A Study On The Impact of Non-Performing Assets On The Financial Health of Union Bank of India

A STUDY ON THE IMPACT OF NON- PERFORMING ASSETS ON THE FINANCIAL HEALTH OF
UNION BANK OF INDIA
CHAPTER 1
1.1 INTRODUCTION:
Banking in India originated in the last decade of the 18th century. The oldest bank in existence
in India is the State bank of India, a government-owned bank that traces its origins back to June
1806 and that is the largest commercial in the country. Central banking the responsibility of
the reserve bank of India, which in 1935 formally took over these responsibilities from the
imperial bank of India, relegating it to commercial banking functions. After India’s
Independence in 1947, the reserve bank of India was nationalised and given broader powers.
In 1969 the government nationalized the 14 largest commercial banks; the government
nationalized the six next largest in 1980.
As per the Reserve bank of India (RBI), India’s banking sector is sufficiently capitalised and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market and liquidity risk studies suggest that Indian banks
are generally resilient and have withstood the global turmoil.
The Indian banking industry has also witnessed the roll out of innovative banking models like
payments and small finance banks. RBI’s new measures may go a long way in helping the
restructuring of the domestic banking industry.
1.2 History of Indian Banking Sector:
Banking in India originated in the last decades of the 18th century. The first banks were the
general bank of India, which started in 1786, and the Bank of Hindustan , both of which are
now defunct. The oldest bank in existence in India is the state bank of India, which originated
in the bank of Calcutta in June 1806, which almost immediately became the bank of Bengal.
This is one of the three presidency banks, the other two being the Bank of Bombay and the
Bank of Madras, all three of which were established under the charters from the British east
India Company. For many years the presidential banks acted as quasi-central banks, as did their
successors. The three banks merged in 1925 to form the Imperial Bank of India, which upon
India’s independence became the State bank of India.
Indian merchants in Calcutta established the Union bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-1849. The Allahabad bank, established in 1865
and is still functioning today, is the oldest Joint Stock bank in India. It was not the first though.
That honour belongs to the Bank of Upper India, which was in 1863 , and which survived until
1913 , when it failed, with some of its assets and liabilities being transferred to the Alliance
Bank of Shimla.
KRUPANIDHI SCHOOL OF MANAGEMENT 1

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When the American Civil War sopped the supply of cotton to Lancashire from the Confederate
States, promoters opened banks to finance trading in Indian cotton. With large exposure to
speculative ventures, most of the banks opened in India during the period failed. The depositors
lost money and lost interest in keeping deposits with banks. Subsequently, banking in India
remained the exclusive domain of Europeans for next several decades until the beginning of
the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in 1860s. The Comptoire
d’Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862:
branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself
in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade
of the British Empire, and so became a banking centre.
The first entirely Indian Joint Stock bank was the Oudh Commercial Bank, established in 1881
in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore,
1895, which has survived to the present and is now one of the biggest banks in India.
Around the turn of the 20th Century, the Indian Economy was passing through a relative period
of stability. Around five decades has elapsed since the Indian Mutiny, and the social, industrial
and other infrastructure had improved. Indians had established small banks , most of which
served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange banks
and a number of Indian Joint Stock banks. All these banks operated in different sectors of the
economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign
trade. Indian joint stock banks were generally undercapitalized and lacked he experience and
maturity to compete with the presidency and exchange banks.
The period between 1906 and 1911, saw the establishment of banks inspired by the swadeshi
movement. The Swadeshi movement inspired local businessmen and political figures to found
banks of and for the Indian community. A number of banks established then have survived to
the present such as Bank of Baroda, Bank of India, Corporation bank, Canara Bank, Central
Bank of India and Indian Bank.
The fervour of Swadeshi Movement lead to establishing of many private banks in Dakshin
Kannada an Udupi District which were unified earlier and known by the name South Canara
district.

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From World War I to Independence:

the period during the First World War(1914-1918) through the end of the end of the second
World War(1939-1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the first world war were turbulent, and it took its
toll with banks simply collapsing despite the Indian economy gaining indirect boost due to
war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as
indicated in the following table.
Years Number of Banks that Authorized Capital (Rs. in Paid-up Capital
failed Lakhs) (Rs.in Lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
Post- Independence:
The partition of India in 1947 adversely affected the economies of Punjab and West Bengal,
paralyzing banking activities for months. India’s independence marked the end of a regime of
the Laissez-Faire for the Indian banking. The government of India initiated measures to play
an active role in the economic life of the nation, and he Industrial Policy Resolution adopted
by the government in 1948 envisaged a mixed economy. This resulted into greater involvement
of the state in different segments of the economy including banking and finance. the major
steps to regulate banking included:
● In 1948, the Reserve Bank of India, India’s central banking authority was nationalized,
and it became an institution owned by the Government of India.
● In 1949, the banking regulation act was enacted which empowered the Reserve bank
of India (RBI) “ to regulate, control and inspect the banks in India”
● The banking regulation Act also provided that no new bank or branch of an existing
bank could be operated without a license from the RBI, and no two banks could have
common directors.

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however, despite these provisions, control and regulations, banks in India except the State Bank
of India , continued to be owned and operated by private persons. This changed with the
nationalisation of major banks in India on 19th July 1969.
Nationalisation:
By the 1960s the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. The ,then ,Prime minister Indira Gandhi issued an
ordinance and instructed the Government of India to nationalize the 14 largest commercial
banks with effect from the midnight of July 19,1969.
A second dose of nationalization of 6 more commercial banks followed in 1980. The stated
reason for nationalization was to give the government more control of credit delivery. Thus the
government of India controlled around 91% of the banking business of India.
Liberalisation:
this period marked the policy of licensing a small number of private banks, which came to be
known as , tech-savvy banks, and included Global Trust Bank, which later amalgamated with
Oriental Bank of Commerce, UTI bank(now Axis bank), ICICI Bank and HDFC Bank.
The next stage was marked with setting up relaxed norms for Foreign direct investment, where
all foreign Investors in banks may be given voting rights which could exceed the present cap
with certain restrictions.
Currently, banking in India, is fairly mature in terms of supply, product range and reach even
across rural India. The banking industry has been the keen focus for the growth of the economy
through recapitalization of various banks into one such as- all subsidiaries of the State bank
into one, such as State bank of Travancore, State Bank of Bikaner and Jaipur, State Bank of
Patiala have all been clubbed into one as State Bank of India

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1.3 CURRENT STRUCTURE OF INDIAN BANKING SYSTEM:

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1.4 INTRODUCTION TO NON-PERFORMING ASSETS:

Banking Industry in the current scenario has been under the sceptical eyes of the people due to
the rising NPAs. It not only increases the pressure on banks but also determines the financial
health of the banks. We have seen in the recent that the banks have been going under
recapitalization and NPA is one reason for it. In simple terms Non-Performing Asset is a
double-edged sword. While on one hand , it ceases generating income for the bank, on the other
it takes away a part of the profit earned through provisioning. It also poses great reputational
risk for the banks. Though the NPAs are inevitable, increasing trend is a matter of great
concern, which needs to be addressed on a war-footing and also on an on-going process.
Therefore proper credit monitoring and liquidity management are terms directly linked to the
term. Therefore to resolve the rising issues of NPA the related attributes also need to be duly
checked and revised.
1.5 DEFINITIONS:
Non- Performing Assets have been defined differently by different analysts and economists as:
I. As per the Reserve Bank of India , “ In accordance with asset classification norms
brought in with effect from March 31, 2004, a non-performing asset (NPA) shall be a
loan or an advance, where:
1. Interest and /or instalment of principal remain overdue for a period of more than 90
Days in respect of a Term Loan,
2. The account remains 'out of order' for a period of more than 90 days, in respect of
an overdraft/ cash credit (OD/CC)
3. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
4. Interest and/ or instalment 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
5. Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts. “
II. “A Non-performing asset (NPA) is defined as a credit facility in respect of which the
interest and/or instalment of principal has remained 'past due' for a specified period of
time.”

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CHAPTER 2
2.1 COMPANY PROFILE:
Core Members Designation

Shri. B Sreenivasa Rao Chief Financial Officer
Shri D. C. Chauhan Chief Compliance officer
Shri Mangesh Mandrekar Company secretary

Shri A Narayanan Board Secretary
A Glorious Past- A Brighter Future:

Union Bank Of India was established on 11th November 1919 with its headquarters in the city
of Bombay now known as Mumbai. The head office building of the Bank in Mumbai was
inaugurated by Mahatma Gandhi, the Father of the Nation in the year 1921, and he said on the
occasion:
"We should have the ability to carry on a big bank, to manage efficiently crore of rupees in the
course of our national activities. Though we have not many banks amongst us, it does not
follow that we are not capable of efficiently managing crore and tens of crore of rupees."
His prescient words anticipated the growth of the bank that has taken place in the decades that
followed. The Bank now operates through over 4200+ branches across the country. The Bank's
core values of prudent management without ignoring opportunities is reflected in the fact that
the Bank has shown uninterrupted profit during all 96 years of its operations.

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Union Bank has been playing a very proactive role in the economic growth of India and it
extends credit for the requirements of different sectors of economy. Industries, exports, trading,
agriculture, infrastructure and the individual segments are sectors in which the bank has
deployed credit to spur economic growth and to earn from a well diversified portfolio of assets.
Resources are mobilized through Current, Savings and Term Deposits and through refinance
and borrowings from abroad. The Bank has a large clientele base of over 5.7 crores.
On the technology front the Bank has taken early initiatives and 100% of its branches are
computerized. The Bank has also introduced Core Banking Solution with connectivity between
branches. 100% of the business of the Bank is under Core Banking Solution making it a leader
among its peers in infusion of technology. Many innovative products are developed using the
technology platform to offer an array of choices to customers, adding speed and convenience
to transactions. Technology will also enable the Bank to derive substantial cost reduction while
creating the requisite capacity to handle the ever increasing volume of business in a competitive
environment that offers immense opportunities.
At the end of March 2015 the Bank achieved total business level of Rs. 5,79,627 crore
(Rupees five lakh seventy Nine thousand six hundred and twenty seven crore).
Behind all these achievements is a dedicated team of staff, which is truly cosmopolitan in its
composition. Many generations of members of staff have contributed in building up the strong
edifice of the Bank. The present team of over 36,000 members of staff distinguishes itself with
its customer centricity, willingness to learn and adherence to values enabling us to be
recognized as a caring organization where people enjoy their work and relationship with
customers.
Vision:
“To become the bank of first choice in our chosen areas by building beneficial and lasting
relationship with customers through a process of continuous improvement.”
Mission:
● To be a customer centric organization known for its differentiated customer service
● To offer a comprehensive range of products to meet all financial needs of customers
● To be a top creator of shareholder wealth through focus on profitable growth
● To be a young organization leveraging on technology & an experienced workforce
● To be the most trusted bank, admired by all stakeholders
● To be a leader in the area of financial inclusion.

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Joint Ventures/Subsidiaries:
In our Corporate Mission Statement, one of the points is “To offer a comprehensive range of
products to meet all financial needs of customers”. In order to move towards our cherished
goal of becoming a financial supermarket, Union Bank of India has setup Joint Ventures with
multinational companies which are well known and recognized as among the leaders in their
area of expertise
● Star Union Dai-ichi: Union Bank of India is distributing Life Insurance products under
corporate agency tie-up with Star Union Dai-Ichi Life Insurance Co. Ltd. (SUD Life
Insurance) which is a Joint Venture of Union Bank of India, Bank of India (two leading
Public Sector Banks in India) & Dai-ichi Life Holding Inc., Japan (a leading Japanese
Life Insurer in the Life Insurance market).
The Company has an authorized capital of Rs. 250.00 Crores. Consequent to increase
in FDI limit in insurance sector, in terms of revised shareholding pattern, shareholding
of Union Bank of India, Bank of India & Dai-ichi Life Holding Inc. is 26%; 30%; 44%
respectively.
Star Union Dai-ichi Life, with the strength of the domestic partners in the Indian
financial sector coupled with Dai-ichi Life’s strong domain expertise, is expected to
become a strong player in the Indian Life Insurance market in the long run. The
Company offers various life insurance products to cater to the needs of different
Customer Groups.
● Union Asset Management Company: Union Mutual Fund (Formally Union KBC
Mutual Fund) is sponsored by Union Bank of India. The Mutual Fund was originally
co-sponsored by Union Bank of India and KBC Participations Renta, a 100% subsidiary
of KBC Asset Management NV, Belgium.Union Bank of India acquired the entire
shareholding held by KBC Participations Renta in Union Asset Management Company
Private Limited (Formally Union KBC Asset Management Company Private Limited)
and Union Trustee Company Private Limited (Formally Union KBC Trustee Company
Private Limited), which constituted 49% (forty nine per cent) of: (a) the paid-up equity
share capital of Union Asset Management Company Private Limited; and (b) the paid-
up equity share capital of Union Trustee Company Private Limited. The Board of
Directors of Union Asset Management Company Private Limited and Union Trustee
Company Private Limited approved the aforesaid transfer of shares on September 20,
2016. Consequently, Union Bank of India has become the sole Sponsor of Union
Mutual Fund.

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Products:
Personal Corporate
Accounts and Corporate Loans
Deposits Loan Syndication and
Loans— Debt Restructuring
a)Retail b)MSME Corporate FAQs
Wealth Other services
Management-
Insurance, Mutual
funds and Demat
Account International
Government Schemes /Products/
Schemes Services
Financial NRI services
Inclusions Treasury and other
Agricultural and Products
Rural Remittances
Lockers/Other
Services

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Services available for Customers:

Digital Banking:
Application Based Banking:
1. Umobile
2. mPassbook and Selfie
3. Ucontrol
4. BHIM Union Bank Pay
5. Digipurse
6. Union Sahyog
7. BHIM Aadhar – Union Bank
Internet Banking:
1. Overview
2. Online security
3. Demo
4. Bharat Bill Payment System
5. Pay Tax Online
6. Online Shopping
Self Service Banking:
1. Credit card Log-in: Union Credit Card Bill
2. Online Account Opening: Savings Account
3. Online Loan Application: a) Home loan
b) Vehicle Loan
c) Education Loan
d) Loan against Property
e) Agriculture Loan
f) Apply Online MSME loan (up to 200 lacs)
g) Pradhan Mantri Mudra Yojana
h) Online Debit Card Application
4. Loan Application Status
5. Green Pin
6. Self ATM Pin Generation through IVR
7. Link your Aadhar: a) Link your Aadhar
b) Consent Form for Aadhar and Mobile Seeding

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c) Check your Aadhar Linked Status

d) Aadhar Authentication
8. Tabulous Banking
9. Call Centre 24x7: a) Call Centre Overview
b) Union Reach- IVR Banking
10. Digigaon
11. Union Cashless Campus
12. ATM Banking
13. SMS Banking
14. Point Of Sale Terminal
15. IMPS
16. Various Cards

UNION BANK OF INDIA
Organizational Structure:

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CHAPTER 3
Title Of The Study:
“A Study on the Impact of Non-Performing Assets on the Financial Health of Union
Bank of India”
Statement of The problem:
Lending in India today has created an investment culture and it plays an important role in
driving the national economy. It provides leverage to an entrepreneur to undertake
projects at a larger rate than what could have been undertaken without the availability of
credit. In this light asset quality management is one of the most critical areas in
determining the overall condition of a bank. When the loans and credit cannot be paid it
reflects the banks errors and flaws in the crediting procedure. Today, the present
challenge is to manage Non- performing assets of a bank thereby determining the good
health of a bank
Non- Performing assets have been seen to be rising in the recent, it is not only difficult to
extract the credit provided but it also refrains the bank from lending further. Thereby
pressurizing the bank to borrow from the apex body,. This transaction in turn not only
affects the bank but the economy as a whole. To promote more entrepreneurs and
businesses it is imperative that the bank has the ability to provide those funds, the Non-
Performing assets of the bank are directly proportional to be reduced ability to function
normally. In a broader view, it severely affects the health of the bank and opens the
opportunities for questions on the sound financial structure of the country
Objectives:
Primary objective:
The main objective of this project is to understand about the impact of Non-Performing
Assets on the Financial Health of the Bank.
Secondary objectives:
 To identify the measures taken by the bank to manage NPAs
 To analyze the errors and flaws existing in view of the NPA
 To analyze about the relationship between the process of provisioning and credit
monitoring
 To study about the effects of NPAs on the economy as a whole

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Statement of Hypothesis:
The following hypothesis is put forward in this study:
1. Ho: Non- Performing Assets does not affect a Bank’s Health negatively
2. Hi: Non- Performing Assets affect a bank’s financial Health negatively.
Operational Definition of Concept:
The various definitions relevant to the study include:
III. As per the Reserve Bank of India , “ In accordance with asset classification norms
brought in with effect from March 31, 2004, a non-performing asset (NPA) shall be a
loan or an advance, where:
6. Interest and /or instalment of principal remain overdue for a period of more than 90
Days in respect of a Term Loan,
7. The account remains 'out of order' for a period of more than 90 days, in respect of
an overdraft/ cash credit (OD/CC)
8. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
9. Interest and/ or instalment 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
10. Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts. “
IV. “A Non-performing asset (NPA) is defined as a credit facility in respect of which the
interest and/or instalment of principal has remained 'past due' for a specified period of
time.”
Data Collection:
Primary data: Nil
Secondary data:
The secondary data for this work will be obtained from company websites, company
magazines and brochures, annual reports, internet, text books, and other materials provided
Plan Of Analysis:
The data has been collected from the financial reports of the organization. The relevant data
for five years will be compared using comparative technique. A trend analysis and affect of
Non-Performing assets on the financial health will be determined accordingly. Inferences and
interpretation of the data will be done on the basis of tabulated data using chi-square method.

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Review Of Literature:
Non-Performing Asset is a double-edged sword. While on the other hand , it ceases generating
income for the bank, on the other it takes away a part of the profit earned through provisioning.
It also poses great reputational risk for the banks. Though the NPAs are inevitable, increasing
trend is a matter of great concern, which needs to be addressed on a war-footing and also on
an on-going process.
We must understand how an account/asset will be classified as NPA and the norms for
classification.
Income Recognition, Asset classification and provisioning Norms (IRAC norms)
Nature of loan When it becomes NPA
Term loan Interest and instalment of principal remaining overdue for a period
of 90 days
CC/OD Account remaining ‘out of order’ for 90 days
Bills Remaining overdue for a period of more than 90 days
(purchased/discounted
Agriculture Advance Instalment for principal or interest remaining overdue for two
cropping seasons for short term crops and one cropping season for
long term crops
NPA due to technical reasons

● Review/renewal of regular Ad-hoc limit not done within 180 days from
the due date/date of ad-hoc limit
● Drawings allowed against stock/book debts statement older than 180
days(drawings in the account based on drawing power calculated from
stock statements older than 3 months is deemed as irregular drawings and
if such irregular drawing is permitted in the account for a continuous
period of 90 days even though the unit is working
What is overdue?
In case of To be considered as overdue
Excesses over limit From date of such excesses
/drawing power
Term loans & loans From due dates of instalments
repayable on demand
Temporary overdrafts If amount is remaining outstanding for more than 7 days

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Bills ● From due date

● In case of sight bills, if it remains unpaid on presentation
Interest remaining From the last day of the quarter , irrespective of interest of interest
unadjusted charged at monthly intervals
WHAT IS OUT OF ORDER?

● Outstanding balance remaining continuously in excess of sanctioned limit/drawing
power(DP)
● In cases where outstanding balance is less than sanctioned limit/drawing power, but
there are no credits continuously for 90 days as on date of balance sheet or credits are
not enough to cover interest debited during the same period.
Asset classification under NPA
All NPAs are to be classified into the following 3 categories:
Sub Standard Asset NPA less than equal to 12 months
Doubtful Asset NPA exceeding 12 months
Loss Asset A loss asset is one where loss has been identified by bank or
auditors. Such an asset is 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
Standard Advances As long as accounts are regular (includes EAS SMA

Accounts)
Substandard After 12 months slip to Doubtful

Advances
A standard or substandard
advance may also be
classified as loss account Doubtful advances
directly if the value of
security falls below 10%
of the o/s amount
What are the income recognition and provisioning norms? Loss
advances
For the remaining period of its life till recovered
may be classified as loss
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No income to be recognized in NPA accounts. Any unrecovered interest should be reversed to

the account immediately on classification of account as NPA. Further, unrealized interest has
to be controlled in Dummy Ledger.
PROVISIONING:
Substandard Accounts Doubtful accounts Loss account
general upto 1
provision on year 100%
total 25%
outstanding
unsecured
portion 10%
(additional) above 1 year
and upto 3 on
unsecured years 40% outstand
exposure in ing
infrastructure more than 3
loans where years 100%
certain safegaurds
such as escrow
a/c are available
GROSS NPA = Total outstanding NPAs
NET NPA = gross NPA less

1. Provision on NPA as per reforms
2. Additional/floating provision
3. ECGC/CGT claim received pending for appropriation
4. Provision due to diminution in fair value in case of
restructured accounts
5. Amount outstanding in uncovered interest account, if any
GROSS NPA %age = Gross NPA/ Gross advances
NET NPA %age = Net NPA / Net Advances (gross advances less provisions as
above)
What is provision coverage ratio?

Meaning and purpose of provision coverage ratio:
Provision coverage ratio refers to the percentage of provision that the bank has set aside, against
the loan amount to meet an eventuality where a loan might have to be written off if it becomes

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irrecoverable. It is a measure that indicates the extent to which the bank has provided (set aside
money to bear the loss) against the troubled part of its loan portfolio
1. GNPA+PWO
2. Provision against NPA + provision against diminution in fair value of restructured
assets + technical write off (PWO)
3. Floating provision for advances (not used for tier II) + CGTMSE/ECGC held in sundry
+ Amount of recovery if any held in sundry PCR= (2+1)/3
CREDIT MONITORING
Credit monitoring is an inseparable part of bank lending from the date lending activity
commences. There are three cardinal principles of lending that banks follow while taking a
decision in providing credit . these are principles of safety, liquidity and profitability, the most
important being principle to ensure safety of the funds lent. It means the borrower must repay
the loan amount with interest as per loan agreement. Ability to repay the loan depends upon
the borrower’s capacity to pay as well as his willingness to repay.
Objectives of Credit Monitoring
1. Ensure safety of the money lent by the Bank: This is the primary objective of the bank
to ensure safety of the money
2. Credit delivery to take place after complying with all the stipulated terms and
conditions: credit delivery means disbursement of credit facilities to take place after
complying with all the stipulated terms and conditions
3. Procedures of the bank are to be complied with: All the laid down guidelines and
procedures as per the loan policy and instruction circulars are to be complied
4. Assets in standard category to remain standard: Assets should be performing
throughout the life of assets and the quality of it should not degrade
5. Assets should be stress free: within standard category, accounts are to be upgraded from
SMA,EAS-II, EAS-I to pure standard category i.e. to ensure that the accounts are stress
free
6. Accounts do not slip to NPA category: The main purpose of monitoring is that the assets
should not get downgraded
Goals of Credit monitoring
1. Periodical monitoring: Periodic monitoring of the actual performance of the assisted
borrower vis-à-vis the projections accepted at the time of credit sanction. The

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performance will include sales, operating profits, inventory, debtors level, cashflow,
DER, DSCR, Break-even point etc.
2. Identify the problem: Where the projections are not met and the actual performance
varies by a wide margin, then we have to identify the problems faced by the borrower
for timely remedial measures like rescheduling/restructuring.
3. Regular interaction: To interact with the borrower on a regular basis to know the day-
to-day operations, specific problems faced by the unit, etc. it will help us in knowing
development of the project and the future plan of action of the customer.
4. Market trend: Watch the market trend regularly and compare it with the performance
with the borrower. The performance of the firm is to be compared with the similar type
units which are there in the market.
5. Assistance: Whether the borrower faces any difficulty in servicing interest in time,
repaying instalments on due date, meeting commitments of non fund based limits in
time and to take remedial measures.
6. Exit option: If assistance to the unit cannot be continued in the long run and if it is felt
that it will jeopardize the interest of the bank, then to resort to exit option, if workable.
7. Recovery measures: If exit option cannot be worked out and where interest of the bank
is under threat, then to initiate quick appropriate recovery measures in all such potential
NPA accounts.
Monitoring is nothing but Plan-do-check-act cycle which is to be done on continuous basis.
Therefore the assets require continuous monitoring and improvement. Continuous means never
ending or without break. Improvement has to be continuous because quality either gets better
or it gets worse.
Monitoring of borrower:
It is rightly said that the person behind the activity is more important than the activity itself, if
the borrower’s intentions, integrity, character etc., which are, of course, are the personal traits
are impeccable, there are rare chances of bank’s facing problems in recovery of the dues.
The adage “OUT OF SIGHT IS OUT OF MIND” holds true in case of borrowers. When the
banker fails to keep the sight of the borrower, the borrower loses sight of the banker which
results in non- repayment of the loan.
3600 view of borrower:
✓ First: Discover his credibility in the market or his work place.
✓ Second: Take information from their dwelling place.

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✓ Third: Seek some facts from their friends and relatives.

✓ Fourth: Study the credit report between the lines
TOOLS FOR MONITORING HEALTH OF AN ACCOUNT:
The very purpose of credit monitoring is to ensure and sustain the asset quality, value,
productivity and.profitability.it further leads that borrowal accounts should be stress free and
do not slip into NPA category having complied with all laid down procedures conveyed
through sanction terms and conditions. the underlying are certain tools available for monitoring
1. Stock and book debt statements: submitted by the borrower every month, these
provide details like total value of stocks and book debts, total salrs and purchases during
the month, details of sundry debtors with dates of origin with declaration by the
borrower that reported book debts are not encumbered in any manner. From these
signed statements, a banker has to scrutinize and ensure that unpaid stocks, stocks
received under DA L/C, stocks in book debts older than 90 days do not rank for drawing
power (D/P).
2. M6/Q4 statement: It is a monthly/ quarterly inspection report based on stock and book
debt statements. The authorized bank official has to comment on the authenticity of
account operations and turnover, documentation stipulations and execution, valuation
basis for stocks, excess borrowings over DP, details of insurance policies in force,
overdue bills and installation etc. it also checks on display of bank’s name board, letter
of free access/no lien and updated rent receipt- when the business unit does not own the
premises. Comments here are minor points for the monitoring official to sustain the
follow up action for suitable remedial measures in time.
3. Monthly Select Operational Data (MSOD): it is a powerful monthly tool to compare
and monitor yearly projections with monthly trends in sales, purchases and gross profit
to ensure liquidity, healthy turnover and profitability. It reflects on the estimates of
gross sales, net sales, production value, total debtors and receivables out of which bills
purchased/discounted by the bank comparing the trends with figures up to the end of
the reporting month. It also provides details of sundry creditors, inventories, stock-in
& stock-out during the month and charged to the bank, gross profit during the month
vis-à-vis current accounting year up to the end of the reporting month. On the basis of
these select operational data, the key monitoring official has to comment on the action
taken to overcome poor turnover in the account, incidence of bills/cheques unpaid,
frequency of cash withdrawals.

UNION BANK OF INDIA
4. Monthly Monitoring Report (MMR): Its submission is to be ensured every month

through the prescribed format up to Rs. 50.00 lacs to be scrutinized by branch officials.
Apart from basic operating details, it comments on banking arrangement for meeting
credit needs, credit ratings, restructured status if any, credit process audit, DBC
updating, vetting of documents, registration of charge with ROC and its validity. It also
comments on review/renewal status, ledger operations, execution of equitable mortgage
and overall conduct of the account. In an integrated manner, it provides enough signals
for the alert banker to initiate appropriate remedial measures in time.
5. Stock Audit Report: This is a unique tool to monitor the adequacy of current assets in
general and inventory in particular to derive the correct drawing power. It also
comments on production capacity with regard to licensed, installed, utilized capacity,
method of valuation of stock, correctness of drawing power, acceptability level of
inventory and debtors throwing light on holding period. In line with quality of the credit
portfolio concerns, it also scrutinizes and comments on documentation, registration of
charge, diversion of funds, submission of key returns including MSOD & QPR and
profitability of relationship.
6. Concurrent Audit Report: As an instantly available support tool to the field bankers,
it comments on irregularities in fresh sanctions and disbursals, ad-hoc or casual
sanctions, borrowers with inadequate/lapsed insurance cover, time barred documents,
invoked/devolved/expired LC & LG, default in interest & instalments, status of EAS-
I/EAS-II/SMA & restructured accounts, quick mortality cases, asset classification
justification, recoveries in NPA & prudentially written off accounts. It also focuses
discrepancies pertaining to FOREX transactions, debit/credits to FCNR/NRE/NRO
accounts, and compliance of ECGC formalities with comments on import/export bills
unpaid/unrealised beyond 180 days.
7. Other Audit Reports (Internal/statutory/RBI): All audit reports should be viewed
positively as an effective tool to discover the blind areas for monitoring in a proactive
manner. Towards this end, all types of audit reports in common comment on the quality
of assets, prudential exposure norms, asset classification, leakage of income,
compliance of sanction stipulations, renewal/review of working capital/ term loan
through LAS, nature and composition of collateral securities with details of legal
opinion and vetting. It comments on non-conduct of credit process audit, correct
classification of balance sheet items, treatment of equity/quasi-equity/debt, CA

UNION BANK OF INDIA
certified promoter’s contribution/capital in the system. It acts as an eye opener to

initiate actions for adequacy of margin, insurance and collateral securities. Even seems
monotonous and repetitive, these reports are boons in disguise.
8. Quarterly Performance Report (QPR): Though not found comfortable and familiar
with field bankers, this effective monitoring tool is applicable to traders & merchants
exporters apart from manufacturers with aggregate limits of Rs. 1 crore and above. This
statement needs to be submitted within 4 weeks from close of each quarter by the
borrower. This also includes half yearly operating fund flow statement. QPR as an
effective tool throws light on performance in terms of production quantity, net sales
(both domestic and exports) in comparison of actual in the reporting quarter vis-à-vis
the annual plan projections. It comments on status of working capital funds with details
of composition of current assets, current liabilities, net working capital and current ratio
at end of the last year in comparison to the same at the end of the quarter vis-à-vis the
change during the current year till end of reporting quarter in line with the estimates
made at the beginning of the current year. It derives trends from the financing pattern
of current assets: shares of bank borrowing, sundry creditors, other current liabilities
and net working capital. It scrutinizes the levels of inventory , receivables and sundry
creditors through computing the holding periods for all of these key items in operating
cycle. In addition , the half yearly operating fund flow statement(HOF) comprising of
part A and B makes meaningful comparison of long term surplus/deficit, changes
(increase or decrease) in current assets and current liabilities other than bank
borrowings, changes in working capital gap, net surplus/deficit from both long term
and short term funds. It resolves the issue whether change in bank borrowings is
commensurate with change in working capital gap. This is a powerful tool at the time
of review/renewal to ensure permissible bank finance while focusing on the sound
functioning of the unit in desirable directions as per projections and past trends.
9. Other supportive monitoring tools: Apart from the major monitoring tools mentioned
above, there are other supporting tools in form of :
● Advocate’s vetting report: It contains the empanelled lawyer’s remarks and
certificate of authenticity of the documents executed as per action sanction
stipulations. Emphasis is made on the qualifying remarks on adequacy and
quality of documentation process. Taking a cue from this report, the bank
official need to ensure that all relevant documents have been obtained, charge

UNION BANK OF INDIA
created is legally enforceable and all documents are adequately stamped

confirming to law of limitation period.
● Visit report of key officials from controlling office: It comments on NPA
management & recovery with details of position of NPAs at the beginning of
the year, addition of slippages, deductions through cash recovery/up
gradation/write-off etc. vis-à-vis the ceiling level target.
● Asset Quality Management Committee (AQMC) meeting observations: It
emphasises on the follow up and timely renewal of limits for up-gradation to
stress free category by recovering the over dues including the critical amount.
It revisits the justification of moratorium & EMI to ensure that no account
should be under stressed category for technical reasons like non-receipt of
stock/book debt statements, non-review or renewal of limits etc.
● CIBIL report: As a data mine for bankers to get the credit history of both
existing and prospective borrowers , this report provides a scoring pattern in
the range of 300-900 points, out of which 600 and above are treated as good
scores. Factors influencing rating/scoring include payment history, outstanding
debt, length of credit history, number & type of credit accounts, utilization of
sanctioned limits and application of new credit lines. These factors impact the
score either positively or negatively. Factors which cause negative impact
include wilful default, written-off & suit filed history. This report reflects on
the overall commitment and financial character of the borrower. This report
need to be generated and studied both at the time of new sanction and
subsequent review/renewal to ascertain any change in status affecting the
health of the account. Each bank official handling credit portfolio has wide
access to CIBIL website for updated monitoring.
10. Search/Status Report: This report as an effective monitoring tool is made available
by the Registrar of Companies (ROC) for corporate borrowers. Through a search both
in letter & spirit, it comments on the date of registration, date of creation of charge,
amount secured by charge, particulars with short description of property charged, name
of persons entitled to the charge, date of modification of charges and date of satisfaction
of charges. The financing banker is supposed to be the person entitled to the charge as
per search report. It also enables a prudent banker to ensure registration of charge of
company borrowers within 30 days of execution of documents with ROC.

UNION BANK OF INDIA
11. Technical Officers Report

12. Factory Visit Report
13. Collateral Security Inspection
14. Annual Accounts Filed with ROC
15. Various Challans
16. Assessment Orders
17. Review Renewal of Accounts
18. Credit rating
19. F-1 statement
20. M-27 BMDP Statement
21. Consortium Meeting Minutes
22. Credit Process Audit
23. CMA Data
Cut Off Limit For Monitoring:

Limit Monitoring Authority
Up to Rs. 50.00 lacs Branch level
Above Rs. 50.00 lacs up to Rs. 2.00 Cr Regional Office
Above Rs. 2.00 Cr. & up to Rs. 5.00 Cr FGMO
Above Rs. 5.00 Cr CO
Early Warning Signals:

Signals available within the bank:
● Non- compliance with terms of sanction
● Unplanned borrowing for margin contribution
● Delay in payment of interest beyond 15 days
● Instalments overdue beyond 30 days
● Return of cheques for financial reasons
● Reduction in credit summations- not routing entire or pro rata transactions through the
bank, opening of collection of accounts with another bank without prior approval of
appropriate authority
● Longer outstanding in the bills purchased accounts

UNION BANK OF INDIA
● Longer Period of credit allowed on sales, Bills negotiated through the bank outstanding
after due dates, frequent return of bills and later or non-realization of receivables
● Constant utilization of working capital limits to the brim
● Unexplained delay or failure to submit periodical statements such as stock/book debts
statements, MSOD,CMA, QPR, balance sheets etc. and other papers needed for review
of account
● Frequent requests for excess/additional limit or for extension of time for repayment of
interests/instalments.
● Ad-hoc/excess/bill purchase overdue, LC devolvement/guarantee invocation
● Lack of transparency in borrower’s dealings with the bank/avoiding to meet bank
officials
● Constant failure or willingness to mention unpaid stock in stock statements or age of
book debts in book debt statement.
Signals to be noticed during inspection/visits:
● Delay in project implementation
● Installations of sub-standard machinery or machinery not as per the project
report/approved quotations.
● Frequent break down in plant/machinery
● Production noticeably below projected level of capacity utilization
● Labour problem and frequent interruptions in manufacturing
● Non-availability of vital spare parts/major raw material
● Production of unplanned items without reporting to the bank
● Disposal/replacement of vital plant and machinery without bank’s knowledge
● Downward trend in sales
● Higher rate of rejection at process stage/final stage/after sales.
● Delay or failure to pay statutory dues
● Diversion of working capital for capital expenditure or for other use
● Abnormal increase in debtors and creditors
● Increase in inventory, which may include large quantity of slow and non-moving items
● General decline in the particular industry combined with many failures
● Rapid turnover of key personnel
● Filing of law suits against the company by its customers, creditors, employees etc.
● Unjustified rapid expansion within a short time without appropriate financial tie up

UNION BANK OF INDIA
● Sudden /frequent changes in management/infighting within the management

● Reduction in profit/unit starting incurring losses
● Dependence on single or few buyers/no alternate market for product
● Threat of action against the borrower from statutory bodies e.g. pollution control,
Labour Welfare department, Income tax/Sales tax/Octroi/Excise/custom departments,
etc.
● Poor/dubious record maintenance
● Loss of key product lines, franchises, distribution rights or sources of supply
● Speculative inventory acquisition not in line with normal purchasing practices
● Poor maintenance of plant/machinery
● Lack of planning/poor planning
● Apathy of promoters/owners in running the business
● Adverse market reports on the borrower/concern
● Loss of crucial customers
Remedies available:
● Discussion with borrower/guarantor
● Recovery of overdue amounts to avoid slippages
● Timely restructuring of the account
● Ad-hoc limits to tide over temporary problems
● Seeking additional collaterals/guarantees
● Borrowers to pump more funds in to the system
● Detailed stock inspection by outside agency
● Reduction of limits
● Exit option
● Taking possession of securities
● Recalling the advance/action under SARFAESIA

UNION BANK OF INDIA
NPA CREATORS:
BANK SPECIFIC
INTERNAL REASONS REASONS
EXTERNAL REASONS
 Diversion of  Lack of proper
 Recession
funds due diligence
 Power Shortages
 Time/cost  Lack of regular
 Price escalation
overrun in project monitoring
 Accidents
 Business failure through
 Natural calamities
 Inefficiency in inspections
 Change in govt.
management  Reckless
policies (both
 Slackness in lending to meet
Indian and
credit monitoring the targets
Foreign)
 Inappropriate/out-  Lack of
 Failure of counter
dated technology sufficient staff
party
 Labour unrest for proper
 Fall in demand
 Attrition in key appraisal
resulting in
positions  Poor credit
cancellation of
 Death/incapacity appraisal
orders Litigations
of key persons  Under/over
finance
HOW TO MANAGE NPA?

● Identification of accounts turning to NPA
● Preventing slippages
● Systematically initiating and pursuing appropriate recovery measures- both legal and
non-legal measures.
● One time settlement
● Write off/ Prudential write off
● Sale of assets
● Initiating steps for up gradation

UNION BANK OF INDIA
Borrower Recovery Quadrant
1. Willing to pay/capacity to 4. Not willing to pay/capacity

pay to pay
No problem with the borrower, a Wilful Defaulter. stringent
simple phone call or contact will set measures for recovery
things right.
NPA
BORROWER
2. Willing to pay/no or less 3. Not Willing to pay/No

capacity to pay capacity to pay
Restructuring of loans, Most difficult borrower. last
rescheduling/giving time,OTS, options to be explored like OTS,
mergers/amalgamations etc. write off etc.
Options available for Recovery:

Legal Measures:
● Lok Adalat- up to Rs. 20.00 lacs
● Civil suits – Attachment before judgement
● Summary suits- When there is no security other than DPN
● Recovery through revenue recovery acts (not in all states)
● Debt Recovery Tribunal- DRT- for dues of Rs. 10.00 lacs and above
● Securitization and reconstruction of financial assets and enforcement of Security
interest act 2002 (SARFAESI) Attachment and sale of assets by Banks without
intervention of court
Non-Legal Measures:
● Reminders
● Personal follow up
● Recovery camps
● Rehabilitation of sick units
● Corporate debt restructuring

UNION BANK OF INDIA
● Loan Compromise/OTS
● Appropriation of subsidy if any
● Write off
● Persuasion through guarantors/friends/relatives
● Recovery through specialized branches
● Recovery through recovery agents
● Securitization of debts and selling to ARC (Asset reconstruction Companies)
● Sale of NPAs to other banks/NBFCs like Kotak Mahindra Bank and Standard Chartered
Bank- NPA should not be more than 2 years old
Painting on Walls:
Public Notice of Bank’s charge/ mortgage over the property is to be affixed on the properties
conspicuously, in the following format: In all NPA accounts where it has been decided to
initiate SARFAECI action. In all NPA accounts where symbolic possession has been taken
under SARFAESI Act, 2002
PUBLIC NOTICE
THIS PROPERTY IS CHARGED/MORTGAGED TO UNION BANK OF INDIA …

BRANCH, AS A SECURITY FOR THE LOANS, PRIOR PERMISSION OF THE BANK
IN WRITING HAS TO BE TAKEN IF ANYBODY WANTS TO DEAL WITH THE
PROPERTY.
Branch manager/Authorized Officer
Minimum settlement Amounts to be recovered:

17 & above Outstanding in running ledger + interest @ 9% (simple)
12 to 16 Outstanding in running ledger + interest @ 7% (simple)
8 to11 Outstanding in running ledger
4 to 7 50% to 75% outstanding in running ledger
2 to 3 25% to 50% outstanding in running ledger
0 to 1 As much as possible

UNION BANK OF INDIA
Deciding the realisability of security based on marketability

Parameter Yardstick
Easily marketable Like residential/commercial premises located in Metro/Urban or
prime location
Not easily marketable Tenanted premises or Industrial land/building
Very difficult to market Like agricultural land
Concept of NPV (Net Present Value):

Formula:
NPV = Realisable value of available securities less cost of realisation (up to 10%)
( 1+ R/100)n
R = rate of interest (present BPLR to be considered)
n = Time period for which the value is discounted (maximum up to 3 years)
Points/score for various parameters under the modular approach as also the system of
awarding points/score shall be as follows:
S. No Parameters Points
1. Realisable value of security( fair market value as given by valuer (no
distress value)
a) Exceeds the crystallized dues(running ledger balance +
interest @ 9%
i. Easily marketable 10
ii. Not easily marketable 8
iii. Very difficult to market 7
b) Exceeds 75% and up to 100% of the crystallized dues
(Running ledger balance + Interest @ 9%)
i. Easily Marketable
5
c) Exceeds 50% up to 75% of the crystallized dues (Running

ledger Balance + Interest at 9% simple)

UNION BANK OF INDIA
ii. Not easily Marketable 5
2
d) Exceeds 25% & up to 50% of the crystallized dues ( running
ledger balance + Interest @ 9% simple)
0
e) 25% or less of the crystallized dues
i. Easily marketable
0
2 Aggregate means of the borrowers/guarantors ( to be calculated
excluding securities charged to us)
i. More than crystallized dues
ii. Exceeds 75% and up to 100% of crystallized dues 4
iii. Exceeds 50% and up to 75% of crystallized dues 3
iv. Exceeds 25% and up to 50% of crystallized dues 2
v. Less than 25% of the crystallized dues 1
0
3 Age of NPA (no. of years remained as NPA)
i. Up to 2 years 3
ii. More than 2 and up to 5 years 2
iii. More than 5 and up to 8 years 1
iv. More than 8 years 0
4 Legal position of the bank
i. No defects/deficiencies in documents & mortgage is in 2
order
ii. Documents are defective & mortgage not enforceable 0

UNION BANK OF INDIA
IMPACT OF NPA
NPA does not only affect the bank but it has a bad impact on the public in general. It adversely
affects the economy and hampers growth of the nation.
Impact on the Bank:
NPA level of the bank shows the strength and performance of the bank and has a direct impact
on the bank
i. Stops generating Income: When an account turns to NPA, banks stop charging interest
in the loan accounts which is why it is called non- performing.
ii. Provisioning: bank will not only stop charging interest but has to make a provision
from the income earned by other assets. Besides the mandatory provision for different
class of assets, RBI has prescribed the banks for additional/voluntary minimum PCR
(Provision Coverage ratio) of 70% on total NPA to strengthen the financial soundness
of the banks.
iii. Profitability: Higher the NPA higher will be the provisions, which reduces overall
profitability of the banks.
iv. Yield on Advances: Yield on advances will be low due to high level of NPA
v. Interest Rate: High level of NPAs results in low yield on advances and there will be
pressure on margin which leads to charging high rate of interest on other accounts. It
will have the impact on not only acquiring the new customers but to retain the existing
customers also.
vi. Recycling of Funds: Funds are blocked and cannot be recycled and used for further
lending/requirements
vii. Liquidity: Bank’s liquidity management is the process of generating the funds to meet
contractual or relationship obligations at reasonable prices at all times. New loan
demand, existing loan commitments, and deposit withdrawals are the basic contractual
and relationship obligations that bank must meet. If the account turns bad there will be
liquidity crisis in the bank
viii. Affect ALM: Recycling of funds is affected due to which there will be asset liability
mismatch thereby posing risk of liquidity. Therefore to meet the payment of the
liability, bank has to borrow funds from market at higher rate of interest. Since the
funds are blocked and the deposits are maturing on a continuous basis, it will affect the
ALM (Asset Liability Management)

UNION BANK OF INDIA
ix. Reputation Risk: Banks with high NPAs may get branded as Banks without controls
which are a reputational risk to the bank. It reflects on decision making capability and
inability to manage and monitor the assets.
x. Cost of funds: Due to the liquidity problem, borrowing from the market at higher
interest will interest the cost of fund.
xi. Wastage of man hours: A lot of time and energy is required in monitoring and follow
up of stressed assets which would otherwise have been utilized for acquiring new
business for the bank.
xii. Cost involved in follow up: Stressed assets require not only provisioning but there is
a good amount of cost involved in follow up and monitoring of the account. The
carrying cost of NPA accounts will be high
xiii. Affects bank’s rating: Credit rating agencies do the CAMELS ratings of the banks. C
stands for Capital, A stands for asset quality, M stands for Management, E stands for
earning, L stands for liquidity and S stands for Sensitivity to market risk. Rating is
affected mainly on asset quality and earning of the bank and both are mutually related
to each other.
xiv. Providing of Capital: To maintain the capital adequacy ratio we have to keep an
maintain the required capital as the risk weight for NPA accounts are high.
xv. Net Worth: Due to the high provisioning requirements the net worth of banks will be
adversely affected.
xvi. Book Value per share: Net worth (Excluding revaluation reserve and intangible
assets) divided by equity multiplied by ten. If the net worth is affected, the book value
of share will also be affected.
xvii. EPS: Earning per share is net profit divided by equity multiplied by ten. Therefore if
the profit will decrease our EPS also will decrease.
xviii. Share Prices: Share prices of a bank depend on the NPA level of the bank only as we
have seen in case of SBI in June-12 quarter. Though the profit of SBI has doubled due
to rise in NPA level share price has fallen down.
xix. Adverse effect on other businesses: Other business of the bank will be adversely
affected due to the high level of NPAs.
xx. Adversely affects dividend Pay-out: Due to the effect on profitability, Dividend
payout will also be affected accordingly

UNION BANK OF INDIA
xxi. Quality of manpower: This will have the impact on the quality of existing as well as
newly recruited staff also.
Impact on Borrower:
i. Reputation & image in the market: If the account turns into NPA the reputation and
image in the market will be at stake as they are unable to meet their liability on time.
ii. Bad credit rating: the credit rating of the borrower will go down and reports
generated in CIBIL will have a poor rating
iii. High interest rate: stressed assets will be having poor rating thereby the cost of
borrowing will be high. The bank will charge higher interest rate as well as penal
interest on poorly rated assets or bad quality assets.
iv. Question on ability: If the account turns into NPA, it means the promoters or partners
are not capable of running the project successfully and unable to manage the funds
v. No access to credit: Due to the poor credit rating or default in one of the project the
borrower will be branded as ‘failure’ and will not ne able to avail the credit from any
other financial institution.
vi. Problem in new/other venture: The borrower will be having problem in starting the
new venture in respect of credit, labour, purchaser, supplier, buyer, etc.
vii. Availability of manpower: Due to the bad image in the market, people may not be
ready to get associated with the firm who is having bad image in the market.
viii. Quality of goods/services: Because of the problems stated above the firm will not be
able to maintain quality of goods/services.
ix. Customers: Adverse impact will result in shifting of the customer loyalty towards the
firm/company
x. Holding/Subsidiary/Sister Concern: The impact on one company has similar effect
on their holding/subsidiary/sister concerns also.
Impact on Economy:
In the current phase of growth moderation in Indian Economy, the issue of rising NPA has
assumed critical importance for the banking industry. It is a well-accepted fact that the quantum
of NPAs in loan portfolio of banks varies inversely with economic conditions. During
slowdown, NPAs rise and impact the profitability of the banks. If the NPAs of the Banks rise
the and impact the profitability of the banks. If the NPAs of the Banks rise the funds will be
blocked and the banks will not be in a position to finance a new project. Due to the stressed

UNION BANK OF INDIA
assets of banks, the economy of a country will be affected in a number of ways which are as
below:
i. Less investment: Due to high level of stressed assets in a particular project/area others
also will be hesitant to invest in those sectors therefore, there will be less investments.
ii. Credit Creation: At macro level, high NPAs have choked off the supply line of credit
to potential borrowers. Availability of credit to SMEs at competitive rates is affected
including enterprising spirits. There will not be credit creation in the economy thereby,
affecting the growth and ultimately it will paralyze the country.
iii. Asset Creation: Due to less investment, no asset creation will happen thereby capital
formation will be affected.
iv. Less production: due to the less investment in project production will suffer.
v. Increase in unemployment: If there is less investment and no new project there will
be blockage of employment opportunity.
vi. Effect on GDP growth: If there is stressed assets or a high level of NPAs in the banks
huge amount of funds is blocked in the system which would otherwise have been
invested effectively to generate employment and income thereby contributing to the
GDP in the economy.
vii. Down-gradation of rating: international rating agencies release the rating of the
country for the purpose of investments. If there is high level of NPAs or stressed assets
in the banks the country will be having poor rating accordingly and this will also affect
not only the investments but our exports and imports will also suffer.
viii. Reputation risk: poor rating of a country will affect their reputation and ultimately
affecting foreign assistance/WB/UN.
ix. Insecurity in the society: There will be a general insecure feeling in the society that
the similar type of firm may fail at any point of time and will not get the job in future.
Impact on Employee:
Apart from the impact on banks, borrowers and economy , it also has direct impact on the
employee of the firm which is as below:
i. Insecurity: The employee or the firm will feel insecure in the sense that if the firm is
not able to meet the commitments/obligations of banks then how their future is secured.
Kingfisher airlines is a classic example

UNION BANK OF INDIA
ii. Morale: Morale of th staff members will be low in the sense that the firm is a defaulter
and there will be pressure from the bank to make the accounts regular.
iii. Start thinking of other alternatives: The employee will start looking for other
opportunities as the firm is not in a good condition
iv. Efficiency will be affected: The employees efficiency will be affected and will not be
giving their 100% to the firm due to the reasons mentioned above.
v. No incentive: If the firm is not performing well the staff may not get any incentive as
the firm itself is in problem and is not able to meet the liabilities/commitments. On time
and there may be chances of salary reduction too
vi. Career: The career/future of the employee will be adversely affected as the firm is not
performing well in which they are working presently.
vii. Personal/ social life: There will be adverse impact on their personal life where they
will also be questioned for their non- performance for which they are not at all
responsible.
Limitations of the study:

UNION BANK OF INDIA
Comparative Analysis of the Profit & Loss Statement for years

No. Particulars Year Ended Year Ended 2015 2015
(2014) (2015) (Inc/Dec) (%)
I. Income
Interest Earned 2,93,49,39,42 3,20,83,96,21 +27,34,56,79 9.32
Other Income 28,21,54,04 35,23,00,22 +7,01,46,18 24.86
Total 3,21,70,93,46 3,56,06,96,43 +34,36,02,97 10.68
II. Expenditure
Interest Expeded 2,14,70,06,91 2,36,40,06,56 +21,69,99,65 10.11
Operating Expenses 54,82,76,05 61,43,42,88 +6,60,66,83 12.05
Provision And Contingencies 35,21,90,17 40,41,83,04 +5,19,92,87 14.76
Total 3,04,74,73,13 3,38,25,32,48 +33,50,59,35 11.00
III. Net Profit For The Year 16,96,20,23 17,81,63,95 +85,43,72 5.04
Add: Profit Brought Forward 40,74 41,02 +28 0.69
Total 16,96,61,07 17,82,04,97 +85,43,90 5.04
IV. Appropriations
Transfer to Statutory Reserve 5,08,86,10 5,34,50,00 +25,63,90 5.04
Transfer to Capital Reserve 17,18,09 26,99,74 +9,81,65 57.14
Transfer to Revenue and Other 6,85,50,00 5,55,97,00 -1,29,53,00 -18.90

Reserves
Proposed Dividend 2,52,12,26 3,81,46,73 +1,29,34,47 51.30
Provision for Div. On PNCPS 9,99,00 5,28,35 -4,70,65 -47.11
Dividend Tax 44,54,60 77,41,53 +32,86,93 73.79
Transfer to Foreign Currency 0 0

Transalation reserve
Transfer to Special Reserve[Sec 36(I) 1,78,00,00 2,00,00,00 +22,00,00 12.36
(VIII)]
Balance in Profit and Loss Account 41,02 41,62 +60 1.46
Total 16,96,61,07 17,82,04,97 +85,43,90 5.04
Earnings Per Share (Basic And Diluted) 27.99 28.05 +0.06 0.21

UNION BANK OF INDIA
Comparative Analysis of the profit and loss account for the year 2015

UNION BANK OF INDIA
No. Particulars Year Ended Year Ended 2016 2016(%)

(2014) (2016) (Inc/Dec)
I. Income
Interest Earned 2,93,49,39,42 3,21,98,80,08 +28,49,40,66 9.709
Other Income 28,21,54,04 36,31,73,54 +8,10,19,50 28.714
Total 3,21,70,93,46 3,58,30,53,62 +36,59,60,16 11.375
II. Expenditure
Interest Expeded 2,14,70,06,91 2,38,85,70,21 +24,15,63,30 11.251
Operating Expenses 54,82,76,05 63,02,21,57 +8,19,45,52 14.946
Provision And Contingencies 35,21,90,17 42,91,01,61 +7,69,11,44 21.838
Total 3,04,74,73,13 3,44,78,93,39 +40,04,20,26 13.139
III. Net Profit For The Year 16,96,20,23 13,51,60,23 -3,44,60,00 -20.316
Add: Profit Brought Forward 40,74 41,62 +88 2.16
Total 16,96,61,07 13,52,01,85 -3,44,59,22 -20.311
IV. Appropriations
Transfer to Statutory Reserve 5,08,86,10 4,05,50,00 -1,03,36,10 -20.312
Transfer to Capital Reserve 17,18,09 44,84,70 +27,66,61 161.028
Transfer to Revenue and Other Reserves 6,85,50,00 5,48,17,00 -1373300 -20.033
Proposed Dividend 2,52,12,26 1,34,05,10 -1,18,07,16 -46.83
Provision for Div. On PNCPS 9,99,00 0 -9,99,00 -100
Dividend Tax 44,54,60 27,44,69 +17,09,91 38.385
Transfer to Foreign Currency 0 0

Transfer to Special Reserve[Sec 36(I) 1,78,00,00 1,92,00,00 +14,00,00 7.865
(VIII)]
Balance in Profit and Loss Account 41,02 36
Total 16,96,61,07 13,52,01,85
Earnings Per Share (Basic And Diluted) 27.99 20.42

UNION BANK OF INDIA

UNION BANK OF INDIA
No. Particulars Year Ended Year ended 2017 2017

(2014) (2017) (Inc/Dec) (%)
I. Income
Interest Earned 2,93,49,39,42 3,26,59,98,01 33105859 11.28
Other Income 28,21,54,04 49,64,59,89 8101950 28.714
Total 3,21,70,93,46 3,76,24,57,90 54536444 16.952
II. Expenditure
Interest Expeded 2,14,70,06,91 2,37,56,64,48 22865757 10.65
Operating Expenses 54,82,76,05 64,37,84,48 9550843 17.42
Provision And Contingencies 35,21,90,17 68,74,87,63 33529431 95.203
Total 3,04,74,73,13 3,70,69,36,59 65946346 21.64
III. Net Profit For The Year 16,96,20,23 5,55,21,31 -11409892 -67.267
Add: Profit Brought Forward 40,74 36 -474 -11.635
Total 16,96,61,07 5,55,21,67 -11413940 -67.275
IV. Appropriations
Transfer to Statutory Reserve 5,08,86,10 1,38,75,00 -3701110 -72.733
Transfer to Capital Reserve 17,18,09 2,31,46,67 2142858 1247.23
Transfer to Revenue and 6,85,50,00 0 -6885000 -100

Other Reserves
Proposed Dividend 2,52,12,26 0 -2,52,12,26 -100
Provision for Div. On PNCPS 9,99,00 0 -9,99,00 -100
Dividend Tax 44,54,60 0 -44,54,60 -100
Transfer to Foreign Currency 0 0 0 0

Transfer to Special 1,78,00,00 1,85,00,00 70000 3.933
Reserve[Sec 36(I) (VIII)]
Balance in Profit and Loss 41,02
Account
Total 16,96,61,07 5,55,21,67 -11413940 -67.275
Earnings Per Share (Basic 27.99 8.08 -19.91 -71.132

And Diluted)

UNION BANK OF INDIA

UNION BANK OF INDIA
No. Particulars Year Ended Year Ended 2018(Inc/Dec) 2018

(2014) (2018) (%)
I. Income
Interest Earned 2,93,49,39,42 3,29,51,56,96 36021754 12.273
Other Income 28,21,54,04 54,62,08,28 26405424 93.585
Total 3,21,70,93,46 3,84,13,65,24 62427178 19.404
II. Expenditure
Interest Expeded 2,14,70,06,91 2,34,70,90,02 20008311 9.319
Operating Expenses 54,82,76,05 73,50,82,64 18680659 34.071
Provision And Contingencies 35,21,90,17 1,28,12,56,65 92906648 263.797
Total 3,04,74,73,13 4,36,34,29,31 131595618 43.182
III. Net Profit For The Year 16,96,20,23
Add: Profit Brought Forward 40,74
Total 16,96,61,07
IV. Appropriations
Transfer to Statutory Reserve 5,08,86,10 0
Transfer to Capital Reserve 17,18,09 1,11,16,77 939868 547.042
Transfer to Revenue and Other 6,85,50,00 0

Reserves
Proposed Dividend 2,52,12,26 0
Provision for Div. On PNCPS 9,99,00 ?
Dividend Tax 44,54,60 ?
Transfer to Foreign Currency 0 ?

Transfer to Special Reserve[Sec 36(I) 1,78,00,00 ?
(VIII)]
Balance in Profit and Loss Account 41,02 (53,23,63,59)
Total 16,96,61,07 (52,12,46,82)
Earnings Per Share (Basic And Diluted) 27.99 -68.98

UNION BANK OF INDIA

UNION BANK OF INDIA
Balance Sheets:
Particulars 2014 2015 2015 2015
(Inc/Dec) (%)
Capital and Liabilities
Capital 7,41,30,63 6,35,77,88 -1055275 -

14.235
Reserves And Surplus 1,77,34,05,16 1,91,25,10,31 13910515 7.844
Share Application Money
Deposits 29,76.75,63,97 31,68,69,91,72 191942775 6.448
Borrowings 2,93,16,61,77 3,53,59,98,16 60433639 20.614
Other Liabilities And Provisions 83,13,28,70 96,25,15,00 13118330 15.78
Total 35,37,80,90,23 40,46,95,90,24 509150001 14.392
Assets
Cash And Balances With RBI 1,84,19,67,74 1,50,63,07,83 -33565991 -

18.223
Balances with Banks And Money At Call And 46,53,19,47 73,14,94,36 26617489 57.203
Short Notice
Investments 9,37,23,18,39 8,44,61,72,90 -92614549 -9.882
Advances 22,91,04,42,66 25,56,54,56,54 265501388 11.589
Fixed Assets 26,08,46,85 26,81,95,32 734847 2.817
Other Assets 52,71,95,12 1,64,39,66,12 111677100 211.83
Total 35,37,80,90,23 40,46,95,90,24 509150001 14.392
Contingent Liabilities 19,55,24,16,41 34,91,05,32,69 1.536E+09 78.548
Bills for Collection 1,24,75,70,66 1,37,00,54,08 12248342 9.818

UNION BANK OF INDIA

UNION BANK OF INDIA
Particulars 2014 2016 2016 2016

(Inc/Dec) (%)
Capital 7,41,30,63 6,87,44,11 -538652 7.266
Share Application Money
Deposits 29,76.75,63,97 34,27,20,00,92 450443695 15.132
Borrowings 2,93,16,61,77 3,09,57,35,18 16407341 5.596
Other Liabilities And Provisions 83,13,28,70 81,27,33,45 -1859525 -2.237
Total 35,37,80,90,23 38,16,15,93,07 278350284 7.868
Assets
Cash And Balances With RBI 1,84,19,67,74 1,56,04,72,09 -28149565 15.282
Balances with Banks And Money At Call And 46,53,19,47 1,36,71,49,95 90183048 193.81
Short Notice
Investments 9,37,23,18,39 8,92,08,34,61 -45148378 -4.817
Advances 22,91,04,42,66 26,73,54,00,19 382495753 16.695
Fixed Assets 26,08,46,85 39,39,87,28 13314043 51.042
Other Assets 52,71,95,12 1,49,17,46,12 96455100 182.96
Total 35,37,80,90,23 38,16,15,93,07 278350284 7.868
Contingent Liabilities 19,55,24,16,41 39,37,16,40,14 1.982E+09 101.37

UNION BANK OF INDIA

UNION BANK OF INDIA
Particulars 2014 2017 2017 2017

(Inc/Dec) (%)
Capital 7,41,30,63 6,87,44,11 -538652 7.266
Share Application Money 5,41,00,00 -5410000 -100
Deposits 29,76.75,63,97 37,58,99,00,98 782233701 26.271
Borrowings 2,93,16,61,77 4,12,25,87,30 119092553 40.623
Other Liabilities And Provisions 83,13,28,70 1,16,03,36,40 32900770 39.576
Total 35,37,80,90,23 45,27,04,44,02 989235379 27.962
Assets
Cash And Balances With RBI 1,84,19,67,74 1,65,20,44,74 -18992300 -

10.312
Short Notice
Investments 9,37,23,18,39 11,21,48,95,95 184257756 19.66
Advances 22,91,04,42,66 28,64,66,57,70 573621504 25.038
Fixed Assets 26,08,46,85 38,94,41,50 12859465 49.299
Other Assets 52,71,95,12 1,73,71,98,68 121000356 229.52
Total 35,37,80,90,23 45,27,04,44,02 989235379 27.962
Contingent Liabilities 19,55,24,16,41 23,16,00,86,31 360766990 18.451

UNION BANK OF INDIA

UNION BANK OF INDIA
Particulars 2014 2018 2018 2018

(inc/Dec) (%)
Capital 7,41,30,63 11,68,57,34 4272671 57.637
Share Application Money -
Deposits 29,76.75,63,97 40,85,01,63,57 1.108E+09 37.23
Borrowings 2,93,16,61,77 4,56,80,76,81 163641504 55.819
Other Liabilities And Provisions 83,13,28,70 81,26,82,01 -1864669 -2.243
Total 35,37,80,90,23 48,74,05,99,51 - -

1336250928 37.771
Assets
Cash And Balances With RBI 1,84,19,67,74 2,10,16,46,93 25967919 14.098
Short Notice
Investments 9,37,23,18,39 12,37,80,12,40 300569401 32.07
Advances 22,91,04,42,66 28,87,60,58,25 596561559 26.039
Fixed Assets 26,08,46,85 38,33,33,28 12248643 46.957
Other Assets 52,71,95,12 2,15,90,76,14 163188102 309.54
Total 35,37,80,90,23 48,74,05,99,51 - -

1336250928 37.771
Contingent Liabilities 19,55,24,16,41 24,15,72,91,92 460487551 23.55

UNION BANK OF INDIA

UNION BANK OF INDIA
S.No. Particulars 2014 2015 2015 2015

(inc/Dec) (%)
1 Net Npas to Net Advances (%) 2.33 2.71 0.38 16.309
2 Movement of NPAs (Gross)
a) Opening Balance 6313.83 9563.74 3249.91 51.479
b) Additions (Fresh NPAs) during the year 5459.44 5666.26 206.82 3.788
c) Increase in Balance of Existing NPA 19.49 - -19.49 -100
Sub-Total (A) 11,792.76 15230 3437.24 29.147
d) Less:-
I Upgradations 551.01 138.11 -412.9 -

74.935
II Recoveries (excluding recoveries mae from 765.44 1130.31 364.87 47.668
upgraded accounts)
III Technical/Prudentials Write Offs 841.72 861.06 19.34 2.298
IV Write-Offs Other than (III) Above 70.85 69.65 -1.2 -1.694
Sub-Total (B) 2,229.02 2199.13 -29.89 -1.341
V Closing Balance (A-B) 9,563.74 13030.9 3467.13 36.253
3 Movement of NPAs (Net)
a) Opening Balance 3,353.37 5340.25 1986.88 59.25
b) Additions during the year 3,273.26 2910.1 -363.16 -

11.095
c)Reductions During the year 1,286.38 1331.38 45 3.498
d) Closing Balance 5,340.25 6918.97 1578.72 29.563
4 Movement of Provisions for Npas
b) Provisions made during the year 2,205.67 2756.16 550.49 24.958
c) Write-Offs/Write- back of excess provisions 942.64 867.75 -74.89 -7.945
d) Provision increased and restructured accounts
e) Closing Balance 4,223.49 6111.9 1888.41 44.712

UNION BANK OF INDIA

UNION BANK OF INDIA
S. Particulars 2014 2016 2016 2016

No. (inc/dec) (%)
c) Increase in Balance of Existing NPA 19.49 - -19.49 -100
Sub-Total (A) 11,792.76 25983.7 14191 120.336
d) Less:-
I Upgradations 551.01 177.73 -373.28 -67.745

upgraded accounts)
III Technical/Prudentials Write Offs 841.72 645.68 -196.04 -23.290
IV Write-Offs Other than (III) Above 70.85 145.9 75.05 105.928
Sub-Total (B) 2,229.02 1812.85 -416.17 -18.671
b) Additions during the year 3,273.26 8297.83 5024.57 153.504
c)Reductions During the year 1,286.38 1190.86 -95.52 -7.425
e) Closing Balance 4,223.49 10145 5921.46 140.203

UNION BANK OF INDIA

UNION BANK OF INDIA
S. Particulars 2014 2017 2017 2017

No. (Inc/Dec) (%)
c) Increase in Balance of Existing NPA 19.49 488.62 469.13 2407.03
Sub-Total (A) 11,792.76 37.414.78 25622 217.269
d) Less:-
I Upgradations 551.01 1050 498.99 90.559

upgraded accounts)
Sub-Total (B) 2,229.02 3702.5 1473.48 66.104
c)Reductions During the year 1,286.38 2405.83 1119.45 87.02
a) Opening Balance 2,960.46 10145 7184.49 242.682
c) Write-Offs/Write- back of excess provisions 942.64 1296.68 354.04 37.558
e) Closing Balance 4,223.49 14880.2 10656.7 252.319

UNION BANK OF INDIA

UNION BANK OF INDIA
Particulars 2014 2018 2018 2018

(Inc/Dec) (%)
Net Npas to Net Advances (%) 2.33 8.42 6.09 261.373
Movement of NPAs (Gross)
c) Increase in Balance of Existing NPA 19.49 63.76 44.27 227.142
Sub-Total (A) 11,792.76 55081.4 43288.6 367.078
d) Less:-
I Upgradations 551.01 399.7 -151.31 -27.46

upgraded accounts)
Sub-Total (B) 2,229.02 5711.46 3482.44 156.232
Movement of NPAs (Net)
c)Reductions During the year 1,286.38 2375.06 1088.68 84.631
Movement of Provisions for Npas
d) Provision increased and restructured accounts 25043.6 25043.6 100
e) Closing Balance 4,223.49 3476.93 -746.56 17.676

UNION BANK OF INDIA

UNION BANK OF INDIA
Hypothesis Testing:

UNION BANK OF INDIA
Findings and Suggestions

UNION BANK OF INDIA
Conclusion

A Study On The Impact of Non-Performing Assets On The Financial Health of Union Bank of India

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A STUDY ON THE IMPACT OF NON- PERFORMING ASSETS ON THE FINANCIAL HEALTH OF

UNION BANK OF INDIA

KRUPANIDHI SCHOOL OF MANAGEMENT 1

KRUPANIDHI SCHOOL OF MANAGEMENT 2

From World War I to Independence:

KRUPANIDHI SCHOOL OF MANAGEMENT 3

KRUPANIDHI SCHOOL OF MANAGEMENT 4

1.3 CURRENT STRUCTURE OF INDIAN BANKING SYSTEM:

KRUPANIDHI SCHOOL OF MANAGEMENT 5

1.4 INTRODUCTION TO NON-PERFORMING ASSETS:

KRUPANIDHI SCHOOL OF MANAGEMENT 6

Core Members Designation

Shri D. C. Chauhan Chief Compliance officer

Shri Mangesh Mandrekar Company secretary

A Glorious Past- A Brighter Future:

KRUPANIDHI SCHOOL OF MANAGEMENT 7

KRUPANIDHI SCHOOL OF MANAGEMENT 8

KRUPANIDHI SCHOOL OF MANAGEMENT 9

KRUPANIDHI SCHOOL OF MANAGEMENT 10

Services available for Customers:

KRUPANIDHI SCHOOL OF MANAGEMENT 11

c) Check your Aadhar Linked Status

KRUPANIDHI SCHOOL OF MANAGEMENT 12

KRUPANIDHI SCHOOL OF MANAGEMENT 13

KRUPANIDHI SCHOOL OF MANAGEMENT 14

KRUPANIDHI SCHOOL OF MANAGEMENT 15

NPA due to technical reasons

KRUPANIDHI SCHOOL OF MANAGEMENT 16

Bills ● From due date

WHAT IS OUT OF ORDER?

Standard Advances As long as accounts are regular (includes EAS SMA

Substandard After 12 months slip to Doubtful

No income to be recognized in NPA accounts. Any unrecovered interest should be reversed to

GROSS NPA = Total outstanding NPAs

NET NPA = gross NPA less

What is provision coverage ratio?

KRUPANIDHI SCHOOL OF MANAGEMENT 18

KRUPANIDHI SCHOOL OF MANAGEMENT 19

KRUPANIDHI SCHOOL OF MANAGEMENT 20

✓ Third: Seek some facts from their friends and relatives.

KRUPANIDHI SCHOOL OF MANAGEMENT 21

4. Monthly Monitoring Report (MMR): Its submission is to be ensured every month

KRUPANIDHI SCHOOL OF MANAGEMENT 22

certified promoter’s contribution/capital in the system. It acts as an eye opener to

KRUPANIDHI SCHOOL OF MANAGEMENT 23

created is legally enforceable and all documents are adequately stamped

KRUPANIDHI SCHOOL OF MANAGEMENT 24

11. Technical Officers Report

Cut Off Limit For Monitoring:

Early Warning Signals:

KRUPANIDHI SCHOOL OF MANAGEMENT 25

KRUPANIDHI SCHOOL OF MANAGEMENT 26

● Sudden /frequent changes in management/infighting within the management

KRUPANIDHI SCHOOL OF MANAGEMENT 27

HOW TO MANAGE NPA?

KRUPANIDHI SCHOOL OF MANAGEMENT 28

Borrower Recovery Quadrant

1. Willing to pay/capacity to 4. Not willing to pay/capacity

2. Willing to pay/no or less 3. Not Willing to pay/No