1

CHAPTER - I INTRODUCTION 1.1 INTRODUCTION TO THE STUDY

Credit management is a function that falls under the label of credit and collection or accounts receivable as a department in many companies and institutions. Credit management will not be proper unless when there is a coherent policy in monitoring of payments and collections. India has a bank based financial system where banks and financial institutions are the backbone of the economy. A major problem being observed in the banking sector, all over the world is the problem of Non Performing Assets (NPAs). Reserve bank of India defines NPA as An asset, including a leased asset, becomes Non Performing when it ceases to generate income for the bank. A non performing asset is defined as a credit facility in respect of which the interest and/or installment of principal has remained past due for a specified period of time (90 days, march 31, 2004 onwards). As per the official figures of IMF (international monetary fund), NPAs as a proportion of total loans 12.5% in India The first step of building a stable and strong financial system is to minimize the non performing loans. Lakshmi Vilas bank is a leading major financial conglomerate with effective credit management system and there by having successful management of loans and advances. When the proportion of NPA accounts increases, the financial performance of the organization will decline. Hence all NPA accounts from March 2007 to June 2011 of Lakshmi Vilas bank Arantangi branch is identified and the factors influencing NPAs and the risk level is calculated using various parameters like security of loan, purpose, sector, outstanding amount, year of becoming NPA etc, and the reports are put forward. The study is based on the secondary data obtained from the bank in relation with NPA accounts and primary data for finding out the influencing factors which is

identified through a pilot study conducted with around 10 officers of Lakshmi Vilas bank. The final data is analyzed using various tools like correlation, percentage analysis and the most influencing factors are identified. The result obtained from the analysis can be used to pre- identify the risks and causal factors involved in the formation of Non Performing Accounts. ASSET CLASSIFICATION Categories of NPAs Banks are required to classify nonperforming assets further into the following three categories based on the period for which the asset has remained nonperforming and the realisability of the dues: i. Substandard Assets ii. Doubtful Assets iii. Loss Assets Substandard Assets With effect from 31 March 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. In such cases, the current net worth of the borrower/ guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected Doubtful Assets With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard,

with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values highly questionable and improbable Loss Assets A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

1.2 INDUSTRY PROFILE The assets of the banking sector continued to grow at a faster rate than the real economy, resulting in the assets to GDP ratio to 91.8 per cent at end-march 2011 is compared with 83.5 per cent a year ago. Credit growth during the year showed some declaration mainly on account of lower growth in agriculture and allied activities and personal loans, whereas credit to the services sector showed a higher growth. The asset quality of SCBs improved further during 2010-11, which was reflected in the decline in gross non-performing assets (NPAs) as percentage of loans and advances. The net NPAs as percentage of net advances remained unchanged at the previous years level. However, gross and the net NPAs were higher in absolute terms during the 2009-10, as fresh accruals of NPAs exceeded the NPAs recovered and written-off during the year. This trend was observed across all bank groups, barring old private sector banks The non performing assets of Lakshmi vilas bank, starting from the year 2007(0.08) had a gradual increase and in 2011(0.21) it became 0.5%. Among the nationalized commercial banks in India, Lakshmi vilas bank is showing a minimal level of NPAs. Lakshmi Vilas Bank Limited (the Bank) is an India-based bank. It operates in four segments: treasury operations, corporate/wholesale banking operations, retail

banking operations and other banking operations. The online services provided by the Bank includes national electronic fund transfer (NEFT), real time gross settlement system (RTGS), Internet banking, short message service (SMS) banking and electronic clearing service (ECS). As of March 31, 2011, the Bank operated 290 branches, excluding one satellite office and nine extension counters. The wealth management/parabanking activities include life insurance, mutual funds and port folio management services, money transfer through branch channels, money transfer through direct remittances and depository participant services. 1.3 COMPANY PROFILE Brief history and background The Lakshmi Vilas Bank Limited (LVB) was founded eight decades ago (in 1926) by seven people of Karur under the leadership of Shri V.S.N. Ramalinga Chettiar, mainly to cater to the financial needs of varied customer segments. The bank was incorporated on November 03, 1926 under the Indian Companies Act, 1913 and obtained the certificate to commence business on November 10, 1926, The Bank obtained its license from RBI in June 1958 and in August 1958 it became a Scheduled Commercial Bank. During 1961-65 LVB took over nine Banks and raised its branch network considerably. To meet the emerging challenges in the competitive business world, the bank started expanding its boundaries beyond Tamil Nadu from 1974 by opening branches in the states of Andhra Pradesh, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Gujarat, West Bengal, Uttar Pradesh, Delhi and Pondicherry. Mechanization was introduced in the Head office of the Bank as early as 1977. At present, with a network of 290branches,1 satellite branch and 9 extension counters, spread over 15 states and the union territory of Puducherry, the Bank's focus is on customer delight, by maintaining high standards of customer service and amidst all these new challenges, the bank is progressing admirably. LVB has a strong and wide base in the state of Tamil Nadu, one of the progressive states in the country, has a vibrant industrial

environment. LVB has been focusing on retail banking, corporate banking and bancassurance, is rendering high-tech services which include: 100 % CBS Branches. VISA Enabled International Debit Card. RTGS & NEFT enabled electronic funds transfer services. Internet Banking, Mobile Banking & SMS Alerts. Electronic Clearing Services (ECS). National Electronic Clearing Services (NECS). Payment through mobile phone via, Paymate.

coupled with all our existing recently launched innovative & attractive deposit schemes, and other loan schemes which suits large number of employees, comparable only with Best in the industry to-day. Total business volume grew with the deposits level at around Rs.12813 Crores and the credit portfolio expanding to Rs.8183 Crores with a total Business mix of Rs.21625 Crores and registered growth at 37% for the year Half Year ended September 2011. The bank has a suite of products that are constantly innovated to suit the changing needs of the customers. To facilitate all the financial services under one roof, the bank has tied up for a banc assurance pact with Life Insurance Corporation of India for marketing life insurance products, Bajaj Allianz General Insurance Co. Ltd for General Insurance distribution business and arrangements for distributing the mutual fund products of 16 various reputed AMCs. The Bank has an ATM network of 592, in vital/Major locations. Consequent to the tie-up with Cash Tree Network and NFS for ATMs, over 81000 & above ATMs. In terms of service standards and operational efficiency, the bank has bench marked its practices with the best in the industry. The bank has taken great strides in reaching out to the various segments of the society through its innovative products delivered through multiple channels woven around branches in different geographies.

New identity The new logo unit depicts the following,

Red is for the values, Pure and Strong. Red is for Truth that can do no wrong. Gold is the land of prosperity where we all belong, the abode of wealth where happiness hails from. A glimmer of lights from ochre gold, the circle of kumkum where all good things hold. Come walk the path of Lakshmi and celebrate her blessings, wisdom, growth and contentment and a life full of rich meaning

Vision and mission statement Vision "To be a sound and dynamic banking entity providing financial services of excellence with Pan India presence." Mission To develop a range of quality financial services and products to create value for customers, shareholders and the society; to motivate people to achieve excellence in performance leading to sustained profitable growth and build a vibrant organization. Financial products of lakshmi vilas bank Deposits SAVINGS BANK No-Frills Financial Inclusion Lakshmi Savings Gold Lakshmi Savings Star Gold

Loans

Lakshmi Savings Balance Free Lakshmi Savings Balance Free Lakshmi Savings Youth Power CURRENT ACCOUNT Lakshmi Current Flexi Account FIXED DEPOSITS Flexi Deposit Dhanachakra Deposit Lakshmi Lakhpathy Recurring Deposit(LLRD) Lakshmi Tax Saver Deposit Recurring Deposits - Lakshmi Freedom Deposit(LFD)

Lakshmi Business Credit Lakshmi Home Loan Initial Public Offer (IPO) Lakshmi Rental Loan Lakshmi Personal Vehicle Loan Lakshmi Easy Loan Lakshmi Gold Power Vidhya Lakshmi Loan Lakshmi Small Business Loan Lakshmi Commercial Vehicle Loan

Online Lvb's Handypay - Mobile Payment Service National Electronic Fund Transfer (NEFT) Real Time Gross Settlement System (RTGS) Internet Banking & Sms Banking

1.4 STATEMENT OF THE PROBLEM It has been observed that the failing banks have often shown a level of bad loans. A number of researches have indicated that such ailing banks are in no way near the best practice frontier. Some researchers have clearly indicated a negative impact of bad loans on the efficiencies of the banks. Increase in nonperforming loans tend to be followed by decrease in measured cost efficiency, suggesting that high levels of problem loans cause bank to increase spending on monitoring, working out, and/or selling off these loans, and possibly become more diligent in administering the portion of their existing loan portfolio that is currently performing.

In respect of accounts where there are potential threats of recovery on account of erosion in the value of security and existence of other factors such as fraud committed by borrowers, bills discounted with fake documents, death of the borrower, whereabouts of the borrower not known, business closed, borrower has no means to repay, loss due to natural calamities, etc., it will not be prudent for the bank to classify them first as substandard and then as doubtful after expiry of 18 months from the date when the account has become NPA.

A proper systematic approach to the recovery of Non Performing Assets should be carried out. There by at any circumstances of more defaulters the bank should be able to gain betterment in its financial performance provided with the provisions and security level of loan. So the researcher is interested to study about NPA and its impacts on Banks Performance

1.5

OBJECTIVES OF THE STUDY PRIMARY OBJECTIVE To identify the factors which are playing key role in becoming of Non Performing Assets. SECONDARY OBJECTIVES To analyze the factors and finding the measures for pre identification of the accounts having possibility of turning to Non Performing Assets. To analyze the sectoral performance, there by finding the level of risk at the respective sectors.

1.6

SCOPE OF THE STUDY This study, analysis on factors influencing Non Performing Assets in Lakshmi vilas bank with special reference to Arantangi branch, is concentrated towards finding out of the most relevant factor for the formation of NPAs, which may be on external or internal factor, and finding out the measures to minimize or eradicate the factors for the formation of NPAs. Using the tools of analysis the most influencing factor and the reason for the formation of NPAs will be determined using statistical tools and the result obtained can be suggested to improvise the system in the future.

10

CHAPTER - II REVIEW OF LITERATURE

Bloem and Gorter(2001)1 That a more or less predictable level of non-performing loans, though it may vary slightly from year to year, is caused by an inevitable number of wrong economic decisions by individuals and plain bad luck (inclement weather, unexpected price changes for certain products, etc.). Under such circumstances, the holders of loans can make an allowance for a normal share of non-performance in the form of bad loan provisions, or they may spread the risk by taking out insurance. Enterprises may well be able to pass a large portion of these costs to customers in the form of higher prices. For instance, the interest margin applied by financial institutions will include a premium for the risk of nonperformance on granted loans.At this time, banks non-performing loans increase, profits decline and substantial losses to capital become apparent. Eventually, the economy reaches a trough and turns towards a new expansionary phase, as a result the risk of future losses reaches a low point, even though banks may still appear relatively unhealthy at this stage in the cycle. Guptas study
2

On a sample of Indian companies financed by ICICI concludes that

certain cash flows coverage ratios are better indicators of corporate sickness. Bhatia (1988) and Sahoo, Mishra and Soothpathy (1996) examine the predictive power of accounting ratios on a sample of sick and non-sick companies by applying the multi discriminant analysis techniques. In both the studies, the selected accounting ratios are effective in predicting industrial sickness with a high degree of precision.
1 2

Bloem and Gorter (2001), Less predictable level of non-performing loans, Vol 8,No. 2. Guptas study (1983),Cash flows coverage ratios are better indicators of corporate sickness,

Vol no. 1, No. 1.

11

Mohan

Conceptualized lazy banking while critically reflecting on banks investment

portfolio and lending policy. The Indian viewpoint alluding to the concepts of credit culture owing to Reddy (2004) and lazy banking owing to Mohan (2003a) has an international perspective since several studies in the banking literature agree that banks lending policy is a major driver of non-performing loans (McGoven, 1993, Christine 1995, Sergio, 1996, Bloem and Gorters4 Furthermore, in the context of NPAs on account of priority sector lending, it was pointed out that the statistics may or may not confirm this. There may be only a marginal difference in the NPAs of banks lending to priority sector and the banks lending to private corporate sector. Against this background, the study suggests that given the deficiencies in these areas, it is imperative that banks need to be guided by fairness based on economic and financial decisions rather than system of conventions, if reform has to serve the meaningful purpose. Experience shows that policies of liberalization, deregulation and enabling environment of comfortable liquidity at a reasonable price do not automatically translate themselves into enhanced credit flow. Although public sector banks have recorded improvements in profitability, efficiency (in terms of intermediation costs) and asset quality in the 1990s, they continue to have higher interest rate spreads but at the same time earn lower rates of return, reflecting higher operating costs (Mohan, 2004). Bhattacharya (2001) rightly points to the fact that in an increasing rate regime, quality borrowers would switch over to other avenues such as capital markets, internal accruals for their requirement of funds. Under such circumstances, banks would have no option but to dilute the quality of borrowers thereby increasing the probability of generation of NPAs. In another study, Mohan (2003) observed that lending rates of banks have not come down as much as deposit rates and interest rates on Government bonds.
3 4

Mohan (2003), Conceptualized lazy banking, Vol. 324. Bloem and Gorters, NPAs on account of priority sector lending, 2001, Vol 4, No.1.

12

Muniappan

The internal factors are diversion of funds for expansion/ diversification/

modernisation, taking up new projects, helping/promoting associate concerns, time/cost overruns during the project implementation stage, business (product, marketing, etc.) failure, inefficient management, strained labour relations, inappropriate technology/technical problems, product obsolescence, etc.,while external factors are recession, non-payment in other countries, inputs/power shortage, price escalation, accidents and natural calamities. Das and Ghosh
6

Empirically examined non-performing loans of Indias public sector

banks in terms of various indicators such as asset size, credit growth and macroeconomic condition, and operating efficiency indicators. Sergio (1996) in a study of non-performing loans in Italy found evidence that, an increase in the riskiness of loan assets is rooted in a banks lending policy adducing to relatively unselective and inadequate assessment of sectoral prospects. Interestingly, this study refuted that business cycle could be a primary reason for banks NPLs. The study emphasised that increase in bad debts as a consequence of recession alone is not empirically demonstrated. It was viewed that the bank-firm relationship will thus, prove effective not so much because it overcomes informational asymmetry but because it recoups certain canons of appraisal. In a study of loan losess of US banks, McGoven 7Argued that character has historically been a paramount factor of credit and a major determinant in the decision to lend money. Banks have suffered loan losses through relaxed lending standards, unguaranteed credits, the influence of the 1980s culture, and the borrowers perceptions. It was suggested that bankers should Muniappan, The problem of NPAs is related to several internal and external factors Das and Ghosh, Non-performing loans of Indias public sector banks, (2003), Vol 54, No.1. McGoven, Banks have suffered loan losses through relaxed lending standards, (1993)

confronting the borrowers, 2002, Vol 4, No.1.

6 7

Vol.113, No. 18

13

make a fairly accurate personality-morale profile assessment of prospective and current borrowers and guarantors. Gorter and Bloem8 Non-performing loans are mainly caused by an inevitable number of wrong economic decisions by individuals and plain bad luck (inclement weather, unexpected price changes for certain products, etc.). Under such circumstances, the holders of loans can make an allowance for a normal share of nonperformance in the form of bad loan provisions, or they may spread the risk by taking out insurance. The problem of NPLs is widespread.. This delayed structural reforms and prevented the financial intermediary system from functioning properly In their study, Fernndez, Jorge and Saurina, (2000) state that the growth of bank credit in Spain and its prudential implications is an ever-present item on the agenda of banking supervisors, since most banking crises have had as a direct cause the inadequate management of credit risk by institutions. They further assert that even though bank supervisors are well aware of this problem, it is however very difficult to persuade bank managers to follow more prudent credit policies during an economic upturn, especially in a highly competitive environment. They claim that even conservative managers might find market pressure for higher profits very difficult to overcome.

Gorter and Bloem (2002), Non-performing loans, Vol.5.

14

CHAPTER - III RESEARCH METHODOLOGY 3.1 TYPE OF RESEARCH Descriptive research:

It helps executives to choose among the various courses of action. A descriptive study attempts to obtain a complete and accurate description of a present situation. 3.2 DATA AND SOURCES OF DATA The required details needed are obtained through secondary data from the bank 3.3 TIME PERIOD COVERED Starting from April 2007 to March 2011, there are 16 NPA accounts in the arantangi branch of Lakshmi vilas bank. 3.4 RESEARCH DESIGN The accounts which became NPAs from April 2007 to March 2011 are taken for the study from the Arantangi branch of Lakshmi vilas bank. The NPA accounts are qualified using various parameters to find out the most relevant influencing factor for the becoming of NPA. 3.5 TOOLS USED Percentage analysis Correlation

3.6 LIMITATIONS This study involves the following limitation The reliability and accuracy of the calculations are based on the information given in the secondary data.

15

CHAPTER IV DATA ANALYSIS AND INTERPRETATION 4.1 PERCENTAGE ANALYSIS TABLE 4.1.1: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE AMOUNT OF LOAN S.No 1 2 3 Loan amount(Rs) <50000 50000 to 1lakh 1 lakh to 2lakh Total Number of NPAs 11 3 2 16 Percentage 68.75 18.75 12.50 100

INTERPRETATION 68.75% of the NPAs were loans issued less than fifty thousand whereas 18.75% of the loans which became NPAs were issued between a range of 50000 to a lakh.

100 80 60 Number of NPAs 40 20 0 <50000 50000 to 1 lakh to 1lakh 2lakh Total Percentage

CHART 4.1.1: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE AMOUNT OF LOAN

16

TABLE 4.1.2: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE TYPE OF LOANS ISSUED S.No 1. 2. 3. 4. Type of loan Professional employment Small business Education Retail trade Total 6 8 1 16 37.50 50.00 6.25 100 & self Number of NPAs 1 Percentage 6.25

INTERPRETATION It is clear from the above analysis that Educational loan had become highest percentage as NPAs (50%) whereas small business loans for the priority sector occupied second position in the NPA count (37.50). the loans issued to the priority sector, mostly less than 50000 had became more NPAs.

100 80 60 40 20 0

Number of NPAs

Percentage

CHART 4.1.2: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE TYPE OF LOANS ISSUED

17

TABLE 4.1.3: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE DURATION OF LOAN S.No 1. 2. 3. 4. nil 1 year 2 year 3 4 years Total Duration of loan Number of NPAs 1 6 1 8 16 Percentage 6.25 37.50 6.25 50.00 100

INTERPRETATION Loans issued for a duration of 3/4-years became more NPAs(50%) whereas 37.50% of loans issued for 1year became NPAs whereas 6.25% of the loans issued for 2years and 6.25% of the loans issued for nil years became NPAs.

100 90 80 70 60 50 40 30 20 10 0 nil 1 year 2 year 3 4 Total years

Number of NPAs Percentage

CHART 4.1.3: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE DURATION OF LOAN

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TABLE 4.1.4: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE INTEREST PERCENTAGE S.No 1. 2. 3. 4. 5. Interest percentage 13.50 15.50 16.00 17.25 19.25 Total INTERPRETATION 37.50% of loans with interest percentage of 19.25% became more NPAs whereas another 37.50% of loans interest percentage of 17.25% became NPAs whereas 12.5% and 6.25% of the loans with interest percentage of 16% and 15.50% respectively. Number of NPAs 1 1 2 6 6 16 Percentage 6.25 6.25 12.50 37.50 37.50 100

100 80 60 40 20 0 13.5 15.5 16 17.25 19.25 Total Number of NPAs Percentage

CHART 4.1.4: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE INTEREST PERCENTAGE

19

TABLE 4.1.5: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE NPAs CLASSIFICATION S.No 1 2 3 Loan amount Sub standard asset Doubtful asset Loss asset Total Number of NPAs 9 6 1 16 56.25 37.50 6.25 100 Percentage

INTERPRETATION 56.25% of the NPAs were under the classification of sub standard assets whereas 37.50% of NPAs are classified as doubtful assets and 6.25% of NPAs were classified as loss assets.

100 90 80 70 60 50 40 30 20 10 0 Sub standard asset Doubtful Loss asset asset Total

Number of NPAs Percentage

CHART 4.1.5: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE NPAs CLASSIFICATION

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TABLE 4.1.6: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE RECOVERY ACTION TAKEN BY THE BANK

S.No Recovery action 1 2 Notice No action Total

Number of NPAs 15 1 16

Percentage 93.75 6.25 100

INTERPRETATION 100% of the NPAs notice has been issued as recovery action taken.

100 90 80 70 60 50 40 30 20 10 0 Notice No action Total

Number of NPAs Percentage

CHART 4.1.6: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE RECOVERY ACTION TAKEN BY THE BANK

21

TABLE 4.1.7: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE CAUSAL FACTORS OF NPAs FORMATION

S,.No Loan amount 1 2 Misuse of funds Government policies Total

Number of NPAs 3 13 16

Percentage 18.75 81.25 100

INTERPRETATION About 81.25% of the NPAs occurred due to the Government policies. 18.75% of the NPAs were due to misuse of funds.

100 80 60 40 20 0 Misuse of funds Government policies Total Number of NPAs Percentage

CHART 4.1.7: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE CAUSAL FACTORS OF NPAs FORMATION

22

TABLE 4.1.8: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE SECURITY OF LOAN

s.no Security Loan 1 unsecured

of

Number of NPAs 16

Percentage 100

INTERPRETATION 100% of the loans which became NPAs are unsecured.

unsecured
100 80 60 40 20 0 Number of NPAs Percentage unsecured

CHART 4.1.8: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE SECURITY OF LOAN

23

TABLE 4.1.9: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE PERCENTAGE OF MARGIN

S.No Percentage Margin 1 2 NIL 25% Total

Of Number of NPAs Percentage

8 8 16

50 50 100

INTERPRETATION 50% of the NPAs are loans given without any margin whereas 50% of the loans are issued with 25% margin.

100 90 80 70 60 50 40 30 20 10 0 NIL 25% Total Number of NPAs Percentage

CHART 4.1.9: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE PERCENTAGE OF MARGIN

24

TABLE 4.1.10: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE PURPOSE OF LOAN

S.No Purpose Of Loan 1 2 Loan schemes Educational loan Total for government

Number of NPAs 8 8 16

Percentage 50 50 100

INTERPRETATION 50% of the NPAs are loans given for Purpose of Loan on government schemes whereas 50% of the loans given for Purpose Of educational Loan.

100 80 60 40 20 0 Loan for government schemes Educational loan Total Series1 Series2

CHART 4.1.10: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE PURPOSE OF LOAN

25

TABLE 4.1.11: TABLE SHOWING THE PERCENTAGE OF NPAs BASED ON THE LEGAL ACTION

S.No Legal Action 1 2 NO YES Total

Number of NPAs 16 0 16

Percentage 100 0 100

INTERPRETATION 100% of the NPAs were not undergone any legal action.

100 90 80 70 60 50 40 30 20 10 0 NO YES Total Number of NPAs Percentage

CHART 4.1.11: CHART SHOWING THE PERCENTAGE OF NPAs BASED ON THE LEGAL ACTION

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TABLE 4.2.1: TABLE SHOWING THE PERCENTAGE OF RISK BASED ON THE TYPE OF NPA CLASSIFICATION S.No 1 2 3 NPA CLASSIFICATION Sub asset Doubtful asset Loss asset Total INTERPRETATION The risk percentage is 90.94% for sub standard assets, 69.78% for doubtful assets whereas the risk percentage is 86.18% for loss assets. INFERENCE The risk percentage increases in substandard assets and slight decreases in doubtful assets and again increases in loss assets. Hence the provision for non performing assets should be allocated based on the risk percentage, i.e., more provision should be made available for substandard assets. 170735 11900 781214 119148.92 9741.00 673274.92 69.78% 81.85% 86.18% standard Loan amount 598579 Outstanding amount 544385.00 Outstanding (%) 90.94%

Outstanding (%)
100.00% 80.00% 60.00% 40.00% 20.00% 0.00%

Outstanding (%)

CHART 4.2.1: CHART SHOWING THE PERCENTAGE OF RISK BASED ON THE TYPE OF NPA CLASSIFICATION

27

TABLE 4.2.2: TABLE SHOWING THE PERCENTAGE OF RISK BASED ON THE SECTOR WISE CLASSIFICATION S.No 1 2 3 NPA CLASSIFICATION Personal loan - priority Educational loan Loan Total INTERPRETATION Highest percentage of risk is with the loans issued for educational purpose and loans on government schemes, 98.16% and 81.85% respectively. The personal loan for priority sector having the risk level of 17.5% of risk. INFERENCE Loan issued for educational loan as a whole is having the risk level of 98.16%. Hence other than allotting more provisions, issue of loans to educational sector can be restricted based on the security of the loan. for government schemes 781214 673274.92 86.18% Loan amount 50000 560914 170300 Outstanding amount 8743.00 550595.00 113936.92 Outstanding (%) 17.50% 98.16% 81.85%

Outstanding (%)
100.00% 80.00% 60.00% 40.00% 20.00% 0.00%

Outstanding (%)

CHART 4.2.2: CHART SHOWING THE PERCENTAGE OF RISK

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4.2 CORRELATION TABLE 4.3.1: CORRELATION BETWEEN INTEREST RATE AND NPA Factors Interest & NPA classification Number of NPAs 16 Correlation .543 significance .030

INTERPRETATION As there is positive Correlation (r=.543) between interest rate and non performing assets. There will be significant relationship between interest rate and non performing assets

INFERENCE When the interest rate is increased the amount to be paid as due will increase. Hence there will be increase in the formation of NPA. When there is increase in interest rate and vice versa.

29

TABLE 4.3.2: CORRELATION BETWEEN TYPE OF ACCOUNT AND NPA Factors Type of account & NPA classification Number of NPAs 16 Correlation -.362 significance .168

INTERPRETATION As there is negative Correlation (r=-.362) between Type of account and non performing assets. There is no significant relationship between Type of account and non performing assets

INFERENCE As different types of loans are served for different purposes and based on the needs of the customer the loan type will not be an influencing factor for the formation of NPA

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TABLE 4.3.3: CORRELATION BETWEEN LOAN AMOUNT AND NPA Factors Interest & NPA classification 16 -.507 .045 Number of NPAs Correlation significance

INTERPRETATION As there is negative Correlation (r=-.507) between loan amount and non performing assets. There is no significant relationship between loan amount and non performing assets

INFERENCE It is clear that loans issued based on the sector will have influence on the NPAs and hence loan amount is not an influence factor.

31

TABLE 4.3.4: CORRELATION BETWEEN DURATION AND NPA Factors duration of loan & NPA classification 16 -.674 .004 Number of NPAs Correlation significance

INTERPRETATION As there is negative Correlation (r=-.674) between duration of loan and non performing assets. There is no significant relationship between duration of loan and non performing assets.

INFERENCE When the duration of loan increases the extent of repayment decreases because of the changing economic condition over time

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TABLE 4.3.5: CORRELATION BETWEEN INSTALLMENT DUE AND NPA Factors Installment Due & NPA classification Number of NPAs 16 Correlation .720 significance .002

INTERPRETATION As there is positive Correlation (r=.720) between installment due and non performing assets, There will be significant relationship between installment due and non performing assets.

INFERENCE When installment due decreases the repayment level increases because the source of generating income & allocating lower level of installment is quite easier than allocating higher installment.

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TABLE 4.3.6: CORRELATION BETWEEN FACTORS OF NPA FORMATION AND NPA Factors factors of NPA formation & NPA classification 16 .629 .000 Number of NPAs Correlation significance

INTERPRETATION As there is high positive Correlation (r=.629) between factors of NPA formation and non performing assets, There will be significant relationship between factors of NPA formation and non performing assets

INFERENCE The factors or reasons of NPA formation are directly related with the NPAs and hence they are highly correlated.

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TABLE 4.3.7: CORRELATION BETWEEN MARGIN PERCENTAGE AND NPA Factors Margin percentage & NPA classification 16 .816 .000 Number of NPAs Correlation significance

INTERPRETATION As there is high positive Correlation (r=.816) between margin percentage and non performing assets. There will be significant relationship between margin percentage and non performing assets.

INFERENCE When the margin percentage is increased very high the amount to be paid as due will increase. The margin percentage is directly related to the formation of NPA and hence they are highly correlated.

35

TABLE 4.3.8: CORRELATION BETWEEN CORRECTLY PAID DUES AND NPA Factors Correctly paid dues & NPA classification Number of NPAs 16 Correlation -.720 significance .000

INTERPRETATION As there is negative Correlation (r=-.720) between correctly paid dues and non performing assets. There is no significant relationship between correctly paid dues and non performing assets

INFERENCE When the numbers of correctly paid dues are more than chances of repayment of the loan also increases and the outstanding amount will decreases there by reducing the risk level of the loan.

36

TABLE 4.3.9: CORRELATION BETWEEN SECURITY OF LOAN AND NPA Factors Security of loan & NPA classification 16 .211 .043 Number of NPAs Correlation significance

INTERPRETATION As there is positive Correlation (r=.211) between Security of Loan and non performing assets. There will be significant relationship between Security of Loan and non performing assets.

INFERENCE Where there is more security of the loan the risk level of the loan decreases and hence the provisions can be made less and recovery of the loan can also be done with right measures.

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TABLE 4.3.10: CORRELATION BETWEEN FACTORS OF NPA FORMATION AND RECOVERY ACTION

Factors factors of npa formation & recovery action

Number of NPAs 16

Correlation .537

significance .032

INTERPRETATION As there is positive Correlation (r=.537) between factors of npa formation and recovery action. There will be significant relationship between factors of npa formation and recovery action

INFERENCE As the major cause for the for the recovery action is the formation of NPA so if NPA increases it is necessary to take further recovery action

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TABLE 4.3.11: CORRELATION BETWEEN FACTORS OF NPA FORMATION & DURATION OF LOAN

Factors factors of npa formation & duration of loan

Number of NPAs 16

Correlation .604

significance .013

INTERPRETATION As there is positive Correlation (r=.604) between factors of npa formation & duration of loan. There will be significant relationship between factors of npa formation & duration of loan

INFERENCE When the loan amount is quite high & duration of the loan is very low, then the amount to be paid as due will increase. Hence there will be increase in the formation of NPA. When there is decrease in duration.

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TABLE 4.3.12: CORRELATION BETWEEN FACTORS OF NPA FORMATION & CORRECTLY PAID DUES

Factors factors of npa formation & correctly paid dues

Number of NPAs 16

Correlation -.101

significance .710

INTERPRETATION As there is negative Correlation (r=-1.01) between factors of npa formation & correctly paid dues. There is no significant relationship between factors of npa formation & correctly paid dues

INFERENCE When the dues are correctly paid NPAs will be decreased and the outstanding dues will also decrease.

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Chapter V FINDINGS, SUGESSTIONS & CONCLUSION 5.1 FINDINGS 68.75% of the NPAs were loans issued less than fifty thousand whereas 18.75% of the loans which became NPAs were issued between a range of 50000 to a lakh Loans issued for a duration of 3/4-years became more NPAs(50%) whereas 37.50% of loans issued for 1year became NPAs whereas 6.25% of the loans issued for 2years and 6.25% of the loans issued for nil years became NPAs 37.50% of loans with interest percentage of 19.25% became more NPAs whereas another 37.50% of loans interest percentage of 17.25% became NPAs whereas 12.5% and 6.25% of the loans with interest percentage of 16% and 15.50% respectively 56.25% of the NPAs were under the classification of sub standard assets whereas 37.50% of NPAs are classified as doubtful assets and 6.25% of NPAs were classified as loss assets 93.75 % of the NPAs notice has been issued as recovery action, 6.25% of the NPAs no action has taken About 81.25% of the NPAs occurred due to the Government policies. 18.75% of the NPAs were due to misuse of funds 100% of the loans which became NPAs are unsecured. 50% of the NPAs are loans given without any margin whereas 50% of the loans are issued with 25% margin 50% of the NPAs are loans given for Purpose of Loan on government schemes whereas 50% of the loans given for Purpose Of educational Loan 100% of the NPAs were not undergone any legal action. The risk percentage is 90.94% for sub standard assets, 69.78% for doubtful assets whereas the risk percentage is 86.18% for loss assets

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Highest percentage of risk is with the loans issued for educational purpose and loans on government schemes, 98.16% and 81.85% respectively. The personal loan for priority sector having the risk level of 17.5% of risk

5.2 FINDINGS As there is positive Correlation (r=.543) between interest rate and non performing assets. There will be significant relationship between interest rate and non performing assets As there is negative Correlation (r=-.362) between Type of account and non performing assets. There is no significant relationship between Type of account and non performing assets As there is negative Correlation (r=-.507) between loan amount and non performing assets. There is no significant relationship between loan amount and non performing assets As there is negative Correlation (r=-.674) between duration of loan and non performing assets. There is no significant relationship between duration of loan and non performing assets. As there is positive Correlation (r=.720) between installment due and non performing assets, There will be significant relationship between installment due and non performing assets. As there is high positive Correlation (r=.629) between factors of NPA formation and non performing assets, There will be significant relationship between factors of NPA formation and non performing assets As there is high positive Correlation (r=.816) between margin percentage and non performing assets. There will be significant relationship between margin percentage and non performing assets.

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As there is negative Correlation (r=-.720) between correctly paid dues and non performing assets. There is no significant relationship between correctly paid dues and non performing assets As there is positive Correlation (r=.211) between Security of Loan and non performing assets. There will be significant relationship between Security of Loan and non performing assets. As there is positive Correlation (r=.537) between factors of npa formation and recovery action. There will be significant relationship between factors of npa formation and recovery action As there is positive Correlation (r=.604) between factors of npa formation & duration of loan. There will be significant relationship between factors of npa formation & duration of loan As there is negative Correlation (r=-1.01) between factors of npa formation & correctly paid dues. There is no significant relationship between factors of npa formation & correctly paid dues

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5.3 SUGESSTIONS As a major percentage of defaulters are having self intention of nonpayment, the recovery action of the bank should be modified in such a way that the percentage of NPA accounts can be reduced and will happen less in future. Loans issued for educational sector as a whole is having the risk level of 95%. Hence other than allotting more provisions, issue of loans to educational sector can be restricted based on the security of loan. There should be good rapport between the customer and the bank employee so which the NPA can be reduced gradually.

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5.4 CONCLUSION The study observed that there is increase in advances over the period of the study. However, the decline in ratio of NPAs indicates improvement in the asset quality of Indian banks. It is found on the basis of analysis that there is significant improvement in the management of nonperforming assets of the private sector banks in India. The study finally observes that the prudential and provisioning norms and other initiatives taken by the regulatory bodies has pressurized banks to improve their performance, and consequently resulted into trim down of NPA as well as improvement in the financial health of the Indian banking system

BIBLIOGRAPHY
BOOK REFERENCE C R Kothari, Research methodology and technologies Wishwa Prakashan, New Delhi, Second edition, 2001 Uma sekaran, Research methodology for business Report on trend and progress of banking in India 2010-2011 WEBSITE REFERENCE www.rbi.org.in www.ebscosearch.com www.lvbank.com www.googlescholar.com

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