INDEX

SR.
PAGE
NO. PARTICULAR
NO.

1.
INTRODUCTION OF PROJECT

2.
BANK INTRODUCTION & BANK PROFILE

3.
RESEARCH METHEDOLOGY

4.
THEREOTICAL INTRODUCTION

5.
DATA ANALYSIS & INTERPRETATION

6. FINDING & SUGESSION

7.
CONCLUSION

8. RECOMMENDATIONS

9. BIBLIOGRPHY

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 INTRODUCTION OF
PROJECT
CHAPTE
1
R

1. INTRODUCTION OF PROJECT

2. OBJECTIVE OF PROJECT

3. LIMITATION OF PROJECT

NON PERFORMING ASSETS (NPA)

2
WHAT IS A NPA (NON PERFORMING ASSETS)

Action for enforcement of security interest can be initiated only if the secured asset is
classified as Nonperforming asset.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Nonperforming asset means an asset or account of borrower ,which has been
classified by bank or financial institution as sub –standard , doubtful or loss asset, in
accordance with the direction or guidelines relating to assets classification issued
by RBI .

An amount due under any credit facility is treated as “past due” when it is not been
paid within 30 days from the due date. Due to the improvement in the payment and
settlement system, recovery climate, up gradation of technology in the banking system
etc, it was decided to dispense with “past due “concept, with effect from March 31,
2001. Accordingly as from that date, a Non performing asset shell be an advance
where

i. Interest and/or installment of principal remain overdue for a period of more

than 180 days in respect of a term loan,

ii. The account remains ‘out of order ‘ for a period of more than 180 days ,in
respect of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 180 days in case of bill
purchased or discounted.

iv. Interest and/or principal remains overdue for two harvest season but for a
period not exceeding two half years in case of an advance granted for
agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than 180
days in respect of other accounts

With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt ’90 days overdue ‘norms for
identification of NPAs, from the year ending March 31,2004,a non performing
3
asset shell be a loan or an advance where;

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 i. Interest and/or installment of principal remain overdue for a period of
more than 90 days in respect of a term loan,

ii. The account remains ‘out of order ‘ for a period of more than 90 days
,in respect of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 90 days in case of
bill purchased or discounted.

iv. Interest and/or principal remains overdue for two harvest season but
for a period not exceeding two half years in case of an advance granted
for agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than

90 days in respect of other accounts

Out of order

An account should be treated as out of order if the outstanding balance remains

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

Overdue

Any amount due to the bank under any credit facility is ‘overdue’ if it is not
paid on due date fixed by the bank.

4
Types of NPA

A] Gross NPA

B] Net NPA
UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
A] Gross NPA:

Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI
guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made
by banks. It consists of all the non standard assets like as sub-standard, doubtful, and
loss assets.

It can be calculated with the help of following ratio:

Gross NPA Amount

GROSS NPA RATIO = ---------------------------- * 100

Total Advances

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
B] Net NPA:

Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs. Net NPA shows the actual burden of banks. Since in India, bank
balance sheets contain a huge amount of NPAs and the process of recovery and write
off of loans is very time consuming, the provisions the banks have to make against the
NPAs according to the central bank guidelines, are quite significant. That is why the
difference between gross and net NPA is quite high.

It can be calculated by following_

Net NPA Amount

Gross NPA Ratio = ------------------------- * 100

Total Advances

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
OBJECTIVES:-

The main objective of the Project is to understand the concept of NPA & its
causes and its effects on the bank.
1. To understand the NPA management in union bank of India

2. To understand the guidelines of RBI of NPA management

3. To study the basis of treating an account of NPA.

3. To find out effect 0f NPA on the financial position of the bank.

5. To suggest remedies to reduce NPA of the bank.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
LIMITATION :-

1 Details study on this project was not possible in short time of two
months.

2 As a researcher is a student and this is his maiden project this might be

constraint.

3 Being a financial project and the nature of the data being confidential,
there was a restriction from bank to disclose the actual data.

4 Conclusion and recommendations are bound by limitation and

subjective study.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 BANK INTRODUCTION & BANK
PROFILE

CHAPTER
2

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
  Banking sector in India:-
The sector is the lifetime of any modern economy. It is important financial pillars of
financial system. They play an important role in the mobilization of deposits &
disbarment of credit to various sector of the economy. The banking sector dominant in
India as it’s account for more than half of the assets of the financial sector. Some of
fundamental definition of banking regulation act 1949.
Banking define as “the accepting for the purpose of lending or investment of deposit of
money from the repayable on demand or otherwise & withdrawals by cheque ,draft
order, or otherwise.”
The banking company define as “Any company which transects the business of
banking in India.”
The essential characteristics of banking business section 5(b) of banking regulation act
1949
 Acceptance of deposit from public
 For the purpose of lending or investment
 Repayable on demand or otherwise
 Withdrawals by means of any instrument weather cheque or otherwise.

Commercial Banks in India:-

 State bank of India.
 Bank of India.
 Bank of Baroda.
 Union bank of India.
 United trust of India.
 Bank of Maharashtra.
 Syndicate bank.
 Punjab national bank. 10
 Central bank of India.
 Dena bank.
 Allahabad bank.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Bank profile:-

MISSION STATEMENT

Bank is committed to maintain its identity as a leading innovative commercial bank

Alive to the changing needs of the society.

The Bank aims to provide all retail banking service and selective wholesale banking
Service above benchmarked quality if standards of the best in the Industry.

The Bank will strengthen its role function as a development bank in furthering
socioeconomic

Objectives of the Union bank of India.

The Bank will continue to enhance its reputation as Good People to Bank With”
Being proactive to customers’ needs, expectations and the challenges at the Industry
Level.

The Bank is committed to a continuous process of upgrading its operational

Efficiency and productivity.

In essence, the Mission is to fulfill its obligations to the society at large, its
Shareholders, present and future and contribute to GDP at all times.

“TO GAIN MARKET RECOGNITION IN THE CHOSEN AREAS. To attain a

Business mix of Rs. 236968crores and operating profit of Rs. 3082 crores within
11
2008-09.”

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
The union bank of India was established in 1919. Union bank of India was
inaugurated by Mahatma Gandhi eight decade ago. In commercial banks union bank
of India is the 3rd rank in public sector bank. The union bank of India is public sector
unit with 60.85% share capital held by government of India. In addition to regular
banking facilities on union bank of India today customer can also avail Varity of other
services like cash mgt services, insurance, mutual fund ,demet from bank. The union
bank of India having more than 2500 branches & extension counters in all over
india.Newly 644 ATM’sare installed in F.Y.2009.

Bank provides facility to customer:-

 Online banking
 E-Banking
 SMS banking
 Income tax banking
 ATM’s

Quality policy & Quality objective of haripura branch, Surat:-

Quality policy:-

The branch is committed to be bank in 1st choice in commercial banking with lasting
customer relationship with continued improvement in services.

Quality objective:-

 Improve customer satisfaction

12
 Increase profit
 Increase staff productivity

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Board of director of union bank of India
Mr. M.V.Nair - M.D. & chairman
Shri. T.Y. Prabhu - Executive director
Shri. S. Raman - Executive director
Shri.K.V. Eapan - Govt. of India nominee
Shri.K. Sivaraman - Govt. of India nominee
K.S.Shreenivasan - Charted accountant
Shri N. Shankar - Workman director
Debasis Ghosh - Director representing officer employee
SMT.Rani Satish - Govt. nominee director
Shri. Ashok Singh - Part time non official director
Dr.Gulfan Mujibi - Shareholder director
Prof.M.S. Shriram - Shareholder director
Mr.R.R.Nair - Shareholder director
Prof. Nandalal L. Sarda - Shareholder director

Mr.S.A.Bhole - Branch Manager (Haripura Branch),

Surat
Mr.KSN Murthy - Branch Manager (Regional Office),
Surat

13

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Union bank of India come out with its IPO’s in August 2000 & 39.15% of share capital
is presently held by institution, individual & other.
The book value of per share is to Rs 137.87 & per share price of union bank of India is
Rs. 147 in F.Y.2009 as SENSEX is 9708 points.
The bank is consistently returning profit year after year giving value added returns to
share holder even during turbulent time. The union bank of India’s branches is not only
present in India but also in Singapore, Hongkong . The India head office present in
MUMBAI.
Rate of interest of union bank of India has decided by the bank of accordance with RBI
directive from time to time.
The union bank of India has 53 regional offices present in all over India & 18 branches
present in Surat.

Key performance figer of March-2009:-

 Union bank of India proposes a total dividend of 20% (Interim dividend for
2008-09)
 Total business crosses the Land mark fig Rs. 2 crores
 Bank posted net profit Rs. 1727 crore for year ended 31 march 09
 Operation profit for year ended 09 was Rs. 3082 crore showing growth of
19.46%
 Capital Adequacy stand at 13.27% as march 09
 Earnings per share at Rs.34.18%
 Deposit at Rs. 1,38,703 crores
 Advances Rs.98,265 crores
 Net inters Margined is 3.24%
14
 Cost of deposit have come down from 5.76% in mar 08 to 5.96% in march 09
 Yield of Advances Which was 8.35% in mar 08 8.78% in march 09

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
  The ratio of NPA to Net Advances has collapsed from 0.15% in march 08 to
0.34% in march 09.

BANK PERFORMANCE:-
 The bank won a special citation at FIIA awards 2009 Singapore for it’s 100%
core banking achievement through in house efforts
 Bank has launched 60 Seated call center at it’s technology center, Pawai. This
call center part of bank brand promises of multiple delivery channel facilitates
Superior customer experience.

BANK VISION:-
 The bank aim to reach business mix of Rs.2,93,000crore by the end of mar
2010 ,(a growth of 23% )of this Rs. 1,70,000crore will be deposit (growth 23%)
& Rs.1,23,000crore will be advances ( growth 25% ).
 Gross NPA level is targeted less than 1.50%.

BANKING LABILITIES:-
 Current deposit of bank
 All overdraft as per contra
 Credit balances in cash credit & other loan facility
 Inland term deposit from bank
 Letter of guarantee

BANKING ASSETS:-
 Balances with bank of India
 Advances
 Overdraft 15
 Loss
 Suspense’s of petty cash
 Suspense A/C.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 16

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 RESEARCH METHEDOLOGY

CHAPTE
R
3

17

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
RESEARCH METHODOLOGY
Research methodology is designed in order to solve a research problem. I have conducted
a descriptive research to understand and develop knowledge on the existing problem of
Non-performing Assets.
This research has made an attempt to understand the concept of Non-performing Assets
and thereby providing a Solution to the problem.

DATA COLLETION:-
1. Primary data:-
The research methodology used primary data means the data collected first time. .
In this study the primary data is collected by the observation method and through
the interaction with staff members & branch manager.

2. Secondary data:-
Secondary data means the data already available which have been collected and
analyzed by someone else. Secondary data can be taken from various sources
like magazines, annual reports, books, newspapers, etc The secondary data is
collected through the following reports.

 Annual report
 Bank bulletins and Journals
 Various financial books
 Experts and Internet.

18

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 THEROTICAL INTRODUCTION

CHAPTE
R4

1.INCOME RECOGNITION
2.Asset Classification:-

3. Provisioning Norms:-

4. REASONS FOR N. P. A.:-

5. CALCULATION OF DATE OF DEFAULT:-

6. EFFECT OF NPA’s:-

7. Restructuring / Rescheduling of Loans

8. Methods of npa management:-

19

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
INCOME RECOGNITION

Income recognition – Policy

 The policy of income recognition has to be objective and based on the record of
recovery. Internationally income from non-performing assets (NPA) is not
recognised on accrual basis but is booked as income only when it is actually
received. Therefore, the banks should not charge and take to income account
interest on any NPA.

 However, interest on advances against term deposits, NSCs, IVPs, KVPs and
Life policies may be taken to income account on the due date, provided
adequate margin is available in the accounts.

 Fees and commissions earned by the banks as a result of re-negotiations or

rescheduling of outstanding debts should be recognised on an accrual basis
over the period of time covered by the re-negotiated or rescheduled extension
of credit.

 If Government guaranteed advances become NPA, the interest on such

advances should not be taken to income account unless the interest has been
realised.

20

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Internal System for Classification of Assets as NPA

I. Banks should establish appropriate internal systems to eliminate the

tendency to delay or postpone the identification of NPAs especially in
respect of high value accounts.

II. The banks may fix minimum cut-off points to decide what would
constitute a high value account depending upon their respective business
levels. The cut-off point should be valid for the entire accounting year.

III. Responsibility and validation levels for ensuring proper asset

classification may be fixed by the bank.
The system should ensure that doubts in assets classification due to any
reason are settled through specified internal channels within one-month
from the date on which the account would have been classified as NPA
as per the extent guidelines.

IV. RBI would continue to identify the divergences arising due to non-
compliance, for fixing acceptability, Where there is willful non-
compliance by the official responsible for classification and is well
documented, RBI would initiate deferent action including imposition of
monetary penalties.

21

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Asset Classification:-
Standard Assets:

Standard assets are the ones in which the bank is receiving interest as well as the
principal amount of the loan regularly from the customer. Here it is also very important
that in this case the arrears of interest and the principal amount of loan does not exceed
90 days at the end of financial year. If asset fails to be in category of standard asset that
is amount due more than 90 days then it is NPA and NPAs are further need to classify
in sub categories. Banks are required to classify non-
performing assets further into the following three categories based on the period for
which the asset has remained non-performing and the reliability of the dues:

( 1 ) Sub-standard Assets
( 2 ) Doubtful Assets
( 3 ) Loss Assets

1. Sub-standard Asset:-
With effect from 31st march 01 ,a sub-standard asset is one which has
remained NPA for period of less than or equal to 18 month. In case of sub-
standard asset current net worth of the borrower the current market value of
security charged is not enough to ensure recovery of the dues to bank in full.
With effect from 31 st march 05 ,a sub-standard asset would be done
which has remained NPA for a period less than or equal to 12 month.
2. Doubtful Asset:-
With the effects from 31st march 01 an asset as to be doubtful, if it has
remained NPA for period exceeding 18 month. With effect from 31 st march 05,
an asset would be classified as doubtful if it remained in standard category for
12 month. A doubtful asset which remained NPA for period exceeding two
22
assets.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 3. Loss Asset:-
A loss asset is one where loss has been identified by the bank or internal
or external auditor or RBI inspection but amount has not been written off
wholly. The loss asset was one which reminded NPA for period exceeding 3
years. In other words such an asset is considered uncollectible & of such title
value that it’s continuance as bankable asset is no warranted although there
may be some salvaged or recovery value.

23

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Provisioning Norms:-
Sub-standard Assets:-

A general provision of 10% on total outstanding without making any

allowances for ECGC guarantee cover & securities available. The ‘unsecured
exposes which are identified as sub standard would attract additional
provision of 10% i.e. a total 20% on outstanding balance.
Unsecured portion:-
100% provision on unsecured portion

Secured portion:-
10% provision on secured parts

Doubtful Assets:-

Unsecured portion:-
100% of the extent to which the advances is not covered by bank

Secured portion:-
20% of the provisioning up to 1 year & up to1-3 year 30% of the
provisioning on the secured part.

Loss Assets:-
Unsecured portion:-
In loss assets 100% provisioning on unsecured portion
24
Secured portion:-
In loss assets 100% provisioning on secured portion

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Standard Assets:-
The general provision for standard assets is required at following rates for
funded outstanding.

Category of standard Assets Rate of provisioning

0.25%
1)Direct advances to
Agri & SME sector
2) Residential housing 1.00%
Loan beyond Rs.20lakh
3)
a) Personal loan
b) Loans & advances qualifying
as capital market exposers
c)Commercial real estate loans
d) Loans & advances to non
Provision required
deposits taking systematically
to be made
Classification of Assets
2.00%
4) All other advances not included in (%)
Total loans and advances of which
1,2&3 above 0.40%
A. Standard Assets 0.25
B. Non-Performing Assets
1. Sub-standard 10
2. Doubtful
i) Up to 1 year 25
a) Secured 20
b) Unsecured 100
ii) Above 1 year & up to 3 years
a) Secured 30
UNION
b) BANK OF INDIA- Swastika chamber, 5/369,
Unsecured 100 bhajiwali pole, bhagal, Surat
3) Loss
a) Secured 100
 26

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
REASONS FOR N. P. A.:-

For the effective Management of NPAs, it is important to know the factors

responsible for creation of NPAs in banks. There are many NPA causative factors,
which can be grouped under the following three broad categories on the basis of
problem sources and their controllability from the banker's point of view.

a) External or Environmental factors.

b) Borrower factors.
c) Internal factors.

a) External factors.
The external factors over which the individual banker as well as borrower has
no control have played a major role in the relation of NPAs in the banking
industry. These can be summarized as follows: -

1. Changes in the macro environment like market recession.

2. Changes in Govt. policies like import duties.
3. Socio-political pressures Example: through govt. sponsored scheme.
4. Political pronouncements like A. R. D. R. s.
5. Lack of conductive legal system for loan recovery; inadequate
provision on for closure and bankruptcy.
6. Natural Calamities.
7. Sudden change in the market.
8. Change in the commercial laws, and practices.
9. Non-co-operation / inaction of govt. agencies in recovery.
10. Address exchanges Rate Recession and non-payment to other
Countries.
11. Pollution control orders.
27

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
b) Borrower factors.
The borrower created factors of N P As are equally responsible for creation of N P
As but the bankers can control these factors to some extent.

These can be as follows: -

1. Improper choice of project activity.

2. Inefficient management
3. Diversion of funds.
4. Inadequate control / supervision leading to time / cost over runs during
project implementation.
5. Attitude to default willfully.
6. Resources crush.
7. Fraudulent intention/misappropriation
8. Promoters / management disputes.
9. Product obsolescence and marketing failures.

c.) Internal factors.

The internal factors are also equally responsible for creation of NPA in the banks.

These can be summarized as follows.

1. Improper selection of borrower.

2. Poor credit appraisal system. Lack of foresightedness while sanctioning /
reviewing loans proposals.
3. Inadequate and delayed credit decisions.
4. Delay in credit dispensation / dispensation / disbursement.
5. Under financing as well as over financing.
6. Lack of proper follow-up/post sanctions supervision and effective MIS.
7. Irrational lending or reckless advances to achieve the budgetary targets.
8. Lack of credit as well as NPA management skill.
28
9. Lack of professional credit personnel.
10. Lack of transparency in credit delivery and recovey

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
CALCULATION OF DATE OF DEFAULT:-
We cannot determine on which date Asset became NPA unless we determine date of
default in terms of NPA.

From the date of default 180 days (31st March 2004 onwards 90 days) asset become
non-performing so it is necessary to find out date of default.

To calculate date of default following information is needed: -

1. Installment plus interest.

2. Starting date of Installment
3. Total Recovery.

1. Principal + interest: -
a) No. Of installments received is = Total Recovery Amount of
installments.
b) Date of Default is = starting date of installment + no. of installments
received.
c) Date of N.P.A. is = Date of default + Two quarters (180 days)
90 days from 31-03-04= 10-07-2001 + 180 days.

d) Date of NPA is equal to 10.01.2002.

2. When amount recovered on loan on the basis of principal amount and

interest separately.
For example.

1. Total recovery 24,321

2. Out of recover 12,614
3. Monthly Installments 800/-
4. Starting date of Installments 10-5-2000
29

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 A. Principal Recovery.
=Total recovery – Recovery towards interest.

B. No. of installment Received

= principal recovery is divided by amount of installment.

C. Date of Default
=Starting date of installment + no. of installments received

= 10.05.2001 + 14 months

= 10.07.2002.

D. Date of NPA
So when we fix installment on the basis of principal amount plus interest at that
time the above formula can be used.

For example

1. Total Recovery 21,705

2. Out of Recovery 7030/-
3. EMI – 500/-
4. Starting date of monthly installment 10-05-2001

A. Ans. No. of Installment received is = total recovery divided by amount of

Installment
7030/500 = 14 months.

30

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 Date of Default

= Starting date of Installment + no. of installment received

=10.05.2001 + 14 months

=10.07.2002.

B. Date of NPA
Date of default + two quarters (180 days)

(90 days from 31-03-04)

31

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
EFFECT OF NPA’s:-

The Indian Banking Industry is contaminated with high NPA's. The problem of NPA is
multi-dimensional and it requires immediate scientific management to cure the malady.
To drive home the importance of NPA management, it is necessary to mention here its
ill effects on both present and future growth of banks.

Effects on profitability:-

The profitability of the banks is severely affected by NPA's as

 NPA do not generate any income.

 Provisioning is required @ 10% to 100% depending upon the quality of assets.
 Banks are required to meet the cost of funding these unproductive assets.
 Banks also incur expenses for maintenance of NPA's.
Effects on Return on Assets (ROA) :-

As NPA's reduce earning capacity of assets, Return on Assets (ROA) gets affected.
ROA is inversely related to NPA's.

Effects on productivity:-

The productivity of the banks having higher NPAs would be low as the branch staff
that could have been utilized for the business mobilization would primarily be engaged
in management of NPAs it is one of the factors for low productivity.

Effects on business mobilization:-

The presence of high NPAs would reduce the average yield on funds deployed. In
order to earn profits the bankers would be in search of low cost deposits and they have
to face a lot of difficulties in mobilizing, maintaining and serving such deposits in
today’s competitive environment. In case, the banks are not able to mobilize low cost
deposits then to remain in profit they will have to find the avenues of investment,
advances where the earning is high and funds are safe. But here again there is a lot of
competition among the banks for such avenues. The banks with high NPAs are thus32
in
vicious circle.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Effect on Recycling of funds:-

Recycling of funds is severely affected due to high NPAs in the banks. The banks are
being deprived of utilizing the funds blocked in NPAs in highly productive avenues.

Effects on capital restructuring:-

In order to improve the prescribed capital adequacy ratio (CAR) and improve the
working results today or tomorrow all most all banks would be forced to approach the
capital market for proper restructuring of their capital base. Besides earning per share
(EPS) the investing public observed the quantum of NPAs the bank carries.

Effects on the image of the bank:-

The high NPAs in the balance sheet of a bank show a poor picture of the bank as it
indicate inefficiency and ineffectiveness in the credit management of the bank.

Effect on interest Rate:-

Due to the high NPAs banks are charging high rate of interest on the good borrowers
to compensate the interest loss in the NPAs account. High NPAs in the banks have
devastating effects not only on the banks but also economy as whole. To explain its ill
effect it is better to quote extract from Narsimhan committee Report 1998 which reads
as NPAs constitute a real economic cause to the nation in that they reflect the
application of scare capital and credit funds to unproductive uses. The money locked
up in the NPAs is not available for productive use and to the extent that banks seek.
To make provisions for NPAs or to write off it is a charge on their profit. To be able to
do so banks have to charge their productive and diligent customers at higher rate of
interest. It is thus become a tax on efficiency. It is the customer who uses credit
efficiently those subsidies the inefficiency represented by NPAs. This also raises the
transaction cost in the system thus denying the diligent credit customers the benefit of
lower rates, which help them to be more efficient and competitive; NPAs in short are
bad for the banks and also bad for economy. 33

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 Early symptoms by which one can recognize a
performing asset turning in to Non-performing asset:-

Four categories of early symptoms:-

(1) Financial:

Non-payment of the very first installment in case of term loan.

Bouncing of cheque due to insufficient balance in the accounts.
Irregularity in installment.
Irregularity of operations in the accounts.
Unpaid overdue bills.
Declining Current Ratio.
Payment which does not cover the interest and principal amount of that
installment.
While monitoring the accounts it is found that partial amount is diverted to sister
concern or parent company.

(2) Operational and Physical:

If information is received that the borrower has either initiated the process of
winding up or are not doing the business.
Overdue receivables.
Stock statement not submitted on time.
\External non-controllable factor like natural calamities in the city where
borrower conduct his business.
Frequent changes in plan.
Nonpayment of wages. 34

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
(3) Attitudinal Changes:
Use for personal comfort, stocks and shares by borrower.
Avoidance of contact with bank.
Problem between partners.

(4) Others:
Changes in Government policies.
Death of borrower.
Competition in the market.

35

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Restructuring / Rescheduling of Loans

A standard asset where the terms of the loan agreement regarding interest and
principal have been renegotiated or rescheduled after commencement of production
should be classified as sub-standard and should remain in such category for at least one
year of satisfactory performance under the renegotiated or rescheduled terms. In the
case of sub-standard and doubtful assets also, rescheduling does not entitle a bank to
upgrade the quality of advance automatically unless there is satisfactory performance
under the rescheduled / renegotiated terms. Following representations from banks that
the foregoing stipulations deter the banks from restructuring of standard and sub-
standard loan assets even though the modification of terms might not jeopardise the
assurance of repayment of dues from the borrower, the norms relating to restructuring
of standard and sub-standard assets were reviewed in March 2001. In the context of
restructuring of the accounts, the following stages at which the restructuring /
rescheduling / renegotiation of the terms of loan agreement could take place, can be
identified:

 Before commencement of commercial production;

 After commencement of commercial production but before the asset has
been classified as sub standard,
 After commencement of commercial production and after the asset has been
classified as sub standard.

In each of the foregoing three stages, the rescheduling, etc., of principal and/or of
interest could take place, with or without sacrifice, as part of the restructuring package
evolved.

36

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Treatment of Restructured Standard Accounts:
A rescheduling of the instalments of principal alone, at any of the aforesaid first two
stages would not cause a standard asset to be classified in the sub standard category
provided the loan/credit facility is fully secured.

A rescheduling of interest element at any of the foregoing first two stages

would not cause an asset to be downgraded to sub standard category subject to the
condition that the amount of sacrifice, if any, in the element of interest, measured in
present value terms, is either written off or provision is made to the extent of the
sacrifice involved. For the purpose, the future interest due as per the original loan
agreement in respect of an account should be discounted to the present value at a rate
appropriate to the risk category of the borrower (i.e., current PLR+ the appropriate
credit risk premium for the borrower-category) and compared with the present value of
the dues expected to be received under the restructuring package, discounted on the
same basis.
In case there is a sacrifice involved in the amount of interest in present value terms, as
at (b) above, the amount of sacrifice should either be written off or provision made to
the extent of the sacrifice involved.

Treatment of restructured sub-standard accounts:

A rescheduling of the instalments of principal alone, would render a sub-standard asset
eligible to be continued in the sub-standard category for the specified period, provided
the loan/credit facility is fully secured.
A rescheduling of interest element would render a sub-standard asset eligible to be
continued to be classified in sub standard category for the specified period subject to
the condition that the amount of sacrifice, if any, in the element of interest, measured
in present value terms, is either written off or provision is made to the extent of the
sacrifice involved. For the purpose, the future interest due as per the original loan
agreement in respect of an account should be discounted to the present value at a rate
37
appropriate to the risk category of the borrower (i.e., current PLR + the appropriate
credit risk premium for the borrower-category) and compared with the present value of

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
the dues expected to be received under the restructuring package, discounted on the
same basis.
In case there is a sacrifice involved in the amount of interest in present value
terms, as at (b) above, the amount of sacrifice should either be written off or provision
made to the extent of the sacrifice involved. Even in cases where the sacrifice is by
way of write off of the past interest dues, the asset should continue to be treated as sub-
standard.

Up gradation of restructured accounts:

The sub-standard accounts which have been subjected to restructuring etc., whether in
respect of principal instalment or interest amount, by whatever modality, would be
eligible to be upgraded to the standard category only after the specified period i.e., a
period of one year after the date when first payment of interest or of principal,
whichever is earlier, falls due, subject to satisfactory performance during the period.
The amount of provision made earlier, net of the amount provided for the sacrifice in
the interest amount in present value terms as aforesaid, could also be reversed after the
one year period. During this one-year period, the sub-standard asset will not deteriorate
in its classification if satisfactory performance of the account is demonstrated during
the period. In case, however, the satisfactory performance during the one-year period is
not evidenced, the asset classification of the restructured account would be governed as
per the applicable prudential norms with reference to the pre-restructuring payment
schedule.

38

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Preventive Measurement for NPA :-

Early Recognition of the Problem

Invariably, by the time banks start their efforts to get involved in a revival process, it’s
too Late to retrieve the situation- both in terms of rehabilitation of the project and
recovery of bank’s dues. Identification of weakness in the very beginning that is when
the account starts showing first signs of weakness regardless of the fact that it may not
have become NPA is imperative. Assessment of the potential of revival may be done
on the basis of a techno-economic viability study. Restructuring should be attempted
where, after an objective assessment of the promoter’s intention, banks are convinced
of a turnaround within a scheduled timeframe. In respect of totally unviable units as
decided by the bank, it is better to facilitate winding up/ selling of the unit earlier, so as
to recover whatever is possible through legal means before the security position
becomes worse.

Timeliness and Adequacy of response:-

response:-

Longer the delay in response, grater the injury to the account and the asset. Time is a
crucial element in any restructuring or rehabilitation activity. The response decided on
the basis of techno-economic study and promoter’s commitment, has to be adequate in
terms of extend of additional funding and relaxations etc. under the restructuring
exercise. The package of assistance may be flexible and bank may look at the exit
option.

Focus on Cash Flows:-

While financing, at the time of restructuring the banks may not be guided by the
conventional fund flow analysis only, which could yield a potentially misleading
picture. Appraisal for fresh credit requirements may be done by analyzing funds flow
in conjunction with the Cash Flow rather than only on the basis of Funds Flow.

Management Effectiveness:-
Effectiveness:-

The general perception among borrower is that it is lack of finance that leads to
39
sickness and NPAs. But this may not be the case all the time. Management
effectiveness in tackling adverse business conditions is a very important aspect that
affects a borrowing unit’s fortunes. A bank may commit additional finance to an aling
unit only after basic viability of the enterprise also in the context of quality of
UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
management is examined and confirmed. Where the default is due to deeper malady,
viability study or investigative audit should be done – it will be useful to have
consultant appointed as early as possible to examine this aspect. A proper techno-
economic viability study must thus become the basis on which any future action can be
considered.

Accounts with temporary deficiencies:

The classification of an asset as NPA should be based on the record of recovery. Bank
should not classify an advance account as NPA merely due to the existence of some
deficiencies which are temporary in nature such as non-availability of adequate
drawing power based on the latest available stock statement, balance outstanding
exceeding the limit temporarily, non-submission of stock statements and non-renewal
of the limits on the due date, etc. In the matter of classification of accounts with such
deficiencies banks may follow the following guidelines:
a. Banks should ensure that drawings in the working capital accounts are covered by
the adequacy of current assets, since current assets are first appropriated in times
of distress. Drawing power is required to be arrived at based on the stock statement
which is current. However, considering the difficulties of large borrowers, stock
statements relied upon by the banks for determining drawing power should not be
older than three months. The outstanding in the account based on drawing power
calculated from stock statements older than three months, would be deemed as
irregular. A working capital borrower account will become NPA if such irregular
drawings are permitted in the account for a continuous period of 180 days even
though the unit may be working or the borrower's financial position is satisfactory.

Accounts regularised near about the balance sheet date:

The asset classification of borrower accounts where a solitary or a few credits are
recorded before the balance sheet date should be handled with care and without
scope for subjectivity. Where the account indicates inherent weakness on the basis
of the data available, the account should be deemed as a NPA. In other genuine
cases, the banks must furnish satisfactory evidence to the 40
Statutory
Auditors/Inspecting Officers about the manner of regularisation of the account to
eliminate doubts on their performing status.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 Asset Classification to be borrower-wise and not facility-wise

It is difficult to envisage a situation when only one facility to a borrower becomes a

problem credit and not others. Therefore, all the facilities granted by a bank to a
borrower will have to be treated as NPA and not the particular facility or part thereof
which has become irregular.
If the debits arising out of devolvement of letters of credit or invoked guarantees are
parked in a separate account, the balance outstanding in that account also should be
treated as a part of the borrower’s principal operating account for the purpose of
application of prudential norms on income recognition, asset classification and
provisioning.

Accounts where there is erosion in the value of security

A NPA need not go through the various stages of classification in cases of
serious credit impairment and such assets should be straightaway classified as
doubtful or loss asset as appropriate. Erosion in the value of security can be
reckoned as significant when the realisable value of the security is less than 50
per cent of the value assessed by the bank or accepted by RBI at the time of last
inspection, as the case may be. Such NPAs may be straightaway classified under
doubtful category and provisioning should be made as applicable to doubtful
assets.
If the realisable value of the security, as assessed by the bank/ approved values/
RBI is less than 10 per cent of the outstanding in the borrower accounts, the
existence of security should be ignored and the asset should be straightaway
classified as loss asset. It may be either written off or fully provided for by the
bank.

41

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Loans with moratorium for payment of interest
In the case of bank finance given for industrial projects or for agricultural plantations
etc. where moratorium is available for payment of interest, payment of interest becomes
'due' only after the moratorium or gestation period is over. Therefore, such amounts of
interest do not become overdue and hence NPA, with reference to the date of debit of
interest. They become overdue after due date for payment of interest, if uncollected.
In the case of housing loan or similar advances granted to staff members where interest
is payable after recovery of principal, interest need not be considered as overdue from
the first quarter onwards. Such loans/advances should be classified as NPA only when
there is a default in repayment of instalment of principal or payment of interest on the
respective due dates

42

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 METHODS OF NPA MANAGEMENT :-
· Recovery

At the organization level, all accounts where interest has not been collected should be
reviewed at periodical intervals to appropriate authorities. Lest the time and energy is
frittered away in following up and recovering small amounts, monitoring should be
focused at critical branches having concentration of high value NP As. In order to
recover the amount, one can adopt any way like persuasion, pressurization, frequent
interaction as a appropriate level, showing syn1pathy, treating the borrower as a
friend etc. recovery is not a one-man job. The-branch head should secure total
involvement and commitment of the staff working with him to bring about the desired
results. Irregular accounts need to be more actively followed up with a view to
containing the damage before the irregularity blows out of proportion. If is the
irregular portion in any account is fully recovered, such account will be eligible for
immediate reclassification as a standard asset-

· Rephasement of loan

Repayment of a term loan depends on income generating capacity)' of- the borrowing
unit. It may be difficult to get repayn1ent of the term loan if the borrowing unit does
not generate profit. A unit, which does not generate profit, may repay few
installments by borrowing from other sources or diverting short-term funds for
repayn1ent. But ultimately a loss-making unit may not be able to repay the term loan.
Therefore, it is necessary to fix repayment programme for a term loan according to
the income generating capacity of the unit. If repayment programme is not fixed or a
unit is able to generate the expected profit, possibly ma)- be installments. Sometimes
the borrowers e.g. agricultural borrowers may not be able to deposit the stipulated
installments due to the natural calamities. In that case also the credit granted to the
agricultural borrowers for sowing their crops should be converted into short term
loans. Such rephasement should be done on the basis of estimated funds flow in
43
consultation with the borrowers so that the rephrased repayment progran1me is
meticulously adhered to and the asset is upgraded in due course.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
· Compromise/Negotiable Settlement

Recovery of advances through compromise settlement is accepted as an effective

non-legal remedy in case where it is appropriated to adopt this option. Under this
borrower agrees to pay certain amount of the bank after getting certain concessions.
In this regard it is recognized that each of the compromise offers received from the
borrower is unique as the circumstances that necessitate consideration of these, as a
recovery option will vary from case to case. Every Bank has framed its own policy
.on compromise/negotiated settlement of loans and advances-

· Calling up the advance-filing of civil suits

If all attempts of converting an NP A into a performing asset fail, the bank is left with
no other option but to recall the advance and resort to legal action by filing of
recovery suits in the civil court or Debt Recovery Tribunals. The cases for recovery of
debt due to banks or financial institutions involving an amount of Rs. 10 lacs and
above are to be filed in the Debt Recovery Tribunal of Jurisdiction. The branches and
controlling authorities should make proper follow up of these cases tiled at various
levels should be made by the branches and controlling authorities.

· Establishment of Asset Recovery Branches

Some banks have opened asset recovery branches at critical center for undertaking
recovery .Bad and doubtful assets of various existing branches have been transferred
to the recovery Branch, which may have trained staff with necessary background for
recovery .The Specialized Recovery Branches may give undivided attention to
recovery of dues. Establishment of such specialized branches may help in reducing
NP As.

· Recovery through Lok Adalats:

Lok Adalat is an arrangement wherein suit filed as well as non-suit filled accounts are44
referred by the banks for speedy settlement of t4e dispute through conciliation. On a
mutual agreement, the settlements are arrived at the Iok Adalat and the concessions are
extended as under.

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
ALTERNATE METHODS FOR NPA MANAGEMENT:-

An effective resolution of the problem of NPA is hampered on account of inadequate

legal provisions, the existing bottle necks in the debt recovery process, and absence of
Alternate Avenue for wiping out the chronic NPAs from the bank's balance sheets and
lack of credit information exchange facilities among the banks. At the policy level,
there is need for legislation, which will make recovery processes smoother and legal
action quicker. In consultation with the Government, the Reserve Bank of India has
initiated some measures on the above aspects for providing alternate methods to the
banks for resolving their NPA problems. Some of the impending methods, which are
under active consideration of the RBI/Government, are briefly discussed below.

1. Asset Reconstruction company (ARC) :-

The Narasimhan Committee as well as the Verma Committee has recommended
setting up an asset reconstruction company to tackle the problem of non-performing
assets in the banking industry. Though it has taken considerable time by the
Government to decide on the matter, but now it is in the final stage for setting up an
ARC is to have a paid-up capital of Rs. 200 crore and authorized capital of Rs. 2000
crore as starter. The shareholder of ARC will be the public sector banks and the three
financial institutions i.e. IDBI ICICI and IFCI. The company will take over the
doubtful and loss assets of the banks. A bank with NPAs may approach the ARC for
reconstruction part of its doubtful assets. The ARC will take over these NPAs at a
determined value and will then issue bounds to the respective bank at a decided
coupon rate for a period of seven to ten years. This will give an opportunity to the
banks to clean the chronic NPAs from their balance sheets, of course at a heavy cost.

2. Corporate Debt Restructuring (CDR) :-

Another method suggested for the reduction of NPAs is Corporate Debt Restructuring.
The process is mainly restructuring the debt portfolio of the borrowers among its
creditors to assist the borrowers in the revival of the projects and continue operations
45
through reduction in existing debt burden and establishment of credit lines with
implied assumption that the lender could prefer reduction in the risk to optimization of
return. The objective of the CDR is to ensure timely and transparent mechanization of

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
restructuring of the debts of viable corporate entities affected by internal and external
factors outside the preview of BIFR,DRT or other legal proceedings for the benefit of
all concerned. The major features of the CDR mechanism are:

a) it would be a voluntary system based on debtor-creditor agreement and

inter-creditor agreement.
b) The scheme will not apply to accounts involving only one financial
institution or one bank instead it will cover multiple banking accounts
syndication/consortium accounts with outstanding exposure of Rs. 20 Crore
and above by banks and institutions.
3. Credit information Bureau (CIB)
A credit information Bureau has been established within a paid-up capital of Rs. 25
crore, in order to coordinate sharing of information on the borrowers of credit
institutions. The CIB will perform the role of collecting and disseminating information
on the list of suit-filed accounts and the list of defaulters including willful defaulters,
which is presently handled by the RBI.

4. Defaulter's list
For providing information regarding the defaulter borrowers to the banks and financial
institutions, RBI introduced annual publication of the list of defaulters (suit-filed
cases) the banks and financial institutions of Rs. 1 Crore and above in 1995. The
coverage of the scheme was widened by bi-annual circulation of the names of
defaulters of Rs. 1 crore and above in the doubtful or loss category. A scheme for
collection and dissemination of information on willful defaulters with outstanding
balance of Rs. 25 lack and above, on quarterly basis, was also introduced in February
1999. Pending appropriate amendments in the banking laws, the RBI has also advised
banks to incorporate a condition in the loan agreement for obtaining consent of the
borrowers to disclose their names in the event of their becoming defaulters. RBI has
advised the banks to complete the process of obtaining consent of the borrowers by
September 30,

46

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 DATA ANALYSIS

CHAPTER
5

47

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 DATA ANALYSIS:-

Chart:-

Year Gross NPA Net NPA

2004-05 5.01 2.64
2005-06 3.84 1.56
2006-07 2.94 0.96
2007-08 2.18 0.15
2008-09 1.96 0.34

Graph:-

3 Gross NPA
Net NPA

0
2004-05 2005-06 2006-07 2007-08 2008-09

Fig- Gross & Net NPA graph of union bank of India

OBSERVATION:- On above graph shows that the ratio of Gross NPA & Net NPA to
union bank of India has been decreased year by year. The decreased NPA percentage is
not the good sign to union bank of India. That means union bank of India has been
progressed on right way & union bank of India is number 1ST position in the future. 48

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
Chart:-

year Total deposit

2004-05 61831
2005-06 74094
2006-07 85180
2007-08 103859
2008-09 138703

Graph:-

Total deposite
160000

140000

120000

100000
Total deposite
80000

60000

40000

20000

0
2004-05 2005-06 2006-07 2007-08 2008-09

FIG- Total Deposits of union bank of India

OBSERVATION:-On above graph shows that the deposits to union bank of India is
increased year by year that means policy about the deposits are good i.e. bank taken
the deposit in 2003-04 is Rs.61831 crore &in 2008-09 is Rs.138703 crore. BSank has
progressed in very well year by year.
49
Chart:-

year Total Advances

2004-05 30928

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 2005-06 54644
2006-07 63658
2007-08 75878
2008-09 98265

Graph:-

Total Advances
120000

100000

80000
Total Advances
60000

40000

20000

0
2004-05 2005-06 2006-07 2007-08 2008-09

Fig-Total Advances of union bank of India

OBSERVATION:-On above graph shows that the advances to union bank of India is
increased year by year In the 2003-04 bank has given the advances of Rs.30978 crore
in 2008-09 bank has given the advances of Rs.98265 crore In above figure show that
the bank has progressed to his lending business.

YEAR NPA AMOUNT

50

2006-07 NIL

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 2007-08 4931061

2008-09 8779151

Chart:-

GRAPH:-

NPA AMOUNT
10000000
9000000
8000000
7000000
6000000 NPA AMOUNT
5000000
4000000
3000000
2000000
1000000
0
2006-07 2007-08 2008-09

Fig-NPA amount of union bank of India (Haripura Branch)

OBSERVATION:- on above graph show that the union bank of India in haripura
branch NPA amount increased year by year.Because they provides only a retail loan.
The maximum NPA amount is in the sub-standard & doubtful category. The haripura
branch has needed earlier recovery of that NPA amount then his NPA ratio not
increased in future.

CHART:- 51

YEAR ADVANCES AMOUNT

2006-07 21371156

UNION
2007-08 BANK OF INDIA- Swastika170711499
chamber, 5/369, bhajiwali pole, bhagal, Surat

2008-09 190455590
GRAPH:-

ADVANCES AMOUNT
200000000
180000000
160000000
140000000
120000000 ADVANCES AMOUNT
100000000
80000000
60000000
40000000
20000000
0
2006-07 2007-08 2008-09

Fig- Advances amount of union bank of India(Haripura Branch)

OBSERVATION:-On above figure comparisons to three year advances amount

every year advances amount is increased i.e. in 2006-07 is Rs.21371156 & in 2008-09
is Rs.190455590. This chart shows that the haripura branch is also progressed on right
way to every financial year.

52

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 FINDING & SUGESSION

CHAPTE
6R

53
FINDINGS AND SUGGESTIONS

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 1. Finding:- The NPA ratio is increased in 2008-09 (i.e.0.05) as compare to
2007-08 (i.e. 0.03) to union bank of India (Haripura branch).

Suggestion: The bank should have Recovery effort start from the 1st month
of default itself prompts legal action & seizure action is taken.
Position overdue A/C is reviewed on weekly basis to arrest
slippage of fresh A/C NPA category.

2. Findings:-The net NPA percentage union bank of India is increased

in F.Y.-2008-09 (i.e. 0.34) as compare to F.Y.-2007-08
(i.e. 0.15)

Suggestions: No proper provisioning to bank then bank has proper

provisioning of the NPA amount.

3. Findings: The union bank of India haripura branch has NPA amount is
increased in this year as compare to last year

Suggestions: The Faming reasonably well documented loan policy & rules.
Sound credit appraisal on well settled banking norms.

54

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 CONCLUSION

CHAPTE
R
7

55

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
CONCLUSION

The Indian Banking industry is being threatened by the NPA menace. Among the
various NPA causative factors defective legal system as well as ineffective NPA
management is two prime factors. Only the Government can bring effective legal
system and it will take its due time whereas, the bankers themselves can bring effective
NPA Management and it does not take time. But it requires clear understanding of
every aspect of NPA's management and its implementation in true letter and spirit.
Continuous increase in absolute NPA's in the banking industry indicates that there is
lack of NPA management skills at the field level.

From the analysis of the data it is found that the NPA of the UNIONBANK OF INDIA
is 1.96% i.e. 1923 crore. & UNIONBANK OF INDIA (haripura branch) is
Rs.87,79,151.

So banks will have to achieve the level of standards in effective NPA

management in the years to come & Proper appraisal of the loan account to avoid over
or under financing should be done. However in the long run, only better credit
management in terms of appraising and monitoring of the loan assets can solve the
problem in this area and this will only enable banks in maintaining the prominent
position in the global set up.

56

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 RECOMMENDATIONS

CHAPTE
R8

57

UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
RECOMMENDATIONS:-
Effective NPA management:-
1. Faming reasonably well documented loan policy & rules
2. Sound credit appraisal on well settled banking norms.
3. Emphasizing reduction in gross NPA rather than the net NPA.
4. Recovery action under “Transfer of properties act” by entrusting the work to
private auctioneers.
5. Recovery effort start from the 1 st month of default itself prompts legal action &
seizure action is taken.
6. One of employee of the bank is vested with the power of sale/recovery officer
for execution proceeding.
7. Position overdue A/C is reviewed on weekly basis to arrest slippage of fresh
A/C NPA category.
8. Half yearly balances conformation certificate are obtained from the barrower
regularly
9. Irregular borrowers A/C is followed up vigorously officer on whose
recommendation loans are sanctioned are also held personally responsible. In
addition to the effort of the branches.
10. Due to lower risk & consequent higher probability greater encouragement is
given to small borrower.
11. Recovery competition system is extent among the staff member. The
recovering higher amount is felicitated.
12. Adopting the system of market intelligence for deciding the creditability of the
borrower.
13. Creation of separate “Recovery Department” with special recovery officer
appointed.

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UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 BIBLIOGRPHY

CHAPTE
R
88

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UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat
 BIBLOGRAPHY

1. The Banker Journal.:-

- April 2008-09

2. Non performing Assets:-

- By Barati N. Pathak

3. Financial Management:-
-By Khan & Jain Khan & Jain

4. Research Methodology:-

C.R. KOTHARI

5. WEBSITE :-

www.unionbankofindia.com

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UNION BANK OF INDIA- Swastika chamber, 5/369, bhajiwali pole, bhagal, Surat