A PROJECT REPORT ON

NON PERFORMING ASSETS

IN BANKING SECTOR

By : CHINMAYA SINGH BISHT(018)MBA 4TH SEM

Objectives of study

To study and understand the concept of NPAs To find out various reasons behind the occurrence of NPAs

To study the impact of NPAs

Suggesting preventive measures & tools to avoid NPAs

RESEARCH METHODOLOGY
Exploratory Research has been used in this project. The data has been collected from secondary sources Sample size includes public , private and foreign banks

INTRODUCTION
NPA rule says simply this: when interest or other due to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non performing asset. The depth of the problem of bad debts was first realized only in early 1990s. The magnitude of NPAs in banks and financial institutions is over Rs.1,50,000cr.

TYPES OF NPA

Gross NPA

Net NPA

Gross NPA Gross NPA reflects the quality of the loans made by banks. It consists of all the non standard assets like as sub-standard, doubtful, and loss assets.

It can be calculated with the help of following ratio:

Gross NPAs Ratio = Gross NPAs Gross Advances

Net NPA
Those type of NPAs in which the bank has deducted the provision regarding NPAs. Net NPA shows the actual burden of banks

Net NPAs =

Gross NPAs Provisions Gross Advances - Provisions

Reporting of NPAs
Banks are required to furnish a Report on NPAs as on 31st March each year after completion of audit. The NPAs would relate to the banks global portfolio, including the advances at the foreign branches. The Report should be furnished as per the prescribed format given in the Annexure I.

Asset Classification

Standard Assets

Non-performing Assets a) Sub-standard Assets (NPA for 18months) b) Doubtful Assets c) Loss Assets

FACTORS FOR RISE IN NPAs

EXTERNAL FACTORS
Willful Defaults Natural calamities Lack of demand Change on Govt. policies

INTERNAL FACTORS
Absence of regular industrial visit Managerial deficiencies Poor credit appraisal system

PROBLEMS DUE TO NPA

Owners loose their assets, may affect a shareholders.

Banks redistribute losses to other borrowers by charging higher interest rates.

Bad investment ends up in misallocation of capital, labor and resources

IMPACT OF NPA
Profitability Liquidity Involvement of management(time&effort) Credit loss(goodwill and image of bank)

Preventive Measures For NPA

Early Recognition of the Problem(FPA) Identifying Borrowers with Genuine Intent Management Effectiveness

Tools For recovery Of NPAs

Lok Adalt (10 lakhs and above) Debt Recovery Tribunal Corporate debt Restructuring (CDR)

Net NPAs of bank from 2000 to 2009(in Crores)

35000
30000 25000 20000 15000 public private foreign

10000
5000 0

Net NPAs as a percentage of advances of the bank

2.5 2 1.5 1 0.5 0 public private foreign

Composition of NPAs of Public sector bank(in Crores)

30000 25000

20000
15000 10000 5000 0 priority non priority public

2001 2002 2003 2004 2005 2006 2007 2008 2009

Composition of NPAs of private sector banks from 2001-2009(in Crores)

14000 12000 10000 8000 6000 4000 2000 0 priority non priority public

Classification of loan asset of public sector bank

100% 98% 96% 94% 92% 90% 88% Doubtfull asset Sub-standard asset Standard asset Loss Asset

Classification of loan asset of private sector bank

100% 99% 98% 97% 96% 95% 94% 93% 92% 91% 2004 2005 2006 2007 2008 2009

Loss Asset Doubtfull Asset Sub Standard Asset Standard Asset

FINDINGS
Indian banks begin the year 2009 with a lurking fear that their Non Performing Assets would go up. Visible strain on consumer, credit card and vehicle loan portfolios , banks have decided to scale down their advances. Despite pressures from global financial markets, Indian banks witnessed a healthy 25 to 29 per cent average growth in credit disbursals, primarily in housing, auto and infrastructure loans Government-owned banks were quick to respond by reducing interest rates periodically, many private banks were yet to follow suit

CONCLUSION
Even though the banks have managed to reduce their levels of NPAs by a great deal but it is not possible to eliminate them totally.

Steps can be taken to minimize the NPAs and it is always wise to follow a proper policy appraisal, supervision and follow up of advances to avoid NPAs.
The banks should not only take steps to reduce the existing NPAs but it is also necessary to take precautionary measures to avoid NPAs in future. Thus, instead of dealing with the problem after it has occurred, the focus should be avoidance of NPAs before their occurrence.

RECOMMENDATIONS

Effective inspection system should be implemented Operating staff should scrutinize the level of inventories/receivables regularly

Large exposure on big corporate or single project should be avoided

All the preventive measures should be adopted to avoid NPAs