EXECUTIVE SUMMARY

The undergone project is the part of the Summer Internship project focused on Banking Sector. This project helped me to get the deeper understanding of the Non Performing Assets and how a bank needs to continuously monitor its advances to ensure the success of the bank to strengthen the financial position. The banking industry has undergone a sea change after the first phase of economic liberalization in 1991 and hence credit management. While the primary function of banks is to lend funds as loans to various sectors such as agriculture, industry, personal loans, housing loans etc., in recent times the banks have become very cautious in extending loans. The reason being mounting nonperforming assets (NPAs). An NPA accounts not only for reduction in profitability of banks by provisioning in the profit and loss account, but their carrying cost is also increased which results in excess & unavoidable management attention. Apart from this, a high level of NPA also puts strain on a banks net worth because banks are under pressure to maintain a desired level of Capital Adequacy and in the absence of comfortable profit level, banks eventually look towards their internal financial strength to fulfill the norms thereby slowly eroding the net worth.

For the study three year data (i.e. financial year 2008, 2009, 2010) has been collected for all the public sector banks for calculating the ratios related to non performing assets. Then these data were framed in tabulated form from which various charts were derived. The primary objective of this project is to study Non Performing Assets of the Central Bank of India and compare it with other public sector banks.

This important analysis is performed usually by finance professionals in order to manage their NPAs. This analysis is made by using the information and data taken from the financial excels of the company and for other banks information various government sites were referred. These type of analysis are usually presented to top management as one of their basis in making crucial business decisions regarding the framing of policies like that of provision for npa, policies for advance granting, etc. This experience was an emphasis on the importance of these data which could be the roots of decisions made by management that can make or break the company.

INTRODUCTION
After liberalization the Indian banking sector developed very appreciably and is continuously growing at a much faster rate day by day. The step taken RBI to nationalized certain number of commercial banks for proving socio economic services to the people of the nation also proved to be milestone in the banking sector and among these nationalized banks one bank was Central Bank of India who has also paid his part of role in development of the economy in several ways.

The Central Bank of India has shown very good performance as far as the financial operations are concerned. If we take a look at the financial operations of the bank, we will find that deposits of public in the Central Bank of India has increased from 110320 crore in year 2008 to 162107 crore in year 2010 as compared to the Public Sector Banks, which have increased from 24,37,698 crore in year 2008 to 3691799 crore in year 2010, the investments of the Central Bank of India has increased from 31455 crore in 2008 to 50563 crore, and the advances have also been increased to 105383 crore in 2010 from 72997 crore in 2008 as compared to Public Sector Banks 1785159 crore in 2008 to 2703811 crore in 2010. The total income of the Central Bank of India has also shown good performance since the last few years and currently is at 13799 crore. The Public Sector Banks have also shown comparatively good result with total income of 354876 crore.

The major problem of the Public Sector Banks these days are the non performing assets which have direct bearing of it on the banks profitability. The non performing assets of

the Public Sector Banks have decreased to a great extent as compared to the last decade but it has been increasing regularly year by year from last few years. If we take a quick glance on the numbers of non performing assets we may come to know that in the year 2008 the NPAs were 40,277crore and reached to 59,927crore in 2010. If we talk particularly about Central Bank of India, its NPA were at 2350 crore in year 2008 which increased to 2458 by the end of financial year 2010.

The only problem that hampers the possible financial performance of the Public Sector Banks is the increasing results of the non performing assets. The non performing assets impacts drastically to the working of the banks. The efficiency of a bank is not always reflected only by the size of its balance sheet but by the level of return on its assets. NPAs do not generate interest income for the banks, but at the same time banks are required to make provisions for such NPAs from their current profits. NPAs have a deleterious effect on the return on assets in several ways They erode current profits through provisioning requirements They result in reduced interest income They require higher provisioning requirements affecting profits and accretion to capital funds and capacity to increase good quality risk assets in future, and They limit recycling of funds, set in asset-liability mismatches, etc.

The RBI has implemented many schemes and tools to reduce the non performing assets by introducing internal checks and control scheme, relationship managers as stated by RBI who have complete knowledge of the borrowers, credit rating system, and early

warning system and so on. The RBI has also tried to improve the securitization Act and SRFAESI Act, 2002 and other acts related to the pattern of the borrowings. Though RBI has taken number of measures to reduce the level of the non performing assets the results are improving and has shown a great difference from the last decade. To improve NPAs each bank should be motivated to introduce their own precautionary steps. Before lending the banks must evaluate the feasible financial and operational prospective results of the borrowing companies. They must evaluate the business of borrowing companies by keeping in considerations the overall impacts of all the factors that influence the business.

OBJECTIVE OF THE STUDY

Primary objective:- The primary objective of making this report is: To study Non Performing Assets of the Central Bank of India and compare it with other public sector banks.

Secondary objectives:- The secondary objectives of preparing this report are: To understand what is Non Performing Assets and what are the underlying reasons for the emergence of the NPAs. To understand the impacts of NPAs on the operations of the Public Sector Banks. To know the steps taken to reduce the NPAs. To evaluate the comparative ratios of the Public Sector Banks with concerned to the NPAs.

USE OF THE STUDY

The analysis made as a part of this study may contribute in a way analysis of strength and weakness of the banking sector as whole with regard to Non Performing Asset of banks. Various banks may make efforts to overcome limitations for lending money to different sectors like agricultural, SSI, Priority sector, non-priority sector, public sector & others. .

COMPANY PROFILE
Established in 1911, Central Bank of India is one of the oldest commercial banks of India, and reportedly is the first truly Indian bank which was totally owned and established by Indian without any foreign help. The establishment of the Bank was the ultimate realisation of the dream of Sir Sorabji Pochkhanawala, founder of the Bank. Sir Pherozesha Mehta was the first Chairman of a truly 'Swadeshi Bank'. In fact, such was the extent of pride felt by Sir Sorabji Pochkhanawala that he proclaimed Central Bank of India as the 'property of the nation and the country's asset'. He also added that 'Central Bank of India lives on people's faith and regards itself as the people's own bank'. In the year 1969 the bank was nationalized by the Government of India.

During the past 100 years of history the Bank has weathered many storms and faced many challenges. The Bank could successfully transform every threat into business opportunity and excelled over its peers in the Banking industry.

A number of innovative and unique banking activities have been launched by Central Bank of India and a brief mention of some of its pioneering services are as under:

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Introduction to the Home Savings Safe Deposit Scheme to build saving/thrift habits in all sections of the society.

1924 1926 1929 1932 1962

An Exclusive Ladies Department to cater to the Bank's women clientele. Deposit Locker facility and Rupee Travelers Cheques. Setting up of the Executor and Trustee Department. Deposit Insurance Benefit Scheme. Recurring Deposit Scheme.

Subsequently, even after the nationalization of the Bank in the year 1969, Central Bank continued to introduce a number of innovative banking services as under: 1976 1980 1986 1989 The Merchant Banking Cell was established. Centralcard, the credit card of the Bank was introduced. 'Platinum Jubilee Money Back Deposit Scheme' was launched. The housing subsidiary Cent Bank Home Finance Ltd. was started with its headquarters at Bhopal in Madhya Pradesh. 1994 Quick Cheque Collection Service (QCC) & Express Service was set up to enable speedy collection of outstation cheques.

Further in line with the guidelines from Reserve Bank of India as also the Government of India, Central Bank has been playing an increasingly active role in promoting the key thrust areas of agriculture, small scale industries as also medium and large industries. The Bank also introduced a number of Self Employment Schemes to promote employment among the educated youth. Among the Public Sector Banks, Central Bank of India can be truly described as an All India Bank, due to distribution of its large network in 27 out of 29 States as also in 3 out of 7 Union Territories in India. Central Bank of India holds a very prominent place among the Public Sector Banks on account of its network of 3728 branches and 178 extension counters at various centers throughout the length and breadth of the country.

CORPORATE VISION

To emerge as a strong, vibrant and pro-active Bank/Financial Super Market and to positively contribute to the emerging needs of the economy through consistent harmonization of human, financial and technological resources and effective risk control systems.

CORPORATE MISSION
To transform the customer banking experience into a fruitful and enjoyable one. To leverage technology for efficient and effective delivery of all banking services. To have bouquet of product and services tailor-made to meet customers aspirations. The pan-India spread of branches across all the state of the country will be utilized to further the socio economic objective of the Government of India with emphasis on Financial Inclusion.

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INTRODUCTION OF NON PERFORMING ASSETS

The world is going faster in terms of services and physical products. However it has been researched that physical products are available because of the service industries. In the nation economy also service industry plays vital role in the boosting up of the economy. The banking sector is one of appreciated service industries. The banking sector plays larger role in channelizing money from one end to other end. The banking sector accepts the deposits of the people and provides fruitful return to people on the invested money. But for providing the better returns plus principal amounts to the clients; it becomes important for the banks to earn. the main source of income for banks are the interest that they earn on the loans that have been disbursed to general person, businessman, or any industry for its development. Thus, we may find the input-output system in the banking sector. Banks first, accepts the deposits from the people and secondly they lend this money to people who are in the need of it. By the way of channelizing money from one end to another end, Banks earn their profits. However, Indian banking sector has faced the serious problem of Non Performing Assets. This problem has been emerged largely in Indian banking sector since three decade. Due to this problem many Public Sector Banks have been adversely affected to their performance and operations. In simple words Non Performing Assets problem is one where banks are not able to recollect their landed money from the clients or clients have been in such a condition that they are not in the position to provide the borrowed money to the banks. The problem of NPAs is dangerous to the banks because it destroys the healthy financial conditions of them. The trust of the people would not be anymore if the banks have higher NPAs. The problem of NPAs must be tackled out in such a way that would not destroy the operational, financial conditions and would not affect the image of the banks. Recently, RBI has taken number steps to reduce NPAs of the Indian banks. And it is also found that the many banks have shown positive figures in reducing NPAs as compared to the past years.

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MEANING OF NPAs
An asset is classified as non-performing asset (NPAs) if the borrower does not pay dues in the form of principal and interest for a period of 180 days. However, now a days, default status would be given to a borrower if dues were not paid for 90 days. If any advance or credit facilities granted by bank to a borrower become non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as non-performing without having any regard to the fact that there may still exist certain advances / credit facilities having performing status. 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 resource.

Action for enforcement of security interest can be initiated only if the secured asset is classified as Non Performing Asset. 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 RBI. 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) shell be an advance where

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i) Interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan, ii) The account remains 'out of order' for a period of more than 180 days, in respect of an overdraft/ cash Credit (OD/CC), iii) The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted, iv) 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 v) 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 form March 31, 2004, a non-performing asset (NPA) shell be a loan or an advance where; i) Interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan, ii) The account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash Credit (OD/CC), iii) Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

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ASSET CLASSIFICATION
1. Standard Assets:- An asset, which does not disclose any problem and also does not carry more than normal risk attached to the business, it should not fall under this category of NPA. 2. Sub-Standard Assets- An asset, which has been identified as NPA for a period not exceeding two years. In the case of term loan, if installments of principal are overdue for more than one year but not exceeding two years, it is to be treated as sub-standard asset. An asset where the terms of the loan agreement regarding interest and principal have been re-negotiated or re-scheduled should be classified as sub-standard and should remain in such category for at least two years of satisfactory performance under the renegotiated or rescheduled terms.

3. Doubtful Assets- An asset, which remains NPA for more than two years. Here too, rescheduling does not entitle a bank to upgrade the quality of an advance automatically. In the case of a term loan, if installments of principal are overdue for more than two years, it is to be treated as doubtful.

4. Loss Assets- An asset where loss has been identified by the bank or by internal/external auditors or by RBI inspection but the amount has not been written-off, wholly or partly. In other words, such an asset is considered unrealizable and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

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REASONS FOR NPA

1) INTERNAL FACTORS 2) EXTERNAL FACTORS

Internal Factors: 1) Funds borrowed for a particular purpose but not use for the said purpose. 2) Project not completed in time. 3) Poor recovery of receivables. 4) Excess capacities created on non-economic costs. 5) In-ability of the corporate to raise capital through the issue of equity or other debt instrument from capital markets. 6) Business failures. 7) Diversion of funds for expansion\modernization\setting up new projects\ helping or promoting sister concerns. 8) Willful defaults, siphoning of funds, fraud, disputes, management disputes, misappropriation etc. 9) Deficiencies on the part of the banks viz. in credit appraisal, monitoring and followups, delaying settlement of payments\ subsidiaries by government bodies etc.,

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External Factors:

1) Sluggish legal system Long legal tangles Changes that had taken place in labour laws Lack of sincere effort. 2) Scarcity of raw material, power and other resources. 3) Industrial recession. 4) Shortage of raw material, raw material\input price escalation, power shortage, industrial recession, excess capacity, natural calamities like floods, accidents. 5) Failures, nonpayment\ over dues in other countries, recession in other countries, externalization problems, adverse exchange rates etc. 6) Government policies like excise duty changes, Import duty changes etc.,

The above-mentioned causes are discussed below with some other reasons: Liberalization of economy/removal of restrictions/reduction of tariffs - A large number of NPA borrowers were unable to compete in a competitive market in which lower prices and greater choices were available to consumers. Further, borrowers operating in specific industries have suffered due to political, fiscal and social

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compulsions, compounding pressures from liberalization (e.g., sugar and fertilizer industries). Lax monitoring of credits and failure to recognize Early Warning Signals - It has been stated that approval of loan proposals is generally thorough and each proposal passes through many levels before approval is granted. However, the monitoring of sometimes-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 this reason, adverse trends in borrowers' performance were not noted and the position further deteriorated before action was taken. Over optimistic promoters - Promoters were often optimistic in setting up large projects and in some cases 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 the funding would be arranged from the capital markets, which were booming at the time of the project appraisal. When the capital markets subsequently crashed, the requisite funds could never be raised, promoters often lost interest and lenders were left stranded with incomplete/unviable projects. Directed lending - Loans to some segments were dictated by Government's policies rather than commercial imperatives. Highly leveraged borrowers - 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.

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 Funding mismatch - There are said to be many cases where loans granted for short terms were used to fund long term transactions. High Cost of Funds High interest rates were not uncommon. Coupled with high leveraging and falling demand, borrowers could not continue to service high cost debt. Willful 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

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IMPACT OF NPA
Profitability: NPA means booking of money in terms of bad asset, which occurred due to wrong choice of client. Because of the money getting blocked the prodigality of bank decreases not only by the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in some return earning project/asset. So NPA doesnt affect current profit but also future stream of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in profitability is low ROI (return on investment), which adversely affect current earning of bank.

Liquidity: Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to borrowing money for shortest period of time which lead to additional cost to the company. Difficulty in operating the functions of bank is another cause of NPA due to lack of money. Routine payments and dues.

Involvement of management: Time and efforts of management is another indirect cost which bank has to bear due to NPA. Time and efforts of management in handling and managing NPA would have 19

diverted to some fruitful activities, which would have given good returns. Now days banks have special employees to deal and handle NPAs, which is additional cost to the bank.

Credit loss: Bank is facing problem of NPA then it adversely affect the value of bank in terms of market credit. It will lose its goodwill and brand image and credit which have negative impact to the people who are putting their money in the banks.

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IDENTIFICATION AND RESOLUTION OF NPAs

1. Internal Checks and Control:- Since high level of NPAs dampens the performance of the banks identification of potential problem accounts and their close monitoring assumes importance. Though most banks have Early Warning Systems (EWS) for identification of potential NPAs, the actual processes followed, however, differ from bank to bank. The EWS enable a bank to identify the borrower accounts which show 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 beforehand, accordingly. The early warning signals, indicative of potential problems in the accounts, viz. persistent irregularity in accounts, delays in servicing of interest, frequent, units' financial problems, market related problems, etc. are captured by the system. In addition, some of these banks are reviewing their exposure to borrower accounts every quarter based on published data which also serves as an important additional warning system. These early warning signals used by banks are generally independent of risk rating systems and asset classification norms prescribed by RBI. The major components/processes of a EWS followed by banks in India are as follows:i) Designating Relationship Manager/ Credit Officer for monitoring account/s ii) Preparation of `know your client' profile

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iii) Credit rating system iv) Identification of watch-list/special mention category accounts v) Monitoring of early warning signals

Relationship Manager/Credit Officer The Relationship Manager/Credit Officer is an official who is expected to have complete knowledge of borrower, his business, his future plans, etc. The Relationship Manager has to keep in constant touch with the borrower and report all developments impacting the borrowal account. As a part of this contact he is also expected to conduct scrutiny and activity inspections. In the credit monitoring process, the responsibility of monitoring a corporate account is vested with Relationship Manager/Credit Officer. `Know your client' profile (KYC) Most banks in India have a system of preparing `know your client' (KYC) profile/credit report. As a part of `KYC' system, visits are made on clients and their places of business/units. The frequency of such visits depends on the nature and needs of relationship. Credit Rating System The credit rating system is essentially one point indicator of an individual credit exposure and is used to identify measure and monitor the credit risk of individual proposal. At the whole bank level, credit rating system enables tracking the health of banks entire credit portfolio. Most banks in India have put in place the system of internal credit rating. While most of the banks have developed their own models, a few banks have adopted credit rating models designed by rating agencies. Credit rating models take into account various

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types of risks viz. financial, industry and management, etc. associated with a borrowal unit. The exercise is generally done at the time of sanction of new borrowal account and at the time of review / renewal of existing credit facilities. Watch-list/Special Mention Category The grading of the bank's risk assets is an important internal control tool. It serves the need of the Management to identify and monitor potential risks of a loan asset. The purpose of identification of potential NPAs is to ensure that appropriate preventive corrective steps could be initiated by the bank to protect against the loan asset becoming non-performing. Most of the banks have a system to put certain borrowal accounts under watch list or special mention category if performing advances operating under adverse business or economic conditions are exhibiting certain distress signals. These accounts generally exhibit weaknesses which are correctable but warrant banks' closer attention. The categorisation of such accounts in watch list or special mention category provides early warning signals enabling Relationship Manager or Credit Officer to anticipate credit deterioration and take necessary preventive steps to avoid their slippage into non performing advances.

Early Warning Signals It is important in any early warning system, to be sensitive to signals of credit deterioration. A host of early warning signals are used by different banks for identification of potential NPAs. Most banks in India have laid down a series of operational, financial, transactional indicators that could serve to identify emerging problems in credit exposures at an early stage. Further, it is revealed that the indicators

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which may trigger early warning system depend not only on default in payment of installment and interest but also other factors such as deterioration in operating and financial performance of the borrower, weakening industry characteristics, regulatory changes, general economic conditions, etc. Early warning signals can be classified into five broad categories viz. (a) financial (b) banking (c) management and (d) external factors. Financial related warning signals generally emanate from the borrowers' balance sheet, income expenditure statement, statement of cash flows, statement of receivables etc. Following common warning signals are captured by some of the banks having relatively developed EWS. Financial warning signals Persistent irregularity in the account Default in repayment obligation Invocation of guarantees Deterioration in liquidity/working capital position Substantial increase in long term debts in relation to equity Declining sales Operating losses/net losses Rising sales and falling profits Disproportionate increase in overheads relative to sales Rising level of bad debt losses Operational warning signals Low activity level in plant Disorderly diversification/frequent changes in plan Nonpayment of wages/power bills

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 Loss of critical customer/s Frequent labor problems Evidence of aged inventory/large level of inventory Management related warning signals Lack of co-operation from key personnel Change in management, ownership, or key personnel Desire to take undue risks Family disputes Poor financial controls Fudging of financial statements Diversion of funds

Banking related signals Declining bank balances/declining operations in the account Opening of account with other bank Return of outward bills/dishonored cheques Sales transactions not routed through the account Frequent requests for loan Frequent delays in submitting stock statements, financial data, etc.

Signals relating to external factors Economic recession Emergence of new competition

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 Emergence of new technology Changes in government / regulatory policies Natural calamities

2. Management/Resolution of NPAs A reduction 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 SRFAESI Act, one time settlement schemes, setting up of the CDR mechanism, strengthening of DRTs. From the data available of Public Sector Banks as on March 31, 2010, NPAs which had gross value near to 60000 crore. The total number of resolution approaches (including cases where action is to be initiated) is greater than the number of NPAs, indicating some double counting. As can be seen, suit filed and Board for Industrial and Financial Reconstruction (BIFR) are the two most common approaches to resolution of NPAs in public sector banks. Data available on resolution strategies adopted by public sector banks suggest that Compromise settlement schemes with borrowers are found to be more effective than legal measures. Many banks have come out with their own restructuring schemes for settlement of NPA accounts.

3. Credit Information Bureau State Bank of India, HDFC Limited, M/s. Dun and Bradstreet Information Services (India) Pvt. Ltd. and M/s. Trans Union to serve as a mechanism for exchange of

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information between banks and FIs for curbing the growth of NPAs incorporated credit Information Bureau (India) Limited (CIBIL) in January 2001. Pending the enactment of CIB Regulation Bill, the RBI constituted a working group to examine the role of CIBs. As per the recommendations of the working group, Banks and FIs are now required to submit the list of suit-filed cases of Rs. 10 million and above and suit-filed cases of willful defaulters of Rs. 2.5 million and above to RBI as well as CIBIL. CIBIL will share this information with commercial banks and FIs so as to help them minimize adverse selection at appraisal stage.

4. Willful Defaulters RBI has issued revised guidelines in respect of detection of willful default and diversion and siphoning of funds. As per these guidelines a willful default occurs when a borrower defaults in meeting its obligations to the lender when it has capacity to honor the obligations or when funds have been utilized for purposes other than those for which finance was granted. The list of willful defaulters is required to be submitted to SEBI and RBI to prevent their access to capital markets. Sharing of information of this nature helps banks in their due diligence exercise and helps in avoiding financing unscrupulous elements. RBI has advised lenders to initiate legal measures including criminal actions, wherever required, and undertake a proactive approach in change in management, where appropriate.

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5. Legal and Regulatory Regime:A. Debt Recovery Tribunals DRTs were set up under the Recovery of Debts due to Banks and Financial Institutions Act, 1993. Under the Act, two types of Tribunals were set up i.e. Debt Recovery Tribunal (DRT) and Debt Recovery Appellate Tribunal (DRAT). The DRTs are vested with competence to entertain cases referred to them, by the banks and FIs for recovery of debts due to the same. The order passed by a DRT is appealable to the Appellate Tribunal but no appeal shall be entertained by the DRAT unless the applicant deposits 75% of the amount due from him as determined by it. However, the Affiliate Tribunal may, for reasons to be received in writing, waive or reduce the amount of such deposit. Advances of Rs. 1 mn and above can be settled through DRT process. An important power conferred on the Tribunal is that of making an interim order (whether by way of injunction or stay) against the defendant to debar him from transferring, alienating or otherwise dealing with or disposing of any property and the assets belonging to him within prior permission of the Tribunal. This order can be passed even while the claim is pending. DRTs are criticised in respect of recovery made considering the size of NPAs in the Country. In general, it is observed that the defendants approach the High Country challenging the verdict of the Appellate Tribunal which leads to further delays in recovery. Validity of the Act is often challenged in the court which hinders the progress of the DRTs. Lastly, many needs to be done for making the DRTs stronger in terms of infrastructure.

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B. Lokadalats The institution of Lokadalat constituted under the Legal Services Authorities Act, 1987 helps in resolving disputes between the parties by conciliation, mediation, compromise or amicable settlement. It is known for effecting mediation and counseling between the parties and to reduce burden on the court, especially for small loans. Cases involving suit claims upto Rs. l million can be brought before the Lokadalat and every award of the Lokadalat shall be deemed to be a decree of a Civil Court and no appeal can lie to any court against the award made by the Lokadalat. Several people of particular localities/ various social organisations are approaching Lokadalats which are generally presided over by two or three senior persons including retired senior civil servants, defense personnel and judicial officers. They take up cases which are suitable for settlement of debt for certain consideration. Parties are heard and they explain their legal position. They are advised to reach to some settlement due to social pressure of senior bureaucrats or judicial officers or social workers. If the compromise is arrived at, the parties to the litigation sign a statement in presence of Lokadalats which is expected to be filed in court to obtain a consent decree. Normally, if such settlement contains a clause that if the compromise is not adhered to by the parties, he suits pending in the court will proceed in accordance with the law and parties will have a right to get the decree from the court. In general, it is observed that banks do not get the full advantage of the Lokadalats. It is difficult to collect the concerned borrowers willing to go in for compromise on the day when the Lokadalat meets. In any case, we should continue our efforts to seek the help of the Lokadalat.

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C. Enactment of SRFAESI Act, 2002 The "The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act" (SRFAESI) provides the formal legal basis and regulatory framework for setting up Asset Reconstruction Companies (ARCs) in India. In addition to asset reconstruction and ARCs, the Act deals with the following largely aspects, viz. Securitisation and Securitisation Companies Enforcement of Security Interest Creation of a central registry in which all securitization and asset reconstruction transactions as well as any creation of security interests has to be filed. The Reserve Bank of India (RBI), the designated regulatory authority for ARCS has issued Directions, Guidance Notes, Application Form and Guidelines to Banks in April 2003 for regulating functioning of the proposed ARCS and these Directions/ Guidance Notes cover various aspects relating to registration, operations and funding of ARCS and resolution of NPAs by ARCS. The RBI has also issued guidelines to banks and financial institutions on issues relating to transfer of assets to ARCS, consideration for the same and valuation of instruments issued by the ARCS. Additionally, the Central Government has issued the security enforcement rules ("Enforcement Rules"), which lays down the procedure to be followed by a secured creditor while enforcing its security interest pursuant to the Act. The Act permits the secured creditors (if 75% of the secured creditors agree) to enforce their security interest in relation to the underlying security without reference to the Court after giving a 60 day notice to the defaulting borrower upon classification of the

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corresponding financial assistance as a non-performing asset. The Act permits the secured creditors to take any of the following measures: Take over possession of the secured assets of the borrower including right to transfer by way of lease, assignment or sale; Take over the management of the secured assets including the right to transfer by way of lease, assignment or sale; Appoint any person as a manager of the secured asset (such person could be the ARC if they do not accept any pecuniary liability); and Recover receivables of the borrower in respect of any secured asset which has been transferred. After taking over possession of the secured assets, the secured creditors are required to obtain valuation of the assets. These secured assets may be sold by using any of the following routes to obtain maximum value. By obtaining quotations from persons dealing in such assets or otherwise interested in buying the assets; By inviting tenders from the public; By holding public auctions; or By private treaty. Lenders have seized collateral in some cases and while it has not yet been possible to recover value from most such seizures due to certain legal hurdles, lenders are now clearly in a much better bargaining position vis-a-vis defaulting borrowers than they were before the enactment of SRFAESI Act. When the legal hurdles are removed, the bargaining power of lenders is likely to improve further and one would expect to see a

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large number of NPAs being resolved in quick time, either through security enforcement or through settlements.

Asset Reconstruction Companies Under the SRFAESI Act ARCS can be set up under the Companies Act, 1956. The Act designates any person holding not less than 10% of the paid-up equity capital of the ARC as a sponsor and prohibits any sponsor from holding a controlling interest in, being the holding company of or being in control of the ARC. The SRFAESI and SRFAESI Rules/ Guidelines require ARCS to have a minimum net-owned fund of not less than Rs. 20,000,000. Further, the Directions require that an ARC should maintain, on an ongoing basis, a minimum capital adequacy ratio of 15% of its risk weighted assets. ARCS have been granted a maximum realisation time frame of five years from the date of acquisition of the assets. The Act stipulates several measures that can be undertaken by ARCs for asset reconstruction. These include: a) Enforcement of security interest; b) Taking over or changing the management of the business of the borrower; c) The sale or lease of the business of the borrower; d) Settlement of the borrowers' dues; and e) Restructuring or rescheduling of debt. ARCS are also permitted to act as a manager of collateral assets taken over by the lenders under security enforcement rights available to them or as a recovery agent for any bank or financial institution and to receive a fee for the discharge of these functions. They can also be appointed to act as a receiver, if appointed by any Court or DRT.

32

REVIEW OF LITERATURE
In view of the seriousness of the problem number of research studies have been conducted on different issues concerning NPAs. FICCI (1999), have discussed different factors responsible for this problem and suggested measures to overcome it. Westgaard (2000) has identified different financial variables as well as other firm characteristics affecting the default probability which identified in advance can help controlling the fresh accretion of NPAs. Mukherjee (2003), discussed the suitability model of asset reconstruction companies to solve the problem of NPAs. Only few studies have highlighted the impact of NPAs on the performance of banks. Das (1999) has compared the various efficiency measures of public sector banks by applying data envelopment analysis model and concluded that the level of NPAs has significant negative relationship with efficiency estimates. Verma (1999) has concluded that high level of NPAs leads to operational failure of the banks. Berger and Young (1997) has examined the relationship between problem loan and bank efficiency and found that high level of problem loans cause banks 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. Gupta (1997) has also concluded that NPAs effects the profitability of banks and leads to liquidity crunch and slow down in the growth in GDP, etc. Kaveri (1995) has also examined the impact of NPAs on profitability by taking profit making and six loss making banks and concluded that loss making banks maintained higher NPAs in the loan portfolio which led them to show losses. Kwan and Eisenbeis (1994) also concluded that there is negative relationship between efficiency and problem loans. Toor (1994) analysed that poor recovery management leads to reduction

33

in yield on advances, reduced productivity, loss in the credibility and put detrimental impact on the policies of the banks. Murthy (1988) has examined that default bring down the return accruing and to them, reduces effective rate of interest and reduces the funds' recirculation and increases their dependence on external sources thereby increasing the costs.

34

METHODOLOGY

Research methodology is a methodology for collecting all sorts of information & data pertaining to the subject in objectives. Secondary data is taken for the analysis as data is related to the facts and numbers related to banking sector. The data is most relevant as the values of data cannot be changed according to the need of the researcher and will remain same throughout and taken through the most reliable sources. The research design for this study is basically analytical because large number of data of the Public Sector Banks are utilized. The research design that will be use is Descriptive Research. Involves gathering data that describe events and then organizes, tabulates, depicts, and describes the data. Often uses visual aids such as graphs and charts to aid the reader.

LIMITATIONS OF THE STUDY

The limitations that I felt in my study are: It was critical for me to gather the financial data of every bank of the Public Sector Banks so the better evaluations of the performance of the banks are not possible. Since the Indian banking sector is so wide so it was not possible for me to cover all the banks of the Indian banking sector. Data for last three financial years were taken due to unavailability of the complete data for all the considered banks.

35

RATIO ANALYSIS

36

Comparison with other Public Sector Banks

1. GROSS NPA RATIO:- Gross NPA Ratio is the ratio of gross NPA to gross advances of the Bank. Gross NPA is the sum of all loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be counted in terms of percentage and the formula for GNPA is as follows: Gross NPA ratio = Gross NPA x 100 Gross advances GRAPH 1

37

Table 1 S.No.
I

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

II III 1 2 3 4 5 6

IV

BANKS NATIONALISED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank AVERAGE OF 19 NATIONALISED BANKS [I] State Bank of India (SBI) ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore AVERAGE OF 6 ASSOCIATES [III] AVERAGE OF STATE BANK GROUP.[II+III] Other Public Sector Bank IDBI Ltd. AVERAGE OF PUBLIC SECTOR BANKS[I+II+III+IV]

Gross NPA as % Gross Advance 2008 2009 2010 2.03 1.83 1.70 1.08 0.83 0.86 1.85 1.28 1.37 1.70 1.72 2.89 2.61 2.32 3.00 1.18 1.56 1.52 3.21 2.71 2.33 1.49 1.15 1.03 2.48 2.15 1.81 1.22 0.89 0.82 1.65 2.56 4.47 2.34 1.53 1.74 0.74 0.65 0.63 2.77 1.62 1.72 2.76 1.95 2.21 2.99 2.23 2.01 2.23 1.99 2.23 2.73 2.88 3.24 1.61 1.97 2.39 2.08 3.08 1.69 0.87 1.45 1.70 1.43 2.02 1.49 2.63 1.90 2.25 1.77 2.89 1.64 1.11 1.33 1.43 1.31 1.61 1.38 2.49 1.38 1.99 2.00 3.09 1.73 1.22 2.08 2.01 2.17 1.66 1.76 2.74 1.54 2.21

38

The chart above indicates the quality of credit portfolio of the banks. High gross NPA ratio indicates the low credit portfolio of bank and vice-a-versa.

We can see from the above chart that the Central Bank of India has performed consistently well and brought down the Gross NPA from 3.21% in 2008 to 2.33% by the end of financial year 2010.

As compared to the public sector banks as a whole we can observe that gross NPA of CBI is higher by 0.12 %.

At present Indian Overseas Bank has the highest Gross NPA with 4.47% followed by United Bank of India with 3.24%

Punjab & Sind Bank have the least Gross NPA with just 0.63% npa of the total advances followed by Indian Bank and Andhra Bank with 0.82% and 0.86% respectively.

39

2. NET NPA RATIO:- The net NPA percentage is the ratio of net NPA to net advances, in which the provision is to be deducted from the gross advance. 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. The formula for that is: Net NPA Ratio = Gross NPA-Provision x 100 Gross Advances-Provisions

GRAPH 2

40

Table 2
As on March 31

S.No.
I

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

II III 1 2 3 4 5 6

IV

BANKS NATIONALISED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank AVERAGE OF 19 NATIONALISED BANKS [I] State Bank of India (SBI) ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore AVERAGE OF 6 ASSOCIATES [III] AVERAGE OF STATE BANK GROUP[II+III] Other Public Sector Bank IDBI Ltd. AVERAGE OF PUBLIC SECTOR BANKS[I+II+III+IV]

Net NPA as % Net Advance 2008 2009 2010 0.80 0.72 0.66 0.15 0.18 0.17 0.47 0.31 0.34 0.52 0.44 1.31 0.87 0.79 1.64 0.84 1.09 1.06 1.45 1.24 0.69 0.32 0.29 0.31 0.94 1.09 1.21 0.24 0.18 0.23 0.60 1.33 2.52 0.99 0.65 0.87 0.37 0.32 0.36 0.64 0.17 0.53 0.97 0.77 1.07 1.98 1.18 1.17 0.17 0.34 0.81 1.10 1.48 1.84 0.57 0.82 1.40 0.73 1.78 0.83 0.16 0.73 0.43 0.60 0.94 0.61 0.78 1.30 0.76 0.70 1.79 0.85 0.38 0.89 0.50 0.60 0.58 0.63 0.79 0.92 0.73 0.95 1.72 0.77 0.55 1.13 1.02 1.04 0.91 0.90 1.02 1.02 0.97

41

This ratio indicates the degree of risk in the portfolio of the banks. High NPA ratio indicates the high quantity of risky assets in the Banks for which no provision are made.

From the chart it becomes clear that Net NPA ratio of Central Bank of India has improved consistently and has been brought down to 0.69% in 2010 from 1.45% in 2008 which is a good indicator for the bank.

Looking at the other banks like Dena Bank, Bank of Maharashtra, Bank of India, Indian Overseas Bank, Syndicate Bank, United Bank of India, Vijaya Bank it seems that they have not performed well as Net NPA ratio of them has increased since year 2008.

Indian Overseas Bank has the highest Net NPA ratio of 2.52 % followed by United Bank of India with 1.84 %.

Andhra Bank has showed the lowest Net NPA ratio 0.17 % and Indian Bank, Corporation Bank have also showed lower Net NPA ratio with 0.23 % and 0.31 % in 2010.

3. PROVISION RATIO:- Provisions are to be made to keep safety against the NPA, & it directly affect on the gross profit of the Banks. The provision Ratio is nothing but total

42

provision held for NPA to gross NPA of the Banks . A high ratio suggests that additional provisions to be made by the bank in the coming years would be relatively low .The formula for that is, Provision Ratio= Total Provision x 100 Gross NPAs

GRAPH 3

Table 3
As on March31

S.No.

BANKS 43

PROVISION RATIO(in percentage)

I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 II III 1 2 3 4 5 6 IV

NATIONALISED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India (SBI) ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore Other Public Sector Bank 1 IDBI Ltd AVERAGE OF PUBLIC SECTOR BANKS[I+II+III+IV]

2008 26.60 26.61 22.00 36.09 11.22 68.73 12.29 21.06 46.07 71.86 12.53 14.76 47.79 11.35 19.50 22.39 35.30 32.19 19.72 15.58 17.39 9.61 26.41 6.12 14.77 18.38

2009 29.03 46.19 14.59 25.21 23.43 41.51 13.89 30.41 32.04 3.05 18.98 16.16 39.13 32.74 28.02 17.40 28.39 19.50 19.17 15.75 14.89 27.77 19.72 14.67 12.71 11.21

2010 67.92 62.50 37.52 35.92 20.74 55.05 11.71 52.99 15.10 76.86 25.45 36.21 44.66 30.92 26.45 21.24 26.16 19.89 47.68 23.66 23.20 21.26 32.86 14.45 21.74 12.61

8.56 24.99

10.02 22.42

11.08 32.43

44

This Ratio indicates the degree of safety measures adopted by the Banks. It has direct bearing on the profitability, Dividend and safety of shareholders fund. If the provision ratio is less, it indicates that the Banks has made under provision.

Central Bank of India always had a lower provision for the NPAs which is not a good indicator and at present it is just 11.71% of its Gross NPA which is among the lowest provision ratio in public sector and need some attention of the concerned authority.

At present, highest provision ratio is showed by Indian Bank with 76.86% followed by Allahabad Bank with 67.92%.

The lowest provision ratio is showed by IDBI Ltd with only 11.08% in the year 2010.

45

4. PROBLEM ASSET RATIO:- It is the ratio of gross NPA to total asset of the bank. The formula for that is: Problem Asset Ratio = Gross NPAs x100 Total Assets

GRAPH 4

46

Table 4
As on March 31

S.No. I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 II III 1 2 3 4 5 6

BANKS NATIONALISED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank AVERAGE OF 19 NATIONALISED BANKS [I] State Bank of India (SBI) ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore AVERAGE OF 6 ASSOCIATES [III] AVERAGE OF STATE BANK GROUP [II+III]

Problem Asset Ratio (in percentage)

2008 1.21 0.65 1.10 1.07 1.59 0.70 1.89 0.87 1.48 0.69 0.97 1.41 0.43 1.66 1.65 1.83 1.33 1.40 0.91 1.24 1.77 1.06 0.50 0.90 1.08 0.88 1.30 0.91 1.54 1.19 1.34 2009 1.10 0.53 0.81 1.09 1.35 0.98 1.56 0.64 1.28 0.54 1.58 0.93 0.38 1.01 1.22 1.37 1.19 1.64 1.12 1.08 1.62 1.05 0.63 0.87 0.90 0.82 1.06 0.86 1.44 0.83 1.19 2010 1.00 0.53 0.86 1.77 1.70 0.97 1.34 0.58 1.11 0.50 2.75 1.06 0.36 1.08 1.44 1.21 1.36 1.78 1.41 1.22 1.85 1.12 0.73 1.39 1.31 1.32 1.07 1.11 1.66 0.91 1.34

IV

Other Public Sector Bank 1 IDBI Ltd AVERAGE OF PUBLIC SECTOR BANKS[I+II+III+IV]

47

Problem asset ratio has direct bearing on return on assets as well as liquidity risk management of the bank.

From the above chart we can observe that Central Bank of India has brought down its problem asset ratio from 1.89 % to 1.34 % in year 2010 and is same as to public sector as whole.

Indian Overseas Bank has the highest Problem Asset Ratio with 2.75 %. Also Punjab & Sind Bank has the lowest Problem Asset Ratio with just 0.36 % in year 2010.

The current average Problem Asset Ratio of the 19 nationalised bank is 1.22 %.

48

5. CAPITAL ADEQUACY RATIO:- Capital Adequacy Ratio can be defined as ratio of the capital of the Bank, to its assets, which are weighted/adjusted according to risk attached to them i.e. Capital Adequacy Ratio = Capital x 100 Risk Weighted Assets

The RBI has set the minimum capital adequacy ratio for all banks. A ratio below the minimum indicates that the bank is not adequately capitalized to expand its operations. The ratio ensures that the bank do not expand their business without having adequate capital. For the purpose of capital Adequacy Achievement, the capital base i.e. Tire I + Tire II should not be less than the prescribed % of total Risk Weighted Asset of the bank.

GRAPH 5

49

Table 5
As on March 31

S.No. I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 II III 1 2 3 4 5 6 IV

BANKS NATIONALISED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India (SBI) ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore Other Public Sector Bank

Capital Adequacy(in percentage) (Tier I +Tier II) 2008 2009 2010 N.A. 13.11 13.62 N.A. 13.22 13.93 12.94 14.05 14.36 12.04 13.01 12.94 N.A. 12.05 12.78 13.25 14.10 13.43 9.39 13.12 12.24 N.A. 13.61 15.37 N.A. 12.07 12.77 N.A. 13.98 12.71 N.A. 13.2 14.78 N.A. 12.98 12.54 N.A. 14.35 13.1 13.46 14.03 14.16 11.82 12.68 12.7 11.02 11.93 13.21 N.A. 13.27 12.51 N.A. 13.28 12.8 N.A. 13.15 12.5 12.64 12.51 11.97 11.29 11.73 13.56 13.53 14.25 14.52 11.53 13.46 12.99 12.60 14.03 13.39 13.3 14.9 13.53 12.42 13.26 13.74

1 IDBI Ltd AVERAGE OF PUBLIC SECTOR BANKS[I+II+III+IV]

10.83 12.13

11.57 13.19

11.31 13.27

50

This ratio ensures that the bank do not expand their business without having adequate capital. The minimum required Capital Adequacy Ratio is 9% at present for the banks.

According to the above chart, we can observe that Central Bank of India has been consistent by keeping its Capital Adequacy Ratio much above the minimum required ratio which is 9% at present for the banks.

The ratio was 12.24% for Central Bank of India in 2010. Among others public sector banks, Corporation Bank has the highest Capital Adequacy Ratio with 15.37%.

The IDBI LTD stands lowest in the Capital Adequacy Rate at 11.31%.

51

Comparisons Among Branches of Central Banks of India

1. GROSS NPA RATIO:- Gross NPA Ratio is the ratio of gross NPA to gross advances of the Bank. Gross NPA is the sum of all loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be counted in terms of percentage and the formula for GNPA is as follows: Gross NPA ratio = Gross NPA x 100 Gross advances NPA as % Gross Advance 2010 1.99 0.60 1.25 11.60 0.28 2.40 0.91 3.34 1.08 1.98 2.93 3.00 2.61

AS ON 31ST MARCH

S.No. 1 2 3 4 5 6 7 8 9 10 11 12

BRANCHES Angel Public School Chandni Chowk Darya Ganj Lawrence Road Chuna Mandi Mori Gate Najafgarh Road New Seelampur Press Area Ram Tirath Nager Rohini Sector -18 Sadar Bazar AVERAGE OF ALL BRANCHES

52

Comparing the NPA ratio of the above branches, we can observe that: Lawrence Road branch has the highest ratio of 11.6% as compared to the rest branches. Chuna Mandi have lowest NPA ratio having just 0.28 % followed by Chandni Chowk with 0.60 % NPA ratio. The average NPA ratio of all the branches is 2.61 %.

53

2. PROVISION RATIO:- Provisions are to be made to keep safety against the NPA, & it directly affect on the gross profit of the Banks. The provision Ratio is nothing but total provision held for NPA to gross NPA of the Banks. The formula for that is, Provision Ratio = Total Provision x 100 Gross NPAs
AS ON 31ST MARCH

S.No. 1 2 3 4 5 6 7 8 9 10 11 12

BRANCHES Angel Public School Chandni Chowk Darya Ganj Lawrence Road Mitrao Mori Gate Najafgarh Road New Seelampur Press Area Ram Tirath Nager Rohini Sector -18 Sadar Bazar AVERAGE OF ALL BRANCHES

Provision as % NPA 2010 9.00 21.77 43.18 18.45 87.50 6.60 9.47 5.04 15.82 14.10 18.37 3.50 21.06

Comparing on the basis of Provision ratio, it can be observed that: Mitrao branch has the highest provision ratio of 87.50 % followed by Darya Ganj branch with 43.18%. Also there are some branches which have very low provision ratio, but some other doesnt even have minimum required provision ratio such as Mori Gate, New Seelampur, Sadar Bazar branches.

54

3.

SUB-STANDARD

ASSETS

RATIO:-

It

indicates

scope

of

up

gradation/improvement in NPA. Higher substandard asset ratio means that in whole NPA the sub standard ratio has major proportion, which indicates that there is a high scope for advance up gradation or improvement because it will be very easy to recover the loan as minimum duration of default.It is the ratio of Total Substandard Assets to Gross NPA of the bank. The formula for that is, Substandard Assets Ratio= Total Substandard Assets x 100 Gross NPAs Substandard Asset as % of total NPA 2010 100.00 77.72 10.22 18.18 0 100.00 100.00 100.00 79.43 37.65 16.01 100.00 61.60

AS ON 31ST MARCH

S.No. 1 2 3 4 5 6 7 8 9 10 11 12

BRANCHES Angel Public School Chandni Chowk Darya Ganj Lawrence Road Mitrao Mori Gate Najafgarh Road New Seelampur Press Area Ram Tirath Nager Rohini Sector -18 Sadar Bazar AVERAGE OF ALL BRANCHES

Among the above studied branches, we can observe that: Many branches have hundred percent Sub standard Asset Ratio, which seems to be a good indicator and have more chances of recovery.

55

4. DOUBTFUL ASSET RATIO:- It indicates the scope of compromise for NPA reduction. It is the ratio of Total Doubtful Assets to Gross NPAs of the bank. Doubtful Asset Ratio= Total Doubtful Assets x 100 Gross NPAs

AS ON 31ST MARCH

S.No. 1 2 3 4 5 6 7 8 9 10 11 12

BRANCHES Angel Public School Chandni Chowk Darya Ganj Lawrence Road Mitrao Mori Gate Najafgarh Road New Seelampur Press Area Ram Tirath Nager Rohini Sector -18 Sadar Bazar

Doubtful Asset as % of total NPA 2010 0 0 0 81.50 15.62 0 0 0 7.71 0 83.99 0

Considering the Doubtful Asset Ratio of the above branches, we can observe that: Not much NPAs of branches lies in this category with only three branches having major part of there NPAs in this category. Majority of banks have no doubtful assets which is a good sign for the branches.

56

5. LOSS ASSET RATIO:- It indicates the proportion of bad loans in the bank. It is the ratio of total loss assets to Gross NPA of the bank. Loss Asset Ratio= Total Loss Assets x 100 Gross NPA

AS ON 31ST MARCH

S.No. 1 2 3 4 5 6 7 8 9 10 11 12

BRANCHES Angel Public School Chandni Chowk Darya Ganj Lawrence Road Mitrao Mori Gate Najafgarh Road New Seelampur Press Area Ram Tirath Nager Rohini Sector -18 Sadar Bazar

Loss Asset as % of total NPA 2010 0 22.28 89.78 0.32 84.38 0 0 0 12.86 62.35 0 0

In this table we can observe that: Three branches among the twelve studied branches have major part of there NPAs lying under this category and seems to be bad loans for the branches. Chandni Chowk and Press Area branch has relatively lower loss asset ratio as compared to the above mentioned three branches. The remaining branches does not have any loss assets which seems to be good for the respective branches.

57

CONCLUSION
The problem statement on which I focused my study is To study Non Performing Assets of the Central Bank of India and other public sector banks. The Indian banking sector is the important service sector that helps the people of the India to achieve the socio economic objective. The Indian banking sector has helped the business and service sector to develop by providing them credit facilities and other finance related facilities. The Indian banking sector is developing with good appreciate as compared to the global benchmark banks. The Public Sector Banks play very important role in developing the nation in terms of providing good financial services. The Public Sector Banks have also shown good performance in the last few years. The only problem that the Public Sector Banks are facing today is the problem of non performing assets. The non performing assets means those assets which are classified as bad assets which are not possibly be returned back to the banks by the borrowers. If the proper management of the NPAs is not undertaken it would hamper the business of the banks. The NPAs would destroy the current profit, interest income due to large provisions of the NPAs, and would affect the smooth functioning of the recycling of the funds.

In the analyse done on the past three years data, we came to know that the NPAs is increasing and in year 2010 it is at 59927 crore as compared from year 2008, in which it was 40277. Central Bank of India has performed well and has improved on a lot on a number of aspects, such as, Gross NPA ratio brought down to 2.33% from3.21% in 2008 and maintained Capital Adequacy Ratio at 12.24% which is much above the minimum requirement of CAR set by RBI. However, the bank need to consider some other aspects

58

like low provision ratio and should take some useful steps to improve it. Taking an overview the bank has reached many achievements like total number of branches increased to 3728 and increase in net profit by 194 crore in year 2010 as compared to previous year.

The RBI has also been trying to take number of measures but the

NPAs are not

decreasing at an expected rate. The banks must find out the measures to reduce the evolving problem of the NPAs. If the concept of NPAs is taken very lightly it would be dangerous for the Indian banking sector. The reduction of the NPAs would help the banks to boost up their profits, smooth recycling of funds in the nation. This would help the nation to develop more banking branches and developing the economy by providing the better financial services to the nation.

59

RECOMMENDATION
Though RBI has introduced number of measures to reduce the problem of increasing NPAs of the banks such as CDR mechanism, one time settlement schemes, enactment of SRFAESI act, 2002 etc. A lot of measures are desired in terms of effectiveness of these measures. What I would like to suggest for reducing the NPAs of Central Bank of India are as under:-

(1) The bank should have its own independent credit rating agency which should evaluate the financial capacity of the borrower before than credit facility.

(2) The credit rating agency should regularly evaluate the financial condition of the clients.

(3) The bank needs to raise its provision for the NPAs as it is on a lower side and doesnt leave a good impression on the minds of the stake holder of the bank.

(4) It is also wise for the bank to carryout special investigative audit of all financial and business transactions and books of accounts of the borrower company when there is possibility of the diversion of the funds and mismanagement.

(5) The bank before providing the credit facilities to the borrower company should analyse the major heads of the income and expenditure based on the financial

60

performance of the comparable companies in the industry to identify significant variances and seek explanation for the same from the company management. They should also analyse the current financial position of the major assets and liabilities.

(6) The bank should evaluate the SWOT analysis of the borrowing companies i.e. how they would face the environmental threats and opportunities with the use of their strength and weakness, and what will be their possible future growth in concerned to financial and operational performance.

(7) Independent settlement procedure should be more strict and faster and the decision made by the settlement committee should be binding both borrowers and lenders and any one of them failing to follow the decision of the settlement committee should be punished severely.

(8) There should be proper monitoring of the restructured accounts because there is every possibility of the loans slipping into NPAs category again.

(9) Proper training is important to the staff of the bank at the appropriate level with on going process, that how they should deal the problem of NPAs, and what continues steps they should take to reduce the NPAs.

(10) Willful Default of Bank loans should be treated a Criminal Offence.

61

(11) No loan is to be given to a Group whose one or the other undertaking has become a Defaulter.

62

BIBLIOGRAPHY
M Y Khan and K Jain management Accounting Tata McGraw-Hill Publishing Company Limited.

www.iba.org.in www.centralbankofindia.co.in www.rbi.org.in search.proquest.com Articles for literature review:

Das, Abhiman, (1999), "Efficiency of Public sector Banks: An application of Data Envelopment Model", Prajnan, Vol. 28, No. 2, September 1999 FICCI, (1999), "NPA-The unwanted burden of Nationalised banks", FICCI, New Delhi Gupta, Debashish, (1997), "NPA Management : Innovation is the Key", Chartered Financial Analyst, Vol. 3, No. 3, November 1997 Kaveri, V. S., (1995) "Relationship Between Recovery and Profitability of Bank-A Study", SBI Monthly Review, Vol. 33 Kwan, and Eisenbeis, (1994), "An Analysis of Inefficiencies in Banking Mukherjee, Paramita, (2003), "Dealing with NPAs : Lsessons from International Experiences", Money and Finance, Vol. 12, No. 12, March 2003 Murthy, J. Vishwanatha and A. Bayya Reddy, (1988), "Defaults of Financial Institutions at What Cost", The Chartered Accountant, Vol. 37, No. 6, December 1988 Rao, G. L. and R. K. Samanta, (1981), "Who Shall Repay Agricultural Loan", Bikshan, Vol. 28, No. 2 Toor, N. S., (1994), "Non Performing Advances in Banks", Skylark Publication, New Delhi Westgaard, Sjur, and Nico van der Wijst, (2001), "Defaultprobabilities in a corporate bank portfolio : A logistic model approach", Elsevier.

Search: o Non performing assets and banking sectors o Impact of NPAs on the working of the Public Sector Banks o Steps taken by govt. to reduce the NPAs of the banks 63

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