qwertyuiopasdfghjklzxcvbnmqw ertyuiopasdfghjklzxcvbnmqwert yuiopasdfghjklzxcvbnmqwertyui opasdfghjklzxcvbnmqwertyuiopa MANAGAMEMENT OF sdfghjklzxcvbnmqwertyuiopasdf NON- PERFORMING ghjklzxcvbnmqwertyuiopasdfghj ASSETS klzxcvbnmqwertyuiopasdfghjklz xcvbnmqwertyuiopasdfghjklzxcv Vishesh Madan 071493

bnmqwertyuiopasdfghjklzxcvbn mqwertyuiopasdfghjklzxcvbnmq wertyuiopasdfghjklzxcvbnmqwer tyuiopasdfghjklzxcvbnmqwertyui opasdfghjklzxcvbnmqwertyuiopa sdfghjklzxcvbnmqwertyuiopasdf ghjklzxcvbnmqwertyuiopasdfghj klzxcvbnmqwertyuiopasdfghjklz xcvbnmrtyuiopasdfghjklzxcvbnm qwertyuiopasdfghjklzxcvbnmqw ertyuiopasdfghjklzxcvbnmqwert yuiopasdfghjklzxcvbnmqwertyui

ACKNOWLEDGEMENT

I would like to extend our sincere thanks to Dr. Anju Singla for her guidance and constant supervision as well as for providing necessary information regarding the project. This project wouldnt have been possible without her support and her knowledge of the subject.

Vishesh Madan(071493)

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1. INTRODUCTION
The three letters NPA Strike terror in banking sector and business circle today. NPA is short form of Non Performing Asset. The dreaded 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 recovery of loan has always been problem for banks and financial institution. To come out of these first we need to think is it possible to avoid NPA, no can not be then left is to look after the factor responsible for it and managing those factors

DEFINITIONS
An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A Non-Performing Asset (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained past due for a specified period of time. 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, from 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: 1.1. Interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan, 1.2. The account remains out of order for a period of more than 90 days, in respect of an Overdraft/Cash Credit (OD/CC), 1.3. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, 1.4. Interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and 1.5. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts As a facilitating measure for smooth transition to 90 days norm, banks have been advised to move over to charging of interest at monthly rests, by April 1, 2002. However, the date of classification of an advance as NPA should not be changed on account of charging of interest at monthly rests. Banks should, therefore, continue to classify an account as NPA only if the interest charged during any quarter is not serviced fully within 180 days from the end of the quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from March 31, 2004.

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2. History of Indian Banking

A bank is a financial institution that provides banking and other financial services. By the term bank is generally understood an institution that holds a Banking Licenses. Banking licenses are granted by financial supervision authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so-called Non-bank. Banks are a subset of the financial services industry The word bank is derived from the Italian banca, which is derived from German and means bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out of business bank, having its bench physically broken. Moneylenders in Northern Italy originally did business in open areas, or big open rooms, with each lender working from his own bench or table. Typically, a bank generates profits from transaction fees on financial services or the interest spread on resources it holds in trust for clients while paying them interest on the asset. Development of banking industry in India followed below stated steps. Banking in India has its origin as early as the Vedic period. It is believed that the transition from money lending to banking must have occurred even before Manu, the great Hindu Jurist, who has devoted a section of his work to deposits and advances and laid down rules relating to rates of interest. Banking in India has an early origin where the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company, was the turn of the agency houses to carry on the banking business. The General Bank of India was first Joint Stock Bank to be established in the year 1786. The others which followed were the Bank Hindustan and the Bengal Bank. In the first half of the 19th century the East India Company established three banks; the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843. These three banks also known as Presidency banks were amalgamated in 1920 and a new bank, the Imperial Bank of India was established in 1921. With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken by the newly constituted State Bank of India. The Reserve Bank of India which is the Central Bank was created in 1935 by passing Reserve Bank of India Act, 1934 which was followed up with the Banking Regulations in 1949. These acts bestowed Reserve Bank of India (RBI) with wide ranging powers for licensing, supervision and control of banks. Considering the proliferation of weak banks, RBI compulsorily merged many of them with stronger banks in 1969. The three decades after nationalization saw a phenomenal expansion in the geographical coverage and financial spread of the banking system in the country. As certain rigidities and weaknesses were found to have developed in the system, during the late eighties the Government of India felt that these had to be addressed to enable the financial system to play its role in ushering in a more efficient and competitive
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economy. Accordingly, a high- level committee was set up on 14 August 1991 to examine all aspects relating to the structure, organization, functions and procedures of the financial system. Based on the recommendations of the Committee (Chairman: Shri M. Narasimham), a comprehensive reform of the banking system was introduced in 1992-93. The objective of the reform measures was to ensure that the balance sheets of banks reflected their actual financial health.

One of the important measures related to income recognition, asset classification and provisioning by banks, on the basis of objective criteria was laid down by the Reserve Bank. The introduction of capital adequacy norms in line with international standards has been another important measure of the reforms process. 1. Comprises balance of expired loans, compensation and other bonds such as National Rural Development Bonds and Capital Investment Bonds. Annuity certificates are excluded. 2. These represent mainly non- negotiable non- interest bearing securities issued to International Financial Institutions like International Monetary Fund, International Bank for Reconstruction and Development and Asian Development Bank. 3. At book value. 4. Comprises accruals under Small Savings Scheme, Provident Funds, Special Deposits of Non- Government In the post -nationalization era, no new private sector banks were allowed to be set up. However in 1993,in recognition of the need to introduce greater competition which could lead to higher productivity and efficiency of the banking system, new private sector banks were allowed to be set up in the Indian banking system. These new banks had to satisfy among others, the following minimum requirements: i. It should be registered as a public limited company; ii. The minimum paid-up capital should be Rs 100 crore; iii. The shares should be listed on the stock exchange; iv. The headquarters of the bank should be preferably located in a centre which does not have the headquarters of any other bank; and v. The bank will be subject to prudential norms in respect of banking operations, accounting and other policies as laid down by the RBI. It will have to achieve capital adequacy of eight per cent from the very beginning. A high level Committee, under the Chairmanship of Shri M. Narasimham, was constituted by the Government of India in December 1997 to review the record of implementation of financial system reforms recommended by the CFS in 1991 and chart the reforms necessary in the years ahead to make the banking system stronger and better equipped to compete effectively in international economic environment. The Committee has submitted its report to the Government in April 1998. Some of the recommendations of the Committee, on prudential accounting norms, particularly in the areas of Capital Adequacy Ratio, Classification of Government guaranteed advances, provisioning requirements on standard advances and more disclosures in the Balance Sheets of banks have been accepted and implemented. The other recommendations are under consideration.
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 The banking industry in India is in a midst of transformation, thanks to the economic liberalization of the country, which has changed business environment in the country. During the pre-liberalization period, the industry was merely focusing on deposit mobilization and branch expansion. But with liberalization, it found many of its advances under the non-performing assets (NPA) list. More importantly, the sector has become very competitive with the entry of many foreign and private sector banks. The face of banking is changing rapidly. There is no doubt that banking sector reforms have improved the profitability, productivity and efficiency of banks, but in the days ahead banks will have to prepare themselves to face new challenges.

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INDIAN BANKING : Key Developments

Time 1969 EVENT Government acquires ownership in major banks Almost all banking operations in manual mode Some banks has unit record Machines of IBM for IBR & Pay Roll Unprecedented expansion in geographical coverage, staff, business & transaction volumes and directed lending to agriculture, SSI & SB sector Manual systems struggle to handle exponential rise in transaction volumes Outsourcing of data processing to service bureau begins Back office systems only in Multinational (MNC) banks' offices Regulator (read RBI) led IT introduction in Banks Product level automation on stand alone PCs at branches (ALPM) In-house EDP infrastructure with Unix boxes, batch processing in Cobol Mainframes in corporate offices Expansion slows down Banking sector reforms resulting in progressive de- regulation of banking, introduction of prudential banking norms entry of new private sector banks Total branch Automation(TBA) in govt, owned and old private banks begins New private banks are set up with CBS/TBA from start New delivery channels like ATM, Phone banking and Internet banking and convenience of any branch banking and auto sweep products introduced by new private and MNC banks Retail banking in focus, proliferation of credit cards Communication infrastructure improves and becomes cheap. IDRBT sets up VSAT network for Banks Govt. owned banks feel the heat and attempt to respond using intermediary technology, TBA implementation surges ahead under fiat from Central Vigilance Commission (CVC), Y2K threat consumes last two years Alternate delivery channels find wide consumer acceptance IT Bill passed lending legal validity to electronic transactions Govt. owned banks and old private banks start implementing CBSs, but initial attempts face problems Banks enter insurance business launch debit cards

1970 1980

1981 1990

1991 1995

1996 2000

2000 2003

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3. NON PERFORMING ASSETS (NPA)

WHAT IS A NPA (NON PERFORMING ASSETS)?
Action for enforcement of security interest can be initiated only if the secured asset is classified as Nonperforming asset. Non performing asset means an asset or account of borrower, which has been classified by bank or financial institution as sub standard, doubtful or loss asset, in accordance with the direction or guidelines relating to assets classification issued by RBI. An amount due under any credit facility is treated as past due when it is not been paid within 30 days from the due date. Due to the improvement in the payment and settlement system, recovery climate, up gradation of technology in the banking system etc, it was decided to dispense with past due concept, with effect from March 31, 2001. Accordingly as from that date, a Non performing asset shell be an advance where i. Interest and/or instalment of principal remain overdue for a period of more than 180 days in respect of a term loan, ii. The account remains out of order for a period of more than 180 days, in respect of an overdraft/cash credit (OD/CC) iii. The bill remains overdue for a period of more than 180 days in case of bill purchased or discounted. iv. Interest and/or principal remains overdue for two harvest season but for a period not exceeding two half years in case of an advance granted for agricultural purpose, and v. 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 90 days overdue norms for identification of NPAs, from the year ending March 31, 2004, a non performing asset shell be a loan or an advance where; i. ii. iii. iv. v. Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan, The account remains out of order for a period of more than 90 days ,in respect of an overdraft/cash credit (OD/CC) The bill remains overdue for a period of more than 90 days in case of bill purchased or discounted. Interest and/or principal remains overdue for two harvest season but for a period not exceeding two half years in case of an advance granted for agricultural purpose ,and Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts

Out of Order An account should be treated as out of order if the outstanding balance remains continuously in excess of sanctioned limit /drawing power. in case where the out standing balance in the principal operating account is less than the sanctioned amount
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/drawing power, but there are no credits continuously for six months as on the date of balance sheet or credit are not enough to cover the interest debited during the same period ,these account should be treated as out of order

Overdue Any amount due to the bank under any credit facility is overdue if it is not paid on due date fixed by the bank. 3.1. Factors for Rise in NPAs The banking sector has been facing the serious problems of the rising NPAs. But the problem of NPAs is more in public sector banks when compared to private sector banks and foreign banks. The NPAs in PSB are growing due to external as well as internal factors. 3.1.1. EXTERNAL FACTORS 3.1.1.1. 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, their by reducing their profitability and liquidity. 3.1.1.2. Wilful defaults

There are borrowers who are able to payback loans but are intentionally withdrawing it. These groups of people should be identified and proper measures should be taken in order to get back the money extended to them as advances and loans. 3.1.1.3. Natural Calamities

This is the measure factor, which is creating alarming rise in NPAs of the PSBs. 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. Mainly ours farmers depends on rain fall for cropping. Due to irregularities of rain fall the farmers are not to achieve the production level thus they are not repaying the loans 3.1.1.4. Industrial Sickness

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 liquid.

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3.1.1.5.

Lack of demand

Entrepreneurs in India could not foresee their product demand and starts production which ultimately piles up their product 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 non recovered part as NPAs and has to make provision for it.

3.1.1.6.

Change of 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. The fallout of handloom sector is continuing as most of the weavers Co-operative societies have become defunct largely due to withdrawal of state patronage. The rehabilitation plan worked out by the Central government to revive the handloom sector has not yet been implemented. So the over dues due to the handloom sectors are becoming NPAs. 3.1.2. INTERNAL FACTORS 3.1.2.1. Defective Lending Process

There are three cardinal principles of bank lending that have been followed by the commercial banks since long. i. Principles of safety ii. Principle of liquidity iii. Principles of profitability i. Principles of safety :By safety it means that the borrower is in a position to repay the loan both principal and interest. The repayment of loan depends upon the borrowers: a. Capacity to pay Capacity to pay depends upon: 1. Tangible Assets 2. Success in Business b. Willingness to pay Willingness to pay depends upon: 1. Character 2. Honest 3. Reputation of the borrower The banker should, there fore 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 .he should be a person of integrity and good character. 3.1.2.2. Inappropriate technology

Due to inappropriate technology and management information system, market

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driven decisions on real time basis can not be taken. Proper MIS and financial accounting system is not implemented in the banks, which leads to poor credit collection, thus NPA. All the branches of the bank should be computerized. 3.1.2.3. Improper SWOT analysis The improper strength, weakness, opportunity and threat analysis is another reason for rise in NPAs. While providing unsecured advances the banks depend more on the honesty, integrity, and financial soundness and credit worthiness of the borrower. i. Banks should consider the borrowers own capital investment ii. Bank should collect credit information from: a. Bankers b. Enquiry from market/segment of trade , industry , business c. External credit rating agencies iii. Analyse the balance sheet True picture of the business will be revealed on analysis of profit/loss a/c and balance sheet. iv. Purpose of loan When bankers give loan, he should analyse the purpose of the loan. To ensure safety and liquidity, banks should grant loan for productive purpose only. Banks should analyse the profitability, viability, long term acceptability of the project while financing. 3.1.2.4. Poor credit Appraisal system

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal the bank gives advances to those who are not able to repay it back. They should use good credit appraisal to decrease the NPAs 3.1.2.5. Managerial Deficiencies

The banker should always select the borrower very carefully and should take tangible assets as security to safe guard its interests. When accepting securities banks should consider the 1. 2. 3. 4. Marketability Acceptability Safety Transferability

The banker should follow the principle of diversification of risk based on the famous maxim do not keep all the eggs in one basket; it means that the banker should not grant advances to a few big farms only or to concentrate them in few industries or in a few cities. If a new big customer meets misfortune or certain traders or industries affected adversely, the overall position of the bank will not be affected. Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand loom industries. The biggest defaulters of OSCB are the OTM (117.77lakhs), and the handloom sector Orissa hand loom WCS ltd (2439.60lakhs).

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3.1.2.6.

Absence of regular industrial visits

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of bank officials to the customer point decreases the collection of interest and principals on the loan. The NPAs due to wilful defaulters can be collected by regular visits. 3.1.2.7. Re loaning process

Non remittance of recoveries to higher financing agencies and re loaning of the same have already affected the smooth operation of the credit cycle. Due to re loaning to the defaulters and CCBs and PACs, the NPAs of OSCB is increasing day by day.

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3.2.

TYPES OF NPA
A. GROSS NPA B. NET NPA

A. GROSS NPA
Gross NPAs are sum total of all the loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks.It consists of all the non standard assets like as substandard, doubtful, and loss assets. It can be calculated with the help of following ratio. GROSS NPA as ratio = Gross NPA As Gross Advances B. NET NPA Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance sheets contain a huge amount of NPAs and the process of recovery and write off of loans is very time consuming, the provisions the banks have to make against the NPAs according to the central bank guidelines, are quite significant. That is why the difference between gross and net NPA is quite high. NET NPA as ratio = Gross NPA As - provisions Gross Advances - provisions Gross NPAs Year Amount (Rs As % of total Crore) advances 1992-93 39253.14 23.18 1993-94 41041.33 24.78 1994-95 38385.18 19.45 1995-96 41660.94 18.01 1996-97 43577.09 17.84 1997-98 45652.64 16.02 1998-99 51710.5 15.89 1999-2000 53294.02 14.02 2000-01 54773.16 12.4 Source: Muniappan G. P. (2002b) Net NPAs Amount (Rs Crore) No Data 19690.74 17566.64 18297.49 20284.73 21232.13 24211.49 26187.6 27968.11

As % of total advances 14.46 10.67 8.9 9.18 8.15 8.13 7.42 6.74

Figures showing the Gross and Net NPAs across different financial years.

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3.3.

CLASSIFICATION of NPAs

Standard Assets Standard assets service their interest and principal instalments on time; although they occasionally default up to a period of 90 days. Standard assets are also called performing assets. They yield regular interest to the banks and return the due principal on time and thereby help the banks earn profit and recycle the repaid part of the loans for further lending. The other three categories (sub-standard assets, doubtful assets and loss assets) are NPAs and are discussed below.

1. Sub-Standard Assets: Sub-standard assets are those assets which have remained NPAs (that is, if any amount of interest or principal instalments remains overdue for more than 90 days) for a period up to 12 months 2. Doubtful Assets: An asset becomes doubtful if it remains a sub-standard asset for a period of 12 months and recovery of bank dues is of doubtful 3. Loss Assets: Loss assets comprise assets where a loss has been identified by the bank or the RBI. These are generally considered uncollectible. Their realizable value is so low that their continuance as bankable assets is not warranted 3.4. Symptoms to identify a NPA The four categories of the early symptoms by which one can recognise a performing asset turning to a non Performing Asset are: 1) Financial a. Non-payment of the very first instalment in case of term loan. b. Bouncing of cheque due to insufficient balance in the accounts. c. Irregularity in instalment. d. Irregularity of operations in the accounts. e. Unpaid over due bills. f. Declining Current Ratio. g. Payment which does not cover the interest and principal amount of that instalment. h. While monitoring the accounts it is found that partial amount is diverted to sister concern or parent company 2) Operational and Physical a. If information is received that the borrower has either initiated the process of winding up or are not doing the business. b. Overdue receivables. c. Stock statement not submitted on time. d. External non-controllable factor like natural calamities in the city where borrower conduct his business. e. Frequent changes in plan. f. Non payment of wages. 3) Attitudinal Changes
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a. b. c. 4) Other a. b. c.

Use for personal comfort, stocks and shares by borrower Avoidance of contact with bank. Problem between partners. Changes in Government policies. Death of borrower. Competition in the market.

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3.5.

PREVENTIVE MEASURES FOR NPAS

1) Early Recognition of problem Invariably, by the time banks start their efforts to get involved in a revival process, its too late to retrieve the situation- both in terms of rehabilitation of the project and recovery of banks dues. Identification of weakness in the very beginning that is : When the account starts showing first signs of weakness regardless of the fact that it may not have become NPA, is imperative. Assessment of the potential of revival may be done on the basis of a techno-economic viability study. Restructuring should be attempted where, after an objective assessment of the promoters intention, banks are convinced of a turnaround within a scheduled timeframe. In respect of totally unviable units as decided by the bank, it is better to facilitate winding up/ selling of the unit earlier, so as to recover whatever is possible through legal means before the security position becomes worse 2) Identifying borrowers with genuine Intent Identifying borrowers with genuine intent from those who are non- serious with no commitment or stake in revival is a challenge confronting bankers. Here the role of frontline officials at the branch level is paramount as they are the ones who have intelligent inputs with regard to promoters sincerity, and capability to achieve turnaround. Based on this objective assessment, banks should decide as quickly as possible whether it would be worthwhile to commit additional finance. In this regard banks may consider having Special Investigation of all financial transaction or business transaction, books of account in order to ascertain real factors that contributed to sickness of the borrower. Banks may have penal of technical experts with proven expertise and track record of preparing techno-economic study of the project of the borrowers. Borrowers having genuine problems due to temporary mismatch in fund flow or sudden requirement of additional fund may be entertained at branch level, and for this purpose a special limit to such type of cases should be decided. This will obviate the need to route the additional funding through the controlling offices in deserving cases, and help avert many accounts slipping into NPA category. 3) Timelines and Adequacy of response Longer the delay in response, greater the injury to the account and the asset. Time is a crucial element in any restructuring or rehabilitation activity. The response decided on the basis of techno-economic study and promoters commitment, has to be adequate in terms of extend of additional funding and relaxations etc. under the restructuring exercise. The package of assistance may be flexible and bank may look at the exit option.
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4) Focus on Cash Flows While financing, at the time of restructuring the banks may not be guided by the conventional fund flow analysis only, which could yield a potentially misleading picture. Appraisal for fresh credit requirements may be done by analyzing funds flow in conjunction with the Cash Flow rather than only on the basis of Funds Flow. 5) Management Effectiveness The general perception among borrower is that it is lack of finance that leads to sickness and NPAs. But this may not be the case all the time. Management effectiveness in tackling adverse business conditions is a very important aspect that affects a borrowing units fortunes. A bank may commit additional finance to an aling unit only after basic viability of the enterprise also in the context of quality of management is examined and confirmed. Where the default is due to deeper malady, viability study or investigative audit should be done it will be useful to have consultant appointed as early as possible to examine this aspect. A proper techno- economic viability study must thus become the basis on which any future action can be considered 6) Multiple financing a. During the exercise for assessment of viability and restructuring, a Pragmatic and unified approach by all the lending banks/ FIs as also sharing of all relevant information on the borrower would go a long way toward overall success of rehabilitation exercise, given the probability of success/failure. b. In some default cases, where the unit is still working, the bank should make sure that it captures the cash flows (there is a tendency on part of the borrowers to switch bankers once they default, for fear of getting their cash flows forfeited), and ensure that such cash flows are used for working capital purposes. Toward this end, there should be regular flow of information among consortium members. A bank, which is not part of the consortium, may not be allowed to offer credit facilities to such defaulting clients. Current account facilities may also be denied at non- consortium banks to such clients and violation may attract penal action. The Credit Information Bureau of India Ltd.(CIBIL) may be very useful for meaningful information exchange on defaulting borrowers once the setup becomes fully operational. c. In a forum of lenders, the priority of each lender will be different. While one set of lenders may be willing to wait for a longer time to recover its dues, another lender may have a much shorter timeframe in mind. So it is possible that the letter categories of lenders may be willing to exit, even a t a cost by a discounted settlement of the exposure. Therefore, any plan for restructuring/rehabilitation may take this aspect into account d. Corporate Debt Restructuring mechanism has been institutionalized
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in 2001 to provide a timely and transparent system for restructuring of the corporate debt of Rs. 20 crore and above with the banks and FIs on a voluntary basis and outside the legal framework. Under this system, banks may greatly benefit in terms of restructuring of large standard accounts (potential NPAs) and viable sub-standard accounts with consortium/multiple banking arrangements.

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3.6. Tools for Recovery of NPAs

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4. ANALYSIS
For the purpose of analysis and comparison between private sector and public sector banks, we take five-five banks in both sectors to compare the non performing assets of banks. For understanding we further divide the non performing assets in priority sector and non priority sector, gross NPA and net NPA in percentage as well as in rupees, deposit investment advances. Deposit Investment Advances is the first in the analysis because due to these we can understand the where the bank stands in the competitive market. As at end of March 2008, in private sector ICICI Bank is the highest depositinvestment-advances figures in rupees crore, second is HDFC Bank and KOTAK Bank has least figures. In public sector banks Punjab National Bank has highest deposit- investmentadvances but when we look at graph first three means Bank of Baroda and Bank of India are almost the similar in numbers and Dena Bank is stands for last in public sector bank.

When we compare the private sector banks with public sector banks among these banks, we can understand the more number of people prefer to choose public sector banks for deposit-investment. But when we compare the private sector bank ICICI Bank with the public sector banks ICICI Bank is more deposit-investment figures and first in the all banks BANK Axis HDFC ICICI KOTAK INDUSIND TOTAL DEPOSIT 87626 100769 244431 16424 19037 468287 INVESTMENT 33705 49394 111454 9142 6630 210325 ADVANCES 59661 63427 225616 15552 12795 377051

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BANK BOB BOI DENA PNB UBI TOTAL

DEPOSIT 152034 150012 33943 166457 103859 606305

INVESTMENT 43870 41803 10282 53992 33823 183770

ADVANCES 106701 113476 23024 119502 74348 437051

There are two concepts related to non-performing assets_ gross and net. Gross refers to all NPAs on a banks balance sheet irrespective of the provisions made. It consists of all the non standard assets, viz.sub standard, doubtful, and loss assets. A loan asset is classified as sub standard if it remains NPA up to a period of 18 months; doubtful if it remains NPA for more than 18 months; and loss, without any waiting period, where the dues are considered not collectible or marginally collectible. Net NPA is gross NPA less provisions. Since in India, bank balance sheets contains a huge amount of NPAs and the process of recovery and write off of loans is very time consuming, the provisions the banks have to make against the NPA according to the central bank guidelines, are quite significant. Here, we can see that there is huge difference between gross and net NPA . While gross NPA reflects the quality of the loans made by banks, net NPA shows the actual burden of banks. The requirements for provisions are: 100% for loss assets 100% of the unsecured portion plus 20-50% of the secured portion, depending on the period for which the account has remained in the doubtful category 10% general provision on the outstanding balance under the sub standard
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category.

Here, there are gross and net NPA data for 2006-07 and 2007-08 we taken for comparison among banks. These data are NPA AS PERCENTAGE OF TOTAL ASSETS.As we discuss earlier that gross NPA reflects the quality of the loans made by banks.Among all the ten banks Dena Banks has highest gross NPA as a percentage of total assets in the year 2006-07 and also net NPA.Punjab National Bank shows vast difference between gross and net NPA.There is almost same figures between BOI and BOB. YEAR 2006-07 BANK BOB BOI DENA PNB UBI GROSS NPA 1.46 1.48 2.37 2.09 1.82 NET NPA 0.35 0.45 1.16 0.45 0.59

BANK AXIS HDFC ICICI KOTAK INDUSIND

GROSS NPA 0.57 0.72 1.2 1.39 1.64

NET NPA 0.36 0.22 0.58 1.09 1.31

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YEAR 200708 BANK BOB BOI DENA PNB UBI GROSS NPA 1.10 1.08 1.48 1.67 1.34 NET NPA 0.27 0.33 0.56 0.38 0.10

BANK AXIS HDFC ICICI KOTAK INDUSIND

GROSS NPA 0.45 0.68 1.90 1.55 1.69

NET NPA 0.23 0.22 0.87 0.98 1.25

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4.1. COMPARISON OF GROSS NPA WITH ALL BANKS FOR THE YEAR 200708 The growing NPAs affect the health of banks, profitability and efficiency. In the long run, it eats up the net worth of the banks. We can say that NPA is not a healthy sign for financial institutions. Here we take all the ten banks gross NPA together for better understanding. Average of these ten banks gross NPAs is 1.29 as percentage of total assets. So if we compare in private sector banks AXIS and HDFC Bank are below average of all banks and in public sector BOB and BOI. Average of these five private sector banks gross NPA is 1.25 and average of public sector banks is 1.33.Which is higher in compare of private sector banks. GROSS NPA

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4.2. COMPARISON OF NET NPA WITH ALL BANKS FOR THE YEAR 2007-08 Average of these ten banks net NPA is 0.56.And in the public sector banks all these five banks are below this. But in private sector banks there are three banks are above average. The difference between private and public banks average is also vast. Private sector banks net NPA average is 0.71 and in public sector banks it is 0.41 as percentage of total assets. As we know that net NPA shows actual burden of banks. IndusInd bank has highest net NPA figure and HDFC Bank has lowest in comparison NET NPA

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5. CONCLUSION
There should be a sound understanding of the macroeconomic variables and systemic issues pertaining to banks and the economy for solving the NPA problem along with the criticality of a strong legal framework and legislative framework. Foreign experiences must be utilized along with a clear understanding of the local conditions to create a tailor made solution which is transparent and fair to all stakeholders.

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