M - Gajanan A. Bhakare
M - Gajanan A. Bhakare
M - Gajanan A. Bhakare
DOCTOR OF PHILOSOPHY
IN COMMERCE
DR. V. M. CHAVAN
DIRECTOR,
BHARATI VIDYAPEETH DEEMED UNIVERSITY
MAY, 2010
1. INTRODUCTION
After the Nationalization of banking sector, the Indian banking and
financial
system
has
made
commendable
progress
in
extending
in
geographical spread and financial reach. The banking industry in India is also
undergoing rapid changes with the introduction of financial sector reforms and
follow-up actions by Reserve Bank of India based on the Narasimham
Committee recommendations.
However before 1990 the Indian banking business was on the way to
dismal performance. Most of the nationalized, private and co-operative sector
banks outwardly were sharing profits, but in reality they were fictitious. As a
result the basic elements of the banking system were getting shattered.
M. Narasimham committee was to examine all aspects relating to the
structure, organization, functions and procedures of the Indian financial
system. Narasimham Committee gave preference to the prudential norms of
income reconstruction, assets classification and provisioning for the advance
portfolio of the banks and recognition of Non -Performing Assets and gradually
strengthening the financial position of banks.
1) To examine the nature and the problem of the NPA position in selected
Banks.
2) To study recognized income of the selected banks.
3) To study the classification of assets into different categories of the
selected banks.
4) To examine the advances secured against certain instruments.
5) To make an intersectoral
selected banks.
6) To examine the steps taken for recovery in respect of NPA accounts.
7) To make specific recommendations on the basis of research work carried
out.
Sampling of banks
The number of
which
total
Public Sector Banks are 27 and Private Sector Banks are 30. On the
other hand there are 73 co-operative scheduled banks in India out of which 30
banks are in Maharashtra. The study covers 3 banks from each of the sectors
on convenience sampling basis aggregating 11.11% private sector banks and
10% cooperative sector banks functioning in Maharashtra.
Sample Size
Banks
Private Sector
India
57
%
43.85
Maharashtra
27
%
47.36
Sample
3
%
11.11
Co-operative
73
56.15
30
52.63
10.00
Sector
Total
130
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While deciding selection of banks, the researcher has also seen that
those banks should be large in size and growth, and establishment. All the
banks selected have more than 45 years of length of operations and all have
received Audit Class A for their banking operations. As the head offices of
the banks are situated in Western Maharashtra data collection was
convenient for the researcher.
6) DATA COLLECTION
For the study in hand primary and secondary data have been utilized:
I) Primary Data: The primary data is collected through questionnaire
administered to CEOs, AGMs, Branch Managers and NPA borrowers of the
banks covered under the study.
Break-up of Responses of Sampled Employees
No of
Name of banks
employees
CEO
AGM
Interviewed
Branch
Manager
Borrowers
And
others
Private Sector
The Ratnakar Bank Ltd
The United Western Bank Ltd
The Ganesh Bank of
Kurundwad Ltd
12
14
1
1
2
4
4
2
5
7
16
10
10
18
16
31
Co-operative Sector
The Ichalkaranji Janata
Sahakari Bank ltd
The Karad Urban co- op Bank
Ltd
Total
71
II) Secondary Data: Since the study is related to financial problem concerning
banks it was obvious to rely on the secondary data in the published form which
is extensively used for the purpose of the study in hand. Annual Reports from
1998 to 2007, bank publications, circulars, RBI notifications as to NPA
Accounts,
RBI
Publications
and
guidelines
on
NPA,
NPA
Reports,
9) CHAPTER SCHEME
The entire research work is divided in Seven Chapter
Chapter I
Chapter II
Review
of Literature:
IDBI respectively.
8) The performance of Co-operative banks in regards to gross NPA to
gross advances is not satisfactory as compared to private sector banks
covered under study.
9) High net NPA ratio is indicator of high risk. The ideal ratio of Net NPA
to Net Advances should not cross 3%. The intersectoral comparison
observed that both the sectors do not have ideal net NPA ratio.
10) The Private sector banks selected for the study performed better than
Co-operative banks with a ratio of 9.04%
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15) Both the sector banks have improved their recovery management from
2001 and credit of this change goes to the second reforms of
Narshimham Committee Report.
16) In comparison with Private sector the cost of legal expenses of Cooperative sector is lower. Constantly without any exception; cost of
legal expenses of Co-operative sector ranged between 0.1% to 0.32%
indicating practice of not opting for legal mechanism. The cost incurred
by private sector is much higher and results are much better.
borrowers.
2) An account does not become an NPA overnight. The account gives
enough number of signals of the impending problems and banker
should be alert to catch these signals for quick analysis, react on the
same promptly and take corrective actions.
3) While making distinction between Standard and Sub-Standard
categories of assets, potential NPAs be assessed and recovery
attempts be made carefully.
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period, loan mela, resettlement package etc. and they should also
resort to strong- arm technique for loan recovery. This will minimize
NPAs.
11) Recovery of NPAs is delicate matter. Hence need to have a team of
duly trained employees with adequate experience and equipped with
updated knowledge in the field of banking laws and practices, means
SARFACI, Suit filing, DRT Compromise etc. Even clerical staff involved
in this work needs proper orientation of the task.
12) It is recommended that banks in both the sectors should avoid to go
for private recovery agents for collecting dues.
13) In order to bring down the level of overall NPA present capital
adequacy norms should be reduced.
14) The bank should develop continuous relationship with the borrowers
and prefer to give silent listening to the problems and guide them in
their hard time to get proper cooperation in recovery.
B) Recommendations to Branch Offices of Selected Banks:
1) In case of cash credit monthly stock statement of the borrower should
be collected by the banks in all sectors and in case of term loans
personal visit to the site be paid to verify physical presence of the
assets. This should be done by the branch office of every bank.
2) In order to identify potential NPAs continuous scrutiny of the accounts
be undertaken and weak accounts be attended in time to avoid further
complications in the recovery.
3) The realistic picture of the NPA be communicated to the head office in
time. It is a practice in both the sectors to hesitate to give realistic view
of NPA in the branches.
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account
by
extending
additional
credit
facility,
and
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13) In both the sectors the problem of big defaulters is serious therefore
legal action against such borrower be taken immediately under able
guidance without loosing time.
C) Suggestive Model for RBI:
1) Banks have been taking legal and un legal steps for making the
provisions as per the directives issued by the RBI time to time in this
context the researcher has recommended that the banks should adopt
the following policy to solve the NPA problem at bank level by making
provisions on the principal outstanding a) No provision requirement on standard assets.
b) Banks have to make the additional provision over one year
period under the head sub-standard additional provision with
minimum of 20 percent each year.
c) Assets classification and provision for non performing
advances as underAssets Classification
Standard Assets
Sub- standard Assets
Outstanding / Irregular
Provision
Installment
Requirement
No provision
a) 3 months to 12 month
10%
b) 13 months to 36 month
I ) 12 months
security
ii) 12 months
Secured
and
loan
.20%
75%
Loss Assets
loan
25%
loss assets
36 months treated
has
not
15
written-
off
It is clear that in the model NPAs total provision period is considered for
30 months instead of 60 months. Here only three step assets classification and
provision on the principal outstanding have been suggested. In this way banks
can make minimum provision of NPAs and higher level of profit without
compromising with financial help of the bank.
CONCLUSION
Non Performing Assets are universal problem for all banks irrespective
of the sector. It is a loss and is inevitable for every business including banking. It
originates from lethargy in sanction of loans and failure in a recovery. In the
study undertaken it is found the major loss on account of NPA is caused by
cooperative sector as compared to private sector where lethargy is a common
phenomenon. Though some of the cooperative banks have done better business
in past suffered NPAs on account of mergers of few other banks which were
financially weak and this affected on the financial position of the strong bank
(taking over bank). There are common characteristics which are responsible for
NPAs in selected banks due to diverted use of funds advanced, willful defaulters,
lack of supervision, political interference, weak legal support, outside pressures,
internal and external economic causes, faults in determining quality of bank
assets and fraudulent attitude of top management/officers. It is also observed
that two banks are merged in other banks due to such practices. Thus NPA is a
threat to the existence of bank. Default on account of big borrowers is a problem
in recovery for private sector but such borrowers are less in number in the
sample cooperative banks.
The quality of standard assets is important factor in determining NPA. In
private sector this quality is purposefully maintained. This process starts from
sanctioning of loans against proper securities, vigil on use of funds advanced,
constant follow up on repayments delayed, visit of bank officers, efficient use of
legal mechanism if required, which strengthen recovery process and ultimately
resulted in lower level of NPA. In cooperative sector it is observed that a liberal
view in the process of sanctioning loan, weak follow up and very limited use of
legal mechanism registered very low results in the process of recovery and
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Dr. V. M. Chavan
Research Student
Research Guide
17