Professional Documents
Culture Documents
PART A
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This project report has been undertaken in Bank of Maharashtra, RPD Branch Belgaum which highlights the detailed study of Non-Performing Assets Management and Banking Study of Bank of Maharashtra.
The objective of this project is to get the good knowledge of Banking and NPA Management.
Part A: ----- Origin, History. Part B: ----- Introduction to NPA, RBI Guidelines, etc. Part C: ----- SARFESI Act, NPA Reduction Techniques, etc. Part D: ----- Analysis and conclusion.
Part A gives an Brief information regarding Banks History, Vision, Objectives which help us to know about the bank in detail. Part B gives knowledge about NPA, which help us to know and understand about NPA and how it is ascertained. Part C gives information regarding SARFESI Act, NPA Reduction Techniques, Recovery Management and concluding observations. Part D gives ideas about Analysis of NPAs in Retail Sector and final conclusion.
Bank of Maharashtra was registered on September 16, 1935 with an authorized capital of Rs.10.00 lakh. The Bank actually began its process on 8th October 1936 in pune, under the chairmanship of Shri.Dhondumama. Sathe. Ever since its inception, Bank of Maharashtra is known as common man's bank. The Bank's initial help to small units has given birth to many of today's industrial houses. The present chairman of Bank of Maharashtra is Shri.Allen C.A. Pereira and consists of Board of Directors under whom the Bank functions. Bank of Maharashtra has its Head Office situated at Shivaji nagar in Pune, which is known as Lokmangal karyalay. Later on in the year 1946, it entered into Karnataka and started its first branch in Hubli. Bank of Maharashtra began to progress to a great extent and expanded its banking business all over India. It is amongst the top 14 nationalized banks in India. In July 1969, Bank of Maharashtra was nationalized along with 13 other banks. After nationalization, the Bank expanded rapidly and today its branch network comprises of 1375 branches and 30 extension counters spread over 22 states and 2 union territories (as of 31st March 2008). Bank of Maharashtra has the largest network of branches by any Public sector bank in the state of Maharashtra. Bank of Maharashtra attained autonomous status in 1998. It has helped the Bank in providing more and more services with simplified procedures without intervention of Government. Apart from providing loans, bank also offers personalised services to its customers. The Bank also cares to its employees and provides many facilities & schemes to them. Bank of Maharashtra has also come up with its shares in the market which is on a slower growth towards progress. Bank of Maharashtra has altogether 1500 branches all over India . The total turn over is 72000 crores, and is currently running in profits.
Bank of Maharashtra excels in Social Banking, and it has 46% of its branches in rural areas. By March 2006 the Bank intends to achieve computerization of remaining 584 rural and semi urban branches by providing a cost effective small branch automation solution for rendering effective customer service to rural India. The Bank follows the philosophy of Babasabpatilfreepptmba.com Page 3
VISION 2009
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19.84% Growth in Savings Bank Deposits and average Saving Deposits growth rate of 17.69%.
19.65% Growth in Current Deposits and average Current Deposits growth rate of 17.29.
Systematic approach for reducing Net NPA level to below 1% . 64 Branches are proposed to be opened at new business centres and 3 extension counters to be converted into full fledged branches.
4 Currency Chests to be opened. ATM network to be increased from 345 to 500. Biometric ATMs to be introduced at selected branches. Introduction of Internet banking, Mobile banking and Phone banking. SHGs with special reference to agriculture to be promoted and financing are implemented so as to increase financing to small and marginal farmers.
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Designation
Name
Chairman
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Nominee Director
Nominee Director
Nominee Director
Executive Director
Non-Executive Director
Non-Executive Director
Nominee Director
Nominee Director
Nominee Director
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1) ATM Project:-
140 new ATMs were set up during the year. ATM usage registered an impressive increase during the year. Several value added services like College/Hostel Fee payment through ATMs issue of monthly, quarterly, season tickets for suburban train of
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New Initiatives: Devotees can now offer their donations through ATMs at Vaishnodevi, Katra and Shirdi. SMS ATM Locations-a facility by which mobile users can get the location of 3 nearest ATMs on SMS.
2) Core Banking Solution (CBS):The Bank is moving towards a centralized database with Core Banking Solution; with capability for on-line, real-time transaction processing.
Bank has procured and implemented a modern trade finance solution named Exim bills at 260 branches covering all 14 circles as on 31-03-2005 most of the large branches like Overseas Branch Mumbai, etc, have been brought under exim bills.
4) Internet Banking:-
Almost all the branches have been enabled for offering internet banking in Retail segment. Banks major corporate customers are already using Corporate Internet Banking and the product is in good demand. Babasabpatilfreepptmba.com Page 9
This is the wide area networking {WAN} project of the bank capable of carrying data, voice and images on real time basis. A total 1500 branches/offices Bank of Maharashtra group are now connected. IP phones have been deployed in all these branches/offices.
This service is available for transfer of funds across about 8500 branches of banks situated in 15 centres where RBI manages the clearing house. The cities covered under this scheme are; Ahmedabad, Bangalore, New Delhi, Mumbai,
Hyderabad, etc. This scheme will help to reduce the pressure of DD issue work at Branch level.
Under this scheme, the funds get transferred from RTGS-enabled one bank or branch to RTGS-enabled another bank/branch for customers. Only the customer will have to fill up a request cum application form and accept terms and conditions, and also they have to mention correct details such as bank/branch, name, account number & 16 digit codes number i.e. IFSC Code.
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PART-B
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1. Interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan. 2. The account remains 'out of order' for a period of more than 180 days, in respect of an overdraft/ cash Credit(OD/CC). 3. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted. 4. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and 5. Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the '90 days overdue' norm for identification of NPAs, form the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an advance where:
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An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/ drawing power. In case where the outstanding balance in the principal operating account is less than the sanctioned limit/ drawing power, but there are no credits continuously for six months as on the date of balance sheet or credits are not enough to cover the interest debited during the same period, these account should be treated as 'out of order. Indian Bank have, for a long time, treated all the sticky loan assets as NonPerforming Assets (NPAs). The accrual concept of accounting convention has also been followed without reckoning (counting) the amount actually realized. The word Realized is noteworthy, which is distinct from the word Reliability. It means that if a loan given by a bank fails to fetch a return in the form of interest realized from the borrower, it (the Bank) has no right to debit the borrowal account with the interest chargeable following the accrual principal. In that event, it then truly signifies that the asset is notperforming i.e; not yielding any profit/income to the bank. This is the essence of income recognition norms, based on the recommendation of the committee on financial sector reforms (popularly known as Narsimhan Committee), adopted by Indian Banks. An asset, which ceases to yield income for the bank, should be treated as NPA, and any income from loan assets should not be booked as income until it is actually Babasabpatilfreepptmba.com Page 14
The level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of resources.
Reasons:
Various studies have been conducted to analyse the reasons for NPA. Whatever may be the case, complete elimination of NPA is impossible. The reasons may be broadly classified into two:-
1). Over hang component Over hang component is due to the environment reasons, business cycle, Wilful Defaulters, etc..
2). Incremental component. Incremental component may be due to internal bank management, credit policy, terms of credit, etc.
NPA Ratio:-
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NPAs Ratio=
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1). Cash Credits/Overdrafts: When an account is not in order for any One quarter out of Four quarters of the year ending 31st March, the account will be treated as NPA / Out of Order: Out standings- exceeding the limit / drawing power for any One quarter. (continuous or otherwise) Out standings- are well within the limit / drawing power, BUT (a) No credit in the account for the last 6 months. (b) Credits in the accounts are not sufficient to meet interest debits for any 1 quarter. 2). Term loans: If interest/instalments of principal remain unpaid for any One quarter of the year ending 31st March the account will be NPA. Past Due Grace period of 30 days is Not to be reckoned in your bank It means that quarters interest / instalments up to 31st December should be recovered before 31st March , as otherwise account will be treated as NPA. 3). Agricultural Term Loans/Cash Credits: If interest/instalments of principal (after it has become due) has not been paid during the last two seasons of harvest (covering 2 half years), the account will be NPA. Babasabpatilfreepptmba.com Page 17
4). Advanced secured by Term Deposits, National Savings Certificates Indira Vikas Patras Surrender Values of LIC Policies: Advance accounts against these securities need not be treated as NPAs and no provisions made need be made even though interest there on as not been paid for One quarter or more on a balance sheet date. Interest on such accounts may be taken to income account on due date provided adequate margins is available in the accounts (i.e. the out standing, after interest application, must be less than advance value of security). However, advance against gold ornaments and government securities do not qualify for this relaxation. 5). Bills Purchased and Discount: The bills purchased will become NPA if they remain overdue and unpaid for One quarter as on 31st March. OVERDUE INTEREST Overdue interest should not be charged and taken to income account in respect of overdue bills unless it is realized. 6). Other Accounts: The account becomes NPA if the account remains unpaid for any One quarter or more as on 31st March. 7). Consortium Advance: Each member bank will classify the account in accordance with the conduct in its books. 8). Government Guaranteed Advances: Though, credit facilities backed by the government guarantee may become past due with the income not being booked, they need not be treated as NPAs. In some cases it is observed that banks have to file suit against the borrower after invoking the government
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1). Internal Checks and Control:Since high level of NPAs dampens the performance of the bank identification of potential problem accounts and their close monitoring assumes importance. The EWS enable a bank to identify the borrower accounts, which show the signs of credit deterioration and initiate remedial action. Many banks have evolved and adopted an elaborate EWS, which allows them to identify potential distress signals and plan their options before hand, accordingly. The major components/process of EWS followed by Banks of India as brought out by study conducted by Reserve Bank of India at the instance of the Board of Financial Supervision as follows: a). Designing Relationship Manager/Credit Officer for Monitoring Account. b). Preparation of Know Your Client Profile. c). Credit Rating System. d). Identification of Watch-List/Special Mention Category Accounts. e). Monitoring of early Warning Signals.
2). Management/Resolution of NPAs:Re-education in the total gross and net NPAs in the Indian Financial System indicates a significant improvement in management of NPAs. This is also on account of various resolution mechanisms introduced in the recent past, which include the SARFESI Act, One-time settlement schemes, setting of the CDR mechanism, strengthening of DRTs.
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3). Credit Information Bureau:Bank of Maharashtra, State Bank of India, HDFC Limited, M/s Dun incorporated Credit Information Bureau (India) Limited (CIBIL) in Jan 2001 and Bradstreet Information Services (India) Pvt. Information between banks and FIs for curbing the growth of NPAs. The CIBIL is in the process of getting operationalised.
4). Wilful Defaulters:RBI has revised guidelines in respect of detection of wilful default and diversion and siphoning of funds. As per these guidelines a wilful default occurs when a borrower defaults in meeting its obligations to the leader when it has the capacity to honour the obligations or when funds have been utilized for the purposes other than those for which finance was granted. RBI has advised the lenders to initiate legal measures including criminal actions, wherever required, and undertake a proactive approach in change in management, wherever appropriate.
(1) Debt Recovery Tribunals (2) Lokadalats (3) Enactments of SARFESI Act (4) Assets Reconstruction Companies (5) Institution of CDR Mechanism (6) Compromise Settlement Schemes (7) Increased power to NCLTs and the proposed Repeal of BIFR
a).
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b).
Lax Monitoring of Credit and Failure to Recognize Early Warning Signal: It has been stated that the approval of loan proposals is generally through many levels before approval is granted. However, the monitoring of some time complex credit files has not received the attention it needed, which meant that early warning signals were not recognized and standard assets slipped to NPA category without banks being able to take proactive measures to prevent this. Partly due to these reasons, adverse trends in borrowers performance were not noted and the position further deteriorated before action was taken.
c).
Direct Lending: Governments policies rather than commercial imperatives dictated loans to some segments.
d).
Over Optimistic Promoters: Promoters were often optimistic in setting up large projects and in some cases they were not fully above board in their intentions. Screening procedures did not always highlight these issues. Often projects were set up with the expectation that part of funding would be arrange from the Capital Market, which were booming at the time of project appraisal. When the capital market subsequently crashed, the requisite funds could never be raised, promoters often lost interest and lenders were left stranded (cut off) with incomplete/unviable projects.
e).
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f).
Funding Mismatch: There are said to be many cases where loans granted for short term were used to fund long term transactions.
g).
High Cost of Funds: Interest rates as high as 20% were not uncommon. Coupled with high leveraging and falling demand, borrowers could not continue to service high cost debt.
h).
Wilful Defaulters: There are a number of borrowers who have strategically defaulted on their debt service obligations realizing that the legal recourse available to creditors is slow in achieving results.
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PSBs performed creditably all through in respect of all parameters set for them. But in the early Nineties the truth emerged that PSBs were suffering from acute capital inadequacy and many of them were depicting negative profitability. This is because the parameters set for they are functioning were deficient and they did not project the paramount needs for these corporate goals. Incorrect goals perception and identification led them to wrong destination.
Pre-reform era witnessed PSBs functioning under the overall control and direction of the Finance Ministry. Along with Reserve Bank of India (RBI) it decided/directed all aspects of working of the Bank. Banks were not free to price their products in competition with each other. They could not freely cater their funds in the best interest as they considered. It was thus a directed and the role of bank management was executory.
Since the 70s, the SCBs of India function totally as captive capsule units cut off from international banking and unable to participate in the structural transformations, the sweeping changes, and the new type of leading products training and knowledge resources required to compete with international industry had resulted in the accumulation of assets, which are termed as non-unprecedented level 8.
Major policy decision was taken externally by the Finance Ministry/RBI. Though directors were to be appointed based on their possession of specialized knowledge in banking and related discipline, the environment of receiving decisions from a political background as distinguished from a professional outfit, prevented the best
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Audit and Inspections remained as functions under the control of Executive Officers, which were not independent and were thus unable to correct the effects of serious flaws in policies and directions of the higher level.
The quantum of credit extended by the PSBs increased by about 360 times in three decades after nationalization (from around 3000 crores in 1970 to 475113 crores on 31-03-2000). The bank was not developed in terms of skills and expertise to regulate such stupendous growth in the volume and manage to diverse the risk that emerged in the process. The need for organizing an effective mechanism to gather and disseminate credit information amongst the commercial banks was never felt or implemented. The archaic laws of secrecy of customers-information that was binding banking India, disable bank to public names of defaulters for common knowledge of the other bank in the system.
Effective recovery of defaulters and overdue of borrowers was hampered. But in India legal remedies were beset wilful defaulters and the banks were left helpless. Effective corporate management was a concept alien to the corporate houses then. In respect of PSBs the board were ineffective and the only/main shareholder was the government of India. Government exercised multiple role and concerns, and the
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Credit management on the part of the leader to the borrower to secure their genuine and bonfire interests was not based on pragmatically calculated anticipated cash flows of the borrower concern, while recovery of instalments of term loan was not out of profit and surplus generated but through recourses to the corpus of working capital of the borrower concerns. This eventually led to the failure of the project financed leaving idle assets. Functional inefficiency was also caused due to overstaffing, manual processing of over-expanded operations and failure to computerize banks in India, when elsewhere throughout the world the system was to switch over to computerization of operations.
Analyse the NPAs and Delineate them into sub-groups. Do age-wise sub-grouping. ABC-analysis of advances.
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PREVENTIVE MEASURES:-
1). Regular/Timely contact with the borrowers should be maintained on one-to-one basic in order that the loans/advances are monitored effectively.
2).
The recovery work should be specifically entrusted to the identified loan officers/ clerks who will have regular contacts with the borrowers particularly at the time,
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3). The high value advance should be specifically monitored and in case of advance, which displays signals of slipping to sub-standard category, intensive follow-up is necessary.
4). The repayment programmes should be fixed up realistically keeping in view the probability of cash accruals taking place as per the projections.
5). In case where units are facing genuine difficulty in adhering to the repayment schedule fixed while sanctioning the loan, the loan can be rescheduled so that the advance does not turn out of order or past due.
6). Borrower should be counselled to route the sales proceeds through the account, which will ensure that the account does not turn out of order merely on account of interest application.
7). A written communication be sent to all the borrowers advising them about the to ensure that their advance remain standard assets to enable the bank to favourably their future request for financial assistance, if needs.
need consider
8). Pre-disbursement and post-disbursement inspection, beside the periodical inspections are very important to ensure proper utilization of bank funds as also the assets acquired there from.
9). A system for settlement of goals for recovery of periodical loan instalments and quarterly interest and monitoring performance there against should be set up. Babasabpatilfreepptmba.com Page 28
10).Timely renewal/review of advance will be very effective in monitoring the of advance and taking safeguarding steps before an advance turns sub-
position standard.
11). The unit displaying disquieting features may be studied by experts/consultants for suggesting steps to prevent deterioration of their condition and to revitalize their operations.
CONCLUSION:-
The situation calls for an urgent action by all concerned for improvement. Based on our experience we consider that the branches will have to constantly work to prevent the NPA virus from contaminating the new credit portfolio. Also concurrently they will have to reinforce effective strategies to remove the virus from the existing NPA portfolio. The task although difficult is achievable. Monitoring and follow-up are the key watchwords in the task of managing and reducing NPAs.
REMEDIAL MEASURES:
1) Regular meetings with the borrowers and interaction with them on their business prospects and their position of their accounts should take place. 2) Periodical meetings with group of borrowers particularly those finance under government-sponsored schemes and in rural areas should be held in which the need for prompt payments of dues should be explained. It needs to be made clear to these borrowers that there will not be any further debt relief scheme in future and that they will benefit in the long run by paying the banks dues.
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9) For smaller advance, Lok Adalat is an effective avenue for on the spot settlement of bank loan case and this mechanism should be used effectively. 10) As regards cases involving debt for over Rs.10 lakhs, the forum of
Debt Recovery Tribunal should be effectively used. 11) Periodical meetings should be held with the lawyers handling
Banks cases to discuss various issue connected with the ending loans case with a view to reducing the delays in settlement of the cases. 12) Settling the cases out of court and entering into compromises,
wherever considered appropriate, may rove to be quicker and more effective than legal action. However, any tendency to get undue advantage from the bank should be guarded against.
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greater attention. It should be our endeavour to obtain permission of the court for attachments and disposal of securities charged to the bank before judgement. where such permission is granted or where suit is decreed in banks favours, the securities covered by the suit should promptly realize. 14) The portfolio of the loss assets has to be critically examined to weed
out all such assets where there is no hope of any recovery. In such cases, the ultimate step of writing off the advance needs to be taken and any delay in matter is of no benefit. 15) The services of Non-Government Organization (NGOs) may also be
utilized in area where these are active, for counselling the small borrowers. These borrowers may be organized in group and financed, if considered appropriate and prudent, through the NGOs concerned.
TACKLING NPAs
The major tools for tackling assets, which have already turned into nonperforming assets, are the following:-
1).
Recovery through legal action including the forum of debt recovery tribunals and lok adalats.
Utilizing the machinery of state government for recovery of rural death. Entering into compromises through negotiations. Rescheduling/rephrasing of dues in case of irregular advances of viable units. Rehabilitation packages for potentially viable sick units.
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FOCUSED STRATEGIES
1) Constant follow-up and periodically dialogue with the borrower to know the prospects of his business and difficulties, if any, faced. Case to case review of NPAs and replacement of loan to suit the revised income generation pattern so that he is able to repay dues of the bank as per his generation capacity.
2) Branch recovery team consisting of 2/3 resourceful staff members/officials, should be formed (if not so) at each critical branch. The team member should be exhorted to set up recovery endeavours and produce quick tangible results.
3) Establishment of District Recovery Team at each District Headquarter with the help of District Headquarters, with the help of District Co-ordinates/Lead Bank Officers/Nodal Officers of the concerned district to liaise (link) with the
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4) Lawyer Meet may be organized at all district headquarters by the concerned Asst. General Manager and AGM (law) where other officials from local head Office may also participate. Suit field case of high value loan amount should be reviewed individually to expedite the recovery process. Involvement of the law officers in follow-up recovery efforts through debt recovery tribunals is necessary.
5) To ensure that Target of Recovery have been allotted to all the critical branches for reducing NPAs/INC/AUC by their respective controlling Dy. authorities and the controllers concerned monitor their performance. The General Manager should oversee the position on monthly basis.
6) One time settlement (OTS) has been found to be another method whereby the bank would finally recover its due depending upon the repayment capacity of the borrower from all sources.
7) To consider, in consultation with controllers, on selective basis in decreed cases, the need for biding in Banks name for sale of mortgaged properties (secured for our loans) in auction with the permission of court for expediting the recovery process.
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PART-C
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ASSET CLASSIFICATION AS TOOL KIT TO BRING DOWN THE BRANCH NPAs TO THE BEAREST MINIMUM.
1. End use of funds should be monitored by effectively following up QIS statements, analysing them.
2. Verify the financials submitted by the borower and compare it with that of assumption made at the time of previous sanction.
3. Pre-sanction visit to the sites of collateral security should invariable be done by the appraising officers before accepting them as collateral. The field staff branch manager, division managers, should inspect this at yearly or half yearly intervals.
4. Borowers are willing to furnish any detail on their assets and liabilities and execute any document before disbursement of loan. Obtain all relevant details and documents prior to disbursing the loan/advance.
5. Book fresh quality advances and market for such advances. At present we are financing to those who have approached us. Approach good borrower and bring to our books. Marketing is the need of hour.
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6. Follow-up all the accounts with One quarter interest dues and ensure that borrower meet interest commitments.
7. Cost escalation or delay in project implementation should be taken care of while sanctioning loan itself. If there are any significant developments during implementation that has affected the project please review sanction well before the commencement of production and instalment falls due.
9. Seasonal activities monitor the recovery in the account and ensure recovery effort coincides with the time of revenue inflow.
10. Be aware of the danger signals received from the borrowers about the problem loans. Preventive and curative action should be taken immediately.
11. Do not be just satisfied and let loose the good borrowers. Complacency towards existing good borrowers may lead to account turning NPAs later.
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SUB-STANDARD ASSETS:-
I. A sizeable portion of NPA is in sub-standard category. It should be possible to upgrade account in this segment.
II. Ensure that sub-standard account does not slip down to doubtful and loss category.
III. Efforts should be made to upgrade the account to standard categories NPAs affect our balance sheet four ways:
a) We cannot book income. b) Capital adequacy ratio gets affected. c) NPAs require provisioning from post tax profits. d) Affects image in international level.
IV. Once the amount become NPA verify whether documentation is in order. If not rectify it first.
VI. Regular counsel and educate dafaulting borrower. Maintain regular contact with the borrowers and monitor the asset. Keep the Branch Manager informed of the developments at regular intervals.
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VII. Do not permit excess drawing unless otherwise necessary for 3 units to run. If the situations warrant, renew/review the account record excess drawings, if any, permitted in the account and insists for letters and document it.
VIII. In case of sick units, if satisfied about the problems of sickness strengthen the assets with collaterals. This will help in making small provision against such advances. Chalk out the rehabilitation programme in consultation with the controllers immediately failing which we may not have any assets to fall back upon later. A quick action is needed. If given a chance, grab the earliest to palm off the account from our books to any other financial agency.
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DOUBTFUL ASSETS:-
1) Experience in the previous years indicate that there has been steady slippage in the quality of assets in the NPA categories from sub-standard to doubtful assets and then to loss assets. One reason could be that appropriate action as mentioned above is not taken in case of sub-standard assets. Secondly suit field accounts in various civil courts/debts recovery tribunal is not followed up in the manner required ad or are getting very little attention. These accounts particularly suit field/decreed account required constant review at the operating level so that appropriate steps like enforcing decree, facilitating compromises or write off if need be initiated instead of holding such un-remunerative accounts on long term basis in your books as NPAs.
2) Issues raised by advocates should be tackled to get the suits diposed of and executive the decreased so obtained to reduced the NPAs.
3) Where branches have got backlog in settlement to DICGC claims, such claims should be followed up rigorously. For this purpose dealing official at the branch should explore the possibilities of getting the claim settled at an earliest in consideration with the DICGC Chennai/Mumbai.
4) Compromise as a strategy for reducing NPAs is receiving attention of branch functionaries. Encourage compromise proposal selectively without giving wrong signals to the other good borrowers. Branches should view such compromise proposals based on the net present value, nature and value of assets presently available to us.
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i.
Write off Doubtful and Loss assets was initiated by branches from the first quarter of the year itself.
ii.
High value doubtful and loss assets where DICGC has settled the claims and/or rejected the such case should be first dealt with write-off proposals with additional information should be submitted immediately where ever assets are not available.
iii.
Identify all loss assets where full provision is available to write off. Where ever suits are pending and prospect of recovery exists such account can be parked in advance under collections accounts.
iv.
Recommendation to write up file value loss asset should be sent on priority basis.
v.
Write off out standings where provision is short up to Rs.25000 may be sent immediately without further loss of time.
vi.
Wherever compromises are/where entertained earlier and write-off the balance still exist arrange to sent such write-off proposals and ensure that the account does not appear in balance sheet of the bank.
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2. Serious efforts in upgrading the assets from NPA category will results in reduction of INCA. Pressurize induce the borrowers to bring down their outstanding levels compared to the previous year. This will enable the bank to book income on partial recovery basis.
3. Where fundamentals of the industry/unit/borrowers are sound rehabilitation of the unit may be taken up on priority.
1) The number of advance under collection account and out standings there in there in are the rise.
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4) Review all accounts parked in advance under collection account on priority basis and efforts should be made to recover full dues and remove such accounts from advance under collection account.
6) Regular view of the recovery prospects and removal of such accounts from advance under collection account does not appear to be receiving level of attention.
The most important business implication of the Naps is that it lead to the credit risk management assuming priority would thus be pre-occupied with recovery procedures rather than concentrating on expanding business. As already mentioned here in above, a bank with high level of NPAs would be forced to incurr carrying costs on a non-income yielding assets. Other consequence would be reduction in interest income, high level of provisioning, stress on profitability and capital adequacy, gradual decline in ability to meet steady increase in cost, increased pressure on Net Interest Margin
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SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2002 (SARFESI)
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Slotting NPAs of various size and type can be made as follows at branches for working out specific/appropriate strategies individual cases. Besides it will also help us in taking stock of the situation at given point of time.
CATEGORY
TECHNIQUES
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c) Repaying capacity can be easily gauged. d) Mobilizing liquid cash for meeting the debt sector Loans, Government sponsored Loans upto Rs. 1 lakhs.) is not difficult. e) Written reminder and repeat personal call help mostly; written reminder is a powerful weapon. f) Legal action is time consuming.
g) Influence of other local persons contacts helpful especially in rural/semi urban areas.
2). NPAs-Larger than small but medium. (Above Rs. 1 lakhs upto Rs. 5 lakhs)
a) Branch team can talk to the borrower and work out the repayment programme. b) In Non-Agricultural NPAs, quick solution should be worked out through long draw work out sessions with borrowers, because the value of assets may get eroded fast or the borrower may decamp or shift his activity. c) In Non-Agricultural NPAs, quick solution should be worked out through long draw work out sessions with borrowers, because the value of assets may get eroded fast or the borrower may decamp or shift his
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activity.
a) As the size of NPAs grows, the branch experiences levels of incapacity to take a view regarding the ability/recover rabidity of the loans.
3). Medium sized NPAs (Over Rs. 5 lakhs upto Rs. 25 lakhs)
d) Call for intervention at all the stages by a multi-tier team workout specialists.
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g) If default is wilful, watch on borrowers business growth plans and using leverage at appropriate. a) It is highly effort-inelastic.
b) Calls for intervention abilities not only by a multilevel team of workout specialists but also the senior management.
c) Sophisticated legal, technical and financial advice for. 4). Large NPAs d) Support of the state government and SFCs (over Rs. 25 lakhs) in selling the assets, rationalizing the staff of the unit, deciding the exit option.
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In Belgaum City, there are 6 branches of Bank of Maharashtra, these branches have formulated the following innovative methods for recovering NPAs.
1) The team is formed having all the branch managers and concerned staff looking after recovery department. The said team will visit the borrower and advice him for recovery of dues and also the rupurcussions for non-payment.
2) There are 10 ladies staff members in Belgaum City. These ladies staff members have formed a group and door to door recovery campaign is done by this team.
3) The telephone numbers of Belgaum District is loaded on PCs of all branches, the managers as and when get the free time contact NPA account holders by searching telephone numbers which are loaded on their PCs.
This innovative method has rewarded a good dividend as on 2007-2008, all the branches of Bank of Maharashtra in belgaum city have achieved the recovery targets, write-off targets and reduced the NPA quantum to a large extent.
While preparing the recovery budget, branches should scan through the NPAs portfolio,make the ABC analysis of NPA, segregate accounts into identical lots with regard to the approach to be adopted for recovery.
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CONTROL Self supervised by the branch. Regional Offices (Ros) will do volume Ros will intervene, if there is lack of response from the bank level.
Medium NPAs
Regional Offices (Ros) should decide the identification of intensive NPA branches. Zonal Offices (Zos) will do volume control and intervene if the response is inadequate down the line.
Large NPAs
Zonal Offices (Zos) should decide the account-wise strategies. Head Office will partake in the exercise depending upon the complexity.
RECOVERY CHART
Case fit for written and telephonic reminders. Lenghty workout sessions. Case fit for rehabiliation Induction of fresh funds, interest concessions with.
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Effectiveness
i.
File Suit
ii.
iii.
Inventory normally does not if remain, and non-obsolete left theres anything after 1015 years of legal wrangling, its value is basically nil.
iv.
Receivables also often almost disappear when customers cost of smell trouble. What is chasing these receivables down after 10-15 years in the court ?
Not
Currently =
Possible Effectiveness
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i.
ii.
Media Announcements
iii.
Will make borrower angry, though it will likely eager to Bank of Maharashtra off his back.
iv.
v.
Uncomfortable and
vi.
Notifying Stockholders
PROBLEMS OF RECOVERY
There are a number of factors which contribute to the recovery problem, some of which crop up rights at the inception of the project and before the loan is disbursed. Babasabpatilfreepptmba.com Page 51
The recovery problem associated with the Pre-Disbursement stage relates to Unrealistic fixation of repayment schedule. Delay in disbursement of loans. Insufficient loan amount. Delay in release of subsidy. Non Follow-up of formalities required to be followed.
In the study conducted by NABARD, it was found that lots of problems associated with the recovery were due to incorrect fixation of repayment schedules by the commercial banks. NABARD concluded that default on account of realistic repayment programmers fixed by the banks should not really treated as wilful default.
Lack of constant supervision and follow-up. Lack or regular contacts between Bank and Borrower. Assets created not being supervised. Wilful Default. Failure of crops.
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Basically each branch engaged in rural lending has to loan for recovery of loans disbursed by it. The manager should be familiar with the prospects of recovery through internal and external factor. Knowledge about willful defaulters is equally important. Thus Three-Pronged Strategy is necessary;
(A).
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i.
Appraisal of loan application and re-sanction surveys:During the initial processing of the proposal, it has to be ensured that the
repayment programmer for an item/equipment id is fixed in accordance with the guidelines prescribed by NABARD. Awareness about NABARD guidelines should be increased at the branch level.
ii.
manner which will coincide with the harvesting of crops or sale of milk or any other farm output proposed to be produced through the bank loan should therefore be computed in a manner conducive to the income flows.
iii.
Non-Banking business day:This day should be utilized fully for field visit and contact with the borrowers.
iv.
Recovery Camps:The central idea of recovery camp is to bring a maximum number of people
together at one place and repay the loans. The recovery camps in addition of effecting recovery create a proper climate for recovery.
v.
Conversions/Rescheduling of loans:There are guidelines for the operating staff of the banks for
conversion/rescheduling of loans can be made repayable over period of one year in the event of crop loss.
vi.
Compromise Proposals:-
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vii.
Integration of recovery in branch budgeting:Our bank has already commenced fixing recovery targets and the best
performers are also going to be rewarded suitably through the award scheme.
(B).
Wherever the states have enacted laws on the pattern and support of the government machinery can be enlisted accordingly. The support from BLCC, DCC and SLBC can be utilized effectively. If the branches prepare village-wise action plans in this regard, it will be still appropriate for the for the agencies to have a concerted effort towards recovery. The branches may also compile a detailed position of defaulters and share the same with the convener banks and government authorities periodically.
(C).
Here 2 approaches are necessary. First to prevent wilful default in future and secondly to initiate steps to discourage wilful default. To prevent wilful defaults, Babasabpatilfreepptmba.com Page 55
PART D
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(In Crores)
PARTICULARS 1. Net NPAs to Net Advances (%) 2. Movement of NPAs (Gross) a) b) c) d) Opening Balance Additions during the year Reductions during the year Closing Balance 820.27 252.12 306.12 766.27 944.08 309.12 432.93 820.27 2007-2008 0.87 2006-2007 1.21
3. Movement of NPAs (Net) a) b) c) d) Opening Balance Additions during the year Reductions during the year Closing Balance 277.38 167.80 187.60 254.05 334.06 170.65 227.33 277.38
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4. Movement of Provisions for NPAs (Excluding provisions on standard assets) a) b) c) d) Opening Balance Provisions made during the year Write-back of excess provisions Closing Balance 520.14 84.31 118.52 485.93 594.93 138.48 213.27 520.14
2006-2007
2007-2008
2006-2007
2007-2008
2006-2007
From the above chart we can observe that, there is an decreasing trend in NPAs (i.e.Gross, Net and Provisions) as compared to that of last year.
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INTERPRETATION:
When we compare the ratio of Net NPAs to Net Advances and Closing Balances of NPAs (i.e. Gross, Net & Provisions), we find that the Quality of NPA in the Bank is better in the year 2007-2008 as compared to that of 2006-2007. When we consider movement in NPAs (Gross), we get the following; Reductions in Gross NPAs made during the year 2007-2008 are Rs. 54 lakhs, but during the year 2006-2007, the reductions made were Rs. 124 lakhs. When we consider movement in NPAs (Net), we get; Reductions made in the year 2007-2008 are Rs. 20 lakhs and for the year 20062007 are Rs. 57 lakhs. When we consider provisions, we get the following; Reductions in NPA during the year 2007-2008 are Rs. 34 lakhs and for the year 2006-2007 are Rs. 75 lakhs. Therefore, from the above interpretation we can say that, in the year 2006-2007, the asset quality of the Bank was better as compared to that of the year 2007-2008.
According to RBI Guidelines, the percentage of provisions to be maintained under different category of NPAs is as follows:Babasabpatilfreepptmba.com Page 59
NPAs IN RETAIL SECTOR AS OF 31st MARCH 2008 FOR RPD BRANCH, BELGAUM
(Rs. IN LAKHS)
S.No
CATEGORY
SUB-STD
DOUBTFUL
LOSS
TOTAL NPA
TOTAL ADVANCES
ACS
AMT
ACS
AMT
ACS
AMT
ACS
AMT
ACS
AMT
1 2 3 4 5 6 7 8
Housing Loans
0 0 0 0 2 0 0 0
0 0 1 0 0 0 1 0
0 0 0 0 2 2 0 0
0 0 1 0 4 2 1 0
41 28 49 11 12 30 22 2
Education Loans Two wheeler loan Four wheeler loan Consumer Loans Personal Loans Solar Loans Adhar Loans
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SSI TOTAL
5 7
5.61 6.19
12 14
28.01 28.42
17 21
13.04 14.13
34 42
46.66 48.74
423 618
520.75 753.92
ANALYSIS
NPA IN RETA SECTO s IL R A O 31st M RCH 2008 S F A
Total Amount
DOUBTFULL
TOTAL NPA
N C s PA las
From the above chart we come to know that, Out of the major proportion of advances/loans that are lent to various category of people only a small proportion contributes to Total NPA and further this total NPA is categorised into 3 types. i.e, SubStandard Assets, Doubtful Assets and Loss Assets. PARTICULARS Total Advances Sub-Standard Assets Doubtful Assets Loss Assets Total NPA Amount (In Lakhs) 6.19 28.42 14.13 ----------------------Amount (In Lakhs) 753.92 48.74
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ADVANCES
SUB-STD
LOSS
TOTAL
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Remaining Balance
-------------------------
705.18
From the above table, we come to the following conclusion:Out of the Total Advances, the share of total NPA is minimum. Bank is undertaking and implementing many measures to bring down this NPA level. But, the Bank cannot stop lending advances, taking into consideration the rise in the NPA level. Bank has to raise loans as they contribute to the wealth and creditibility of the bank, and when the banks have raised the loans they are also at a risk. So, there may be atleast minimum level of NPA.
Amount Raised in the form of Total Advances is Rs 753.92 lakhs. Out of which Rs 48.74 lakhs is the share of NPAs as of 31st March 2008. i.e; 48.74/753.928*100 = 6.46% :----- Total % of NPA in Amount.
As per the RBI norms a maximum percentage of NPA to be maintained by the Bank is upto or less than 8%. But, we can observe from the above chart and calculations, that the NPA level of Bank of Maharashtra is less than the level which is prescribed by RBI and still Bank is trying to reduce it as they have mentioned it in their vision.
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Total NPA
The total amount of advances raised is Rs. 753.92 lakhs, which is taken as 100%.
Out of this 100%, 6% of the total advances contribute to the total NPA amount approximately, which is equal to Rs. 48.74 lakhs.
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CHART SHOWING PORTION OF TOTAL NUMBER OF NPA ACCOUNTS OUT OF THE TOTAL ACCOUNTS 7%
The total number of accounts with the Bank as on March 2008 is 618, which is taken as 100%.
Out of these 618 accounts, the total number of accounts which belong to the category of NPA is 42 (i.e. 7% of the total 100% contributes to NPA).
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CHART SHOWING CLASSIFICATION OF NPA AMOUNT UNDER DIFFERENT CATEGORIES 6.19, 13% 14.13, 29%
Loss Assets
28.42, 58%
Out of the total 100%, 58% contributes to Doubtful Assets, 29% belongs to Loss Assets and 13% contributes to Sub-Standard Assets.
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21, 50%
Loss Assets
14, 33%
Out of 100%, 50%, contributes to Loss Assets, 33% belongs to Doubtful Assets and 17% is for Sub-Standard Assets.
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CHART SHOWING TO TAL AMO UN T OF NPA DISTRIBUTED AMO NG DIFFEREN T CATEGO RY O F LO ANHousing Loans S 2% 0% 0% Education Loans 1% 0% 0% Two wheeler loan 0% 0% Four wheeler loan Consumer Loans Personal Loans Solar Loans Adhar Loans 97% SSI
The Total NPA amount is Rs. 48.74 lakhs, which is taken as 100%.
Out of this 100%, 97% belongs to SSI Sector, 1% contribute to Personal loans category, 2% belong to Consumer loans Sector and 0% each contribute to all other category of loans.
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CHART SHOWING DISTRIBUTIO N OF SUB-STANDARD ASSETS UNDER DIFFERENT CATEGORY OF LOANS 0% Housing Loans 0% 0% 0% Education Loans 0% 9% Two wheeler loan 0% Four wheeler loan 0% Consumer Loans Personal Loans Solar Loans Adhar Loans 91% SSI
The Total amount in sub-standard asset is Rs.6.19 lakhs, out of the total NPA, which is taken as 100%.
Out of 100%, 91% contributes to SSI Sector, 9% belongs to Consumer Loans Sector and 0% each belong to other category of loans.
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CHART SHOWING DISTRIBUTION OF DOUBTFUL ASSETS UNDER DIFFERENT CATEGORY OF LOANS Housing Loans 0% 0% 0% 1% Education Loans 0% 0% 1% Two wheeler loan 0% Four wheeler loan Consumer Loans Personal Loans Solar Loans Adhar Loans 98% SSI
The total amount in Doubtful Assets is Rs. 28.42 lakhs out of the total NPA amount, which is taken as 100%.
Out of 100%, 98% belongs to SSI Sector, 1% comes under the category of Two wheeler loans, 1% contributes to Solar loans and 0% each belong to other category of loans.
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CHART SHOWING DISTRIBUTION OF LOSS ASSETS UNDER DIFFERENT CATEGORY OF LOANS Housing Loans 0% 0% 4% 0% 0% Education Loans 0% 3% 0% Two wheeler loan Four wheeler loan Consumer Loans Personal Loans Solar Loans Adhar Loans 93% SSI
The total amount in Loss Assets is Rs. 14.13 lakhs which is taken as 100%.
Out of 100%, 93% belong to SSI Sector, 4% contribute to Consumer loans, 3% contribute to Personal loans and 0% each contribute to other sector of loans.
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C HART S HO W IN G AC C O UN T W IS E C LAS SIF IC ATIO N O F LO AN S 41, 7% 28, 5% 49, 8% 12, 2% 11, 2% 30, 5% 22, 4% 423,67% 2, 0%
Housing Loans Education Loans Two wheeler loan F our wheeler loan C onsumer Loans P ersonal Loans S olar Loans Adhar Loans S SI
From the above chart we get the following:The total number of Accounts with Bank of Maharashtra as of March 2008 are 618. Out of these accounts, the major proportion is for SSI sector. i.e, 423 accounts (67%), 49 accounts (8%) are under the category of Two wheeler loans, 41 accounts (7%) are under the category of Housing Loans, 30 accounts (5%) belong to the category of Personal loans, 28 accounts (5%) come under the category of Education loans, 22 accounts (4%) come under the category of Solar loans, 12 accounts (2%) belong to the category of Consumer loans, 11 accounts (2%) comes under the category of Four wheeler loans and 2 accounts belong to the category of Adhar loans.
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115.49, 15% 60.23, 8% 10.62, 1% 27.48, 4% 520.75, 70% 3.24, 0% 12.65, 2% 2.52, 0% 0.93, 0%
Four wheeler loan Consumer Loans Personal Loans Solar Loans Adhar Loans SSI
From the above chart we get the following:The Total Amount raised by Bank of Maharashtra as of March 2008 is Rs. 753.92 lakhs, which is taken as 100%. Out of this 100% amount, the major proportion is for SSI sector. i.e, 70% (Rs 520.75 lakhs), 15% (Rs 115.49 lakhs) of the amount is for the purpose of Housing loans, 8% (Rs 60.23lakhs) are for education loans, 4% (Rs 27.48 lakhs) are under the category of Four wheeler loans, 2% (Rs 12.65 lakhs) come under the category of Personal Loans, 1% (Rs 10.62 lakhs) belong to the category of Two wheeler loans and each with 0% is for Consumer loans (Rs 3.24 lakhs), Solar loans (2.52 lakhs) & Adhar loans (Rs 0.93 lakhs).
INTERPRETATION OF THE ABOVE DATA IN TERMS OF PERCENTAGES ( i.e. in terms of Net NPAs to Total Loans Disbursed) Babasabpatilfreepptmba.com Page 72
TOTAL NPA
Total NPA %
48.74/753.92*100 = 6.46%
Sub-Standard Assets
6.19/753.92*100 = 0.82%
Doubtful Assets
28.42/753.92*100 = 3.77%
Loss Assets
14.13/753.92*100 = 1.87%
SSI SECTOR
Total %
46.66/753.92*100 = 9%
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Sub-Standard Assets
5.61/753.92*100 = 1.08%
Doubtful Assets
28.01/753.92*100 = 5.38%
Loss Assets
13.04/753.92*100 = 2.54%
TWO-WHEELER LOANS
Total %
0.23/10.62*100 = 2.16%
Sub-Standard Assets
NIL
Doubtful Assets
0.23/10.62*100 = 2.16%
Loss Assets
NIL
CONSUMER LOANS
Total %
1.21/3.24*100 = 37.35%
Sub-Standard Assets
0.58/3.24*100 = 17.90%
Doubtful Assets
NIL
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Loss Assets
0.63/3.24*100 = 19.45%
PERSONAL LOANS
Total %
0.47/12.65*100 = 3.72%
Sub-Standard Assets
NIL
Doubtful Assets
NIL
Loss Assets
0.47/12.65*100 = 3.72%
SOLAR LOANS
Total %
0.18/2.52*100 = 7.15%
Sub-Standard Assets
NIL
Doubtful Assets
NIL
Loss Assets
0.18/2.52*100 = 7.15%
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FINDINGS
1) 6.46% of the total advances contribute to total NPA.
2) (a). 58% of the total NPA amount belong to the category of Doubtful Assets, whereas only 33% of the total NPA accounts belong to the category of Doubtful Assets. (b). 29% of the total NPA amount belong to the category of Loss Assets,but account wise, 50% of the total NPA accounts are under the category of Loss Assets. (c). 13% of the total NPA amount come under the category of Sub-Standard Assets, whereas 17% of the total NPA accounts belong to Sub-Standard Assets Category. From the above point we can observe that ,the Category of Assets differ in percentages when we compare them in terms of Amounts and Accounts. Babasabpatilfreepptmba.com Page 76
3) Major advances that are provided by the Bank belong to the SSI sector.
4) 9% of the total advances which belong to SSI sector are Defaulted. The reasons for the default are: Recession. Mis Management. Natural Calamities, etc
6) There is reduction in percentage of Net NPA (i.e. from 1.21% in the year 20062007 to 0.87% in the year 2007-2008). This reduction is due to recovery in NPA accounts and the provisions made on these NPAs.
7) The percentage of Bank NPAs, Net as well as Gross will be reduced as the quantum of advances increase.
8) NPA is not in existence under the category of Housing Loans, Education loans, Four wheeler Loans, Solar Loans and Adhar Loans. Reasons: Adhar Loans are properly linked with pensions and salaries. Solar Loans are disbursed by the bank by obtaining collateral security in the form of Deposits/NSC/LIC Policy. The Education Loans are disbursed in stages for qualified courses having full job opportunities..
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SUGGESTIONS
The Bank has to increase in the quality of assets which adds value to its profitability.The quality of assets can be increased by scouting the best Borrowers and by increasing the quality of advances. The percentage of NPAs to Total Advances can be brought down by increasing the standard assets.
Early Alert System, should be implemented inorder to prevent the account from becoming NPA.
The banks should undertake frequent monitering and checking of NPA advances, which will help the bank to find out the accounts which are under the category of NPA or which are likely to fall under this category. If there are more variations over a period of time, then the reasons should be sorted out and corrective actions such as issuing notices, etc should be implemented as early as possible.
As for as possible, repayment of term loans should be fixed on monthly basis rather than on quarterly or semi annual basis.
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The major default of the Bank is in SSI Sector. So, inorder to reduce NPAs form this sector, the Bank should undertake various checks like; timely checks on the Cash Flow Statement (Specifically Cash from Operating Activities), Level of Sales (Growth Rate), Coverage ratios (Interest Coverage Ratios, Debt Service Coverage Ratio), etc of SSI Units should be analysed.
Bank should prevent diversion of funds by the promoters and Effective inspection system should be implemented.
Proper follow-up should be maintained with the SSI Sector, which will help them to reduce the NPAs in this sector to a greater extent.
CONCLUSION:
NPA is a weapon, which affects bank profitability due to interest income not being recognized on NPA accounts and loan loss previously incurred to be absorbed from profit earned. Also the provisions are to be made on the NPA accounts which will reduce the profits of the Bank. The bank must adopt structured NPAs management policy for elimination or reducing the NPAs in the Bank.
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BIBLIOGRAPHY
Bank Circulars
www.bankofmaharashtra.com
www.google.com
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