MAJOR PROJECT

On

Trend Analysis of NPA in Indian banks

Submitted to

Amity College of Commerce and Finance

Guided By:
Submitted By:
Ms.Pretti Garg
Sabyasachi Panda

Name:

Assistant Professor
Enrollment.No:A3110113031

AMITY UNIVERSITY UTTAR PRADESH

GAUTAM BUDDHA NAGAR

DECLARATION

I hereby declare that the project work entitled Trend Analysis of NPA in
Indian banks submitted to the Amity University Uttar Pradesh, is a record of an
original work done by me under the guidance of
Ms.Preeti Garg.
This project work is submitted in the partial fulfillment of the
requirements for the award of the degree of Master of Technology in Information
And Technology. The results embodied in this thesis have not been submitted to
any other University or Institute for the award of any degree or diploma.

Sabyasachi Panda
A3110113031
Bachelor of Finance and Investment Analysis
Amity College of Commerce and Finance
Amity University Uttar Pradesh

CERTIFICATE

This is to certify that Mr. Sabyasachi Panda student of BFIA has carried out the
work presented in the major project(dissertation) entitled " Trend Analysis of NPA
in Indian banks " as a part of First year programme of Bachelor of Technology in
Information And Technology from Amity University, Noida, Uttar Pradesh under
my supervision.

Signature of the faculty Guide

(Ms Preeti Garg)
Amity College of Commerce and Finance, AUUP

ACKNOWLEDGEMENT

I take this opportunity to express my gratitude and deep regards to my guide Ms.
Preeti Garg for her guidance and constant encouragement throughout the course
of this thesis. The blessing and guidance given by her time to time will carry me a
long way in the journey of life on which I am about to embark.
I also take this opportunity to express a deep sense of gratitude for her valuable
information and guidance that helped me in completing this task through various
stages.
I am also obliged to staff members of Amity College of Commerce and Finance,
Amity University Uttar Pradesh, Noida for the valuable information provided by
them in my field. I am grateful for their cooperation during the period of my
assignment.

PREFACE
Granting of credit facilities for economic activities is the primary task of banking. Apart from
raising resources through fresh deposits, borrowings, etc. recycling of funds received back from
borrowers constitutes a major part of funding credit dispensation activities. Non-recovery of
installments as also interest on the loan portfolio negates the effectiveness of this process of the
credit cycle. Non-recovery also affects the profitability of banks besides being required to
maintain more owned funds by way of capital and creation of reserves and provisions to act as
cushion for the loan losses. Avoidance of loan losses is one of the pre-occupations of
management of banks. While complete elimination of such losses is not possible, bank
managements aim to keep the losses at a low level. In fact, it is the level of non-performing
advances, which, to a great extent, differentiates between a good and a bad bank. Mounting
NPAs may also have more widespread repercussions. To avoid shock waves affecting the system,
the salvaging exercise is done by the Government or by the industry on the behest of
Government/ central bank of the country putting pressure on the exchequer.
In India, the NPAs, which are considered to be at higher levels than those in other countries,
have, of late, attracted the attention of public as also of international financial institutions. This
has gained further prominence in the wake of transparency and disclosure measures initiated by
the RBI during recent years.
This project aims at providing an overall view on the existence of NPAs, their treatment, the
ways at resolving this issue and also a few reports on the recent developments in this field.

TABLE OF CONTENTS

Sr.No.
1.

2.
3.
4.
7.
8.
9.

Introduction to NPAs
Meaning of NPA
Asset Classification
Types of NPA
Reasons for an Account
becoming an NPA
Impact of NPA
Early Symptoms
Preventive Measurement of
NPA
Procedure of Identification &
Resolution of NPA in India
Objectives & Beneficiaries
Research Methodology
Analysis
Conclusion
Suggestion
Bibliography

Page No.
1-25

26
27
28-49
50
51
52

INTRODUCTION TO NPA
MEANING OF NPA:
Non Performing Asset means an asset or account of borrower, which has been classified by a
bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the
directions or guidelines relating to asset classification issued by RBI.
An amount due under any credit facility is treated as "past due" when it has not been paid within
30 days from the due date. Due to the improvement in the payment and settlement systems,
recovery climate, up gradation of technology in the banking system, etc., it was decided to
dispense with 'past due' concept, with effect from March 31, 2001. Accordingly, as from that
date, a Non performing asset (NPA) shell be an advance where
i.
Interest and /or installment of principal remain overdue for a period of more than 180
days in respect of a Term Loan,
ii.
The account remains 'out of order' for a period of more than 180 days, in respect of an
overdraft/ cash Credit(OD/CC),
iii.
The bill remains overdue for a period of more than 180 days in the case of bills purchased
and discounted,
iv.
Interest and/ or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural purpose,
and
v.
Any amount to be received remains overdue for a period of more than 180 days in respect
of other accounts.
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 effect from March 31, 2004, a non-performing asset
(NPA) shell be a loan or an advance where;
i.
Interest and /or installment of principal remain overdue for a period of more than 90 days
in respect of a Term Loan,
ii.
The account remains 'out of order' for a period of more than 90 days, in respect of an
overdraft/ cash Credit(OD/CC),

Page 1

iii.
The bill remains overdue for a period of more than 90 days in the case of bills purchased
and discounted,
iv.
Interest and/ or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural purpose,
and
v.
Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.

Page 2

ASSET CLASSIFICATION:
Assets are classified into following four categories:

Standard Assets
Sub-standard Assets
Doubtful Assets
Loss Assets

Standard Assets:
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.
Provisioning Norms:
From the year ending 31.03.2000, the banks should make a general provision of a
minimum of 0.40 percent on standard assets on global loan portfolio basis.
The provisions on standard assets should not be reckoned for arriving at net NPAs.
The provisions towards Standard Assets need not be netted from gross advances but
shown separately as 'Contingent Provisions against Standard Assets' under 'Other
Liabilities and Provisions - Others' in Schedule 5 of the balance sheet.

Banks are required to classify non-performing assets further into the following three categories
based on the period for which the asset has remained non-performing and the reasonability of the
dues:
1)

Sub-standard Assets

2)

Doubtful Assets

3)

Loss Assets

Page 3

Sub-standard Assets:
With effect from 31 March 2005, a substandard asset would be one, which has remained NPA for
a period less than or equal to 12 month. The following features are exhibited by substandard
assets: the current net worth of the borrowers / guarantor or the current market value of the
security charged is not enough to ensure recovery of the dues to the banks in full; and the asset
has 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.
Provisioning Norms:
A general provision of 10 percent on total outstanding should be made without making any
allowance for DICGC/ECGC guarantee cover and securities available.

Doubtful Assets:
A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full,
on the basis of currently known facts, conditions and values highly questionable and
improbable.
With effect from March 31, 2005, an asset would be classified as doubtful if it remained in the
sub-standard category for 12 months.
Provisioning Norms:
100 percent of the extent to which the advance is not covered by the realisable value of
the security to which the bank has a valid recourse and the realisable value is estimated
on a realistic basis.
In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 percent to 50 percent of the secured portion depending upon the
period for which the asset has remained doubtful:

Page 4

Period for which the advance has been considered Provision requirement (%)
as doubtful
Up to one year
20
One to three years
30
More than three years:
60% with effect from March 31, 2005.
(1) Outstanding stock of NPAs as on March 31, 75% effect from March 31, 2006
2004.
(2) Advances classified as doubtful more than 100% with effect from March 31, 2007.
three years on or after April 1, 2004.
Additional provisioning consequent upon the change in the definition of doubtful assets
effective from March 31, 2003 has to be made in phases as under:
i.
As on31.03.2003, 50 percent of the additional provisioning requirement on the assets
which became doubtful on account of new norm of 18 months for transition from sub-standard
asset to doubtful category.
ii.
As on 31.03.2002, balance of the provisions not made during the previous year, in
addition to the provisions needed, as on 31.03.2002.
Banks are permitted to phase the additional provisioning consequent upon the reduction
in the transition period from substandard to doubtful asset from 18 to 12 months over a
four year period commencing from the year ending March 31, 2005, with a minimum of
20 % each year.

Loss Assets:
A loss asset is one which considered uncollectible and of such little value that its continuance as
a bankable asset is not warranted- although there may be some salvage or recovery value. Also,
these assets would have been identified as Loss assets by t he bank or internal or external
auditors or the RBI inspection but the amount would not have been written-off wholly.
Provisioning Norms:
The entire asset should be written off. If the assets are permitted to remain in the books for any
reason, 100 percent of the outstanding should be provided for.

Page 5

TYPES OF NPA:
1.

Gross NPA

2.

Net NPA

Gross NPA:
Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines
as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists
of all the nonstandard assets like as sub-standard, doubtful, and loss assets. It can be calculated
with the help of following ratio:
Gross NPAs Ratio = Gross NPAs/ Gross Advances

Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs.
Net NPA shows the actual burdenof banks. Since in India, bank balance sheets contain a huge
amount of NPAs and the process of recovery and write off of loans is very time consuming, the
provisions the banks have to make against the NPAs according to the central bank guidelines, are
quite significant. That is why the difference between gross and net NPA is quite high.
It can be calculated by following:
Net NPAs = Gross NPAs Provisions/ Gross Advances - Provisions

Page 6

REASONS FOR AN ACCOUNT BECOMING NPA:

1.

Internal factors

2.

External factors

Internal factors:
1)

Funds borrowed for a particular purpose but not use for the said purpose.

2)

Project not completed in time.

3)

Poor recovery of receivables.

4)

Excess capacities created on non-economic costs.

5)
In-ability of the corporate to raise capital through the issue of equity or other debt
instrument from capital markets.
6)

Business failures.

7)
Diversion of funds for expansion\modernization\setting up new projects\ helping or
promoting sister concerns.
8)
Willful defaults, siphoning of funds, fraud, disputes, management disputes, misappropriation etc.
9)
Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-ups,
delaying settlement of payments\ subsidiaries by government bodies etc.,

External factors:
1)

Sluggish legal system

Long legal tangles
Changes that had taken place in labour laws
Lack of sincere effort.

2)

Scarcity of raw material, power and other resources.

3)

Industrial recession.
Page 7

4)
Shortage of raw material, raw material\input price escalation, power shortage, industrial
recession, excess capacity, natural calamities like floods, accidents.
5)
Failures, nonpayment\ over dues in other countries, recession in other countries,
externalization problems, adverse exchange rates etc.
6)

Government policies like excise duty changes, Import duty changes etc.,

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

Page 8

IMPACT OF NPA:
Profitability:
NPA means booking of money in terms of bad asset, which occurred due to wrong choice of
client. Because of the money getting blocked the prodigality of bank decreases not only by the
amount of NPA but NPA lead to opportunity cost also as that much of profit invested in some
return earning project/asset. So NPA doesnt affect current profit but also future stream of profit,
which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in
profitability is low ROI (return on investment), which adversely affect current earning of bank.

Liquidity:
Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to
borrowing money for shortest period of time which lead to additional cost to the company.
Difficulty in operating the functions of bank is another cause of NPA due to lack of money.
Routine payments and dues.

Involvement of management:
Time and efforts of management is another indirect cost which bank has to bear due to NPA.
Time and efforts of management in handling and managing NPA would have diverted to some
fruitful activities, which would have given good returns. Now days banks have special
employees to deal and handle NPAs, which is additional cost to the bank.

Credit loss:
Bank is facing problem of NPA then it adversely affect the value of bank in terms of market
credit. It will lose its goodwill and brand image and credit which have negative impact to the
people who are putting their money in the banks.

Page 9

EARLY SYMPTOMS:
By which one can recognize a performing asset turning in to non-performing asset
Four categories of early symptoms:-

1)

Financial:

2)

Non-payment of the very first installment in case of term loan.

Bouncing of cheque due to insufficient balance in the accounts.
Irregularity in installment.
Irregularity of operations in the accounts.
Unpaid overdue bills.
Declining Current Ratio.
Payment which does not cover the interest and principal amount of that installment.
While monitoring the accounts it is found that partial amount is diverted to sister concern
or parent company.

Operational and Physical:

If information is received that the borrower has either initiated the process of winding up
or are not doing the business.
Overdue receivables.
Stock statement not submitted on time.
External non-controllable factor like natural calamities in the city where borrower
conduct his business.
Frequent changes in plan.
Nonpayment of wages.

Page 10

3)

Attitudinal Changes:

 Use for personal comfort, stocks and shares by borrower.

Avoidance of contact with bank.
Problem between partners.

4)

Others:
Changes in Government policies.
Death of borrower.
Competition in the market.

Page 11

PREVENTIVE MEASUREMENT FOR NPA:

Early Recognition of the Problem:

Invariably, by the time banks start their efforts to get involved in a revival process, its too late to
retrieve the situation- both in terms of rehabilitation of the project and recovery of bank s dues.
Identification of weakness in the very beginning that is : When the account starts showing first
signs of weakness regardless of the fact that it may not have become NPA, is imperative.
Assessment of the potential of revival may be done on the basis of a techno-economic viability
study. Restructuring should be attempted where, after an objective assessment of the promoter s
intention, banks are convinced of a turnaround within a scheduled timeframe. In respect of
totally unviable units as decided by the bank, it is better to facilitate winding up/ selling of the
unit earlier, so as to recover whatever is possible through legal means before the security position
becomes worse.

Identifying Borrowers with Genuine Intent:

Identifying borrowers with genuine intent from those who are non- serious with no commitment
or stake in revival is a challenge confronting bankers. Here the role of frontline officials at the
branch level is paramount as they are the ones who have intelligent inputs with regard to
promoters sincerity, and capability to achieve turnaround. Based on this objective assessment,
banks should decide as quickly as possible whether it would be worthwhile to commit additional
finance.
In this regard banks may consider having Special Investigation of all financial transaction or
business transaction, books of account in order to ascertain real factors that contributed to
sickness of the borrower. Banks may have penal of technical experts with proven expertise and
track record of preparing techno-economic study of the project of the borrowers.

Borrowers having genuine problems due to temporary mismatch in fund flow or sudden
requirement of additional fund may be entertained at branch level, and for this purpose a special
limit to such type of cases should be decided. This will obviate the need to route the additional
funding through the controlling offices in deserving cases, and help avert many accounts slipping
into NPA category.

Page 12

Timeliness and Adequacy of response:

Longer the delay in response, grater the injury to the account and the asset. Time is a crucial
element in any restructuring or rehabilitation activity. The response decided on the basis of
techno-economic study and promoters commitment, has to be adequate in terms of extend of
additional funding and relaxations etc. under the restructuring exercise. The package of
assistance may be flexible and bank may look at the exit option.

Focus on Cash Flows:

While financing, at the time of restructuring the banks may not be guided by the conventional
fund flow analysis only, which could yield a potentially misleading picture. Appraisal for fresh
credit requirements may be done by analyzing funds flow in conjunction with the Cash Flow
rather than only on the basis of Funds Flow.

Management Effectiveness:
The general perception among borrower is that it is lack of finance that leads to sickness and
NPAs. But this may not be the case all the time. Management effectiveness in tackling adverse
business conditions is a very important aspect that affects a borrowing units fortunes. A bank
may commit additional finance to an aling unit only after basic viability of the enterprise also in
the context of quality of management is examined and confirmed. Where the default is due to
deeper malady, viability study or investigative audit should be done it will be useful to have
consultant appointed as early as possible to examine this aspect. A proper techno- economic
viability study must thus become the basis on which any future action can be considered.

Multiple Financing:
During the exercise for assessment of viability and restructuring, a Pragmatic and unified
approach by all the lending banks/ FIs as also sharing of all relevant information on the
borrower would go a long way toward overall success of rehabilitation exercise, given the
probability of success/failure.

Page 13
In some default cases, where the unit is still working, the bank should make sure that it
captures the cash flows (there is a tendency on part of the borrowers to switch bankers

once they default, for fear of getting their cash flows forfeited), and ensure that such cash
flows are used for working capital purposes. Toward this end, there should be regular
flow of information among consortium members. A bank, which is not part of the
consortium, may not be allowed to offer credit facilities to such defaulting clients.
Current account facilities may also be denied at non-consortium banks to such clients and
violation may attract penal action. The Credit Information Bureau of India Ltd.(CIBIL)
may be very useful for meaningful information exchange on defaulting borrowers once
the setup becomes fully operational.
In a forum of lenders, the priority of each lender will be different. While one set of
lenders may be willing to wait for a longer time to recover its dues, another lender may
have a much shorter timeframe in mind. So it is possible that the letter categories of
lenders may be willing to exit, even a t a cost by a discounted settlement of the
exposure. Therefore, any plan for restructuring/rehabilitation may take this aspect into
account.
Corporate Debt Restructuring mechanism has been institutionalized in 2001 t o provide a
timely and transparent system for restructuring of the corporate debt of Rs. 20 crore and
above with the banks and FIs on a voluntary basis and outside the legal framework.
Under this system, banks may greatly benefit in terms of restructuring of large standard
accounts (potential NPAs) and viable sub-standard accounts with consortium/multiple
banking arrangements.

Page 14

PROCEDURES FOR NPA IDENTIFICATION AND

RESOLUTION IN INDIA:
1. Internal Checks and Control
Since high level of NPAs dampens the performance of the banks identification of potential
problem accounts and their close monitoring assumes importance. Though most banks have
Early Warning Systems (EWS) for identification of potential NPAs, the actual processes
followed, however, differ from bank to bank. The EWS enable a bank to identify the borrower
accounts which show signs of credit deterioration and initiate remedial action. Many banks have
evolved and adopted an elaborate EWS, which allows them to identify potential distress signals
and plan their options beforehand, accordingly. The early warning signals, indicative of potential
problems in the accounts, viz. persistent irregularity in accounts, delays in servicing of interest,
frequent devolvement of L/Cs, units' financial problems, market related problems, etc. are
captured by the system. In addition, some of these banks are reviewing their exposure to
borrower accounts every quarter based on published data which also serves as an important
additional warning system. These early warning signals used by banks are generally independent
of risk rating systems and asset classification norms prescribed by RBI.
The major components/processes of a EWS followed by banks in India as brought out by a study
conducted by Reserve Bank of India at the instance of the Board of Financial Supervision are as
follows:

Designating Relationship Manager/ Credit Officer for monitoring account/s

Preparation of `know your client' profile
Credit rating system
Identification of watch-list/special mention category accounts
Monitoring of early warning signals

Relationship Manager/Credit Officer

The Relationship Manager/Credit Officer is an official who is expected to have complete
knowledge of borrower, his business, his future plans, etc. The Relationship Manager has to keep
in constant touch with the borrower and report all developments impacting the borrowable
account. As a part of this contact he is also expected to conduct scrutiny and activity inspections.
In the credit monitoring process, the responsibility of monitoring a corporate account is vested
with Relationship Manager/Credit Officer.

Page 15

Know your client' profile (KYC)

Most banks in India have a system of preparing `know your client' (KYC) profile/credit report.
As a part of `KYC' system, visits are made on clients and their places of business/units. The
frequency of such visits depends on the nature and needs of relationship.

Credit Rating System

The credit rating system is essentially one point indicator of an individual credit exposure and is
used to identify measure and monitor the credit risk of individual proposal. At the whole bank
level, credit rating system enables tracking the health of banks entire credit portfolio. Most banks
in India have put in place the system of internal credit rating. While most of the banks have
developed their own models, a few banks have adopted credit rating models designed by rating
agencies. Credit rating models take into account various types of risks viz. financial, industry and
management, etc. associated with a borrowable unit. The exercise is generally done at the time of
sanction of new borrowable account and at the time of review renewal of existing credit
facilities.

Watch-list/Special Mention Category

The grading of the bank's risk assets is an important internal control tool. It serves the need of the
Management to identify and monitor potential risks of a loan asset. The purpose of identification
of potential NPAs is to ensure that appropriate preventive / corrective steps could be initiated by
the bank to protect against the loan asset becoming non-performing. Most of the banks have a
system to put certain borrowable accounts under watch list or special mention category if
performing advances operating under adverse business or economic conditions are exhibiting
certain distress signals. These accounts generally exhibit weaknesses which are correctable but
warrant banks' closer attention. The categorization of such accounts in watch list or special
mention category provides early warning signals enabling Relationship Manager or Credit
Officer to anticipate credit deterioration and take necessary preventive steps to avoid their
slippage into non performing advances. Early Warning Signals It is important in any early
warning system, to be sensitive to signals of credit deterioration. A host of early warning signals
are used by different banks for identification of potential NPAs. Most banks in India have laid
down a series of operational, financial, transactional indicators that could serve to identify
emerging problems in credit exposures at an early stage. Further, it is revealed that the indicators
which may trigger early warning system depend not only on default in payment of installment

Page 16

and interest but also other factors such as deterioration in operating and financial performance of
the borrower, weakening industry characteristics, regulatory changes, general economic
conditions, etc. Early warning signals can be classified into five broad categories viz.
a)

Financial

b)

Operational

c)

Banking

d)

Management and

e)

External factors.

Financial related warning signals generally emanate from the borrowers' balance sheet, income
expenditure statement, statement of cash flows, statement of receivables etc. Following common
warning signals are captured by some of the banks having relatively developed EWS.

Financial warning signals

Persistent irregularity in the account

Default in repayment obligation
Devolvement of LC/invocation of guarantees
Deterioration in liquidity/working capital position
Substantial increase in long term debts in relation to equity
Declining sales
Operating losses/net losses
Rising sales and falling profits
Disproportionate increase in overheads relative to sales
Rising level of bad debt losses Operational warning signals
Low activity level in plant
Disorderly diversification/frequent changes in plan
Nonpayment of wages/power bills
Loss of critical customer/s
Frequent labor problems
Evidence of aged inventory/large level of inventory

Page 17

Management related warning signals

Lack of co-operation from key personnel

Change in management, ownership, or key personnel
Desire to take undue risks
Family disputes
Poor financial controls
Fudging of financial statements
Diversion of funds

Banking related signals

Declining bank balances/declining operations in the account

Opening of account with other bank
Return of outward bills/dishonored cheques
Sales transactions not routed through the account
Frequent requests for loan
Frequent delays in submitting stock statements, financial data, etc.

Signals relating to external factors

Economic recession
Emergence of new competition
Emergence of new technology
Changes in government / regulatory policies
Natural calamities

Page 18

2. Management/Resolution of NPAs

A reduction in the total gross and net NPAs in the Indian financial system indicates a significant
improvement in management of NPAs. This is also on account of various resolution mechanisms
introduced in the recent past which include the SRFAESI Act, one time settlement schemes,
setting up of the CDR mechanism, strengthening of DRTs. From the data available of Public
Sector Banks as on March 31, 2003, there were 1,522 numbers of NPAs as on March 31, 2003
which had gross value greater than Rs. 50 million in all the public sector banks in India. The total
gross value of these NPAs amounted to Rs. 215 billion. The total number of resolution
approaches (including cases where action is to be initiated) is greater than the number of NPAs,
indicating some double counting. As can be seen, suit filed and BIFR are the two most common
approaches to resolution of NPAs in public sector banks. Rehabilitation has been considered/
adopted in only about 13% of the cases. Settlement has been considered only in 9% of the cases.
It is likely to have been adopted in even fewer cases. Data available on resolution strategies
adopted by public sector banks suggest that Compromise settlement schemes with borrowers are
found to be more effective than legal measures. Many banks have come out with their own
restructuring schemes for settlement of NPA accounts. State Bank of India, HDFC Limited, M/s.
Dun and Bradstreet Information Services (India) Pvt. Ltd. and M/s. Trans Union to serve as a
mechanism for exchange of information between banks and FIs for curbing the growth of NPAs
incorporated credit Information Bureau (India) Limited (CIBIL) in January 2001. Pending the
enactment of CIB Regulation Bill, the RBI constituted a working group to examine the role of
CIBs. As per the recommendations of the working group, Banks and FIs are now required to
submit the list of suit-filed cases of Rs. 10 million and above and suit filed cases of willful
defaulters of Rs. 2.5 million and above to RBI as well as CIBIL. CIBIL will share this
information with commercial banks and FIs so as to help them minimize adverse selection at
appraisal stage. The CIBIL is in the process of getting operationalised.

3. Willful Defaulters
RBI has issued revised guidelines in respect of detection of willful default and diversion and
siphoning of funds. As per these guidelines a willful default occurs when a borrower defaults in
meeting its obligations to the lender when it has capacity to honor the obligations or whenfunds
have been utilized for purposes other than those for which finance was granted. The list of willful
defaulters is required to be submitted to SEBI and RBI to prevent their access to capital

Page 19
markets. Sharing of information of this nature helps banks in their due diligence exercise and
helps in avoiding financing unscrupulous elements. RBI has advised lenders to initiate legal

measures including criminal actions, wherever required, and undertake a proactive approach in
change in management, where appropriate.

4. Legal and Regulatory Regime

Debt Recovery Tribunals
DRTs were set up under the Recovery of Debts due to Banks and Financial Institutions Act,
1993. Under the Act, two types of Tribunals were set up i.e. Debt Recovery Tribunal (DRT) and
Debt Recovery Appellate Tribunal (DRAT). The DRTs are vested with competence to entertain
cases referred to them, by the banks and FIs for recovery of debts due to the same. The order
passed by a DRT is appealable to the Appellate Tribunal but no appeal shall be entertained by the
DRAT unless the applicant deposits 75% of the amount due from him as determined by it.
However, the Affiliate Tribunal may, for reasons to be received in writing, waive or reduce the
amount of such deposit. Advances of Rs. 1 million and above can be settled through DRT
process. An important power conferred on the Tribunal is that of making an interim order
(whether by way of injunction or stay) against the defendant to debar him from transferring,
alienating or otherwise dealing with or disposing of any property and the assets belonging to him
within prior permission of the Tribunal. This order can be passed even while the claim is
pending. DRTs are criticized in respect of recovery made considering the size of NPAs in the
Country. In general, it is observed that the defendants approach the High Country challenging the
verdict of the Appellate Tribunal which leads to further delays in recovery. Validity of the Act is
often challenged in the court which hinders the progress of the DRTs. Lastly, many needs to be
done for making the DRTs stronger in terms of infrastructure.

Page 20

Lokadalats

The institution of Lokadalat constituted under the Legal Services Authorities Act, 1987 helps in
resolving disputes between the parties by conciliation, mediation, compromise or amicable
settlement. It is known for effecting mediation and counseling between the parties and to reduce
burden on the court, especially for small loans. Cases involving suit claims up to Rs. l million
can be brought before the Lokadalat and every award of the Lokadalat shall be deemed to be a
decree of a Civil Court and no appeal can lie to any court against the award made by the
Lokadalat. Several people of particular localities various social organizations are approaching
Lokadalats which are generally presided over by two or three senior persons including retired
senior civil servants, defense personnel and judicial officers. They take up cases which are
suitable for settlement of debt for certain consideration. Parties are heard and they explain their
legal position. They are advised to reach to some settlement due to social pressure of senior
bureaucrats or judicial officers or social workers. If the compromise is arrived at, the parties to
the litigation sign a statement in presence of Lokadalats which is expected to be filed in court to
obtain a consent decree. Normally, if such settlement contains a clause that if the compromise is
not adhered to by the parties, the suits pending in the court will proceed in accordance with the
law and parties will have a right to get the decree from the court. In general, it is observed that
banks do not get the full advantage of the Lokadalats. It is difficult to collect the concerned
borrowers willing to go in for compromise on the day when the Lokadalat meets. In any case, we
should continue our efforts to seek the help of the Lokadalat.

Enactment of SRFAESI Act

The "The Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act" (SRFAESI) provides the formal legal basis and regulatory framework for setting up
Asset Reconstruction Companies (ARCs) in India. In addition to asset reconstruction and ARCs,
the Act deals with the following largely aspects,
Securitization and Securitization Companies
Enforcement of Security Interest
Creation of a central registry in which all securitization and asset reconstruction
transactions as well as any creation of security interests has to be filed.

Page 21
The Reserve Bank of India (RBI), the designated regulatory authority for ARCS has issued
Directions, Guidance Notes, Application Form and Guidelines to Banks in April 2003 for

regulating functioning of the proposed ARCS and these Directions/ Guidance Notes cover
various aspects relating to registration, operations and funding of ARCS and resolution of NPAs
by ARCS. The RBI has also issued guidelines to banks and financial institutions on issues
relating to transfer of assets to ARCS, consideration for the same and valuation of instruments
issued by the ARCS. Additionally, the Central Government has issued the security enforcement
rules ("Enforcement Rules"), which lays down the procedure to be followed by a secured creditor
while enforcing its security interest pursuant to the Act. The Act permits the secured creditors (if
75% of the secured creditors agree) to enforce their security interest in relation to the underlying
security without reference to the Court after giving a 60 day notice to the defaulting borrower
upon classification of the corresponding financial assistance as a non-performing asset. The Act
permits the secured creditors to take any of the following measures:
Take over possession of the secured assets of the borrower including right to transfer by
way of lease, assignment or sale;
Take over the management of the secured assets including the right to transfer by way of
lease, assignment or sale;
Appoint any person as a manager of the secured asset (such person could be the ARC if
they do not accept any pecuniary liability); and
Recover receivables of the borrower in respect of any secured asset which has been
transferred. After taking over possession of the secured assets, the secured creditors are
required to obtain valuation of the assets. These secured assets may be sold by using any
of the following routes to obtain maximum value.
By obtaining quotations from persons dealing in such assets or otherwise interested in
buying the assets;
By inviting tenders from the public;
By holding public auctions; or
By private treaty.

Page 22
Lenders have seized collateral in some cases and while it has not yet been possible to recover
value from most such seizures due to certain legal hurdles, lenders are now clearly in a much

better bargaining position vis-a-vis defaulting borrowers than they were before the enactment of
SRFAESI Act. When the legal hurdles are removed, the bargaining power of lenders is likely to
improve further and one would expect to see a large number of NPAs being resolved in quick
time, either through security enforcement or through settlements. Under the SRFAESI Act ARCS
can be set up under the Companies Act, 1956. The Act designates any person holding not less
than 10% of the paid-up equity capital of the ARC as a sponsor and prohibits any sponsor from
holding a controlling interest in, being the holding company of or being in control of the ARC.
The SRFAESI and SRFAESI Rules/ Guidelines require ARCS to have a minimum net-owned
fund of not less than Rs. 20,000,000. Further, the Directions require that an ARC should
maintain, on an ongoing basis, a minimum capital adequacy ratio of 15% of its risk weighted
assets. ARCS have been granted a maximum realization time frame of five years from the date of
acquisition of the assets. The Act stipulates several measures that can be undertaken by ARCs for
asset reconstruction. These include:

Enforcement of security interest;

Taking over or changing the management of the business of the borrower;
The sale or lease of the business of the borrower;
Settlement of the borrowers' dues; and
Restructuring or rescheduling of debt.

ARCS are also permitted to act as a manager of collateral assets taken over by t he lenders under
security enforcement rights available to them or as a recovery agent for any bank or financial
institution and to receive a fee for the discharge of these functions. They can also be appointed to
act as a receiver, if appointed by any Court or DRT.

Page 23

Institution of CDR Mechanism

The RBI has instituted the Corporate Debt Restructuring (CDR) mechanism for resolution of
NPAs of viable entities facing financial difficulties. The CDR mechanism instituted in India is
broadly along the lines of similar systems in the UK, Thailand, Korea and Malaysia. The
objective of the CDR mechanism has been to ensure timely and transparent restructuring of
corporate debt outside the purview of the Board for Industrial and Financial Reconstruction
(BIFR), DRTs or other legal proceedings. The framework is intended to preserve viable corporate
affected by certain internal/external factors and minimize losses to creditors/other stakeholders
through an orderly and coordinated restructuring programme. RBI has issued revised guidelines
in February 2003 with respect to the CDR mechanism. Corporate borrowers with borrowings
from the banking system of Rs. 20crores and above under multiple banking arrangement are
eligible under the CDR mechanism. Accounts falling under standard, sub-standard or doubtful
categories can be considered for restructuring. CDR is a nonstatutory mechanism based on
debtor-creditor agreement and inter-creditor agreement. Restructuring helps in aligning
repayment obligations for bankers with the cash flow projections as reassessed at the time of
restructuring. Therefore it is critical to prepare a restructuring plan on the lines of the expected
business plan along with projected cash flows.
The CDR process is being stabilized. Certain revisions are envisaged with respect to the
eligibility criteria (amount of borrowings) and time frame for restructuring. Foreign banks are
not members of the CDR forum, and it is expected that they would be signing the agreements
shortly. However they attend meetings. The first ARC to be operational in India- Asset
Reconstruction Company of India (ARGIL) is a member of the CDR forum. Lenders in India
prefer to resort to CDR mechanism to avoid unnecessary delays in multiple lender arrangements
and to increase transparency in the process. While in the RBI guidelines it has been
recommended to involve independent consultants, banks are so far resorting to their internal
teams for recommending restructuring programs.

Compromise Settlement Schemes

1)

One Time Settlement Schemes

NPAs in all sectors, which have become doubtful or loss as on 31st March 2000. The scheme
also covers NPAs classified as sub-standard as on 31st March 2000, which have subsequently
become doubtful or loss. All cases on which the banks have initiated action under the
SRFAESI Act and also cases pending before Courts/DRTs/BIFR, subject to consent decree
being obtained from the Courts/DRTs/BIFR are covered. However cases of willful default,
fraud and malfeasance are not covered. As per the OTS scheme, for NPAs up to Rs. 10crores,
the minimum amount that should be recovered should be 100% of the outstanding balance in
the account.
Page 24

2)

Negotiated Settlement Schemes

The RBI/Government has been encouraging banks to design and implement policies for
negotiated settlements, particularly for old and unresolved NPAs. The broad framework for such
settlements was put in place in July 1995. Specific guidelines were issued in May 1999to public
sector banks for one-time settlements of NPAs of small scale sector. This scheme was valid until
September 2000 and enabled banks to recover Rs 6.7 billion from various accounts. Revised
guidelines were issued in July 2000 for recovery of NPAs of Rs. 50 millionand less. These
guidelines were effective until June 2001 and helped banks recover Rs. 26 billion.
Increased Powers to NCLTs and the Proposed Repeal of BIFR
In India, companies whose net worth has been wiped out on account of accumulated losses come
under the purview of the Sick Industrial Companies Act (SICA) and need to be referred to BIFR.
Once a company is referred to the BIFR (and even if an enquiry is pending as to whether it
should be admitted to BIFR), it is afforded protection against recovery proceedings from its
creditors. BIFR is widely regarded as a stumbling block in recovering value for NPAs. Promoters
systematically take refuge in SICA - often there is a scramble to file a reference in BIFR so as to
obtain protection from debt recovery proceedings. The recent amendments to the Companies Act
vest powers for revival and rehabilitation of companies with the National Company Law
Tribunal (NCLT), in place of BIFR, with modifications to address weaknesses experienced under
the SICA provisions. The NCLT would prepare a scheme for reconstruction of any sick company
and there is no bar on the lending institution of legal proceedings against such company whilst
the scheme is being prepared by the NCLT. Therefore, proceedings initiated by any creditor
seeking to recover monies from a sick company would not be suspended by a reference to the
NCLT and, therefore, the above provision of the Act may not have much relevance any longer
and probably does not extend to the tribunal for this reason. However, there is a possibility of
conflict between the activities that may be undertaken by the ARC, e.g. change in management,
and the role of the NCLT in restructuring sick companies. The Bill to repeal SICA is currently
pending in Parliament and the process of staffing of NCLTs has been initiated

Page 25

OBJECTIVES

I.

Problem statement/Objective of the research

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

II.

Beneficiaries of the study

The outcomes analyzed from this study would be beneficial to various sections such as:
Banks: This study would definitely benefit the banks in a way that directs them as to
which sector should be given priority for lending money.
Further Researchers: The major beneficiaries from the project would be the researchers
themselves as this study would enhance their knowledge about the topic. They get an
insight of the present scenario of this industry as this is the emerging industry in the
financial sector of the economy.
Student: To get the understanding of NPA concept as a whole.

Page 26

RESEARCH METHODOLOGY

I.

Research Design

The research design that will be use is Descriptive Research.

Involves gathering data that describe events and then organizes, tabulates, depicts, and
describes the data.
Uses description as a tool to organize data into patterns that emerge during analysis.
Often uses visual aids such as graphs and charts to aid the reader.
Using of hypothesis testing.

II.

Data Collection Sources

Secondary Data
Secondary data refers to the data which has already been generated and is available for use. The
data about NPAs & its composition, classification of loan assets, profits (net & gross) &
advances of different banks is taken from Reserve Bank of India website and indiastat.com.

Page 27

III.

Scope of the study

 To understand the concept of NPA in Indian Banking industry.

To understand the causes & effects of NPA
To analyze the past trends of NPA of Public, Private & Foreign banks in different sector.

IV.

Expected contribution of the study

The analysis made as a part of this study may contribute in a way analysis of strength and
weakness of the banking sector as whole with regard to Non Performing Asset of banks. Various
banks from different categories together may make efforts to overcome limitations for lending
money to different sectors like agricultural, SSI, Priority sector, non-priority sector, public sector
& others.

V.

Limitation

There are some data which are available for just 3 years while the same data for its counterparts
were available for 9 years. So exact comparison was not possible.

Page 28

ANALYSIS

Table 1: MOVEMENT OF NON-PERFORMING ASSETS (NPAs) OF SCHEDULED

COMMERCIAL BANKS
(Amount in ` Million)
Gross
NPA(201
4)

Gross
NPA(201
5)

Net
NPA(201
4)

Net
NPA(201
5)

STATE BANK
OF INDIA &
ITS
ASSOCIATES 798165

735085

418151

372777

PRIVATE
SECTOR
BANKS

245424

341062

88615

141283

NATIONALIS
ED BANKS

1474474

2049595

888076

1229305

FOREIGN
BANKS

115650

107708

31607

17567

Banks

Source : RBI Statistical tables relating to banks in India

Banks

STATE
BANK
OF
BIKANER & JAIPUR
STATE
BANK
OF
HYDERABAD
STATE BANK OF INDIA
STATE
BANK
OF
MYSORE
STATE
BANK
OF
PATIALA
STATE
BANK
OF
TRAVANCORE
STATE BANK OF INDIA & ITS

Gross
Gross
NPA(As on NPA(As
March 31 on March
2014)
31 2015)
27328

29451

Net
NPA(As
on
March
31 2014)
17709

Net
NPA(As
on March
31 2015)

58242

49848

29849

23485

616054
28189

567253
21364

310961
16303

275906
11216

37584

43597

24045

30492

30769

23571

19285

13987

798165

735085

418151

372777

17692

ASSOCIATES
AXIS BANK
CATHOLIC
SYRIAN
BANK LTD
CITY
UNION
BANK
LIMITED
DCB BANK LIMITED
DHANLAXMI BANK
FEDERAL BANK
HDFC BANK
ICICI BANK
INDUSIND BANK
ING VYSYA BANK
JAMMU & KASHMIR
BANK LTD
KARNATAKA BANK LTD
KARUR VYSYA BANK
KOTAK
MAHINDRA
BANK LTD
LAKSHMI VILAS BANK
NAINITAL BANK
SOUTH INDIAN BANK
TAMILNAD
MERCANTILE
BANK
LTD
THE RATNAKAR BANK
LIMITED
YES BANK LTD.
PRIVATE SECTOR BANKS
ALLAHABAD BANK
ANDHRA BANK
BANK OF BARODA
BANK OF INDIA
BANK
MAHARASHTRA
CANARA BANK

31464
3336

41102
4748

10246
1932

13167
3646

2931

3358

1973

2328

1385
4858
10874
29893
105058
6208
2630
7834

1861
5583
10577
34384
150947
5629
7452
27641

740
3019
3216
8200
32980
1841
1020
1020

1057
2526
3733
8963
62555
2105
4490
12363

8359
2792
10594

9442
6778
12372

5380
1399
5736

6236
2810
6091

5465
611
4326
4280

4546
774
6435
3187

4434
2817
2098

3025
3571
1355

778

1112

305

386

1749
245424
80680

3134
341062
83580

261
88615
57218

877
141283
59789

58576

68765

33425

36886

162614
221932
64021

60348
76795
18073

80695
137747
41266

130400

59655

87401

118730

66490

68070

71067

31806

44650

118759
118686
OF 28599
75702

CENTRAL BANK OF 115000

INDIA
CORPORATION BANK
47368

DENA BANK
IDBI BANK LIMITED
INDIAN BANK
INDIAN
OVERSEAS
BANK
ORIENTAL BANK OF
COMMERCE
PUNJAB
AND
SIND
BANK
PUNJAB
NATIONAL
BANK
SYNDICATE BANK

26160
99602
45622
90205

43930
126850
56704
149225

18189
49023
27637
56581

30143
59925
31470
98133

56179

76662

39044

48162

25535

30822

19186

22660

188801

256949

99170

153965

46111

64424

27206

38437

UCO BANK
UNION BANK OF INDIA
UNITED BANK OF INDIA
VIJAYA BANK
BHARATIYA
MAHILA
BANK LTD.
NATIONALISED BANKS
AB BANK LIMITED
ABU
DHABI
COMMERCIAL BANK
AMERICAN
EXPRESS
BANKING CORP.
ANTWERP
DIAMOND
BANK NV
AUSTRALIA AND NEW
ZEALAND
BANKING
GROUP
LIMITED
BANK INTERNASIONAL
INDONESIA
BANK OF AMERICA N.A.
BANK OF BAHRAIN &
KUWAIT B.S.C.
BANK OF CEYLON
BANK OF NOVA SCOTIA
BANK
OF
TOKYOMITSUBISHI UFJ LTD
BARCLAYS BANK PLC
BNP PARIBAS

66214
95637
71180
19859
0

102651
130309
65529
24432
-

35564
53403
46641
12624
-

63306
69190
40814
16597
-

1474474
70
231

2049595
85
231

888076
53
69

1229305
53
14

195

202

110

152

503

56

185

0
803

145
399

576

98
253

14
1935
95

14
1932
1075

1164
8

320
457

4639
163

3111
122

887
-

32
-

CITIBANK N.A.
COMMONWEALTH
BANK OF
AUSTRALIA
CREDIT AGRICOLE
CREDIT SUISSE AG
CTBC BANK
DBS BANK LTD.
DEUTSCHE BANK AG
DOHA BANK QSC
FIRSTRAND BANK LTD
HONGKONG
AND
SHANGHAI BANKING
CORPN.LTD.
HSBC
BANK
OMAN
S.A.O.G.
INDUSTRIAL
AND
COMMERCIAL BANK
OF CHINA
JP MORGAN CHASE
BANK N.A.
JSC VTB BANK
KRUNG THAI BANK
PUBLIC COMPANY
LIMITED
MASHREQ BANK PSC
MIZUHO BANK LTD
NATIONAL AUSTRALIA
BANK
RABO
BANK
INTERNATIONAL
ROYAL
BANK
OF
SCOTLAND N.V.
SBERBANK
SHINHAN BANK
SOCIETE GENERALE

14842
0

7806
-

7013
-

2449
-

174
0
78
21156
1673
0
342
6601

6
77
12839
1193
221
7915

84
19
15440
254
976

18
6575
466
151
2381

234

0
0

216
-

183
-

0
1503
0

1366
-

1080
-

694
-

1136

821

-57

59

200
0
4

487
-

170
-

414
-

SONALI BANK
STANDARD
CHARTERED BANK
STATE
BANK
OF
MAURITIUS LTD
SUMITOMO
MITSUI

29
57826

28
66564

8
3063

6
2306

1019

799

688

487

BANKING
CORPORATION
UBS AG
0
UNITED
OVERSEAS 0
BANK LTD
WESTPAC
BANKING 0
CORPORATION
WOORI BANK
0
FOREIGN BANKS
115650
107708
Source: RBI Statistical tables relating to banks in India

31607

17567

Movement of Gross NPA in various Schedule Commercial Banks in India in 2014-2015

2500000
2000000
1500000
1000000
500000
0

Gross NPA(2014) Gross NPA(2015)

Movement of Net NPA in Various Commercial Bank in India in 2014-2015

1400000
1200000
1000000
800000
600000
400000
200000
0

Net NPA(2014) Net NPA(2015)

Page 34
The data given in Table 1 tells us the Gross NPA and Net NPA in absolute terms. We can
compare the data from various commercial banks in India between the year 2014 and 2015. From
the table its clearly visible that State Bank of India and its associate and the foreign banks have
improved there asset quality. We can see that SBI and its associates had 2 nd highest NPA in 2014
and they have done good job in striking off some of the amount from their balance sheets.
Foreign banks earlier had least NPA in 2014 and have further reduced their NPA in 2015 which is
a good sign. But private sector banks and nationalized banks were not as efficient as their other
counterparts there has been a rise in their gross and net NPA from 2014 to 2015. Private sector
banks were not efficient enough in their management of NPA and ICICI bank has been the
highest contributor. Nationalized Banks have been the worst performer when it comes to
managing NPA as it seems from the data. They had the highest gross and net NPA in 2014 and
they performed much poorly in the corresponding yea, further adding on to their already high
pile of NPA.

Page 35
Table 2: Bank group-wise classification of loan assets of Scheduled Commercial Banks
2008 to 2013
Bank Name Year

Standard
Advances

Percent
Share

Public
Sector
Banks

200
8

16,564.51

200
9
201
0
2011
201
2
201
3
200
8
200
9
201
0

Private
Sector
Banks

Percent
Share

Doubtful
Advances

Percent
Share

97.67

SubStandard
Advances
168.46

0.99

190.83

1.13

20,546.01

97.9

195.21

0.93

207.08

0.99

24,551.47

97.72

276.85

1.1

246.79

0.98

29,888.72
34,379.00

97.68
96.83

336.12
603.76

1.1
1.7

319.55
470.75

1.04
1.33

38,999.85

96.16

765.89

1.89

734.85

1.81

4,597.22

97.25

72.81

1.54

44.53

0.94

5,031.87

96.75

105.27

2.02

50.18

0.96

5,677.23

97.03

86.78

1.48

65.43

1.12

2011 7,149.78
97.55
44
201 8,628.96
97.92
51.33
2
201 10,266.73
98.09
58.54
3
Foreign
200 1,598.82
98.09
19.63
Banks
8
200 1,624.20
95.7
58.74
9
201 1,603.11
95.74
49.3
0
2011 1,942.57
97.46
18.65
201 2,284.40
97.32
20.78
2
201 2,606.39
97.03
28.82
3
All Banks
200 22,760.54
97.61
260.89
8
200 27,202.08
97.55
359.22
9
201 31,831.81
97.49
412.93
0
2011 38,981.07
97.64
398.77
201 45,292.36
97.06
675.87
2
201 51,872.97
96.58
853.25
3
Source: RBI Statistical tables relating to banks in India
Page 36

0.6
0.58

107.36
103.16

1.46
1.17

0.56

110.69

1.06

1.2

7.68

0.47

3.46

10.04

0.59

2.94

14.41

0.86

0.94
0.89

21.13
22.32

1.06
0.95

1.07

27.51

1.02

1.12

243.04

1.04

1.29

267.3

0.96

1.26

326.64

1
1.45

448.04
596.23

1.12
1.28

1.59

873.05

1.63

108
106
104
102
100
98
96

Doubtful Advances %
Sub-Std. Advance%
Std. Advances %

94
92
90

108
106
104
102
100
98

Doubtful Advances %
Sub-Std. Advance%
Std. Advances %

96
94
92

Page 37

106
104
102
100
98
96

Doubtful Advances %
Sub-Std. Advance%
Std. Advances %

94
92
90

108
106
104
102
100
98
96

Doubtful Advances %
Sub-Std. Advance%
Std. Advances %

94
92
90

Page 38

Table 2 analyzes group wise classification of loan assets among various schedule banks in India
between 2008-2013. Starting with public sector banks we can see that their concentration of
standard advances has gradually decreased over the years, which is not a good sign as
consequently the concentration of sub-standard and doubtful assets has increased. Most
significant drop is noticed in 2013 where we can see the increase in size of sub-standard and
doubtful debt is most prominent it is a sign of mismanagement in public sector banks. Private
sector banks on the other hand can be seen improving their concentration of loan asset in
standard advances area more as compared to public sector banks with an exception in financial
year of 2009. They have worked in a manner that they have increased their loans in standard
advances to a level of 98% which is showing how well they have managed their activities. But
the only problem still with them is that the concentration of doubtful assets is more than substandard assets, this is the area where they have to work upon more. Foreign banks started out
really strong with 98% concentration in standard advances but in the subsequent two years i.e.
2009 and 2010 their share of sub-standard advances increased significantly in an alarming
fashion. Foreign banks since 2011 have improved their functioning as they increased their
concentration in standard advances again at the same time they curbed the rise of sub-standard
advances. Now if we look at all the banks as a whole then we can see there is a slow but gradual
decline in concentration of assets in standard advances region and at the same time sub-standard
and doubtful assets have been increasing little by little, this is not a good sign for the economy as
a whole.

Page 39

Table 3: Advances and NPAs of Domestic Banks by Priority and Non-Priority Sectors *
(Amount in ` Billion)
Bank
Grou
p

Priority Sector
Gross
Gross
Advance NPAs
s

Non-Priority Sector
Gross Gross
Gross Gross
NPAs Advance NPAs NPAs
as Per s
as Per
Cent
Cent
of
of
Total
Total

Public Sector Banks

2013
12,790
669
42.9
2014
15,193
792
36.5
2015
16,563
959
35.9
Nationalised Banks**
2013
8,891
405
42.2
2014
10,711
530
37.7
2015
12,182
702
35.8
SBI Group
2013
3,899
264
44.1
2014
4,482
261
34.4
2015
4,381
257
36.2
Private Sector Banks
2013
3,157
52
26.0
2014
3,831
61
26.6
2015
4,444
72
22.8
All SCBs (Excluding Foreign Banks)
2013
15,947
721
41.0
2014
19,024
852
35.6
2015
21,007
1,031
34.5
Notes:
1.
*:

Total
Gross
Gross
Advance NPAs
s

Gros
s
NPA
s as
Per
Cent
of
Total

27,769
30,712
32,598

890
1,375
1,712

57.1
63.5
64.1

40,559
45,905
49,161

1,559
2,167
2,671

100.0
100.0
100.0

19,170
21,249
22,133

554
877
1,260

57.8
62.3
64.2

28,061
31,960
34,315

959
1,407
1,962

100.0
100.0
100.0

8,599
9,463
10,465

335
499
452

55.9
65.6
63.8

12,498
13,944
14,846

600
760
709

100.0
100.0
100.0

7,309
8,287
9,942

148
167
244

74.0
73.4
77.2

10,467
12,117
14,386

200
227
316

100.0
100.0
100.0

35,078
38,998
42,541

1,038 59.0
51,025
1,542 64.4
58,022
1,955 65.5
63,548
Excluding
foreign
2. ** : Includes IDBI
3. Constituent items may not add up to the total due to rounding off.
Source : Source: RBI Statistical tables relating to banks in India
Page 40

1,759
2,395
2,987
Bank

100.0
100.0
100.0
banks.
Ltd.

120
100
80

NON-PRIORITY
secotr(Gross NPA as
Per Cent of Total)

60

PRIORITY
SECTOR(Gross NPA as
Per Cent of Total)

40
20
0

120
100
80
Gross NPAs as Per
Cent of Total

60

Gross NPAs as Per

Cent of Total

40
20
0

120.0
100.0

NON-PRIORITY
secotr(Gross NPA as
Per Cent of Total)

80.0
60.0
40.0
20.0
0.0

PRIORITY
SECTOR(Gross NPA as
Per Cent of Total)

Page 41
120.0
100.0
80.0
60.0
40.0

NON-PRIORITY
secotr(Gross NPA as
Per Cent of Total)
PRIORITY
SECTOR(Gross NPA as
Per Cent of Total)

20.0
0.0

120.0
100.0
80.0
60.0
40.0
20.0
0.0

NON-PRIORITY
secotr(Gross NPA as
Per Cent of Total)
PRIORITY
SECTOR(Gross NPA as
Per Cent of Total)

Page 42
Table 3 includes advances and NPA by domestic banks in priority and non-priority sector. In all
the types of banks we can see that there is an increase in advances made in both the priority and
non-priority sector. But if we look into the gross NPA side of the story we can see that we can see
that gross NPA among the advances extended into the priority sector has been on a steady decline
in the corresponding years. Nationalized banks extend around three times more advance into the
non-priority sector side but if we compare the gross NPA aspect of the there is a big difference as
the priority sector gross NPA is decreasing rapidly, the non-priority sector sides gross NPA is
increasing significantly. Same is with the story of public sector banks who extend three times
advance to non-priority sector and there is a sharp increase in gross NPA. A sharp increase of
nearly 6% has been seen in gross NPA of non-priority sector. SBI group extended nearly four
times of advance extended to priority sector to the non-priority sector and were not able to
manage the advances made properly which led to a rise of 10% in gross NPA in the non-priority
sector the very next year. SBI group also shows the decline of gross NPA in the priority sector
advances that has been extended in the three years. Private sector also shows the same trend that
there is a decline in the gross NPA in the priority sector. But the gross NPA in the non-priority
sector is considerably more in comparison with other segments of banks. Private sector extended
around four times the advance they extended to priority sector to the non-priority sector and this
has led to a steep rise of 4% of gross NPA in non- priority sector. The same trend follows when
we look at all the schedule banks together that there has been a decline in gross NPA in priority
sector from 41% in 2013 to 34.5% in 2015.

Page 43
Table 4: Loans Subjected to Restructuring in 2015
(Amount in ` Million)
SubStandar
Doubtf
Standar
d
ul
d
SBI & its
443401
Associates

16790

86841

Nationalis
ed Banks

2139829 111546

167127

Private
Sector
Banks

171112

10234

26630

Foreign
Banks

534

1720

3754

Source: RBI Statistical tables relating to banks in India

3000000
2500000
2000000
1500000
1000000
500000
0

Loans Subjected to
Restructuring in 2015
Doubtful
Loans Subjected to
Restructuring in 2015
Sub-Standard
Loans Subjected to
Restructuring in 2015
Standard

Page 44
Table 4 talks about the various advances which are subjected for restructuring in various Indian
scheduled banks. SBI and its associates have been successful in restructuring the doubtful
advances worth Rs 86841 million, standard advances of around Rs 443401million and Rs 1679
million worth sub-standard assets in 2015. We can see that SBI and it associates were successful
in writing off a huge amount od doubtful advances which is considered the riskiest. Nationalised
banks on the other hand have restructured an extremely huge amount of standard advance
amounting to Rs 2139829 million that they have extended in the year 2015. They also
successfully restructured their sub-standard and doubtful debts. Private sector banks restructured
Rs 171112 million of standard debt in 2015 which is a good sign. They also restructured their
sub-standard and doubtful debt successfully in 2015. Foreign banks restructured the least amount
of debt, standard debt of Rs. 534 million, sub-standard of Rs. 1720 million and doubtful debt of
Rs. 3754 million is restricted.

Page 45
Table 5: Corporate Debt Restructured in 2015
(Amount in ` Million)
SubStandar
Doubtf
Standar
d
ul
d
SBI & its
427883
Associates

27280

64054

Nationalis
ed Bakns

1002372 129719

151687

Private
Sector
Banks

198494

5354

50698

Foreign
Banks

3136

6491

Source: RBI Statistical tables relating to banks in India

1400000
1200000
1000000
800000
600000
400000
200000
0

Corporate Debt
Restructured Doubtful
Corporate Debt
Restructured SubStandard
Corporate Debt
Restructured Standard

Page 46
Table 5 depicts the corporate debt restructured in 2015 among various schedule banks in India.
SBI and its associates restructured standard corporate debt of Rs 427883 million, sub-standard
debt of Rs 27280 million and doubtful debt of Rs 64054 million. Nationalised bank also
restructured a huge amount of corporate debt in the year 2015. They restructured around Rs
1002372 million of standard advance which is most among all the segments of banks. Similarly
they restructured sub-standard debt of the amount Rs 129719 million and doubtful debt of Rs
151678 million in theyear 2015 which was also most among other segments of banks. Private
sector banks restructured around Rs 198494 million of standard corporate debt, sub-standard
debt of Rs 5354 million and doubtful debt of Rs 50698 million in the year 2015. Foreign banks
here in the case of restructuring corporate debts were restructured the least amount. They in the
year 2015 restructured Rs 0 sub-standard debt.

Page 47
Table 6: NPAs of SCBs Recovered through Various Channels
(Amount in ` Billion)
Year
No. Recovery Channel
Lok Adalats
DRTs SARFAESI Act
Total
2012-13 1
No. of cases referred
840,691
13,408 190,537
1,044,636
2
Amount involved
66
310
681
1,058
3
Amount recovered*
4
44
185
232
4
3 as per cent of 2
6.1
14.1
27.1
21.9
2013-14 1
No. of cases referred
1,636,957
28,258 194,707
1,859,922
2
Amount involved
232
553
946
1,731
3
Amount recovered*
14
53
244
311
4
3 as per cent of 2
6.2
9.5
25.8
18
Notes : 1. * : Refers to amount recovered during the given year, which could be with reference to cases
referred
during the given year as well as during the earlier years.
2. DRTs : Debt Recovery Tribunals.

1,800,000
1,600,000
1,400,000
1,200,000
2012-13 No. of cases
referred

1,000,000
800,000

2013-14 No. of cases

referred

600,000
400,000
200,000
0
Lok Adalats

DRTs SARFAESI Act

Page 48

1000
900
800
700
Lok Adalats

600

DRTs

500

SARFAESI Act

400
300
200
100
0

Table 6 gives us the data that tells about the various channels of recovery of NPA of schedule
banks in India. It is clear from the data that the number of cases that are being referred to the Lok
Adalats, DRTs and SARFAESI Act. Sharpest rise has been noticed in the has been noticed in the
number of cases that are referred to lok adalts, it is almost twice increase. Most of the amount
has been involved in cases referred to SARFAESI Act also the most amounts is recovered
through this channel only.

Page 49

CONCLUSION:
We can see that the gross and the net NPA in the financial year 2014-15 has decreased in all the
schedule commercial banks in India, indicating good governance of NPA and implementation of
good operation strategy by the banks in the year. If we look at the overall concentration of
standard advances in the schedule commercial banks is decreasing and subsequently the
concentration sub-standard and doubtful advances has increased between 2008-2013 which is not
a good sign for the banking sector as the risks are increasing due to this mismanagement. Though
the private sector and foreign sector banks have improved their concentration in standard
advances but the weight of sub-standard advances in public sector banks brings the overall sector
down. Priority sector lending has been seeing a steady decline when we compare the data
between 2013-2015 and subsequent rise of non-priority sector has been noticed. This shows that
the schedule Indian banks have become more profit oriented as they diverted their attention from
the needy priority sector as identified by RBI and are focusing towards non-priority sector to
reap benefits. The banks have become more efficient as they have paid focus towards
restructuring their advances in the year 2015. They are restructuring their debts especially
standard and doubtful advances, this is a positive sign for the banking sector. When we compared
the data of financial year 2012-13 and 2013-14 we found that among various channels that have
been identified for the purpose of recovery of NPA Lok Adalat is the most favored method of all
but SARFAESI Act is the method that receives cases of higher NPA amount among all the
methods. These channels of recovery have been working well but in the coming time their role
will become much bigger and a lot of emphasis will be given to them. On the whole I can
conclude from the study that the schedule Indian banks have become much more responsible and
aware about the problems caused due to higher NPA, RBI through its various guidelines have
made it mandatory for banks to be more responsible while giving away loans, this ia good for
bnking sector and economy as a whole.

Page 50

SUGGESTIONS
New body like Debt Recovery Tribunal should be established & capacity of DRTs should
be enhanced.
Uneven scale of repayment schedule with higher repayment in the initial years normally
should be preferred.
Private sector & Foreign banks should focus more on recovery of sub-standard &
doubtful assets.
Public sector banks should increase their non-interest income, as rise in NPA due to
default in interest income may affect the profits drastically.

Page 51

BIBLIOGRAPHY
I.

Books
Management Of Non-Performing Assets In Banks by Sugan C Jain
Managing Non-performing Assets in Banks S. N. Bidani

II.

Magazines
Investor
Business India

III.

e-Newspapers
The Economic Times
The Business Standard

I V. Published Material

RBI Guidelines Circulars on Income Recognition and Asset Classification

Report on Trend and Progress of Banking in India 2009-10
Statistical Tables Relating to Banks of India
Master Circular

V. Other Sources Internet Websites

http://www.rbi.org.in/
http://www.indiastat.com/

Page 52