...| ANALYTICAL STUDY OF NPA OF THREE NATIONALISED AND THREE FOREIGN BANKS | | | Deep Majumder | Apeksha Shriyan | Non-performing Asset is an important parameter in the analysis of financial performance of a bank as it results in decreasing margin and higher provisioning requirements for doubtful debts. It affects the liquidity and profitability of the bank. The main objective of the present study is to find out the loop holes in the mechanism of controlling NPA. The data has been analysed by using tables and pie charts. The important point to be noted that if the level of NPA declines the profitability of the banks will increase. | INTRODUCTION The banking industry has undergone remarkable changes after the first phase of economic liberalization in 1991 and hence credit management. The primary function of the banks is to lend loans to various sectors such as agriculture, housing, personal and industry and to take deposits. Now the lending of the loans involves higher risk as there is always a risk of default involved. Now the present scenario of lending has changed as banks become more cautious about lending loans, the reason being the rising amount of non-performing assets. Earlier the Narasimham committee-I clearly pointed out that the reduced profitability of the banks are due to the NPA and thus recommended that it should be phased out. NON PERFORMING ASSET An asset, including a leased asset, becomes non- performing when it ceases to generate income...
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...RECOVERY OF NPA STATUS AND CHALLENGES IN THE INDIAN BANKING SYSTEM EXECUTIVE SUMMARY: Non-performing Assets means a loan which has been classified by a bank or financial institution as substandard or loss assets. According to this default status would be given to borrower if the dues are not paid for 90 days. Asset Classification: * Standard: are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. If asset fails to be in this category i.e. amount due more than 90 days then it is NPA and NPAs are further need to be classified in sub categories. i) Sub-standard: the account holder comes in this category when they don’t pay three instalments continuously after 90 days and up to 1 year; ii) doubtful NPA; iii) Loss Assets: under this 100% provision is made. When account holder comes in this category their account can be written off by the banks. Types of NPA: * Gross NPA: reflects the quality of the loan made by the banks. * Net NPA: reflects the actual burden of the banks. The main reason behind NPA would be lack of proper enquiry by the bank, wilful defaulter, change in government policies etc. which could affect the bank by restriction on flow of cash by the bank for sanctioning a loan, drain of profit, bad affects on goodwill, etc. There are different acts and institution for the NPA recovery like SARFAESI ACT, 2002; SARC; ARC; DRT; Lokadalats; etc. Current...
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...income of the public sector banks has also shown good performance since the last few years. The public sector Banks have also shown comparatively good result. The gross profits and the net profits of the Public Sector banks have been on a high from past few years. The private sector banks are also showing good results in case of profits. However, the only problem of the Scheduled Commercial Banks these days are the increasing level of the non performing assets. The Non-Performing Assets (NPAs) problem is one of the foremost and the most formidable problems that have shaken the entire banking industry in India like an earthquake. Like a canker worm, it has been eating the banking system from within, since long. It has grown like a cancer and has infected every limb of the banking system. At macro level, NPAs have choked off the supply line of credit to the potential borrowers, thereby having a deleterious effect on capital formation and arresting the economic activity in the country. At the micro level, the unsustainable level of NPAs has eroded the profitability of banks through reduced interest income and provisioning...
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...banking sector STUDY OF NON PERFORMING ASSETS WITH SPECIAL REFERENCE TO NAGPUR NAGRIK SAHAKARI BANK INTRODUCTION The accumulation of huge non-performing assets in the banks has assumed great importance. The depth of the problem of bad debts was first realized in early 1990s. Since then, the focus has shifted towards improving the quality of assets and better risk management. Non-performing assets are problematic for financial institutions since they depend on interest payments for income. It is generally felt that NPAs reduce the profitability of banks, weaken its financial health and erode its solvency. Troublesome pressure from the economy can lead to a sharp increase in non-performing loans and often in massive write-downs. A classification used by financial institutions that refer to loans that are in jeopardy of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a non-performing asset. In India, the time frame given for classifying the asset as NPA is 180 days as compared to 45 to 90 days of international norms. Types of NPA: There are two types of NPA namely Gross NPA and Net NPA. Gross NPA reflects the quality of loans made by banks, while net NPA shows the actual burden of banks. 1) Gross NPA: An advance which is considered irrecoverable for banks, for which it has made provisions, but which is still held in banks books of account. An improvement in the gross NPA generally indicates an improvement...
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...n Management of Non Performing Assets σ Abstract - In India the magnitude of the problem of bad debts was not taken seriously. Subsequently, following the recommendations of Narasimham committee and Verma committee, some steps have been taken to solve the problem of old NPAs in the balance sheets of the banks. It continues to be expressed from every corner that there has rarely been any systematic evaluation of the best way of tackling the problem. There seems to be no unanimity in the proper policies to be followed in resolving this problem. There is also no consistency in the application of NPA norms, ever since these have been recognized. Non Performing Assets are also called as Non Performing Loans. It is made by a bank or finance company on which repayments or interest payments are not being made on time. A loan is an asset for a bank as the interest payments and the repayment of the principal create a stream of cash flows. It is from the interest payments that a bank makes its profits. The problem of NPA is not limited to only Indian public sector banks, but it prevails in the entire banking industry. Major portion of bad debts in Indian Banks arose out of lending to the priority sector at the dictates of politicians and bureaucrats. If only banks had monitored their loans effectively, the bad debt problem could have been contained if not eliminated. The top management of the banks was forced by politicians and bureaucrats to throw good money...
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...[pic] http://mbanetbook.blogspot.com/ Project on Non Performing Assets in Banks CONTENTS |Chapter no. | Title |Page no. | | |Executive Summary |2 | |1 |General Introduction | | | |Introduction to the Topic |4 | | |Company Profile |6 | | |Non performing assets |10 | |2 | Research Methodology |32 | |3 | Data Analysis & Interpretation |38 | |4 | Findings, Suggestions & Conclusions |64 | |5 | Annexure: | | | |a) Bibliography ...
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...Integrated Publishing association Review Article ISSN 2229 – 3795 Non performing assets: Issues, Causes and remedial Solution Poongavanam.S H.O.D., Department of Management studies, Ranippettai Engineering College, Thenkaddapanthangal, Walaja Taluk, Vellore District. -632513 Tamil Nadu. s.poongavanam@gmailo.com ABSTRACT The banking industry has undergone a sea change after the first phase of economic liberalization in 1991 and hence credit management. While the primary function of banks is to lend funds as loans to various sectors such as agriculture, industry, personal loans, housing loans etc., in recent times the banks have become very cautious in extending loans, this is due to mounting nonperforming assets (NPAs). Therefore, an NPA account not only reduces profitability of banks by provisioning in the profit and loss account, but their carrying cost is also increased which results in excess & avoidable management attention. Apart from this, a high level of NPA also puts strain on a banks net worth because banks are under pressure to maintain a desired level of Capital Adequacy and in the absence of comfortable profit level, banks eventually look towards their internal financial strength to fulfill the norms thereby slowly eroding the net worth. Considering all the above facts banking industry has to give more importance to NPA and to structure proper remedial solutions. Key words: Assets restructuring company, Global competition, Rate of return, Repayment schedule...
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...attempts to decrease the aggregate demand. Rising lending rates will also make the existing loans costly and thus adds to the pressure on the borrowers’ ability to service the debt. These accumulated debt leads to the massive NPA issue in nationalized banks in India. Net Worth relation with NPAs Net worth gets depleted by annual operating losses or a substantial decrease in asset values relative to liabilities. Banks are required to categorize non-performing assets further into three units on the period for which the asset has remained non-performing and the reliability of the dues: (i) Sub-standard Assets, (ii) Doubtful Assets, and (iii) Loss Assets. According to RBI directives, all banks are required to maintain NPAs both on gross and net basis. It is usually expressed in percentage term. NPAs= [(Gross or Net NPAs) / Total Advances]*100. NPA’s Relation with Capital Adequacy Ratio(CRAR) Capital adequacy ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Correlation Analysis is one of the major objectives of the financial reform agenda was to securitization of the banking capitals by means of capital adequacy norms so that the magnitudes of NPA as a proportion to total deposit (NPA/D) will fall and as a result of that the overall C-D(Credit to deposit) ratio will rise.High level of CRAR to provide sufficient cushion for any unexpected losses, in relation to capital adequacy requirements. NPA’s Relation...
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...banks are facing is the problem of their NPAs. It is only since a couple of years that this particular aspect has been given so much importance. The banks have to overcome these difficulties properly in order to effectively counter the competition faced by the foreign banks. With the framing of laws as per international standards and setting up of Debt recovery tribunal we can say that steps have been taken in this direction. Banks in India have traditionally been saddled with very high Non-Performing Assets. Banks burdened with huge NPA’s faced uphill tasks in recovering then due to archaic laws and procedures. Realizing the gravity of the situation the government was quick to implement the recommendations of the Narsimham Committee leading to the enactment of the SARFAESI ACT 2002. (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act). This Act gave the banks the much needed teeth to curb the menace of NPA’s. The non performing assets (NPAs) of banks have at last begun shrinking. As reported from surveys, it is understood that there has been substantial improvements in non performing assets and this has been because of several measures such as formation of asset reconstruction companies, debt restructuring norms, securitization, provisioning norms and prudential norms for income recognition. We also give our suggestions as to how NPA retrieval can be made easy and in what way the NPA scenario is headed. The problem is no...
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...Subsequently, commercial banks were nationalized adding to their list additional objectives of optimizing social benefit and geographical expansion to meet the growing needs of people. Globalization opened gates to increased competition by the entry of foreign banks. The changes that are taking world wide continued to give shocks to the banking system which resulted in an expansion of banking services both in range, volume and non-performing assets. Gauging efficiency of commercial banks is an important issue to bank management and the policy maker. Before this task is initiated a commercial bank has to be modeled appropriately to meet the needs and objectives of the analyst. To model a commercial bank two approaches followed mostly are the intermediation and production approaches. Under the intermediation approach financial institutions are viewed intermediate funds between depositors and borrowers (Piyu, Y., 1992). Banking business has to satisfy both the users and suppliers of bank funds. The intermediation approach is also known as the asset approach. In production approach a commercial bank’s resources produce services to the customers (Berg et.al, 1991; Berg et.al. 1993; Parson et.al, 1993; Shaffnit et.al, 1997). The basic difference is that in production approach deposits are treated as output, where as it has input status in intermediate approach. The user cost approach or profit approach models a commercial bank differently. According to user cost approach...
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...NON-PERFORMING ASSETSCHALLENGE TO THE PUBLIC SECTOR BANKS INTRODUCTION After liberalization the Indian banking sector developed very appreciate. The RBI also nationalized good amount of commercial banks for proving socio economic services to the people of the nation. The Public Sector Banks have shown very good performance as far as the financial operations are concerned. If we look to the glance of the financial operations, we may find that deposits of public to the Public Sector Banks have increased from 859,461.95crore to 1,079,393.81crore in 2003, the investments of the Public Sector Banks have increased from 349,107.81crore to 545,509.00crore, and however the advances have also been increased to 549,351.16crore from 414,989.36crore in 2003. The total income of the public sector banks have also shown good performance since the last few years and currently it is 128,464.40crore. The Public Sector Banks have also shown comparatively good result. The gross profits of the Public Sector Banks currently 29,715.26crore which has been doubled to the last to last year, and the net profit of the Public Sector Banks is 12,295,47crore. However, the only problem of the Public Sector Banks these days are the increasing level of the non performing assets. The non performing assets of the Public Sector Banks have been increasing regularly year by year. If we glance on the numbers of non performing assets we may come to know that in the year 1997 the NPAs were 47,300crore and reached to 80...
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...NON-PERFORMING ASSET An asset becomes non-performing when it ceases to generate income for the bank or financial institution. In the past RBI had sets guidelines for an asset to be classified as an NPA. An asset was considered as non-performing asset based on the concept of Past Due; a credit in respect of which interest/instalment of principal remained past due for a specific period of time. The specific period was reduced in a phased manner. An amount was considered as past due if it remained outstanding for 30 days beyond the due date. Starting from April 2001, the past due concept was removed and the period to be reckoned for calculation of non-payment started from the due date of payment. From the financial year 2003-04, in order to move towards international best practices, the RBI adopted the 90-days-overdue norms for identification of NPAs. With effect from March 31, 2004, a non-performing asset has been defined as a loan or an advance where:- * Interest/instalment of principal remains overdue for a period of more than 90 days in respect of a Term Loan * The account remains Out of order for a period of more than 90 days, in respect of an Overdraft / Cash Credit facility * The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted * In the case of direct agricultural advances, an annexure Annex 1 lists the types of advances which are to be treated in a special way as advised in the overdue norm. Agricultural...
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...designated lender for an extended period of time. The nonperforming asset is therefore not yielding any income to the lender in the form of principal and interest payments. Investopedia explains 'Nonperforming Asset' For example, a mortgage in default would be considered non-performing. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections agency. http://www.investopedia.com/terms/n/nonperformingasset.asp#axzz1nV1MDFFm Definition A loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue. More generally, an asset which is not producing income. http://www.investorwords.com/3329/nonperforming_asset.html Definition of 'Non-Performing Asset - NPA ' of banks A classification used by financial institutions that refer to loans that are in jeopardy of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a non-performing asset. Also known as “non-performing loan”. Investopedia explains 'Non-Performing Asset - NPA ' Non-performing assets are problematic for financial institutions since they depend on interest...
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...NPA is an advance where payment of interest or repayment of installment of principal (in case of Term loans) or both remains unpaid for a period of 90 or more days (new norms with effect from 31st March, 2004). Ninety days overdue - With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the '90 days overdue' norm for identification of NPAs, from the year ending March 31, 2004. Accordingly, with 1. Interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan, 2. The account remains 'out of order' for a period of more than 90 days, in respect of an Over-drat (OD) 3. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, 4. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two and half years in the case of an advance granted for agricultural purpose. NPA represent bad loans, the borrowers of which failed to satisfy their repayment obligations. Michael (2006) emphasized that NPA in loan portfolio affect operational efficiency which in turn affects profitability, liquidity and solvency position of banks. Non-Performing Assets (NPAs) of the Indian banking sector have been rising in 2011-12, reached at 2.9% from 2.4% in 2008-09. NPA represent bad loans, the borrowers of which failed to satisfy their repayment obligations. Michael (2006)...
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...substantive cases on the DRT Auction Sale, Bank & Customer, Banking Frauds, Cheating, Banking relating to Companies, Partner-ship, Proprietorship, Central & Financial Corporation Act, Dishonour of Cheques, Debt Laws, Embezzle-ment, Hypo-thecation. Interest Act, Selected cases under Banking Regulation Act, Negotiable Instruments Act, BIFR, AAIFR, MRTP Commissions, SEBI, SICA, State Recoveries of Dues Act and several Allied Act making this an essential reading for Practitioners, Financial Institutions, Banks, Corporate Sector wth an invaluable reference source of developments in matters related to the above topics. • Fast access to information. • Each issue contains up to 20 decisions with full text every Judgment. • Almost all reportable / non-reportable judgements, decisions delivered by Debt Recovery Appellate Tribunals and DRT’s. • Cases are clearly presented ith catch words and concise head notes summarizing the judgments clearly and accurately. • Cross – references are given to other major legal decisions delivered by the Supreme Court & various High Courts. Accurate Case Reporting of land mark case, with topical Index, Subject Index & Important Law Point and the background of the case, the judgement given and a list of case referred to in the Judgement. • A News & Reviews section – provides an in-depth access to the latest on matters relating to Debt Recovery Laws. • Articles and Questions & Answers written by leading practioners of this field provide a bird eye view of...
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