Download Download PDF. Translate PDF. The economic future of the country is wholly dependent on banking sector. The problem of NPA show signs of "persistent bane of hitherto developmental policies". The significance of the paper is expected to be an immense use to fulfill consumer needs and facing competition with other banks.
This study provides the information related to solve NPA problem. The study uses the annual reports of SBI for the period of year to The study has been analyzed by using tables and coefficient of correlation. The dreaded NPA rule says simply this: when interest or other due to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non performing asset [1].
The recovery of loan has always been problem for banks and financial institution [1]. To come out of these first we need to think is it possible to avoid NPA, no cannot be then left is to look after the factor responsible for it and managing those factors [3]. Accordingly, with effect from March 31, , a non-performing asset NPA shall be a loan or an advance where [1]; i. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted.
But for a period not exceeding two half years in the case of an advance granted for agricultural purposes. He revealed the importance of sound understanding of macroeconomic variables and strong legal and legislative framework.
Certificate by Bank 2 4. This study has not been submitted to any other Institution or University for award of any other degree. I am thankful to and owe a deep dept gratitude to all those who have helped me in preparing this report.
Words seem to be inadequate to express my sincere thanks to Mr. Pardeep Kumar for his valuable guidance, constructive criticism, untiring efforts and immense encouragement during the entire course of the study due to which my efforts have been rewarded.
I would also like to thank Mr. Ajaib Singh Branch Manger , Mr. Jagdesh, Dept. Manager , Mr. Pardeep Mittal, Assist. Manager , who gave me an opportunity to learn the recurring acknowledgement of what is working in our lives that can help us not only to survive but surmount ours difficulties.
I am highly obliged to those who had helped me to procure primary data to complete my project. Also not to be forgotten all the Lecturers of MBA who contributed their ideas and suggestions.
I want to thank all who have supported me and gave their timely guidance. Last but not least I am very grateful to all those who helped me in one-way or the other way at every stage of my work. Parneet Kaur 4 6. Preface Summer training is a very important part of an MBA curriculum. This report is the knowledge acquired by me during this period of training.
NPAs are becoming very important topic for banks. Because it affects the financial position of any bank or any financial institution. So, as a finance student I have got this topic to study and make my report.
I have tried my best to make this report. Contents Page No. Owing to the low levels of profitability, banks owned funds had to be strengthened by repeated infusion of additional capital by the government. The introduction of prudential norms strengthen the banks financial position and enhance transparency is considered as a milestone measure in the financial sector reform. These prudential norms relate to income recognition, asset classification, provisioning for bad and doubtful debts and capital adequacy.
To study the recovery procedures of State Bank of Patiala. To examine how far the bank has been successful in reducing the NPA level.
To suggest measures for efficient management of NPAs. The major limitation of the study was the paucity of time. Even then, maximum care has been taken to arrive at appropriate conclusion. It was also sourced from the secondary data. Introduction 9 Introduction A strong banking sector is important for flourishing economy.
One of the most important and major roles played by banking sector is that of lending business. It is generally encouraged because it has the effect of funds being transferred from the system to productive purposes, which also results into economic growth.
As there are pros and cons of everything, the same is with lending business that carries credit risk, which arises from the failure of borrower to fulfill its contractual obligations either during the course of a transaction or on a future obligation. 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 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 high level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade. This project deals with understanding the concept of NPAs, its magnitude and major causes for an account becoming non-performing, projection of NPAs over next years in banks and concluding remarks.
The magnitude of NPAs have a direct impact on Banks profitability legally they are not allowed to book income on such accounts and at the same time banks are forced to make provisions on such assets as per RBI guidelines The RBI has advised all State Co-operative Banks as well as the Central Co-operative Banks in the country to adopt prudential norms from the year ending These have been amended a number of times since As per their guidelines the meaning of NPAs, the norms regarding assets classification and provisioning Its now very known that the banks and financial institutions in India face the problem of amplification of non-performing assets NPAs and the issue is becoming more and more unmanageable.
In order to bring the situation under control, various steps have been taken. Among all other steps most important one was the introduction of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, by Parliament, which was an important step towards elimination or reduction of NPAs.
An asset is classified as non-performing asset NPAs if dues in the form of principal and interest are not paid by the borrower for a period of days, However with effect from March , default status would be given to a borrower if dues are not paid for 90 days. The NPA level of our banks is way high than international standards. Indian banks should take care to ensure that they give loans to credit worthy customers.
Introduction of Banking Bank A financial institution that is licensed to deal with money and its substitutes by accepting time and demand deposits, making loans, and investing in securities. The bank generates profits from the difference in the interest rates charged and paid. The development of banking is an inevitable precondition for the healthy and rapid development of the national economic structure.
Banking institutions have contributed much to the development of the developed countries of the world. Today we cannot imagine the business world without banking institutions.
Banking is as important as blood in the human body. Due to the development of banking advances are increased and business activities developing so it is rightly said, " The development of banking is not only the root but also the result of the development of the business world. Due to considerable efforts of the government, today we have a number of banks such as Reserve Bank of India, State Bank of India, nationalized commercial banks, Industrial Banks and cooperative banks.
Indian Banks contribute a lot to the development of agriculture, and trade and industrial sectors. Even today the banking system of India possess certain limitations, but one cannot doubt its important role in the development of the Indian economy. Early history Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India which started in , and the Bank of Hindustan, both of which are now defunct.
The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June , which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company.
For many years the Presidency banks acted as quasi-central banks, as did their successors. Banking in India Currently, India has 96 scheduled commercial banks SCBs - 27 public sector banks that is with the Government of India holding a stake , 31 private banks these do not have government stake; they may be publicly listed and traded on stock exchanges and 38 foreign banks.
They have a combined network of over 53, branches and 49, ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding It is believed that the transition from money lending to banking must have occurred even before Manu, the great Hindu Jurist, who has devoted a section of his work to deposits and advances and laid down rules relating to rates of interest.
During the Mogul period, the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company, it was the turn of the agency houses to carry on the banking business.
The others which followed were the Bank of Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have continued till while the other two failed in the meantime. In the first half of the 19th century the East India Company established three banks; the Bank of Bengal in , the Bank of Bombay in and the Bank of Madras in These three banks also known as Presidency Banks were independent units and functioned well.
These three banks were amalgamated in and a new bank, the Imperial Bank of India was established on 27thJanuary On July 19, , 14 major banks of the country were nationalized and in 15th April six more commercial private sector banks were also taken over by the government. Banking in India Structure of the organized banking sector in India. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June The bank was redesigned as the Bank of Bengal, three years later, on 2 January It was the first ever joint- stock bank of the British India, established under the sponsorship of the Government of Bengal.
These three banks dominated the modern banking scenario in India, until when they were amalgamated to form the Imperial Bank of India, on 27 January An important turning point in the history of State Bank of India is the launch of the first Five Year Plan of independent India, in The Plan aimed at serving the Indian economy in general and the rural sector of the country, in particular.
Until the Plan, the commercial banks of the country, including the Imperial Bank of India, confined their services to the urban sector. Moreover, they were not equipped to respond to the growing needs of the economic revival taking shape in the rural areas of the country. Therefore, in order to serve the economy as a whole and rural sector in particular, the All India Rural Credit Survey Committee recommended the formation of a state-partnered and state-sponsored bank.
The All India Rural Credit Survey Committee proposed the take over of the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks.
Subsequently, an Act was passed in the Parliament of India in May This resulted in making the State Bank of India more powerful, because as much as a quarter of the resources of the Indian banking system were controlled directly by the State.
The Act enabled the State Bank of India to make the eight former State-associated banks as its subsidiaries. The State Bank of India emerged as a pacesetter, with its operations carried out by the offices comprising branches, sub offices and three Local Head Offices, inherited from the Imperial Bank. Instead of serving as mere repositories of the community's savings and lending to creditworthy parties, the State Bank of India catered to the needs of the customers, by banking purposefully.
The bank served the heterogeneous financial needs of the planned economic development. In order to cater to different functions, there are several other establishments in and outside Mumbai, apart from the corporate center. The bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major cities throughout India.
It is recorded that SBI has about branches, well networked to cater to its customers throughout India. Subsidiaries The State Bank Group includes a network of eight banking subsidiaries and several non-banking subsidiaries. Through the establishments, it offers various services including merchant banking services, fund management, factoring services, primary dealership in government securities, credit cards and insurance.
During the time of the establishment, the state owned Bank was known as Patiala State Bank. It was set up for the purpose of promoting the growth of agriculture, trade and industry. Since it was renamed, SBP has grown significantly in terms of its size and the volume of business. It is now one of the prominent Banks of India.
Another milestone in the history of SBP was the computerization of all its branches on 24 January Recent records say that State Bank of Patiala is networked by its service outlets. The Bank provides easy access to money to its customers through its ATMs spread over 16 states of India.
Within four years of coming into existence, the country partitioned, the Bank shifted its Registered Office from Lahore to Amritsar. The Oriental Bank of Commerce was nationalized on 15th April , and paved its way to count amongst the strongest banks in India. The bank started its operations in Lahore, Pakistan. Oriental Bank has gone through a lot of upheavals but it managed to overcome those disruptions. The time period of to was the most difficult period in the history of Oriental Bank of Commerce.
Oriental Bank of Commerce was nationalized in Currently, it is one of the most efficiently performing banks in India. Oriental Bank of Commerce is known for its minimum staff expenditure against maximum productivity in the banking sector. The bank has 1, branches in all and more than 1, ATMs. Total business of OBC has crossed Rs. To browse Academia. Log in with Facebook Log in with Google. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link.
Need an account? Click here to sign up. Download Free PDF. Hetal Dhaduk. A short summary of this paper. We have tried to fulfill all the requirements to prepare this report, suggestions from the guide, colleagues, etc. It gives us immense pleasure to present this project report. It is of great opportunity for management students to acquire knowledge about impact of NPA on private sector bank. First of all we would like to pay my gratitude to our Dean Dr. In order to bring the situation under control, some steps have been taken recently.
However with effect from March , default status would be given to a borrower if dues are not paid for 90 days. In fact after it had emerged the problem of NPA kept hidden and gradually swelling unnoticed and unperceived, in the maze of defective accounting standards that still continued with Indian Banks up to the Nineties and opaque Balance sheets.
In a dynamic world, it is true that new ideas and new concepts that emerge through such changes caused by social evolution bring beneficial effects, but only after levying a heavy initial toll. The process of quickly integrating new innovations in the existing set-up leads to an immediate disorder and unsettled conditions. People are not accustomed to the new models. These new formations take time to configure, and work smoothly.
The old is cast away and the new is found difficult to adjust. Marginal and sub-marginal operators are swept away by these convulsions. Banks being sensitive institutions entrenched deeply in traditional beliefs and conventions were unable to adjust themselves to the changes. They suffered easy victims to this upheaval in the initial phase. Consequently banks underwent this transition-syndrome and languished under distress and banking crises surfaced in quick succession one following the other in many countries.
But when the banking industry in the global sphere came out of this metamorphosis to re-adjust to the new order, they emerged revitalized and as more vibrant and robust units. Deregulation in developed capitalist countries particularly in Europe, witnessed a remarkable innovative growth in the banking industry, whether measured in terms of deposit growth, credit growth, growth intermediation instruments as well as in network.
During all these years the Indian Banking, whose environment was insulated from the global context and was denominated by State controls of directed credit delivery, regulated interest rates, and investment structure did not participate in this vibrant banking revolution. Suffering the dearth of innovative spirit and choking under undue regimentation, Indian banking was lacking objective and prudential systems of business leading from early stagnation to eventual degeneration and reduced or negative profitability.
Continued political interference, the absence of competition and total lack of scientific decision-making, led to consequences just the opposite of what was happening in the western countries.
Imperfect accounting standards and opaque balance sheets served as tools for hiding the shortcomings and failing to reveal the progressive deterioration and structural weakness of the country's banking institutions to public view. This enabled the nationalized banks to continue to flourish in a deceptive manifestation and false glitter, though stray symptoms of the brewing ailment were discernable here and there.
The government hastily introduced the first phase of reforms in the financial and banking sectors after the economic crisis of This was an effort to quickly resurrect the health of the banking system and bridge the gap between Indian and global banking development. Import restrictions were gradually freed. Tariffs were brought down and quantitative controls were removed. The Indian market was opened for free competition to the global players. The new economic policy in turn revolutionalised the environment of the Indian industry and business and put them to similar problems of new mixture Of opportunities and challenges.
As a result we witness today a scenario of banking, trade and industry in India, all undergoing the convulsions of total reformation battling to kick off the decadence of the past and to gain a new strength and vigor for effective links with the global economy. Many are still languishing unable to get released from the old set-up, while a few progressive corporate are making a niche for themselves in the global context.
During this decade the reforms have covered almost every segment of the financial sector. In particular, it is the banking sector, which experienced major reforms.
The reforms have taken the Indian banking sector far away from the days of nationalization. Increase in the number of banks due to the entry of new private and foreign banks; increase in the transparency of the banks' balance sheets through the introduction of prudential norms and norms of disclosure; increase in the role of the market forces due to the deregulated interest rates, together with rapid computerization and application of the benefits of information technology to banking operations have all significantly affected the operational environment of the Indian banking sector.
In the background of these complex changes when the problem of NPA was belatedly recognized for the first time at its peak velocity during , there was resultant chaos and confusion. As the problem in large magnitude erupted suddenly banks were unable to analyze and make a realistic or complete assessment of the surmounting situation.
It was not realized that the root of the problem of NPA was centered elsewhere in multiple layers, as much outside the banking system, more particularly in the transient economy of the country, as within. Banking is not a compartmentalized and isolated sector delinked from the rest of the economy. As has happened elsewhere in the world, a distressed national economy shifts a part of its negative results to the banking industry.
The unprepared ness and structural weakness of our banking system to act to the emerging scenario and de-risk itself to the challenges thrown by the new order, trying to switch over to globalization were only aggravating the crisis.
Partial perceptions and hasty judgments led to a policy of ad-hoc-ism, which characterized the approach of the authorities during the last two-decades towards finding solutions to banking ailments and dismantling recovery impediments. Continuous concern was expressed. Repeated correctional efforts were executed, but positive results were evading. The problem was defying a solution. The threat of NPA was being surveyed and summarized by RBI and Government of India from a remote perception looking at a bird's-eye-view on the banking industry as a whole delinked from the rest of the economy.
RBI looks at the banking industry's average on a macro basis, consolidating and tabulating the data submitted by different institutions. It inflates the INCA figures. Pressurize induce the borrowers to bring down their outstanding levels compared to the previous year. This will enable the bank to book income on partial recovery basis.
The most important business implication of the Naps is that it lead to the credit risk management assuming priority would thus be pre-occupied with recovery. As already mentioned here in above, a bank with high level of NPAs would be forced to incurr carrying costs on a non-income yielding assets.
Other consequence would be reduction in interest income, high level of provisioning, stress on profitability and capital adequacy, gradual decline in ability to meet steady increase in cost, increased pressure on Net Interest Margin NIM there by reducing competitiveness, steady erosion of capita resources and increased difficulty in augmenting capital resources.
The lesser appreciated implications are reputation risks arising out of greater disclosures on quantum and movement of NPAs provision, etc. Two decades of regimented and directed banking to credit delivery has derived Bank Manager of the instinct skill and knowledge. Nationalized banking did not produce a spring of talent resources from within.
The system did not promote initiative and talent, but bred corruption and nepotism. The notice must contai details of debt and secured assets. Any bank or public financial institution or any other institution or non-banking financial company as specified by central government or international finance corporation or a consortium there of, and his account in resects of such debt has been classified by the secured creditor as non-performing assets, then the secured creditor may call upon the borrower by the way of a written legal notice to discharge in full, his liabilities within 60 days from the date of the notice failing which the secured creditor would be entitled to exercise all or any of the rights set out under SARFESI.
The provision of SARFESI relating to security of interest can be invoked by any bank or public financial institution under section 4A of the Companies Act, or any institution specified by the central government under sub clause 2 of clause h of section 2 of recovery of debt due to banks and Financial Institutions Act, or any other institution.
Besides it will also help us in taking stock of the situation at given point of time. If default is wilful, watch on borrowers business growth plans and using leverage at appropriate. In Belgaum City, there are 6 branches of Bank of Maharashtra, these branches have formulated the following innovative methods for recovering NPAs.
The said team will visit the borrower and advice him for recovery of dues and also the rupurcussions for non-payment. These ladies staff members have formed a group and door to door recovery campaign is done by this team. This innovative method has rewarded a good dividend as on , all the branches of Bank of Maharashtra in belgaum city have achieved the recovery targets, write-off targets and reduced the NPA quantum to a large extent.
While preparing the recovery budget, branches should scan through the NPAs portfolio,make the ABC analysis of NPA, segregate accounts into identical lots with regard to the approach to be adopted for recovery. Self supervised by the branch. Regional Offices Ros will do volume Ros will intervene, if there is lack of response from the bank level. Zonal Offices Zos will do volume control and intervene if the response is inadequate down the line.
Zonal Offices Zos should decide the account-wise strategies. Head Office will partake in the exercise depending upon the complexity. Case fit for written and telephonic reminders. Lenghty workout sessions. Case fit for rehabiliation Induction of fresh funds, interest concessions with. Receivables also often almost disappear when customers cost of smell trouble. What is chasing these receivables down after years in the court?
There are a number of factors which contribute to the recovery problem, some of which crop up rights at the inception of the project and before the loan is disbursed. These problems can be clubbed into two categories i. In the study conducted by NABARD, it was found that lots of problems associated with the recovery were due to incorrect fixation of repayment schedules by the commercial banks. NABARD concluded that default on account of realistic repayment programmers fixed by the banks should not really treated as wilful default.
Our recovery problems can be given fresh looks as under:. Basically each branch engaged in rural lending has to loan for recovery of loans disbursed by it. The manager should be familiar with the prospects of recovery through internal and external factor. Knowledge about willful defaulters is equally important.
Thus Three-Pronged Strategy is necessary;. Computation of demand:Guidelines suggest that repayment of instalments should be fixed in such a manner which will coincide with the harvesting of crops or sale of milk or any other farm output proposed to be produced through the bank loan should therefore be computed in a manner conducive to the income flows. Non-Banking business day:This day should be utilized fully for field visit and contact with the borrowers.
The central idea of recovery camp is to bring a maximum number of people together at one place and repay the loans. The recovery camps in addition of effecting recovery create a proper climate for recovery. Compromise Proposals:In genuine cases, the banks can consider compromise proposal and a lot depends upon the initiative of the branch manager in utilizing this facility.
Integration of recovery in branch budgeting:Our bank has already commenced fixing recovery targets and the best performers are also going to be rewarded suitably through the award scheme. Wherever the states have enacted laws on the pattern and support of the government machinery can be enlisted accordingly.
If the branches prepare village-wise action plans in this regard, it will be still appropriate for the for the agencies to have a concerted effort towards recovery. The branches may also compile a detailed position of defaulters and share the same with the convener banks and government authorities periodically. Here 2 approaches are necessary. First to prevent wilful default in future and secondly to initiate steps to discourage wilful default.
To prevent wilful defaults, comprehensive and discrete enquires, therefore, should be made before disbursing loans to farmers. Some of the banks have already devised system of maintaining village dossiers which compromise names of farmers who do not have good reputation. A nonwilful defaulter is one who generally follows a good cropping pattern and is co-operative to developmental functionaries.
In present times, when wilful default has gained social acceptability, the branches can initiate steps for devising schemes for giving recognition to good borrower in various meeting or function organised by the branches in consultation with controllers. Further the problems of good borrowers can be studied and their credit needs can be immediately met. By doing so, a culture of prompt repayment may develop in the village and simultaneously wilful default would get its courage.
From the above chart we can observe that, there is an decreasing trend in NPAs i. Gross, Net and Provisions as compared to that of last year. Therefore, from the above interpretation we can say that, in the year , the asset quality of the Bank was better as compared to that of the year From the above table, we come to the following conclusion:Out of the Total Advances, the share of total NPA is minimum.
Bank is undertaking and implementing many measures to bring down this NPA level. But, the Bank cannot stop lending advances, taking into consideration the rise in the NPA level.
0コメント