Project Report on Non Performing Assets and its impact on Profitability

Description
Project Report on Non Performing Assets and its impact on Profitability of New Private Sector Banks, The future of Indian Banking represents a unique mixture of unlimited opportunities amidst insurmountable challenges.

“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”

“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Executive Summery
The future of ndian Banking represents a uni!ue mi"ture of unlimited
opportunities amidst insurmountable challenges# $n the one hand we see the scenario
represented by the rapid process of globali%ation presently taking shape bringing the
community of nations in the world together& transcending geographical boundaries& in the
sphere of trade and commerce& and even employment opportunities of individuals# All
these indicate newly emerging opportunities for ndian Banking# But on the darker side
we see the accumulated morass& brought out by three decades of controlled and
regimented management of the banks in the past# t has siphoned profitability of the many
banks& accumulated bloated NPA and threatens 'apital Ade!uacy of the Banks and their
continued stability#
New Private Sector Banks in ndia can solve their problems only if they assert a
spirit of self(initiative and self(reliance through developing their in(house e"pertise# They
have to imbibe the banking philosophy inherent in de(regulation NPA is a problem
created by the Banks and they have to find the cause and the solution ( how it was created
and how the Banks are to overcome it# An attempt is made in this study the present
situation and to arrive at a solution to solve this problem#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Design of the study
Title of the project:
“Non Performing Assets and its impact on Profitaility of Ne! Private Sector
"an#s$%
Scope of study: Scope of my study restricted only to ) New Private Sector Banks NPA
data*s and Advances& and for 'omparison of 'redit risk path ) old selected Private Banks
is taken#
Need &or Study:
• This study will help to know the recent norms of NPA#
• This study helps to know how NPA 'ausing Problems to Banking Sector and
what might be the solution to overcome from this problem and also its impact on
Profitability of New Profit Banks#
STATE'ENT (& T)E P*("+E'
Profitability is considered as a benchmark for evaluating performance of any
business enterprise including the banking industry# +owever& increasing Non(
Performing Assets& have a direct impact on profitability of banks and financial
institutions# ,egally speaking banks and financial institutions are not allowed to book
income on such account and at the same times they are forced to make provision on such
assets# So This pro-ect is undertaken to now impact of NPA on Profitability of New
Private Sector Banks#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
(jectives of Study
.# To study the /B norms on Non Performing Assets& and the various reasons for
the e"istence of huge level of NPA in ndian banking#
0# To know the performance comparison of New Private Banks Non performing
asset for past 1 years#
1# To know the impact of non performing assets on profitability of New Private
Banks& and comparison of credit risk path of New Private Banks with ) selected
$ld Private Banks#
2# To study the various steps taken by the banks to bring down the NPA*s in
respective bank branches#
3# To recommend measures for mproving performance and reduction of Non
Performing Assets#
'ethodology
Primary Data:
4iews of the concerned officials were gathered by directly interacting with them& and
such data was found very useful while analy%ing and drawing conclusions#
Secondary Data:
• /ecent /B norms of NPA#
• BA Bulletin 5f 0553(56 is referred to collect data for Net NPA& and Advances#
• 7eb site of 8T Bank and other 7eb sites#
Plan of analysis:
n this study !uadrant analysis is used on the calculated figures#
+imitations:
• The study is based mostly on secondary data#
• 9ata has been drawn from -ournals& so information may not be complete#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• r the analysis only the advances and NPA percentages of banks and operating
profit& provisions and contingencies as a whole and net profit of New PSB*s are
taken into consideration#
,NT*(D-.T,(N
t;s a known fact that the banks and financial institutions in ndia face the problem
of swelling non(performing assets <NPA*s= and the issue is becoming more and more
unmanageable# n order to bring the situation under control& some steps have been taken
recently# The Securiti%ation and /econstruction of :inancial Assets and >nforcement of
Security nterest Act& 0550 was passed by Parliament& which is an important step towards
elimination or reduction of NPA*s#
'EAN,N/ (& NPA0s:
An asset is classified as non(performing asset <NPA*s= if dues in the form of
principal and interest are not paid by the borrower for a period of .?5 days# +owever
with effect from @arch 0552& default status would be given to a borrower if dues are not
paid for A5 days# f any advance or credit facilities granted by bank to a borrower become
non(performing& then the bank will have to treat all the advancesBcredit facilities granted
to that borrower as non(performing without having any regard to the fact that there may
still e"ist certain advances B credit facility#
NPA ,N ,ND,AN "AN1,N/ S2STE':
NPA surfaced suddenly in the ndian banking scenario& around the >ighties& in the
midst of turbulent structural changes overtaking the international banking institutions&
and when the global financial markets were undergoing sweeping changes# n fact after it
had emerged the problem of NPA kept hidden and gradually swelling unnoticed and
unperceived& in the ma%e of defective accounting standards that still continued with
ndian Banks up to the Nineties and opa!ue Balance sheets#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
n a dynamic world& it is true that new ideas and new concepts that emerge
through such changes caused by social evolution bring beneficial effects& but only after
levying a heavy initial toll# The process of !uickly integrating new innovations in the
e"isting set(up leads to an immediate disorder and unsettled conditions# People are not
accustomed to the new models# These new formations take time to configure& and work
smoothly# The old is cast away and the new is found difficult to ad-ust# @arginal and sub(
marginal operators are swept away by these convulsions# Banks being sensitive
institutions entrenched deeply in traditional beliefs and conventions were unable to ad-ust
themselves to the changes# They suffered easy victims to this upheaval in the initial
phase#
'onse!uently banks underwent this transition(syndrome and languished under
distress and banking crises surfaced in !uick succession one following the other in many
countries# But when the banking industry in the global sphere came out of this
metamorphosis to re(ad-ust to the new order& they emerged revitali%ed and as more
vibrant and robust units# 9eregulation in developed capitalist countries particularly in
>urope& witnessed a remarkable innovative growth in the banking industry& whether
measured in terms of deposit growth& credit growth& growth intermediation instruments as
well as in network#
9uring all these years the ndian Banking& whose environment was insulated from
the global conte"t and was denominated by State controls of directed credit delivery&
regulated interest rates& and investment structure did not participate in this vibrant
banking revolution# Suffering the dearth of innovative spirit and choking under undue
regimentation& ndian banking was lacking ob-ective and prudential systems of business
leading from early stagnation to eventual degeneration and reduced or negative
profitability# 'ontinued political interference& the absence of competition and total lack of
scientific decision(making& led to conse!uences -ust the opposite of what was happening
in the western countries# mperfect accounting standards and opa!ue balance sheets
served as tools for hiding the shortcomings and failing to reveal the progressive
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
deterioration and structural weakness of the country;s banking institutions to public view#
This enabled the nationali%ed banks to continue to flourish in a deceptive manifestation
and false glitter& though stray symptoms of the brewing ailment were discernable here
and there#
The government hastily introduced the first phase of reforms in the financial and
banking sectors after the economic crisis of .AA.# This was an effort to !uickly resurrect
the health of the banking system and bridge the gap between ndian and global banking
development# ndian Banking& in particular PSB*s suddenly woke up to the realities of the
situation and to face the burden of the surfeit of their woes# Simultaneously ma-or
revolutionary transitions were taking place in other sectors of the economy on account
the ongoing economic reforms intended towards freeing the ndian economy from
government controls and linking it to market driven forces for a !uick integration with
the global economy# mport restrictions were gradually freed# Tariffs were brought down
and !uantitative controls were removed# The ndian market was opened for free
competition to the global players# The new economic policy in turn revolutionalised the
environment of the ndian industry and business and put them to similar problems of new
mi"ture $f opportunities and challenges# As a result we witness today a scenario of
banking& trade and industry in ndia& all undergoing the convulsions of total reformation
battling to kick off the decadence of the past and to gain a new strength and vigor for
effective links with the global economy# @any are still languishing unable to get released
from the old set(up& while a few progressive corporate are making a niche for themselves
in the global conte"t#
9uring this decade the reforms have covered almost every segment of the
financial sector# n particular& it is the banking sector& which e"perienced ma-or reforms#
The reforms have taken the ndian banking sector far away from the days of
nationali%ation# ncrease in the number of banks due to the entry of new private and
foreign banksC increase in the transparency of the banks; balance sheets through the
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
introduction of prudential norms and norms of disclosureC increase in the role of the
market forces due to the deregulated interest rates& together with rapid computeri%ation
and application of the benefits of information technology to banking operations have all
significantly affected the operational environment of the ndian banking sector#
n the background of these comple" changes when the problem of NPA was
belatedly recogni%ed for the first time at its peak velocity during .AA0(A1& there was
resultant chaos and confusion# As the problem in large magnitude erupted suddenly banks
were unable to analy%e and make a realistic or complete assessment of the surmounting
situation# t was not reali%ed that the root of the problem of NPA was centered elsewhere
in multiple layers& as much outside the banking system& more particularly in the transient
economy of the country& as within# Banking is not a compartmentali%ed and isolated
sector delinked from the rest of the economy# As has happened elsewhere in the world& a
distressed national economy shifts a part of its negative results to the banking industry# n
short& banks are made ultimately to finance the losses incurred by constituent industries
and businesses# The unprepared ness and structural weakness of our banking system to
act to the emerging scenario and de(risk itself to the challenges thrown by the new order&
trying to switch over to globali%ation were only aggravating the crisis# Partial perceptions
and hasty -udgments led to a policy of ad(hoc(ism& which characteri%ed the approach of
the authorities during the last two(decades towards finding solutions to banking ailments
and dismantling recovery impediments# 'ontinuous concern was e"pressed# /epeated
correctional efforts were e"ecuted& but positive results were evading# The problem was
defying a solution#
The threat of NPA was being surveyed and summari%ed by /B and Dovernment
of ndia from a remote perception looking at a bird;s(eye(view on the banking industry as
a whole delinked from the rest of the economy# /B looks at the banking industry;s
average on a macro basis& consolidating and tabulating the data submitted by different
institutions# t has collected e"tensive statistics about NPA in different financial sectors
like commercial banks& financial institutions& urban cooperatives& NB:' etc# But still it is
a distant view of one outside the system and not the felt view of a suffering participant#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
ndividual banks inherit different cultures and they finance diverse sectors of the
economy that do not possess identical attributes# There are distinct diversities as among
the 0A public sector banks themselves& between different geographical regions and
between different types of customers using bank credit# There are three weak nationali%ed
banks that have been identified# But there are also correspondingly two better performing
banks like 'orporation and $B'# There are also banks that have successfully contained
NPA and brought it to single digit like Syndicate <Dross NPA )#?)E= and Andhra <Dross
NPA 6#.1E=# The scenario is not so simple to be generali%ed for the industry as a whole
to prescribe a readymade package of a common solution for all banks and for all times#
Similarly NPA concerns of individual Banks summari%ed as a whole and
e"pressed as an average for the entire bank cannot convey a dependable picture# t is
being statistically stated that bank F or G has .0E gross NPA# But if we look down
further within that Bank there are a few pockets possessing bulk segments of NPA
ranging 35E to )5E gross & which should conse!uently convey that there should also be
several other segments with 1 to 3E or even N, E NPA& averaging the bank;s whole
performance to .0E# @uch criticism is made about the obligation of Nationali%ed Banks
to e"tend priority sector advances# But banks have neither fared better in non(priority
sector# The comparative performance under priority and non(priority is only a difference
of degree and not that of kind#
The assessment of the mi"(of contributing factors includesH
.# human factors <those pertaining to the bankers and the credit customers=&
0# environmental imbalances in the economy on account of wholesale changes and
also
1# nherited problems of ndian banking and industry#
4ariable skill& efficiency and level integrity prevailing in different branches and in
different banks accounts for the sweeping disparities between inter(bank and intra(bank
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
performance# 7e may add that while the core or base(level NPA in the industry is due to
common contributory causes& the inter(se variations are on account of the structural and
operational disparities# The heavy concentrated prevalence of NPA is definitely due to
human factors contributing to the same#
No bank appears to have conducted studies involving a cross(section of its operating
field staff& including the audit and inspection functionaries for a candid and
comprehensive introspection based on a survey of the variables of NPA burden under
different categories of sectoral credit& different regions and in individual Branches
categori%ed as with high& medium and low incidence of NPA# 7e do not hear the voice of
the operating personnel in these banks candidly e"pressed and e"plaining their failures#
>"(bankers& i#e# the professional bankers who have retired from service& but possess a
depth of inside knowledge do not out(pour candidly their views# After three decades of
nationali%ed banking& we must have some hundreds of retired Bank e"ecutives in the
country& who can boldly and independently& but ob-ectively voice their views# >veryone is
satisfied in blaming the others# Bank e"ecutives hold ;willful defaulters; responsible for
all the plague# ndustry and business blames the government policies#
mportant fact(revealing information for each NPA account is the gap period
between the date& when the advance was originally made and the date of its becoming
NPA# f the gap is long& it is the case of a sunset industry# Things were all right earlier& but
economic variance in trade cycles or market sentiments have created the NPA# 'redit
customers who are in NPA today& but for years were earlier rated as good performers and
creditworthy clients ranging within the top 35 or .55# Significant part of the NPA is on
account of clout banking or willfully given bad loans# nfant mortality in credit is solely
on account of human factors and absence of human integrity#
'redit to different sectors given by the PSB*s in fact represents different products#
Advance to weaker sections below /s#03555B( represents the actual social banking# NPA
in this sector forms ? T$ .5E of the gross amount# Advance to agriculture& SS and big
industries each calls for different strategies in terms of credit assessment, credit delivery,
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
project implementation, and post advance supervision# NPA in different sector is not
caused by the same resultant factors# 'ontaining !uantum of NPA is therefore to be
programmed by a sector(wise strategy involving a role of the actively engaged
participants who can tell where the boot pinches in each case# Business and industry has
e!ual responsibility to accept accountability for containment of NPA# @any of the present
defaulters were once trusted and valued customers of the banks# 7hy have they become
unreliable now& or have theyI
The credit portfolio of a nationali%ed bank also includes a number of low(risk and
risk(free segments& which cannot create NPA# Small personal loans against banks; own
deposits and other tangible and easily marketable securities pledged to the bank and held
in its custody are of this category# Such small loans are universally given in almost all the
branches and hence the aggregate constitutes a significant figure# Then there is food
credit given to :' for food procurement and similar credits given to ma-or public
8tilities and Public Sector 8ndertakings of the 'entral Dovernment# t is only the
residual fragments of Bank credit that are e"posed to credit failures and reasons for NPA
can be ascertained by scrutini%ing this segment#
Secondly NPA is not a dilemma facing e"clusively the Bankers# t is in fact an all
pervasive national scourge swaying the entire ndian economy# NPA is a sore throat of the
ndian economy as a whole# The banks are only the ultimate victims& where life cycle of
the virus is terminated#
Now& how does the Dovernment sufferI 7hat about the recurring loss of revenue
by way of ta"es& e"cise to the government on account of closure of several lakhs of
erstwhile vibrant industrial units and inefficient usage of costly industrial infrastructure
erected with considerable investment by the nationI As per statistics collected three years
back there are over two and half million small industrial units representing over A5
percent of the total number of industrial units# A ma-ority of the industrial work force
finds employment here and the sector;s contribution to industrial output is substantial and
is estimated at over 13 percent while its share of e"ports is also valued to be around 25
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
percent# $ut of the 0#3 million& about .5E of the small industries are reported to be sick
involving a bank credit outstanding around /s#3555 to 6555 'rores& at that period# t may
be even more now# These closed units represent some thousands of displaced workers
Previously en-oying gainful employment# >ach closed unit whether large& medium or
small occupies costly developed industrial land# Several items of machinery form security
for the NPA accounts should either be lying idle or -unking out# n other words& large
value of land& machinery and money are locked up in industrial sickness# These are the
assets created that have turned unproductive and these represent the real physical NPA&
which indirectly are reflected in the financial statements of nationali%ed banks& as the
ultimate financiers of these assets# n the final analysis it represents instability in industry#
NPA represents the owes of the credit recipients& in turn transferred and parked with the
banks#
/ecogni%ing NPA as a sore throat of the ndian economy& the field level
participants should first address themselves to find the solution# 7hy not representatives
of industries and commerce and that of the ndian Banks; Association come together and
candidly analy%e and find an everlasting solution heralding the real spirit of deregulation
and decentrali%ation of management in banking sector& and accepting self(discipline and
self(relianceI 7hat are the deficiencies in credit delivery that leads to its misuse& abuse or
lossI +ow to check misuse and abuse at sourceI +ow to deal with erring 'orporateI n
short& the functional staff of the Bank along with the representatives of business and
industry has to accept a candid introspection and arrive at a code of discipline in any final
solution# And preventive action to be successful should start from the credit(recipient
level and then e"tend to the bankers# /B and Dovernment of ndia can positively
facilitate the process by providing enabling measures# 9o not try to set right industry and
banks& but help industry and banks to set right themselves# The new tool of deregulated
approach has to be accepted in solving NPA#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
*EAS(NS &(* T)E E3,STEN.E (& )-/E +E4E+ (& NPA0S ,N T)E
,ND,AN "AN1,N/ S2STE' 5,"S6:
The origin of the problem of burgeoning NPA*s lies in the !uality of managing
credit risk by the banks concerned# 7hat is needed is having ade!uate preventive
measures in place namely& fi"ing pre(sanctioning appraisal responsibility and having an
effective post(disbursement supervision# Banks concerned should continuously monitor
loans to identify accounts that have potential to become non(performing#
To start with& performance in terms of profitability is a benchmark for any
business enterprise including the banking industry# +owever& increasing NPA*s have a
direct impact on banks profitability as legally banks are not allowed to book income on
such accounts and at the same time banks are forced to make provision on such assets as
per the /eserve Bank of ndia </B= guidelines#
Also& with increasing deposits made by the public in the banking system& the
banking industry cannot afford defaults by borrowers since NPA*s affects the repayment
capacity of banks#
:urther& /eserve Bank of ndia </B= successfully creates e"cess li!uidity in the
system through various rate cuts and banks fail to utili%e this benefit to its advantage due
to the fear of burgeoning non(performing assets#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Some of the other reasons !ere:
• After the nationali%ation of banks sector wise allocation of credit disbursements
became compulsory#
• Banks were compelled to give credit to even those sectors& which were not
considered to be very profitable& keeping in mind the federal policy#
• People in the agricultural sector were hardly interested in returning the loans as
they were confident that the loans with the interest would be written off by the
successive governments#
• The small scale industries also availed credit even though they were not sure of
performing to the e"tent of returning the loans#
• Banks were also not in the position to press enough securities to cover the loans in
calls of timings#
• >ven if the assets were provided they proved to be substandard assets as the
values that could be reali%ed were very low#
• :ree distribution done during “loan mails” <congress regime= also contributed to
the heavy increase in NPA*s#
• The slackness in effort by the bank authorities to collect or recover loan advances
in time also contributes to the increase in NPA*s#
• ,ack of accountability of the officers& who sanctioned the loans led to a caste
whole approach by the officers recovering the loans#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• ,oans sanctioned to under servicing candidates due to pressure from the
ministers and other politicians also led to the non recovery of debts#
• Poor credit appraisal system& lack of vision while sanctioning credit limits#
• ,ack of proper monitoring#
• /eckless advances to achieve the budgetary targets#
• ,ack of sincere corporate culture& inade!uate legal provisions on foreclosure and
bankruptcy#
• 'hange in economic policiesBenvironment#
• ,ack of co(ordination between banks#
Some of the internal factors of the organi7ation leading to NPA0s are:
• 9ivision of funds for e"pansion& diversification& moderni%ation& undertaking
new pro-ects and for helping associate concerns& this is coupled with
recessionary trends and failure to tap funds in the capital and debt markets#
• Business failure< product& marketing etc#&=&inefficient management& strained
labor relations& inappropriate technology& technical problems& product
obsolescence etc#&
• /ecession & shortage of input& power shortage& price escalation& accidents&
natural calamities& besides e"ternali%ation problem in other countries leading
to non payment of overdue#
• TimeBcost overrun during the pro-ect implementation stage#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• Dovernment policies like changes in the e"cise duties& pollution control
orders#
• 7illful default& siphoning off of funds& fraud& misappropriation&
promotersBdirectors disputes etc#&
• 9eficiencies on the part of the banks like delay in release of limits and delay
in release of paymentsBsubsidies by the government#
(perational definitions:
NPA: An asset is classified as non(performing asset <NPA*s= if dues in the form of
principal and interest are not paid by the borrower for a period of A5 days#
Standard Assets: Such an asset is not a non(performing asset# n other words& it carries
not more than normal risk attached to the business#
Sub-standard Assets: t is classified as non(performing asset for a period not e"ceeding
.? months
Doubtful Assets: Asset that has remained NPA for a period e"ceeding .? months is a
doubtful asset#
Loss Assets: +ere loss is identified by the banks concerned or by internal auditors or by
e"ternal auditors or by /eserve Bank ndia </B= inspection
Cash eserve atio !C": t is the reserve which the banks have to maintain with itself
in the form of cash reserves or by way of current account with the /eserve Bank of ndia
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
</B=& computed as a certain percentage of its demand and time liabilities# The ob-ective
is to ensure the safety and li!uidity of the deposits with the banks#
Statutory Li#uidity atio !SL"H t is the one which every banking company shall
maintain in ndia in the form of cash& gold or unencumbered approved securities& an
amount which shall not& at the close of business on any day be less than such percentage
of the total of its demand and time liabilities in ndia as on the last :riday of the second
preceding fortnight& as the /eserve Bank of ndia </B= may specify from time to time#
*", /-,DE+,NES (N ,N.('E *E.(/N,T,(N 5,NTE*EST ,N.('E (N
NPA0s6
ncome /ecognitionH ncome from Non Performing Assets should not recogni%e on
accrual basis but should be booked as income only when it is actually received# Therefore
interest should not be charged and taken into income account till the account become
standard asset#
? nterest charged to be stopped
? Provision to be made
(ver Due: Any amount due to the Bank under any credit facility is
“$ver due” if it is not paid on the due date fi"ed by the Bank#
(ut of (rder: An account should be treated as “out of order”
? f the outstanding balance remains continuously in e"cess of the sanctioned limitB
drawing power#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
? n cases where the outstanding balance in the principal operating account is less
than the sanctioned limitB drawing power& but there are no credits continuously
for 89 days as on the date of Bank*s Balance Sheet or 7here are credits are not
enough to cover the interest debited during the same period#
A Non Performing Asset shall e an advance !here:
Term +oan: nterest andB or installment of principal remain “over due” for a period of
more than 89 days%
.ash .redit: (ver Draft: f the account remains out of order for a period more than
89 days%
"ills: $verdue for a period of more than A5 days#
(ther accounts: Any amount to be received remains overdue for a period of more than
A5 days#
Short duration crops: f the installment of principal or interest there on remains
overdue for t!o crop seasons%
+ong duration crops: f installment of principal or interest there on remains overdue for
$ne 'rop season#
An account would be classified as NPA only if the interest charged during any
!uarter is not serviced fully within A5 days from the end of the !uarter#
ASSET .+ASS,&,.AT,(N
Standard Assets:
s one which does not disclose any problem and which does not carry more than normal
risks attached to the business#
Sustandard Assets:
7hich has remained NPA for a period of less than or e;ual to <= months%
Doutful Assets:
f it has remained NPA for a period exceeding <= months%
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
+oss Assets:
A loss asset is one where loss has been identified by the bank#
*", /-,DE+,NES (N P*(4,S,(N,N/ *E>-,*E'ENT (& "AN1
AD4AN.ES:
+oss Assets: .55E of the outstanding amount#
Doutful Assets: .55E of unsecured portion#
Secured portion
8p to one year 05E
$ne to three years 15E
@ore than 1 years
.# $utstanding stock of NPA as on
1.#1#0552
0# Advances classified as “doubtful more
than 1 years” on or after 1.#1#0552
)3E w#e#f#1.
st
@arch& 56
.55E w#e#f#1.
st
@arch&5)
.55E w#e#f#1.
st
@arch&53
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Sustandard Assets: Secured portion .5E and unsecured portion 05E on total
outstanding#
Standard Assets: A general provision of 5#25E <r direct Agriculture J S@> Sector
5#03E=# Provisioning for standard assets will be done at corporate office centrally#
.alculation of Net NPA 5Non Performing Asset6
rmulaH
D/$SS NPA
,>SSH Balance in nterest Suspense Account
,>SSH 9'D'B>'D' 'laims received but pending for ad-ustment
,>SSH Part payment received and kept in suspense account
llustrationH <Based on annual reports of 8T bank 0553(56=
Particulars Amount
Dross NPA of 8T for the year 0556 1)20?
,>SSH Balance from interest suspense account .0)52
,>SSH 9'D'B>'D' 'laims received but pending for
ad-ustment
16
,>SSH Part payment received and kept in Suspense ABc 0A0?
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
N>T N$N P>/:$/@ND ASS>TS 0.)65
N>T NPA N P>/'>NTAD> 5#A)E
T)E NA*AS,')AN .('',TTEE?S &,*ST *EP(*T
The salient features of these reforms includeH
• Phasing out of statutory pre(emption ( The S,/ re!uirement have been brought
down from 1?#3E to 03E and '// re!uirement from )#35E to 3#)3E# <Presently
2#3E=
• 9eregulation of interest rates ( All lending rates e"cept for lending to small
borrowers and a part of e"port finance have been de(regulated# nterest on all
deposits are determined by banks e"cept on savings deposits#
• 'apital ade!uacy ( 'A/ of A E prescribed with effect from @arch 1.& 0555#
• $ther prudential norms ( ncome recognition& asset classification and provisioning
norms has been made applicable# The provisioning norms are more prudent&
ob-ective& transparent& and uniform and designed to avoid sub-ectivity#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• 9ebt /ecovery Tribunals ( 00 9/Ts and 3 9/ATs have already been set up and )
more 9/Ts will be set up during the current financial year# 'omprehensive
amendment in the Act have been made to make the provisions for ad-udication&
enforcement and recovery more effective#
• Transparency in financial statements ( Banks have been advised to disclose
certain key parameters such as 'A/& percentage of NPA*s& provisions for NPA*s&
net value of investment& /eturn on Assets& profit per employee and interest
income as percentage to working funds#
• >ntry of new private sector banks ( A new private sector banks have been set up
with a view to induce greater competition and for improving operational
efficiency of the banking system# 'ompetition has been introduced in a controlled
manner and today we have nine new private sector banks and 16 foreign banks in
ndia competing with the public sector banks both in retail and corporate banking
• :unctional autonomy ( The minimum prescribed Dovernment e!uity was brought
to 3.E# Nine nationali%ed banks raised /s#0?33 crores from the market during
.AA2(055.# Banks Boards have been given more powers in operational matters
such as rationali%ation of branches& credit delivery and recruitment of staff#
• +iving off of regulatory and supervisory control ( Board for financial supervision
was set up under the /B in .AA2 bifurcating the regulatory and supervisory
functions#
NA*AS,')AN .('',TTEE@ SE.(ND *EP(*T
The Narasimhan 'ommittee on Banking /eforms& in its second report& has
combined drastic surgery with a strong dose of medicine to cure the ailing industry# $n(
performing assets <NPA*s= have been the bane of the industry# The panel has identified
poor credit decisions by managements& cyclical changes in the economic environment&
directed credit and crude forms of behest(lending as the factors responsible for poor asset
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
!uality# The panel points a finger at priority sector credit as having a high contamination
coefficient and suggests that !uantitative targets have caused erosion of asset !uality# t
laments the fact that infusion of recapitali%ation funds notwithstanding& NPA*s remain
uncomfortably high# Get it recommends that advances covered by government guarantees
that have turned sticky should also be reckoned as net NPA*s#
The Narasimhan 'ommittee;s solution for NPA*s is the creation of an Asset
/econstruction :und <A/:=& which will take over the bad debts of banks from their
balance sheets to enable them to start on a clean slate# /ecapitali%ation through budgetary
infusion& the panel correctly points out& is not a sustainable option# But bankers are
skeptical about the workability of the A/:# A senior banker asked& KAt what price will the
A/: take over my NPA*sI +ow will the discount be worked outIK +e said that the A/:
cannot bail out banks under the present legal system# Although every bad debt is secured&
banks cannot encash the security because of legal hurdles# The 8rban ,and 'eiling Act is
a ma-or deterrent to debt recovery# Bankers say that the legal system has to be revamped
to facilitate recovery so that the A/: can pick up KNPA*s at a viable priceK#
The committee has recommended that net NPA*s be brought down to less than 3
per cent by the year 0555 and 1 per cent by the year 0550# K>asier said than done&K says a
top banker# KAlready we do a lot of window(dressing# $utstanding accounts are shown as
priority lending to meet targets# 7e keep lending to defaulters to roll over the NPA*s#
:i"ing unrealistic targets will be counterproductive#K
The committee has recommended that banks should not lend to defaulters& but
bankers say that this is unrealistic# They claim that in the absence of fresh loans& the
defaulting companies will close down& and leading to loss of -obs# K7ill that be
acceptableIK asks a banker# Bankers also complain that they are forced by the Board for
ndustrial and :inancial /econstruction <B:/= to lend to sick companies& yet more often
than not there is no turnaround and the accounts turn bad#
.redit *is# and NPA0s:
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Luite often credit risk management <'/@= is confused with managing non(
performing assets <NPA*s=# +owever there is an appreciable difference between the two#
NPA*s are a result of past action whose effects are reali%ed in the present i#e# they
represent credit risk that has already materiali%ed and default has already taken place#
$n the other hand managing credit risk is a much more forward(looking approach
and is mainly concerned with managing the !uality of credit portfolio before default takes
place# n other words& an attempt is made to avoid possible default by properly managing
credit risk# 'onsidering the current global recession and unreliable information in
financial statements& there is high credit risk in the banking and lending business# To
create a defense against such uncertainty& bankers are e"pected to develop an effective
internal credit risk models for the purpose of credit risk management#
-sage of financial statements in assessing the ris# of default for lenders:
r banks and financial institutions& both the balance sheet and income statement
have a key role to play by providing valuable information on a borrower*s viability#
+owever& the approach of scrutini%ing financial statements is a backward looking
approach# This is becauseC the focus of accounting is on past performance and current
positions#
The key accounting ratios generally used for the purpose of ascertaining the
creditworthiness of a business entity are that of debt(e!uity ratio and interest coverage
ratio# +ighly rated companies generally have low leverage# This is becauseC high leverage
is followed by high fi"ed interest charges& non(payment of which results into a default#
.apital Ade;uacy *atio 5.A*6 of *", and "asel committee on an#ing supervision
5"."S6:
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
/eserve Bank of ndia </B= has issued capital ade!uacy norms for the ndian
banks# The minimum 'A/ which the ndian Banks are re!uired to meet at all times is set
at AE# t should be taken into consideration that the bank;s capital refers to the ability of
bank to withstand losses due to risk e"posures#
To be more precise& capital charge is a sort of regulatory cost of keeping loans
<perceived as risky= on the balance sheet of banks# The !uality of assets of the bank and
its capital are often closely related# Luality of assets is reflected in the !uantum of NPA*s#
By this& it implies that if the asset !uality was poor& then higher would be the !uantum of
non(performing assets and vice(versa#
@arket risk is the risk arising due to the fluctuations in value of a portfolio due to
the volatility of market prices#
$perational risk refers to losses arising due to comple" system and processes# t is
important for a bank to have a good capital base to withstand unforeseen losses# t
indicates the capability of a bank to sustain losses arising out of risky assets#
The Basel 'ommittee on Banking Supervision <B'BS= has also laid down certain
minimum risk based capital standards that apply to all internationally active commercial
banks# That is& bank;s capital should at least be ?E of their risk(weighted assets# This
infact helps bank to provide protection to the depositors and the creditors#
The main ob-ective here is to build a sort of support system to take care of
une"pected financial losses thereby ensuring healthy financial markets and protecting
depositors#
$%PAC& '( )*C)SS L$+,$D$&-:
$ne should also not forget that the banks are faced with the problem of increasing
li!uidity in the system# :urther& /eserve Bank of ndia </B= is increasing the li!uidity in
the system through various rate cuts# Banks can get rid of its e"cess li!uidity by
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
increasing its lending but& often shy away from such an option due to the high risk of
default# n order to promote certain prudential norms for healthy banking practices& most
of the developed economies re!uire all banks to maintain minimum li!uid and cash
reserves broadly classified into 'ash /eserve /atio <'//= and the Statutory ,i!uidity
/atio <S,/=#
'ash /eserve /atio <'//= is the reserve which the banks have to maintain with
itself in the form of cash reserves or by way of current account with the /eserve Bank of
ndia </B=& computed as a certain percentage of its demand and time liabilities# The
ob-ective is to ensure the safety and li!uidity of the deposits with the banks#
$n the other hand& Statutory ,i!uidity /atio <S,/= is the one which every
banking company shall maintain in ndia in the form of cash& gold or unencumbered
approved securities& an amount which shall not& at the close of business on any day be
less than such percentage of the total of its demand and time liabilities in ndia as on the
last :riday of the second preceding fortnight& as the /eserve Bank of ndia </B= may
specify from time to time#
A rate cut <for instance& decrease in '//= results into lesser funds to be locked up
in /B;s vaults and further infuses greater funds into a system# +owever& almost all the
banks are facing the problem of bad loans& burgeoning non(performing assets& thinning
margins& etc# as a result of which& banks are little reluctant in granting loans to corporates#
As such& though in its monetary policy /B announces rate cut but& such news are
no longer warmly greeted by the bankers#
),/) .(ST (& &-NDS D-E T( NPA0s:
Luite often genuine borrowers face the difficulties in raising funds from banks
due to mounting NPA*s# >ither the bank is reluctant in providing the re!uisite funds to the
genuine borrowers or if the funds are provided& they come at a very high cost to
compensate the lender*s losses caused due to high level of NPA*s#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Therefore& !uite often corporate prefer to raise funds through commercial papers
<'Ps= where the interest rate on working capital charged by banks is higher#
7ith the enactment of the Securiti%ation and /econstruction of :inancial Assets
and >nforcement of Security nterest Act& 0550& banks can issue notices to the defaulters
to pay up the dues and the borrowers will have to clear their dues within 65 days# $nce
the borrower receives a notice from the concerned bank and the financial institution& the
secured assets mentioned in the notice cannot be sold or transferred without the consent
of the lenders#
The main purpose of this notice is to inform the borrower that either the sum due
to the bank or financial institution be paid by the borrower or else the former will take
action by way of taking over the possession of assets# Besides assets& banks can also
takeover the management of the company# Thus the bankers under the aforementioned
Act will have the much needed authority to either sell the assets of the defaulting
companies or change their management#
But the protection under the said Act only provides a partial solution# 7hat banks
should ensure is that they should move with speed and charged with momentum in
disposing off the assets# This is because as uncertainty increases with the passage of time&
there is all possibility that the recoverable value of asset also reduces and it cannot fetch
good price# f faced with such a situation than the very purpose of getting protection
under the Securiti%ation Act& 0550 would be defeated and the hope of seeing a must have
growing banking sector can easily vanish#
Non Performing Assets of Ne! Private Sector "an#s@Sector !ise 5=99A data6
.enturion "an# of Panja +td
Sector Amount5 in .rore6 Percentage to total
Agriculture .5#6? 1#1A
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Small Scale ndustries ..#01 1#3)
$thers ?#AA 0#?3
)D&. "an# +td
Sector Amount5 in .rore6 Percentage to total
Agriculture 00#?3 1#A0
Small Scale ndustries .A#.3 1#0?
$thers .)2#06 0A#??
,.,., "an# +td%
Sector Amount5 in .rore6 Percentage to total
Agriculture 23#63 0#53
Small Scale ndustries 13#3? .#65
$thers .1#56 5#3A
,ndusind "an# +td
Sector Amount5 in .rore6 Percentage to total
Agriculture ..5#1) 2.#56
Small Scale ndustries .0#A0 2#?.
$thers 02#?5 A#01
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
1ota# 'ahindra "an# +td
Sector Amount5 in .rore6 Percentage to total
Agriculture 1#06 ?#.)
Small Scale ndustries ( (
$thers .3#16 1?#2A
-T, "an# +td
Sector Amount5 in .rore6 Percentage to total
Agriculture 36#). .3#.)
Small Scale ndustries .1#?2 1#)5
$thers 5#15 5#5?
*E.(4E*2 'EAS-*ES:
s
Broadly speaking& recovery measures could be classified into two categories&
namely& legal measures and non(legal measures#
+egal 'easures
<% Det *ecovery Triunals5D*T6
n the conte"t of recovery from NPAs 9/T are assuming great importance since
efforts are on to set up J more 9/T during this year and also to strengthen them#
Though the recovery through 9/T is at present less than two per cent of the claim
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
amount& banks and :ls have to depend heavily on them# >fforts are on to amend the
recovery act to assign more powers to 9/Ts# @ore importantly& the borrowers tendency
to challenge the verdict of the Appellate Tribunals in the +igh court to seek natural(
-ustice needs to be checked& $therwise& early recovery efforts through 9/Ts would be
futile# Secondly& training of presiding officers of Tribunals about the intricacies of
banking practices is very essential# :urther& the numbers of recovery officers have to be
enhanced in every 9/T for effective recovery# :inally& banks and :ls have to come
forward to provide liberal help to 9/Ts to e!uip them in terms of infrastructure&
manpower& etc#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
=% National .ompany +a! Triunal :
As per the announcement made in the Budget(055.(50& Sick ndustrial 'ompany
Act will be repealed and Board for ndustrial :inance and /econstruction will be wound(
up# As an alternative arrangement& it is proposed to set up N',T by amending the
'ompanies Act .A36# n August 055.& the N',T is e"pected to consolidate the powers
of B:/& +igh court and 'ompany ,aw Board to avoid multiplicity of forums# n
matters of rehabilitation of sick units& all concerned parties are supposed to abide by the
orders of N',T# There shall be .5 benches& which will deal with rehabilitation&
reconstruction and winding(up of companies# t is estimated to complete the entire
process during a period of 0(1 years as against 05(0) years presently taken# The Tribunal
will have& in addition& powers of contempt of court#
A rehabilitation and revival fund will be constituted to make interim payment of
dues to workers of a company declared sick or is under li!uidation& protection of assets of
sick company and rehabilitate sick companies# 7hile N',T will be acting on the lines of
B:/ in the matters of rehabilitation viability of the pro-ects will be assessed on cash test
and not in the present test of net(time limit for completing each formality relating to
rehabilitation and winding(up# Though the Bill is well drafted to ensure N',T to become
time wise& and more effective than B:/ in respect of rehabilitation and winding(up&
doubts are raised about the implementation of the Bill taking into account the present
political economy# n any case& it is too early to comment#
B% .orporate Det *estructuring "ody
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
A need was felt to special agency to facilitate debt restructuring because there has
been some hesitancy on the part of Bank and financial institution to implement /B
guidelines on debt restructuring recently three(tire body& '9/ has been set up to
coordinate corporate debt Mrestructuring program# t is yet to be operationali%ed '9/
consist of rum Droup and cell# 7hile the forum evolves broad policy guidelines& the
group takes decisions on the proposals pecommended by the 'ell# nitially& the borrower
approaches his ,ead bankB: with a re!uest to restructure debt which in turn puts up the
proposal to the 'ell# The '9/ 'overs only multiple banking accounts en-oying credit
facilities e"ceeding /s#05crore# 'ases of 9/T& B:/ and willful defaults& doubtful and
loss accounts and suit(filed cased are outside the purview of the '9/# Thus standard and
sub(standard accounts are only eligible to seek '9/ shelter# 9ecisions of the group are
based on the super ma-ority principle# f )3 percent of the secured creditors agree to the
rehabilitation plan& it is binding on the other banksB:is#
The '9/ is a voluntary system based on debtor( creditor agreement and inter(
creditors agreement# No bankerBborrower can take recourse to any legal action during the
stand(still period of A5(.?5 days# ,astly& '9/ will observe the /B Duideline on 9ebt
/estructuring issued in @arch 0556# 7hile the arrangements under '9/ seem to be
feasible from the debt restructuring perspective& its success depends upon the cooperation
e"tended by borrowers and bankers& on the one hand& and understanding among banks
and :is& on the other# 9oubts are raised about the implementation of these agreements
taking into the present working of the loan consortium arrangements#
C% Asset *econstruction .orporation%
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
t is proposed to set up A/'s in the private sector to take over NPAs in the public
sector banks# The /B will be the regulator of these AT's# The A/' will buy NPAs of
the banks and financial institutions at the pre(determined discounted value and issue NPA
redemption bonds& which carry a fi"ed return# A/'s are e"pected to be managed by
professionals to effect ma"imum recovery of NPA& which will help in redemption of
bonds after some time# The :inance @inistry has finali%ed the draft Bill to set up A/'s#
Though the proposed scheme seems to be attractive& its success will depend upon the
efficiency of 9/Ts and courts# :urther& if A/' is going to depend on the staff deputed by
weak banks& its recovery chances are doubtful#
3# .ompany 'ergers%
8nder the 'ompanies Act& .A36& mergers are permitted# n .A))& Sec )0(A was
inserted in the ncome Ta" Act to offer ta" incentives to healthy companies which take
over the sick companies and prepare revival plans# /esponse to this scheme formalities
as per the instructions of the +igh 'ourt and ncome Ta" 9epartment# Ta" incentives are
found to be inade!uate to motivate healthy companies to come forward and take
advantage of the scheme# /ecovery of bank dues on company(mergers is not assured
since hardly )#? per cent of sick companies are successfully revived# >ncouraged by the
success achieved in company mergers in developed countries& a review of the scheme
under section )0(A of T Act is called for#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
N(N +E/A+ 'EAS-*ES
<% *eminder System
The cheapest mode of recovery is by sending reminders to the borrowers before
the loan installment falls due# Denerally& response to this arrangement particularly from
honest borrowers is encouraging# But efforts need to be strengthened in banks in
sending reminders on timely basis#
=% 4isit to "orro!er0s "usiness Premise:*esidence
This is a more dependable measure of recovery# 4isits need to be properly
planned# nvolvement of staff at all levels in the bank branch is called for# 'osts
involved in recovery need to be kept to the minimum# :re!uent visits are called for in
case of hardcore borrowers# $ver the years& it is observed that the number and !uality of
visits are going down# 'onse!uently& the recovery process is affected#
B% *ecovery .amps
n respect of agricultural advances& recovery camps should be organi%ed during
the harvest season# To ensure ma"imum advantage& recovery camps need to be properly
planned# t is also essential to take the help of outsiders& particularly& revenue officers in
the state government& local panchayat officials& regional approach to give a wide
publicity of the recovery camps to be organi%ed in the local area& mobili%e as many
farmers as possible and motivate the staff to get involved in the recovery drive#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
C% *ephrasing -npaid +oan ,nstallments
n respect of small advances& bankers need to be system pathetic in respect of
sincere and hardworking borrowers# f such borrowers fail to pay loan installments due
to natural calamities or for some other convincing reasons& unpaid loan installments may
be replasedBrescheduled# Bankers efforts need to be strengthened in the regard#
D% *ehailitation of Sic# -nits
Sick units both in SS and non SS sectors should be identified on timely basis
keeping in mind the official definitions# 'auses of sickness should be genuine# f the
pro-ect is found viable in terms of 9ebt Service 'overage /atio <9S'/=& rehabilitation
package has to be prepared keeping in mind the broad parameters suggested by the /B#
The package should be implemented at the earliest by the bank and the borrower# 'lose
monitoring of the progress of implementation is called for# There are several success
stories on rehabilitation of sick units# But in general& it is observed that the success rate
in revival of sickness is discouraging# :urther& in the process of financial sector reforms&
banks and :is are hesitant to rehabilitate due to the threat of failure in rehabilitation#
/ecently& the /B has permitted banks not to make provision for sick SS units during the
first year of implementation# New guidelines on rehabilitation of sick SS units will also
be issued soon by the /B# r successful rehabilitation& it is essential to create a
sense of urgency on the part of both banks and borrowers# >fforts on the part of the
government in terms of concessions& relief*s etc# Should be made on timely basis#
8nderstanding between bank and S:'s should be strengthened# Above all& stern action
against willful defaulters is called for#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
A% +oan .ompromise
This is the last resort of recovery# This should be voluntary# t calls for a
professional approach in preparing the compromise proposal for which each bank is
e"pected to introduce a scheme# 'ommittee approach should be adopted to decide on the
loan compromise# 9elays in taking decisions should be avoided# /ecently& one Time
Settlement <$TS= scheme was introduced by the /B# The overall response to the
scheme was limited# +ence& each bank is e"pected to come out with its own $TS
scheme# n addition& training of operating staff is essential to change their mindset# r
effective recovery& loan compromise should be taken up on priority basis#
)# Appointment of Professional Agencies for *ecovery
/ecently& BA has worked out certain guidelines for banks on matters concerning
the appointment of outside professional agencies whose services can be utili%ed to
ascertain the whereabouts of the borrowers and enforcement of securities# There is some
hesitancy on the part of public sector banks in engaging them for recovery purposes due
to unpleasant e"periences in certain cases# But during the post M 4/S scenario& it is
suggested to seek such outsourcing# This should be done after e"amining the credentials
of the professionals# t is also essential to keep a constant vigil on their practice#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”

“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
-nit Trust of ,ndia "an#
8T Bank was the first of the new private banks to have begun operations in
.AA2& after the Dovernment of ndia allowed new private banks to be established# The
Bank was promoted -ointly by the Administrator of the specified undertaking of the& 8nit
Trust of ndia#
• ,ife nsurance 'orporation of ndia <,'=
• Deneral nsurance 'orporation ,td#
• $ther four PS8 companies& i#e#
? National nsurance 'ompany ,td#&
? The New ndia Assurance 'ompany&
? The $riental nsurance 'orporation and 8nited nsurance 'ompany ,td#
The Bank today is capitali%ed to the e"tent of /s# 0?5#3. 'rores with the public
holding <other than promoters= at )0#26 E#
The "an#?s *egistered (ffice is at Ahmedaad and its 'entral $ffice is located at
'umai# Presently the Bank has a very wide network of more than 26A branch offices
and >"tension 'ounters# The Bank has a network of over 05.6 AT@s providing 02hrs a
day banking convenience to its customers# This is one of the largest AT@ networks in the
country#
The Bank has strengths in both retail and corporate banking and is committed to
adopting the best industry practices internationally in order to achieve e"cellence#
'ission of -T, "an#:
• 'ustomer Service and Product nnovation tuned to diverse needs of individual
and corporate clientele#
• 'ontinuous technology upgradation while maintaining human values#
• Progressive globali%ation and achieving international standards#
• >fficiency and effectiveness built on ethical practices#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.ore 4alues
• 'ustomer Satisfaction through
((Providing !uality service effectively and efficiently
((Smile& it enhances your face valueK is a service !uality stressed on
((Periodic 'ustomer Service Audits
• @a"imi%ation of Stakeholder value
• Success through Teamwork& ntegrity and People
Promoters:
8T Bank ,td# has been promoted by the largest and the best :inancial nstitution of the
country& 8T# The Bank was set up with a capital of /s# ..3 crore& with
• 8T contributing /s# .55 crore&
• ,' ( /s# )#3 crore and
• D' and its four subsidiaries contributing /s# .#3 crore each#
"oard of Directors H
The Bank has <= members on the Board# Dr% P% E% Naya# is the .hairman and
'anaging Director of the "an##
The members of the Board are H
Dr% P% E% Naya# 'hairman J @anaging 9irector
Shri Surendra Singh 9irector
Shri N%.% Singhal 9irector
Shri A%T% Pannir Selvam 9irector
Shri E%*% 4arma 9irector
Dr% *% )% Patil 9irector
Smt% *ama "ijapur#ar 9irector
Shri * " + 4aish
9irector
Shri S% .hatterjee >"ecutive 9irector <7hole Time 9irector=
Shri S " 'athur 9irector
Shri ' 4 Suiah 9irector
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Shri *amesh *amanathan 9irector
)istory of -T, "an#
<88B( The Bank was incorporated on 1rd 9ecember and 'ertificate of business on.2th
9ecember# The Bank transacts banking business of all description# 8T Bank ,td# was
promoted by 8nit Trust of ndia& ,ife nsurance 'orporation of ndia& Deneral nsurance
'orporation of ndia and its four subsidiaries#
( The bank was the first private sector bank to get a license under the new guidelines
issued by the /B
<88C M :irst branch of 8T Bank inaugurated at Ahmedabad by 9r# @anmohan Singh&
+on;ble :inance @inister& Dovernment of ndia#
<88D M 'ompletes first profitable year in operation
<88A M 'rosses /s#.555 crore deposit mark
<88F M The Bank obtained license to act as 9epository Participant with NS9, and
applied for registration with S>B to act as NTrustee to 9ebenture +olders;#
( /upees .55 crores was contributed by 8T& the rest from ,' /s )#3 crores&
D' and its four subsidiaries /s .#3 crores each#
<88G M The Bank has 0? branches in urban and semi urban areas as on 1.st Ouly# All
the branches are fully computerised and networked through 4SAT# AT@
services are available in 0) branches#
( The Bank came out with a public issue of .&35&55&555 No# of e!uity shares of
/s .5 each at a premium of /s .. per share aggregating to /s 1.#35 crores and
$ffer for sale of 0&55&55&555 No# of e!uity shares for cash at a price of /s 0.
per share# $ut of the public issue 0&05&555 shares were reserved for allotment
on preferencial basis to employees of 8T Bank# Balance of 1&2)&?5&555
shares were offered to the public#
( The company offers AT@ cards& using which account(holders can withdraw
money from any of the bank;s AT@s across the country which are inter(
connected by 4SAT#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
( 8T Bank has launched a new retail product with operational fle"ibility for its
customers#
( 8T Bank will sign a co(brand agreement with the market& leader& 'itibank NA
for entering into the highly promising credit card business#
( 8T Bank promoted by ndia;s pioneer mutual fund 8nit Trust of ndia along
with ,'& D' and its four subsidiaries#
<888 ( 8T Bank and 'itibank have launched an international co(branded credit card#
( 8T Bank and 'itibank have come together to launch an international co
branded credit card under the @aster'ard umbrella#
( 8T Bank ,td has inaugurated an off site AT@ at Ashok Nagar here& taking the
total number of its off site AT@s to .1#m
=999 (The Bank has announced the launch of Tele(9epository Services for its
depository clients#
( 8T Bank has launch of Ni'onnect;& its nternet banking Product#
(8T Bank has signed a memorandum of understanding with e!uitymaster#com
for e(broking activities of the site#
( nfinity#com financial Securities ,td#& an e(broking outfit is typing up with 8T
Bank for a banking interface#
( Deo-it Securities ,td& the first company to start online trading services& has
signed a @o8 with 8T Bank to enable investors to buyPsell demat stocks
through the company;s website#
( ndiabulls has signed a memorandum of understanding with 8T Bank#
( 8T Bank has entered into an agreement with Stock +olding 'orporation of
ndia for providing loans against shares to S'+',;s customers and funding
investors in public and rights issues#
( 8T Bank has tied up with ,JT Trade#com for providing customi%ed online
trading solution for brokers#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
=99< ( 8T Bank launched a private placement of non(convertible debentures to rise up
to /s )3 crore# ( 8T Bank has opened two offsite AT@s and one e"tension
counter with an AT@ in @angalore& taking its total number of AT@s across the
country to 133#
( 8T Bank has recorded a 60 per cent rise in net profit for the !uarter ended
September 15& 055.& at /s 15#A3 crore# r the second !uarter ended September
15& 0555& the net profit was /s .A#5? crore# The total income of the bank during
the !uarter was up 31 per cent at /s 166#03 crore#
=99= ( 8T Bank ,td has informed BS> that Shri B / Barwale has resigned as a
9irector of the Bank w#e#f# Oanuary 50& 0550# A ' Shah& former chairman of
Bank of Baroda& also retired from the bank;s board in the third !uarter of last
year# +is place continues to be vacant# @ 9amodaran took over as the director
of the board after taking in the reins of 8T# B S Pandit has also -oined the
bank;s board subse!uent to the retirement of Q D 4assal#
( 8T Bank ,td has informed that Shri Paul :letcher has been appointed as an
Additional 9irector Nominee of '9' :inancial Service <@auritius= ,td of the
Bank#And Shri 9onald Peck has been appointed as an Additional 9irector
<nominee of South Asia /egional :und= of the Bank#
( 8T Bank ,td has informed that on laying down the office of 'hairman of ,'
on being appointed as 'hairman of S>B& Shri D N Ba-pai& Nominee 9irector of
,' has resigned as a 9irector of the Bank#
=99= ( B Paran-pe J Abid +ussain cease to be the 9irectors of 8T Bank#
( 8T Bank ,td has informed that in the meeting of the Board of 9irectors
following decisions were takenH @r Gash @aha-an& 4ice 'hairman and
@anaging 9irector of Pun-ab Tractors ,td was appointed as an Additional
9irector with immediate effect# @r N ' Singhal former 4ice 'hairman and
@anaging 9irector of S'' was appointed as an Additional 9irector with
immediate effect#

“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
( 8T Bank ,td has informed BS> that a meeting of the Board of 9irectors of the
Bank is scheduled to be held on $ctober 02& 0550 to consider and take on record
the unaudited half yearlyB!uarterly financial results of the Bank for the half
yearBLuarter ended September 15& 0550#
(8T Bank ,td has informed that Shri O @ Trivedi has been appointed as an
alternate director to Shri 9onald Peck with effect from November 0& 0550#
=99B (8T Bank ,td has informed BS> that at the meeting of the Board of 9irectors of
the company held on Oanuary .6& 0551& Shri / N Bharadwa-& @anaging 9irector
of ,' has been appointed as an Additional 9irector of the Bank with immediate
effect#
( 8T Bank& the private sector bank has opeaned a branch at Nellore# The bank;s
'hairman and @anaging 9irector& 9r P#O# Nayak& inaugurating the bank branch
at DT /oad on @ay 06# Speaking on the occasion& 9r Nayak said& KThis marks
another step towards the e"tensive customer banking focus that we are providing
across the country and reinforces our commitment to bring superior banking
services& marked by convenience and closeness to customers#
(8T has been authorised to launch .6 AT@s on the 7estern /ailway Stations of
@umbai 9ivision#
(8T filed suit against financial institutions :' ,td in the debt recovery tribunal
at @umbai to recover /s#?3cr in dues#
(8T bank made an entry to the od 'redit Programme& it has made an entry
into the 3A cluster which includes private sector& public sector& old private sector
and co(operative banks#
( Shri A-eet Prasad& Nminee of 8T has resigned as the director of the bank#
( Banks 'hairman and @9 9r#P#O#Nayak inaugurated a new branch at Nellore#
(8T bank allots shares under >mployee Stock $ption Scheme to its employees#
(8T Bank ties up with 8Q govt fund for contract farming
(Shri B S Pandit& nominee of the Administrator of the Specified 8ndertaking of the
8nit Trust of ndia <8T(= has resigned as a director from the Bank w#e#f
November .0& 0551#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
=99C ('omes out with /s# 355 mn 8nsecured /edeemable Non('onvertible 9ebenture
ssue& issue fully subscribed
(8T Bank ,td has informed that Shri A-eet Prasad& Nominee of the
Administrator of the Specified 8ndertaking of the 8nit Trust of ndia <8T ( =
has been appointed as an Additional 9irector of the Bank w#e#f# Oanuary 05&
0552#
(8T Bank opens new branch in 8dupi
(8T Bank ties up with Shriram Droup 'o*s
(8nveils premium payment facility through AT@s applicable to ,' J 8T Bank
customers
(@etal-unction <@O=( the online trading and procurement -oint venture of Tata
Steel and Steel Authority of ndia <SA,=( has roped in 8T Bank to start off
own e!uipment for Tata Steel#
(9>B$,9 Systems Private ,td& a wholly owned subsidiary of 9iebold
ncorporated& has secured a ma-or contract for the supply of AT@s and services
to 8T Bank
(+SB' completes ac!uisition of .2#6E stake in 8T Bank for R6)#6 m
(8T Bank installs AT@ in Thiruvananthapuram
(,aunches N/emittance 'ard; in association with /emit0ndia& a 7eb site offering
money(transfer services
=99D: 8T Bank appointed by Dovernment of Qarnataka as the sole banker for the
Bangalore $ne <B.= pro-ect#
@ 8T Bank launches a powerful version of Qisan 'redit 'ard#
@ 8T Bank gets listed on the ,ondon Stock >"change& raises 8SR 01A#15 million
through Dlobal 9epositary /eceipts <D9/s=#
@ 8T Bank and Ba-a- Allian% -oin hands to distribute general insurance products#
@ 8T Bank and 4isa nternational launch @obile /efill facility ( Anytime&
Anywhere Pre(Paid @obile /efill for all 4isa 'ardholders in ndia#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
@ 8T Bank wins nternational :inancing /eview <:/= Asia Sndia Bond +ouse*
award for the year 0553#
( 8T Bank e"tends banking services to the rural milk producers in Anand and
Qheda districts in Du-arat#
=99A: 8T Bank and 8T @utual :und to launch a new service for sale and redemption
of mutual fund schemes through the Bank*s AT@s across the country#
( 8T Bank opens its first international branch in Singapore#
( 8T Bank and ,' -oin hands to launch an Annuity 'ard for group
pensioners of ,'#
( 8T Bank ties up with Deo-it :inancial Services to offer $nline Trading service
to its customers#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
SH(T Analysis
Strength
? 8T Bank has been in the banking
industry since .AA2# t has
successfully completed .0 years in
the Banking industry#
? The bank has a sound network i#e
Any!here "an#ing facility in 235
Branches and .?A.AT'?s at strategic
locations in ndia#
? -T, "an# stands one among the top
ten banks in ndia and is ranked <
st
in gro!th in usiness
? The bank is having well
e"perienced& trained& most dedicated
and committed staff#
? n has a strong customer base#
Hea#ness
? Tedious procedures have to be
followed before advancing loans
causing inconvenience to customers#
(pportunities
? Dlobal aspirations of ndian
consumers and growing integration
with N/s#
? The bank can optimi%e the growth
opportunities arising out of retail
banking and small and medium
enterprises <S@>s=#
? :urther e"pansion of AT@s networks
and possible arrangements of sharing
networks of other banks by issuing
mutual funds and insurance#
Threat
? Bank is facing competition from its
other Private Sector Banks and even
the foreign Banks
? 'hanging economic policies of
Dovernment will have serious
impact on interest rates and reserve
ratio maintained with /B
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Products and Services of -T, "an#
.onsumer an#ing
8T Bank is providing in consumer banking the following products and servicesH(
? Savings Account
? Salary Power
? Power Salute
? Priority Banking
? 7omen Account
? Senior Privilege
? ATAA9K( No :rills Savings Account
? /:' <9= Account
? :i"ed 9eposits
? /ecurring 9eposits
? ,ockers
? 9ebit 'ard
? Travel 'urrency 'ard
? >ncash 02
? /emittance 'ard
? 4isa @oney Transfer
? Power Transfer
.urrent Account
? Normal 'urrent Account
? Business Advantage Account
? Business 'lassic Account
? Business Privilege Account
? 'hannel $ne
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Demand drafts at correspondent bank locations available at very nominal charges#
? :ree Pay $rder facility#
? :ree 9emand 9rafts
? ntercity 'ash 9eposit
? ntercity 'ash 7ithdrawal
? +ome Branch 'ash 7ithdrawal
*etail loans @ 8T Bank is providing following loan facilities to the customers in retail
loan section#
? Power 9rive
? Power +ome
? Asset Power
? Personal Power
? ,oans against Securities
? 'onsumer Power
? Study Power
.orporate an#ing @ n corporate banking 8T Bank is providing following services#
? 'ash @anagement Services
? ,endingB:inancing
? Trade Service
? 'urrent Account
? :i"ed 9eposits
+ending:&inancing
? 7orking capital finance
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
? 'ash credit B working capital demand loan
? ,oan against :'N/ <B= deposit
? Term lending
? Pro-ect loan
? Bill finance supply B purchase bills
? 'hannel finance
? Asset securiti%ation
? ,ine of credit
? Bank guarantees
Trade Service
Trade &inance
? Bills 9iscounting
? ,B' Backed bill discounting
? 9rawee Bill 9iscounting
? 9rawer Bill 9iscounting
&inancial advisory service
t is bank*s endeavor to offer customer complete personal finance solutions#
Through bank*s financial Advisory Services bank understand customers investment
re!uirements and design tailor made financial solutions for them#
Beyond merely advising customers& Bank will also help the customers to invest in
a variety of instruments including#
? @utual :unds
? Bank assurance
? >!uity
? Ta" consultancy
? P$ Bu%%
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
? :i"ed ncome Products
? Portfolio Tracker
N*, SE*4,.ES
n 8T Bank& reali%e that as an N/& customer banking needs are special# And in
keeping with this philosophy& and offer valued N/ customers a plethora of services
customi%ed to their needs& such as
? The entire bou!uet of N/ 9eposit Products J Services#
? nternational 9ebit 'ard with Accident nsurance cover
? :ree nternet Banking facility
? Portfolio nvestment scheme for capital market transactions#
? 'orrespondent BankingB/emittance arrangements in all ma-or currencies
.apital mar#ets
? 9epository Services
? e9epository Services
? 9ebenture Trusteeship
? 'learing bank for NS>BBS>B$T>'
? 'learing @embers for 9erivatives Segment
? Broker :inancing
? ssue @anagement
? @JA Advisory
? P$ :unding
? $nline Trading
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
/overnment "usiness
8T Bank is the :irst Private Sector Bank to be authorised by the /eserve Bank
of ndia </B= and Dovernment of ndia for collecting Ta"es on behalf of a State
Dovernment# The Bank is handling 'ollection of 'ommercial Ta"es in the twin cities of
+yderabad and Secunderabad for Dovt# of Andhra Pradesh since Ouly 055.#
8T Bank is now authorised by /eserve Bank of ndia and Dovt# of ndia for
conducting all 'entral Dovernment and State Dovernment Business commencing with
$ctober .& 0551# The authorisation means the Bank can undertake the following
business on behalf of 'entral and State DovernmentsH
Treasury
? reign >"change 9esk
? nternational Banking
? @oney @arket 9esk
? 'onstituent SD, :acility
? /etail D(sec
? 9eposit /ate
? Newsletter
? reign >"change
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”

“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
&indings
And
Analysis
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Design of the study
Title of the project:
“Non Performing Assets and its impact on Profitaility of Ne! Private Sector
"an#s$%
Scope of study: Scope of my study restricted only to ) New Private Sector Banks NPA
data*s and Advances& and for 'omparison of 'redit risk path ) old selected Private Banks
are taken#
Need &or Study:
• This study will help to know the recent norms of NPA#
• This study helps to know how NPA 'ausing Problems to Banking Sector and
what might be the solution to overcome from this problem and also its impact on
Profitability of New Profit Banks#
STATE'ENT (& T)E P*("+E'
Profitability is considered as a benchmark for evaluating performance of any
business enterprise including the banking industry# +owever& increasing Non(
Performing Assets& have a direct impact on profitability of banks and financial
institutions# ,egally speaking banks and financial institutions are not allowed to book
income on such account and at the same times they are forced to make provision on such
assets# So This pro-ect is undertaken to now impact of NPA on Profitability of New
Private Sector Banks#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
(jectives of Study
6# To study the /B norms on Non Performing Assets& and the various reasons for
the e"istence of huge level of NPA in ndian banking#
)# To know the performance comparison of New Private Banks Non performing
asset for past 1 years#
?# To know the impact of non performing assets on profitability of New Private
Banks& and comparison of credit risk path of New Private Banks with ) selected
$ld Private Banks#
A# To study the various steps taken by the banks to bring down the NPA*s in
respective bank branches#
.5# To recommend measures for mproving performance and reduction of Non
Performing Assets#
'ethodology
Primary Data:
4iews of the concerned officials were gathered by directly interacting with them& and
such data was found very useful while analy%ing and drawing conclusions#
Secondary Data:
• /ecent /B norms of NPA#
• BA Bulletin 5f 0553(56 is referred to collect data for Net NPA& and Advances#
• 7eb site of 8T Bank and other 7eb sites#
Plan of analysis:
n this study !uadrant analysis is used on the calculated figures#
+imitations:
• The study is based mostly on secondary data#
• 9ata has been drawn from -ournals& so information may not be complete#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• r the analysis only the advances and NPA percentages of banks and operating
profit& provisions and contingencies as a whole and net profit of New PSB*s are
taken into consideration#
,mpact of Provisions and .ontingencies on Net Profit of Ne! Private "an#s%
Performance comparison of Ne! Private Sector "an#s (perating Profit of B years
S No "an#s (perating Profit 5 in .rore6
=99B@9C =99C@9D =99D@9A
. Bank of Pan-ab ,tdU .51 .A (
0 'enturion Bank ,tdU .0 1. .2?
1 +9:' Bank ,td .55? .122 .A)A
2 '' Bank ,td 02?. 0A36 26A.
3 ndusind Bank ,td# 223 25. 003
6 Qotak @ahindra Bank ,td# .0) .11 0..
) 8T Bank ,td 6A? 366 AA2
? Ges Bank ( <2= AA
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
,nterpretation: As we seen in graph '' Bank ,td# $perating Profit is increasing year
by year followed by +9:' Bank ,td#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Performance comparison of Ne! Private Sector "an#s Provisions and
.ontingencies of B years
S No Banks Provisions and 'ontingencies < in 'rore=
0551(52 0552(53 0553(56
. Bank of Pan-ab ,tdU 66 ?. (
0 'enturion Bank ,tdU ..) 6 65
1 +9:' Bank ,td 2A? 6)? ..5?
2 '' Bank ,td ?22 A3. 0.3.
3 ndusind Bank ,td# .?1 .A. .??
6 Qotak @ahindra Bank ,td# 2? 2A A0
) 8T Bank ,td 205 01. 35A
? Ges Bank ( 5 22
,nterpretation:
'' Bank ,td making large Provisions for losses compares to +9:' Bank ,td and 8T
Bank ,td may be because of their credit worthiness#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Performance comparison of Ne! Private Sector "an#s Net Profit B years
S No Banks Net Profit <in 'rore=
0551(52 0552(53 0553(56
. Bank of Pan-ab ,tdU 1) <6.= (
0 'enturion Bank ,tdU <.53= 03 ??
1 +9:' Bank ,td 3.5 666 ?).
2 '' Bank ,td .61) 0553 0325
3 ndusind Bank ,td# 060 0.5 1)
6 Qotak @ahindra Bank ,td# )A ?3 ..?
) 8T Bank ,td 0)? 113 2?3
? Ges Bank ( <2= 33
,nterpretation:
'' Bank ,td and +9:' Bank ,T9 Net Profit is ncreasing >ven though lot of @oney
has spent on Provision and 'ontingency# t may be because of their risk taking ability#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Analysis of aove data:
As we see the above graphs& '' Bank ,td $perating Profit is increasing year
by year followed by +9:' Bank ,td# 8T Bank ,td $perating Profit is decreased in
0552(53 but its suddenly increased to AA2crore in 0553(0556# But Bank of Pan-ab ,td
$perating Profit for 0551(52 is .51 crore but suddenly it decreases to .A crore .n 0552(
53& then it amalgamated with 'enturian Bank 7hose $perating Profit is 'omparatively
,ow in 0551(52 and 0552(53 after amalgamation it increases to .2?crore# >ven ndusind
Bank ,td $perating Profit is go on 9ecreasing and as Ges Bank is very new so initially it
had made loss of 2crore but made AAcrore operating profit in 0553(56#
Provisions and 'ontingencies made by '' Bank ,td and +9:' Bank ,td is
'omparatively high it may be because of risk taking ability and have strong financial
background with more e"perience& And also these banks are able to provide ade!uate
finance to 9ifferent Sectors# As we seen 8T Bank ,td $perating Profit in 0552(53
decreased and in 0553(56 increased so the Provisions made is low in 0552(53 but high in
0553(56 it may be because of large advances made by bank in 0553(56# But Bank of
Pan-ab ,td $perating Profit gone down in 0552(53 to .Acrore but it has incurred to make
?.crore Provisions and 'ontingencies it may be because of wrong Strategy made by bank
to provide finance and to maintain operating Profit& same situation has faced by
'enturion Bank ,td in the year 0553(56# So only Both
Bank of Pan-ab ,td and 'enturion Bank ,td Amalgamated to make strong finance
Background# ndusind Bank $perating Profit coming down year by year# Qotak @ahindra
is performing better enough ne"t to '' Bank& +9:' Bank& 8T Bank# As Ges Bank is
new so initially it incurred 2crore loss so no provisions were made but it made Provisions
in 0553(56#
'' Bank ,td& +9:' Bank ,td and 8T Bank ,td had comparatively high Net
Profit it may be because of risk taking ability and strong financial background with more
e"perience# As heavy Provisions were incurred by Bank of Pan-ab ,td and 'enturion
Bank ,td till 0552(53 had amalgamated to make Positive Net profit and named
themselves as 'enturion Bank of Pan-ab ,td# ndusind Bank have to adopt different
strategy to increase net profit as it incurring loss from past 1 years#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Analysis of /ross and Net NPA y ta#ing B years Advances paid y Ne! Private
Sector "an#%
"an# of Panja +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
0551(52 0)5A .6? 6#05 0131 .06 3#13
0552(53 0305 .06 3#55 02.) ..0 2#62
0553(56 @ @ ( @ ( (
.enturion "an# +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
0551(52 .)53 00. .0#A6 .336 6A 2#21
0552(53 00A. .36 6#?. 0.A2 33 0#2A
0553(56 6?2? 1.3 2#6 6311 )2 .#.1
,ntrepretation:
As Bank of Pan-ab ,td and 'enturion Bank has amalgamated in 0553 September& so we
can see a decrease in Dross NPA from .0#A6E to 2#6E and Net NPA decreases to
.#.1E# $f course it is a good sign to the company as it came below 3E& because if NPA
ratio of any Bank is more than 3E then it is said that the Banks need to adopt proper
strategy for recovery of debt#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
)D&. "an# +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
0551(52 .?562 116 .#?6 .))23 0? 5#.6
0552(53 03A)6 21A .#6A 03366 6. 5#02
0553(56 1613) 35A .#25 1356. .33 5#22
,nterpretation:
:rom the above table we can see that Dross NPA of +9:' Bank ,td has decreasing from
.#?6 to .#25 from 0551(52 to 0553(56# This accomplishment is on account of credit
growth& which was higher than the growth of Dross NPA and not through appreciable
recovery of NPA# There is neither reduction nor even containment of the threat because
as we seen increase in Net NPA from Past 1 years#
,.,., "an# +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
0551(52 63.56 1565 2#)5 62A2? .201 0#.A
0552(53 A.A05 1A03 2#0) A.253 .353 .#63
0553(56 .2?055 0001 .#35 .26.61 .531 5#)0
,nterpretation:
:rom above table we can see that Dross NPA of '' Bank ,td has decreasing from 2#)5
to .#35 from 0551(52 to 0553(56# This accomplishment is on account of credit growth&
which was higher than the growth of Dross NPA and not through appreciable recovery of
NPA# There is neither reduction nor even containment of the threat# '' Bank ,td is
providing high advances compare to other banks in 0553(0556#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
,ndusind "an# +td
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
0551(52 )?2? 03A 1#1 )15. 0.0 0#A5
0552(53 A5A1 10. 1#31 A555 022 0#).
0553(56 A1)6 06A 0#A5 A1.5 .A3 0#5A
,nterpretation:
ndusind Bank need to adopt strategy in reducing NPA as its advances were more in
0552(53 and also Dross NPA has increased it may be because of their credit worth# And
again it decreases Dross NPA in 0553(56 this ups and down can affect credit worthiness
of the bank#
1ota# 'ahindra "an# +td%
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
0551(52 0.53 05 5#A3 05A) 1 5#.2
0552(53 253? 0? 5#6A 25.) .3 5#1)
0553(56 6131 1? 5#65 612A .3 5#02
,nterpretation:
Qotak @ahindra Bank ,td Net NPA is ncreasing from 0551(52 to 0552(53 and again it
decreases to 5#02 in 0553(56# it implied that NPA of Qotak @ahindra Bank are in ups and
down it may be because of any natural calamities or change in recovery measures etc#
but Dross NPA and Net NPA of Qotak @ahindra Bank is less than .E# So its good sign to
Bank#
-T, "an# +td
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
"an#s /ross
Advances
/ross
NPA
/ross
NPA5I6
Net
Advances
Net
NPA
Net
NPA5I6
0551(52 A1?6 0)3 0#A1 A161 ..0 .#05
0552(53 .360? 1.. .#AA .3651 0.) .#1A
0553(56 00255 1)2 .#)5 001.2 0.? 5#A?
,nterpretation
8T Bank ,td Dross and Net NPA has decreases from 0#A1 to .#)5 and .#05 to 5#A?
respectively from 0551(52 to 0553(56# This accomplishment is on account of credit
growth& which was higher than the growth of Dross NPA and not through appreciable
recovery of NPA# There is neither reduction nor even containment of the threat#
Performance .omparison of Net NPA of Ne! Private Sector "an#s
Ne! PS"0s =99B@9C =99C@9D =99D@9A
Bank of Pan-ab ,tdU
2#6A 2#62 5
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
'enturion Bank
,tdU
2#21 0#2A .#.1
+9:' Bank ,td
5#.6 5#02 5#22
'' Bank ,td
0#0. .#63 5#)0
ndusind Bank ,td#
0#)0 0#). 0#5A
Qotak @ahindra
Bank ,td#
5#.) 5#1) 5#02
8T Bank ,td
.#0A .#1A 5#A?
Ges Bank
5 5 5
,nterpretation:
:rom above chart we can see that Bank of Pan-ab ,td*s NPA increasing till it*s
amalgamated with 'enturion Bank ,td& and came nearer to 3E& after amalgamation both
Bank of Pan-ab ,td and 'enturion Bank ,td named themselves as 'enturion Bank of
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Pan-ab ,td# And in 0553(56 its NPA comes down .#.1E comparatively from previous
year NPA#
7e can say that +9:' Bank ,td has strong financial background and credit
worthiness so it can provide more advances to people and also it is efficient enough to
recover those advances so its Net NPA has coming down and it is less than .E# So +9:'
is performing well#
n 0551(52 '' Bank ,td Net NPA is more but its declining slowly and came to
5#)0 from 0#0. in 0553(56# it may be because of its credit worthiness and strong recovery
measures# '' Bank ,td is real risk taker so we cannot compare it with other small
banks because it providing high advances compare to other banks#
ndusind Bank ,td Net NPA almost same for 0551(52 to 0552(53 and declines to
0#5A in 0553(56#
As Qotak @ahindra Bank ,td providing comparatively low advances to avoid
credit risk so its NPA is low compare to other Banks#
>ven 8T Bank is performing well in recovering debts so its NPA came down
from previous year#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
,'PA.T (& NPA0S (N "AN1S? P*(&,TS AND +END,N/ P*(HESS:
KThe efficiency of a bank is not always reflected only by the si%e of its balance
sheet but by the level of return on its assets# NPA*s do not generate interest income for the
banks& but at the same time banks are re!uired to make provisions for such NPA*s from
their current profits#
NPA*s have a deleterious effect on the return on assets in several ways (
• They erode current profits through provisioning re!uirements
• They result in reduced interest income
• They re!uire higher provisioning re!uirements affecting profits and accretion to
capital funds and capacity to increase good !uality risk assets in future& and
• They limit recycling of funds& set in asset(liability mismatches& etc there is at
times a tendency among some of the banks to understate the level of NPA*s in
order to reduce the provisioning and boost up bottom lines# t would only
postpone the n the conte"t of crippling effect on a bank;s operations in all
spheres& asset !uality has been placed as one of the most important parameters in
the measurement of a bank;s performance under the 'A@>,S supervisory rating
system of /B#

“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.redit ris# path of the Ne! Private "an#0s y .omparing !ith selected F (ld PS"0s
using >uadrant Analysis%
.redit ris# path of the Ne! Private "an#0s:
Ne! Private
"an#s
NPA to Net
Advances
5 I6
Advances5crores6 >uadrant
analysis
=99D =99A =99D =99A =99D =99A
Bank of Pan-ab ,tdU
2#62 ( 02.) ( +, (
'enturion Bank ,tdU
0#2A .#.1 0.A2 6311 +, +,
+9:' Bank ,td
5#02 5#22 03366 1)66. ,+ ,+
'' Bank ,td
.#63 5#)0 A.253 .26.61 ,+ ,+
ndusind Bank ,td#
0#). 0#5A A555 A1.5 +, +,
Qotak @ahindra Bank
,td#
5#1) 5#02 25.) 612A ,, ,,
8T Bank ,td
.#1A
5#A? .3651 001.2 ,, ,,
,nterpretation
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.redit ris# path of the Ne! PS"0s: A >uadrant Analysis
n the chart below an attempt is made to trace the relationship between NPA
proportion and the si%e of credit portfolio <advances= of New Private Bank*s# r this
purpose proportion of gross NPA*s representing credit risk inherent is taken on the F(
a"is and gross credit levels are taken on the G(a"is# Since these two parameters are assets&
which are stock concept variables& they have been plotted on the basis of 0 years 0553
and 0556 for a comparative analysis#
>-AD*ANT TA"+E@ =99D
,>4>,
'/>9T ,>4>,
NPA
,$7 <B>,$7 A4D=

<,=
+D+ <AB$4> A4D=
<+=

,$7
+D+
,, <0=
+, <1=
,+ <0=
++ <5=
>-AD*ANT TA"+E@ =99A
,>4>,
'/>9T ,>4>,

NPA
,$7 <B>,$7 A4D=

<,=
+D+ <AB$4> A4D=
<+=

,$7
+D+
,, <0=
+, <0=
,+ <0=
++ <5=
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
As depicted in the tables& the banks are divided into 2 !uadrants namely ,,& ,+&
+, and ++ <the figures are arrived at by taking the averages=# The average of NPA*s for
the year 0553 is .#A1E and this figure is measured against each bank& any percentage
above this figure falls in the + category and percentage below .#A1E falls in the ,
category# The same applies with the advances# The average of advances for 0553 is
0.&23) crores and 1)&600 crores for 0556# The average of NPA for 0556 is 5#A1E# S,*
represents low or below average of the New Private Bank*s and& S+* represents high or
above average# >#g# while ,, means low in credit si%e and low in NPA*s& ,+ implies low
in NPA and +igh in credit si%e# The following facts are visible from the !uadrant tableH
<6#As depicted in the tables& most of the new private banks fall in the +, !uadrant# n
0553 there were 1 banks& which was 0 in 0556# As seen in the !uadrants& the NPA was
high compared to its credit si%e and the credit si%e is low in the New Sector Banks it
might be because these banks hesitate to take risk and improper recovery measures#
=6#There was 0 banks in the ,, !uadrant in 0553 which remain same in 0556 also# t
means NPA ,evel and 'redit si%e is low#
B6# Bank of Pan-ab ,tdU is in +, !uadrant& there is high level of NPA and ,ow Advances
in 0553 # So only Bank of Pan-ab ,td# has merged with 'enturion Bank in 0553
September and named as 'enturion Bank of Pan-ab ,td but still its in +, !uadrant so still
this banks has to adopt proper strategy in providing advances and recovering debts#
D6 The best performing bank in this sector was the '' Bank which was high in its
credit si%e compared to the rest of the banks and still maintained a low NPA level
followed by +9:' Bank ,td##
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.redit ris# path of the F selected (ld PS"0s:
(ld Private
"an#s
NPA to Net
Advances
5 I6
Advances5crores6 >uadrant
analysis
=99D =99A =99D =99A =99D =99A
'ity 8nion Bank ,td 1#1) .#A3 05.1 0335 ,, ,,
9evelopment 'redit
Bank ,td
6#12 2#35 0.36 .?6) +, +,
ND 4ysya Bank ,td 0#.1 .#)6 A5?. .5010 ,+ ,+
,ord Qrishna Bank ,td 2#00 1#.. .1?) .20. +, +,
Bank of /a-astan ,td 0#35 5#AA 0?A6 2563 ,, ,,
The 8nited 7estern
Bank ,td#
3#?1 3#66 1A)6 2556 ++ +,
The Qarnatak Bank ,td 0#0A .#.? 60?) ))A0 ,+ ,+
,nterpretation
.redit ris# path of the F Private Sector "an#s: A >uadrant Analysis
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
n the chart below an attempt is made to trace the relationship between NPA
proportion and the si%e of credit portfolio <advances= of ) old Private Bank*s# r this
purpose proportion of gross NPA*s representing credit risk inherent is taken on the F(
a"is and gross credit levels are taken on the G(a"is# Since these two parameters are assets&
which are stock concept variables& they have been plotted on the basis of 0 years 0553
and 0556 for a comparative analysis#
>-AD*ANT TA"+E@ =99D
,>4>,
'/>9T ,>4>,
NPA
,$7 <B>,$7 A4D=

<,=
+D+ <AB$4> A4D=
<+=

,$7
+D+
,, <0=
+, <0=
,+ <0=
++ <.=
>-AD*ANT TA"+E@ =99A
,>4>,
'/>9T ,>4>,

NPA
,$7 <B>,$7 A4D=

<,=
+D+ <AB$4> A4D=
<+=

,$7
+D+
,, <0=
+, <1=
,+ <0=
++ <5=
As depicted in the tables& the banks are divided into 2 !uadrants namely ,,& ,+&
+, and ++ <the figures are arrived at by taking the averages=# The average of NPA*s for
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
the year 0553 is 1#?.E and this figure is measured against each bank& any percentage
above this figure falls in the + category and percentage below 1#?.E falls in the ,
category# The same applies with the advances# The average of advances for 0553 is 1A).
crores and 2360 crores for 0556# The average of NPA for 0556 is 0#)2E# S,* represents
low or below average of the PSB*s and& S+* represents high or above average# >#g# while
,, means low in credit si%e and low in NPA*s& ,+ implies low in NPA and +igh in credit
si%e# The following facts are visible from the !uadrant tableH
<6#As depicted in the table in 0553& out of ) Private Sector Banks& 0 are fall under ,,& i#e#
,ow in NPA and ,ow in credit si%e& 0 fall under ,+ i#e# ,ow in NPA and +igh in credit
si%e# And remaining out of 1& 0 fall under +, i#e# +igh in NPA and ,ow in credit si%e#
=6 As depicted in the table in 0556& out of ) Private Sector Banks& 0 are fall under ,,& i#e#
,ow in NPA and ,ow in credit si%e& 0 falls under ,+ i#e# ,ow in NPA and +igh in credit
si%e# And 1 fall under +, i#e# +igh in NPA and ,ow in credit si%e#
B6 There were 0 banks in the +, !uadrant in 0553 which increased to 1 in 0556# t means
NPA ,evel is increasing year by year#
C6# The 8nited 7estern Bank ,td moved from ++ to +, & there is high level of NPA and
+igh Advances in 0553 which moved to +igh level of NPA and ,ow level of advances in
0556# ts not good sign to Bank because as in 0553 there is +igh NPA and 'redit si%e so
Bank reduces its advances in 0556& but also its NPA increasing#
D6 The best performing bank in this sector was the ND 4ysya Bank which was high in its
credit si%e compared to the rest of the banks and still maintained a low NPA level#
.omparison of Ne! Private "an#0s credit path !ith (ld selected Private "an#0s
credit path y using aove >uadrant Analysis%
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• 7hen compare to $ld PB*s& New PB*s are performing well from past 0 years#
• $ld PB*s Net NPA on Advances are crossing 3E or nearer to 3 E& but almost all
New PB*s Net NPA on Advances are below 1E# t is good sign to New PSB*s as it
has strong credit path#
• New PB*s are taking high risk by Providing more and more advances when
compare to $ld PB*&
• @a-ority of $ld PB*s provide advances to Priority sectors whose recovery are
very difficult& because advances paid for agriculture are very difficult to recover&
but New PB*s are able to provide advances to both priority and non priority
sectors but it not e"panded its services over villages# That*s why New PB*s
recovering its advances very !uickly#
Adverse Effects of NPA on the Hor#ing of Ne! Private "an#s:
NPA has affected the profitability& li!uidity and competitive functioning of New
Private Banks and finally the psychology of the bankers in respect of their disposition
towards credit delivery and credit e"pansion# Between 0552 and 0556 New Private Banks
incurred a total amount of /s#21AA 'rores towards provisioning NPA# This has brought
Net NPA to /s#3)?5 'rores or .#05E of net advances# To this e"tent the problem is
contained& but at what costI This costly remedy is made at the sacrifice of building
healthy reserves for future capital ade!uacy# The enormous provisioning of NPA together
with the holding cost of such non(productive assets over the years has acted as a severe
drain on the profitability of the New Private Banks# n turn New Private Bank*s are seen
as poor performers and unable to approach the market for raising additional capital# This
has alternatively forced New Private Bank*s to borrow heavily from the debt market to
build Tier 'apital to meet capital ade!uacy norms putting severe pressure on their
profit margins& else they are to seek the bounty of the 'entral Dovernment for repeated
/ecapitali%ation#
&indings:
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• The brightest spot in the ndian banking industry in 0553(0556 was the massive
cleaning up of banks* balance sheets by reducing non performing assets <NPA*s=#
The net NPA*s of ) New Private Bank*s are reduced by <(= .?E while compare to
previous year& i#e# from 05A) to .)5A# 7hich was 6E higher Net NPA in 0552(53
when compare to 0551(52#
• Net Profit of New Private Bank*s are increased by 0?E from 0552(53 to 0553(56#
t may be because of provisions made in 0556 is comparatively low#
• @ost of the New Private Bank*s fall under ,, !uadrant i#e# ,ow in NPA and ,ow
in credit path in 0553(56#
• All New Private Bank*s Net NPA on advances is less than 3E in 0553(56& its
good sign for companies to increase profit#
• New Private Bank*s recorded a growth in advances of 35#1E in 0556 as compare
to 20#3E of the previous year# 7hen compare to total advances of $ld Private
Bank*s rose from 12#AE to 25#1)E# we can say New PSB*s 'redit capacity is
more while compare to $ld PSB*s#
• @ost banks were able to take advantage of fat profits from treasury operations&
brought about by the lower interest rates& to make higher provisions for bad debts#
As a result& out of ) new Private Bank*s& 0 New Private Bank*s( i#e# +9:' Bank
,td and Qotak @ahindra Bank ,td* Net NPA on advances has become less than
.E# llowed by '' Bank ,td# And 8T Bank ,td Net NPA on advances are
less than 0E#
• '' is Best Performer in New Private Banks as it providing higher advances by
taking risk compare to other banks& and is able to its NPA less than 0E#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Suggestions
.# :i"ing up the budget for profits and recovery rather than for advances# Budget
oriented approach at times leads to release of credit facilities without ensuring
compliance of covenants of sanction# A suitable mechanism could be drawn at
each bank level to provide monetary benefitsB re(organi%ation of the operating
staff particularly for recovery in NPA*s write(off cases#
0# Pro-ects with old technology should not be considered for finance#
1# 8p gradation of credit skills of the operating staff working in advance to avoid
over and under finance#
2# Timely sanctionB release of loan to avoid time and cost overruns# and also proper
checking of documents while sanctioning loan are recommended#
3# t is suggested for possible restructuring of banks through mergers and
ac!uisitions to keep themselves competitive in the high credit risk market in
ndia#
6# $ne of best solution to overcome NPA is $TS < $ne Time Settlement=& /B has
advised all banks to provide a simplified mechanism for one time settlement of
loans where the principle amount is e!ual to or less than 03555B( and which have
become doubtful and loss assets#

“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.onclusion
An attempt is made in this study to present a comprehensive picture of non(
performing advances of New Private banks in ndia& touching upon various !uantitative
and !ualitative trends in the post reform period& besides carrying out with some policy
and strategic implications# 8ndoubtedly ndia is one of the few countries where NPA
levels are very high as there is an increase in the percentage of gross advances eroding
their Profit by ma-or basic points& after netting the provision#
New Private Banks NPA has come down i#e# less than .E# 7hile compare to old
Private Bank*s whose NPA is more than 3E# t may be because of the proportion of credit
risk among the priority sector advances is double that of non(priority advances implying
the irrationality of <administered= price controls& which still e"ists in some form# >"ternal
factors outweigh the internal factors contributing to this high accumulation of NPA*s# f
the banks have to survive in the competitive and increasingly globali%e market conditions
they should be helped both by the /B and the government in the form of faster recovery
climate& especially for the legal processes of enforcement of contracts#
The !uadrant analysis of credit risk clearly identifies that ) New Private banks are
comparatively performing well when compare to old selected PSB*s# t also offers scope
for mergers and ac!uisitions among the banks to be better prepared for high risk credit
marketing in ndia# And also !uadrant analysis helps to identify profitability position of
New Private Banks by using advances provided and Non Performing Assets#
8nless New Private Banks adopt proper Strategy to prevent huge level of NPA*s&
it go on affecting Profitability of Banks#
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”

“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Areviation used:
BAH ndian Banking Association
NPAH Non Performing Assets
PB*sH Private Banks
8T Bank ,tdH 8nit Trust of ndia Bank
'' Bank ,td H ndustrial 'redit and nvestment 'orporation of ndia
+9:' Bank ,td#H +ousing 9evelopment :inance 'orporation Bank ,td
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
"iliography
• ndian Banking Association <BA= Bulletin 0553(56
• 7ebsites
- www#ndianbankingassociation#com
- www#utibank#com
- www#Doogle#com

doc_354443603.doc