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Article Review On Non Performing Asset IN Banks

This document provides an overview of non-performing assets (NPAs) in banks in India. It defines NPAs and categorizes them as standard, substandard, doubtful, or loss assets. It discusses the impact of NPAs on bank operations like profitability and credit growth. It also examines management of NPAs in Jharkhand state banks and prevention of NPAs through various acts like the Debt Recovery Tribunal Act, Code of Civil Procedure, Sick Industrial Companies Act, and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act.

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Shrikant Gupta
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48 views22 pages

Article Review On Non Performing Asset IN Banks

This document provides an overview of non-performing assets (NPAs) in banks in India. It defines NPAs and categorizes them as standard, substandard, doubtful, or loss assets. It discusses the impact of NPAs on bank operations like profitability and credit growth. It also examines management of NPAs in Jharkhand state banks and prevention of NPAs through various acts like the Debt Recovery Tribunal Act, Code of Civil Procedure, Sick Industrial Companies Act, and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act.

Uploaded by

Shrikant Gupta
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Article Review

on
Non Performing Asset
IN Banks

By:- TRIPTI MISHRA


SRIKANT GUPTA
C POORNIMA
Sec B
What is NPA

• A NPA is a loan or an advance where;


– Interest and/ or installment of principal remain
overdue for a period of more than 90 days in
respect of a term loan,
– The account remains “out of order” in respect
of an overdraft/ cash credit
– The bill remains overdue for a period of more
than 90 days in the case of bills purchased
and discounted
– The installment or interest remains overdue for
two crop seasons in case of short duration
crops and for one crop season in case of long
duration crops
CATEGORIES OF NPA

• Standard assets- These are loans which do not


have any problem are less risk.
• 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 12
months
• 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
IMPACT OF NPAs ON OPERATIONS

• Drain on Profitability
• Impact on capital adequacy
• Adverse effect on credit growth as the banker’s
prime focus becomes zero percent risk and as a
result turn lukewarm to fresh credit.
• Excessive focus on Credit Risk Management
• High cost of funds due to NPAs
•
•
•
 Management of Non-Performing Assets in
Banks with special reference to
Jharkhand
 BY:- Santanu Das

•
Review
• The Credit-Deposit Ratio in Jharkhand is almost half
that as compared to the ratio on All India basis and
there has been a stagnation in the figure.
• In 2001 total cr., to SBI is Rs 1000 Cr increased to 1080
in 2005, increase of 8%.
• For the Nationalised Banks the corresponding figures
are Rs 1440 Cr and Rs 1000 Cr, a decrease of 31%.
• In agriculture sector, it is observed that for SBI and
Associates the credit sanctioned increased from Rs
140 Cr to Rs 200 Cr, an increase of 43%.
• For Nationalised Banks the corresponding figures are Rs
160 Cr to Rs 360 Cr, an increase of 125%.
•
• 30 September 2006, the total quantity of bad loans
was Rs 1520 Cr in East Singbhum and Rs 930 Cr
in the Dhanbad district.
• If all the districts are taken then this figure stood at
Rs 4070 Cr.
• The bad loans in East Singbhum was about 37.3% &
23% in the Dhanbad district which constitute 60%
of total bad loans.
• The total number of defaulting companies in East
Singbhum is 13 followed by 10 in Ranchi, 7 in
Bokaro and 6 in Dhanbad.
• The total bad loans of State Bank of India was Rs
2660 Cr which is about 65% of total bad loans &
corresponding figure of number of defaulting
companies was about 72%.
•
Graph Showing Generation Of NPA
•
 MC is the Marginal Cost to the banks, AC is the
Average Cost, i is the interest rates on loans.
 Point B represents the cost of funds and the shaded
portion is the profit. To maximize profits, a purely
competitive bank issues loans such that the MC of an
additional loan equals the MR from loans. The MR is
simply the market interest rate. Profits are maximized
when MC equals interest rate. Therefore, it is evident
that profits can be maximized if more and more loans
are extended at a given rate of interest. This may
result in poor assessment of the borrower leading to
fresh generation of NPAs.

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

In crores
Dec 09 Dec 10
Opening NPA 1020.35 1372.3
Reduction 445.58 537.29
Cash Recovery 197.26 191.95
Up-Gradation 144.97 166.16
Write- off 103.35 179.18
Slippages 491.84 650.28
Closing NPA 1066.61 1485.29
Particular Dec 09 Security % Security Dec 10 Security % of
Available Available security

Total Non 1066.61 978.99 91.8% 1485.29 1153.38 77.7%


Performing
Assets/Security
Avalable

Sub-standard 346.87 332.79 95.9% 523.54 484.34 92.5%

Doubtful 716.36 646.2 90.2% 755.24 699.04 88.6%

Loss 3.38 NIL 00.0% 206.51 NIL 00.0%


Prevention of NPA
–
–
–DRT Act
–Proceeding under Code of
Civil Procedure
–BIFR AND AAIFR
–NATIONAL COMPANY LAW
TRIBUNAL
–SARFESI Act 2002

DRT Act

The banks and FIs can enforce their securities by initiating recovery
proceeding under the Recovery if Debts due to Banks and FI act,
1993 (DRT Act) by filing an application for recovery of dues before
the Debt Recovery Tribunal constituted under the Act.
On adjudication, a recovery certificate is issued and the sale is
carried out by an auctioneer or a receiver.
DRT has powers to grant injunctions against the disposal, transfer or
creation of third party interest by debtors in the properties charged to
creditor and to pass attachment orders in respect of charged
properties
In case of non-realization of the decreed amount by way of sale of
the charged properties, the personal properties if the guarantors can
also be attached and sold.
However, realization is usually time-consuming
Steps have been taken to create additional benches
Proceeding under Code of
Civil Procedure
• For claims below Rs.10 lacs, the banks and FIs can initiate
proceedings under the Code of Civil Procedure of 1908, as
amended, in a Civil court.
• The courts are empowered to pass injunction orders restraining the
debtor through itself or through its directors, representatives, etc
from disposing of, parting with or dealing in any manner with the
subject property.
• Courts are also empowered to pass attachment and sales orders for
subject property before judgment, in case necessary.
• The sale of subject property is normally carried out by way of open
public auction subject to confirmation of the court.
• The foreclosure proceedings, where the DRT Act is not applicable,
can be initiated under the Transfer of Property Act of 1882 by filing
a mortgage suit where the procedure is same as laid down under the
CPC.
•
BIFR AND AAIFR
• BIFR has been given the power to consider revival and
rehabilitation of companies under the Sick Industrial
Companies (Special Provisions) Act of 1985 (SICA),
which has been repealed by passing of the Sick Industrial
Companies (Special Provisions) Repeal Bill of 2001.
• The board of Directors shall make a reference to BIFR
within sixty days from the date of finalization of the duly
audited accounts for the financial year at the end of
which the company becomes sick
• The company making reference to BIFR to prepare a
scheme for its revival and rehabilitation and submit the
same to BIFR the procedure is same as laid down under
the CPC.
• The shelter of BIFR misused by defaulting and dishonest
borrowers
• It is a time consuming process
•
NATIONAL COMPANY LAW
• TRIBUNAL

• In December 2002, the Indian Parliament passed the Companies Act


of 2002 (Second Amendment) to restructure the Companies Act,
1956 leading to a new regime of tackling corporate rescue and
insolvency and setting up of NCLT.
• NCLT will abolish SICA, have the jurisdiction and power relating to
winding up of companies presently vested in the High Court and
jurisdiction and power exercised by Company Law Board
• The second amendments seeks to improve upon the standards to be
adopted to measure the competence, performance and services of
a bankruptcy court by providing specialized qualification for the
appointment of members to the NCLT.
• However, the quality and skills of judges, newly appointed or
existing, will need to be reinforced and no provision has been
made for appropriate procedures to evaluate the performance of
judges based on the standards
SARFESI Act 2002

• SARFESI provides for enforcement of security interests in


movable (tangible or intangible assets including accounts
receivable) and immovable property without the
intervention of the court
• The bank and FI may call upon the borrower by way of a
written legal notice to discharge in full his liabilities within
60 days from the date of notice, failing which the bank
would be entitled to exercise all or any of the rights set out
under the Act.
• Another option available under the Act is to takeover the
management of the secured assets
• Any person aggrieved by the measures taken by the bank can
proffer an appeal to DRT within 45 days after depositing
75% of the amount claimed in the notice.
•

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