...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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...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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...LOVELY PROFESSIONAL UNIVERSITY DEPARTMENT OF MANAGEMENT Report of Contemporary Issues in Management NPA’s of Bank Submitted to Lovely Professional University In partial fulfillment of the Requirements for the award of Degree of Master of Business Administration Submitted by: Suruchi Sehdev 10907783 RR1904A56 DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY PHAGWARA EXECUTIVE SUMMARY After liberalization the Indian banking sector developed very appreciate. The RBI also nationalized good amount of commercial banks 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. The total 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...
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...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 for the bank. A Non-performing asset (NPA) is a loan...
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...Bank Management 465/865 Fall 2014 Homework #1- Analysis of Financial Performance 1. First you will need to download the Asset and Liability reports and the Income and Expense reports for Nebraska Bank of Commerce (NBC) from the FDIC web page. a. Go to the FDIC website, go to Industry Analysis, Bank data and statistics, then use the Institutional directory and find banks. b. Once you find NBC, notice the ID report selection box on the web page. Use this drop down menu to generate Asset & Liability reports for 12/31/10, 12/31/11, 12/31/12 & 12/31/13 and the Income and Expense report for years 2010, 2011, 2012 and 2013 2. Use financial ratio analysis to compare and contrast each year to see what happened to the banks financial performance. Be sure to comment on both its historical and current financial condition. Also, what accounts for the improved profitability of the bank? 3. Identify the five key reasons why the bank turned around based on your analysis. For question 2 - consider calculating the following: Profitability measures such as ROE and ROA Burden/Total Assets NIM Net Credit Loss/Total Loans Non-performing Loans/Total Loans % Growth in Total Loans Consider other ratios you may feel are appropriate to adequately address the questions. Due November 19th at the beginning of class. 2) 2010 2009 Return on assets (ROA) -4.62% -2.68% Return on equity (ROE) -46...
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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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...Opportunities and threats to 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...
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...Narasimham Committee-I (1991) report and the Narasimham Committee-II (1998) Report. • These recommendations not only helped unleash the potential of banking in India, they are also recognised as a factor towards minimising the impact of global financial crisis starting in 2007. • Unlike the socialist-democratic era of the 1960s to 1980s, India is no longer insulated from the global economy and yet its banks survived the 2008 financial crisis relatively unscathed, a feat due in part to these Narasimham Committees. Recommendations of Narasimham committee The 1998 report of the Committee to the GOI made the following major recommendations: Autonomy in Banking Greater autonomy was proposed for the public sector banks in order for them to function with equivalent professionalism as their international counterparts.[11] For this the panel recommended that recruitment procedures, training and remuneration policies of public sector banks be brought in line with the best-market-practices of professional bank management.[4][6] Secondly, the committee recommended GOI equity in nationalized banks be reduced to 33% for increased autonomy.[4][12][13] It also recommended the RBI relinquish its seats on the...
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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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...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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...function of banks is to lend funds as loans to various sectors such as agriculture, industry, personal and housing etc. and to receive deposits. Receiving deposit involves no risk, since it is the banker who owes a duty to repay the deposit, whenever it is demanded. On the other hand lending always involves much risk because there is no certainty of repayment. In recent times the banks have become very cautious in extending loans, the reason being mounting nonperforming assets. Non-performing assets had been the single largest cause of irritation of the banking sector of Philippines. Earlier the Narasimha committee-I had broadly concluded that the main reason for the reduced profitability of the commercial banks in India was given importance to priority sector lending. The committee had highlighted that priority sector lending was leading to the building up of non-performing assets of the banks and thus it recommended it to be phased out. Subsequently, the Narasimha committee-II also highlighted the need the zero non-performing assets for all Indian banks with international presence. A major portion of the money lent comes from the deposits received from the public. These deposits are mostly repayable on demand. Therefore while sanctioning credit the banker should appraise the project reasonably or else it leads to the non-repayment of loans and advances. Most of the banks today in India are facing the default risk wherein some part of the profit is reserved for covering the non-performing...
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...exposure to the capital market, oil and gas sector, poor risk management practices and inadequate disclosure and transparency about the banks’ financial position characterised the Nigerian banking sector. The CBN, in June 2009 took a three –pronged approach to assess the financial condition of the twenty four (24) banks. One of the approaches was the special audit jointly carried out by the CBN and the Nigeria Deposit Insurance Corporation. The exercise highlighted inadequacies in capital asset and liquidity ratios as well as weakness in corporate governance and risk management in ten banks. These banks were found to be in distress as they failed to meet the minimum 10% capital adequacy and 25% minimum liquidity ratios. Apart from accumulating high non-performing loans, the banks were seriously exposed to the oil and gas sector as well as the capital market. Poor risk management practices in the form of necessary control measures were prevalent as the boards and managements of the banks had failed to observe established controls. Although the remaining fourteen banks had holes in their books, they were found to be in a relatively sound financial condition and did not require immediate intervention by the CBN. The major highlights of the CBN’s revelations was its decision to dismiss the Managing and Executive Directors of five of the ten audited banks, citing gross mismanagement of depositors' and shareholders funds. The Nigerian Banking system which is a subset...
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...1.0 Introduction 1.1 Background of the study Private Commercial Banks (PCBs) started their journey in Bangladesh in 1982. Since then, they play a vital role in the economic development of the country. With the help of developed banking technologies and client- focused mentality, they try to ensure quality services in quick time to their customers as per their expectation. Their prudence in selecting appropriate borrowers and sector of providing loans and monitoring them closely has decreased the percentage of non-per forming loan. Besides, the prudent regulatory measure of the central bank including guidance regarding prudential norms of capital adequacy, classification of loans, on-site and off- site super vision have made the PCBs sound in Banking operation. For these reasons, they are found profitable in their business. Their exposure in respect of the cost of debt helps them to ensure higher profitability and their potentiality in the banking industry. An effectively functioning financial system requires a banking system that can earn a reasonable return by taking an acceptable level of risks. 2.0 Statement of the problem In order to survive in the long run, it is important for a bank to find out what are the factors influencing cost of debt so that it can take initiatives to increase its profitability and performance. Bank performance is also vitally important for all stakeholders, such as ...
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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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...1.0 PRELUDE: Financial stability is considered as the first condition of sustained and rapid economic progress. Among various indicators of financial stability, banks’ non-performing loan (NPL) assumes critical importance since it reflects on the asset quality, credit risk and efficiency in the allocation of resources to productive sectors. Nonperforming loans (NPLs) refer to those financial assets from which banks no longer receive interest and/or installment payments as scheduled. They are known as non-performing because the loan ceases to “perform” or generate income for the bank. Choudhury et al. (2002: 21-54) state that the nonperforming loan is not a “uniclass” but rather a “multiclass” concept, which means that NPLs can be classified into different varieties usually based on the “length of overdue” of the said loans. NPLs are viewed as a typical byproduct of financial crisis: they are not a main product of the lending function but rather an accidental occurrence of the lending process (Woo, 2000: 2). This is because NPLs can bring down investors’ confidence in the banking system. Only for a few defaulting borrowers, the banks suffer, depositors suffer, performing borrowers suffer, shareholders suffer, Government suffers and consequently economy and the people of the country suffer. The latest data reveal that in Bangladesh banking sector the amount of NPL is Tk 2572.65 crores (7.17% of total loans) up to September 2011. The ratio of NPL was as high as 41.1% in 1999,...
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