Non performing assets (1)

Standard Assets : Arrears of interest and the principal amount of loan does not exceed 90 days at the end of financial year Substandard Assets : Which has remained NPA for a period less than or equal to 12 months. Doubtful Assets : Which has remained in the substandard category for a period of more than 12 months D1 i.e. up to 1 year : 20% provision is made by the bank D2 i.e. up to 2 year : 30% provision is made by the bank D3 i.e. up to 3 year : 100% provision is made by the bank Loss Assets : where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.

10RDM31 10RDM36 10RDM41 10RDM45 10RDM46 Non Performing Assets

Non Performing Asset means a loan or an account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI

Introduction

With effect form March 31, 2004 a non-performing asset (NPA) shell be a respect of a Term Loan,

loan or an advance where;

 interest and /or installment of principal remain overdue for a period of more than 90 days in

 the account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC),

 the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,

TYPES OF NPA

 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.

 Gross NPAs Gross NPAs

Gross Advances

 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

Net NPAs Gross = NPAs – Provisions

Gross Advances - Provisions

 Standard Assets : Arrears of interest and the principal amount of loan does not exceed

90 days at the end of financial year

 Substandard Assets : Which has remained NPA for a period less than or equal to 12

months.

 Doubtful Assets : Which has remained in the sub-standard category for a period of more

than 12 months

 D1 i.e up to 1 year : 20% provision is made by the bank

 D2 i.e up to 2 year : 30% provision is made by the bank

 D3 i.e up to 3 year : 100% provision is made by the bank

 Loss Assets : where loss has been identified by the bank or internal or external auditors

or the RBI inspection but the amount has not been written off wholly.

NPA criteria for Agricultural Advances

 Short duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for two crop seasons

 Long duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for one crop season

Agency wise credit flow

Crop wise credit flow

Regional wise working result of npa of stcb(Crore)

Region 2012-2013 2013-2014 NPA% of loan Recovery

Profit Loss Profit Loss 2012

2013 20132014 2012-2013 2013-2014

Central 99.33 0.00 140.14 0 3.76 2.70 97.0 96.39 Northen 154.13 0 108.74 0 2.14 1.93 97.51 97.90 Eastern 85.07 0.52 47.49 12.96 8.27 6.90 91.36 57.90 Western 499.66 0 414.44 11.36 13.87 10.92 93.81 88.68 Southern 201.29 2.28 205.78 63.59 4.27 5.38 93.41 96.87 North-eastern 69.37 1.51 62.87 5.64 23.21 11.12 46.27 49.10 All india 1109.74 4.37 979.46 93.55 6.16 5.54 94.62 82.08

Sector wise npa

Sr.no sector Percentage of npa

2014-2015 2013-2014

1 Agriculture and allied activities 6.57 1.40

2 Industry micro small large 96.75 79.82

4 Personal loans staff loans 0.16 0.12

Factors Impacting Rise In NPA s

Internal factors :

 Defective Lending process

 Inappropriate / non –use of technology like MIS , Computerization

 Improper SWOT analysis

 Inadequate credit appraisal system

 Managerial deficiencies

 Absence of regular industrial visits & monitoring

 Deficiencies in re-loaning process

 Alleged corruption

 Inadequate networking & linkages b/w banks

Factors Impacting Rise In NPA s

External factors :

 Ineffective legal framework & weak recovery tribunals

 Lack of demand / economic recession or slowdown

 Change in Govt policies

 Wilful defaults by customers

 Alleged political interferences

NPA MANAGEMENT- INFORMAL TOOLS

 Build relationship with villagers

 Promote Farmers’ clubs

 Use SHGs/JLGs for recovery

 Follow the village economy - visit mandi haat

 Track the cash and bring it to PACS/bank/credit marketing linkage

RECOVERY STRATEGY

Willing To Pay Able To Pay

(Recovery Pot.)

Willing To Pay Unable To Pay (Compromise Pot.)

Unwilling To Pay Able To Pay

(Legal Action Pot)

Unwilling To Pay Unable To Pay

(Write Off Pot.)

Current position of NPA

Twenty-nine state-owned banks wrote off a total of Rs 1.14 lakh crore of bad debts between financial years 2013 and 2015, much more than they had done in the preceding nine years

In response to an RTI application filed by The Indian Express, the RBI disclosed that while bad debts stood at Rs 15,551 crore for the financial year ending March 2012, they had shot up by over three times to Rs 52,542 crore by the end of March 2015

Even as the government has been trying to shore up public sector banks through equity capital and other measures, bad loans written off by them between 2004 and 2015 amount to more than Rs 2.11 lakh crore More than half such loans (Rs 1,14,182 crore) have been waived off between 2013 and 2015

Only two banks, State Bank of Saurashtra and State Bank of Indore, have shown zero bad debts in the past five years

In other words, while bad loans of public-sector banks grew at a rate of 4 per cent between 2004 and 2012, in financial years 2013 to 2015, they rose at almost 60 per cent The bad debts written off in financial year ending March 2015 make up 85 per cent of such loans since 2013

RECOMMENDATION BY RBI GOVERNOR

With public sector banks sitting on over Rs 7 lakh crore stressed assets, including NPAs and restructured loans, Rajan recently said the estimates of NPAs being 17-18 per cent are bit on the high side and that entities should be careful not to treat NPAs as total write-offs but see if they can change promoters and repay as the economy recovers He also said that some banks would have to merge to optimise their use of resources

Gross NPAs of public-sector banks rose to 6.03 per cent as of June 2015, from 5.20 per cent in March

2015 RBI has asked banks to review certain loan accounts and their classification over the two quarters ending December 31, 2015, and March 31, 2016

Recommendations

The RBI has noted that the total write-offs includes a large portion of technically written-off accounts where the recovery efforts continue as usual Therein lies the problem After a technical write-off, there is no incentive for banks to pursue recovery, as noted by RBI’s former deputy governor KC Chakrabarty in the past

Given the humongous bad loan problem at hand, the write-offs cannot be seen as just housekeeping The Rs 1,14,000 crore written off over just the last three years (2012-13 to 2014-15) is more than the write-off over the previous nine years So acute is the problem that both the Union finance ministry and NITI Aayog have separately pitched for setting up a government-owned asset reconstruction company to take over banks’ bad assets

Most importantly, write-offs force the government to commit large dollops of capital so that banks continue to undertake normal lending operations in the coming years The finance ministry has proposed to infuse Rs 70,000 crore over the next four years, which may not be enough Capital infusion by the government is always at the taxpayers’ expense Setting aside moneys from the Budget for this only precludes higher allocation for critical sectors such as health and education