSIVE GUIDELINES:
POSTION PRIOR TO REPUDENTIAL NORMS:
The introduction of prudential norms, viz, incomes recognition, asset classification and provisioning is not a sudden development of surprise to the Indianan industry.
When the government of India had server balance of payment problems during early ninety, had pledged the gold reserves as a measure to meet the problems, TEMPORARILY AND A LONG TERM SOUTIONS TO PROBLEM, THE GOUVDRNMENT OF Indian had planed to liberalize the Indian economy and open it door for the forefingers to invest in Indian, thus to speed up the development process for the ailing Indian economy. In the process of liberalization of Indian economy, the government has been introducing a number of recommendations of various committees for control of financial sector of our economy for.
A) Ensuring great transparency maintains reputation and credit worthiness of Indians nationally and internationally.
B) Making the Indians competitive enough inter nationally.
C) Brining more transparency in the balance sheet of these.
In this process government has implemented the recommendations of:
1) chore committee
2) Narasimham committee
1) Chore committee: which suggested the restructuring of public account ofs.s on recommendations of the committee, the RBI is used instruction to all the commercials to prepare their accounts and compile final accounts in nourished formats from the year ending 31-03-1993 on wards.
2) Narsimham committee: Narsimham committee on financial sector which advocated for change in the accounts and policy in relation to income recognitions, asset classification and prevision bys. Accordingly, all the commercials have been following the prudential norms while preparing heir financial final accounts form, ear ended with 31-03-1993 once again, M. Narasimham was appointed as chairman of the second committee on financial sector 1996 review the reform process and suggest recommendations for future course of action.
INCOME RECOGNITION AND ASSET CLASSIFCATION NORMS:
The committee on financial system under the chairmanship of Sri. M. Narasimham recommended that the policy of income recognition should be objective and based on recovery rather then on any objective consideration. Like wise the classification of assets has to be shown on the basis of objective criteria which would ensure a unicorn a consistent application on norms.
As regards provisioning requirements the committee recommended that provision should be made on the basis of classification and RBI has introduced IRAC and provisioning norms form 1992-1993 in same areas than what has been stipulated by RBI.
IMPACT OF NPAs:
The impact of NPA on different financial parameters is stated below.
• NPAs reduce the earning capacity of assts and badly affect the Roa.
• Nonetheless, higher provisioning requirement on mounting NPAs is adversely affecting capital adequacy and also profitability.
• Since NPA is taken in to consideration for total advances and average income assets, these show a lower figure then the actual.
• ROA, ROE cost income and capital adequacy ratio calculations consider NPA.
• Cost of capital will increase due to NPAs and require economic value add. (EVA=Net operating profit After tax cost of capital)
• NPAs cause to decrease the value of shares some
• Theism even below their book value in the capital market.
CONSEQUENCES OF IMPACT OF NPAs INING OPERATIONS:
Contaminated portfolio is definitely lone for any. It puts a severe dent on the profitability of a where it is out of proportion-and the present figure of NPAs in the public sectors is well above the normal level. Thus the consequences envisaged during the past several years are many due to the presence of large NPAs.
Impact of NPAs operations:
• The interest income offs will fall as interest is to be accounted only on receipt basis.
• Banks profitability is affected adversely because of provisioning for doubtful/ writing off of bad debts.
• ROI (Return on investments) is reduced.
• Capital adequacy ratio is disturbed as NPAs enter in to be calculation.
• Cost of capital will go up
• Assets liability mismatch will widen
• EVA (Economic value addition) bys gets up set, because EVA is equal to
Net Operating profit minus cost of capital.
CAUSATIVE FACTORS AND EFFECTS OF NON-PERFORMING ASSETS:
CAUSATIVE FACTORS FOR NPAs:
In Indian context it would be instructive to know cause for the buildup of such high level of NPAs. The over regulated environment both in the real, as well as financial sector was on the main reasons.
However, the other important factors also revealed from a study conducted by RBI recently.
After studying about 800 top NPA accounts in 17s the RBI study has found the following in order of importance, to be the causative factor for loans turning in to NPAs.
1. Diversion of funds, mostly for expansion / diversification of business or for promoting associate concerns
2. Factors internal to business like product / marketing tailor, inefficient management, in appropriate technologies, labour unrest etc.
3. Changes in the macro environment like recession in fractures necks etc.
4. Time / cost over runs during project importance.
5. Changes in government policies (E.g. import duties) and.
6. Deficiencies like delay in release of sanctioned limits bys.
It is also revealed that the internal factors fan old weighed the external factors in accounts turning bad. The contribution of NPA burden offs was also significant from direct lending (nearly one fourth of total gross NPAs wear accounted by priority sectors advances) whereas had little control under the sponsored programs and here debt for giveness vitiated the repayment culture.
Reasons for growing NPAs:
There are some reasons for growing NPAs inning sector.
In priority sector advances:
a) Direct and per approved natives of loans sanctioned under sponsored programs.
b) Misutilization of loans and subsidies.
c) Diversion of funds
d) Absence of security
e) Lack of effective follow up (post-sanction supervision & control)
f) Absence offer uppity and fore closure laws.
g) Decrepit legal system
h) Cost in effective legal recovery measures
i) Difficulties in execution of Decrees obtained
j) Lack of marketing support.
In non-priority sector and advances:
a) Improper and inadequate credit appraisal
b) Demand recession
c) Frequent change in government policies
d) Industrial sickness and labor problems
e) Antiquate legal judicial system
f) Lack of legal reform (bank ruptcy, fore closure laws)
g) Division of funds
h) Will full default
i) Technology obsolescence
j) Incompetence management failures
k) Fear psychosis amongst and lack of effective follow up (policing of Assets bys)
l) Political compulsion and corruption.
While lenders have been making every possible effort for recovery of NPAs. It is the Indian legal system, which has failed them, as it is more geared to protect borrowers and not tenders where as borrowers can use 100 and one actics to delay recovery process, the creditors have practically no rights. As a result, their was nothing that a or F1 could do after money was disbursed to borrowers. It is often said, “In India, one can see companies and closed factor, but not sick promoter”.
CAUSES FOR NPAs:
One of the reasons for the accumulation of large port polio of NPAs with is that often lending are not linked to productive investment and the recovery of credit is not linked to product sale. The compounded by directed lending whereas is required to extent. Credit to meet targets stipulated by the government often disregarding the availability of their loans. Out of the total net NPAs of PF public sectors. For the year of 1996-97 the priority sector advances accounted for 47 percent of the total NPAs and non priority sector advances for the balance. The contamination of the portfolio of priority sector ending has effected the over all asset quality drastically because of poor performance of borrowers. The borrowers are mainly farmers and small scale industry owners whose financial conditions are generally bad. The volume of credit started in sick industries is the evidence of this malady. Some times have been providing loans to the sick industries this type of practice has been aggravating the situations.
Besides the faulty lending policy and compulsion from the Government to lend the priority sector there are many other causes which are responsible for the accumulation of NPAs. Many of these causes are related to faulty credit management like defective credit recovery mechanism, lack of professionalization ton in the work force, long time lag between sanctions and disbursement, unscientific repayments schedule and many others. On the other side the misutilisation of loans by the borrowers, untimely communication to the borrowers regarding their due date, lack of strong legal mechanism, political intervention at local level etc. Have also been contributing their chunk to the total stock of NPAs.
Possible if certain measures are taken:
1) Legal & regularly environment must be created to avoid NPAs.
2) This should be free to design & implants their own policies for recovery especially in case falling under the NPA category. According to the RBI an independent settlement advisory committee should be set up, headed by retired judge of high court to scrutinize and recommend proposal.
3) Specific guidelines should be is used to the public sectors for settlement of NPAs of small sector.
4) Lok Adalat institutions can help these to settle the disputes involving accounts in doubtful and loss category with out standing balance of rupees 5 lakhs for compromise settlement under Lok Adalats certain measures of faster leg process should be taken.
5) Circulation of information on defaulters – This will serve as a caution list while considering request for new additional credit limits from defaulting borrowing units.
6) The public sectors should be advise to examine all cases of default of rupee 1 crore above and file suits in such cases and file criminal cases in regard to willfull defaults.
7) NPA should be avoided in initial stages of credit consideration by putting in place appropriate credit appraisal mechanism.
8) The borrower should also realize their role and responsibilities. They should understand the difficulties of each other and should try to work towards contributing a health mechanism.
MANAGEMENT OF NPSs:
The quality of and performance of advances have a direct bearing on the profitability and viability offs. Despite an efficient credit appraisal and disbursement mechanism, problems can still arise due to various factors. The essential component of a sound NPA management system in quick identification of non-performing advances their containment at minimum levels and ensuring that their impingement on the financial in minimum.
“The approach to NPA management has to be multipronged, calling for different strategies at different stages a credit facility passes through RBIs guidelines to (issued in 1999) on Risk management systems outline the strategies to be followed for efficient management of credit port folio. I would like to touch upon a few essential aspects of NPA management in this study. Excessive reliance on collateral has led Indians now where expect to long drawn out litigation and hence it should be sole criterion for sanction above certain limits should be through committee which can assume the status of approval grid”.
We finds, which may be to a borrows/borrower group, which may be in short run but is equally fraught with risks should rather manage within the appropriate exposure limit. A linkage to net owned finds also needs to be developed to control high leverages at borrower level. Exchange of credit information amongst would be of immense help to them to avoid possible NPAs. There is no substitute for critical management information system and market intelligence.
METHODS AND MECHANISM FOR EFFECTIVE NPA
MANAGEMENT:
The Crux of management of NPA is to keep the quantum of grass NPA at a manageable level. In the process, the main focus areas are:
1) Reduction of Existing NPAs
2) Avoidance of fresh NPAs
METHODS AVAILABLE FOR REDUCTION OF EXISTING NPAs:
For achieving the corporate commitments a specific auction plan has to be formulated and implemented through recovery of loan amount is full in all NPAs in desired for elimination of NPAs it is neither possible in every case nor required inning business so depending on the nature of irregularity existing in an account. The required remedial / corrective action shall be formulated on case-to-case basis reduction of NPAs the top priority of our. The told are the four methods widely used bys for reduction of NPAs
1) Up graduation 2) Actual recovery 3) Compromise 4) Write Off
1) Up Graduation: Up graduation means the accounts in which recovery of PART amount will drive an a account out of NPA to the status of performing and standard among the available four methods for reduction of NPA, the up graduation methods shall be preferred as the account continuous to be the part of advancing port folio.
2) ACTUAL RECOVER: These are the accounts in which total dues / out standing are to be recovered to eliminate from NPA in other words all loans / advances which have become over due for payment in full e.g. group loans, AGIS & all demand loans which have become over due for payment in full e.g. group loans, AGIS & all demand loans which have become overdue.
3) COMPROMISE: The accounts where the borrower approaches the with an often to pay their dues and asking for some concessions such as waiver of penal interest. Reduction in rate interests then the contract rate payment of interest at simple rate instead of compound etc.
4) WRITE OFF: It is the resort for the for reduction of NPAs often write off the accounts will not reflect in the books of the but the will continue to have its right of recover.
AVOIDANCE OF FRESH NPAS:
a) IMPACT: Through substantial amounts are reduced from NPAs every year the gross NPA of the has been increasing substantially. This is largely an account of heavy incidence of fresh additions to NPAs in other words every year a substantial portion of standard assets are SLIPPING TO NPA category so as to keep the NPA of in at manageable level. There is an URGENT NEED to adjust incidence of NPA. Analysis of ICICI experience during last 3 years speaks to same. Had they restricted their additions during last 3 years their performance in terms of NPAs would have been much better and comfortable. It is also affect hitherto to importance and to as given for reduction of existing NPAs way not slipping of standard assets to NPA various strategies / procedures suggested wide point no under for monitoring of the following category of accounts may be ensured.
CURRENT STANDARD ASSETS:
1) The borrow accounts insert installments of principal are paid up to date.
2) BPA’s the borrowed accounts in which more than one quarter interest/installments are in arrears.
3) Fresh NPAs identified during the current year. These are the accounts, which are identified as NPAs during the current year.
SUBMISSIONS OF RETURNS:
We are living in the area of information. The work done by the branches and other field furchierories shall be reported in time to the head office. The return does carry much information timely submission of return (information) enables the head office to
1) Assets the actual performance with set estimates.
2) Keep the top management informed.
3) Furnish information RBI ministry etc.
Bank should ensure all the returns are submitted promptly accurately, neatly, correctly. All columns shall be filled in which out leaving wrong information is more dangerous them non-submission gaps do not serve the ultimate purpose.
1. Delayed submission gives head office the state information state information is of no use and treated as no information.
2. Timely corrective measures can not be initialized.
3. Huge amount are being spent to wards postage, telephone.
RECOVERY STRATEGIES/TOOLS:
The following are some other recovery tools, which can be used, in effective management of NPAs
1) Issuance of Notice and Reminders: It is an accepted fact that in our own interest borrower shall be given advance reminders and notices shall also be marked to the co-obligate guarantors.
2) Issuance of Registered Notices: In absence of proper response to the ordinary notice / reminder the branch shall send notice by registered post with acknowledgement.
3) Personal visits: The most effective tool of recovery is personal visit depending on the amount is valued the co-operative nature of borrower the personal visit any branches may be allocated.
4) Recovery camps: Recovery camps are on added Avenal to recovers due in accounts under schematic lending for this it is necessary to involve all the concerned the camps of viz., officer from revenue department MRO, DRDA, DIC and such other government agencies.
RESERVE OF INDIA GUIDELINES FOR RECOVERY OF NPAs:
Throughout (One line Settlement):
The RBI guidelines cover NPAs relating to all sectors including the priority sector the guidelines do not however cover cases of will full default. Fraud malfeasance These should identify causes of will full default fraud and malfeasance and initiate prompt action against them accordingly in modification of guidelines set out in RBI’s circular of 27th May 1999 revised guidelines issued for recovery dues relating to NPAs public sectors in all sectors this scheme was ended in 2000 with good results.
GUIDELINE FOR PREPARING NPA ACTION PLAN:
Segmentation Approach: There is no single formula for recovery of dues the branch should adopt a suitable recovery stately in each of the cases.
The recovery plan could be for reduction of on existing NPA account or for avoiding slipping of a standard asset to NPA studies conducted by various forums has the following are the responsible factors for accounts becoming NPA.
FACTORS ON ACCOUNT OF BORROWERS:
1) Failure of the activity/failure in achiever
2) Will full defaulters
3) Mis-management
4) Diversion funds
FACTORS ON ACCOUNT OF GOVERNMENT:
1) Change in government policies
2) Lapses of legal system and enforcement mechanism
3) Non-co-operation of government machinery in recoveries
4) Effect of agricultural debt relief
FACTORS ON ACCOUNT OFS:
1) Improper selection of borrowers and / or activity
2) Under Financing and un-timely financing
3) Poor / wrong credit appreciable
4) Poor / No credit appreciable
5) Lack of keeping regular touch with borrowers.
CHAPTER – IV
DATA ANALYSIS OF NPAs
CALCULATION OF NPA’S FOR THE YEAR 2007-08
|P/C |Amount |
|Classification of Assets | |
| | |
|Standard Assets |18959.13 |
|Sub-Standard Assets |4635.84 |
|Doubt full Assets |1864.66 |
|Loss Assets |31.95 |
| | |
|Total Classification of Assets |25491.58 |
| | |
| | |
|% of NPA’s of loans outstanding (653245/25491.58*100) |25.63% |
| | |
| | |
|Sector wise NPA’s | |
| | |
|Agricultural |5484.20 |
|Non Agricultural |1048.25 |
|Others (Specify) |Nil |
| | |
|Total Sector wise NPA’s |6532.45 |
| | |
|Activity wise NPA’s | |
| | |
|ST – SAO |3169.65 |
|ST – Others |5.58 |
|MT – Agricultural |353.73 |
|MT – Non Agricultural |1042.67 |
|LT – Agricultural |1960.82 |
|LT – Non Agricultural |Nil |
| | |
|Total Activity wise NPA’s |6532.45 |
CALCULATION OF NPA’S FOR THE YEAR 2008-09
|P/C |Amount |
|Classification of Assets | |
| | |
|Standard Assets |25208.54 |
|Sub-Standard Assets |2313.56 |
|Doubt full Assets |1369.93 |
|Loss Assets |34.75 |
| | |
|Total Classification of Assets |28926.75 |
| | |
| | |
|% of NPA’s of loans outstanding (3718.24/28926.78 * 100) |12.85% |
| | |
| | |
|Sector wise NPA’s | |
| | |
|Agricultural |3065.16 |
|Non Agricultural |653.08 |
|Others (Specify) |Nil |
| | |
|Total Sector wise NPA’s |3718.24 |
| | |
|Activity wise NPA’s | |
| | |
|ST – SAO |363.15 |
|ST – Others |5.58 |
|MT – Agricultural |98.92 |
|MT – Non Agricultural |932.07 |
|LT – Agricultural |2138.52 |
|LT – Non Agricultural |Nil |
| | |
|Total Activity wise NPA’s |3718.24 |
CALCULATION OF NPA’S FOR THE YEAR 2009-10
|P/C |Amount |
|Classification of Assets | |
| | |
|Standard Assets |25391.93 |
|Sub-Standard Assets |3764.39 |
|Doubt full Assets |1522.13 |
|Loss Assets |34.75 |
| | |
|Total Classification of Assets |30713.20 |
| | |
| |17.33% |
|% of NPA’s of loans outstanding (5321.27/30713.20*100) | |
| | |
| | |
|Sector wise NPA’s | |
| | |
|Agricultural |4692.49 |
|Non Agricultural |628.78 |
|Others (Specify) |Nil |
| | |
|Total Sector wise NPA’s |5321.27 |
| | |
|Activity wise NPA’s | |
| | |
|ST – SAO |1972.27 |
|ST – Others |5.50 |
|MT – Agricultural |72.57 |
|MT – Non Agricultural |880.60 |
|LT – Agricultural |2390.33 |
|LT – Non Agricultural |Nil |
| | |
|Total Activity wise NPA’s |5321.27 |
CALCULATION OF NPA’S FOR THE YEAR 2010-11
|P/C |Amount |
|Classification of Assets | |
| | |
|Standard Assets |25472.95 |
|Sub-Standard Assets |3712.54 |
|Doubt full Assets |1551.29 |
|Loss Assets |24.81 |
| | |
|Total Classification of Assets |30761.59 |
| | |
| |17.17% |
|% of NPA’s of loans outstanding (5281.84/30761.59*100) | |
| | |
| | |
|Sector wise NPA’s | |
| | |
|Agricultural |4661.10 |
|Non Agricultural |620.74 |
|Others (Specify) |Nil |
| | |
|Total Sector wise NPA’s |5281.84 |
| | |
|Activity wise NPA’s | |
| | |
|ST – SAO |1929.18 |
|ST – Others |5.40 |
|MT – Agricultural |71.45 |
|MT – Non Agricultural |885.48 |
|LT – Agricultural |2390.33 |
|LT – Non Agricultural |Nil |
| | |
|Total Activity wise NPA’s |5281.84 |
CALCULATION OF NPA’S FOR THE YEAR 2011-12(Estimated)
|P/C |Amount |
|Classification of Assets | |
| | |
|Standard Assets |33331.25 |
|Sub-Standard Assets |-3392.51 |
|Doubt full Assets |-945.50 |
|Loss Assets |-24.91 |
| | |
|Total Classification of Assets |37694.17 |
| | |
|% of NPA’s of loans outstanding (4362.82/37694.17*100) |11.57% |
| | |
|Sector wise NPA’s | |
| | |
|Agricultural |3761.98 |
|Non Agricultural |600.84 |
|Others (Specify) |Nil |
| | |
|Total Sector wise NPA’s |4362.82 |
| | |
|Activity wise NPA’s | |
| |1920.32 |
|ST – SAO |5.35 |
|ST – Others |70.42 |
|MT – Agricultural |800.63 |
|MT – Non Agricultural |1566.10 |
|LT – Agricultural |Nil |
|LT – Non Agricultural | |
| | |
|Total Activity wise NPA’s |4362.82 |
CALCULATION OF TOTAL NPAs
|P/C |2007-08 |2008-09 |2009-10 |2010-11 |2011-12(Estt.) |
| | | | | | |
|Classification of Assets | | | | | |
| |18959.13 |25208.54 |25391.93 |25472.95 |33331.25 |
|Standard Assets |4635.84 |2313.56 |3764.39 |3712.54 |-3392.51 |
|Sub-Standard Assets |1864.66 |1369.93 |1522.13 |1551.29 |945.50 |
|Doubt full Assets |31.95 |34.75 |34.75 |24.81 |24.91 |
|Loss Assets | | | | | |
| |25491.58 |28926.78 |30713.20 |30761.59 |37694.17 |
|Total Classification of Assets |25.63% |12.85% |17.33% |17.17% | |
| | | | | | |
|& of NPA’s Loans outstanding | | | | | |
| |5484.20 |3065.16 |4692.49 |4661.10 |3761.98 |
| |1048.25 |653.08 |628.78 |620.74 |600.84 |
|Sector wise NPA’s |Nil |Nil |Nil |Nil |Nil |
| | | | | | |
|Agricultural |6532.45 |3718.24 |5321.27 |5281.84 |4362.82 |
|Non Agricultural | | | | | |
|Others (Specify) | | | | | |
| |3169.65 |363.15 |1972.27 |1929.18 |1920.32 |
|Total Sector wise NPA’s |5.58 |5.58 |5.50 |5.40 |5.35 |
| |353.73 |98.92 |72.57 |71.45 |70.42 |
|Activity wise NPA’s |1042.67 |932.07 |880.60 |885.48 |800.63 |
| |1960.82 |2318.52 |2390.33 |2390.33 |1566.10 |
|ST – SAO |Nil |Nil |Nil |Nil |Nil |
|ST – Others | | | | | |
|MT – Agricultural |6532.45 |3718.24 |5321.27 |5281.84 |4362.82 |
|MT – Non Agricultural | | | | | |
|LT – Agricultural | | | | | |
|LT – Non Agricultural | | | | | |
| | | | | | |
| | | | | | |
|Total Activity wise NPA’s | | | | | |
ANALYSIS
From the above figures it is clear that the standard assets have been continuously increasing for the last 4 years at a said rate.
Standard Assets for the Year 2009-10 = 25472.95
(-) Standard Assets for the year 2004-2005 = 18959.13
6513.82
Standard assets have improved by 25.57% (6513.82/25472.95 *100)
Substandard Assets
The substandard assets have reasonably decreased from the year 2004 to 2008.
Substandard Assets for the year 2010-11 = 3712.54
(-)Substandard for the year 2007-08 = 4635.84
923.3
Substandard Assets have decreased by 19.92 (923.3/4635.84*100)
Doubtful Assets
The Doubtful assts have reasonably decreased from the year 2004 to 2008
Doubtful assets for the year 2010-11 = 1551.29
(-) Dobutful assets for the year 2007-08 = 1864.66
313.37
Doubtful assets have decreased by 16.81% (313.37/1864.66*100)
Loss Assets
The loss assts have reasonably decreased from the year 2004 to 2008
Loss Assets for the year 2010-11 = 24.81
(-) Loss Assets for the year 2007-08 = 31.95
07.14
Loss assets have decreased by 22.35% (07.14/31.95*100)
% of NPA’s 2007-08
1) Classification of Assets
|P/C |Loans O.S |Standard |Substandard |Doubtful debts |Loss Assets |Total NPA (4+5+6) |
|Amount |25491.52 |18959.13 |4635.84 |1864.66 |31.95 |6532.45 |
|Percentages |25.63% |34.45% |70.96% |25.54% |0.48% |Nil |
A. Sector Wise NPAs
|P/C |Agricultural |Non Agricultural |
|Amount |5484.20 |1048.25 |
|Percentage |83.95% |16.05% |
B Activity – Wise NPA’s
|P/C |ST Loans |ST Others |MT (Agri) |MT (Non Agri) |LT (Agri) |LT (Non Agri) |
|Amount |25491.52 |18959.13 |4635.84 |1864.66 |31.95 |6532.45 |
|Percentages |25.63% |34.45% |70.96% |25.54% |0.48% |Nil |
% of NPA’s 2008-09
2) Classification of Assets
|P/C |Loans O.S |Standard |Substandard |Doubtful debts |Loss Assets |Total NPA (4+5+6) |
|Amount |28927.32 |25208.54 |2313.54 |1369.9.3 |34.75 |3718.24 |
|Percentages |12.85% |17.75% |62.22% |36.84% |0.93% |Nil |
A.ector Wise NPAs
|P/C |Agricultural |Non Agricultural |
|Amount |3065.16 |653.08 |
|Percentage (%) |82.44 |17.56 |
B Activity – Wise NPA’s
|P/C |ST Loans |ST Others |MT (Agri) |MT (Non Agri) |LT (Agri) |LT (Non Agri) |
|Amount |363.15 |5.58 |98.92 |832.07 |2318.52 |Nil |
|Percentages |9.76 |0.15 |2.66 |22.37 |62.35 |Nil |
% of NPA’s 2009-10
3) Classification of Assets
|P/C |Loans O.S |Standard |Substandard |Doubtful debts |Loss Assets |Total NPA (4+5+6) |
|Amount |30713.20 |25391.93 |3764.39 |1522.13 |34.75 |5321.27 |
|Percentages |17.33 |20.95 |70.74 |28.60 |0.65 |Nil |
a. Sector Wise NPAs
|P/C |Agricultural |Non Agricultural |
|Amount |4692.49 |628.78 |
|Percentage |88.18 |11.82 |
B Activity – Wise NPA’s
|P/C |ST Loans |ST Others |MT (Agri) |MT (Non Agri) |LT (Agri) |LT (Non Agri) |
|Amount |1972.27 |5.50 |72.57 |880.60 |2390.33 |6532.45 |
|Percentages (%) |37.06 |0.10 |13.36 |16.55 |44.92 |Nil |
% of NPA’s 2010-11
4) Classification of Assets
|P/C |Loans O.S |Standard |Substandard |Doubtful debts |Loss Assets |Total NPA (4+5+6) |
|Amount |30761.59 |25472.95 |3712.54 |1551.29 |24.81 |5288.64 |
|Percentages |17.19 |20.76 |70.19 |29.33 |0.45 |Nil |
a. Sector Wise NPAs
|P/C |Agricultural |Non Agricultural |
|Amount |4661.10 |620.74 |
|Percentage |88.13% |11.74% |
B Activity – Wise NPA’s
|P/C |ST Loans |ST Others |MT (Agri) |MT (Non Agri) |LT (Agri) |LT (Non Agri) |
|Amount |1929.18 |5.40 |71.45 |885.48 |2390.33 |Nil |
|Percentages |36.47 |0.10 |1.35 |16.74 |45.19 |Nil |
% of NPA’s 2011-12 (Estimated)
5) Classification of Assets
|P/C |Loans O.S |Standard |Substandard |Doubtful debts |Loss Assets |Total NPA (4+5+6) |
|Amount |37694.57 |33331.25 |-3392.51 |-945.50 |-24.91 |4362.92 |
|Percentages |11.57 |13.09 |77.76 |21.67 |0.06 |Nil |
a. Sector Wise NPAs
|P/C |Agricultural |Non Agricultural |
|Amount |3761.98 |600.84 |
|Percentage |86.23 |13.77 |
B Activity – Wise NPA’s
|P/C |Loans O.S |Standard |Substandard |Doubtful debts |Loss Assets |Total NPA (2+3+4) |
|Amount |1926.32 |5.35 |70.42 |800.63 |1566.10 |Nil |
|Percentages |44.01 |0.12 |16.14 |18.35 |35.86 |Nil |
Graphical Representation of 2007-08
Analysis of NPA’s
The figure regarding for the year 2007-08 the total NPS to Substandard Assets is 70.96%, Doubtful Debts 28.54%, and Losses Assets 0.48%
Graphical Representation of 2008-09
Analysis of NPA’s
The figure regarding for the year 2008-09 the total NPS to Substandard Assets is 62.25%, Doubtful Debts 36.84%, and Losses Assets 0.93%
Graphical Representation of 2009-10
Analysis of NPA’s
The figure regarding for the year 2009-10 the total NPS to Substandard Assets is 70.74%, Doubtful Debts 28.60%, and Losses Assets 0.65%
Graphical Representation of 2010-11
Analysis of NPA’s
The figure regarding for the year 2010-11 the total NPS to Substandard Assets is 70.19%, Doubtful Debts 29.33%, and Losses Assets 0.46%
Graphical Representation of 2011-12 (Estimated)
Analysis of NPA’s
The figure regarding for the year 2011-12 the total NPS to Substandard Assets is 76.19%, Doubtful Debts 21.67%, and Losses Assets 0.06%
1
CHAPTER – V
SUGGESTIONS &
CONCLUSIONS
SUGGESTIONS
➢ In order to reduce or manage the NPAs and accounts should be indentified at an early stage and steps to be taken so that is should not become NPA.
➢ To collect 100% of current demand is to be collected (standard 2.5)
➢ To collect 100% of arrears interest on over dues
➢ To collect 100%S.T. and L.T arrears demand by availing the financial assistance extended by STATE and CENTRAL GOVERNMENT
➢ It can be done in two ways
a) Either by financing some more money so that the unit function well (nursing)
b) The internal surplus should be more so that loans can be repaid.
➢ It a defaulter is willful defaulter immediate legal action should be taken.
➢ False or ambiguous statements by political leaders should be condemned by RBI and organizations of public interest like losatta.
➢ RBI guidelines and recovery strategies should be followed adequately in order to increases the performance offs.
➢ The last and most suggestion:- To Insure no new NPAs are added
CONCLUSION
According to the analysis the following conclusions are made.
➢ We can observe this report loss assets are year by year decreased. So position is health sign. Because of standard assets are increasing.
➢ Bank was must be concentrated on the Agricultural purpose. Because of analysis of 2005to 2006. 83.95% in 2005 to 2006, 82.44% in 2006 to 2006, 88.18% in 2007 to 2008, 88.13% in 2009 to 2010.
➢ Low concentrated on the non agricultural purpose.
FINDINGS
The year 2010-11 the total NPS to Substandard Assets is 70.19%, Doubtful Debts 29.33%, and Losses Assets 0.46%.
Implementation of as a Risk Management tool is done using maturity profiles and NAP analysis.
NPA technique is aimed to tackle the market risks. Its objective is to stabilize and improve Net present value
Increasing the value of NPA five years.
Low concentrated on the non agricultural purpose.
The should strengthen its management information system (MIS) and computer processing capabilities for accurate measurement of liquidity and interest rate Risks in their Books.
BIBLIOGRAPHY
Banking Law and Practice : P.N. Varshney
Indian Financial Systems : H.R. Macharaju
Reports:
1. Annual Report of ICICI
2. The management Accountant [ICWAI] Annual Reports
Website:-
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