Assignment on Non Performing Assets

in Banking Industry

Submitted To:
Submitted By:
Ms.Arpandeep Kaur
Meghna
15421155
MBA-2
Sec D

SCHOOL OF MANAGEMENT STUDIES, PUNJABI

UNIVERSITY, PATIALA

Introduction:
A Non Performing Asset is a term given to a loan account where
the customer of the bank has defaulted in the payments of
interest and the instalments.
An asset, including a leased asset, becomes non-performing
when it ceases to generate income for the bank.

*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 NPA,
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;
Interest and/or installment 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 the case of bills purchased and discounted,
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 purposes, and
Any amount to be received remains overdue for a period
of more than 90 days in respect of other accounts.

Types of NPAs:
Standard Asset:
The standard asset is the asset which carries the normal
risk attached to the business and it continues for a period
of 90 days. It is also known as performing assets.
Provisioning Norm- 0.40% on standard assets 0.25% on
direct advances to agriculture and SME 1.00% on personal
loans, capital market exposures, residential houses
beyond Rs. 20 lakhs and commercial real estate 40%
Sub-standard Asset:
This asset would be classified as sub-standard if it remains
NPA for less than or equal to 2 years.
Provisioning Norm- 10% on total outstanding irrespective
of security coverage/ guarantee. The unsecured portion
will attract additional provision of 10 percent.
Doubtful Asset:
This asset would be classified as doubtful asset if it
remains NPA for more than 2 years.
Provisioning Norms- 100% shortfall in the securities and
20%/ 30%/ 50%/ 100% depending upon the age of the
asset.
Loss Asset:
These assets are the NPAs which have negligible
realizable value of security and the balance outstanding is

100%. Here the account can be written off by the banks

and these assets are handed over to the recovery agents
for sale.

Factors behind rise in NPA

External Factors:
These are the factors that are not under control of any given
banking institution:
Ineffective recovery tribunal
Wilful Defaults
Natural calamities
Industrial sickness
Change on Govt. policies
Lack of demand

Internal factors:
These are the factors that are in the control of the banking
institution:

Defective lending process

Inappropriate technology
Improper SWOT analysis
Re-loaning process
Absence of regular industrial visit
Poor credit appraisal system
Managerial deficiencies

Effects of NPAs on banks and financial

institutions
1. Drain on profit

2.
3.
4.
5.

Bad effect on goodwill

Bad effect on equity value
Excess focus Credit Risk Management
High cost of funds due to NPAs

NPAs of Public Sector Banks:

(Amount in ` Million)

Banks

As on March 31, 2012

Gross NPAs

Gross
Advances

Gross NPAs to Gross

Advances Ratio (%)

(1)

(2)

(3)

Public Sector Banks

State Bank of India

371560

7578886

4.90

State Bank of Bikaner and Jaipur

16515

499863

3.30

State Bank of Hyderabad

20074

783115

2.56

State Bank of Mysore

15026

406526

3.70

State Bank of Patiala

18878

641418

2.94

State Bank of Travancore

14888

560343

2.66

456940

10470151

4.36

Allahabad Bank

20564

1075272

1.91

Andhra Bank

17980

846840

2.12

Bank of Baroda

38818

2054536

1.89

Bank of India

51697

1779502

2.91

Bank of Maharashtra

12970

569789

2.28

Canara Bank

38901

2224944

1.75

Central Bank of India

72735

1506499

4.83

Corporation Bank

12742

1008253

1.26

9565

571592

1.67

SBI and its Associates

Dena Bank

Indian Bank

16715

863104

1.94

Indian Overseas Bank

35537

1274189

2.79

Oriental Bank of Commerce

35805

1130498

3.17

Punjab and Sind Bank

7634

463686

1.65

Punjab National Bank

86899

2761077

3.15

Syndicate Bank

30507

1109533

2.75

UCO Bank

40197

1078399

3.73

Union Bank of India

54222

1718496

3.16

United Bank of India

21764

638730

3.41

Vijaya Bank

17185

586710

2.93

IDBI Bank Limited

45514

1772092

2.57

Nationalised Banks $

667950

25033740

2.67

Public Sector Banks

1124890

35503890

3.17

Note : 1. Data are provisional.

2. $ Includes IDBI Bank Ltd.
Source : Department of Banking Supervision, RBI.

NPAs for Private Sector Banks:

TABLE B7 : BANK WISE AND BANK GROUP-WISE GROSS NON-PERFORMING ASSETS,
GROSS ADVANCES AND GROSS NPA RATIO OF SCHEDULED COMMERCIAL BANKS 2012 (Contd.)

(Amount in ` Million)

Banks

As on March 31, 2012

Gross NPAs Gross Advances Gross NPAs to Gross

Advances Ratio (%)

(1)

(2)

(3)

Private Sector Banks

Catholic Syrian Bank Ltd

1829

77677

2.36

City Union Bank Limited

1235

122217

1.01

The Dhanalakshmi Bank Ltd

1043

88041

1.18

13008

388113

3.35

Federal Bank Ltd

ING Vysya Bank Ltd

1495

288335

0.52

Jammu & Kashmir Bank Ltd

5166

335447

1.54

Karnataka Bank Ltd

6847

209494

3.27

Karur Vysya Bank Ltd

3210

242051

1.33

Lakshmi Vilas Bank Ltd

3077

103283

2.98

Nainital Bank Ltd

310

19254

1.61

Ratnakar Bank Ltd

331

41570

0.80

South Indian Bank Ltd

2672

274732

0.97

Tamilnad Mercantile Bank Ltd

1775

138964

1.28

Old Private Sector Banks

41999

2329177

1.80

Axis Bank Limited

17202

1459049

1.18

2418

54967

4.40

HDFC Bank Ltd.

18149

1909689

0.95

ICICI Bank Limited

92926

1923338

4.83

Indusind Bank Ltd

3471

353164

0.98

Development Credit Bank Ltd.

Kotak Mahindra Bank Ltd.

6142

394519

1.56

839

380550

0.22

New Private Sector Banks

141147

6475275

2.18

Private Sector Banks

183146

8804453

2.08

Yes Bank Ltd.

Note : 1. Data are provisional.

Source : Department of Banking Supervision, RBI.

NPAs for Foreign banks:

TABLE B7 : BANK WISE AND BANK GROUP-WISE GROSS NON-PERFORMING ASSETS,
GROSS ADVANCES AND GROSS NPA RATIO OF SCHEDULED COMMERCIAL
BANKS - 2012 (Concld.)
(Amount in ` Million)
As on March 31, 2012
Banks
Gross
NPAs

Gross
Advances

Gross NPAs to
Gross Advances
Ratio (%)

(1)

(2)

(3)

Foreign Banks

Ab Bank Limited

Abu Dhabi Commercial Bank Ltd

684

31

2924

1.07

American Express Banking Corp.

234

14800

1.58

Antwerp Diamond Bank Nv

996

9700

10.27

BNP Paribas

275

62075

0.44

61833

0.01

315

6573

4.79

Bank of Ceylon

15

824

1.86

Bank of Nova Scotia

96

66152

0.15

5472

90788

6.03

163

2918

5.58

8464

475257

1.78

Commonwealth Bank of Australia

899

Credit Agricole Corporate and Investment Bank

19196

0.05

Credit Suisse Ag

2500

DBS Bank Ltd.

2147

129815

1.65

Deutsche Bank Ag

1349

126724

1.06

Firstrand Bank Ltd

2416

Bank of America N.t. and S.a.

Bank of Bahrain & Kuwait B.s.c.

Barclays Bank Plc

Chinatrust Commercial Bank

Citibank N.a

Hongkong and Shanghai Banking Corpn.ltd.

7201

360121

2.00

Jpmorgan Chase Bank National Association

269

45562

0.59

JSC VTB Bank

788

Krung Thai Bank Public Company Limited

94

Mashreq Bank Psc

523

63

35879

0.18

Oman International Bank S.a.o.g.

41

Shinhan Bank

9146

12

10576

0.11

195

3.84

32122

583960

5.50

210

8266

2.54

64525

3465

127877

2.71

6312

Mizuho Corporate Bank Ltd

Societe Generale

Sonali Bank

Standard Chartered Bank

State Bank of Mauritius Ltd

The Bank of Tokyo-mitsubishi Ufj Ltd

The Royal Bank of Scotland N.v.

UBS AG

United Overseas Bank Ltd

Sberbank

Rabobank International

3513

National Australia Bank

Industrial and Commercial Bank of China

455

Australia and New Zealand Banking Group Lim

13187

62922

2347096

2.68

1370957 46655438

2.94

Foreign Banks

All Scheduled Commercial Banks

Note : 1. Data are provisional.
Source : Department of Banking Supervision, RBI.

SARFAESI Act 2002:

The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act empower banks and

financial institutions to recover their non performing assets

without the intervention of court.
The act provides for three different methods for recovery of
NPAs and they are:
Securitisation
Asset Reconstruction
Enforcement of Security without intervention of court
The provisions of the act are applicable only for NPA loans
outstanding above Rs. 1 lakh. NPA loan accounts where the
amount is less than 20% of the principal and the interest are
not eligible to be dealt under the act.
If the borrower fails to repay the debt and defaults the banks
can:
a) take possession of the secured assets of the borrower,
including transfer by the way of lease, assignment or sale, for
realizing the secured assets.
b) takeover the management of business of the borrower
including the right of transfer by the way of lease, assignment
or sale for realizing the secured assets.
c) appoint any person to manage the secured assets possession
of which is taken by the secured creditor.
d) require a person, who has acquired any of the secured assets
from the borrower and from whom money is due to the
borrower, to pay the secured creditor so much of the money as
if sufficient to pay the secured debt.

Debt Recovery Tribunal

It is a special court established by the government for the
purpose of recovery by the financial institutions and the banks.
The judges of the court are the retired judges of the high court.
In this court only recovery cases of 10 lakh and above can be
filed.

Sale of NPAs to other banks:

A NPA is eligible for sale to other banks only if it has
remained a NPA for at least two years in the books of
the selling bank
The NPA must be held by the purchasing bank at least
for a period of 15 months before it is sold to other banks
but not to bank, which originally sold the NPA.
The NPA may be classified as standard in the books of
the purchasing bank for a period of 90 days from date
of purchase and thereafter it would depend on the
record of recovery with reference to cash flows
estimated while purchasing
If the sale is conducted below the net book value, the
short fall should be debited to P&L account and if it is
higher, the excess provision will be utilized to meet the
loss on account of sale of other NPA.

References:

http://en.wikipedia.org/wiki/Non-performing_asset

http://rbi.org.in/Scripts/PublicationsView.aspx?Id=14709

http://www.thehindu.com/opinion/columns/Chandrasekhar/how-safe-areindias-banks/article4042975.ece