A Summer Internship Project Report

On

NON PERFORMING ASSETS IN CENTRAL BANK

OF INDIA

Submitted to
Institute Code: 768
Shri Chimanbhai Patel Institute of Management & Research

Shri Chimanbhai Patel Institute

Under the Guidance of
Prof. Dipti Saraf

In partial fulfilment of the requirement of the award of the

degree of Master of Business Administration (MBA)

Offered by

Gujrat Technological University

Ahmedabad

Submitted by:
Urvil Thesiya
En. No.:- 197680592060
MBA Sem: – 2
Month & Year:- May 2020

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 DELARATION

I, Urvil Thesiya hereby declare that the Summer Internship Report on “ Non
performing Assets of Public Sector Banks in India." This is a result of my own work
and my gratitude to other work publication, references, if any, have been accordingly
acknowledged. If I am found guilty of copying any other report or published
information and showing as our original work, or extending plagiarism limit, I
understand that I shall be liable and punishable by GTU, which may include ‘Fail’ in
examination, ‘Repeat study & re-submission of the report’ or any other punishment
that GTU may decide.

SIGN :

Name of Student : Urvil Thesiya

Enrolment no. : 197680592060

Name Enrolment no. Signature

Urvil Thesiya 197680592060

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INSTITUTE CERTIFICATE

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 PREFACE

The Project Report has been prepared in partial fulfillment of the requirement for the subject:
Summer internship project of the program M.B.A. (sem-2)

The blend of learning and knowledge acquired during our practical studies is
presented in this Project Report. The rationale behind selecting this topic and preparing the
Project Report is to study the Non Performing Assets of Public Sector Bank in India.

The Project Report starts with the basic concept of non-performing assets history and
also covers the general information of the topic. The information presented in this project
report is obtained from sources like news papers, internet and bank websites.

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 ACKNOWLEDGEMENT

First of all, I thankful to Gujarat technological university who introduced this subject as a part
of our syllabus.

Secondly, I express deep sense of gratitude to my guide Prof. Dipti Saraf for their help and
guidance for the preparation of this project.

Lastly, I like to thank each and every person who has helped me directly or indirectly in
completing the project work successfully.

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 INDEX

Sr. Particular Pg No.

No.
1 INTRODUCTION 7
2 A BRIEF PROFILE OF CENTRAL BANK OF 12
INDIA
3 OPERATIONAL DEFINATIONS 14
4 NPA’s ANALYTICAL STUDY 18
-MEANING AND NATURE 18
-CAUSES FOR NPAs 22
-MAGNITUDE OF NPAs IN CENTRAL BANK OF INDIA 24
5 IMPACTS OF NPAs 26
-IMPACTS OF NPAs IN CENTRAL BANK OF INDIA 26
-RECOVERY OF NPAs IN CENTRAL BANK OF INDIA 26
6 MANAGEMENT OF NPAs 31
-MANAGE NPAs 32
-COMMITTEES 39
7 QUALITATIVE ANALYSIS 43
8 RESEARCH METHODOLOGY 51
9 FINDINGS AND OBSERVATIONS 52
10 LIMITATIONS 53
11 SUGGESTIONS AND RECOMMENDATIONS 54
12 REVIEW OF LITERATURE 56
13 QUESTIONNAIRE 59

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 INTRODUCTION

The Indian banking sector underwent a major transformation in 1969 when a large
number of banks were nationalized. The policy thrust in those days was to spread
banking services far and wide into the country side. And this objective was largely
achieved.

Bank branches increased rapidly and deposit mobilization rose steadily. This has
undeniably aided the process of bringing in large amount of savings into the financial
markets for development purposes. Besides, targeted lending to priority sectors they
led to capital becoming available to new and small enterprises. The expansion of these
services not surprisingly, did not come without any ill effects. Loans given the banks
are there assets and as the repayment of several of the loans were poor; quality of
these assets was steadily deteriorating. Credit allocation became “loan melas”, loan
proposal evaluations were slack and as a result repayments were very poor.

In the starting when the financial reforms were undertaken by the Government of
India based on the Narasimham Committee reports I and II, Reserve Bank of India
introduced some prudential norms to address the credit monitoring policy, which were
being pursued by the banks and other NBFCs. To strengthen the recovery of loans
and dues by the banks and the other financial institutions, Government of
India in the year 1993, promulgated the “recovery of debts due to banks and other
financial institutions act” and the “securitization and reconstruction of financial assets
and enforcement of security interest act” in the year 2002.

But statistics shows NPA level is ever increasing day by day, and the said act,
which was introduced by the Government of India, is not serving the purpose, they
were actually formed. The reason behind it can be the bank’s approach and attitude
towards financing and recovery of loans especially from the small and medium
enterprises and also the lack of knowledge about the law and its practice in banking
and also violations of the RBI directives/circulars, which are essential to follow by
every bank and financial institutions.(Non-Performing Assets, n. d.)

In the financial year 2013, the non-performing assets had gone up to Rs.
95825 crore, according to the CRISIL report, the gross NPA will increase from 3.3%
on 03.2013, to 4% by 03.2014. An important question is to be answered by the banks
and other financial institutions about the recovery of the dues, and banks approach
towards focusing on the “efficiency and fairness” and also become
understanding when dealing genuine difficulties in managing the fraud. A strong
banking and financial sector is important for a developing economy and the failure of
which may have adverse effect on all the sectors. (RBI website, n. d.)

1.1 Non-Performing Asset: Today non-performing assets are the subject of

major concerns to the banking sector and the other non-banking financial

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institutions. A loan or lease that does not meet the stated principal amount and the
interest amount payments is termed as non-performing assets. NPA can be
classified into commercial loans which are overdue for more than 90 days, and
consumer loans which are due for more than 180 days, and rise in NPA is due to the
overdue of the commercial loans, there are a lot of pending cases which are being
handled by the Indian banks and other financial institutions. (RBI Website, n.d.)

1.2 Definitions of NPA by RBI:

a) An asset, including a leased asset, becomes non-performing when it ceases to
generate income for the bank.
b) A non-performing asset (NPA) is a loan or an advance where;
i). Interest and/or instalment 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”, in respect of an Overdraft /Cash
Credit (OD/CC),
iii). The bill remains overdue for a period of more than 90 days in the case of
bills purchased and discounted,
iv). The instalment of principal or interest thereon remains overdue for
two crop seasons for short duration crops, the instalment of principal or
interest thereon remains overdue for one crop season for long duration crops,
v). The instalment of principal or interest thereon remains overdue for one
crop season for long duration crops,
vi). The amount of liquidity facility remains outstanding for more than 90
days, in respect of a securitization transaction undertaken in terms of
guidelines on securitization dated February 1, 2006.
vii). In respect of derivative transactions, the overdue receivables representing
positive mark-to-market value of a derivative contract, if these remain
unpaid for a period of 90 days from the specified due date for payment.
c) Banks should, classify an account as NPA only if the interest due and charged
during any quarter is not serviced fully within 90 days from the end of the quarter.
d) ‘Out of Order’ statuses: An account should be treated as ‘out of order' if the
outstanding balance remains continuously in excess of the sanctioned limit/drawing
power. In cases where the outstanding balance in the principal operating account is
less than the sanctioned limit/drawing power, but there are no credits
continuously for 90 days as on the date of Balance Sheet or credits are not enough to
cover the interest debited during the same period, these accounts should be treated as
'out of order'.
e) ‘Overdue’: Any amount due to the bank under any credit facility is „overdue‟ if
it is not paid on the due date fixed by the bank. (rbi.org.in)

1.3 Classification of Assets:

Non-performing assets are further classified into three categories based on the
span for which the asset has remained non-performing and the recovery of the
dues:

i. Substandard Assets
With effect from March 31, 2005, a substandard asset would be the one, which has
remained as a non-performing asset for a period of less than or equal to 12 months.
Substandard assets have credit weaknesses that jeopardize the liquidation of the debt

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and there are also possibility of incurring and sustaining some losses if the
deficiencies are not corrected.

ii. Doubtful Assets

With effect from March 31, 2005, an asset is classified as doubtful if it has remained
as a sub-standard asset for a period of 12 months. A loan classified under the
doubtful category has all the weakness characteristics as defined for the sub-
standard assets; also it has added characteristics that the weakness makes full
liquidation or collection, on the basis of the currently known conditions, facts, and
values that are highly doubtful and questionable.

iii. Loss Assets

A loss asset is one where loss has been identified by the bank’s internal auditors
and RBI‟s external auditors, but the amount has not been written off fully.
These kinds of assets are also considered as uncollectible, and of little value
that its continuance or maintenance as a bankable asset is not warranted or
acceptable though there may be some salvage or recovery value.(RBI Website, n.d.)

1.4 Reasons / Causes of NPA:

In the past articles, many authors have found out many reasons for NPA. Few are:
Market Failure, Willful Defaults, Poor follow-up and Supervision, Non-cooperation
from Banks, Poor Legal framework, Lack of Entrepreneurial Skills, Diversion of
funds (Santanu Das, 2010) Zahoor Ahmad, Dr. M. Jegadeeshwaran (2013) in their
paper “Comparative Study On NPA Management of Nationalised Banks” has
analysed, improper selection of borrower’s activities, weak credit appraisal
system Industrial problem, inefficiency in management of borrower, slackness in
credit management and monitoring, lack of proper follow up by bank, recession in the
market, and natural calamities and other uncertainties, as the reasons for the NPA. On
the other hand (Ashly Lynn Joseph, 2014) in his paper “A Study on Analyzing the
Trend of NPA Level in Private Sector Banks and Public Sector Banks” has
identified few external, internal and other factors that are involved in the
formation of NPA and those are : diversion of fund for expansion, diversification,
modernization or for taking up new projects, diversion of fund for assisting or
promoting associate concerns, time or cost overrun during the project
implementation stage, business failure due to product failure, failure in marketing
etc, inefficiency in bank management, slackness in credit management and
monitoring, and inappropriate technology or problems related to modern technology.
The external factors include recession in the economy as a whole, input or power
shortage, price escalation of inputs, exchange rate fluctuations, and change in
government policies. Other factors include liberalization of the economy and the
consequent pressures from liberalization like several competitions, reduction of
tariffs etc, poor monitoring of credits and failure to recognize early warning
signals shown by standard assets, sudden crashing of capital market and inability to
raise adequate funds, mismatching of funds i.e. using loan granted for short
term for long term transactions, granting of loans to certain sectors of the economy
on the basis of government directives rather than commercial imperatives. (Namita

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Rajput, et.al., 2012) also analysed some reasons behind the formation of NPA, and
also found the impact of the NPA on banking operations and (Satpal, 2014)
also tried to find out some external factors and some internal factors which affects
the NPA like (Ashly Lynn Joseph, 2014), and also found the impacts of NPA.

NEED AND IMPORTANCE:

Ever since introduction and implementation of prudential norms, management of non

performing advances has become the most important issue before the banks.

RBI has therefore advised that banks should have a well-laid recovery management
policy approved by the board and the same should be put in place for meticulous
compliance so that the level of NPA can be brought down.

Management of Non-performing advances covers both recovery of NPA as also

regulars review monitoring of NPA accounts, write off etc in terms of prudential
norms issued by RBI.

Apart from up gradation and cash recovery, the bank has introduced several OTS
modules aiming at various types of borrowers to ensure recovery through compromise
settlement. Further, various modifications are also made for operational aspects of the
said OTS modules based on infield experiences/revised norms issued by RBI from
time to time and changed banking scenario to make the modules/schemes more
effective and fruitful.

Apart from recovery of NPAs, various other important issues like review of NPA
accounts, monitoring of suitified accounts. Decreed debts, waiver of legal action in
deserving cases, write off of bad debts, delegated authority, appropriation of recovery
in NPA accounts, estimation of sacrifice, disclose of information, guidelines in
respect of implementation of the securitization Act-2004 and sale of financial asset
etc, are also important in day to day functioning of the branches/offices.

AIM OF THE PROJECT:

To assess the impact of role of the non-performing assets (NPA’s) on the

profitability of the bank.

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OBJECTIVES:

1 To study the nature and cause of NPAs

2 To assess the growth and magnitude of NPAs in CENTRAL BANK OF
INDIA.
3 To study the measures taken by CENTRAL BANK OF INDIA to reduce
NPAs.

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 ORGANISATION PROFILE

A BRIEF PROFILE OF CENTRAL BANK OF INDIA:

BEGINNING:

The effects of the first war of independence of May, 1857 were cooling down by the
start of 1860. Later there was a perceptible increase in trading and business activity
which made the conditions propitious for the emergence of banking industry which
till that time was confined to setting up offices and branches at ports. A need was
being clearly felt to have banking facilities in the interiors of the country too.
Therefore, there then began among a group of few prominent persons both Europeans
and Indians, in Allahabad, a series of discussions for the establishment of a bank with
its head office in that town on 15th march, 1865.

A few weeks later, the formalities has been completed and with a subscribed capital
of Rs.3.00 lacs on 24th April, 1865, a week after the association had been
incorporated, THE CENTRAL BANK OF INDIA LIMITED, in terms of an
announcement, published in The Pioneer of that date, “open to receive money in
current and fixed deposit account”. Drafts negotiable at par at nine Indian towns could
be secured “at moderate rate of exchange”. Bills of exchange on London were also
available. The bank was from the first keen on fixed deposits, being prepared to pay
6% on money requiring 12 months notice of withdrawal. No charge was made on
current deposit account, but no interest was paid either.

THE RAPID RACE:

The story of the bank’s second century of existence is a story of rapid development
and fast expansion. A draft bill which created quite a flutter was introduced on 23rd
December, 1967 with provisions of control over banking policy and was referred to a
select committee on 26th march 1968. After critical deliberations, the bill passed
through and came in to effect from 2nd February 1969. The measure of social control,

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a midway measure between public ownership and private control of banking,
however, could hardly produce the intended impact.

The most significant step was the liberalized branch licensing policy of the RBI with
the objective of making banks spread their activities to either to neglected rural un
banked and under banked areas. CENTRAL BANK OF INDIA responded to this
challenge with almost missionary zeal. When the first one hundred branches took a
period of one hundred years, the next one hundred branches took only 5 years from
1964 to 1970. the number branches at that time of nationalization were 151 increased
to 331 at the end of 1973 and was close to 500 by 1975 end .

A notable development was the introduction of lead bank scheme in December, 1975
under which major banks were allotted responsibility of the 337 districts of the
country where they were expected to be development by providing integrated banking
facilities. The lead bank was responsible to survey their economic potentialities in the
districts allotted, identify growth centers for branch expansion and estimate the credit
gaps. CENTRAL BANK OF INDIA has been functioning as lead bank in 10 districts
in U.P. and one district each in M.P. and West Bengal.

One of the crucial aims of the banks nationalization was increasing credit flow to the
priority sector including weaker sections of the society. The bank had rationalized its
operations to meet this requirement.

A great event in the history of banking industry was the NATIONALISATION of

fourteen commercial banks each with deposits exceeding Rs.50 crores on 19th July,
1969. CENTRAL BANK OF INDIA was proud to be one of them. Our banks
position at the time of nationalization was 169 branches, deposits Rs.124.90 crores,
advances Rs.85.64 crores, paid-up capital Rs.1.05 crores, net profit Rs.0.40 crores,
working fund Rs.135.00 crores. The measure of bank nationalization brought under
the control of public-sector 85% of the deposits and advances of the total banking
system. It is in pursuance of this objective that the bank is increasingly catering to the
needs of the priority sectors of our economy.

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 OPERATIONAL DEFINATIONS

1. BANK RATE:

It is the rate at which the RBI lends to other commercial banks. It is the rate at which
the RBI re-discounts the bill of exchange. It acts as a signal to the economy on the
monetary policy.

2. BANK CREDIT:

The credit extended by banks to its customers.

3. NON-PERFORMING ASSETS:

NPA is a loan (whether term loan, cash credit, overdraft or bills discounted) which is
in default for more than three months. In case of such assets, the income should be
shown on receipt basis in bank’s books and not on due basis.

4. GROSS NON-PERFORMING ASSETS:

Bank even after making provisions for the advances considered irrecoverable,
continued to hold such advances in their books is termed as GNPA.

5. NET NON-PERFORMING ASSETS:

Net non-performing assets are gross NPAs less provision made in the accounts,
balance in interest suspense account, claims received from DICGC, and amounts
received in compromise settlements.

6. CASH RESERVE RATIO (CRR):

Every commercial bank is required to keep a certain percentage of its demand and
time liabilities (deposits) with RBI (either as cash or book balance). RBI is
empowered to fix the CRR between 3% and 5%.

7. STATUTORY LIQUIDITY RATIO (SLR):

Commercial banks are also required to keep (in addition to CRR)liquid assets in the
shape of cash, gold or approved securities as a certain percentage of their net demand
and time liabilities(NDTL).

8. CAPITAL ADEQUACY RATIO (CAR):

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Banks are required to maintain a minimum capital to risk assets ratio, which helps the
bank to survive even during sub stainable losses. (To ensure good performance, RBI
has specified minimum adequate capital for banks).

9. CAMELS:

As per the recommendation of working groups set up by RBI on ‘supervision of

banks’ a new approach has been adopted in the annual financial inspection of banks.

It evaluates banks –

CAPITAL ADEQUACY

ASSET QUALITY

MANAGEMENT

EARNINGS

LIQUIDITY

SYSTEM AND CONTROL.

10. VRS:

Voluntary retirement scheme, which is issued as a tool to remove the surplus staff in a
bank organization. (However, VRS for banks had been cleared by Ministry of Finance
in November 2002).

11. RE-CAPITALISATION:

It is a means through which the government infuses fresh additional capital in to the
weak banks to restructure their business. This is also a budgetary support for weak
banks.

12. RISK WEIGHTED ASSETS (RWA):

According to the risk involved in the assets of a bank, they are given some weightage.
RBI from time to time has been changing the weightage given to various classes of
assets.

13. RETURN ON ASSETS (RAO):

This is profit after tax as percentage of average total assets of average total assets of
current and previous year. Total assets are taken net of revaluation, advance tax, and
miscellaneous expenditure to the extent not written off.

14. RETURN ON INVESTMENTS (ROI):

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This is ratio of interest and dividend income earned as percentage of average
instruments of current and previous year. Interest earned considered here excludes
interest earned on advances.

15. OPERATIONAL EXPENSES:

Expenses incurred by banks other than interest and tax.

16. CAPITAL STRUCTURE:

TIER- 1, TIER- 2

Banks and FIs should have the capital structure as defined by RBI.

TIER- 1 Capital is the most permanent and readily available support against
unexpected losses.

It consists of –

paid up capital

statutory reserves

capital reserves

Other disclosed free reserves.

Less: 1. Equity investments in subsidiaries

2. Intangible assets 3.
Current and accumulated losses, If any.

TIER- 2 Capital is not permanent or, is not readily available.

It consists of-

Undisclosed reserves and cumulative preference shares

Revaluation reserves

general provision and loss reserves

Hybrid debt capital investments

Subordinate debt.

NOTE: Tier- 2 Capital should not be more than Tier- 1 Capital.

17. DEBT RECOVERY TRIBUNAL (DRT):

It is a recovery mechanism which was set up Ministry of Finance in 1993 under

a separate act. The defaulter can apply to the DRT for the settlement of the debt

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suggesting the terms on which he wants to settle. The tribunal will hear both the
parties and pass the final which will bind both the parties.

18. SETTLEMENT ADVISORY COMMITTEE (SAC):

This committee has also been set up by Ministry of Finance to suggest

measures for the quick recovery of loans and settle the accounts permanently.

19. ASSET RECONSTRUCTION COMPANY/FUND (ARC):

The principal objective of ARC is to take up the bad and doubtful assets of the
banks, which are in the recovery process, at a discounted price in the form of
NPA,swap bonds.( These banks would qualify for the SLR investments).

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 NPA’S ANALYTYCAL STUDY

MEANING AND NATURE OF NPAs.

Granting of credit facilities for economic activities is the main reason of banking. A
part from raising resources through fresh deposits, borrowings and recycling of funds
received back from borrowers constitutes a major part of funding credit dispensation
activity. 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 the managements of banks.
While complete elimination of such losses is not possible, bank management aims to
keep the losses at a low level.

To begin with, it seems appropriate to define Non-performing advance, popularly

called “NPA”.

A Non performing advance is defined as

“ An advance where payment of interest or repayment of installment of

principal ( in case of term loans) or both remains unpaid for a period of two quarters
or more. An amount under any of the credit facilities is to be treated as ‘past due’
when it is remains unpaid for 30 days beyond due date.”

As per recommendation of Narasimham committee, it has been decided that credit

facilities granted by banks will be classified in to ‘Performing’ and ‘Non performing
asset’.

“ NPA is a loan ( whether term loan, cash credit, overdraft, or bills discounted) which
is in default for more than three months. In case of such assets, the income should be
shown only on receipt and not shown in the banks book on a due basis.”

The ratio of Non-performing assets to advances reflects the quality of a bank’s loan
portfolio.

A distinction is often made between ‘Gross NPA’ and ‘NET NPA’. NET NPA, which
is obtained by deducting from gross NPA items like interest due but not recovered,
part payment received and kept in suspense account, etc., is internationally accepted
as the more relevant indicator of financial health of the banks.

It is the level of non-performing assets which, to a grant extent, differentiates between

a good and bad bank. The subject of high NPA levels in banks has also been
frequently raised in various area.

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IMPORTANCE OF NON PERFORMING ASSETS:
The one major cause for the current weakened state of banking sector is the
level and volume of NPAs. The problem has not been looked at in its proper
perspective. Descriptions such as decreased portfolio and figures running into
thousands of crores have all led to treating the problem as a major one-time aberration
requiring emergency treatment. The casual explanations – political interference,
willful defaults, targeted lending and even fraudulent behavior by banks – allowed
them selves to be pressurized into lowering their guard in the one area of business that
is their bread and butter of existence – risk assessment.

Lending to priority sectors or medium and small companies is likely to be the

bank’s main activity in time to come. The bigger, established corporations would have
the wide world to choose from and to meet their requirements. The shift to medium-
sized borrowers and slightly riskier lending will form the prime activity of all banks.
The problem will then, be to ensure that such lending is justifiable on a commercial
criterion.

The high level of NPAs in Indian banking sector is the result of application of
prudential norms of accounting from 1992 onwards. The introduction of CAC is
subject to the NPA level being brought down to less than 5% from the present level of
around 16%. The government of India already initiated several steps to help banks in
reducing their NPAs. Several of these NPAs are still outstanding in the books of
accounts because they are not supported by adequate provisions.

Introduction of prudential norms on income, recognition, asset classification

and provisioning during 1992-93 and other steps initiated apart from bringing in
transparency in the loan portfolio of banking industry have significantly contributed
towards improvement of the pre-sanction appraisal and post sanction supervision
which is reflected in lowering of the levels of fresh accretion of NPAs of banks after
1992.

NATURE OF NPAs :
There is no gain saying the fact that Indian banking has been the government’s
step child as far as economic policy is concerned. The two rounds of bank
nationalization in 1969 and in 1980 created public sector banking behemoths which
were slothful, indifferent and anachronistic.

On the one hand a protected environment ensured that bank’s never needed to
develop sophisticated treasury operations and asset liability management skills. On
the other hand a combination of directed lending and social banking relegated

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profitability and competitiveness to the background. The net result was unsustainable
NPAs and consequently a higher effective cost of banking services.

The crucial factor that decides the performance of banks now-a-days is the
recognizing NPAs in their advances at the earliest.

NPAs are those loans given by a bank or financial institutions where the
borrower defaults or financial institution delays interest or principal payment. Banks
are now required to recognize such loans faster and then classify them as problem
assets and take measures to recover them.

Close to 17% of loan made by Indian banks are NPAs – very high compared
to say 5% in banking systems in advanced countries. The burden of NPAs is a
millstone round the necks of the banks. The NPAs are posing a major threat not only
to the banking sector but for the economy as a whole.

CAUSES FOR NON-PERFORMING ASSETS:

A strong banking sector is important for a flourishing economy. The failure of
the banking sector may have an adverse impact on all other sectors. The Indian
banking system, which was operating in a closed economy, now faces the challenges
of an open economy. Banks started getting concerned about non-performing assets
consequent to the introduction of prudential accounting norms.

NPAs reflect the performance of banks. A high level of NPAs suggests high
probability of a large number of credit defaults that affects cash flows. According to
the RBI, the gross NPAs of scheduled commercial banks rose from 24.4% in March
2006 to 24.9% in March 2007.

Thus, increasing NPAs are a matter of concern for banks. In India, the banking
sector is still not strong on the solvency front. Having adhered to stipulated capital
adequacy norms does not suggest that a bank is strong enough. It is important to
improve the quality of assets and ensure timely recovery of loans.

IMPACT OF PRIORITY SECTOR ADVANCES OF NPAs:

There is a general perception that the prescription of 40% of net bank credit to priority
sector have led to higher level of NPAs, due to credit to these sectors becoming
sticky.

The information obtained with regard to the NPAs in the priority sector advances,
their proportion to total NPAs of banks, the NPAs in non-priority sector advances,
their proportion to total NPAs of the CENTRAL BANK OF INDIA as on 31st march

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2005,2006 and 2007 revealed that the proportion of NPAs in priority sector to total
net NPAs were 7.08%, 2.37% and 1.28% respectively.

The proportion though lesser than NPAs in non-priority sector, reveals that the
incidence of NPAs in priority sector is much higher in view of the fact that the
priority sector advances constitute only 30% to 35% of the gross bank credit during
the period. However, gradual increase in the proportion on NPAs in non-priority
sector have been increasingly seen in borrowal accounts of industrial sector during the
recent years. It is observed that the share of priority sector NPAs of CENTRAL
BANK OF INDIA, though reduced from 7.08% to 2.37%, was significantly higher
than the proportion of priority sector advances to total advances, which ranged
between 30% and 35% during three year period.

Management of non-performing assets, now a days is a critical performance area for

banks, especially in public sector banks. It is better for Indian banks to try for the
international standards in terms of efficiency, productivity, profitability, asset
recognition norms, and provisioning and capital adequacy to compete in the
competitive new economy. At present, any borrowal account not serving for either
interest or principal for at least 3 months will be called non-performing assets or
NPAs.

Reserve bank of India (RBI) has been implementing stringent rules and regulations
for asset classification from the year 1991-92, in a phased manner. It includes
adoption of new method in measuring profitability, performance and evaluation of
assets, to find the financial conditions of banks.

There are several reasons for an account becoming NPA. These include :

1. Sluggish legal system

Long legal tangles

Changes that had taken place in labour laws

Lack of sincere effort

2. Funds borrowed for a particular purpose but not used for the said purpose

3. Project not completed in time.

4. Scarcity of raw materials, power and other resources.

5. Poor recovery of receivable.

6. Industrial recession.

7. Excess capacities created on non-economic costs.

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8. In-ability of the corporate to raise capital through issue of equity or other debt
instruments from capital markets.

9. Business failures.

10. Diversion of funds for expansion\modernization\setting up new projects\helping

or promoting sister concerns.

11. External factors like raw material shortage, raw material\ input price escalation,
power shortage, industrial recession, excess capacity, natural calamities like floods,
accidents.

12. Failure, non payment\overdue in other countries, externalization problems,

adverse exchange rate etc.

13. Government policies like excise, import duty changes, de-regulation, and
pollution control orders etc.

14. Wilful defaults, siphoning of funds, fraud, disputes, management disputes, mis-
appropriation etc.

15. Deficiencies on the part of the banks viz. in credit appraisal, monitoring and
follow-up, delay in settlement of payments\subsidiaries by government bodies etc.

CONCLUSION REGARDING CONTRIBUTORY REASONS:

The study of about 900 top NPA accounts in CENTRAL BANK OF INDIA
has been tabulated from the available information revealed that the following are the
important causative factors for units becoming sick\weak and constantly accounts
turning NPA in the order of prominence.

Diversification of funds mostly for expansion / diversification / modernization.

Taking up of new projects, is the single most prominent reason. Besides being so, this
factor also has significant proportion of cases, when compared to other factors.

Internal factor such as failure of business (products), inefficient management,

inappropriate technology, product obsolescence.

External factors such as industrial recession, price escalation, power shortage,

accidents etc.

Time/cost over run during the project implementation stage leading to liquidity strain
and turning NPA in to next factor.

Other factors in order or prominence are government policies like changes in

import/excise duties etc, willful default, fraud, disputes etc, and lastly, deficiencies on
the part of banks delay in release of limits in settlement of payments by govt. bodies.

CAUSES FOR AN ACCOUNTS BECOMING NPA:

22 | P a g e
CAUSES ATTRIBUTABLE TO BORROWER

1. Failure to bring in required capital

2. Too ambitious project
3. Longer gestation period
4. Unwanted expenses
5. Over trading
6. Imbalances of inventories
7. Lack of proper planning
8. Dependence on single customer
9. Lack of expertise
10. Improper working capital management
11. Mismanagement
12. Diversion of funds
13. Poor quality management
14. Heavy out side borrowings
15. Poor credit collections
16. Lack of quality control

CAUSES ATTRIBUTABLE TO BANKS

1. Wrong selection of borrowers

2. Poor credit appraisal
3. Lack of supervision
4. Tough stand on issues
5. Too flexible on attitude
6. Systems overloaded
7. Non inspection of units
8. Lack of motivation
9. Delay in sanction
10. Lack of trained staff
11. Lack of delegation of work
12. Sudden credit squeeze by RBI
13. Lack of commitment to recovery
14. Lack of adequate technology
15. Lukewarm effort by staff to work
16. Lack of technical personnel and zeal to work.

OTHER CAUSES

1. Lack of infrastructure
2. Fast changing technology
3. Unhelpful attitude of the govt.

23 | P a g e
 4. Changes in consumer preferences
5. Increase in material cost
6. Govt. policies
7. Credit policies
8. Taxation laws
9. Civil disturbances
10. Political hostility
11. External pressure
12. Sluggish Legal System
13. Changes related to banking amendment act.

RBI should take stringent measures from time to time to govern and supervise the
operation of banks by introducing new set of norms of international standard. This is
important since success/failure of these banks are strongly linked to the performance
of the financial system. In addition, these measures help to weed out the in efficient
banks and lead to strengthening of the system. In India, the government has been
recapitalizing weaker banks in order to make them operative, however this alone will
not improve the performance of the banks.

MAGNITUDE OF NON-PERFORMING ASSETS IN CENTRAL

BANK OF INDIA:
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. The subject of high NPA
levels in banks has also been frequently raised in various forces.

The percentage of NPAs when compared to international standards is definitely high

for Indian banks. The problem of NPAs is not only affecting the banks but also the
whole economy. In fact high level of NPAs in Indian banks is nothing but a reflection
of the state of health of the industry and trade. It has also been possible to combat the
menace of NPAs by bringing down net NPAs from the level of 7.08% as on
31.03.2005 to 2.37% as on 31.03.2006. Thus, in a single year net NPAs declined by
4.71%. This compares favorably with the industry. Gross NPAs of the Bank declined
to Rs. 1,418.46 crore as on 31.03.2006 from Rs. 1,841.50 crore as on 31.03.2005
while net NPAs reduced to Rs. 362.83 crore from Rs. 886.98 crore during the period.
Provision Coverage Ratio was brought up from 51.23% during 2005-06 to 73.75%
during 2006-07.

CENTRAL BANK OF INDIA has laid thrust on NPA recovery, specially taking
advantage of Securitization and Reconstruction of Financial Assets and Enforcement
of Security Act, 2002, as also One Time Settlement Schemes formulated by RBI. In
order to improve asset quality, the Bank is pursuing improved credit appraisal
techniques supported by Credit Risk Rating, industry trend analysis etc. It has also

24 | P a g e
strengthened credit-monitoring system for improvement of asset quality and detection
of early warning signals etc.

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 IMAPCT OF NPA’s

IMPACTS OF NPAs IN CENTRAL BANK OF INDIA

Central Bank of IndiaNSE 3.13 % has reported an increased net loss of Rs 6,430.48
crore for 2018-19 due to NPA divergence after assessment of higher bad loans by the
Reserve Bank.

The net NPA divergence -- the difference between the NPAs reported by the bank and
that assessed by the RBI -- was at Rs 2,565 crore for 2018-19.

Central Bank of India had reported a net loss of Rs 5,641.48 crore in 2018-19 earlier.
The adjusted (notional) net profit after tax for the year ended March 31, 2019 after
taking into account the divergence in provisioning is (-) Rs 6,430.48 crore," the bank
said in a regulatory filing.

Banks are required to report divergences in their asset classification and provisioning
as per Sebi guidelines issued on October 31, 2019.

The bank had reported Rs 11,333.24 crore net NPAs during the year while the RBI
assessed it at Rs 13,898.24 crore, leaving a gap of Rs 2,565 crore.

The divergence in provisioning also increased by Rs 788 crore for the fiscal ended
March 2019.

Market regulator Sebi has put in place tighter disclosure norms, directing all listed
banks to disclose any divergence in bad loan provisioning within 24 hours of
receiving RBI's risk assessment report, rather than waiting to publish the details in
their annual financial statements.

Banks, including Indian Bank NSE 7.05 %, Union Bank of India NSE 4.12 %, Bank
of India, Indian Overseas Bank NSE 0.97 % and Lakshmi Vilas Bank NSE 4.92 %,
have already reported their NPA divergences for the last fiscal.

The disclosures need to be made in case the banks' additional provisioning for non-
performing assets (NPAs) assessed by the RBI exceeds 10 per cent of the reported
profit before provisions and contingencies, and if the additional gross NPAs identified
by the RBI exceed 15 percent of the published incremental gross NPAs

RECOVERY OF NON-PERFORMING ASSETS:

The second phase of reforms lays thrust on improvement in the organizational
efficiency of banks. The most crucial factor being the improvement of profitability of
banks in the reduction of NPAs. This issue is closely connected with the overall

26 | P a g e
stability of the financial system and needs to be recognized as such for undertaking
multi pronged efforts. Apart from internal facts such preponderance of certain
traditional industries in the credit portfolio of certain banks, majority of which are
suffering from serious inherent operational problems, natural calamities, policy and
technological changes which increase the incidence of sickness, labour problems and
non-availability of the raw materials and other such factors which are not with in the
control of banks.

While banks cannot be blamed for advances becoming non-performing due to

external factors, there is an urgent need that the banks address the problems arising
out of internal factors and this may call for organizations restructuring of banks, a
change in the approach of banks towards legal action which is generally the last step
and not the first step, no sooner the account becomes bad and a clear thrust on
improving the skill of officials for proper assessment of credit proposal, risk factor
and repayment possibilities.

Drastic measures should be taken for reducing the mounting level of NPAs in terms of
both ‘gross’ and ‘net’. Though there are problems in effecting recoveries and write off
and in compromise settlements for making recovery process more smooth and less
time consuming and also create other alternative channels/agencies for recovery of
debt/reduction of NPAs. Government and other authorities should devise policies
having a bearing on the industrial sector, agriculture and trade with a long term
perspective to avoid sickness in the industry and adverse impact on borrowers because
of sudden shift in the policy.

Arresting of non-performing assets is fast turning out to be a myth. Despite an

aggressive recovery drive, the CENTRAL BANK OF INDIA has failed to arrest the
growth in NPAs. As shown in the table the gross and net NPAs went on increasing,
but most of the banks have been able to pave the growth of NPAs because of the
expansion in their asset portfolio.

27 | P a g e
EFFECTIVENESS OF LEGAL RECOVERY MEASURES IN
BANKS:
In 31st march 2006 it was noticed that as many as 14,36,739 suit file cases were
pending for an amount of Rs. 21,824.92 crs. This procedure for recovery of bad debts
due to public sector banks has resulted in blocking of a significant portion of their
funds in un productive assets, the value of hich deteriorates with the passage of time.

The multiple litigation opportunities available to the borrowers for delaying the
verdicts/enforcement, courts being burdened, as they are, with heavy work load,
coupled with the tardy decision making process in the banks, rendered legal process
less useful. The recovery made though the legal measures/courts process indicated
above is self-revealing. Statements collected from public sector banks visited during
the study regarding the recovery process, revealed that significant portion of the suits
were pending for more than a decade. In some cases there were legal cases which
were pending for 15 to 20 years, but no progress were made in the suit.

It was observed during the perusal of filed cases in public sector banks that it
took many years, in many cases more than a decade, for the courts to settle the cases
even after passing of the orders/decree, due to the multiple litigation opportunities,
eg., referring to appellate courts, higher courts, full benches etc, long time is taken for
the settlement of the cases. Difficulties are also faced and delay is occurring in the
execution of decree.

A part from the suit filing and legal measures the govt. and RBI has suggested other
vehicles to address the problem of NPAs recovery.

Among these are –

i. Debt recovery tribunals

ii. Debt settlement tribunals
iii. BIFR/SICA
iv. Lok adalats
v. Asset Reconstruction company
vi. Revenue recovery act
vii. Settlement advisory committee
viii.One time settlement scheme
ix. And other means for the recovery of NPAs in CENTRAL BANK
OF INDIA.

28 | P a g e
But at the end, data suggests that the working of all these ‘other vehicles’ had fallen
short of the expectations by not creating a fast track system for recovery of bank dues.

In a bid to speed up recovery efforts of the banks, debt recovery tribunals (DRT) were
set up in 1993 by an act of parliament. This was welcomed by both banks and
borrowers alike. Finally, it was hoped there would be a non-confrontationist middle
path where both banks and borrowers could meet. Seven years on both sides agree
that a lot still needs to be done to make the DRTs an effective recovery tool for the
Indian banking sector.

At the end of June 2007, out of the total numbers of 11,700 cases filed and transferred
to debt recovery tribunal (DRT) involving Rs. 8,866.67 crs. Only 1045 cases have
been decided and meager amount of Rs. 178.08 crs was recovered.

WORKING GROUP:
Taking a serious note of this situation, the central board of RBI in 2007
reviewed the effectiveness of DRTs. RBI therefore decided to set up a working group
under the chairman ship of N.V. Deshpande, former legal advisor to RBI, comprising
officials from the govt. banking divisions, some bankers and RBI officials to look into
the various issues and to suggest measures for their effective functioning.

The terms of reference of the working group were mainly –

1 To look into various issues and problems confronting the functions of DRTs
and to suggest measures to make them more effective.

2 The group was also to examine the existing statutory provisions and suggest
necessary amendments to the 1993 act with a view to improving the efficiency
of the legal machinery.

By august 2007 the working group submitted its final suggestions –

1 First it was noticed that once an application had been made to DRT, the
branch managers and staff of the banks did not take any interest in the
proceedings

2 In many cases, bank officials themselves were unaware of even the execution
of loan documents and names of the borrowers.

29 | P a g e
3 The working group suggested that the banks and FIs should impress upon their
officers and staff to take a keen interest in the proceeding.

4 The group also said that the recovery officers should be given assistance of
agencies like police and professional debt recovery agencies and the act be
amended to provide licensing and regulating professional recovery agencies.

5 One of the most important recommendations was that not only should there be
a tribunal in every state, there should be more than one DRT in the same state
if the workload of the tribunals so justified. The presiding officers of DRTs
should not have more than 30 cases on the board on any given data and there
should not be more than 800 cases pending before it at any given point of
time.

The center on march 9th ,2000 introduced the recovery of debts due to banks
(amendment ) bill 2000. the aim was to correct the legal anomalies pointed out by
the supreme court such as the stipulation that tribunals would continue to function
not with standing court stay or transfer of petitions. The amendments, first brought
into force through the ordinance from 17th January,2000 addresses many of the
other lacunae. It empowers DRTs to attaché the property of the borrower on filing
of the applications to that effect.

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 MANAGEMENT OF NPA’s

MANAGEMENT OF NON PEFROMING ASSETS:

The new concepts of income recognition, asset classification and
provisioning have been introduced in phases with effect from 1992-93. The impact of
implementation of these prudential guidelines on the commercial banks has been so
strong that out of 20 nationalized banks, one had to be merged and out of the
remaining 19 banks excepting 6, all others were in red, showing net losses
aggregating to a staggering level of 3573.13 crores. In march 1993 and still a higher
level of Rs.4705.01 crores in march 1994. Further, due to staggering net loss revealed
by the Indian bank, the aggregate net loss of the 19 nationalized banks even in march
1996 was rs. 1153.96 crores. However the aggregate net profit of 19 nationalized
banks, as on 31st march 1997 was Rs.1445.48 crores.

This drastic change of profitability scenario of banks in India since 2005-05

was mainly due to recognition of income based on record of recovery rather than on
accrual basis, due to implementation of new prudential norms.

The message is now very loud and clear. If a bank wants to survive and grow, it
has no option but to actually recover the interest and principal in accordance with the
terms of sanction. If it fails to recover, the bank branch can not recognize the interest
debited to the account as income. In case income is not received as per prudential
norms, the loan will become a NPA with all its necessary consequences.

The NPA effects adversely the health of the bank in several ways as follows:

I. Potential interests income is derecognized since it can not be booked as

income, profit of the bank depletes.

II. Depending up on the categorization of NPA, that is sub-standard, doubtful

(D1,D2,D3) or loss assets bank will have to make provision against such loan
ranging from 10% to 50% or even 100% in case of some of assets. Banks
profitability is thus doubly hurt. First income accruing on NPA is not
recognized and secondly bank has to make provision for it.

III. In case bank fails to upgrade the NPAs into the performing assets, it may be

31 | P a g e
 forced to incur legal expenses by going to court or recovery tribunals.

IV. As a consequence profit and profitability of the bank is depleted and it may
face problem in maintaining the required capital adequacy norm of 8% or
more.

V. Inadequate capital adequacy may downgrade banks rating and effect its
growth and survival.

Management of NPAs would have the following objectives: -

1. Improving the quality of NPAs to the performing status so that income of such
assets could be recognized.

2. Upgrading the status of the asset so as to reduce the provisioning requirement.

3. Cleansing the balance sheet of bank of loss assets and also of unsecured
portion of doubtuful assets, ultimately leading to improvement in the capital
adequacy ratio of the bank.

The above objectives can be achieved by adopting the following strategies as a

measure of reduction in the level out standing Non performing assets(NPAs).

Various steps for reducing NPAs

1 Studying the problem of NPAs – branch wise, amount wise and age wise.

2 Preparation of a loan recovery policy and strategies for reducing NPAs.

3 Creation of special recovery calls at head/regional level

4 Identifying critical branches for recovery

5 Fixing targets of recovery and draw the time bound action program

6 Selecting proper techniques for solving the problem of each NPA

7 Monitoring implementation of the time bound action plan

8 Taking corrective steps when ever found necessary while monitoring the
action plan make changes in the original plan if necessary.

STRATEGIES FOR MANAGING NPAs:

1 Very careful selection of new borrowers based on their credit worthiness and

32 | P a g e
 risk analysis. Similarly, for high credit rated existing borrowers, need based
credit requirement should be promptly met.

2 Post-sanction follow-up must be done meticulously at all levels, ie., branches,

regional offices, zonal offices and head offices. All prescribed operational
information system such as annual reviews/renewal, quarterly information
system. Quarterly review sheets, monthly stock statements, etc., must be
received and meaningfully analyzed and required follow-up action taken on
time.

3 All big borrower accounts (Rs.50 lakhs and above) falling in the category of
“standard assets” must be reviewed on quarterly basis and prompt action taken
if any adverse feature is noted, with a view to ensure that they do not slip back
to a lower category i.e., sub standard.

4 Those borrower accounts which are at the lower-end of the list of “standard
assets” deserve special attention and the moment they show any sign of
weakness to “slip-back”, immediate pro-active steps, for lower end of list of
sub-standard assets should be taken to prevent this happening.

ACTION POINTS IN REGARD TO EXISTING NPA ACCOUNTS:

Main action points in regard to existing NPAs may be summed up as under:

I. The borrowal accounts lying at the top-end of the list of “sub standard assets”
are likely to be NPA of less than 1-year i.e., they must have slipped back to this
category only recently. All-out efforts should be made to upgrade these accounts
and make them performing (standard assets) by recovering the derecognized
interest of all four quarters of last year and at least three quarters of the current
year or taking other relevant measures which are necessary to make their
performing assets.

II. Top priority should be given to upgrade progressively the quality of all NPAs
to next higher category of better-quality loan assets e.g., D3 may progressively
upgraded to D2 and D1 then to “sub-standard” and ultimately to “standard”
category over a period through persuasion, nursing and rehabilitation based on
major contribution from the promoters. [Here D1 –upto 1year, D2 – 1year to 3

33 | P a g e
 years, D3 –more than 3 years].

I. All the securities charged to the bank should be “re-valued” on realistic basis
through approved values and provisions should be made strictly on this basis.

II. In case upgradation on NPA appears difficult and value of security is adequate
to cover bank’s loan and charge on the same is validly created in bank’s favor, serious
efforts at senior level should be made through a “high power” compromise committee
to enter into one-time settlement with the party in a manner that results into maximum
recovery and lease write-off in conformity with the available security level as far as
possible. This may involve some sacrifice in the form of “write-off” on the part of
bank also.

I. In case where steps (ii) and(iv) do not succeed, bank has no option but to
resort to legal action within the limitations period either by going to debt
recovery tribunals (or) judicial courts. In case of agricultural and other smaller
loans banks may file recovery certificates under state acts or approach lok
adalats, if necessary for amicable settlement.

I. Tackling NPA, is a massive and intricate job, where involvement of

concerned staff at all relevant levels is a must and should be done by forming
“compromise committees” at regional, zonal and head office levels. This is also
in terms of RBI guidelines.

I. Specialized recovery branches should be set up at selected centers, keeping in

view concentration of banks NPAs and presence of DRT in that area for
expeditious recovery of bank dues.

I. Top priority should be accorded for effective follow-up of pending suits of

execution of the decrees.

II. Zones should be asked to submit a ‘monthly progress report’ in a prescribed

format in regard to NPA account.

III. All the BIFR cases under rehabilitation program or under banks own
nursing program should be closely monitored so as to ensure that the
rehabilitation is on right course.

STRATEGY FLOW CHART:

STRATEGY - I STRATEGY – II

34 | P a g e
Careful selection of Selection of top end of sub-standard

New borrowers assets< 1year & take efforts to

↓ recover interest.

Post sanction follow up ↓

↓ Classification of assets in to:

Classification of assets and D1 up to 1 year

Quarterly review D2 1 year to 3 years

↓ D3 > 3 years

Proactive steps for lower level ↓

Of sub-standard assets Revalue of collateral securities for

such advances and make provisions

Value of securities is adequate to given

loan

If difficult One Time Settlement

Form compromise committees

Special recovery branches follow up

Submission of monthly progress report

Close monitoring of BIFR cases

35 | P a g e
PREVENTING OCCURANCE OF NEW NPAs:
Managers of rural and semi-urban branches generally sanction these loans. In
the changed context of new prudential norms and emphasis on quality lending and
profitability, managers should make it amply clear to quality lending and profitability,
managers should make it amply clear to potential borrowers that banks resources are
scarce and these are meant to finance viable ventures so that these are repaid on time
and relent to other needy borrowers for improving the economic lot of maximum
number of households.

Hence, selection of right borrowers, viable economic activity, adequate

finance, and timely disbursement, correct endues of funds and timely recovery of
loans is absolutely necessary preconditions for preventing or minimizing the
incidence of new NPAs. Besides functioning as bankers, they have to work as a
friend, philosopher and guide of borrowers, develop mutual trust so as to maximize
recovery in case of new loans.

ACTION PLAN IN REGARD TO EXISTING NPAs:

These are as follows:

1 Frequent recovery camps should be organized on periodicities synchronizing

with harvesting seasons in case of agricultural loans and at
monthly/bimonthly intervals in other cases, so as to recover the bank dues
from the sale proceeds on due dates.

2 Cash recovery of some minimum installments (25%) of smaller loans has

now become a pre-condition for lodging claims with the DI and CGC.
Hence, branches must build genuine pressure on borrowers to repay the
installments whenever due, without exception. For this purpose even clerical
and subordinate staff member may also be involved for effecting recovery
through personnel contacts. To motivate the staff; managers may issue
appreciation letters to good performers.

3 Disposal of recovery certificates (RCs) cases, whenever pending in large

numbers should be taken up suitably by the regional/zonal managers with the
district magistrate, who is laso chairman of the district consultative

36 | P a g e
 committee (DCC).

4 Suitable colored printed post card in local languages may be supplied for
issuing notices of recovery camps and such camps may be attended by
regional managers or other senior officers of the regional office.

5 Bank may also try recovery peons (in bank uniforms) who may visit
borrowers before 9 am or after 5pm for meeting the borrowers for recovery
of bank dues.

6 “No default certificate” or “Best borrower certificate” should be given to

such borrowers in a borrowers meeting specially organized for the purpose,
in the presence of gram pradhan. This is likely to encourage others to repay
bank dues in time and create healthy recovery climate in the area.

7 Where recovery is not forthcoming despite due efforts, compromise

proposals should be mobilized by concerned region committee and sent to
zonal officer for necessary action.

8 Head office and zonal offices should also take advantage of lok adalats.
Where available, for striking instant compromise judgements in the presence
of both parties. But ,this will require necessary home work by the zonal
heads in advance so that large number of cases are mobilized and
concurrence taken from competent authority, before attending the pre-
determined dates of lok adalats.

9 In all those cases where recovery chances are bleak and there is neither any
operation in the account nor any recovery has been effected during the last 2-
3 years, but the cases are eligible for lodgment in terms of latest D1 and
CGC guidelines, branches should be advised to prepare all such cases
correctly and send to nodal center of the bank for prompt lodgement of
claims with D1 and CGC, Mumbai. Subsequently, there should be close
effective follow-up by the bank with DI and CGC, Mumbai for prompt
settlement.

10 After settlement of those cases, the eligible portion can be written-off by the
competent authority as per banks rule so as to reduce the amount of “loss
assets” from the books of the bank.

11 In cases where adequate security is available, activity is continuing, but the

37 | P a g e
 repayment is not coming, but bank may opt for legal action, after giving due
notice to borrowers.

12 There should be close follow-up with banks lawyers having large number of
un disposed cases and their selection or future assignment of cases to them
should be based on merit and performances.

One of the main reasons of low profitability of CENTRAL BANK OF

INDIA is the incidence of very high non-performing assets. But the level of NPA
varies significantly among different banks. (Range being as wide as 4% in case of
best bank to more than 40% in case of worst bank).

Significantly, variation in the relative sizes of NPA is not related to the size
of the bank in terms of business or branch network. Variation exist between banks of
comparable size, whether small or large, suggesting that organizational culture and
quality of management have played a crucial role in determining the quality of loan
assets or banks over all performance.

Thus, there is need to improve the quality of leadership and management at

various levels in the mean time, improvement in recovery performance must be
accorded top priority in banks corporate plans. The maintenance of recovery
discipline requires that books vigorously pursue recovery even for advances that have
been provisioned against.

“ Loan is not a charity and it has to be repaid on the due date come what may.”
Should be the slogan of a good banker.

FLOW CHART FOR ACTION PLAN

Frequent recovery camps should be organized at monthly/bimonthly intervals

Cash recovery of some minimum installments

Disposal of recovery certificates should be taken up

38 | P a g e
 ↓

Issuing notices of recovery camps

Recovery peons may visit borrowers

Default certificate/ best borrower certificate should be given

Compromise proposals should be mobilized

Head office and zonal office take advantage of lok adalats

Lodgment of claims with DT and CGC

After settlement reduce the amount of loss assets from bank books

Opt for legal action

Close follow up with banks lawyers having large number of un disposed cases

COMMITTEES AND RECOMMENDATIONS

• NARASIMHAM COMMITTEE REPORT [I/II].

The government of India has appointed a high level committee under the
chairmanship of Mr. M. Narasimham, the former chairman of SBI, to examin all
aspects relating to the structure, organization, functions and procedures of the Indian
financial system. The committee was appointed on August 14, 1991 which submitted
its report on 30th November 1991.

39 | P a g e
Major recommendations of the committee relating to NPAs :

1. SLR to be reduced from 38.5% to 25% over next five years and CRR
to be brought down to 3%.

2. Directed credit-loans to priority sector, different interest schemes,

IRDP, IREP etc. should be phased out the committee was of the view
that easy availability of credit was more important than subsidized
credit to the rural poor.

3. Not more than 10% of the aggregate bank credit should be earmarked
for the redefined priority sector.

4. Capital adequacy requirement (CAR) should take into account market

risks in addition to credit risk.

5. Minimum capital to risk assets ratio be increased from 8% to 10% by

2004 in a phased manner.

6. An asset be classified as doubtful if it is in the substandard category for

18 months in the first instances and eventually for 12 months and loss
if it has been identified but not written off. These norms should be
regarded as minimum and brought into force in a phased manner.

7. For evaluating the quality of asset portfolio, advances covered by

government guarantees, which have turned sticky, be treated as NPAs.

8. Asset reconstruction fund (ARF) should be constituted to take over the

NPAs of public sector banks at a discount.

9. For banks with a high NPA portfolio, two alternative approaches could
be adopted. One approach can be that all loan assets in the doubtful
and loss categories, should be identified and their realizable value
should be determined. These assets could be transferred to asset
Reconstruction Company which would issue NPA swap bonds.

10. Introduction of general provision of 1% on standard assets in a phased

manner be considered by RBI.

11. An incentive to make specific provision, they may be made tax

deductible.

12. Adoption of income recognition of asset classification and

40 | P a g e
 provisioning norms to be compulsory.

13. Special tribunals should be set up for speedy recovery of the bank loan
dues.

14. There should be an independent loan review mechanism especially for

large borrowal accounts and systems to identify potential NPAs.

15. The minimum share of government holding/RBI holding in the equity

of nationalized banks should be brought down to 33%.

• VERMA PANNEL REPORT

The committee which was headed by Mr. M.S. Verma, Former chairman of SBI,
identified the specific ailments prevailing in the banking sector and come out with a
panacea prescription.

The following are the recommendations of Verma panel :

The panel identified 3 weak PSBs and recommended a conditional bail out
package of 5000crs., out of which 3000crs., will be used for the recapitalization of
weak banks.

The most significant suggestion, however is the formation of a private sector

asset management company presided over by some of the most talented professionals
of the business. It will do away with the bureaucratic hurdles like delayed decision
making in disposing off the assets grabbed by asset reconstruction fund.

The report also said about setting up of financial reconstruction authority of

statutory status will mark the beginning of a serious effort to bring back the banking
sector into a healthy state.

RBI MEASURES TO CURB NPAs:

In view of the time factor involved in recovering NPAs by legal means, the
RBI has come out with simplified non-discretionary guidelines for compromise
settlement of bad debts upto 5 crs for uniform implementation by them.

41 | P a g e
NON – DISCRETIONARY AND NON – DISCRIMINATORY NORMS:

The guidelines issued by RBI covers all outstanding, doubtful and loss assets
of Rs.5 crores or less as on March 31st , 1997 and which had turned into doubtful or
loss assets subsequently also would be covered, according to a statement issued by the
IBA. The RBI said these guidelines, which would be operative up to 31st March,
2003, would cover NPAs relating to all sectors including small sector. Cases pending
in courts/debt recovery tribunals/BIFR are covered under the guidelines subject to the
consent decree being obtained, the apex bank averred and added cases of willful
default or malfeasance would not be covered. The amount of settlement arrived at
should preferably be paid in one lump sum. If not, at least 25% down payment and
balance in settlements with in a period of one year together with interest at the
existing PLR from the date of settlement upto the date of final payment.

RBI EASES NORMS ON NPA FOR CENTRAL BANK OF INDIA: “ONE

TIME SETTLEMENT”:

To achieve maximum realization of public sector banks the RBI simplified the
guidelines for the recovery of NPAs.

The revised guidelines will cover NPAs relating to all sectors including the small
sector, but will not cover cases of willful default, fraud and malfeasance. The banks
should give notice to the defaulting borrowers to avail of the opportunity for “one-
time settlement” of outstanding dues.

Under the new guidelines, the minimum amount that should be recovered under
compromise settlement of NPAs classified as doubtful (or) loss, which would be
100% of the outstanding balance in the account. This would be as on the date of
transfer to the protested bills account or the amount outstanding as on the date on
which the account was categorized as doubtful NPAs whichever happened earlier.

The guidelines have been circulated to all public sector banks. The RBI move comes
in the wake of complaints by such banks that the guidelines are inflexible of retarded
the progress in the recovery of NPAs.

42 | P a g e
 QUALITATIVE ANALYSIS

According to you what is NPA?

When an assets ceases to

18% generateincome for the
26% bank.

If the customers do not pay

principal andinterest for
certain period of time,
itscalled NPA.
If periodical income is not
generated forlender of
56% money, it is called as NPA

Does competitive pressure has forced banks in general to relax

credit appraisal standards and thereby contributed to more
NPAs.

7%

30% Strongly agree

28%
Agree
Neither agree nor disagree
Disagree
Strongly disagree

35%

43 | P a g e
Whether the current credit appraisal system of your bank is
inadequate in morden environment.

20% 21%
Strongly agree
Agree
Neutral
Disagree
26% Strongly Disagree
33%

“There is an inadequate mechanism available in the banking

sector to gather and disseminate credit information amongst
commercial banks”. Do you agree with this statement?

3%
16%
16%

Strongly disagree
Disagree
Neutral
24% Agree
Strongly agree

41%

44 | P a g e
 It is observed and often supported by bankers that effective
recovery of the NPA is hampered on account of sizable
overhang component arising from infirmities from the exiting
process of debt recovery and inadequate legal provisions on
foreclosure and ban

19%
34%
Yes, Always
Yes, sometimes
No
47%

Do you feel that the present competitive pressure in the banking

sector leading to the emergence of more local banks and branches of
international banks in the country leas to relaxing the credit norms
and thereby more NPA whether the current credit appra

8%
15%
Strongly agree
19% Agree
Neither agree nor disagree

34%
Disagree
Strongly disagree
24%

45 | P a g e
 What is impact that NPAs have on the bank?

Decline reserves and

3%
15% surplus
14% Decrease in profitability

Decrease in stock price

14%

Loss of capital
23%

Increasing spread

31% Other

NPA adversely affects the liquidity of banks and its income-

generating capacity

11% 10%

11% Strongly agree

Agree
Neither agree nor disagree
Disagree
42% 26% Strongly disagree

46 | P a g e
Do you agree that NPAs have significant role on interest rates
charged by banks.

6%

24% 13%
Strongly agree
Agree
Neither agree nor disagree
23% Disagree
Strongly disagree
34%

A higher NPA may adversely affects attitude towards fresh

crediy proposals and thus credit growth.

13%
23%
Strongly agree
11%
Agree
Neither agree nor disagree
Disagree
23% Strongly disagree
30%

47 | P a g e
A higher NPA may force banks to depend on subordinated debt
at high cost to supplement the capital requirements.

13%
18%
Strongly agree
Agree
11%
Neither agree nor disagree
32% Disagree
Strongly disagree
26%

Different banks adopt different mechanisms for managing

NPAs. In your bank, NPA is managed through.

Reporting frauds to RBI

3%
13%
13% Increasing the collateral
requirement
11% Sound risk assessment
15% schemes
Compromise on settlement
schemes
23% Releasing willful defaulters
23%
schemes
Releasing willful defaulters
list

48 | P a g e
“NPA can be controlled if banks improve the system of loan
appraisal.”

15% 11%

Strongly agree
14%
Agree
Neither agree nor disagree
29% Disagree
Strongly disagree
31%

The problems of NPA can be reduced to a extent by

maintaining a continuous rapport/relationship with borrower
customers.

13% 11%

Strongly agree
Agree
21%
24% Neither agree nor disagree
Disagree
Strongly disagree

31%

49 | P a g e
 Do you feel that securitization of loan, fixing interest rates,
processing charges etc should depend on individual loan
proposal based on the quality of borrower, nature of business,
etc.

21%

Yes
No
52%
No opinion
27%

By promoting corporate governance practices in organizations

that have dealings with bank; the NPA level can be reduced.

8% 10%

Strongly agree
26% Agree
29% Neither agree nor disagree
Disagree
Strongly disagree

27%

50 | P a g e
 RESEARCH METHODOLOGY

For the study, secondary data has been collected using annual report of “Reserve
Bank of India” publication including “Trend & Progress of banking in India”,
statistical tables related to banks in India and report on currency and finance. Articles
and papers relating to NPA published in different business journals, magazines,
newspaper, periodicals were studied and data available on internet and other sources
has also been used. Major guidelines issued by RBI from time to time were studied in
depth. Along with this assets quality of banks and recommendations also studied.

Research Design
The study is descriptive in nature, as it attempts to study and describe the impact of
Non- Performing Assets on the revenue and the profitability of Central Bank Of India.

Type of Data
The research data adopted for carrying out the study was secondary data.

Source of Data Collection

News Papers, Bank magazine, Review of Literature, IIB magazine, Internet.

51 | P a g e
 FINDINGS AND OBSERVATIONS:

1. The % of NPAs of private sector banks is less as compared to the public sector
banks like CENTRAL BANK OF INDIA.
2. The % of net NPAs to net advances of CENTRAL BANK OF INDIA is less
than the % of gross NPAs to total advances (More provisioning).
3. “Gross” &”Net” terms exist only in India.
4. CENTRAL BANK OF INDIA NPAs are increasing when compared to that of
other nationalized banks.
5. Net NPAs of CENTRAL BANK OF INDIA are likely to reduce over next 3
years than the Gross NPAs.
6. Overall NPAs in CENTRAL BANK OF INDIA as a % of advances are in
decreasing trend, though the NPAs in the absolute terms are increasing.
7. Due to compulsory lending to the priority sector, NPAs are more in
CENTRAL BANK OF INDIA.
8. The recovery of non performing assets is slow due to the sluggish legal system
prevailing in India.
9. Recognition of an account becoming an NPA is not done in time.
10. No proper credit appraisal.
11. Due to high level of NPAs in CENTRAL BANK OF INDIA, operationg
profits kept on decreasing.
12. Due to high provisioning, the ROA in CENTRAL BANK OF INDIA was in
negative terms.
13. Even after providing Re-Capitalization facility by the government to the weak
banks, not much change has been observed in the performance of the banks.

52 | P a g e
 LIMITATIONS

1 Study is entirely based on secondary data

2 Study is confidential in nature, so the views expressed may be a general
opinion
3 The findings of the Study cannot be applied to all branches of CENTRAL
BANK OF INDIA.

4 Procuring the financial data of all the CBI was critical because the Indian
banking sector is wide, so the better evaluations of the performance of the
banks were not possible.

53 | P a g e
 SUGGESTIONS AND RECOMMENDATIONS

Tackling the high level NPAs is certainly a major concern for the Indian banking
industry. Raising level of NPAs is becoming a concern for the banks.

The report on NPAs in CENTRAL BANK OF INDIA conveys its concern about
management of NPAs in the Indian banking system.

The suggestion and recommendations are listed below :

1. CENTRAL BANK OF INDIA must employ/adopt scientific approach for

appraisal before the loan is distributed and monitor it closely in real time.
2. It must provide need based micro-credit for needy entrepreneur with good
proposals and implement a system for selecting a good borrower.
3. It must build a credit information bureau to restrict the errant borrower, from
switching banks.
4. Banks should always follow basic lending norms and take quick credit
decisions.
5. It must break up recovery to branch level network.
6. It must set up separate NPA cell at each branch level.
7. Take every NPA case as a separate issue and analyse the need for future
findings from an economic point.
8. Opt for out of court settlements.
9. Remove the ‘Gross’ and ‘Net’ terms while distinguishing the NPAs.
10. Government should set up asset reconstruction company as proposed by the
Narasimham committee, to take over the bad loans of commercial banks and
salvage what they can.
11. Banks should develop advanced skills in risk management and evaluation of
various credit risks.
12. The regulatory authority should strengthen the debt recovery tribunal by
appointing more judge and adequate number of recovery officers to dispose
off the case.
13. Periodically a list of defaulters may be published to enable the banks to take
necessary action against the defaulters.

54 | P a g e
14. Amend the relevant laws like CPC, Limitations act, Stamp act, Evidence act
etc, to ensure that the bank default cases are dealt with an altogether different
basis with limited number of adjournments.
15. RBI could lower the bank’s exposure to individual borrowers, to bring
economic prosperity equally around the country.
16. The government should see to that the strong bank should not be merged with
the weak bank, as it may effect the performance of the strong bank.
17. The banks should cut down the operational expenses to bring bank the back on
the track of profitability. VRS is one such measure to reduce the expenses.
18. Government should not provide any re-capitalization facility from here after,
as infusion of new capital may not restructure or lift the banks performance;
hence the weak banks should be closed down.

55 | P a g e
 REVIEW OF LITERATURE

NPA is a burning topic for the banking sector and many authors tried to study
the reasons of NPA, the Problems created by NPA and the impact of NPA on the
banking sector, and moreover came to a solution or remedies of the growing problem
of NPA. A number of papers have been written and gone through, and this part of
this paper is attempting to present a review of all those are available in the same area
of non-performing assets of the public sector banks, private sector banks and other
banks. This survey has conducted a study on the existing papers, articles, journals,
and reports provided by different authors, groups and committees from time to time.

Bharat Kumar Meher (2017): This paper is an attempt to highlight the short term as
well as the long term effects of demonetization on NPA level of Indian Banks.

Pradhan Tanmaya Kumar (2013): The scope of the study is limited to five years
data. The study is related to old private sector banks and foreign banks. Gross NPA of
private sector and foreign banks continue to rise except the year 2008 in old private
sector banks and 2011 in foreign banks continue to fall.

Thangam Alagarsamy, DR.S Gamapathy (2017): The researcher concluded that

government and bankers has to take serious effort for decrease the NPA otherwise it
thoroughly damages the bank profit of the banker and also is not good for the
developing countries.

Laila Memdani, Shilpam Dubey, Suresh K.G. (2017): This paper aims to explore
the determinations of Non-Performing Loans/Assets in private sector banks(PSBs) in
Indian Banking sector. The NPAs in the PSBs are increasing rapidly and are eroding
profitability of these banks.

Dr. Tanmaya Kumar Pradhan (2012): The data has been analyzed by percentage
method. The tool used to collect data from the bank officials was a structured
questionnaire. This will attract high-risk borrowers which, in turn may result in higher
level of non-performing advantages in future.

Priya Mohnani, Monal Deshmukh (2013): This paper provides an empirical

approach to the analysis of profitability indicators with a focal point on non-
performing assets(NPAs) of public and private sector banks.

B Balaji Sathya Narayanan(2014): This studies has been carried out to study the
causes and effects of the Non-Performing Assets in Indian bank and to provide
constructive suggestions to reduce the same.

Dr.Anita Sharma(2016): This paper makes attempts to discuss the meaning and
present ststus of NPA; understanding the esrly warning signals for an accounts
becoming NPA; the meaning and evolution of forensic audit and to know accounts for
which forensic audit is applicable.

Rupa Rathee, Deepti Kuhar, Parveen Siwach(2015): The significance of the paper
is expected to be an immense use to society and to the various banks dealings with

56 | P a g e
NPA problem. This study provides the information related to this problem. The basis
of this paper was the survey done from the SBI meerut Branch of the year’s 2010,
2011 & 2012.

Ms. V. Subhamathi (2016): This study examines the NPA of public sector bank and
private sector bank NPA and Net Profit. The present study is based on secondary data
for five years 2011-15. Correlation is used to analyze the results.

Ankur Bhushan, Dr. Giriraj Singh Ahirwar (2016): The study is to comprehend
the working of NPA in summit private sector bank and how to lesson NPA. For this
we can utilize proportion investigation and relationship. Gross NPA proportion is
utilized to check whether the bank’s gross NPA are expanding.

Ashly Lynn Joseph, Dr. M. Prakash (2014): This paper basically deals with trends
of NPA in banking industry and also provides some suggestions how to overcome this
burden of NPA on banking industry.

Ankit Garg(2016): IN this article tries to understand the concept of NPA, its causes
and impact on profitability. The problem of NPA impacts profitability, liquidity and
results in credit loss. And otherwise proper remedial measures are taken the quantum
of nonperforming assets cannot be reduced and the bank will incur losses to a great
extent.

Dr. M. Syed Ibrahim, Dr. Rangasamy Thangavelu (2014): In this paper, an effort
has been made to analyze the concept of NPAs, components of loan assets the
commercial banks in India with especial reference to the public sector, private sector
and the foreign bank. The study is diagnostic and exploratory in nature and makes use
of secondary data. The study finds and concludes that the commercial banks have
significantly improved their working performance in the areas of NPAs.

Vinay Kandpal (2014): The paper analyzes the NPA in public and private sector
banks in the northern states of India. It attempts to identify and analyze the reasons for
NPA, hindrances in its effective Monitoring and suggest remedial measures. The
branches of banks selected for the study have a high proportion of NPA and are the
top banks in this region.

Dr. Jasbir Singh (2013): The paper highlights the most significant factors
contributing towards the problem of nonperforming assets from the point of view of
top bankers from public sector banks in India, some foreign banks and the measures
required for management of NPA’s like reformulation of banks’ credit appraisal
techniques, establishment of monitoring department.

Dr. Krishna Murari (2014): In this paper we have made an attempt to analyze how
efficiently public and private sector banks managed their NPAs. Secondary data has
been collected for the selected categories of the banks from the RBI publications for a
period of thirteen years i.e. from 2001 to 2013.

Dr. Dhiraj Jain, Ms. Nasreen Sheikh (2012): The paper studies the relationship
between the banking industry and selected private banks in addition to this it also
study the performance of loans, net profit and NPA. Last decade has witnessed many

57 | P a g e
changes in the banking industry. In this paper focused on the movement of NPA,
Loans, and Net Profit of the private banking industry by analyzing the data from the
year 2007 to 2011.

Gour Bandyopadhyay (2014): The research paper is devoted to an analytical study

to reveal the movement of the financial parameter, GNPA over time. Diagnostic tool
like Quantile Comparison Plots of the Residuals have been used to check the presence
of outliers and to detect departure from normality in the residual distribution for our
data.

Dr. Pradeep Bhardwaj, Dr. Isha Chaudhary (2018): In this paper to understand
NPA, the status and trend of NPAs in Indian Scheduled commercial banks, The
factors contributing to NPAs, reasons for high impact of NPAs on Scheduled
commercial banks in India and recovery of NPAS through various channels.

Dr. Ujjwal M. Mishra, Jayant R Pawaskar (2017): In this article, Banks are
growth-driver and the banking business is exposed to various risk, such as credit risk,
liquidity risk, interest risk, market risk, operational risk and management risk. Apart
from these risks the very important risk is loan recovery.

Mayur Rao, Ankita Patel (2015): This paper considers the aggregate data of public
sector, private sector and foreign banks and attempts to compare analyze and interpret
the NPA management from the year 2009 -2013. On the conceptual side, it gives an
overview of NPA, Types of NPA, causes and on the calculation side, it covers various
NPA related ratios, use of Least square method for estimating Gross NPAs in the year
2014, and also application of ANOVA test to judge the presence of any significant
difference between ratio of Gross NPA to Gross Advances.

Dr. Ravindra N. Sontakke, Mr. Chandan Tiwari(2013): The paper underlines the
in depth study of the conceptual framework of Non Performing Asset commonly
known as NPA in banking. It further discusses the NPA trend in the scheduled
commercial banks in India for the preceding period of five years i.e. (2008 – 2012).
Finally it covers the measures to be undertaken to reduce the menace of NPA in
banks.

K.K. Siraj & P. Sudarsanan Pillai (2013): The analysis focused on identifying
relative efficiency of different bank groups in managing their NPA. The findings
revealed relative efficiency of public sector banks, which of course may be judged as
the major reason for the resilience of Indian banking towards financial crisis.

R. V. Naveenan (2016): In this paper with aim of understanding the effectiveness of

those warning signals in identifying NPA, the researcher has collected the opinions of
bank managers and an analysis is made.

58 | P a g e
 QUESTIONNAIRE

Please examine each of the following items carefully and give your opinion

Q.1 According to you what is NPA?

 When an assets ceases to generate income for the bank.

 If the customers do not pay principal and interest for certain period of time, its
called NPA.
 If periodical income is not generated for lender of money, it is called as NPA.

Q.2 Doescompetitive pressure has forced banks in general to relex credit appraisal
standards and thereby contributed tomore NPAs.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.3 Whether the current credit appraisal system of your bank is inadequate in
morden environment.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.4 “There is an inadequate mechanism avaible in the banking sector to gather and
disseminate credit information amongst commercial banks”. Do you agree with this
statement?

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

59 | P a g e
Q.5 It is observed and often supported by bankers that effective recovery of the NPA
is hampered on account of sizeable overhang component arising from infirmities from
the exiting processof debt recovery and inadequate legal provisions on foreclosure
and bankruptcy.

 Yes, always
 Yes, sometimes
 No

Q.6 Do you feel that the present competitive pressure in the banking sector leading
to the emergence of more local banks and branches of international banks in the
country leas to relaxing the credit norms and thereby more NPA whether the current
credit appraisal system of your bank is inadequate in mordean environment.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.7 What is impact that NPAs have on the bank?

 Decline reserves and surplus

 Decrease in profitability
 Decrease in stock price
 Loss of capital
 Increasing spread
 Any other (please specify)

Q.8 NPA adversely affects the liquidity of banks and its income-generating capacity.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.9 Do you agree that NPAs have significant role on interest rates charged by banks.

60 | P a g e
  Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.10 A higher NPA may adversely affects attitude towards fresh crediy proposals
and thus credit growth.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.11 A higher NPA may force banks to depend on subordinated debt at high cost to
supplement the capital requirements.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.12 Different banks adopt different mechanisms for managing NPAs. In your bank,
NPA is managed through.

 Reporting frauds to RBI

 Increasing the collateral requirement
 Sound risk assessment schemes
 Compromise on settlement schemes
 Releasing willful defaulters schemes
 Releasing willful defaulters list
 Any other (please specify)

Q.13 “NPA can be controlled if banks improve the system of loan appraisal.”

 Strongly agree
 Agree
 Neither agree nor disagree

61 | P a g e
  Disagree
 Strongly disagree

Q.14 The problems of NPA can be reduced to a extent by maintaining a continuous

rapport/relationship with borrower customers.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.15 Do you feel that securitization of loan, fixing interest rates, processing charges
etc should depend on individual loan proposal based on the quality of borrower,
nature of business, etc.

 Yes
 No
 No opinion

Q.16 By promoting corporate governance practices in organizations that have

dealings with bank; the NPA level can be reduced.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Q.17 Do you think NPA can be reduced if bank involve chamber of commerce,
federation of industries, etc in decision making forums.

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

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