Non Performing Assets

NON-PERFORMING ASSETS
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A Project Report on
NON PERFORMING ASSETS
Submitted To:
University Of Mumbai.
In partial fulfillment of the requirements for
the award of Degree of Bachelor of commerce
Vth Semester
In Banking and Insurance studies.
Submitted By:
ACHARI CHITRA.
TY B.Com (Banking and Insurance.)
ROLL NO: - 1382302
Academic year 2013-2014.
Under the guidance of:

PROF: - SHRUTI SHOUCHE.
VPM RZ SHAH COLLEGE OF ARTS
SCIENCE
AND COMMERCE, MULUND (EAST).
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DECLARATION
I Achari Chitra Raju the student of B.Com

Banking and Insurance semester Vth (2013-2014)
hereby declare that I have completed the Project on
__________________
The information submitted is true and original to
the best of my knowledge.
Signature of the student
ACHARI CHITRA.
ROLL NO:-1382302.
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ACKNOWLEDGEMENT
I would sincerely like to give my heartfelt acknowledgement and
thanks to my parents. Any amount of thanks given to them will never
be sufficient.
I would like to thank the University of Mumbai, for introducing
Banking and Insurance course, thereby giving the student a platform
to abreast with changing business scenario, with the help of theory as
a base and practical as a solution.
I would sincerely like to thank our Principal Mrs. SUSY KORIAKOSE.
I would also like to thank my project
guide PROF. SHRUTI SHOUCHE.
for her valuable support and guidance whenever needed.
I also feel heartiest sense of obligation my library staff members &
seniors who helped in collection of Data and materials and also in this
processing as well as in drafting manuscript.
Last, but not the least, I would like to thank my friends &
colleagues for always being there.
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INDEX
S.NO CHAPTER
PAGE NO
2
3
4
5
6
7
8
9
10
11
EXECUTIVE SUMMARY
OBJECTIVE &SCOPE OF PROJECT
LIMITATION
RESEARCH METHODOLOGY
INTRODUCTION OF BANKING INDUSTRY
INTRODUCTION OF STATE BANK OF INDIA.
INTRODUCTION OF NON PERFORMING ASSETS
STATE BANK OF INDIA AND NON PERFORMING
ASSETS.
ANALYSIS OF DATA.
CONCLUSION AND RECOMMENDATION
BIBILIOGRAPHY AND WEBLIOGRAPHY
8
10
12
14-21
23-29
31-43
45-48
50-51
53-54
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CHAPTER: 1
EXECUTIVE
SUMMARY
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Executive Summary
A project has been prepared under the title of Non

Performing Assets in Mumbai.
First of all the information regarding the banking
industry is given. In that various facts regarding the bank
industry is being provided. Also the various types of
nonperforming assets.
The brief introduction of nonperforming assets is given.
In this the definition, various benefits, objective,
limitation, scope etc. are mentioned. Then a analysis of
data is made.
Then the objective of doing the project is mentioned.
After that analysis comes. At the last, I finded
Conclusion & Suggestion.
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CHAPTER: 2
OBJECTIVE
AND
SCOPE
OF
PROJECT
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Objective of the study.
To understand the meaning & nature of NPAs

To know what steps are being taken by the Indian
banking sector to reduce the NPAs?
To know impact of NPAs on financial position of the
bank
To study the general reasons for assets becoming NPAs.
SCOPE OF THE STUDY

Banks can improve their financial position or can
increase their income from credit with the help of this
project.
This project can be used for comparing the performance
of the bank with other
This can also be applicable to know the reason of
increase in NPAs
This project also gives light upon impact of NPAs
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Concept of NPAs can be made clear

To present a picture of movement of NPA in the bank.
CHAPTER: 3
LIMITATION
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LIMITATION OF PROJECT
Study is entirely based on data willingly provided by the
bank.
Lack of time
Insuffient primary data
Lack of awareness
As the topic is based on primary data there may be business
from the respondent side
Lack of adequate information on books
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CHAPTER: 4
RESEARCH
METHODOLOGY
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RESEARCH METHODOLOGY
Research is a one kind of process to get knowledge about some topic.
Research is done so that systematic analysis can be done and problem can also be
solved.
TITLE OF STUDY
Here it is NON-PERFORMING ASSETS
BENEFITS FROM THE STUDY
. It helps me to know more about NPA and the situation of NPA in bank.
. It helps me to know the strategies adopted by banks to reduce the NPA
level and to understand the NPA provisions norms in bank.
RESEARCH PROBLEM
NPA always affect the profit of bank and also the prestige of bank. So here the
research problem is to identify the causes for the NPA and to identify the action plan
to reduce the NPA.
RESEARCH DESIGN
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Here the research design is exploratory which helps me to explore the NPA
problem of bank.
RESEARCH INSTRUMENT
As a research instrument I have taken guidance from the branch manager of
SBI bank and also my faculty of college.
DATA COLLECTION
Primary Data
Secondary Data
Hence it is an exploratory research their is not any dependence on primary data.
Sources of secondary data
1. Annual report
2. Journals
3. Websites
4. Books
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CHAPTER: 5
INTRODUCTION
OF
BANKING INDUSTRY
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DEFINITION OF BANK
An organization, usually a corporation, chartered by a state or federal
government, which does most or all of the following: receives demand deposits and
time deposits, honors instruments drawn on them, and pays interest on them;
discounts notes, makes loans, and invests in securities; collects checks, drafts, and
notes; certifies depositor's checks; and issues drafts and cashier's checks.
DEFINITION OF BANKING
In general terms, The business activity of
accepting and safeguarding money owned by other
individuals and entities, and then lending out this money
in order to earn a profit
So we can say that Banking is a company, which
transacts the business of banking. The Banking
Regulations Acts defines the business as banking by
stating the essential function of a banker.
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The term banking is defined as Accepting for the purpose of leading or

investment, deposits of money from the public, repayable on demand or otherwise and
withdrawal by cheque, draft, order or otherwise.
HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot have a
healthy economy. The banking system of India should not only be hassle free but it
should be able to meet new challenges posed by the technology and any other external
and internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. This is one of the main
reasons of India's growth process.
The government's regular policy for Indian bank since 1969 has paid rich
dividends with the nationalization of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice. Gone are
days when the most efficient bank transferred money from one branch to other in two
days. Now it is simple as instant messaging or dials a pizza. Money has become the
order of the day.
The first bank in India, though conservative, was established in 1786. From
1786 till today, the journey of Indian Banking System can be segregated into three
distinct phases. They are as mentioned below:
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. Early phase from 1786 to 1969 of Indian Banks

.Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms
. New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991To make this write-up more explanatory, we
divide scenario in Phase I, Phase II and Phase III
PHASE I
The General Bank of India was set up in the year 1786. Next were Bank of
Hindustan and Bengal Bank. The East India Company established Bank of Bengal
(1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and
called it Presidency Banks. These three banks were amalgamated in 1920 and
Imperial Bank of India was established which started as private shareholders banks,
mostly Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indians,
Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between
1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank,
Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948. There were approximately 1100 banks,
mostly small. To streamline the functioning and activities of commercial banks, the
Government of India came up with The Banking Companies Act, 1949 which was
later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No.
23 of 1965). Reserve Bank of India was vested with extensive powers for the
supervision of banking in India as the Central Banking Authority.
PHASE II
Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalized Imperial Bank of India with extensive banking
facilities on a large scale especially in rural and semi-urban areas. It formed State
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Bank of India to act as the principal agent of RBI and to handle banking transactions
of the Union and State Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalized in
1960 on 19th July, 1969, major process of nationalization was carried out. It was the
effort of the then City Minister of India, Mrs. Indira Gandhi. 14 major commercial
banks in the country were nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried
out in 1980 with seven more banks. This step brought 80% of the banking segment in
India under Government ownership.
The following are the steps taken by the Government of India to Regulate
Banking Institutions in the Country:
. 1949: Enactment of Banking Regulation Act.
. 1955: Nationalization of State Bank of India.
. 1959: Nationalization of SBI subsidiaries.
. 1961: Insurance cover extended to deposits.
. 1969: Nationalization of 14 major banks.
. 1971: Creation of credit guarantee corporation.
. 1975: Creation of regional rural banks.
. 1980: Nationalization of seven banks with deposits over 200 crore.
Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.
PHASE III
This phase has introduced many more products and facilities in the banking
sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a
committee was set up by his name which worked for the liberalization of banking
practices.
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The country is flooded with foreign banks and their ATM stations. Efforts are
being put to give a satisfactory service to customers. Phone banking and net banking
is introduced. The entire system became more convenient and swift. Time is given
more importance than money.
The financial system of India has shown a great deal of resilience. It is
sheltered from any crisis triggered by any external macroeconomics shock as other
East Asian Countries suffered. This is all due to a flexible exchange rate regime, the
foreign reserves are high, the capital account is not yet fully convertible, and banks
and their customers have limited foreign exchange exposure.
RESERVE BANK OF INDIA (RBI)

The central bank of the country is the Reserve Bank of India (RBI). It was
established in April 1935 with a share capital of Rs. 5 crores on the basis of the
recommendations of the Hilton Young Commission. The share capital was divided
into shares of Rs. 100 each fully paid which was entirely owned by private
shareholders in the beginning. The Government held shares of nominal value of Rs. 2,
20,000
Reserve Bank of India was nationalized in the year 1949. The general
superintendence and direction of the Bank is entrusted to Central Board of Directors
of 20 members, the Governor and four Deputy Governors, one Government official
from the Ministry of Finance, ten nominated Directors by the Government to give
representation to important elements in the economic life of the country, and four
nominated Directors by the Central Government to represent the four local Boards
with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards
consist of five members each Central Government appointed for a term of four years
to represent territorial and economic interests and the interests of co-operative and
indigenous banks.
The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The
Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.
The Bank was constituted for the need of following:
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. To
regulate the issue of bank notes to maintain reserves with a view to

securing monetary stability and
. To operate the credit and currency system of the country to its advantage
ORGANISATION STRUCTURE OF RBI

THE BANKING SYSTEM
Almost 80% of the business is still controlled by Public Sector
Banks (PSBs). PSBs are still dominating the commercial banking system.
Shares of the leading PSBs are already listed on the stock exchanges.
The RBI has given licenses to new private sector banks as part of
the liberalization process. The RBI has also been granting licenses to
industrial houses. Many banks are successfully running in the retail and
consumer segments but are yet to deliver services to industrial finance,
retail trade, small business and agricultural finance.
The PSBs will play an important role in the industry due to its
number of branches and foreign banks facing the constraint of limited
number of branches. Hence, in order to achieve an efficient banking
system, the onus is on the Government to encourage the PSBs to be run
on professional lines.
BANKING SECTORS IN INDIA
BANKS
Public
Private
Sector bank
sector bank
Co-operative
bank
Regional Rural
bank
Foreign
bank
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CO-OPERATIVE BANKS
The Co-operative banks have a history of almost 100 years. The Co-operative
banks are an important constituent of the Indian Financial System, judging by the role
assigned to them, the expectations they are supposed to fulfill, their number, and the
number of offices they operate. The co-operative movement originated in the West,
but the importance that such banks have assumed in India is rarely paralleled
anywhere else in the world. Their role in rural financing continues to be important
even today, and their business in the urban areas also has increased phenomenally in
recent years mainly due to the sharp increase in the number of primary co-operative
banks.
Some of the co-operative banks are quite forward looking and have developed
sufficient core competencies to challenge state
and private sector banks.
According
to
NAFCUB
the
total
deposits & landings of Co-operative Banks is

much more than Old Private Sector Banks &
also the New Private Sector Banks. This
exponential growth of Co-operative Banks is
attributed mainly to their much better local
reach, personal interaction with customers, and
their ability to catch the nerve of the local
clientele.
Though
registered
under
the
Co-
operative Societies Act of the Respective States

(where formed originally) the banking related activities of the co-operative banks are
also regulated by the Reserve Bank of India. They are governed by the Banking
Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
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CO-OPERATIVE BANKS FINANCE RURAL AREA AS UNDER

. Farming
. Cattle
. Milk
. Hatchery
. Personal finance
CO-OPERATIVE BANKS FINANCE URBEN AREA AS UNDER

. Self-employment
. Industries
. Small scale units
. Home finance
. Consumer finance
. Personal finance
FACTS ABOUT CO-OPERATIVE BANK

. Some cooperative banks in India are more forward than many of the state
and private sector banks.
. According to NAFCUB the total deposits & landings of Cooperative Banks
in India is much more than Old Private Sector Banks & also the New Private
Sector Banks.
. This exponential growth of Co operative Banks in India is attributed
mainly to their much better local reach, personal interaction with customers,
and their ability to catch the nerve of the local client.
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CHAPTER: 6
INTRODUCTION
OF
STATE BANK OF INDIA
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INTRODUCTION OF BANKS.
State Bank of India (SBI) is a multinational banking and financial
services company
based
in
India.
It
is
a government-owned
corporation with its headquarters in Mumbai, Maharashtra.

The bank have follows continues A Grade Audit systems and it is the
Grade A bank till now.
The State Bank of India was started in the year 1955. State Bank of
India was promoted by an experienced and visionary entrepreneur named
Mr. PRATIP CHAUDHURI; he is the Founder Chair person of the bank
and continues to supervise its growth and development.
The Bank started off with exemplary combination of talented
Board & potential staff team, stuffed with extreme professionalism and
well designed contours of working method. The bank started as a
paperless unit employing Tele-banking, Remote banking, Off-time
banking, Sunday banking, Holiday banking and many more allied
methodologies from the very beginning right from the D-day.
The bank emerged as an exemplary unit offering a wide range of
specialized services in various sectors. Unlike majority of the banks
where working timings are linked with employee-convenience, State
Bank of India decided to hold timings as per convenience of the cluster
of clients whom it caters.
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In the line with the same philosophy some of their branches in the
residential area work all the seven days of the week, without a break.
They work on Sundays w/o any alternative drop during the week.
Likewise to focus special attention on the senior citizens the bank offers
to credit monthly interest in their account with any bank before 5th day of
every month.
Board of Directors
Hemant G. Contractor (Managing Director)
Arundhati Bhattacharya (Managing Director & Chief Financial

Officer)
A. Krishna Kumar (Managing Director)
S. Visvanathan (Managing Director)
S. Venkatachalam (Director)
D. Sundaram (Director)
Thomas Mathew (Director)
S.K. Mukherjee (Officer Employee Director)
Rajiv Kumar (Director)
Jyoti Bhushan Mohapatra (Workmen Employee Director)
Deepak Amin (Director)
Harichandra Bahadur Singh (Director)
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ORGANISATION STRUCTURE
(CHAIRMAN)
(DIRECTORS)
(CEO)
(CHIEF MANAGER)
(DIVISIONAL MANAGER)
(AREA MANAGER)
(BRANCH MANAGER)
(OFFICER/CLERK)
BALANCE SHEET
(Rs. in lacs)
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Liabilities
2009
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2010
Share Capital
293.23
Reserve
1987.08
2282.11
Profit & Loss

a/c
305.76
236.37
15449.44
Deposits
Borrowing
Other Liab. &
Prov.
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Assets
2009
340.79 Cash & Bank
2010
1919.33
1822.38
Investment
9326.22
11106.55
Advances
7093.63
10340.26
19946.37
Fixed Assets
154.86
284.70
0.11
69.38
Other Assets
181.01
648.88
639.43
1327.75
18675.05
24202.77
18675.05
24202.77
PROFIT & LOSS ACCOUNT

(Rs. in lacs)
Income
2009
2010
Expenses
2009
2010
Interest & Comm.
1443.10
1769.56
Interest paid
816.59
956.84
Other Income
129.04
109.45
Operating Exp.
390.48
526.34
Depreciation
46.45
46.52
Provisions
12.86
112.94
Profit for the year
305.76
236.37
1572.14
1879.01
1572.14
1879.01
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BRANCHES
List of branches
90 FT Road Thakur
Complex Branch
Andheri (east) Branch
Andheri West Branch
Antop Hill, Mumbai

Branch
Anushakti Nagar Branch
August Kranti Maidan Branch
B.J.patel Road Branch,

Malad ( W) Mumbai
Branch
Backbay Reclamation
Branch
Ballard Estate Branch Branch
Bandra Kurla Complex

Branch
Barc, Mumbai Branch
Bhandup Branch
Bhulabahai Desai Road Bhuleshwar, Mumbai Branch

Branch
Borivali East Branch
Carter Road Branch
Cenralised Clearing
Processing Centre Branch
Central Pension Processing

Centre Branch
Chakala Road Branch,

Andheri (E) Mumbai.
Branch
Chandavarkar Lane, Borivali

(west) Branch
Chandivali Branch
Charkop BR., Kandivli

Branch
Chembur Branch
Churchgate Branch
City Recovery Centre

Branch
Colaba BR. Branch
Comm BR Chembur Branch
Juhu Tara Branch
Juhu Versova Link Road

Branch
Kalina Branch
Kandivali (west) Branch
Kandivali Industrial Estate,
Kandivli East Branch
Khar (west) Branch
Khurad Village, Malad

Branch
Kurla (west) Branch
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LBS Marg Kurla Branch
Lalbaug Branch
Liability CPC Mumbai

Branch
Lonere Branch
Lower Parel, Mumbai

Branch
M G Road Branch, Ghatkopar

(west) Mumbai Branch
Malad (west), Mumbai

Branch
Malad(east) Branch
Mandapeshwar Road,
Borivali (W), Mumbai Branch
Midc Andheri East

Branch
Mindspace, Mumbai Branch Mira Bhayandar BR. Branch
Mira Road BR. Branch
Mittal Court Tower-II,

Nariman Point Branch
Branch
Mulund Branch
Mulund (east) Branch
Mumbai Central, Mumbai

Branch
Mumbai Lho Branch
Mumbai Main Branch
Mumbai, Foreign
Department Branch
Naigaon, Mumbai Branch
Nair Hospital Campus

Branch, Mumbai Branch
Napean Sea Road, Mumbai

Branch
Nariman Point Branch
Nehru Nagar Kurla (E)

Branch
Overseas Branch,
Mumbai Branch
Nri Branch, Chembur Branch Nri Vile Parle (west) Branch
Overseas Branch, Opera

House, Mumbai. Branch
PBB Churchgate Mumbai

Branch
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Specialised Micro
Specialised Personal Banking Sterling Centre,worli Branch
Finance Branch, Dharavi
Branch, Mumbai Branch
Branch
Branch
Trade CPC Branch
Turner Road, Mumbai

Branch
V M Marg Branch, Vile Parle

(W) Mumbai Branch
Vaishali Nagar, Mulund

(west) Branch
Vakola Branch
Vaziranaka, Mumbai Branch
Vihar Lake, Mumbai

Branch
Vikhroli (west), Mumbai

Branch
Vikhroli (west), Mumbai

Branch
Vile Parle(east) Branch
Ville Parlie (west), Mumbai

Branch
Virwani Industrial Estate,

Mumbai Branch
Vjti, Mumbai Branch
Wadala, Mumbai Branch
Walkeshwar Branch
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CHAPTER: 7
INTRODUCTION
OF
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INTRODUCTION
Post liberalization Indian Banking Sector has undergone a sea change. Reserve Bank
of India has
nationalized good amount of Commercial Banks for providing socio economic service
to the
people of the nation. The Public sector banks have also shown very good performance
as far as
the financial operation is concerned. However none performing Asset had been the
single cause
of irritation of the banking sector in India. Especially the Public Sector Banks because
increasing
NPAs have a direct impact on banks profitability as legally banks are not allowed to
book
income on such accounts and at the sometime are forced to make provision on such
assets as per
the Reserve Bank of India (RBI) guidelines. Also, with increasing deposits made by
the public in
the banking system, the banking industry cannot afford defaults by borrower s since
NPAs
affects the repayment capacity of banks
. MEANING
An asset becomes non-performing when it ceases to generate income for the bank.
Earlier an asset was considered as non performing asset based on the concept of past
due.
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. DEFINITION
A NPA was defined as credit in respect of which interest and/or installment of
principal has remained past due for a specific period of time. The specific
period of time was reduced in a phased manner as under:
Year ended March,31
Specific Period
1993
4 Quarters
1994
3 Quarters
1995
2 Quarters
2004
1 Quarters
An amount is considered as past due, when it remains outstanding for 30 days

beyond the due date. However, with effect from March31, 2001 the past due
concept has been dispensed with and the period is reckoned from the due date
of payment.
. NORMS FOR IDENTIFICATION OF NPA
With an intense to use the international best practice and to ensure
greater transparency, 90 days overdue norms are accepted for the
identification of NPA from the year ended March 31, 2007.
With effect from March 31, 2007, a NPA shall be counted on loan and
advances where:
A. Interest and / or installment of principal remain overdue for a period of more
than 90 days in respect of a term loan.
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B. The account remains out of order for a period of 90 days, in respect of an

Overdraft/ Cash Credit (OD/CC).
C. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted.
D. Any amount to be received remains overdue for a period of more than 90 days
in respect of any other accounts.
FACTORS RESPONSIBLE FOR NPA

. Improper selection of borrowers activities
. Weak credit appraisal system
. Industrial problem
. Inefficiency in management of borrower
. Slackness in credit management & monitoring
. Lack of proper follow up by bank
. Recession in the market
. Due to natural calamities and other uncertainties
TOOLS FOR RECOVERING NPA

LOK ADALATS
DEBT RECOVERY TRIBUNALS (DRT)
SARFAESI ACT, 2002
ASSET RECOVERY CONSTRUCTION INDUSTRY
LIMITED(ARCIL)
CORPORATE DEBT RESTRUCTURING (CDR)
LOK ADALAT
To settle disputes involving account in doubtful and
loss category.
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Outstanding balance of Rs.5 lakhs for compromise

settlement.
Proved to be quite effective for speedy justice and
recovery of small loans.
Progress through this channel is expected to pick up in the
coming years
DEBT RECOVERY TRIBUNALS (DRT)
To recover their bad Debt quickly and efficiently.
33 Debt Recovery Tribunal and 5 Debt Recovery
Appellate Tribunal
It is the special court established by central government for

the purpose of bank or any financial institutions recovery.
The judges of this court are the retired judges of high
court.
In this court only the recovery cases of Rs.10 lakhs and
above can be filed.
SARFAESI Act
The Act provides three alternative methods for recovery of
non-performing assets, namely: Securitization
Asset Reconstruction
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Enforcement of Security without the intervention of the

Court.
NPA loans with outstanding above Rs. 1.00 lac.
NPA loan accounts where the amount is less than 20% of
the principal and interest are not eligible to be dealt with
under this Act
This Act empowers the Bank:
To issue demand notice to the defaulting borrower and
guarantor, calling upon them to discharge their dues in full
within
60
days
from
the
date
of
the
notice.
To give notice to any person who has acquired any of the

secured assets from the borrower to surrender the same to
the bank.
To ask any debtor of the borrower to pay any sum due or

becoming due to the borrower.
Any Security Interest created over Agricultural Land

cannot be proceeded with.
ARCIL
A company which is set up with the objective of taking
over distressed assets (NPA) from banks or financial
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institutions and to reconstruct or re-pack these assets to

make those assets saleable.
To buy out troubled loans from banks and make special
efforts at recovering value from the assets, if necessary by
special legislation, with special powers for recovery.
Restructuring of weak banks to divest the bad loan
portfolio.
Indias first ARC with an initial equity of Rs.10 crore with
ICICI bank, IDBI and SBI.
Incorporated as a public limited company on February 11,
2002
CORPORATE DEBT RESTRUCTURING (CDR)
For the revival of the corporate as well as for the safety of
the money lent by the banks and FI.
Based on the experience in other countries like the U.K.,
Thailand, Korea, etc.
Objective was to ensure timely and transparent mechanism
for restructuring of the corporate debts
CDR mechanism will be a voluntary system based on
debtor creditor agreement and inter-creditor agreement.
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CDR mechanism will cover only multiple banking

accounts / syndication / consortium accounts.
An outstanding exposure of Rs.20 crore and above by
banks and institutions.
ASSETS CLASSIFICATION
. CHART OF ASSETS CLASSIFICATION
ASSETS
PERFORMING ASSETS
NON-PERFORMING
OR
ASSETS
STANDERED ASSETS
SUB-STANDERED
DOUBTFUL
ASSETS
ASSETS
LOSS
ASSETS
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LESS THAN
1 TO 3
1 YEAR
YEARS
TYBBI
ABOVE
3 YEARS
. DEFINITION AS PER THE CLASSIFICATION OF ASSETS

Reserve Bank of India (RBI) has issued guidelines on provisioning requirement
with respect to bank advances. In terms of these guidelines, bank advances are mainly
classified in to following categories:
1. STANDARD ASSETS:
Standard assets are one which does not carry any problems and which does not
carry more than normal risk attached to the business. Such assets should not be an
NPA.
2. SUB-STANDARD ASSETS:
These assets involved the two types of view as follows
In respect to the norms of March 31, 2006 an asset would be classified as Sub
standard if it remained NPA for a period less than or equal to 12 months.
An assets where the terms of the loan agreement regarding interest & principal
have been regenerated or rescheduled after commencement of production, should be
classified as sub-standard and should remain in such category for at least 12 months
of satisfactory performance under the re-negotiated terms.
3. DOUBTFUL ASSETS:
In respect to the norms of March 31, 2010 an asset is required to be classified as
doubtful, if it has remained NPA for more than 12 months.
A loan which is classified as doubtful has all the weaknesses inherent as that
classified as Sub-standard with the added characteristic that the weaknesses make
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collection or liquidation in full, on the basis of the currently known facts, conditions
and values, highly questionable and improbable.
Some types of these assets are
A. Less than 1 year
B. 1 to 3 year
C. 3 year and above
4. LOSS ASSETS
A loss asset is one where loss has been identified by the bank or internal or
external auditors or by the Co-operation department or by the RBI inspection but the
amount has not been written of, wholly or partly.
Reason for Rising NPA

The NPAs in Public Sector Banks are growing due to external as well as internal
factors.
External factors
1 Willful Defaults
Group of borrowers although capable of paying but intentionally defaulted in making
payment. They should be identified and proper measures should be taken to recover
the money from them.
2 Natural calamities
This is the measure factor, which is creating alarming rise in NPAs of the Public
Sector Banks. Every now and then India is hit by major natural calamities thus
making the borrowers unable to pay back there loans. Thus the bank has to make large
amount of provisions in order to compensate those loans, hence end up the fiscal with
a reduced profit.
3 Industrial sicknesses
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Improper project handling , ineffective management ,lack of adequate resources, lack

of advance technology ,day to day changing govt. Policies give birth to industrial
sickness. Hence the banks that finance those industries ultimately end up with a low
recovery of their loans reducing their profit and liquidity.
4 Lack of demand
Entrepreneurs in India could not foresee their product demand and starts production
which ultimately leads to stock piling thus making them unable to pay back the
money they borrow to operate these activities. The banks recover the amount by
selling of their assets, which covers a minimum label. Thus the banks record the nonrecovered part as NPAs and has to make provision for it.
5 Change on Govt. policies

With every new govt. banking sector gets new policies for its operation. Thus it has to
cope with the changing principles and policies for the regulation of the rising of
NPAs.
6 Recession
Due to, recession globally stock markets have tumbled , The Indian economy has
been much affected due to sticky legal system , poor infrastructure facilities, high
fiscal deficit, cutting of exposures to emerging markets etc. Further, international
rating agencies like, Standard & Poor have lowered Indias credit rating to subinvestment grade. Under such a situation, it goes without saying that banks are no
exception and are bound to face the heat of a global downturn one would be surprised
to know that the banks and financial institution in India hold nonperforming assets
worth Rs. 110000 crores. Unless the level of NPA is reduced bank will struggle to
survive.
7 Ineffective recovery tribunal

The Govt. has set of numbers of recovery tribunals, which works for recovery of loans
and advances. Due to their negligence and ineffectiveness in their work the bank
suffers the consequence of non-recover, thereby reducing their profitability and
liquidity
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Internal factors
1 Defective lending process

The banker should, therefore take utmost care in ensuring that the enterprise or
business for which a loan is sought is a sound one and the borrower is capable of
carrying it out successfully True picture of business will be revealed on analyzing all
the financial statement of the company
2 Inappropriate technology
Due to inappropriate technology and management information system, market driven
decisions on real time basis cannot be taken. Proper MIS and financial accounting
system is not Implemented in the banks, which leads to poor credit collection, thus
NPA
3 Analyzing Borrowers Profile

Banks should consider the borrowers own capital investment. It should collect credit
information of the borrowers from
a) From bankers.
b) Enquiry from market/segment of trade, industry, business.
c) From external credit rating agencies.
4 Project feasibility study

Before sanctioning any loan the bankers should study the viability of the project i.e.
they should analyze whether the project undertaken by the borrower is feasible or not.
5 Poor credit appraisal system

Poor credit appraisal is another factor for the rise in NPAs. Due to this the bank gives
advances to those who are not able to repay it back. They should use good credit
appraisal to decrease the NPAs.
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6 Managerial deficiencies
The banker should always select the borrower very carefully and should take tangible
assets as security to safe guard its interests.
7 Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. The NPAs due to willful
defaulters can be collected by regular visits
MANAGEMENT OF NPA
It is very necessary for bank to keep the level of NPA as low
as possible. Because NPA is one kind of obstacle in the success of bank
so, for that the management of NPA in bank is necessary. And this
management can be done by following way:. Framing reasonably well documented loan policy and rules.
. Sound credit appraisal on well-settled banking norms.
. Emphasizing reduction in Gross NPAs rather then Net NPAs
. Pasting of sale notice/ wall posters on the house pledged as security.
. Recovery effort starts from the month of default itself. Prompt legal
action should be taken.
. Position of overdue accounts is reviewed on a weekly basis to arrest
slippage of fresh account to NPA.
. Half yearly balance confirmation certificates are obtained from the
borrowers regularly.
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. A committee is constituted at Head Office, to review irregular

accounts.
. Due to lower credit risk and consequent higher profitability, greater
encouragement is given to small borrowers.
. Recovery competition system is extended among the staff members.
The recovering highest amount is felicitated.
. Adopting the system of market intelligence for deciding the credibility
of the borrowers.
. Creation of a separate Recovery Department with Special Recovery
Officer appointed by the RCS.
RECOVERY OF NPA
. IMPORTANCE OF RECOVERY:
1. Increase in the income of bank.
2. Increase in the trust of share holder in bank.
3. Level of NPA reduces as the recovery done.
4. Decrease in provisioning requirements.
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CHAPTER: 8
STATE BANK OF INDIA
&
ITS
NON-PERFORMING
ASSETS
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NPA NORMS OF SBI.

. CLASSIFICATION:
1. SUB STANDARD ASSETS
Overdue of 90 days and for loan up to Rs.1.00 lacs overdue for 6 months
NPA up to 12 months remain in sub standard assets.
2. DOUBTFUL ASSETS
NPA for more than 12 months is doubtful assets.
. PROVISION NORMS:
1. STANDARD ASSETS
0.25% of standard assets in SME and direct agriculture advances.
0.40% in case of all other standard loans
1.00% for personal loan, Commercial Real Estate Loan, Loan against
shares
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And for housing loan up to Rs.20.00 lacs the provision is 2.00%.
2. SUB STANDARD ASSETS

10% of sub standard assets
3. DOUBTFUL ASSETS
20% for NPA from 13 months to 24 months
30% for NPA from 25 months to 48 months
50% for NPA from 49 months and above
100% for loss assets
RECOVERY POLICY AT SBI

. BANKS POLICY:
At present they are making recovery but procedure for the same is
not documented in the form of policy. Although the bank is committed to
collection/recovery of its dues but the dignity of and respect for the
customer is central to their recovery policy. The policy is framed on the
principal of courtesy, fair treatment and persuasion.
GUIDELINES
FOR
BRANCH/RECOVERY
STAFF:
All the branches of SBI have to follow the following guidelines
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1. Branch to continuously inform the borrower about the due date of

repayment schedule. Recovery efforts to starts from the first month of
default itself.
2. Position of overdue account to be reviewed on the monthly basis to
arrest slippage of fresh accounts to NPA category.
3. If the branch does not get response from the borrower for paying the
amount, they have to visit the unit and meet with the borrower. During
visit to customers place for collection of dues, decency and decorum
Would be maintained and customers privacy would be respected as

far as practicable.
4. If the branch does not get any favorable response, during personal
visit, they should write a notice letter to borrower.
5. If borrower still behaves irresponsible, they should meet the guarantor
and ask guarantor to peruse the borrower. Guarantor must be informed
about legal complication to arise if borrower fails to repay the dues.
6. On failure of all the recovery steps, branch to contact Area
office/Control centre.
7. Area office/Control centre to call the borrower along with guarantor
and try to find out the reason for overdue. If borrower is in genuine
difficulty, problem to be resolved in a mutually acceptable and in an
orderly manner.
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8. If party behaves indifferent, legal actions must be initiated. In such

case prompt legal action and seizure action to be taken. Preference to
be given for steps under Securitization Act rather than go for filling a
case in the court of Board of Nominees.
9. Reasonable notice would be given before Repossession of Security
and its realization, unless the borrower is about to dispose of/remove
the whole or any part of the security from the locality where it
ordinarily remained or by whom it is used or caused to be remained or
used, as the case may be, at the time of creation of security.
10.The aim of possession under Securitization or State co-op. Act will be

to recover the dues and will not be aimed at whimsical deprivation of
the property. The bank shall resort to repossession of the security only
when the collection/recovery of dues is not forthcoming in spite of
request made and the policy for repossession shall be in accordance
with the terms and conditions of the loan documents and with in the
legal
framework.
The
policy
fairness
and
transparency
in
repossession, valuation and realization of security.
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CHAPTER: 9
ANALYSIS
OF
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DATA
CLASSIFICATION OF TOTAL NPA

(RS. IN LACS)
2008
2009
2010
SUBSTANDARD
ASSETS
156.65
12.24
120.12
DOUBTFUL
ASSETS
278.40
213.58
258.80
LOSS
ASSETS
1.04
0.00
159.85
TOTAL NPA
436.09
225.82
538.77
YEAR
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TYBBI
CLASSIFICATION OF NPA
P
E
R
C
E
N
T
A
G
E
S->
600
500
SUB-STANDARD ASSETS
400
DOUBTFUL ASSETS
300
LOSS ASSETS
200
TOTAL NPA
100
0
2006 2007 2008 2009 2010
YEAR-->
CLASSIFICATION OF TOTAL ADVANCES

(RS. IN LACS)
YEAR
TOTAL
NPA
STANDARD
ASSETS
TOTAL
ADVANCES
2006
2007
2008
2009
2010
521.08
445.44
436.09
225.82
538.77
5912.67
6923.74
7266.63
6867.81
9801.49
6433.75
7369.18
7707.72
7093.63
10340.26
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CLASSIFICATION OF TOTAL ADVANCES

R
S
IN
L
A
C
S->
12000
10000
8000
TOTAL NPA
6000
STANDARD ASSETS
4000
TOTAL ADVANCES
2000
0
2006 2007 2008 2009 2010
YEAR-->
CHAPTER: 10
CONCLUSION
&
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Recommendations
CONCLUSION
The industry is currently in a transition phase. Containing NPAs has been

in focus ever since the banking sector reforms were initiated in 1992. All
banks have been making efforts to contain the NPAs level and reduce the
drag on their profitability. Even as individual banks devised various
Policies for containment of NPAs, the magnitude of the problem of
slippage of performing assets to NPAs category has become a cause of
permanent concern. On the one hand, the PSBs, which are the main pillar
of the Indian Banking system, are in trouble with excessive manpower,
excessive NPAs and excessive governmental equity, while on the other
hand the private sector banks are consolidating themselves through
adoption of latest technology and system.
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Because NPA is one kind of obstacle in the success of bank and affects
the performance of banks negatively so, for that the management of NPA
in bank is necessary.
NPA - Recommendations
Although RBI has introduced number of measures to reduce the problem
of increasing NPAS.
Each bank should have its own independence credit rating agency
which should evaluate the financial capacity of the borrower before
than credit facility
An effective committee can be formed for management of NPA
comprising of financial experts who had wide knowledge in this field.
Banks can appoint professionals to identify the genuine borrowers &
can analyze their profile NPA can be considered as a crucial rating
factor for any bank; it should continuously monitor the borrowers A/C
to prevent NPA.
The credit rating agencies should regularly evaluate the financial
condition of the clients.
Special accounts should be made of the clients where monthly loan
concentration report should be made.
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It is also wise for the banks to carry out special investigation audit of
all financial and business truncations and books account of the
borrower company when there is possibility of the diversion on the
funds and mismanagement.
Bank should evaluate the SWOT analysis of the borrower
companies.ie how they would face the environmental threats and
opportunities with the use of their strength and weakness, and what
will be their possible future growth in concerned to financial and
operation performance.
CHAPTER: 11
BIBILIOGRAPHY
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&
WEBLIOGRAPHY
JOURNALS
Annual Report of SBI Co-Operative Bank

Year, 2006, 2007,2008,2009,2010.
Periodical circular and statement of RBI regarding to NPA
managing
WEBSITES
http://finance.indiamart.com/investment_in_india/banking_in_indi
a.html
http://www.rbi.org.in/Home.aspx
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http://www.banknetindia.com/banking/cintro.html
http://www.Indiabankassociation.com/
TYBBI
1) http://rbi.org.in/scripts/AnnualPublications.aspx?head=Trend and
Progress of Banking in India
2) http://rbi.org.in/scripts/NotificationUser.aspx
3) http://en.wikipedia.org/wiki/Banking_in_India
4) http://www.ibef.org/industry/Banking.aspx.
QUESTIONNAIRE.
A study of non-performing assets in Indian co-operative banking
Sector.
I am pursuing Tybbi and I am conducting a study on non performing
assets in SBI banks.
Please answer the questions below. Your response in this regards is very
valuable for the Success of my project. Also note that the information so
revealed will be utilized without directly disclosing the identity of the
concern Bank/Officials.
Name
Designation ....
Branch
Since how long the branch is functioning
0-2yrs
2-3yrs
3-5yrs
5yrs above
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Since how long the presence of NPA is observed in your branch

0-1yrs
1-2yrs
2-3yrs
5yrs
What is the approximate value of NPA in your branch? (Rs in lakhs)

1-10
10-20
20-30
above- 40
For which category the NPA is being observed
Personal loan
vehicle loan
Housing loan
Agri-term loan
(Rating factors 1-5 according to the importance of factor.

1- Most effective
2- effective
4- non effective
5- least effective
Factors
Improper credit appraisal
Lack of effective follow up
Diversion of funds
Willful default
Difficulty in execution of discredit
Cost of effective legal measures
Absence of security
Management failure
Demand recession
3-moderate
Measures for recovery of NPA adopted by the bank

Legal measures
Non legal measures
Both legal and non-legal
other then specify
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Which of the following recovery mechanism are adopted by the bank for
NPA?
(Rating factors 1-5 according to the importance of factor.)
1- Most effective
2- effective
4- non effective
5- least effective
Factors
Lok adalats
Civil courts
3-moderate
Corporate and restructuring
Self involvement
Debt recovery tribunal
One time settlement
scheme
Recovery campus
SARFAESI Act.
To what extent your bank has been succeeded in converting NPA into
good assets?
1%
4%
2%
5%
3%
>5%
Has the profitability improved after adopting reduction technique?
Definitely improved
Improved
Cant say
definitely not improved
Thanks for your co-operation.

60

Non Performing Assets

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NON-PERFORMING ASSETS

Under the guidance of:

I Achari Chitra Raju the student of B.Com

Signature of the student

A project has been prepared under the title of Non

Objective of the study.

To understand the meaning & nature of NPAs

SCOPE OF THE STUDY

Concept of NPAs can be made clear

The term banking is defined as Accepting for the purpose of leading or

HISTORY OF BANKING IN INDIA

. Early phase from 1786 to 1969 of Indian Banks

RESERVE BANK OF INDIA (RBI)

regulate the issue of bank notes to maintain reserves with a view to

ORGANISATION STRUCTURE OF RBI

deposits & landings of Co-operative Banks is

operative Societies Act of the Respective States

CO-OPERATIVE BANKS FINANCE RURAL AREA AS UNDER

CO-OPERATIVE BANKS FINANCE URBEN AREA AS UNDER

FACTS ABOUT CO-OPERATIVE BANK

corporation with its headquarters in Mumbai, Maharashtra.

Hemant G. Contractor (Managing Director)

Arundhati Bhattacharya (Managing Director & Chief Financial

A. Krishna Kumar (Managing Director)

S. Visvanathan (Managing Director)

Thomas Mathew (Director)

S.K. Mukherjee (Officer Employee Director)

Rajiv Kumar (Director)

Jyoti Bhushan Mohapatra (Workmen Employee Director)

Deepak Amin (Director)

Harichandra Bahadur Singh (Director)

Profit & Loss

340.79 Cash & Bank

PROFIT & LOSS ACCOUNT

Interest & Comm.

Profit for the year

Andheri (east) Branch

Andheri West Branch

Antop Hill, Mumbai

Anushakti Nagar Branch

August Kranti Maidan Branch

B.J.patel Road Branch,

Ballard Estate Branch Branch

Bandra Kurla Complex

Barc, Mumbai Branch

Bhulabahai Desai Road Bhuleshwar, Mumbai Branch

Borivali East Branch

Carter Road Branch

Central Pension Processing

Chakala Road Branch,

Chandavarkar Lane, Borivali

Charkop BR., Kandivli

City Recovery Centre

Colaba BR. Branch

Comm BR Chembur Branch

Juhu Tara Branch

Juhu Versova Link Road

Kandivali (west) Branch

Kandivali Industrial Estate,

Kandivli East Branch

Khar (west) Branch

Khurad Village, Malad

Kurla (west) Branch