“A Study on Non-Performing Assets of Bank of Maharashtra”
PART A
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“A Study on Non-Performing Assets of Bank of Maharashtra” EXECUTIVE SUMMARY
This project report has been undertaken in “Bank of Maharashtra, RPD Branch Belgaum” which highlights the detailed study of “Non-Performing Assets Management and Banking Study of Bank of Maharashtra”.
The objective of this project is to get the good knowledge of Banking and NPA Management.
This project report is divided into 4 parts
Part A: ----- Origin, History. Part B: ----- Introduction to NPA, RBI Guidelines, etc. Part C: ----- SARFESI Act, NPA Reduction Techniques, etc. Part D: ----- Analysis and conclusion.
Part A gives an Brief information regarding Bank’s History, Vision, Objectives which help us to know about the bank in detail. Part B gives knowledge about NPA, which help us to know and understand about NPA and how it is ascertained. Part C gives information regarding SARFESI Act, NPA Reduction Techniques, Recovery Management and concluding observations. Part D gives ideas about Analysis of NPAs in Retail Sector and final conclusion.
ORIGIN AND HISTORY OF BANK OF MAHARASHTRA Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra�
Bank of Maharashtra was registered on September 16, 1935 with an authorized capital of Rs.10.00 lakh. The Bank actually began its process on 8 th October 1936 in pune, under the chairmanship of Shri.Dhondumama. Sathe. Ever since its inception, Bank of Maharashtra is known as common man's bank. The Bank's initial help to small units has given birth to many of today's industrial houses. The present chairman of Bank of Maharashtra is Shri.Allen C.A. Pereira and consists of Board of Directors under whom the Bank functions. Bank of Maharashtra has its Head Office situated at Shivaji nagar in Pune, which is known as Lokmangal karyalay. Later on in the year 1946, it entered into Karnataka and started its first branch in Hubli. Bank of Maharashtra began to progress to a great extent and expanded its banking business all over India. It is amongst the top 14 nationalized banks in India. In July 1969, Bank of Maharashtra was nationalized along with 13 other banks. After nationalization, the Bank expanded rapidly and today its branch network comprises of 1375 branches and 30 extension counters spread over 22 states and 2 union territories (as of 31st March 2008). Bank of Maharashtra has the largest network of branches by any Public sector bank in the state of Maharashtra. Bank of Maharashtra attained autonomous status in 1998. It has helped the Bank in providing more and more services with simplified procedures without intervention of Government. Apart from providing loans, bank also offers personalised services to its customers. The Bank also cares to its employees and provides many facilities & schemes to them. Bank of Maharashtra has also come up with its shares in the market which is on a slower growth towards progress. Bank of Maharashtra has altogether 1500 branches all over India . The total turn over is 72000 crores, and is currently running in profits.
Bank of Maharashtra excels in Social Banking, and it has 46% of its branches in rural areas. By March 2006 the Bank intends to achieve computerization of remaining 584 rural and semi urban branches by providing a cost effective small branch automation solution for rendering effective customer service to rural India. The Bank follows the Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra” philosophy of technology with personal touch. The bank wishes to cater to all types of needs of the entire family, in the whole country. Its dream is; "One Family, One Bank, Bank of Maharashtra”
VISION 2009
•
To cross the Business Level of Rs.85, 500/- Crores by March 2009.
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“A Study on Non-Performing Assets of Bank of Maharashtra” •
19.84% Growth in Savings Bank Deposits and average Saving Deposits growth rate of 17.69%.
•
19.65% Growth in Current Deposits and average Current Deposits growth rate of 17.29.
•
Systematic approach for reducing Net NPA level to below 1% .
•
64 Branches are proposed to be opened at new business centres and 3 extension counters to be converted into full fledged branches.
•
4 Currency Chests to be opened.
•
ATM network to be increased from 345 to 500.
•
Biometric ATMs to be introduced at selected branches.
•
Introduction of Internet banking, Mobile banking and Phone banking.
•
SHGs with special reference to agriculture to be promoted and financing are implemented so as to increase financing to small and marginal farmers.
•
Financial Inclusion to the unbanked section of the population.
OBJECTIVE OF THE STUDY
1. To know the working of Bank of Maharashtra. 2. To know the types of loans offered by Bank of Maharashtra.
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“A Study on Non-Performing Assets of Bank of Maharashtra” 3. To know about the Non-Performing Assets management of Bank of Maharashtra. 4. To find out the category of advances which has the highest degree of NPA and the reasons undertaken to tackle it.
CENTRAL BOARD MEMBERS LIST
Designation
Name
Chairman
Mr. Allen C.A.Pereira
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“A Study on Non-Performing Assets of Bank of Maharashtra” Nominee Director
Shri. A A. Azizi
Nominee Director
Shri. Rajeev K. Deshpande
Nominee Director &
Shri. Sunil U. Deshpande
Officer Director
Nominee Director
Shri. Sunder K. Gogia
Nominee Director
Mrs. Sukriti. Likhi
Executive Director
Shri. Rajeev. Madhok
Non-Executive Director
Shri. Anand K. Pandit
Non-Executive Director
Shri. Dinesh S. Patel
Nominee Director
Shri. Chittaranjan. Patwari.
Nominee Director
Shri. T Parameswaram. Rao
Nominee Director
Shri. Devidas R. Tuljapurkar
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“A Study on Non-Performing Assets of Bank of Maharashtra”
EVOLUTION OF INFORMATION TECHNOLOGY IN BANK OF MAHARASHTRA Several IT projects, encompassing various facets of modern day banking have been launched.
1) ATM Project:-
140 new ATM’s were set up during the year. ATM usage registered an impressive increase during the year. Several value added services like College/Hostel Fee payment through ATM’s issue of monthly, quarterly, season tickets for suburban train of
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“A Study on Non-Performing Assets of Bank of Maharashtra” Central Railway at CST, Mumbai (facility has been made operational on pilot basis in Mumbai) etc, have been introduced.
New Initiatives:•
Devotees can now offer their donations through ATM’s at Vaishnodevi, Katra and Shirdi.
•
“SMS ATM Locations”-a facility by which mobile users can get the location of 3 nearest ATM’s on SMS.
2) Core Banking Solution (CBS):The Bank is moving towards a centralized database with Core Banking Solution; with capability for on-line, real-time transaction processing.
3) Trades Finance Project:-
Bank has procured and implemented a modern trade finance solution named Exim bills at 260 branches covering all 14 circles as on 31-03-2005 most of the large branches like Overseas Branch Mumbai, etc, have been brought under exim bills.
4) Internet Banking:-
Almost all the branches have been enabled for offering internet banking in Retail segment. Bank’s major corporate customers are already using Corporate Internet Banking and the product is in good demand. Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra�
5) Bank of Maharashtra Connect:-
This is the wide area networking {WAN} project of the bank capable of carrying data, voice and images on real time basis. A total 1500 branches/offices Bank of Maharashtra group are now connected. IP phones have been deployed in all these branches/offices.
6) RBI-EFT (Electronic Funds Transfer) Scheme:-
This service is available for transfer of funds across about 8500 branches of banks situated in 15 centres where RBI manages the clearing house. The cities covered under this scheme are; Ahmedabad, Bangalore, New Delhi, Mumbai,
Hyderabad, etc. This scheme will help to reduce the pressure of DD issue work at Branch level.
7) RTGS {Real Time Gross Settlement} Scheme:-
Under this scheme, the funds get transferred from RTGS-enabled one bank or branch to RTGS-enabled another bank/branch for customers. Only the customer will have to fill up a request cum application form and accept terms and conditions, and also they have to mention correct details such as bank/branch, name, account number & 16 digit codes number i.e. IFSC Code.
IT POLICY AND IS SECURITY POLICY:-
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“A Study on Non-Performing Assets of Bank of Maharashtra� The Bank has framed a comprehensive IT policy and is security policy with the assistance of professional of IT security consultants. The policy standards and procedures have been disseminated to application owners for implementations. Security awareness training is being conducted for end users on ongoing basis.
PART-B
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“A Study on Non-Performing Assets of Bank of Maharashtra”
INTRODUCTION TO NON-PERFORMING ASSETS Non Performing Asset means an asset or 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 The Reserve Bank of India. With a view to move towards internationally accepted norms for asset classification and income recognition, RBI has been “tightening” the definition of NPA’s in a phased manner. Thus, from the norm of classifying only those assets as non-performing which are four quarters past due, which was applicable until 1993, RBI moved to the norm of three quarters past due in 1994 and then two quarters (90 days) past due in 1995. In 2001, RBI tightened this further by removing the “past due” concept. As a result, NPA’s are to be recognized 30 days earlier than they were before 2001. RBI has now advised banks to move to the 90 days norm for recognizing loans as non-performing with the effect from March 31, 2004.This tightening of norms, coupled with some years of economic recession, resulted in an increase in the recognized stock of NPA’s in the Indian
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“A Study on Non-Performing Assets of Bank of Maharashtra” Financial System over the last several years. The same time, the ratio of gross NPA’s in to gross advances has shown a declining trend. The definition of NPA’s is prescribed in the prudential norms on asset classification and advances laid down by RBI. An advance is classified as NPA’s where in case of: An amount due under any credit facility is treated as "past due" when it has not been paid within 30 days from the due date. Due to the improvement in the payment and settlement systems, recovery climate, upgradation 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 (NPA) shall be an advance where:
1. Interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan. 2. The account remains 'out of order' for a period of more than 180 days, in respect of an overdraft/ cash Credit(OD/CC). 3. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted. 4. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and 5. 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 the '90 days overdue' norm for identification of NPAs, form the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an advance where:
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“A Study on Non-Performing Assets of Bank of Maharashtra” 1. Interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan. 2. The account remains 'out of order' for a period of more than 90 days, inrespect of an overdraft/ cash Credit(OD/CC). 3. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted. 4. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and 5. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/ drawing power. In case where the outstanding balance in the principal operating account is less than the sanctioned limit/ drawing power, but there are no credits continuously for six months as on the date of balance sheet or credits are not enough to cover the interest debited during the same period, these account should be treated as 'out of order’. Indian Bank have, for a long time, treated all the sticky loan assets as NonPerforming Assets (NPA’s). The accrual concept of accounting convention has also been followed without reckoning (counting) the amount actually realized. The word “Realized” is noteworthy, which is distinct from the word “Reliability”. It means that if a loan given by a bank fails to fetch a return in the form of interest realized from the borrower, it (the Bank) has no right to debit the borrowal account with the interest chargeable following the accrual principal. In that event, it then truly signifies that the asset is not–performing i.e; not yielding any profit/income to the bank. This is the essence of income recognition norms, based on the recommendation of the committee on financial sector reforms (popularly known as Narsimhan Committee), adopted by Indian Banks. An asset, which ceases to yield income for the bank, should be treated as NPA, and any income from loan assets should not be booked as income until it is actually Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra” recovered. So, banks, which charge interests to loan Accounts Park it in “Interest Not Collected Account” (INCA) until recovery, and on recovery, reverse it from INCA and credit interest account. In liberalizing economy banking and financial sector get high priority. Indian banking sector is having a serious problem due to non-performing assets. The financial reforms have helped largely to clean NPA around Rs. 52,000 Crores in the year 2004. The earning capacity and profitability of the bank are highly affected due to this; NPA is defined as an advance for which interest or repayment of principal or both remain out standing for a period of more than two quarters.
The level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of resources.
Reasons: Various studies have been conducted to analyse the reasons for NPA. Whatever may be the case, complete elimination of NPA is impossible. The reasons may be broadly classified into two:-
1). Over hang component Over hang component is due to the environment reasons, business cycle, Wilful Defaulters, etc..
2). Incremental component. Incremental component may be due to internal bank management, credit policy, terms of credit, etc.
NPA Ratio:-
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“A Study on Non-Performing Assets of Bank of Maharashtra� The net Non-Performing Assets to loan (advances) ratios are used as a measure of the overall quality of the banks.Net NPAs are calculated by reducing cumulative balance of provisions outstanding at a period end from gross NPAs. Higher ratio reflects rising bad quality of loans.
NPAs Ratio=
Net Non-Performing Assets Total Loans Disbursed
RBI GUIDELINES ON CLASSIFICATION OF BANK ASSETS Reserve Bank of India (RBI) has issued guidelines on provisioning requirement with respect to bank advances. In terms of these guidelines, bank advances are mainly, classified into:1). Standard Assets:Such an asset is not a non-performing asset. In other words, it carries not more than normal risk attached to the business. 2). Sub-Standard Assets:It is classified as non-performing assets for a period not exceeding 12 months. 3). Doubtful Assets:An asset that has remained NPA for a period exceeding 12 months is a doubtful asset. 4). Loss Assets:Here loss is indentified by the bank concerned or by the internal auditors or by the external auditors or by Reserve Bank of India (RBI) inspection. In terms of RBI guidelines, as and when an asset become a NPA, such advance would be first classified as a sub-standard one for a period that should not exceed 12 months and subsequently as doubtful assets. It should be noted that the above classification is only for the purpose of computing the amount of provision that should be made with
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“A Study on Non-Performing Assets of Bank of Maharashtra” respect to banks advance and certainly not for the purpose of presentation of advance in the Bank Balance Sheet.
TYPES OF LOANS PROVIDED BY BANK OF MAHARASHTRA
1). Cash Credits/Overdrafts: When an account is not in order for any One quarter out of Four quarters of the year ending 31st March, the account will be treated as NPA / Out of Order: Out standings- exceeding the limit / drawing power for any One quarter. (continuous or otherwise) Out standings- are well within the limit / drawing power, BUT (a) No credit in the account for the last 6 months. (b) Credits in the accounts are not sufficient to meet interest debits for any 1 quarter. 2). Term loans: If interest/instalments of principal remain unpaid for any One quarter of the year ending 31st March the account will be NPA. ‘Past Due’ – Grace period of 30 days is Not to be reckoned in your bank It means that quarter’s interest / instalments up to 31st December should be recovered before 31st March , as otherwise account will be treated as NPA. 3). Agricultural Term Loans/Cash Credits: If interest/instalments of principal (after it has become due) has not been paid during the last two seasons of harvest (covering 2 half years), the account will be NPA. Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra” ‘Past Due’- Grace period of 30 days is not applicable in our bank to agricultural loans. Date for reckoning interest/instalment due is the date as stipulated in the sanction.
4). Advanced secured by Term Deposits, National Savings Certificates Indira Vikas Patras Surrender Values of LIC Policies: Advance accounts against these securities need not be treated as NPAs and no provisions made need be made even though interest there on as not been paid for One quarter or more on a balance sheet date. Interest on such accounts may be taken to income account on due date provided adequate margins is available in the accounts (i.e. the out standing, after interest application, must be less than advance value of security). However, advance against gold ornaments and government securities do not qualify for this relaxation. 5). Bills Purchased and Discount: The bills purchased will become NPA if they remain overdue and unpaid for One quarter as on 31st March. OVERDUE INTEREST Overdue interest should not be charged and taken to income account in respect of overdue bills unless it is realized. 6). Other Accounts: The account becomes NPA if the account remains unpaid for any One quarter or more as on 31st March. 7). Consortium Advance: Each member bank will classify the account in accordance with the conduct in its books. 8). Government Guaranteed Advances: Though, credit facilities backed by the government guarantee may become past due with the income not being booked, they need not be treated as NPAs. In some cases it is observed that banks have to file suit against the borrower after invoking the
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“A Study on Non-Performing Assets of Bank of Maharashtra” government guarantees with a view to overcome the limitation period. In such circumstances, the branches may treat the advances guaranteed by the government as NPAs only when the government concerned when invoked.
PROCEDURES FOR INDENTIFICATION OF NPA AND RESOLUTION
1). Internal Checks and Control:Since high level of NPAs dampens the performance of the bank identification of potential problem accounts and their close monitoring assumes importance. The EWS enable a bank to identify the borrower accounts, which show the signs of credit deterioration and initiate remedial action. Many banks have evolved and adopted an elaborate EWS, which allows them to identify potential distress signals and plan their options before hand, accordingly. The major components/process of EWS followed by Banks of India as brought out by study conducted by Reserve Bank of India at the instance of the Board of Financial Supervision as follows: a). Designing Relationship Manager/Credit Officer for Monitoring Account. b). Preparation of ‘Know Your Client’ Profile. c). Credit Rating System. d). Identification of Watch-List/Special Mention Category Accounts. e). Monitoring of early Warning Signals.
2). Management/Resolution of NPAs:Re-education in the total gross and net NPAs in the Indian Financial System indicates a significant improvement in management of NPAs. This is also on account of various resolution mechanisms introduced in the recent past, which include the “SARFESI Act”, One-time settlement schemes, setting of the CDR mechanism, strengthening of DRTs.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
3). Credit Information Bureau:Bank of Maharashtra, State Bank of India, HDFC Limited, M/s Dun incorporated Credit Information Bureau (India) Limited (CIBIL) in Jan 2001 and Bradstreet Information Services (India) Pvt. Information between banks and FIs for curbing the growth of NPAs. The CIBIL is in the process of getting operationalised.
4). Wilful Defaulters:RBI has revised guidelines in respect of detection of wilful default and diversion and siphoning of funds. As per these guidelines a wilful default occurs when a borrower defaults in meeting its obligations to the leader when it has the capacity to honour the obligations or when funds have been utilized for the purposes other than those for which finance was granted. RBI has advised the lenders to initiate legal measures including criminal actions, wherever required, and undertake a proactive approach in change in management, wherever appropriate.
5). Legal and Regulatory Regime:-
(1) Debt Recovery Tribunals (2) Lokadalats (3) Enactments of “SARFESI Act” (4) Assets Reconstruction Companies (5) Institution of CDR Mechanism (6) Compromise Settlement Schemes (7) Increased power to NCLTs and the proposed Repeal of BIFR
UNDERLYING REASONS FOR NPAs Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra� An internal study conducted by RBI shows that in order of prominence, the following factors contribute to NPAs:Internal Factors:1).
Diversion of funds for expansion/diversification/modernization taking up new projects, helping/promoting associate concerns.
2).
Time/Cost overrun during the project implementation stage.
3).
Business (product, marketing, etc) failure.
4).
Inefficiency in management.
5).
Slackness in credit management and monitoring.
6).
Inappropriate technology/technical problems.
7).
Lack of co-ordination among leaders.
External Factors:1).
Recession.
2).
Input/Power shortage.
3).
Price Escalation.
4).
Exchange Rate Fluctuation.
5).
Accidents and Natural Calamities, etc.
6).
Changes in government policies in excise/import duties, pollution control orders.
The above mentioned cause were reaffirmed, some other were also mentioned. A brief discussion is provided below:
a).
Liberalization of Economy/Removal of Restrictions/Reduction of Tariffs:
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“A Study on Non-Performing Assets of Bank of Maharashtra� A large number of NPA borrowers were unable to compete in a competitive market in which lower prices and greater choice were available to consumers. Further borrower operating in specific industries has suffered due to political, fiscal and social compulsions, compounding pressures from liberalization.
b).
Lax Monitoring of Credit and Failure to Recognize Early Warning Signal: It has been stated that the approval of loan proposals is generally through many levels before approval is granted. However, the monitoring of some time complex credit files has not received the attention it needed, which meant that early warning signals were not recognized and standard assets slipped to NPA category without banks being able to take proactive measures to prevent this. Partly due to these reasons, adverse trends in borrowers performance were not noted and the position further deteriorated before action was taken.
c).
Direct Lending: Government’s policies rather than commercial imperatives dictated loans to some segments.
d).
Over Optimistic Promoters: Promoters were often optimistic in setting up large projects and in some cases they were not fully above board in their intentions. Screening procedures did not always highlight these issues. Often projects were set up with the expectation that part of funding would be arrange from the Capital Market, which were booming at the time of project appraisal. When the capital market subsequently crashed, the requisite funds could never be raised, promoters often lost interest and lenders were left stranded (cut off) with incomplete/unviable projects.
e).
Highly Leveraged Borrowers:
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“A Study on Non-Performing Assets of Bank of Maharashtra� Some borrowers were under capitalized and over burdened with debt to absorb the changing economic situation in the country. Operating within a protected market resulted in low appreciation of commercial/market risk.
f).
Funding Mismatch: There are said to be many cases where loans granted for short term were used to fund long term transactions.
g).
High Cost of Funds: Interest rates as high as 20% were not uncommon. Coupled with high leveraging and falling demand, borrowers could not continue to service high cost debt.
h).
Wilful Defaulters: There are a number of borrowers who have strategically defaulted on their debt service obligations realizing that the legal recourse available to creditors is slow in achieving results.
Analysis of Factors Contributing to NPA’s
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“A Study on Non-Performing Assets of Bank of Maharashtra” An analysis of the contributory factor resulting in the emergence of NPAs on stupendous scale amongst Commercial Banks and Financial Institutions in the preceding decade and particularly in the early Nineties would lead to the following conceptualization:-
PSBs performed creditably all through in respect of all parameters set for them. But in the early Nineties the truth emerged that PSBs were suffering from acute capital inadequacy and many of them were depicting negative profitability. This is because the parameters set for they are functioning were deficient and they did not project the paramount needs for these corporate goals. Incorrect goals perception and identification led them to wrong destination.
Pre-reform era witnessed PSBs functioning under the overall control and direction of the Finance Ministry. Along with Reserve Bank of India (RBI) it decided/directed all aspects of working of the Bank. Banks were not free to price their products in competition with each other. They could not freely cater their funds in the best interest as they considered. It was thus a directed and the role of bank management was ‘executory’.
Since the 70s, the SCBs of India function totally as captive capsule units cut off from international banking and unable to participate in the structural transformations, the sweeping changes, and the new type of leading products training and knowledge resources required to compete with international industry had resulted in the accumulation of assets, which are termed as non-unprecedented level 8.
Major policy decision was taken externally by the Finance Ministry/RBI. Though directors were to be appointed based on their possession of specialized knowledge in banking and related discipline, the environment of receiving decisions from a political background as distinguished from a professional outfit, prevented the
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“A Study on Non-Performing Assets of Bank of Maharashtra” best talents coming to occupy the position as Directors of PSBs and taking part in an active role in the deliberation of the Boards of these Banks.
“Audit and Inspections” remained as functions under the control of Executive Officers, which were not independent and were thus unable to correct the effects of serious flaws in policies and directions of the higher level.
The quantum of credit extended by the PSBs increased by about 360 times in three decades after nationalization (from around 3000 crores in 1970 to 475113 crores on 31-03-2000). The bank was not developed in terms of skills and expertise to regulate such stupendous growth in the volume and manage to diverse the risk that emerged in the process. The need for organizing an effective mechanism to gather and disseminate credit information amongst the commercial banks was never felt or implemented. The archaic laws of secrecy of customers-information that was binding banking India, disable bank to public names of defaulters for common knowledge of the other bank in the system.
Effective recovery of defaulters and overdue of borrowers was “hampered”. But in India legal remedies were beset wilful defaulters and the banks were left helpless. Effective corporate management was a concept alien to the corporate houses then. In respect of PSBs the board were ineffective and the only/main shareholder was the government of India. Government exercised multiple role and concerns, and
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“A Study on Non-Performing Assets of Bank of Maharashtra” the instinct to act as a watchful shareholder and increase the shareholders value of these
corporate
bodies
(banks
and
financial
institutions)
was
never
felt/experienced by the government.
Credit management on the part of the leader to the borrower to secure their genuine and bonfire interests was not based on pragmatically calculated anticipated cash flows of the borrower concern, while recovery of instalments of term loan was not out of profit and surplus generated but through recourses to the corpus of working capital of the borrower concerns. This eventually led to the failure of the project financed leaving idle assets. Functional inefficiency was also caused due to over-staffing, manual processing of over-expanded operations and failure to computerize banks in India, when elsewhere throughout the world the system was to switch over to computerization of operations.
Action Plan for the Operating Functionaries:
a).
Analyse the NPAs and Delineate them into sub-groups.
b).
Do age-wise sub-grouping.
c).
ABC-analysis of advances.
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“A Study on Non-Performing Assets of Bank of Maharashtra� d).
Targets for recovery of various categories.
e).
Monthly reporting and monitoring in preview meetings.
PREVENTIVE MEASURES:-
1). Regular/Timely contact with the borrowers should be maintained on one-to-one basic in order that the loans/advances are monitored effectively.
2).
The recovery work should be specifically entrusted to the identified loan officers/ clerks who will have regular contacts with the borrowers particularly at the time,
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“A Study on Non-Performing Assets of Bank of Maharashtra� which is more suitable for recovery, like pre and post-harvest period in case of agricultural advance.
3). The high value advance should be specifically monitored and in case of advance, which displays signals of slipping to sub-standard category, intensive follow-up is necessary.
4). The repayment programmes should be fixed up realistically keeping in view the probability of cash accruals taking place as per the projections.
5). In case where units are facing genuine difficulty in adhering to the repayment schedule fixed while sanctioning the loan, the loan can be rescheduled so that the advance does not turn out of order or past due.
6). Borrower should be counselled to route the sales proceeds through the account, which will ensure that the account does not turn out of order merely on account of interest application.
7). A written communication be sent to all the borrowers advising them about the need to ensure that their advance remain standard assets to enable the bank to consider favourably their future request for financial assistance, if needs.
8). Pre-disbursement and post-disbursement inspection, beside the periodical inspections are very important to ensure proper utilization of bank funds as also the assets acquired there from.
9). A system for settlement of goals for recovery of periodical loan instalments and quarterly interest and monitoring performance there against should be set up. Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra�
10).Timely renewal/review of advance will be very effective in monitoring the position of advance and taking safeguarding steps before an advance turns substandard.
11). The unit displaying disquieting features may be studied by experts/consultants for suggesting steps to prevent deterioration of their condition and to revitalize their operations.
CONCLUSION:-
The situation calls for an urgent action by all concerned for improvement. Based on our experience we consider that the branches will have to constantly work to prevent the NPA virus from contaminating the new credit portfolio. Also concurrently they will have to reinforce effective strategies to remove the virus from the existing NPA portfolio. The task although difficult is achievable. Monitoring and follow-up are the key watchwords in the task of managing and reducing NPAs.
REMEDIAL MEASURES:
1) Regular meetings with the borrowers and interaction with them on their business prospects and their position of their accounts should take place. 2) Periodical meetings with group of borrowers particularly those finance under government-sponsored schemes and in rural areas should be held in which the need for prompt payments of dues should be explained. It needs to be made clear to these borrowers that there will not be any further debt relief scheme in future and that they will benefit in the long run by paying the banks dues.
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“A Study on Non-Performing Assets of Bank of Maharashtra� 3) Recovery camps/recovery workshops can be organized in co-ordination with the government authorities in rural areas or in respect of SBI advance under government sponsored schemes. 4) In case of sick units, viability studies need to be conducted promptly and quick dispensation of rehabilitation packages is essential so that the advance to them can be upgraded. 5) Close monitoring of sick units, which are under nursing is important to ensure that they abide by the stipulation made under the nursing program and thereby there borrowal account are upgraded. 6) Target for recovery should be fixed for individual functionaries and their performance should be closely monitored. 7) Periodical inspection of the units financed and follow-up for recovery of the overdue amount should be closely monitored. 8) Village level workers be instructed to maintain register for details of various borrowers under the government sponsored schemes to ensure regular followup.
9) For smaller advance, Lok Adalat is an effective avenue for on the spot settlement of bank loan case and this mechanism should be used effectively. 10) As regards cases involving debt for over Rs.10 lakhs, the forum of Debt Recovery Tribunal should be effectively used. 11) Periodical meetings should be held with the lawyers handling Bank’s cases to discuss various issue connected with the ending loans case with a view to reducing the delays in settlement of the cases. 12) Settling the cases out of court and entering into compromises, wherever considered appropriate, may rove to be quicker and more effective than legal action. However, any tendency to get undue advantage from the bank should be guarded against.
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“A Study on Non-Performing Assets of Bank of Maharashtra” 13) Realization of securities in cases of advances under litigation needs greater attention. It should be our endeavour to obtain permission of the court for attachments and disposal of securities charged to the bank before judgement. where such permission is granted or where suit is decreed in bank’s favours, the securities covered by the suit should promptly realize. 14) The portfolio of the loss assets has to be critically examined to weed out all such assets where there is no hope of any recovery. In such cases, the ultimate step of writing off the advance needs to be taken and any delay in matter is of no benefit. 15) The services of Non-Government Organization (NGOs) may also be utilized in area where these are active, for counselling the small borrowers. These borrowers may be organized in group and financed, if considered appropriate and prudent, through the NGOs concerned.
TACKLING NPAs
The major tools for tackling assets, which have already turned into nonperforming assets, are the following:-
1).
Recovery through legal action including the forum of debt recovery tribunals and lok adalats.
2).
Utilizing the machinery of state government for recovery of rural death.
3).
Entering into compromises through negotiations.
4).
Rescheduling/rephrasing of dues in case of irregular advances of viable units.
5).
Rehabilitation packages for potentially viable sick units.
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“A Study on Non-Performing Assets of Bank of Maharashtra” 6).
Recovery of over due amount through persistent follow-up and by Counselling/educating the borrowers.
FOCUSED STRATEGIES
1) Constant follow-up and periodically dialogue with the borrower to know the prospects of his business and difficulties, if any, faced. Case to case review of NPAs and replacement of loan to suit the revised income generation pattern so that he is able to repay dues of the bank as per his generation capacity.
2) Branch recovery team consisting of 2/3 resourceful staff members/officials, should be formed (if not so) at each critical branch. The team member should be exhorted to set up recovery endeavours and produce quick tangible results.
3) Establishment of “District Recovery Team” at each District Headquarter with the help of District Headquarters, with the help of District Co-ordinate’s/Lead Bank Officers/Nodal Officers of the concerned district to liaise (link) with the
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“A Study on Non-Performing Assets of Bank of Maharashtra” Local Government functionaries/Lok Adalats/Certificate Officers, etc. This team may co-ordinate the activities of the “Branch Recovery Team” within the District.
4) “Lawyer Meet” may be organized at all district headquarters by the concerned Asst. General Manager and AGM (law) where other officials from local head Office may also participate. Suit field case of high value loan amount should be reviewed individually to expedite the recovery process. Involvement of the law officers in follow-up recovery efforts through debt recovery tribunals is necessary.
5) To ensure that “Target of Recovery” have been allotted to all the critical branches for reducing NPAs/INC/AUC by their respective controlling authorities and the controllers concerned monitor their performance. The
Dy.
General Manager should oversee the position on monthly basis.
6) One time settlement (OTS) has been found to be another method whereby the bank would finally recover its due depending upon the repayment capacity of the borrower from all sources.
7) To consider, in consultation with controllers, on selective basis in decreed cases, the need for biding in Bank’s name for sale of mortgaged properties (secured for our loans) in auction with the permission of court for expediting the recovery process.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
PART-C
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ASSET CLASSIFICATION AS TOOL KIT TO BRING DOWN THE BRANCH NPAs TO THE BEAREST MINIMUM.
Credit Appraisal and Advance Monitoring:-
1. End use of funds should be monitored by effectively following up QIS statements, analysing them.
2. Verify the financials submitted by the borower and compare it with that of assumption made at the time of previous sanction.
3. Pre-sanction visit to the sites of collateral security should invariable be done by the appraising officers before accepting them as collateral. The field staff branch manager, division managers, should inspect this at yearly or half yearly intervals.
4. Borowers are willing to furnish any detail on their assets and liabilities and execute any document before disbursement of loan. Obtain all relevant details and documents prior to disbursing the loan/advance.
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“A Study on Non-Performing Assets of Bank of Maharashtra� 5. Book fresh quality advances and market for such advances. At present we are financing to those who have approached us. Approach good borrower and bring to our books. Marketing is the need of hour.
6. Follow-up all the accounts with One quarter interest dues and ensure that borrower meet interest commitments.
7. Cost escalation or delay in project implementation should be taken care of while sanctioning loan itself. If there are any significant developments during implementation that has affected the project please review sanction well before the commencement of production and instalment falls due.
8. Strengthen pre-sanction and post-sanction inspection at all levels.
9. Seasonal activities monitor the recovery in the account and ensure recovery effort coincides with the time of revenue inflow.
10. Be aware of the danger signals received from the borrowers about the problem loans. Preventive and curative action should be taken immediately.
11. Do not be just satisfied and let loose the good borrowers. Complacency towards existing good borrowers may lead to account turning NPAs later.
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“A Study on Non-Performing Assets of Bank of Maharashtra�
SUB-STANDARD ASSETS:-
I. A sizeable portion of NPA is in sub-standard category. It should be possible to upgrade account in this segment.
II. Ensure that sub-standard account does not slip down to doubtful and loss category.
III. Efforts should be made to upgrade the account to standard categories NPAs affect our balance sheet four ways:
a) We cannot book income. b) Capital adequacy ratio gets affected. c) NPAs require provisioning from post tax profits. d) Affects image in international level.
IV. Once the amount become NPA verify whether documentation is in order. If not rectify it first.
V. Rectify all irregularities in documentation as pointed out by branch inspectors.
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“A Study on Non-Performing Assets of Bank of Maharashtra� VI. Regular counsel and educate dafaulting borrower. Maintain regular contact with the borrowers and monitor the asset. Keep the Branch Manager informed of the developments at regular intervals.
VII. Do not permit excess drawing unless otherwise necessary for 3 units to run. If the situations warrant, renew/review the account record excess drawings, if any, permitted in the account and insists for letters and document it.
VIII. In case of sick units, if satisfied about the problems of sickness strengthen the assets with collaterals. This will help in making small provision against such advances. Chalk out the rehabilitation programme in consultation with the controllers immediately failing which we may not have any assets to fall back upon later. A quick action is needed. If given a chance, grab the earliest to palm off the account from our books to any other financial agency.
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“A Study on Non-Performing Assets of Bank of Maharashtra�
DOUBTFUL ASSETS:-
1) Experience in the previous years indicate that there has been steady slippage in the quality of assets in the NPA categories from sub-standard to doubtful assets and then to loss assets. One reason could be that appropriate action as mentioned above is not taken in case of sub-standard assets. Secondly suit field accounts in various civil courts/debts recovery tribunal is not followed up in the manner required ad or are getting very little attention. These accounts particularly suit field/decreed account required constant review at the operating level so that appropriate steps like enforcing decree, facilitating compromises or write off if need be initiated instead of holding such un-remunerative accounts on long term basis in your books as NPAs.
2) Issues raised by advocates should be tackled to get the suits diposed of and executive the decreased so obtained to reduced the NPAs.
3) Where branches have got backlog in settlement to DICGC claims, such claims should be followed up rigorously. For this purpose dealing official at the branch should explore the possibilities of getting the claim settled at an earliest in consideration with the DICGC Chennai/Mumbai.
4) Compromise as a strategy for reducing NPAs is receiving attention of branch functionaries. Encourage compromise proposal selectively without giving wrong signals to the other good borrowers. Branches should view such compromise proposals based on the net present value, nature and value of assets presently available to us.
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“A Study on Non-Performing Assets of Bank of Maharashtra�
LOSS ASSETS:-
i.
Write off Doubtful and Loss assets was initiated by branches from the first quarter of the year itself.
ii.
High value doubtful and loss assets where DICGC has settled the claims and/or rejected the such case should be first dealt with write-off proposals with additional information should be submitted immediately where ever assets are not available.
iii.
Identify all loss assets where full provision is available to write off. Where ever suits are pending and prospect of recovery exists such account can be parked in advance under collections accounts.
iv.
Recommendation to write up file value loss asset should be sent on priority basis.
v.
Write off out standings where provision is short up to Rs.25000 may be sent immediately without further loss of time.
vi.
Wherever compromises are/where entertained earlier and write-off the balance still exist arrange to sent such write-off proposals and ensure that the account does not appear in balance sheet of the bank.
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“A Study on Non-Performing Assets of Bank of Maharashtra� INTEREST NOT COLLECTED ACCOUNT:-
1. Few branch operating functionaries are still not aware of the IRAC norms. Even though account is classified as NPA interest is being applied bindly with out thinking of consequence of such application of interest. It inflates the INCA figures.
2. Serious efforts in upgrading the assets from NPA category will results in reduction of INCA. Pressurize induce the borrowers to bring down their outstanding levels compared to the previous year. This will enable the bank to book income on partial recovery basis.
3. Where fundamentals of the industry/unit/borrowers are sound rehabilitation of the unit may be taken up on priority.
ADVANCE UNDER COLLECTION ACCOUNT:-
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“A Study on Non-Performing Assets of Bank of Maharashtra� 1) The number of advance under collection account and out standings there in there in are the rise.
2) Due to the policy decision taken to write-off loss assets irrespective of suit position may add a few more account to advance under collection account.
3) There will be very marginal recovery during the years.
4) Review all accounts parked in advance under collection account on priority basis and efforts should be made to recover full dues and remove such accounts from advance under collection account.
5) Encourage compromise proposals.
6) Regular view of the recovery prospects and removal of such accounts from advance under collection account does not appear to be receiving level of attention.
7) This area needs a special attention of the operating staff.
EXCESSIVE FOCUS ON CREDIT RISK MANAGEMENT:-
The most important business implication of the Naps is that it lead to the credit risk management assuming priority would thus be pre-occupied with recovery
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“A Study on Non-Performing Assets of Bank of Maharashtra” procedures rather than concentrating on expanding business. As already mentioned here in above, a bank with high level of NPAs would be forced to incurr carrying costs on a non-income yielding assets. Other consequence would be reduction in interest income, high level of provisioning, stress on profitability and capital adequacy, gradual decline in ability to meet steady increase in cost, increased pressure on Net Interest Margin (NIM) there by reducing competitiveness, steady erosion of capita resources and increased difficulty in augmenting capital resources. The lesser appreciated implications are reputation risks arising out of greater disclosures on quantum and movement of NPAs provision, etc. The non-quantifiable implication can be psychological like ‘play safe’ attitude and risk aversion, lower morale and disinclination to take decision at all levels of staff in the bank. Two decades of regimented and directed banking to credit delivery has derived Bank Manager of the instinct skill and knowledge. Nationalized banking did not produce a spring of talent resources from within. Directive inputs and course direction came externally from RBI and Finance Ministry which were/are external to the day-to-day affairs and problems of Indian Banking Industry.The system did not promote initiative and talent, but bred corruption and nepotism.
SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2002 (SARFESI)
SARFESI- The Security Interest Legislation Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra” SARFESI
provides
for
the
enforcement
of
security
interests
in
movable/tangible or intervention of court, by way of a simplistic, expeditious and a cost effective process. Where any borrower makes any default in repayment of secured debt or nay instalment there of, and his account in respect of such debt has been classified by the secured creditor as non-performing asset, then, the secured creditor 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 secured creditor would be entitled to exercise all or any of the rights set out under the “SARFESI Act”. The notice must contai details of debt and secured assets. Any bank or public financial institution or any other institution or non-banking financial company as specified by central government or international finance corporation or a consortium there of, and his account in resects of such debt has been classified by the secured creditor as non-performing assets, then the secured creditor may call upon the borrower by the way of a written legal notice to discharge in full, his liabilities within 60 days from the date of the notice failing which the secured creditor would be entitled to exercise all or any of the rights set out under SARFESI. The provision of SARFESI relating to security of interest can be invoked by any bank or public financial institution under section 4A of the Companies Act, 1956 or any institution specified by the central government under sub clause (2) of clause (h) of section 2 of recovery of debt due to banks and Financial Institutions Act, 1993 or any other institution
or non-banking
financial company as specified by central government or international finance corporation or a consortium there of.
NPA REDUCTION TECHNIQUES:-
Slotting NPAs of various size and type can be made as follows at branches for working out specific/appropriate strategies individual cases. Besides it will also help us in taking stock of the situation at given point of time.
TECHNIQUES
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“A Study on Non-Performing Assets of Bank of Maharashtra�
CATEGORY
a) Asset created out of bank loan may be ascertained.
b) Asset created out of bank loan may be ascertained.
1). Small NPA Loans (Agricultural Loans, Priority sector Loans, Government sponsored Loans upto Rs. 1 lakhs.)
c) Repaying capacity can be easily gauged. d) Mobilizing liquid cash for meeting the debt is not difficult. e) Written reminder and repeat personal call help mostly; written reminder is a powerful weapon. f) Legal action is time consuming.
g) Influence of other local persons contacts helpful especially in rural/semi urban areas.
2). NPAs-Larger than small but medium. (Above Rs. 1 lakhs upto Rs. 5 lakhs)
a) Branch team can talk to the borrower and work out the repayment programme. b) In Non-Agricultural NPAs, quick solution should be worked out through long draw work out sessions with borrowers, because the value of assets may get eroded fast or the borrower may decamp or shift his
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activity. c) In Non-Agricultural NPAs, quick solution should be worked out through long draw work out sessions with borrowers, because the value of assets may get eroded fast or the borrower may decamp or shift his activity.
d) Debts can be settled through Lok Adalats.
e) Influence of trade professional circles, associates useful.
a) As the size of NPAs grows, the branch experiences levels of incapacity to take a view regarding the ability/recover rabidity of the loans.
3). Medium sized NPAs (Over Rs. 5 lakhs upto
b) SWOT analysis and of security, will be helpful.
Rs. 25 lakhs) c) Whether to waive legal action to go for compromise.
d) Call for intervention at all the stages by a multi-tier team workout specialists.
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“A Study on Non-Performing Assets of Bank of Maharashtra�
e) Recovery is effort-inelastic to a lesser degree.
f) Call for legal/technical advice.
g)
If default is wilful, watch on borrowers business growth plans and using leverage at appropriate.
a) It is highly effort-inelastic.
b) Calls for intervention abilities not only by a multilevel team of workout specialists but also the senior management.
c) Sophisticated legal, technical and financial 4). Large NPAs (over Rs. 25 lakhs)
advice for. d) Support of the state government and SFCs in selling the assets, rationalizing the staff of the unit, deciding the exit option.
e) In case of mid-corporate sector listed companies, watch for opportunities.
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“A Study on Non-Performing Assets of Bank of Maharashtra�
f) Threat of winding up option could be useful.
For NPAs with balance more than Rs. 1 Lakhs;
In Belgaum City, there are 6 branches of Bank of Maharashtra, these branches have formulated the following innovative methods for recovering NPAs.
1) The team is formed having all the branch managers and concerned staff looking after recovery department. The said team will visit the borrower and advice him for recovery of dues and also the rupurcussions for non-payment.
2) There are 10 ladies staff members in Belgaum City. These ladies staff members have formed a group and door to door recovery campaign is done by this team.
3) The telephone numbers of Belgaum District is loaded on PCs of all branches, the managers as and when get the free time contact NPA account holders by searching telephone numbers which are loaded on their PCs.
This innovative method has rewarded a good dividend as on 2007-2008, all the branches of Bank of Maharashtra in belgaum city have achieved the recovery targets, write-off targets and reduced the NPA quantum to a large extent.
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“A Study on Non-Performing Assets of Bank of Maharashtra� While preparing the recovery budget, branches should scan through the NPAs portfolio,make the ABC analysis of NPA, segregate accounts into identical lots with regard to the approach to be adopted for recovery.
SIZE OF NPAs
CONTROL
Small NPAs
Self supervised by the branch. Regional Offices (Ros) will do volume Ros will intervene, if there is lack of response from the bank level.
Medium NPAs
Regional Offices (Ros) should decide the identification of intensive NPA branches. Zonal Offices (Zos) will do volume control and intervene if the response is inadequate down the line.
Large NPAs
Zonal Offices (Zos) should decide the account-wise strategies. Head Office will partake in the exercise depending upon the complexity.
RECOVERY CHART
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“A Study on Non-Performing Assets of Bank of Maharashtra”
Case fit for written and telephonic reminders. Lenghty workout sessions. Case fit for rehabiliation Induction of fresh funds, interest concessions with.
POSSIBLE ACTION BY FO’S TO FACILITATE RECOVERIES
I. Action Currently Employed =
Effectiveness
i.
File Suit
Takes 10-15 years to obtain judgement.
ii.
Take possession of real estate.
Bank of Maharashtra often not successful in selling them.
iii.
Take possession of inventory.
Inventory normally does not if remain, and non-obsolete left there’s anything after 10-15 years of legal wrangling, its value is basically nil.
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iv.
Recover cash from receivables.
Receivables also often almost disappear when customers cost of smell trouble. What is chasing these receivables down after 10-15 years in the court ?
II. Action
Not
Currently =
Possible Effectiveness
Employed
i.
Persistent Phone Calls
ii.
Media Announcements
iii.
Visits to Borrower’s Residence
Will make borrower angry, though it will likely eager to Bank of Maharashtra off
iv.
Notifying Error Issue Investors
v.
Uncomfortable and
vi.
Notifying Stockholders
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RURAL ADVANCES AND RECOVERY MANAGEMENT
PROBLEMS OF RECOVERY
There are a number of factors which contribute to the recovery problem, some of which crop up rights at the inception of the project and before the loan is disbursed. These problems can be clubbed into two categories i.e; pre-disbursement and postdisbursement stages.
The recovery problem associated with the Pre-Disbursement stage relates to •
Unrealistic fixation of repayment schedule.
•
Delay in disbursement of loans.
•
Insufficient loan amount.
•
Delay in release of subsidy.
•
Non Follow-up of formalities required to be followed.
In the study conducted by NABARD, it was found that lots of problems associated with the recovery were due to incorrect fixation of repayment schedules by the commercial banks. NABARD concluded that default on account of realistic repayment programmers fixed by the banks should not really treated as wilful default.
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The recovery problem associated with the Post-Disbursement stage relates to
•
Lack of constant supervision and follow-up.
•
Lack or regular contacts between Bank and Borrower.
•
Assets created not being supervised.
•
Wilful Default.
•
Failure of crops.
•
Insurance not being comprehensive.
•
Claims not being settled in time.
•
Delay in declaration of “ANNEWARI” depriving the farmers of the benefits available.
MANAGING RECOVERY OF RURAL ADVANCES Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra� Our recovery problems can be given fresh looks as under:
Basically each branch engaged in rural lending has to loan for recovery of loans disbursed by it. The manager should be familiar with the prospects of recovery through internal and external factor. Knowledge about willful defaulters is equally important. Thus Three-Pronged Strategy is necessary;
(A).
i.
RECOVERY THROUGH INTERNAL RESOURCES AND SYSTEMS
Appraisal of loan application and re-sanction surveys:During the initial processing of the proposal, it has to be ensured that the repayment programmer for an item/equipment id is fixed in accordance with the guidelines prescribed by NABARD. Awareness about NABARD guidelines should be increased at the branch level.
ii.
Computation of demand:Guidelines suggest that repayment of instalments should be fixed in such a manner which will coincide with the harvesting of crops or sale of milk or any other farm output proposed to be produced through the bank loan should therefore be computed in a manner conducive to the income flows.
iii.
Non-Banking business day:This day should be utilized fully for field visit and contact with the borrowers.
iv.
Recovery Camps:-
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“A Study on Non-Performing Assets of Bank of Maharashtra� The central idea of recovery camp is to bring a maximum number of people together at one place and repay the loans. The recovery camps in addition of effecting recovery create a proper climate for recovery.
v.
Conversions/Rescheduling of loans:There are guidelines for the operating staff of the banks for conversion/rescheduling of loans can be made repayable over period of one year in the event of crop loss.
vi.
Compromise Proposals:In genuine cases, the banks can consider compromise proposal and a lot depends upon the initiative of the branch manager in utilizing this facility.
vii.
Integration of recovery in branch budgeting:Our bank has already commenced fixing recovery targets and the best performers are also going to be rewarded suitably through the award scheme.
(B).
RECOVERY THROUGH EXTERNAL SOURCES
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“A Study on Non-Performing Assets of Bank of Maharashtra� Wherever the states have enacted laws on the pattern and support of the government machinery can be enlisted accordingly. The support from BLCC, DCC and SLBC can be utilized effectively. If the branches prepare village-wise action plans in this regard, it will be still appropriate for the for the agencies to have a concerted effort towards recovery. The branches may also compile a detailed position of defaulters and share the same with the convener banks and government authorities periodically.
(C).
TACKLING WILFUL DEFAULT
Here 2 approaches are necessary. First to prevent wilful default in future and secondly to initiate steps to discourage wilful default. To prevent wilful defaults, comprehensive and discrete enquires, therefore, should be made before disbursing loans to farmers. Some of the banks have already devised system of maintaining village dossiers which compromise names of farmers who do not have good reputation. A nonwilful defaulter is one who generally follows a good cropping pattern and is co-operative to developmental functionaries. In present times, when wilful default has gained social acceptability, the branches can initiate steps for devising schemes for giving recognition to good borrower in various meeting or function organised by the branches in consultation with controllers. Further the problems of good borrowers can be studied and their credit needs can be immediately met. By doing so, a culture of prompt repayment may develop in the village and simultaneously wilful default would get its courage.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
PART D
ASSETS QUALITY OF NPA IN BANK OF MAHARASHTRA
(In Crores) PARTICULARS
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2007-2008
2006-2007
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“A Study on Non-Performing Assets of Bank of Maharashtra� 1. Net NPAs to Net Advances (%)
0.87
1.21
820.27 252.12 306.12 766.27
944.08 309.12 432.93 820.27
277.38 167.80 187.60 254.05
334.06 170.65 227.33 277.38
520.14 84.31 118.52 485.93
594.93 138.48 213.27 520.14
2. Movement of NPAs (Gross) a) b) c) d)
Opening Balance Additions during the year Reductions during the year Closing Balance
3. Movement of NPAs (Net) a) b) c) d)
Opening Balance Additions during the year Reductions during the year Closing Balance
4. Movement of Provisions for NPAs (Excluding provisions on standard assets) a) b) c) d)
Opening Balance Provisions made during the year Write-back of excess provisions Closing Balance
MOVEMENT FINANCIAL YEAR WISE
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Funds Involvement
ASSETS QUALITY COMPARISION OF NPA'S. NET - GROSS - PROVISIONAL WISE
2007-2008
2006-2007
Movement of NPAs (Gross)
2007-2008
2006-2007
Movement of NPAs (Net)
2007-2008
2006-2007
Movement of Provisions for NPAs
Movement Types
From the above chart we can observe that, there is an decreasing trend in NPAs (i.e.Gross, Net and Provisions) as compared to that of last year.
CHART SHOWING MOVEMENT IN NPAs FINANCIAL YEAR WISE (In Lakhs)
NPA %
NPAs (Gross)
07-08
06-07
07-08
0.87
1.21
820.27
06-07 766.27
NPAs (Net) 07-08 254.05
06-07 277.38
Provision for NPAs 07-08 485.93
06-07 520.14
INTERPRETATION:
When we compare the ratio of Net NPAs to Net Advances and Closing Balances of NPAs (i.e. Gross, Net & Provisions), we find that the Quality of NPA in the Bank is better in the year 2007-2008 as compared to that of 2006-2007. Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra” When we consider movement in NPAs (Gross), we get the following; Reductions in Gross NPAs made during the year 2007-2008 are Rs. 54 lakhs, but during the year 2006-2007, the reductions made were Rs. 124 lakhs. When we consider movement in NPAs (Net), we get; Reductions made in the year 2007-2008 are Rs. 20 lakhs and for the year 20062007 are Rs. 57 lakhs. When we consider provisions, we get the following; Reductions in NPA during the year 2007-2008 are Rs. 34 lakhs and for the year 2006-2007 are Rs. 75 lakhs. Therefore, from the above interpretation we can say that, in the year 2006-2007, the asset quality of the Bank was better as compared to that of the year 2007-2008.
According to RBI Guidelines, the percentage of provisions to be maintained under different category of NPAs is as follows:Standard Assets ------------ 0.5% Sub-Standard Assets ------ 20% Doubtful Assets ------------15% Loss Assets ----------------- 100%
NPAs IN RETAIL SECTOR AS OF 31st MARCH 2008 FOR RPD BRANCH, BELGAUM (Rs. IN LAKHS)
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“A Study on Non-Performing Assets of Bank of Maharashtra”
S.No
CATEGORY
SUB-STD
DOUBTFUL
LOSS
TOTAL NPA
TOTAL ADVANCES
ACS
AMT
ACS
AMT
ACS
AMT
ACS
AMT
ACS
AMT
1
Housing Loans
0
0.00
0
0.00
0
0.00
0
0.00
41
115.49
2
Education Loans
0
0.00
0
0.00
0
0.00
0
0.00
28
60.23
3
Two wheeler loan
0
0.00
1
0.23
0
0.00
1
0.23
49
10.62
4
Four wheeler loan
0
0.00
0
0.00
0
0.00
0
0.00
11
27.48
5
Consumer Loans
2
0.58
0
0.00
2
0.63
4
1.21
12
3.24
6
Personal Loans
0
0.00
0
0.00
2
0.47
2
0.47
30
12.65
0
0.00
1
0.18
0
0.00
1
0.18
22
2.52
0
0.00
0
0.00
0
0.00
0
0.00
2
0.93
5
5.61
12
28.01
17
13.04
34
46.66
423
520.75
7
6.19
14
28.42
21
14.13
42
48.74
618
753.92
7 8 9
Solar Loans Adhar Loans SSI TOTAL
ANALYSIS
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“A Study on Non-Performing Assets of Bank of Maharashtra”
ADVANCES
TOTAL
TOTAL NPA
LOSS
SUB-STD
DOUBTFULL
Total Amount
NPAs IN RETAIL SECTOR AS OF 31st MARCH 2008
NPA Class
From the above chart we come to know that, Out of the major proportion of advances/loans that are lent to various category of people only a small proportion contributes to Total NPA and further this total NPA is categorised into 3 types. i.e, SubStandard Assets, Doubtful Assets and Loss Assets. PARTICULARS
Amount (In Lakhs)
Total Advances
Amount (In Lakhs)
-
753.92
6.19
-
Doubtful Assets
28.42
-
Loss Assets
14.13
-
Sub-Standard Assets
Total NPA
-----------------------
Remaining Balance
-------------------------
48.74 705.18
From the above table, we come to the following conclusion:Out of the Total Advances, the share of total NPA is minimum. Bank is undertaking and implementing many measures to bring down this NPA level. But, the Bank cannot stop lending advances, taking into consideration the rise in the NPA level. Bank has to raise loans as they contribute to the wealth and creditibility of the
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“A Study on Non-Performing Assets of Bank of Maharashtra� bank, and when the banks have raised the loans they are also at a risk. So, there may be atleast minimum level of NPA.
Further from the above chart we get the following;
Amount Raised in the form of Total Advances is Rs 753.92 lakhs. Out of which Rs 48.74 lakhs is the share of NPAs as of 31st March 2008. i.e; 48.74/753.928*100 = 6.46% :----- Total % of NPA in Amount.
As per the RBI norms a maximum percentage of NPA to be maintained by the Bank is upto or less than 8%. But, we can observe from the above chart and calculations, that the NPA level of Bank of Maharashtra is less than the level which is prescribed by RBI and still Bank is trying to reduce it as they have mentioned it in their vision.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING PORTION OF TOTAL NPA AMOUNT OUT OF TOTAL ADVANCES 6%
Total NPA
The total amount of advances raised is Rs. 753.92 lakhs, which is taken as 100%.
Out of this 100%, 6% of the total advances contribute to the total NPA amount approximately, which is equal to Rs. 48.74 lakhs.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING PORTION OF TOTAL NUMBER OF NPA ACCOUNTS OUT OF THE TOTAL ACCOUNTS 7%
Total Number of NPA Accounts
The total number of accounts with the Bank as on March 2008 is 618, which is taken as 100%.
Out of these 618 accounts, the total number of accounts which belong to the category of NPA is 42 (i.e. 7% of the total 100% contributes to NPA).
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING CLASSIFICATION OF NPA AMOUNT UNDER DIFFERENT CATEGORIES 6.19, 13% 14.13, 29%
Sub-Standard Assets Doubtful Assets
Loss Assets 28.42, 58%
The above chart depicts the following:-
The Total NPA amounts to Rs 48.74 lakhs which is taken as 100%.
Out of the total 100%, 58% contributes to Doubtful Assets, 29% belongs to Loss Assets and 13% contributes to Sub-Standard Assets.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING CLASSIFICATION OF NPA ACCOUNTS UNDER DIFFERENT CATEGORIES 7, 17%
Sub-Standard Assets Doubtful Assets
21, 50%
Loss Assets 14, 33%
The above chart depicts the following:-
The Total Number of NPA accounts is 42 which is taken as 100%.
Out of 100%, 50%, contributes to Loss Assets, 33% belongs to Doubtful Assets and 17% is for Sub-Standard Assets.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING TOTAL AMOUNT OF NPA DISTRIBUTED AMONG DIFFERENT CATEGORY OF LOANS Housing Loans 2% 0% 0% Education Loans 1% 0% 0% Two wheeler loan 0% 0% Four wheeler loan Consumer Loans Personal Loans Solar Loans Adhar Loans 97%
SSI
The Total NPA amount is Rs. 48.74 lakhs, which is taken as 100%.
Out of this 100%, 97% belongs to SSI Sector, 1% contribute to Personal loans category, 2% belong to Consumer loans Sector and 0% each contribute to all other category of loans.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING DISTRIBUTION OF SUB-STANDARD ASSETS UNDER DIFFERENT CATEGORY OF LOANS 0% Housing Loans 0% 0% 0% Education Loans 0% 9% Two wheeler loan 0% Four wheeler loan 0%
Consumer Loans Personal Loans Solar Loans Adhar Loans
91%
SSI
The Total amount in sub-standard asset is Rs.6.19 lakhs, out of the total NPA, which is taken as 100%.
Out of 100%, 91% contributes to SSI Sector, 9% belongs to Consumer Loans Sector and 0% each belong to other category of loans.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING DISTRIBUTION OF DOUBTFUL ASSETS UNDER DIFFERENT CATEGORY OF LOANS Housing Loans 0% 0% 0% 1% Education Loans 0% 0% 1% Two wheeler loan 0% Four wheeler loan Consumer Loans Personal Loans Solar Loans Adhar Loans 98%
SSI
The total amount in Doubtful Assets is Rs. 28.42 lakhs out of the total NPA amount, which is taken as 100%.
Out of 100%, 98% belongs to SSI Sector, 1% comes under the category of Two wheeler loans, 1% contributes to Solar loans and 0% each belong to other category of loans.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING DISTRIBUTION OF LOSS ASSETS UNDER DIFFERENT CATEGORY OF LOANS Housing Loans 0% 0% 0% 4% 0% Education Loans 0% 3% 0% Two wheeler loan Four wheeler loan Consumer Loans Personal Loans Solar Loans Adhar Loans 93%
SSI
The total amount in Loss Assets is Rs. 14.13 lakhs which is taken as 100%.
Out of 100%, 93% belong to SSI Sector, 4% contribute to Consumer loans, 3% contribute to Personal loans and 0% each contribute to other sector of loans.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING ACCOUNT WISE CLASSIFICATION OF LOANS 41, 7%
Education Loans 28, 5%
423, 67%
Housing Loans
Two wheeler loan
49, 8%
Four wheeler loan
12, 2% 11, 2%
Consumer Loans
30, 5% 22, 4%
Personal Loans
2, 0%
Solar Loans Adhar Loans SSI
From the above chart we get the following:The total number of Accounts with Bank of Maharashtra as of March 2008 are 618. Out of these accounts, the major proportion is for SSI sector. i.e, 423 accounts (67%), 49 accounts (8%) are under the category of Two wheeler loans, 41 accounts (7%) are under the category of Housing Loans, 30 accounts (5%) belong to the category of Personal loans, 28 accounts (5%) come under the category of Education loans, 22 accounts (4%) come under the category of Solar loans, 12 accounts (2%) belong to the category of Consumer loans, 11 accounts (2%) comes under the category of Four wheeler loans and 2 accounts belong to the category of Adhar loans.
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“A Study on Non-Performing Assets of Bank of Maharashtra”
CHART SHOWING AMOUNT WISE CLASSIFICATION OF LOANS
Housing Loans Education Loans Two wheeler loan
115.49, 15% 60.23, 8% 10.62, 1%
Consumer Loans
27.48, 4%
Personal Loans
3.24, 0%
520.75, 70%
Four wheeler loan
Solar Loans
12.65, 2% 2.52, 0% 0.93, 0%
Adhar Loans SSI
From the above chart we get the following:The Total Amount raised by Bank of Maharashtra as of March 2008 is Rs. 753.92 lakhs, which is taken as 100%. Out of this 100% amount, the major proportion is for SSI sector. i.e, 70% (Rs 520.75 lakhs), 15% (Rs 115.49 lakhs) of the amount is for the purpose of Housing loans, 8% (Rs 60.23lakhs) are for education loans, 4% (Rs 27.48 lakhs) are under the category of Four wheeler loans, 2% (Rs 12.65 lakhs) come under the category of Personal Loans, 1% (Rs 10.62 lakhs) belong to the category of Two wheeler loans and each with 0% is for Consumer loans (Rs 3.24 lakhs), Solar loans (2.52 lakhs) & Adhar loans (Rs 0.93 lakhs).
INTERPRETATION OF THE ABOVE DATA IN TERMS OF PERCENTAGES ( i.e. in terms of Net NPAs to Total Loans Disbursed) Babasabpatilfreepptmba.com
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“A Study on Non-Performing Assets of Bank of Maharashtra”
Percentages with respect to Amounts
TOTAL NPA
Total NPA %
48.74/753.92*100 = 6.46%
Sub-Standard Assets
6.19/753.92*100 = 0.82%
Doubtful Assets
28.42/753.92*100 = 3.77%
Loss Assets
14.13/753.92*100 = 1.87%
Total %
46.66/753.92*100 = 9%
SSI SECTOR
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“A Study on Non-Performing Assets of Bank of Maharashtra”
Sub-Standard Assets
5.61/753.92*100 = 1.08%
Doubtful Assets
28.01/753.92*100 = 5.38%
Loss Assets
13.04/753.92*100 = 2.54%
TWO-WHEELER LOANS
Total %
0.23/10.62*100 = 2.16%
Sub-Standard Assets
NIL
Doubtful Assets
0.23/10.62*100 = 2.16%
Loss Assets
NIL
CONSUMER LOANS
Total %
1.21/3.24*100 = 37.35%
Sub-Standard Assets
0.58/3.24*100 = 17.90%
Doubtful Assets
NIL
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“A Study on Non-Performing Assets of Bank of Maharashtra”
Loss Assets
0.63/3.24*100 = 19.45%
PERSONAL LOANS
Total %
0.47/12.65*100 = 3.72%
Sub-Standard Assets
NIL
Doubtful Assets
NIL
Loss Assets
0.47/12.65*100 = 3.72%
SOLAR LOANS
Total %
0.18/2.52*100 = 7.15%
Sub-Standard Assets
NIL
Doubtful Assets
NIL
Loss Assets
0.18/2.52*100 = 7.15%
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“A Study on Non-Performing Assets of Bank of Maharashtra�
FINDINGS 1) 6.46% of the total advances contribute to total NPA.
2) (a). 58% of the total NPA amount belong to the category of Doubtful Assets, whereas only 33% of the total NPA accounts belong to the category of Doubtful Assets. (b). 29% of the total NPA amount belong to the category of Loss Assets,but account wise, 50% of the total NPA accounts are under the category of Loss Assets. (c). 13% of the total NPA amount come under the category of Sub-Standard Assets, whereas 17% of the total NPA accounts belong to Sub-Standard Assets Category.
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“A Study on Non-Performing Assets of Bank of Maharashtra” From the above point we can observe that ,the Category of Assets differ in percentages when we compare them in terms of Amounts and Accounts.
3) Major advances that are provided by the Bank belong to the SSI sector.
4) 9% of the total advances which belong to SSI sector are Defaulted. The reasons for the default are: Recession. Mis Management. Natural Calamities, etc
5) Most of the NPAs belong to the category of Doubtful Assets.
6) There is reduction in percentage of Net NPA (i.e. from 1.21% in the year 20062007 to 0.87% in the year 2007-2008). This reduction is due to recovery in NPA accounts and the provisions made on these NPAs.
7) The percentage of Bank NPAs, Net as well as Gross will be reduced as the quantum of advances increase.
8) NPA is not in existence under the category of Housing Loans, Education loans, Four wheeler Loans, Solar Loans and Adhar Loans. Reasons: • Adhar Loans are properly linked with pensions and salaries. • Solar Loans are disbursed by the bank by obtaining collateral security in the form of Deposits/NSC/LIC Policy.
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“A Study on Non-Performing Assets of Bank of Maharashtra” • The Education Loans are disbursed in stages for qualified courses having full job opportunities..
SUGGESTIONS
The Bank has to increase in the quality of assets which adds value to its profitability.The quality of assets can be increased by scouting the best Borrowers and by increasing the quality of advances. The percentage of NPAs to Total Advances can be brought down by increasing the standard assets.
“Early Alert System”, should be implemented inorder to prevent the account from becoming NPA.
The banks should undertake frequent monitering and checking of NPA advances, which will help the bank to find out the accounts which are under the category of NPA or which are likely to fall under this category. If there are more variations over a period of time, then the reasons should be sorted out and corrective actions such as issuing notices, etc should be implemented as early as possible.
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“A Study on Non-Performing Assets of Bank of Maharashtra” As for as possible, repayment of term loans should be fixed on monthly basis rather than on quarterly or semi annual basis.
Personal guarantees of the promoter directors/major shareholders should normally be insisted upon.
The major default of the Bank is in SSI Sector. So, inorder to reduce NPAs form this sector, the Bank should undertake various checks like; timely checks on the Cash Flow Statement (Specifically Cash from Operating Activities), Level of Sales (Growth Rate), Coverage ratios (Interest Coverage Ratios, Debt Service Coverage Ratio), etc of SSI Units should be analysed.
Bank should prevent diversion of funds by the promoters and Effective inspection system should be implemented.
Proper follow-up should be maintained with the SSI Sector, which will help them to reduce the NPAs in this sector to a greater extent.
CONCLUSION:
NPA is a weapon, which affects bank profitability due to interest income not being recognized on NPA accounts and loan loss previously incurred to be absorbed from profit earned. Also the provisions are to be made on the NPA accounts which will reduce the
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“A Study on Non-Performing Assets of Bank of Maharashtra” profits of the Bank. The bank must adopt structured NPAs management policy for elimination or reducing the NPAs in the Bank.
BIBLIOGRAPHY
Bank Circulars
www.bankofmaharashtra.com
www.google.com
Information from the Branch Manager.
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