NPA’s--A Comparative Analysis on Banks & Financial ...

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NPA’s--A Comparative Analysis on Banks & Financial

Institutions and its Implications

Thesis Submitted to Padmashree Dr. D. Y. Patil University,

Department of Business Management

In partial fulfilment of the requirements for the award of the

Degree of

DOCTOR OF PHILOSOPHYIn

BUSINESS MANAGEMENT

Submitted byMRS. SUMATHI GOPAL

Enrolment NO: DYP-PHD-066100015.

Research GuideDR. RAJINDER. S. AURORA

M.Com, MFM, PhD, DHE, UGC-NET

PADMASHREE DR. D.Y. PATIL UNIVERSITY,

DEPARTMENT OF BUSINESS MANAGEMENT,Sector 4, Plot No. 10,

CBD Belapur, Navi Mumbai – 400 614

June 2010

2

NPA’s--Comparative Analysis on Banks & Financial Institutions

Non and Implications

Thesis Submitted to Padmashree Dr. D. Y. Patil University,

Department of Business Management

In partial fulfilment of the requirements for the award of the

Degree of

DOCTOR OF PHILOSOPHY

In

BUSINESS MANAGEMENT

Submitted byMRS. SUMATHI GOPAL

Enrolment NO: DYP-PHD-066100015.

Research GuideDR. RAJINDER. S. AURORA

M.Com, MFM, Ph.D, DHE, UGC-NET

PADMASHREE DR. D.Y. PATIL UNIVERSITY,DEPARTMENT OF BUSINESS MANAGEMENT,

Sector 4, Plot No. 10,CBD Belapur, Navi Mumbai – 400 614

June 2010

3

NPA’s--Comparative Analysis on Banks & Financial

Institutions and its Implications

4

DECLARATION

I hereby declare that the thesis entitled “NPA’s—A Comparative

Analysis on Banks & Financial Institutions and its Implications”

submitted for the Award of Doctor of Philosophy in Business

Management at the Padmashree Dr. D.Y. Patil University Department of

Business Management is my original work and the thesis has not

formed the basis for the award of any degree, associate ship, fellowship

or any other similar titles.

Place:

Date:

Signature of the student

Signature of the Guide.

Signature of the Head of the dept.

5

CERTIFICATE

This is to certify that the thesis entitled “NPA’S—A Comparative

Analysis on Banks & Financial Institutions and its Implications”

submitted by Ms. Sumathi Gopal is a bonafide research work for the

award of the Doctor of Philosophy in Business Management at the

Padmashree Dr. D. Y. Patil University Department of Business

Management in partial fulfilment of the requirements for the award of the

Degree of Doctor of Philosophy in Business Management and that the

thesis has not formed the basis for the award previously of any degree,

diploma, associate ship, fellowship or any other similar title of any

University or Institution. Also certified that the thesis represents an

independent work on the part of the candidate.

Place:

Date:

Signature of the

Head of the department Signature of the Guide

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ACKNOWLEDGEMENT

In the first place, I am indebted to the Padmashree Dr. D.Y. Patil

University Department of Business Management, which has accepted

me for their Doctorate program and provided me with an excellent

opportunity to carry out the present research work. I express my sincere

thanks to DR. RAJINDER.S.AURORA, my research guide for providing

valuable inputs, guidance from time to time and taking his precious time

in going through synopsis and the draft proposal meticulously and

helping in doing the research project.

I wish to take opportunity to express my sincere gratitude to director

DR.R.GOPAL for his valuable guidance and support in this endeavour.

Dr RAJINDER. S. AURORA and Dr. R. GOPAL have been a constant

source of inspiration throughout in my completion of the research. I

would also like to thank my family for supporting me in this noble

endeavour and help me to complete this research. Last but not the least

I thank all the respondents, the officials of Banks, and Financial

Institutions, the subject experts and other authorities, and friends who

have helped me directly or indirectly in completing my research project,

without the support of all my well wishers this project would not become

a reality.

Place:

Date: Signature of the Student

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CONTENTS

Chapter No. TITLE Page No.

1. Introduction to NPA’s 1-11

1.1 Theme 1-2

1.2 Classification of NPAs 2-5

1.3 Macro Perspective behind NPAs 6

1.4 Development and Comparisons of Banks

and NBFI 6-9

1.5 Non Banking Financial Company 9-10

1.6 Co-operative Banking Sector 10-11

1.7 Conclusion 11

2. Review of Literature and Genesis of

Committee 12-43

2.1 Introduction 12

2.2 Review of Literature 13-35

2.3 Committee Reports on Credit 35-40

2.4 Committee Reports on NPA 40-43

2.5 Conclusion 43

3. Scope of the Study 44-49

3.1 Need the Study 44

3.2 Statement of the Problem 44

3.3 Objectives 45

3.4 Limitations 46

3.5 Methodology 46-48

3.6 Conclusion 48-49

4. Legal Frame Work and Notification 50-65

4.1 Introduction 50-51

4.2 Purpose of the Act 51-52

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4.3 Highlights of the Act 52-61

4.4 Limitations of the Act 61-62

4.5 SARFAESI (Amendment) Ordinance---2004 63


5. Analysis of Post Liberalisation Development in Banks 66-96

5.1 Introduction 66

5.2 Classification 66-69

5.3 Development of Public Sector Bank 69-80

5.4 Cooperative Banking Sector 80-84

5.5 Non Banking Financial Company 84-86

5.6 Private Sector Bank 86-96

5.7 Conclusions 96

6. Policies and Stage wise Analysis of Data on NPA 97-248


6.2 Policies and Procedural Analysis 99-134

6.3 Appraisal Stage 134-165

6.4 Section III (Questionnaire) 165-183

6.5 Section IV (Questionnaire) 184-192

6.6 Analysis on Data’s collected from Bank’s,

Facilitators and Borrowers 192-247


7. Management of NPAs in Priority Sector Advances

Of Banks 249-263


7.2 Action Plan for Management of NPAs 251-253

7.3 Risk Associated with Agricultural Lending 253-257

7.4 Case study 257-262


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8. Findings and Conclusions 264-272


8.2 Major Findings 266-268

8.3 Priority, SSI and Non Priority Sector

Advances 269-271

8.4 Conclusions 271-272

9. Suggestion and Recommendations 273-276

Appendix I-XVI

Annexure XVII-XXVIII

Abbreviation XXIX-XXXII

Bibliography XXXIII-XLIV

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Chapter No List of Tables Page No.

5.1 Advances Granted by the PSB to SSI 70

5.2 Magnitude and Movement of NPA in Banks 71

5.3 Sector wise NPA of PSB 73

5.4 Bank Group wise NPAs of PSB 75

5.5 Bank Group Wise NPAs in the Other Priority

Sector Credit 78

5.6 Bank Group Wise Gross NPA Assets to total

Assets of Urban Co-operative Bank 82

5.7 Percentage of Gross NPA to Gross Advances

& Net NPAs to Net Advances of NBFC 85

5.8 Advances to Priority Sector by Private Bank 89

5.9 Gross NPA/Gross Advances and Net NPA/Net

Advances of Private Bank 92

5.10 Gross NPA and Net NPA in Private Banks 94

5.11 Gross Profit/Loss and Net Profit/Loss

of Private Bank 95

7.1 Flow of institutional credit to agriculture and

allied Activities 252

7.2 Agency wise KCCS issued 254

7.3 Gross and Net NPA of Sanmati

Sahakari Bank Ltd 258

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Executive Summary

A strong banking sector is important for flourishing economy. The

failure of the banking sector may have an adverse impact on other

sectors. Non-performing assets are one of the major concerns for banks

in India. NPAs reflect the performance of banks. A high level of NPAs

suggests high probability of a large number of credit defaults that affect

the profitability and net-worth of banks and also erodes the value of the

asset. The NPA growth involves the necessity of provisions, which

reduces the overall profits and shareholders’ value.

The problem of NPAs is not only affecting the banks but also the whole

economy. In fact level of NPAs in Indian banks is nothing but a

reflection of the state of health of the industry and trade. However

lending also carries a risk called credit risk, which arises from the failure

of borrower. Non-recovery of loans along with interest forms a major

hurdle in the process of credit cycle. Though complete elimination of

such losses is not possible, but banks can always aim to keep the

losses at a low level.

Study includes Public Sector Banks, Private Sector Banks, Scheduled

Urban Co-operative Banks and Non Banking Financial Institutions and

includes the views of borrowers, facilitators who are directly or

indirectly connected with the banks and financial institutions.

Comparative analysis has been carried out between the banks and

analysis is carried out on issues like priority sectors, agricultural

lending, weaker sections, other Priority, Gross and Net Profit and Loss.

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A detailed study has been worked upon development of banks and

financial institutions. The researcher has made an attempt to rationalise

the causes and preventive measures to be adopted by banks. The Legal

frame work is analysed under the study to bring notice to the regulators

which put in use may reduce the level of NPA. The researcher has

adopted two tests to find out the reliability of the response collected and

secondly Chi-square method to find out the data collected is not biased.

Subsequently case study were analysed and incorporated in the later

chapter of the research and has imparted valuable suggestion to reduce

NPA and increase the profit.

NPA are those loans given by banks or financial institutions which

borrowers default in making payment of principal amount or interest.

When a bank is not able to recover the loan given or not getting regular

interest on such loan, the flow of funds in banking industry is affected.

Also the earning capacity is adversely affected. This has direct and

immediate impact on bank profitability and efficiency. Under the

prudential norms, banks are not allowed to book any income from NPA.

Also they have to make necessary provisions for NPA which affects the

profitability adversely. Lower profitability of banking sector affects its

growth and expansion. NPA is double edged sword. On one hand banks

cannot recognize interest income on NPA and on the other hand, it is a

drain of bank’s profitability. Moreover profits earned are required to be

diverted for provision on NPA. The high level of NPA is dangerous to the

very existence of banks.

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Many banks in East Asian countries had to close down due to high level

of NPA. The future picture of Commercial banks more so the banks &

financial institution seem to be brighter. Study suggests that the NPAs

of banks & FI will decline marginally both in terms of Gross and Net

figures over next three years. This may be due to higher provisions,

which the banks have been providing. The real issues are percentage of

NPA declining over the years but the absolute figures seem to be

increasing. A strong banking sector is important for a flourishing

economy. The failure of the banking sector may have an adverse impact

on other sectors. Credit to priority sectors have higher NPAs, due to

increase in outstanding amount in priority sector the banks face

problems in further disbursement and increase their existing profits.

Hence managers of rural and semi-urban branches generally sanction

these loans. In the changed context of new prudential norms and

emphasis on quality lending and profitability, managers should make it

amply clear to potential borrowers that banks resources are scarce and

these are meant to finance viable ventures so that these are repaid on

time and relevant to other needy borrowers for improving the economic

lot of maximum number of households. Hence, selection of right

borrowers, viable economic activity, adequate finance and timely

disbursement, correct end use of funds and timely recovery of loans is

absolutely necessary pre-conditions for preventing or minimizing the

incidence of new NPAs.

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Chapter 1

INTRODUCTION TO NPA’S

1.1 Theme

A strong banking sector is important for flourishing economy.

The failure of the banking sector may have an adverse impact on other

sectors. Non-performing assets are one of the major concerns for banks

in India. NPAs reflect the performance of banks. A high level of NPAs

suggests high probability of a large number of credit defaults that affect

the profitability and net-worth of banks and also erodes the value of the

asset. The NPA growth involves the necessity of provisions, which

reduces the overall profits and shareholders’ value.

The issue of Non Performing Assets has been discussed at length

for financial system all over the world. The problem of NPAs is not only

affecting the banks but also the whole economy. In fact level of NPAs in

Indian banks is nothing but a reflection of the state of health of the

industry and trade. Granting of credit for economic activities is the

prime duty of banking. Apart from raising resources through fresh

deposits, borrowings and recycling of funds received back from

borrowers constitute a major part of funding credit dispensation activity.

Lending is generally encouraged because it has the effect of funds

being transferred from the system to productive purposes, which results

into economic growth. However lending also carries a risk called credit

risk, which arises from the failure of borrower. Non-recovery of loans

along with interest forms a major hurdle in the process of credit cycle.

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These loans affect the bank’s profitability on a large scale. Though

complete elimination of such losses is not possible, but banks can

always aim to keep the losses at a low level.

1.2 CLASSIFICATION OF NPAs

As per the RBI guidelines any loan repayment which is delayed beyond

180 days has to be identified as NPAs. NPAs are further classified into

i. Substandard Assets

I.e. those which are NPA for a period not exceeding two years (Up to 2

years).

ii. Doubtful Assets

I.e. Loans which have remained NPA for a period exceeding two years

and which are not considered as loss assets. NPA accounts belonging

to this category are further classified as

D1 – When the account remains NPA for 3rd year.

D2 – When the account remains NPA for 4th and 5th year.

D3 – When the account remains NPA for 6th year onwards.

iii. Loss Assets

A loss asset is one where loss has been identified but the amount has

not been written off wholly or partly. In other words, such assets are

considered as uncollectible. As per RBI guidelines provisions for NPA

are to be made as under:-

a) 10% of sub-standard assets

b) 20% for doubtful assets

c) 100% for loss assets

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As per recent guidelines even on standard assets a provision @

0.25% is required to be made. In this connection following quotation

from Narasimham Committee Report 1998 is worth quoting “NPAs in

1992 were uncomfortably high for most of our PSBs and for some, high

enough to warrant concern, especially where the ratio of NPAs to

Capital funds was disturbing high and in some cases exceed net worth

and undermined solvency. If the depositor’s money in such cases was

not at risk, as it strictly would otherwise have been, it is because of the

implicitly guarantee provided by the state ownership of the banks. Since

1992, there has been some improvement even with a progressive

tightening of the definition in the level of NPAs of the public sector

banks as a group. In spite of some write-off of loss accounts in this

period, gross NPAs, which perhaps reflects the true extent of

contamination of the portfolios, were as high as 23.2% of the total

advances in March 1993 but have since come down from 14.5% in March

1994 to around Rs.20, 000 Crores or 9.2% in March, 1997” To find out the

causes of NPAs in Indian banking sector, the total NPAs are to be

classified into two broad categories viz.

i. Legacy NPAs

ii. New NPAs

i. Legacy NPAs

These are the NPAs acquired even before the prudential accounting

norms were introduced. Government has given the task of social

banking to the PSBs and issued guidelines and framed policies whereby

40% of the total advances must go to priority sector. Here only the

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quantity of advances is emphasized ignoring the quality of lending. The

Narasimham committee report assets “Directed Credit has

proportionately higher share in NPA portfolio of banks and has been

one of the factors responsible for erosion in the quality of banks

assets”.

In this connection Narasimham Committee Report 1998 quotes

“the causes of high proportion of NPAs are varied. Poor credit decision

by bank management, difficult recovery environment and changes both

cyclical and structural in the larger economic environment represent

some of the micro and macro aspects of this. This is not all. Often, as

international experience has shown, a high incidence of NPAs could be

traced by policies of direct credit, not to speak of crude form of behest

lending. There is no inherent mistake in setting out social priorities for

bank lending. Social banking need not conflict with canons of sound

banking but when banks are required by directive to meet specific

quantitative targets, there is, as our experience has shown, the danger

of erosion of the quality of loan portfolio.”

ii. New NPAs

a. A critical analysis of NPAs in various banks reveals that in addition to

priority sector, advances to large industries also forms part of NPAs.

The share of small advances of rural sector is very small compared to

the large advances. NPAs in percentage terms in some of the priority

sector advances may be higher but quantum wise, its contribution to

total NPAs is not very significant. Whereas percentage of NPAs in case

of large advances may be lower but it forms the major chunk of the total

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NPAs. Priority sector advances, as a percentage of NPAs may be higher,

but quantity-wise, are not a high figure. Large advances, as a

percentage of NPAs are lower, but quantity-wise is a higher figure.

b. Non-performing Asset (NPA) has emerged since over a decade as an

alarming threat to the banking industry in our country sending

distressing signals on the sustainability of the affected banks. The

positive results of the chain of measures affected under banking

reforms by the Government of India and RBI in terms of the two

Narasimham Committee Reports in this contemporary period have been

neutralized by the ill effects of this surging threat. Despite various

correctional steps administered to solve and end this problem, concrete

results are eluding. It is a sweeping and all pervasive virus confronted

universally on banking and financial institutions. The severity of the

problem is however actually suffered by Public Sector banks, Private

Sector Banks & Co-operative banks & NBFC

1.3. Macro Perspective behind NPAs

A lot of practical problems have been found in Indian banks, especially

in public sector banks. Viz. the government of India had given a massive

wavier of Rs. 15,000 Crores. Performance and efficiency of the banks are

key elements of the efficiency of a country’s financial sector. It is not

surprising that considerable attention has been focused on the

performance of the banks in India in recent year especially commercial

banks. Emergences of foreign banks and private banks have led a way

in terms of efficiency and strict competition enabled better performance

and efficiency in the banking sector. It is not surprising that public

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sector banks have higher NPA level than the private Sector banks.

Cooperative sector banks have more NPA than the private sector banks

due to priority lending and strict compliance of regulatory measures.

NBFC comparatively have less NPA they are more cautious at the time

of releasing loans and recovery process. Generally banks indulge in

creative accounting and loan rollovers ever greening to keep the level of

NPA low. The share of NPA is read as interest expenses is greater than

their earnings before interest, taxes, depreciation and amortization

1.4. Development and Comparisons of Banks and Non

Banking Financial Institution

Public banks brought about a structural change in the banking industry

with the commitment of the government to implement social control on

banks to make them realise the national goal of developing the

economy. The major segment of banking sector came under the control

of the government. Social control measures were also implemented

such as priority sector lending targets. This led to the massive

expansion as a banking industry to borrowers across the country. These

developments created a strong network of public Sector banks meant to

bring about a socio economic transformation in the society. The share

of credit to agriculture which constituted a small portion for a long time

improved significantly with the onset of lead bank scheme and district

plan. Indian banking sector have come a long way when it competitive

and complex in nature. The Implementation of Basel II has had a positive

impact on the capital profile of the Public sector banks. In base l

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Uniform risk rate was equally attached to all advances irrespective of

degree of risk.

In India number of Private banks increased and their financial

operations also increased considerably. Though the banking principles

and rule and regulation followed were the same between Public sector

banks and private sector banks but the competition spirit in banking

sector increased to a greater extent with the result the advances and

selection of borrowers varied with the result the profitability and quality

of the assets varied from public sector to the private sector, Hence the

study involved the comparison between the private sector and the

public sector banks. Private Banks charge high rate of interest and also

issue large number of credit card to the individual as compared to

public sector banks.

Cooperative banks are expected to support economically

backward section of the society especially in rural areas. The advance

or finance provided to the borrowers may be to start new business or for

the purpose of agriculture or farmers. There is a study increase in the

quantity of advances but there should also be increase in the quality of

advances and recovery. The study has been conducted on Urban

Scheduled bank situated. Since the number of cooperative bank is large

in number and they have been classified as Scheduled Urban

Cooperative Bank, State cooperative banks, District Cooperative Bank,

Rural Cooperative banks, Local Cooperative Banks. Hence the research

study has been compared to Public banks, Private Banks along with

Cooperative banks. The Reserve Bank of India is more stringent in

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framing banking rules and regulations. Inspite of the strict banking laws

the cooperative banks are able to meet the required formalities. The

comparison is required to find out the scope of improvement in

scheduled Urban Cooperative banks so as to be as competitive as

Public Sector banks and Private sector banks Today schedule Urban

Cooperative banks are expected to support all sections of borrowers by

financing them to start a new business or for agricultural purpose the

banks accepts deposits from the members and lend money to needy

persons. Since their main objective is to support priority sector, farmer,

agriculturist, SSI, artisans, small traders and salary earners. Recovery

becomes difficult and leads to NPA. Generally cooperative banks do not

issue credit cards but they issue Kissan card which is may prove to be

doubtful debts.

Non Banking Finance Company is not a regular bank but they

raise the capital through public issues. Hence Reserve Bank of India is

very stringent in passing rules and regulations. The Non Banking

Financial Institution is more careful in lending loans. They prefer only

collateral security and also and along with collateral security they also

insist on Guarantors. The research study involves those Non Banking

Finance who provides general loans .Some Non Banking Finance lend

specific kind of loan which may not be appropriate to the research

study. The comparison enabled to bring about striking features of

success on recovery proceedings and quality of the assets with

reduction in NPA or not.

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1.5. Non Banking Financial Company

In consolidation of the banking sector, one has to focus on the non-

banking financial sector like NBFCs and Unincorporated Bodies and

thinks in terms of integrating them in financial system along with the

banks. In India, moneylenders, chits and other type of financial

institutions play a very large role in the credit markets for the

unorganised sectors in trade, restaurants, transport, construction, and

service activities. It is to be noted that the market knowledge and

information regarding these activities like retail trade are not fully

available with the commercial banker on updated basis. By and large

public sector banks have been geared to ‘Asset Based Lending’ rather

lending based on the forecast cash flows. Activities like trade, transport,

hotels and restaurants, constructions etc, there are significant

fluctuations in cash flows on a daily basis. In other words risk

assessment capabilities are not adequate in the context of these

activities. Also funds need to be available to these players without much

paper work and based on personal assessment. Hence, the NBFC

mostly finances these activities in consolidation of banking sector

should focus on integrating credit markets which comprises of banking

and non banking sector. Any consolidation should evaluate the

following:

Reduction in interest cost, and hence benefits the ultimate

consumer;

Enhancing the credit delivery mechanisms;

Introduction of rating processes at retail level;

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Creating a level playing field when global players enter the Indian

markets;

Reversing the inverse relationship between the size of borrowing

and the cost of borrowing

Hence it is necessary for the Indian financial market to bring about the

restructuring of the banking sector by comparing or merging banking

sector and non banking sector ensure the growth of the economy along

with the adequate availability of the credit to the fast growing sectors of

the economy.

1.6. Co operative Banking Sector

In a competitive environment, the size of the organisation is going to

matter very much as it provides a lot of advantage to the organisation.

The size helps the banks in terms of cost advantage, technological

advancement, competitive pricing, better resistance against market

attacks, portfolio expansion and so on. At times, sheer size helps one to

face the tough environment. Now the Indian banking has moved close to

complete technology banking as it provides many advantages. Starting

from fund transfer to settlements, all are done through technology

banking. Cooperative banks cannot remain silent on this very important

issue Adoption of technology and asset management is not a choice but

a compulsion for survival. Some cooperative bank with a modern

banking facilities, loan modules, etc which enables the cooperative

banks to earn desired profits. Consolidation will surely help cooperative

banks in this direction.

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There are many operational concerns and problems cropping

with the consolidation of banks. The important one are with regard to

the customers like interest rates of deposits, loans and advances, asset

quality(NPA levels) difference in the competency level of the employees

of the acquirer and acquired banks and so on. These issues need to be

carefully listed out and analysed in order to synchronise ll these

operational issues and make things hassle free for the customers of

both the banks, particularly the acquired bank. The cooperative banks

should maintain high capital adequacy ratio to meet the loss and also

maintain capital to risk weighted assets ratio of the acquired banks.

The study has been compared to Public Banks, Private Banks, Co

operative banks and Non Banking Financial institutions on policies,

appraisal stage, sanctioning stage and disbursement stage and post

disbursement stage. The comparison is also made on level of NPA in

these sectors and also importance is given to priority lending, non

priority lending, SSI, and agricultural lending.

1.7. Conclusions

The research thesis covers all the sectors of the banks and also

financial institutions. Since finance is very important for all the business

houses lending and recovery becomes a complex preposition. Recovery

strategy should be planned meticulously and executed properly. Failing

which may lead to NPA. The comparison of the entire sector will enable

the banks to know which sector contributes maximum NPA and the type

of lending that is the source of NPA.

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CHAPTER 2

REVIEW OF LITERATURE AND GENISIS OF COMMITTEES

2.1 Introduction

RBI and Govt. of India had appointed various committees and Study

Groups from time to time to study in depth different aspects on Banks

Credit, , Legal Reform and Non-Performing Assets. All these subject

matters are co-related and interconnected to this research study and

hence it is necessary to know, in brief, about the purpose of

appointment of such Committees, their terms of reference and some of

the valuable recommendations made by them. Non- performing Assets

have been plaguing the Indian financial sector since long but were not in

the public domain till early nineties. By that time, significant amount of

loan assets involving uncertainly with respect to ultimate collection

piled up creating concerns with the opinion makers about health of

Indian banking and financial sector. NPAs reflect natural waste of any

economy. In advanced economies the financial markets are well

developed and segmented; with various players operating in identified

niches, catering to various users/risk segments. This constitutes an

effective institutional mechanism for targeting risks to players with

appetite for such risks. Commercial bank is conducted in a highly risk

managed and mitigated ambience, unlike their Indian counterparts who

are often required to take unmitigated risk as a part of business policy.

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2.2 Review of Literature

Mrs. Mohina satish Kulkarni1- (1986): The author reviewed the progress

made by the scheduled banks since nationalization in financing

agriculture. The study also emphasized on interstate and regional

imbalances. Deals with adoption of multi agency approach and

agricultural credit which will enable disbursement of credit directly or

indirectly to the borrowers and also suggest maximum agricultural

credit is utilized by the rual borrowers. The study mainly deals with

agricultural credit and there was an imbalance between the states and

union territories and the percentage of credit level exceeds rural

populations.

Srinivasan2- (1991) dealt with national level accelerated the flow of credit

to the neglected sector and also brings correlation between state

development and relative human material resource endowment. The

researcher has provided certain recommendations which if practiced by

the public sector banks can reduce the level of NPA.

Chandran Sankarnarayanan3-(1992): The last two decades have

witnessed unprecedented crises in banking sectors across the world,

developed and developing countries alike. The author deals internal

strengths and weaknesses, which matter in handling NPAs of the

Bank, it has also been endeavored to evaluate broadly the various

strategies available for meeting the issue. The study does not aim to

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work out purpose-related or area-based strategies for managing NPAs.

Desai Maulesh4-(1992): The huge burden of NPA is breaking the back

bone of the banking sector. Credit monitoring and recovery are the

methods applied for NPA management. The research study

recommends various issues relating to NPA exclusively in the Gujarat

Zone. Author provides insight into warning signal emitted before the

credit becomes NPA. Aspects relating increase in bills receivable

without changing business propositions affects the profitability. The

author has highlighted in order to avoid NPA the bankers should be

careful keeping in mind the warning signals which can avoid the

disastrous situations or alarming contingencies.

H.K Deshpandey5- (1994): Since NPA erodes the profitability of the

banks as well as the industry the author conducted a detail study in

evaluating the credit function at zonal level with special reference to

Ahmedabad zone of Central Bank of India. Non priority Sector was the

prime consideration of the research. The study covered advances to

non-priority sector with special reference to large and small scale

industries. The study provides an insight to performance appraisal and

region wise award for the best performance which will increase the

efficiency and reduce the NPA

T. Gunasekaran6 - (1995). The author highlighted through his research

financing of agriculture by commercial banks in micro level .His study

was restricted to Tanjaur District in Tamil Nadu. The researcher

examined the lending pattern and disbursement of farm finance and

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their overdues on farm finance by the commercial banks. Overall

comparison of the commercial banks in farm lending with other

institutional partner namely the crop finance. Deals with areas of farm

lending and their improvements in quantitative & qualitative lending

pattern & recovery methods also brings about scheme lending

operations on user which is effectiveness in rural areas.

Kishor Bhoir7-(1999)” deals with the various aspects of NPA in public

sector banks... Study highlighted the main reason which turns the

performing advances to non performing ones. The author recommends

remedial measures taken by the public sector banks and compromise

settlement as one of the solutions to the problem faced by the Public

sector banks. The author analyzed internal and external Industrial

sickness. According to the researchers NPA has a multiple effects on

the total working of Indian banking system and the banks looses further

opportunity of investment. The study also emphasized different

categories of borrowers.

Pankaj B.Trivedi8-(2000): brings about the causes and factors

responsible for lower Profitability and impact of inflation and changes in

price level. It very clearly implies that there is correlation between

efficiency and profitability. The author has made an attempt to suggest

business strategies that PSBs will have to adopt to come out of adverse

effect. The research explains the changes that are necessary in the

present set up of PSBs and their business policies to raise their

operational efficiency and profitability. The author correlates two factors

29

namely efficiency and profitability. The author suggested that week bank

should constantly monitored by Financial Restructuring Authority and

RBI. Such reform will enable to increase the profitability of Public Sector

Banks.

Mr.Kalkoti9-(2003) .The bank faces various difficulties in good

performance with respect to priority sector .Any defect in the

performance can bring down the profitability of the bank. As a result,

various banking regulations and quality of assets and various measures

to identify the risk has been introduced and also the efforts are made to

bring about the awareness in the industry. The researcher in his study

brings about the performance of MGB with banking credit planning and

parameters useful for improving the flow of credit planning

P.Veerachamy10 - (2006) the bank faces various difficulties in good

performance with respect to priority sector. The researcher in his study

clearly deals with the performance of primary co-operative agricultural

and rural development in Dindigul District in Tamil Nadu.The author

analyzed and examined through his study the impact of overdues of the

banks. The study revealed the external factor and internal factor as to

the cause of borrower not making the due and account becoming NPA.

Socio economic institutional, psychological and political factors. Default

in payment of credit is correlated with literacy and illetracy of a

borrower.

A.A.Ananth11-(2007)-.The Indian banking and financial system has made

commercial progress in extending its geographical spread and

30

functions reach. The study brings about the performance of private

banks in the post liberalization era and analyzing the cause of the poor

performance and suggesting the measures to improve upon it. The

study highlighted the strength and weakness of only the private sector

banks. Emitted various financial problems and focus on the financial

problems and encourages new technology and new products with the

result the profitability and efficiency can be increased. The parameter

considered in performance and profitability is factors such as spread,

burden and financial leverage have been found to be encouraging.

Gita.A.Kumta12-(2007): The study evolves modes for efficient

management of funds with special reference to inflow, planning

functions and policy changes. The study highlights to identify various

steps taken by various agencies to guide the District Central Co-

operative in Maharashtra. The author opined that the cooperative banks

are unable to take the advantages of the liberalization measures unless

the cooperative societies Act and Banking Regulation Act give full

protection to DCCB. The opinion of the author further more highlights

on the fact that unless there is a reliable bench marks the study may not

yield a proper conclusion and also there could be a possibility of

window dressing in the financial statements.

Dr.K.Ramesha13 (2003):Co-operative banks have made substantial

progress in India; the movement cannot be termed as a vibrant one in

regard to cooperative values and philosophy as enunciated in

cooperative principles. While the extension of financial sector reform

31

programme mainly the prudential standards to cooperative banking on

par with commercial banks. The notion of code of good practices

though intuitively appealing the temptation to prescribe universally valid

model codes which do not allow for differences in institutional

development, legislative framework. The paper identifies several broad

areas for the intervention of researchers under three categories, i.e.

prudential standards, professional management and governance and

supervision and regulation against the backdrop of financial sector

reforms.

Rajesh Chakrabharti and Gaurav Chawla14 (2004) Authors suggested

increasingly popular methodology of Data Envelopment Analysis to

evaluate the relative efficiency of Indian Banks in comparison with

Foreign Banks. The result of the study suggests on a value basis, the

foreign banks, as a group, have been considerably more efficient than

all other bank groups, followed by the Indian Private Banks. From the

quantitative performance aspect private banks supersedes the other

bank group. The study emitted their views on regulatory mechanism is

a cause for poor performance aspects like poor quality of goods is a

cause of NPA and emphasizing the level of profitability and in

performance.

Rajesh Chakrabharti15 (2004) the author highlighted the Reforms and

Reorganization in banking industry in India. The banking industry in

India is undergoing a transformation since the beginning of

liberalization. The social objectives rural credit of banking measured in

terms of rural credit are expectedly taking a back seat. Adoption of

32

SARFAESI Act and Basel II norms implies new challenges for Indian

banks as well as regulators. Financial performance of Indian banking

industry has become more competitive and raised issues about

efficiency and regulatory effectiveness.

Dr.Sukhdev Singh16 (2006): The author had suggested the alternative

measures for improvement in the banking industry. The study evaluated

the performance of banks against benchmark and ratio analysis was

employed as the tools. The analysis of the NPA observed the decline in

post liberalisation period .The study insisted that the ideal level

benchmark is less than 1 percent, the segments curtail the growth rate

of NPAs and followed certain policy like counterparts who had not only

arrested the NPA but reduced them.

Arabi.U17 (2007) Keeping in view the alternative sources of finance and

its role in economic development in India, the study aims at evaluating

bank credit role and how it is channelled to the different sectors in India.

The author has made an attempt to understand the effective

performance of credit delivered to different development sectors. The

paper also deliberated the analysis on the bank credit to the various

sectors like agriculture, SSI, micro finance, housing finance,

infrastructure lending, Government. Finally the author concludes in their

findings the need to further liberalise the interest rate structures to

ensure efficiency in financing the credit to core sectors.

Aastha Bhasin18 (2007) the fast changing and increasingly competitive

financial environment exposes the banks to various types of risks. It is

imperative that financial intermediaries, in particular banks need to not

33

only understand the various types of emerging risks but also the ways

and means to measure and mitigate them. The paper discussed the

important concepts in task management as applicable to banks against

the backdrop of Basel II. The paper thus aimed to develop a basic

understanding on major risks surrounding a banking institution as also

the more popular means of measuring them.

Dr Milind19 (2007): The objective of the paper is to measure the

productive efficiency of banks in developing country. The measurement

of efficiency in this paper is done using Data Envelopment Analysis. The

study shows the mean efficiency score of Indian banks compares well

with the world mean efficiency score and the efficiency of private sector

commercial banks as a group is, paradoxically lower than that of public

sector banks and foreign banks in India and brings an insight to the

existing policy of reducing non-performing assets

S.R.Shinde20 (1999) the importance of Return on Equity (ROE) as an

instrument to judge the financial performance of the bank. The author

has analyzed the component which determines Profit Margin (PM), Asset

Utilization (AU) and Equity Multiplier (EM). The study dealt with the

strategies which may be adopted by the bank management to improve

the PM and the AU which may be ultimately results into higher ROE. The

highlight of the study dealt by the author is major components of

banking risk. The author looked at various tools of financial analysis as

a yard stick to judge the performance of a bank and its management.

P.R.Kulkarni21 (1999) the small scale sector has been assigned an

important role in national economy. Competitiveness of the products of

34

SSI units, particularly in the international market, is dependent on their

prices and quality considerations. Besides providing financial inputs,

the need for extension services assumed importance. In the liberalised

economic era, the role of technology up gradation and modernisation

had assumed significant importance.The paper emphasized light on the

role played by the Government of India and the SIDBI towards achieving

the goal.In view of the priority accorded to technology up gradation and

modernization for SSI sector in the Ninth Plan the initiative should be

taken to bring the awareness of technology up gradation and

modernization needs among small entrepreneurs.

P.T.George, D.Namasivayam, G.Ramachandraiah22 (1999) development

of agriculture can take place only if farmers move from traditional to

modern agriculture, besides a large variety of inputs and services. This

paper tries to put together empirical data on cost of borrowing by the

farmers. This paper also analyzes the impact of the cost of borrowing on

the repayment behaviour of the borrowers. The author emphasized on

issues such as source and type of defaulters, to find out farmers

borrowing cost, identify crop and term loan, different types of

institutional and non-institutional sources.

Shri TCG Namboodiri23 2001-2002 identifies 5Cs, and 7Pswhich are

simple and basic point a banker has to apply his mind and be alert about

while appraising a credit proposal. And also adds the phrase as banker

an employee should act in good faith and without negligence to avoid

the problem by the bank. The author emphasized NPA is really breaking

the backbone of the Indian Commercial banks. Credit appraisal is the

35

best early opportunity available to the bankers to ensure the asset

quality. Study has proved ‘adverse credit selection’ is one of the major

reasons for the growing number of NPAs. To improve the quality of

credit appraisal is the core study conducted by the author.

K.Ramesha24 (2002) While the growth in terms of deposits and advances

of urban banking sector in the post reforms period has been

appreciable, the vexatious issues such as duality of control, presence of

large number of weak /sick banks, lack of professionalism and

legislative rigidities continue to bother this sector. The author dealt

monetary and credit policy and its implication for Urban Cooperative

Banking Sector. The study reflects major recommendations of the

Madhava Rao Committee. The author in his study mentioned the setting

up of a new supervisory structure for UCBs. The study highlighted the

concept of Scheduled UCB Sector and Scheduled Commercial Banking

Sector. The author has also made a reference of a leading cooperative

bank.

N.B.Shete25 (2003), deals with priority sector advances of banks during

the post reform period addressed two major issues in this article, viz, to

displace evil moneylenders and cheap credit was necessary to allow

poor and rural household to adopt new technologies and to escape the

cycle of poverty and indebtedness and also considers performance of

PSBs lending to priority sector, agricultural advances, advances to SSI,

advances to other priority Sector, weaker section financing. The study

has also dealt with the policy initiation of banking sector reforms. There

36

has been a significant and favourable changes related to reduction of

CRR, and SLR, interest rate deregulation.

Sanjay Choudhari and Arabinda Tripathy26 (2004) in their study made an

attempt to use Data Envelopment Analysis (DEA) to evaluate the relative

performance of public sector banks in India. The authors made an

attempt to evaluate the banks on five indicators namely, Profitability,

Financial Management, Growth productivity, and Liquidity. The analysis

showed that most of the banks form efficient frontier in profitability and

financial indicators compared to productivity, growth and liquidity

indicators. The authors emphasized on lacuna that banks are not giving

importance to other measures such as productivity, growth and liquidity

as compared to profitability and financial management.

Uday S Bose 27 (2005). The growing NPA and its implications on the

banking system need no emphasis. While there have been several

schemes in the past to facilitate the recovery from NPAs, the success of

such efforts in terms of NPA reduction has been far from satisfactory.

SARFAESI Act greatly helps bank in their effort to reduce recovers

money from NPAs. Attempts to provide a glimpse of the Act against this

backdrop. The author has cited certain limitation on the Act and also put

certain light of the Supreme Court landmark Judgement in ordinance

2004.

Pasadilla28 (2005) Philippines has the highest number of Non-Performing

Loans in Asia. As a result, the government provided a legal framework

through which banks can transfer NPA to separate entity called Special

Purpose Vehicles (SPV), which are which private owned Asset

37

Management Companies are. The research paper discussed the

problems and rehabilitation procedures legal bankruptcy reforms and

effectiveness. The author also suggested that banks are trapped

between debtor and Central Bank of the Philippines.

Christian Roland29 (2005). The author focused on the changing intensity

of three policies that are commonly associated with financial repression,

namely interest rate controls, statutory pre-emotions’ and directed

credit as well as the effects the policies had. The study attempted to

evaluate the reforms that have occurred in the banking sector by

focusing on the changes in three policies that are commonly associated

with financial repression, namely interest rate controls, statutory pre-

emption and directed credit. The indices were used to evaluate the

changing intensity of repressive policies

Kanishka Garg30 (2006) clearly brings some current scenarios in India

which strongly suggest the requirement of a tool that can convert house

equity into liquid cash also brought an alternative measures for

implementation and other related issues that the lenders bank will face,

in the context of Indian laws, regulations and taxations. The study gives

direction and attempts to identify the possible markets for this product

in India. This study enables financial security as well as residential

security but due to problem of regular income at time the repayment of

loan amount becomes difficult has been evolved through this measures.

V.K.Vijaykriushnan31 (2006).Bankers and term lenders had accepted

Debt Service Coverage Ratio (DCSR) as most important indicator of the

repayment capacity of the borrowing entities. The author has made an

38

attempt in the article to identify the change in the instalment is based on

high or low DSCR and analyzed on the basis of the available data and

emphasized DSCR is only indicative methods and new ratios developed

should be sensitive to the liquidity, profitability, and solvency in a

holistic manner.

Dr. Amrit Patel32 (2006) Agriculture has been the most important sector

contributing to the overall economic growth as well as providing

livelihood to very significant proportion of rural population in India. The

articles dealt with the disbursement and percentage growth and

achievements of financing of new farmers. Comparative study is

conducted on Commercial Banks, Cooperative Banks and RRB. The

author highlighted in his study that fragmented work will not give

complete scenario.

D.Rabindran James33 (2006). The study dealt with the measures

suggested by the lenders such as bar-coding of the mark sheet, radio

frequency identification and notation in the degree certificates of the

borrower and also highlighted the role of Bureau of Engineering and

Professional Students (BEAPS). The service rendered by the BEAPS

through these articles reveals that the NPA through educational loan

can be minimised or could even be brought to nil.

Bagchi34 (2006) Commercial banking world over is best with the

dominance of credit risk syndrome. The study reveals that dilution with

reference to security implied reduction of intensity and strength of

relative security. The author highlighted the situation whereby Indian

Commercial Banking is sufficiently resilient and guarded deeds against

39

the major event of dilution risk loss situations. Dilution of risk is the new

term in credit risk family. The study suggested that book-debt or

receivable financing should not be allowed and similarly no advance to

be allowed against the book-debt.

Abhinna Mohan Nanda35 (2006) Fraudster availed finance by creating

mortgages on fictitious title deed to the property or properties and also

mortgage fake title deeds to the non-existent property since no

registration of mortgage is done in bank’s favour in the office of Sub-

registrar. The author suggested in his articles a harmonious blend of

equitable and registered mortgage with a very nominal additional cost

with all attendant benefits of both. Bank’s charge under the suggested

method will be reflected in the Encumbrance Certificate serving as due

notice to the public at large and other banks/ financial institution which

will help in preventing fraud and supplementary recitals to be recorded

at the branch of the bank.

S.Khasnobis36 (2006) A large part of the banking sector growth, has

been on the back of financing consumptions, as reflected in the growth

of retail banking. Growth driver would involve financing the emerging

Small and Medium Enterprise sector of the economy. The evaluation of

the NPA has been blended by the author by the asset companies which

specialise in certain segment of the financial sector. The author

highlighted pre-liberalization and post liberalization effect through these

articles.

S.K.Bagchi37 (2006) Capital Stock in any business organisation is the

‘buffer’ against the vicissitudes of risks facing in the market driven

40

environment Basel Committee announced the guidelines on Capital

Adequacy. The author stressed upon the solvency status of the bank

through the concept of capital adequacy. The study also observed the

blend between Innovative Perpetual Debt Instrument and Hybrid Debt

Capital Instrument .The author also highlighted the new area through

which the capital adequacy can be enhanced in banking industry.

M.V. Narayanaswmy, K.Aruna Rao and Srimathi .S.Mayya38 (2007) made

an attempt to construct a scale for measuring the performance of

Primary Agricultural Credit Societies (PACSs) and establish the

robustness of scaling techniques and the scale itself. An attempt is

made to evaluate the performance of co-operatives by using the tools

developed for the co-operative sector which does not seems to be

appropriate. Corporate is an ‘outward looking’ entity whereas co-

operative is an inward looking entity the scaling technique developed in

this paper is both simple and robust and address the problem of non-

normal data.

Henry James39(2007), deals with the problems on rising volume of

overdue of the loan of the banking system both credit cooperative credit

societies and of commercial banks, but also other regulating agencies

like RBI,NABARD and other policy makers at national level. It also gave

a solution that high overdue payment leads to the bank in inconvenient

position at the time of availing refinance facilities from the external

sources. The author in his research has preferred drought prone areas

since the trend recovery of loan has been worsening. The demand for

the recovery was higher than actual recovery.

41

Sankar Thappa40 (2007) has dealt with the Securitization process at the

time of lending and borrowing money from the banks and financial

institution. Globalization has resulted into rapid transformation of the

financial system all over the world. As a result capital market, money

market and debt market are getting widened and deepened. The study

has involved the process of securitization and five stages involved in

securitization of the assets. The author has also revealed the future for

securitization in India.

John Ferry41 December 2008 projected the most recent phase of the

financial crisis in reference to Basel lI, Pillar II that covers three aspects

for controlling risk viz. responsibility for the board and senior

management stressed the importance of internal control over external

suprvision and sets target for banks capital to match the risk profile of

the banks. Author highlighted liquidity risk management public

disclosure and the role of supervisors.

V.S.Kaveri42 (2008) The Basel Committee on Banking Supervision

published a paper on Compliance Functions in Banks in April 2005,

which discussed certain principles of compliance. The RBI reviewed the

working of compliance system in banks, which was found to be not

effective. Subsequently, the RBI set up a working group to make

suitable recommendations to strengthen the compliance system. These

guidelines cover Compliance Principles, Process, Procedures,

Compliance Policy, Compliance Structure, Responsibility of Board and

Senior Management, Compliance Risk, Compliance Programme, etc.

Paper highlighted various aspects of compliance function in banks.

42

Kapil Sharma and P.N.Mishra43 (2008) one of the fundamental issues in

finance is how risk and returns of an investment are related to each

other. The Capital Asset Pricing Model (CAPM) was the first concrete

step towards finding an answer to the issues suggested. CAPM gives an

insight into what kind of risk is related to return, it offers powerful

predictions about how to measure the risk and the relation between

expected return and risk. The paper dealt with the key ideas of the

CAPM, its applications importance in the field of finance and its

weakness.

G.C. Goel44 (2008) The Indian banks need to manage their advances

portfolio in such a manner that risk factor should be minimised at the

early stage of their bearing capacity. The author has resorted to

Alternate Dispute Resolution (ADR) which can entail a fair deal to all

concerned without unlawful means and pro-court bias. The articles has

made an effort to bring awareness to banks and customers for

settlement of NPA dues promptly and also settle various other banking

disputes in the best interest of both the parties

Kamal Das45 (2008) last two decades there has been a crisis due to

volume and growth of NPA that holds the prime resources resulting in

severe strains on the normal resource allocation process essential for

development. The author made a study on the factors associated with

NPA. The study attributes to the macroeconomic factor such as

increasing interest, economic slowdown, and currency devaluation. The

observation of the study led to systematic framework with a clear

objective, flexibility and adequate financial support was required to

43

resolve the distressed situation and for the strategy to succeed,

adequate legal provisions.

S.Sundararaman46 (2008) in hot pursuit of NPA the articles dealt with the

formation and procedural aspect of DRT which also includes the issue

of summons, counter Claim and DRAT (Debt Recovery Appellate

Tribunal).The author had considered various factors for the delay in

pronouncing the judgement. Thus banks and financial institution should

bring about some measures which could bring moral or social

pressures upon the concerned borrowers which can act as deterrent for

unscrupulous disposal of secured assets.

Usha Janakiraman47 (2008) Financial innovations had transferred the

traditional mortgage loan agreement into an instrument that could trade

like stock and bonds. The author observed that losses in the sub-prime

mortgage market triggered reaction in other financial markets and

affected the entire sector shaking the trust and confidence in the

investors in the system as a whole. The paper examined the crisis,

highlighted the areas which are likely to be scrutinized and discussed

while trying to distil the lesson to be drawn and their implications for

policy.

T.Chithralekha and P.S.Nirmala48 (2008) banks face various risks and it

is very essential for the banks to manage risks. Poor risk management

can bring down even well-performing organizations. The paper focused

on Basel norms and the various challenges and impacts of

implementing Basel II in India. For better management of risks, the bank

has to understand these norms and implement them. Author has

44

described the challenges and categorised them into people, financial

and technical challenges.

Naushad. M.Mujawar49 (2009) Lending has always been associated with

credit risk, arises out of the borrower’s default in repaying the loan with

the stipulated time. In recent years some UCBs, which are mostly

engaged in retail banking, have faced mergers and strict action by RBI

for having failed to successfully manage their NPAs. The inflating

bubble of NPAs may mar the balance sheets of the banks if they fail to

adopt better credit monitoring practices to prevent further slippage of

NPAs. In the case study, an attempt has been made to tackle the

problem of NPAs. The objective of the study is to understand the

concept of NPA and classification of assets

Satish Chander Gupta50 (2009) healthy competition among the banks

contributes to the growth of the economy. India resorted to liberalization

and deregulation of the banking sector to keep pace with the global

changes and to cope with ongoing reforms in real sector. The paper

blended various factors such as effective management of NPA,

compliance of Basel II norms, Proper implementation of risk

management, etc. The author considered certain parameters such as

productivity, efficiency, profitability, return on capital, net interest

margin and return on assets for assessing the level of NPA.

Amit Singh Sisodiya and Ramana Pemmaraju51 (2009).The study covers

Indian banking sector’s performance.The analysis of the study shows,

the domestic banking sector has done remarkably well on parameters

like returns, maintaining profitable growth, and risk management,

45

though there warning signal and underlines the fact that banks have

successfully waded through a tough liquidity scenario without

hampering the credit growth. The present study is based on the CAMEL

methodology which evaluates component that is prime importance from

the functioning of the bank’s perspective. The model examines the

efficiency of banks among parameter like Capital Adequacy, Asset

Quality, Management, Earnings Quality and liquidity.

Tarun Bhatia52 (2009) the global economic crisis had a significant impact

on the economies and financial systems of several countries. The paper

refer to the success of Indian performance is the accumulation of the

capital. India’s banks have maintained healthy capitalisation levels in

the past decade. The author observed that it is necessary and beneficial

for the banks to raise capital through hybrid instruments in order to

maintain a healthy Capital Adequacy ratio. Banks’ healthy and improved

capitalization cushions the impact of higher NPAs.

R.Vaidyanathan53 (2009) as the economy grows it is necessary to recast

financial system to ensure the growth. The author has made a

comparison between PSB, Private Bank and NBFC. The study made has

been evaluated on the reduction of interest, enhancing credit delivery

mechanism, revising relationship. PSB have been geared to Asset

Based Lending’ rather than lending based on the forecast cash flows.

Thus the author concludes NBFC need to integrate domestic financial

markets through the system of making UIBs (unincorporated Bodies).

Jagadish. R. Raiyani54 (2010) SSI contributes substantially to the

production, exports and employment in India. The paper dealt with the

46

progress made by SSI and policy laid by the government exclusively for

the socioeconomic objectives. The author has brought in the analysis

the major problem faced by the SSI. Problems, such as scarcity of

power supply, human resources, availability of raw material, etc. are the

cause of obstruction for the growth of SSI. The study reveals one of the

solution to the growth is developing policy by the government with the

result the development can be achieved.

A.S. Ghatpande55 of Bank of Maharashtra had submitted dissertation on

the subject of “Recovery of Bank loans – an investigation into the

existing judicial process review of costs and time factors and

recommendations”. Banks seek intervention of courts for recovery of

dues... The study discussed the theoretical aspects of seeking

intervention of court and analyzed the existing legal system. This is

followed by the application of the legal system for suits filed by banks

and to review the amounts blocked in civil suits. It further classifies the

cases to know the different facts in recovery of Bank’s dues. Detailed

analysis of the time spent at various stages of suit and general causes

for delay at each stage is explained.

V.K. Sudhakar56: Bank of Baroda had submitted dissertation on the

subject of “Policies and Perspectives of NPA Reduction in Public Sector

Banks” to The Indian Banks Association, Mumbai, 1997-98.This study

attempted to examine the issue relating to policies and practices

prevailing in the area of NPA reduction. This study also indicated that

though the top management of Public Sector Banks (PSBs) were

enlightened and concerned about the dimensions of NPAs in their bank,

47

the same is not shared by the staff at operational level. NPA reduction

as organizational goals not translated into action in true spirit. The

methods and system followed by most PSBs can at best be categories

as conventional and crude.

Ranjana Kumar57 (2004) speech delivered at the Business Session

“Strategies for Managing Risk in Volatile Time”, on April 4, 2003 on the

occasion of “Banking Summit 2003” organised by the Confederation of

Indian Industries at Mumbai April 3rd to 5th 2003. The address of the

chairperson emphasised on the annual financial inspection and the

process is based on the CAMELS (applicable to all domestic banks)/

CALCS (applicable to Indian operations of banks incorporated outside

India) approach where Capital Adequacy, Asset Quality, Management

Aspects, Earnings, Liquidity and Systems and Control are examined

keeping in view the requirement of Section 22 of the Banking Regulation

Act, 1949. (BRA). Author concluded that implementation of “Risk Based

Supervision” has been firmly laid by the regulators.

C.Rangarajan Governor58, RBI at the Bankers’ Training Centre of the

Nepal Rashtra Bank Katmandu on 18th May 1997 addressed in his

speech in respect of “direct lending, there is a prescription that 40% of

the net bank credit should go to priority sector such as agriculture,

small scale industries, small business man and programmes for poverty

alleviation without affecting the viability and profitability of the bank.

Speaker emphasized on operational efficiency and allocation efficiency.

Operational efficiency relates to the transaction cost and allocation cost

48

deals with the mobilized funds among competing demand. Governors

speech covered aspects such as Global experience, reforms undertaken

in India, Philosophy, strategy, policy frame work, improvement in

financial health, and institutional strengthening in India.

Dr.Bimal Jalan59, Governor RBI, in s speech titled “Banking and Finance

in the New Millennium” delivered at 22nd Bank Economists

Conference,New Delhi,15th February,2001cited “As regards internal

factors leading NPAs,the onus rest with the banks themselves.This calls

for organisational restructuring improvement in managerial efficiency,

skill up gradation for proper assessment of creditworthiness and a

change in the attitude of the banks towards legal action which is

traditionally viewed as a last resort. Highlight of the speech was setting

up of independent Settlement Advisory Committees headed by retired

judge of the High Court to scrutinise and recommend compromise

proposals and appointment of Lok Adalat, Debt recovery Tribunal, and

circulation of Information on defaulters, Asset Reconstruction Company

to negotiate with banks and financial institution for acquiring distressed

assets and develop markets for such assets. ”

G.P.Muniappan60, Deputy Governor, RBI at CII Banking Summit 2002 at

Mumbai on April, 2002 “It is not any more Lenders problem alone

equally that of borrowers to” was cited in context of SARFAESI Act

being brought into force Mr.Muniappan, in, in his article, “The NPA

Overhang: Magnitude, Solutions, and Legal Reforms” cocludes at the

end of the articles “I am of the opinion that NPAs are avoided at the

initial stage of credit consideration by putting in its place rigorous to

49

appropriate credit appraisal mechanism and mindset of the borrower

needs to change regarding credit utilization and repayment modes”.

Deputy Governor concluded in his summit “NPAs are avoided at the

initial stages of credit consideration by putting in place rigorous and

appropriate credit appraisal mechanism. Finally both lenders and

borrowers should realize their role and responsibilities. They should

contribute to healthy financial system.

Report of the Fourth International Conference on Ethiopian Economy61 –

June 2006”. Banks play a very important role in economic development

of every nation. Banks are the main stimulus of the economic progress

of a country. The study deals with the NPAs in commercial banks of

Ethiopia. Essentially deals with the provision for doubtful debts are one

among the most important cause for reducing the profitability of the

bank. And also highlights NPA is a double-edged weapon, which affects

bank profitability due to interest income not being recognized on NPA

accounts and loan loss previously to be created from profit earned.

V.Leeladhar62, Deputy Governer, Reserve Bank of India Bulletin at the

Seminar on Basel II: Implementation Challenges in Banks in association

with the Federal Reserve Bank New York, organised by NIIBM on Jan

15th & 16th, 2007, Mumbai brought an insight for the need and

implementation of Basel. He also emphasised globally stress testing is

becoming an integral part of banks’ risk management system .For

achieving an effective Basel II implementation in the Indian banking

system and to reap the full benefits of the migration to the revised

framework, it is essential for banks to ensure meaningful

50

implementation of the various important elements and concluded his

speech saying board and senior management involment is critical.

2.3 VARIOUS COMMITTEE REPORTS – ON CREDIT

1. Thakkar Committee on Employment Potential (1970)

The then Union Finance Minister Shri Y.B. Chavan, while meeting the

Chairman/ Custodians of the Public Sector Banks on 22nd July 1970

indicated that the committee might be constituted to review the special

credit schemes of banks, with particular reference to their employment

potential. The terms of reference were to identify the types of self-

employed persons who should be considered for special financing.To

evolve guidelines in respect of security, rate of interest, period of

repayments and other terms and conditions.

2. Tandon Committee (1974)

Till nationalization of the 14 major commercial banks in July 1969, the

main contenders for banks credit were large and medium scale private

industries and internal and external trade. Nationalisation of the major

commercial banks, called for a new policy, both for deposit mobilization

through accelerated branch expansion and for suitable disbursal of

credit. Its terms of reference were to suggest guidelines for commercial

banks to follow up and supervise credit from the point of view of

ensuring proper endures of funds and keeps watch on the safety of the

advances and to suggest the type of operational data and other

information that may be obtained by banks periodically from such

borrowers by the Reserve Bank of India from the lending banks. To

make suggestions for prescribing inventory norms for different

51

industries both in the private and public sectors and indicate the broad

criteria for deviating from these norms.

3. Puri Committee on SSI (1975)

Consequent to the discussions at the meeting of the Standing

Committee on credit facilities of the Small Scale Industry (SSI) Board

and the discussion that took place at the 33rd meeting of the Board in

September, 1975, regarding credit problems faced by small scale

industries, the Government of India appointed High Powered Committee

under the Chairmanship of Shri I.C.Puri, the Development Commissioner

(SSI), with the following terms of reference: To examine the possibility

of introducing a measure of uniformity in the terms and conditions of

finance and to suggest measures that should be taken by small scale

units to facilitate the flow of institutional finance.

4. N.K. Ambegaonkar Committee (1976)

At the meeting of the regional consultative committee for the North

Eastern Region, held at Gauhati on 5th July, 1976, it was decided that the

RBI should appoint a small Working group to examine, inter-alia, the

factors impending the flow of bank credit in the Region and make

recommendations for necessary changes in the procedures and

practices of banks so as to bring about rapid and all round banking

development in the region. The terms of reference were to identify the

factors impeding the flow of bank credit in the North Eastern Region. To

recommend, in the context of the socio-economic features of the region,

52

suitable arrangements for expeditious disbursal of credit by commercial

banks

5. Raj Committee on lending to priority sector (1976-77)

The nationalisation of the 14 major scheduled commercial banks in July.

brought in its wake a rapid growth in branch expansion, particularly in

the rural areas, accompanied by considerable rise in the deposits and

advances. RBI set up a Committee in June 1977 to study all aspects of

the functioning of the Public Sector of Banks under the Chairmanship of

Shri James S. Raj. The terms of reference were to assess the impact of

branch expansion that had taken place since 1969 and to examine

whether any change in the tempo and direction of such expansion is

called for and to inquire into the present pattern of branch expansion of

public sector and to suggest the future course of action keeping in view

the need for rural development and removal of regional imbalances.

6. Chore Committee (1979)

RBI appointed the Working Group to review the system of cash credit in

all its aspect under the Chairmanship of Mr. K.B. Chore, Additional Chief

Officer, Department of Banking Operations and Development, RBI. The

terms of reference were to review the operation of the cash credit

system in recent years particularly with reference to the gap between

sanctioned credit limits and the extent of their utilization, to suggest

modifications in the system with a view to making the system more

amenable to rational management of fund by commercial banks.

53

7. Dr. Hate Committee on resources of Co-op Banks (1981)

RBI constituted on 22nd March, 1981, a Study Group called the “Study

Group of Development of Resources by State and Central Co-operative

Banks” under the Chairmanship of Dr. M.V. Hate, Executive Director, RBI

to make an in-depth study of the problem of surplus resources and

profitable investment of loanable internal resources faced by the State

Co-operative Banks and Central Co-operative Banks The terms of

reference were to define and identify surplus resources with the State

and Central Co-operative Banks and to identify the causes and examine

the effects of this growing problem in relation to interest rate structure

and the concessional refinance facilities available from the RBI.

8. Dr. M.V. Hate Committee on Rural Credit (1983)

An era of direct involvement of RBI in purveying agricultural credit may

be said to have come to an end with the formation of the National Bank

of Agricultural and Rural Development (NABARD) in July 1982. In line

with the objective of national policies, the bank has also been insisting

on the need for reserving a portion of credit for the weaker section. This

committee briefly recount the technical and managerial assistance the

bank extended to agricultural credit and other related institutions both

within the country and abroad.

9. Dr.K.S.Krishnaswamy Committee (1985)

54

At the meeting of the Finance Minister with the Chief Executive Officers

of the Public Sector Banks held on 6th March, 1980.The terms of

reference to identify the specific groups which are to be assisted under

the 20 Point Programme. To identify the ways and means of rendering

assistance to the beneficiaries. To look into the question of fixing sub-

targets (within the enhanced overall target of 40% for assistance to

priority sectors) to the beneficiaries.

10. Dr. P.D. Ojha Committee (1988)

Governor, RBI suggested to the Chief Executives of Public Sector Banks

at a meeting held on 17th October, 1987 that a field study would be

carried out with their personal participation in different districts all over

the country and the findings would be discussed in a Seminar. The

terms of reference were to examine and recommend the necessary

procedures for effective co-ordination between the three institutional

agencies viz. Commercial Banks, Regional Rural Banks and Co-

operative under the new area approach.

11. Kapur Committee on Credit Delivery System for SSI (1997)

A Committee was set up by the RBI in December 1997 (under the

Chairmanship of Shri S.L. Kapur) to suggest measures for improving the

Credit Delivery System for SSIs. The recommendations of the

Committee were special treatment to smaller among small industries

and removal of procedural difficulties to facilitate SSI advances

55

12. Gupta Committee on Agricultural Sector (1998)

The one-man Committee under the Chairmanship of Shri R.V. Gupta,

which examined the problems faced by the borrowers in agricultural

sector, had made several recommendations for ameliorating the

problems in the flow of agricultural credit. “The recommendations

relating to several procedural modifications on agricultural credit have

been advised to banks for implementation.

2.4 VARIOUS COMMITTEE REPORTS ON NPA

1. Narsimhan Committee – Reform I (1991)

The development of the financial sector is a major achievement and it

has contributed significantly to the increase in our savings rate,

especially of the household sector. The terms of reference were to

examine the existing structure of the financial system and its various

components and to make recommendations for improving the efficiency

and effectiveness of the system with particular reference to the

economy of operations, accountability and profitability of the

commercial banks and financial institutions.

2. Khan Committee on Financial Reforms (1997)

RBI had constituted a 7 member Working Group on 15th Dec. 1997 under

the Chairmanship of Shri S.H. Khan, Chairman and Managing Director of

IDBI, keeping in view the need for evolving an efficient and competitive

financial system. The terms of reference were to review the Role,

Structure and Operations of DFIs and Commercial Banks in the

56

emerging operating environment and suggest changes and to examine

whether DFIs could be given increased access to short term funds and

the regulatory framework needed for the purpose.

3. Tarapore Committee on Capital A/c Convertibility (1997)

The Union Finance Minister, Shri P. Chidambaram, in his Budget Speech

for 1997-98 had indicated that the regulations governing foreign

exchange transactions need to be modernized and replaced by a new

law consistent with the objective of progressively liberalizing capital

account transactions. Committee on Capital Account Convertibility

under the Chairmanship of Shri S.S. Tarapore was appointed. The terms

of reference were to review the international experience in relation to

Capital Account Convertibility and to indicate the preconditions for

introduction of full Capital Account Convertibility and to specify the

consequences and time frame in which such measures are to be taken.

4. Pannir Selvam Committee on NPA (1998)

Banking Division constituted a 3 Member Committee under the

chairmanship of Shri A.T. Pannir Selvam, Chairman, IBA and Chairman

& Managing Director, Union Bank of India. The terms of reference

assigned to the above Committee were Causes of NPAs, factors for

slump in recovery of loans; measures to be taken for effective recovery

of bank dues and reduction of NPAs and banks anks wise study on

factors responsible for the NPAs and banks specific suggestions for

recovery.

57

5. Narsimhan Committee – Reform II (1998):

Reform of the Indian banking sector is now under way following the

recommendations of the Committee on Financial System (CFS), which

reported in 1991. The second generation of reform could be

conveniently looked at in terms of 3 broad interrelated issues and

actions that need to be taken to strengthen the foundation of the

banking system and structural changes in the system suggested capital

adequacy, asset quality, prudential norms, systems and methods in

banks.

6. RBI Panel on DRT’s (1998)

The RBI had set up Working Group in the month of March 1998 to review

the functioning of Debt Recovery Tribunals under the Chairmanship of

Shri N.V. Deshpandey. The objectives of the panel were to look into

various issues and problems confronting the functioning of DRTs in

expeditious recovery of banks dues and to examine the existing

statutory provisions and suggest necessary amendments to the

Recovery of Debts due to Banks and Financial Institutions Act, 1993 and

Rules framed there under with a view to improving efficacy of legal

machinery,

7. Special Report on NPA by RBI (July 1999)

In order to study some aspects and issues relating to NPAs in

Commercial Banks, RBI has prepared a report in the Department of

Banking Supervision. Shri A.Q.Siddiqui, Chief General Manager, was in

58

charge of this project whereas, Shri A.S. Rao and R.M. Thakkar, both

Deputy General Managers, assisted this project. This study has been

carried out using the RBI inspection reports on Banks, information /

data obtained from public sector banks and 6 private sectors banks and

those collected from the files on borrowable accounts maintained in

banks for assessing comparative position on NPAs and their recoveries

in banks. The causes for sickness /weak performance and consequently

the account turning NPA in respect of Public sector banks and private

sector banks.

2.5. Conclusions

In this Chapter, attempt is made to learn in brief, purpose, terms of

reference and findings of various Committees, Study Groups, and

Research work relating to the task of Credit, Legal Reforms and NPAs

which is very useful in this present research study. All these tasks are

discussed in detail in following Chapters where ever applicable.

59

CHAPTER 3

SCOPE OF THE STUDY

3.1 The Need for the Study

Need for the research study after observation that generally the authors

take separately Public Sector Banks, Private Sector Banks and

Cooperative Bank. Indeed the researcher have noticed similarities and

dissimilarities in these banks and also would like to perform detailed

study on NBFC along with these sectors and compare their NPA level

and their success.NPA is not only in Indian scenario but it is also

existing in foreign countries. Inspite of legal frame work and regulatory

have been appointed still NPA exist. As the need of time to regain trust

in all the sectors of as well as the Financial Institution the detailed

comparative analysis on policies, Cause for NPA at different stage and

level of NPA on priority, Non priority and SSI has been selected. Many of

the researchers studied the related topic only on Commercial banks or

separately on Private Banks or exclusively on Co operative Banks. It is

necessary to do the comparative analysis on all the sectors to get a fair

view of these related issues.

3.2 Statement of the Problem

The study relates with the credit advances and recovery of loans by

banks and financial institutions. Recovery of loan is very important in

the success of performance of individual banks as well as sectors as a

whole. Failure to recover leads to overdues by the borrower. The

research study has been carried out to find out the measure to reduce

the bad loans in different sectors and the techniques to control the level

60

of bad loan in banking sectors and Financial Institution. In the era of

globalization the entire banking sector and financial institution is facing

lot of problem. These problems include severe competitions, advanced

technology, modern management methods etc. To reduce the bad loan

or nonperforming assets efficient and standardised activities must be

adopted. Bad loans and nonperforming assets can be implemented only

after realising deficiency in the existing system. Hence the strength and

weakness can be studied by comparative analysis in the entire banking

system. The researcher has tried to analyse the gaps in each sector on

financial and non financial issues.

3.3 Objectives of Study

• To identify and analyze the trends of loans and advance with

respect to Public sector banks, Private sector banks, Co operative

sector banks and Financial Institutions in India

• To understand the cause and factors that are responsible for

lower profitability and operational efficiency &improve the same

• To analyze, the trend of NPA’s & profitability of banks of Public

sector banks, Private sector banks, Co operative sector and

Financial Institutions

• Measures to reduce existing NPAs with respect to different

sectors

• To suggest improvement in monitoring and reducing the overdue

61

3.4 Limitation of the Study

The study suffers from the limitations which are inherent due to

economic value and not physical value. The study is based on primary

data which carries its own limitations. The analysis is based on data

published by banks submitted to RBI. The cooperative banks are spread

over widely it is not possible to cover majority of the cooperative banks.

Cooperative banks are further classified into State Cooperative Banks,

Schedule Cooperative Banks, District Cooperative Banks, Local

cooperative banks and Bhatti petti. The data is related to last 10 years

only. The research study mainly is based on Scheduled Urban

Cooperative banks. The study concentrated only on non performing

assets and related issues. The study is a combination of explanatory

and empirical.

3.5 Methodology of the study:

Methodology relates to plan of study, which includes steps of data

collection, types of Questionnaire, process of data and finally

interpretation of data

Data is collected from public Sector Banks, Private Sector Banks, and

Scheduled Urban Co-operative Sector Banks and NBFC

a. Primary Data:

The Primary data is collected through Questionnaire, which is divided

into two parts:

a. Questionnaire which deals with the general policy of the banks

b. Annexure questionnaire is divided into three stages viz:

PART-A : APPRAISAL STAGE

62

PART B: SANCTION & DISBURSEMENT STAGE

PART C : POST DISBURSEMENT STAGE

i. Primary data was collected through unstructured Interviews with

Bank Officials from Public Sector Banks, Private sector Banks, and

Scheduled Urban Cooperative Banks & Financial institution. Their

views regarding NPA was collected

ii. Opinions of Banks Facilitators (Chartered Accountant, Advocates,

Industrial borrowers, Individual Borrowers, Collection Agents)

through aforesaid Annexure were collected

b. Secondary Data:

• The research is based on Data collected from RBI publications,

Annual Report, Journals & Websites. Secondary data are

collected since 1999 to 2008, Case Study, Court decisions,

Relevant Sections of the provisions of Banking Regulations Act,

SARFEASE ACT, Basel Accord, Recommendations and

Conclusions of various Committees / Studies undertaken as well

as PhD thesis also.

• 3.5.1 Sample Selections

Types of Banks Total No. of Banks

Sample size

Public Banks 20 18SBI subsidiaries 07 07Private Sector Banks 22 15Scheduled Urban Co-operative Banks

53 15

NBFC (Multi Finance Loan) 114 30Facilitators (Bank Advocates, Bank Chartered Accountant, Industrial borrower, individual borrower collection Agent)

- 81

63

Samples were collected at random

The questionnaire was presented to bank official with prior appointment.

As far as possible the corporate office or head office or the zonal office

provided the information.In some banks branch manager with the

permission of his higher officials or due to introduction of technology

could provide information for the entire banks. Similarly questionnaire

was presented to other facilitators to find out their views regarding bad

loans and non performing assets

3.5.2.Data Collection

Data analysis was analysed to meet the objectives and were presented

in graphical manner to bring about comparison to meet the above

objectives. Tables of all the Responses were drawn for the data. Simple

Statistical and Graphical method is used to present the facts observed

by the study.

3.6. Conclusion

The distribution of NPAs in the system follows 80-20 rule whereby 20%

by number of borrowers are responsible for 80% of value of impaired

assets and conversely. The large impaired assets comprise industrial

assets having good restructuring potential Arcil experience shows in

value terms more than 60% of the impaired assets are amenable to be

restructured or sold as a going concern. The small assets however have

to be put through a recovery process, where the collateral based

financing system followed in the country offers a fair recovery potential.

The seed of success of managing the impaired asset in any economy

lies in the speed of recycling these assets and their realization into

64

cash. In achieving objective the legal environment should adequately

possess empowered system and structure, support from the

government and finally accessibility to new domestic and foreign

capital. Only then Indian banking shall be in full throttle to take up on

the challenge to de-stress the system and prepare for future growth by

fueling the SMEs which is the growth engine for Indian economy in the

future era. The long tradition of political consensus with required

legislation, fund support and prompt action helped to resolve the crisis

minimising the loss. It is preferable to opt for a structured model to

handle risky capital separately. The crucial factor is to quickly identify

the problem and approach professionally utilising the lessons from the

past experience prudently and pragmatically.

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Chapter 4

LEGAL FRAME WORK AND NOTIFICATION

4.1 Introduction

Globalization has resulted into the rapid transformation of the financial

system all over the world1. As a result capital market, money market and

debt market are getting widened deepened. The growth of financial

market has increased the need for innovative instruments for raising

funds. There is increasing from investors, for high quality, low risk

securities. Today the toughest problem faced by the entire banking

industry in India is the NPAs, i.e. the loans, where the principal and

interest cannot be recovered, thus the assets stop earning any income.

The unbearable level of NPAs has led to lower interest income and loan

loss provisioning requirements which have destroyed the profitability of

the banks to great extent. Besides the recycling of funds is restricted,

thus leading to serious asset liability mismatches. The supply of credit

to potential borrowers have been blocked which is having a harmful

effect on the capital formation and hampering the economic activity of

the country. So the NPA problem is an issue of public debate and of

national priority.2

India’s legal system has traditionally been friendly towards borrowers

and famously slow and inefficient. In 1993, Debt Recovery Tribunal

(DRTs) was set up precisely to avert the said problem, to give bank

faster access to justice. In 2002, a major step in empowering banks in

66

their loan recovery effort came in the form of the NPA Ordinance, later

turned into the Securitization and Reconstruction of Financial Assets

and Enforcement of security Interest (SARFAESI) Act. The Act paves the

way for the establishment of Assets Reconstruction Companies (ARCs)

that can take the NPAs off the balance sheets of banks and recover

them.

4.2 Purpose of the Act

Securitization, the process of converting illiquid loans into tradable

securities, has emerged as an important tool for financing worldwide.

Securitization has gained increased acceptance in India over the years.

Securitization emerged as an important tool for fund raising by Indian

Banks and non banking financial institutions. Success of securitization

depends upon proper implementation of the Act. Priority sector lending

requirement of Indian bank was the key driver behind the retail

securitization transaction during 2009.A majority of the retail loan pools

securitised in 2009 were backed by priority sector loan originated by

NBFCs. Transactions through direct assignment route dominated the

market in 2009, as this route facilitates the transfer of priority sector

loans directly to the acquirer’s loan book instead of investment book

and thereby fulfilling priority sector lending requirement.3

Unlike the developed countries where Mortgage Backed Securities

(MBS) are more prevalent, it is the Asset Backed Securities (ABS) which

has been the main driver of securitization market in India, contributing

more than 50% of total issuance. In India, underlying assets which have

67

been securitized mainly include commercial vehicle loans, car loans,

construction loans, farm equipment loans, three-wheeler loans,

consumer durable loans, personal loans, corporate loans, and

residential mortgage loans. India’s securitisation issuance includes

ABS, MBS, single loan Collateralized Loan Obligation (CLO) and Direct

Assignment of loans. Act empowers bank and financial institutions (FIs)

to seize the assets charged to them without intervention of the courts

and sell them off to realize their loans, which have become NPAs. But

the option approaching the DRT, in case the banks or financial

institutions do not recover the dues by themselves will always remain

open.4

4.3 Highlights of the Act /Features of the Act

4.3. a. 1. In case the borrower of an NPA account fails to pay the dues of

the bank within 60 days from the date of the notice sent by the bank, the

bank can exercise any of the following rights under sub-section 13(4) to

recover his secured debt.

a. Take possession of the secured assets of the borrower and

transfer the same by way of lease, assignment or sale for

releasing the dues without intervention of the DRT/Court

b. Take over the management of the borrower’s concern.

c. Appoint a manager or Court Receiver to manage the secured

assets

68

d. Send notice to a third person who has acquired the assets from

the borrower without the consent of the bank

2. In case NPA account is a consortium account or under multiple

finance the right to enforce securities can be exercised by the

banks/Financial institutions, only when secured creditors representing

not less than three fourth in value on the amount outstanding are

agreeable as laid down in sub-section 13(9).

3. After acquiring the possession of the assets charged to the bank and

selling the same and appropriation of scale proceeds towards the dues

of the bank, then the bank can approach DRT for recovering the balance

amount, if any, from the borrower/ guarantor as laid down in sub-section

13(10)

4. If the bank feels that there can be resistance for acquiring the assets

charged to the bank from the borrower, in such a case the bank can

approach the concerned Chief Metropolitan Magistrate or the District

Magistrate by filing a written request for taking possession of the said

assets.(section 14)

5. After issuance of 60 days notice by the bank to the borrower, the

borrower shall not deal with the assets which are charged to the bank.

However, dealing in the said assets in the said assets in the ordinary

course of business of the borrower is permitted.

6. The provisions of the Act are not applicable to the following

transaction:

69

a. Any security interest created for payment of financial assets not

exceeding Rs. 1 lakh

b. Any security interest created over agricultural lands.

c. Any case in which the amount due is less than 20% of the

principal amount and interest therein.

d. Pledge of movable assets within the meaning of section 172 of the

Indian Contract Act, 1872.

e. Any conditional sale, hire purchase or lease, or any other

contract, in which no security interest has been created.

f. Security created in any aircraft under Aircraft Act, 1934.

g. Security created in a vessel under Merchant Shipping Act,

h. Any rights of unpaid seller under Section 47 of the Sale of Goods

Act, 1930.

i. Any property exempted from attachment under Section 60 of CPC.

7. This Act has permitted to float assets reconstructions companies

which will purchase the NPA accounts from the bank at a discounted

price. They will also take over the assets charged by the bank for the

particular account for necessary recovery action through reconstruction

of the assets or otherwise.

8. Section 17, any person including the borrower may approach DRT by

filing an appeal before the DRT within 45 days from the date on which

70

steps have been taken by the bank. But such an appeal shall not be

entertained by the DRT unless a specified amount of the outstanding

dues of the bank is deposited in the DRT. The right to appeal before

DRAT (Debt Recovery Appellate Tribunal) within 30 days is given under

Section 18 to any person aggrieved by the order of DRT. The ousts the

jurisdiction of the Civil Courts and declares that no injunction shall be

granted in respect of any exercise of rights conferred by this ACT.

4.3. b. After the publication of this Act, several borrowers had filed writ

petitions in the Supreme Court of India, challenging the validity of the

Act. In the landmark case of Mardia Chemical Ltd. & Others vs. Union of

India & Others (2004) 120.Comp.Case 373 (SC), the Supreme Court has

upheld the validity of the Act. Some salient features of the judgement

are:

i. The Court directed that the banks should evolve appropriate

internal mechanism to thoroughly resolve the contentions raised

by the borrower. The bank should apply its mind to the objections

and communicate its reasons to the borrower. This shall be an

act of fairness on the part of the bank.

ii. The court held that banks and financial institution have been

have been provided with guidelines by the RBI laying down the

terms, conditions and circumstances in which the debt is to be

classified as non-performing assets. Hence, there is no arbitrary

illusory. It is also unreasonable and violation of Article 14 of the

constitution.

71

iii.Section 34 of the Act lays down that Civil Courts have no

jurisdiction to entertain any suit in respect of any matter which

DRT or DRAT (Debts Recovery Appellate Tribunal) is empowered

to deal with. The court has upheld the validity of these

provisions.

iv.Accordingly, the Supreme Court upheld the whole of the Act

excluding Section 17 (2).5

4.3. c. The SARFAESI Act and the action of creditors have been

challenged in the courts almost immediately. In a decision in Mardia

Chemicals Vs ICICI case, the Supreme Court upheld the Act in 2004,

tilting the balance for the banks. Meanwhile the RBI has been

encouraging the banks to use the provisions of the SARFAESI Act. Ever

since the Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interests (SARFAESI) Act came into play, banks

and financial institutions have had a mixed experience. The initial

brouhaha over this devise to plug the burgeoning non-performing

assets (NPAs) in the country was stonewalled by Mardia Chemicals,

whose legal acumen persuaded the Supreme Court to pass a temporary

order permitting banks to take over the assets hypothecated but not

dispose them. This halfway house still continues. A decision was

expected on September 15, but Mardia Chemicals is proving to be very

tenacious litigant.6

The intent of the Act is to provide a remedy to the secured creditors to

minimise their NPAs. It is nobody's case that any bank or financial

72

institution would take over a cement plant, a boutique or a hotel and

actually run it. It would be handed over to an asset reconstructing

company (ARC) at the earliest opportunity which, in turn, would ensure

that the bank or financial institution obtains its pound of flesh from the

asset. The ultimate aim of the secured creditor would be to ensure that

some money hits the account of the borrower.

The less litigious-minded among the defaulters' list have ensured that

some repayment has been made to creditors who contemplate action

under the SARFAESI Act. Hence, it all boils down to the willingness of

the borrower to pay up. This is precisely the reason why certain

chambers of commerce have suggested that the Act should only be

made applicable to wilful defaulters. Although a thin line of difference

exists between a wilful and a non-wilful defaulter, it remains a fact that a

non-wilful defaulter would prefer to dispose of an asset that is bleeding

him all over than hang on to the asset by taking protection from any

available court in the land.

With a view to help the Banking sector to overcome the mounting ‘non

performing assets’, Banks have been vested with enormous powers in

the matter of enforcing their security interest under the Securitization

and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002. The Civil Procedure Code 1908 was enacted for

enforcing substantive civil rights and it was ruling the field for several

decades. It was realized later that litigation through the Civil Procedure

Code was virtually defeating the process of rendering justice in view of

73

abnormal delays and technicalities in following the Code. Added to that

enormous increase in litigation caused serious concern and therefore

measures were initiated to have procedures which could render justice

without delay. Banks and financial institutions are the custodians of

public money and there was a need to rotate the money for the public

good. Non-Performing Assets (NPA) is a loss to the economy. When the

SARFAESI Act was enacted in 2002, the NPA stood at Rs. 1.10 lakh

Crores and were threatening the balance of economy. In this

background the Government of India had appointed the Narasimham

Committee for studying and recommending the ways and means for

quick recovery of the public money locked up in NPAs. In furtherance of

the recommendations of the Narasimham Committee, the Recovery of

Debts by Banks and Financial Institutions Act 1993 was enacted with

much hope that the said Act would enable quick recovery of NPAs by

Banks and Financial Institutions. However the Act (DRT Act) failed to

yield the desired result. In Transcore, the Supreme Court itself has taken

note of the failure of the DRT Act by observing Further in cases where

the debt is secured by pledge of shares or immovable properties, with

the passage of time and delay in the DRT proceedings, the value of the

pledged assets or mortgaged properties invariably falls. On account of

inflation, value of the assets in the hands of the bank/FI invariably

depletes which, in turn, leads to asset liability mismatch. These

contingencies are not taken care of by the DRT Act and, therefore,

Parliament had to enact the NPA Act, 2002.”Enactment of SARFAESI Act

In the above background the policy makers and legislators realized the

74

need for further measures for the quick recovery of NPAs, and to

empower Banks and Financial Institutions to recover the NPAs without

intervention of judicial process. In that process guidance was found

from Section 69A of Transfer of Property Act and State Finance

Corporation Acts, where there is provision for the sale of secured assets

without the intervention of Courts. In that process Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest

Act 2002 (SARFAESI) was enacted. The SARFAESI Ordinance 2002 was

promulgated on the 21st June 2002 to regulate securitization and

reconstruction of financial assets and enforcement of security interest

and for matters connected therewith or incidental thereto. The

provisions of the Ordinance would enable banks and financial

institutions to realize long-term assets, manage problem of liquidity,

asset liability Articles mismatches and improve recovery by exercising

powers to take possession of securities, sell them and reduce non-

performing assets by adopting measures for recovery or

reconstruction.” SARFAESI Act Section 13 empowers the Banks/

Financial Institutions inter alia to take possession and effect sale of the

secured assets. After the enactment of the SARFAESI Act, like any other

new legislation it was subjected to judicial scrutiny and interpretation to

settle down the legal position. Two most important cases in that process

are Mardia Chemicals Ltd v. Union of India (2004 (4) CTC 759; 2004 (4)

SCC 311) and Transcore v. Union of India & Anr7 2006 (5) CTC 753; AIR

2007 SC 712) wherein the Supreme Court had settled the legal position

substantially with regard to the SARFAESI Act and made the rigor of

75

SARFAESI Act for the recovery of NPAs effective in letter and spirit.

SARFAESI Act is simply a procedural enactment like CPC and it seldom

deals with substantive rights on the properties. In effect SARFAESI Act,

explicitly or by implication overrides all other earlier procedural laws for

the recovery of NPAs. To be more specific Banks and Financial

Institutions

In Transcore case the Supreme Court has held in: “In our view, Section

17(4) shows that the secured creditor is free to take recourse to any of

the measures under Section 13(4) notwithstanding anything contained

in any other law for the time being in force, When the Supreme Court

compared State Revenue law with the SARFAESI Act it sent wrong

signals as if the SARFAESI Act overrides even the substantive laws.

The Bench analysed the Rules empowering the Recovery Officer

to put the auction purchaser in possession of the properties.

(Rule 40). The Bench also considered the rules which permitted

the Recovery Officer to put back in possession any person who

other than the defaulter claiming in good faith to be in possession

of the property on his own account or on account of some person

other than the defaulter. (Rules 44 to 47)

3.3.d. Secondly they drew an analogy with the provisions of CPC and

held that the Rules framed under the ITCP Rules largely correspond to

the relevant Rules occurring under Order 21 of the Code of Civil

Procedure relating to the execution of a decree. They held that Rule 39

of the ITCP Rules corresponds to Order 21 Rule 95 C.P.C. which deals

with delivery of possession in occupancy of judgment debtor and Rule

76

40 of the ITCP Rules corresponds to Order 21 Rule 96 C.P.C. They were

of the view that Rule 40 of the ITCP Rules dealing with the case where

the property is in occupation of the tenant or other person entitled to

occupy the same in his own right contemplates only symbolical

possession to the auction purchaser and the tenants (who are strangers

to the decree) cannot be evicted by the Recovery Officer by issuing an

order directing them to vacate the properties forfeiting their rights under

the relevant provisions of the Rent Control Law.

4.4 Limitations of the Act

1. The legislation empowers one party to the dispute, i.e. the creditor

to take action without due judicial process against the other

party.The bank and FIs in their eagerness to recover NPAs may

violate the fundamental rights of the borrowers. The borrowers can

approach the DRTs in case of grievances, but it amounts to post

corrective measure as the Act allows the banks and securitisation

companies to initiate action.

2. In case of enforcement of their claims by banks/FIs under this Act,

they do not examine the validity of the charge nor are they

empowered to do so. Therefore, in the rarest case of defective

charge also the recovery shall take place.

3. The main object of the Act is fast recovery of debts. But the Act

provides for appeal over appeal, which is lengthy judicial process

and leads to delay in execution proceedings.

4. It will be difficult for banks to sell distressed assets as there are

few takers for such assets.

77

5. The Act empowers the banks to take over the management of

defaulting companies. Banks are not skilled enough to run any

business activity with guaranteed success.

6. In case of enforcement of claims in consortium advances the

creditors can enforce only on the consent of the other creditors

having minimum 75% share in the loan whereas enforcement of

claim though DRT/Civil Court can be initiated by a single creditor

by adding other creditors as respondents in the case.

7. In case of sale of seized assets, the seller and the beneficiary will

be the same. The sale of secured assets by banks at a value

enough to cover their dues would be adequately self serving, but it

may appear to be unfair to the stakeholders.

8. The Act provides to take help from the district administrative

machinery for enforcement of security interest is an impractical

stipulation. As our district administrative machinery is even unable

to provide assistance even to the DRTs for the recovery work.

9. Valuation of assets and binding process can trigger legal cases.

There may be lack of unanimity among lenders, as all lenders

holding at least 75% stake in outstanding dues are required to

agree to sell the assets of defaulters.

10.The appointment of a manager for the management of acquired

assets, in consultation with the borrower, whose assets have been

seized by the banks, is a utopian idea.

78

4.5 SARFAESI (Amendment) Ordinance- 2004

In the light of the Supreme Court judgment in the Mardia Chemicals Vs

ICICI Bank Ltd, the Government promulgated the Ordinance to amend

certain sections of the Act, which has been passed by the Parliament in

December, 2004.

Highlights of the changes are as under:

a. Amendment in Section 13: On receipt of the notice if the borrower

makes any representation or raises any objection, the secured

creditor shall consider such representation or objection and shall

communicate within one week of receipt of such representation to

the borrower.

b. Amendment in Section 17: The borrower may make an application

to the DRT if the secured creditors have not accepted his

representation or objection. Any application made by the

borrower shall be dealt with by DRT, as expeditiously as possible

and to be disposed of within 60 days from the date of such

application. If the application is not disposed of by DRT within the

period of 4 months, any party to the applicant may make an

application to the DRAT for directing the DRT for expeditious

disposal of the application.

c. Amendment in Section 18: No appeal shall be entertained by

DART unless the borrower has deposited with it 50% of the

amount of debt due from him, as claimed by the secured creditor

or determined by the DRT, whichever is less. DRAT may reduce

the amount upto 25% of the debt.

79

4.6. Conclusion

1. The Act is term as comprehensive and extraordinary piece of

legislation8. The only way to put a stop to NPA problem is to attack the

problems which are in built in the system like lack of infrastructure,

liberal terms of financing, holding the managers personally responsible

for any laziness and negligence on their part.

2. As Justice B.P.Banerjee puts in: “The Act does not provide a magic

wand to remove the sickness in the industry, it can, at the best, be

looked upon a transient phase in the culture of financing9.”

3. The Act gives sweeping powers to banks and FIs to seize the assets

charged to them and realize their loans without any intervention of the

Court. It is a tool and not a weapon in the hands of the banks to shoot

the defaulters”10. Taking over the defaulters personal assets where the

wilful defaulters has siphoned out the assets under the banks charge

needs to be taken in the long run if the Act fails to deliver the required

result. Since the NPA is an integral part of the operational risk the

government provided a legal frame work through which banks can

transfer the NPAs to a separate entity called Special purpose Vehicles

(SPV) which is private owned Asset Management Companies (AMC).

4. The major originators/issuers of securitisation transactions have been

more private Banks, NBFC and Housing Finance Companies (HFCs).

Major investors in securitisation transaction have been public and

private sector banks, mutual funds and insurance companies. The

single loan CLO transaction involved a bank giving a loan to a corporate

the receivables were then securitized immediately using a Private Trust

80

Company (PTC) structure and formation of a trust. Securitization can

serve as an important capital adequacy management tool for such

banks. Banks can free up capital by securitizing their illiquid loan

assets.

5. In earlier years, securitization was used as a tool to book profit

upfront at the time of transaction as all the risks and rewards were

transferred to the investors. However, in February 2006, the RBI

released guidelines on securitization, which required amortization of

profit over the tenure of the transaction, thereby removing the upfront

profit booking incentive. The guidelines also required the originator to

split the transaction credit enhancements to be reduced from capital

funds.

6. Indian banks are expected to benefit immensely from the judicious

use of the securitization tool to free capital, generate liquidity and

manage assets and liabilities.

81

CHAPTER 5

ANALYSIS OF POST LIBERALIZATION DEVELOPMENT IN BANKS

5.1. Introduction:

India’s commercial banking system consists of ‘non scheduled banks’

and ‘scheduled banks’. Scheduled banks consist of scheduled

commercial banks and scheduled co-operative banks. The former are

further divided into four categories:

i. Public Sector Banks (which are classified into Nationalised

Banks and State Bank of India (SBI) and its subsidiaries)

ii. Private Sector Banks (which are classified as old Private Sector

Bank and New Private Sector Banks that emerged after 1991.

iii. Foreign Banks in India

iv. Regional Rural Banks (which operate exclusively in rural areas to

provide credit and other facilities to rural areas). The SBI

group of banks consists of eight independently capitalised

banks-seven associate banks and SBI itself.

v. Scheduled Cooperative Banks are further divided into Scheduled

Urban Cooperative Banks and Scheduled State Cooperative

Banks.

5.2. The origination of NPAs in Indian banking landscape can

be broadly classified into two stages:

82

5.2. a. Pre- liberalization era:

In the context of accretion to NPAs in the banking system, contributory

factors during this period were mainly the following:

i. Down swings in agricultural sectors triggered by monsoon

vagaries bringing about all round economic and demand

recession

ii. Industrial licensing: The scale of economy in relation to

international standards was compromised leading to high

capital cost per unit of production. This was often said to be

off-set by lower labour cost, but in reality labour productivity

coupled with application of robotics outweighed the benefit

from labour cost in the Indian context.

iii. Sector wise reservation: Reservation for major sectors for

investment by (GOI) in the public sector structure in post

independence days became necessity due to various reasons

including non-availability of private capital.

iv. Controlled interest rate: In the controlled interest rate regime,

banks were not in a position to price the risk premium. This

led to cross subsidization across the risk profile of the loan

assets. Although additional collaterals were taken risky loan

assets, in the absence of favourable legal system, the banks

were not in a position to realize value from these collaterals.

v. Tariff protection: In the absence of long-term tariff policy, it was

difficult for the banking system to establish viability of the

83

project with any degree of certainty during the loan payback

period.

vi. Role of Development Financial Institutions (DFIs): The DFIs

played a predominant role in the growth financing during the

pre-liberalization era. This model became unsustainable as

they started facing the difficulty in raising funds. In a way the

DFIs in India played the role of Venture Capital (VC) funding

without capturing the possible upside the model. The success

of DFIs can therefore be compared only with VC funding.

5.2. b. Post- liberalization era:

India’s macroeconomic policies were conservative until early eighties.

Accompanied by some liberalization in the form of de-licensing of

select industries permitted change in the product mix within the overall

capacity and creeping relaxation of imports, during mid eighties, the

Indian economy registered the average growth rate of 5.3 percent per

annum (sixth five fear plan), much higher than the average growth of

3.5 percent per annum during the previous three decades. With the

commencement of reform of the economy in 1991, banks were to follow

the Basel Accord. Consequently RBI issued first set of comprehensive

guidelines for Income Recognition and Asset Classification (IRAC) in

April 1992.The central bank, with a cautious move, adopted time based

provisioning method; and averted a near situation by not imposing

write-off the entire loan asset impairment amount based on present

value of realizable cash flow upon recognition of NPA. The banking

84

system in India places significant importance on tracking net NPA as

percentage of gross assets.Net NPA percentage is important for

regulatory purpose; it does not capture the shareholders perspective.

The focus should be on recovery of gross NPA including fully written

off accounts in present value terms using cost of carrying NPA as the

discounting factor at minimum value if not the opportunity cost.

5.3. Development of Public Sector Banks

Prior to the 1991 reforms, India’s Banking system/sector had long been

characterised as highly regulated and financially repressed business.

Increased the degree of financial repression and adversely affected the

country’s financial resource mobilisation and allocation are stated as a

background for the banking sector reforms.

5.3.1. Performance of Banks in lending to Priority Sector

Ever since nationalisation of banks in 1969, directed credit policy has

been an important part of the financial strategy under which the RBI

prescribed three distinct targets for PSBs: 40% of NBC to the priority

sector, which includes agriculture, SSI, and retail trades, self-employed,

etc. It is further classified into two sub targets: 18% of NBC to

agriculture and 10%of NBC to weaker section was fixed. In 1999 the

percentage of SSI advances achieved was 17.3% were as in the year

2002 it dropped to 3.91% and in 2008 the amount of percentage was

10.9% as mentioned below in Table 5.1

85

Table 5.1

Advances Granted by the PSBs to Small Scale Industries

March Ending

Total SSI Advances

(Rs.Crores) Percentage

1999 42674 17.3

2000 45788 15.6

2001 47909 5.32

2002 49742 3.91

2003 52988 11.1

2004 58278 10.4

2005 67634 9.4

2006 82434 8.1

2007 102550 7.8

2008 148651 10.9

Source: RBI Publication

5.3.1. a. Advance to Other Priority Sector

This segment of PSA includes the credit to transport operators, small

business, professionals, self employed, consumption, housing finance,

education, etc. As on March 1999 this segment of PSAs was 24,448

Crores (9.98% to NBC) which increased to 17% in 2004 and 18.1% in

86

2005 and in 2006 it decreased to 16.1 and in 2007 it further deteriorated

to 15.8% to NBC.

5.3.1. b. Advances to Weaker Sections

The PSBs are required to lend 10% of NBC to identified weaker sections

of the society. Banks to this segment is fluctuating from year to year. In

2003 the percentage dipped to 6.76% and in 2008 it increased to

9.3%.Overall during these period of study the bank could not achieve

10% target but the performance was quiet satisfactory.

5.3.2. Magnitude and Movement of NPAs in Banks

Table 5.2

Magnitude and Movement of Gross NPAs to Gross Advances and Net

NPAs to Net Advances of PSBs

Gross NPAs Net NPAs

Year % to Advances % to Advance

1998-1999 15.89 08.13

1999-2000 14.02 07.42

2000-2001 12.40 06.74

2001-2002 11.09 05.82

2002-2003 09.36 04.54

2003-2004 07.79 02.98

2004-2005 05.53 02.00

2005-2006 03.64 01.32

2006-2007 02.66 01.05

2007-2008 02.23 00.99

87


A glance through the statistics on the movement of NPAs of PSBs

presented in Table 5.2, since the prudential norms have been introduced

by RBI the study enables the researcher to show the extent to which

PSB has made a progress in reducing their NPA levels. The level of

gross and net NPAs has been sliding down over the years. The gross

NPAs of PSBs has come down from 15.89%in 1998-1999 to 2.23% in

2007-2008.Net NPA has also been sliding down the years. The net NPA

of PSB came down from 8.13% in 1998-1999 to 0.99% in 2007-

2008.Though there is reduction in the level of NPA but still in absolute

term costing there is a loss to the bank by way of loss of profit to the

PSB and also of interest and other miscellaneous charges and litigation

charges. It may be seen from the data that whatever may be the level of

NPA but it erodes the profitability of the bank and in turn the profitability

is eroded from the balance sheet of the individual bank.

5.3.3. Non Performing Assets: Sector wise Analysis

a. Public Sector Banks

Priority Sector or directed credit has its origins in social control policy

of the Government of India since 1967. Later this ratio was increased to

40% which till date the same ratio. The ratio since the liberalization

period remains the same. The rational provided by the Narasimham

88

Committee-I (1991) for its reduction from 40% to 10% while narrowing

the focus of priority sector on small farmers and other low income

groups rest crucially on nonperforming advances. This situation gave

raise NPA. Table 5.3 shows that gross NPA under priority sector is

increasing since 1999 to 2008. In 1999 the gross NPA under priority

sector is 43.70% and in 2008 gross NPA is 63.62%. The share of non-

priority sector shows the reduction in gross NPA. In 1999 the gross

NPA under non-priority is 53.40% and in 2008 it has reduced to 35.63%.

Similarly the share of NPAs in public sector shows reduction of gross

NPA, from 2.90 in 1999 to 0.75 in 2008.From Table 5.3 it clearly shows

the level of NPA in public sector bank is the least and the maximum

contribution of NPA emerges from the priority sector.

Table 5.3

Sector Wise Non Performing Advances of Public Sector Banks Public

Sector Banks

Sector wise NPAs (% to Gross NPAs)

Year Ending March

Priority Sector

Non-Priority Sector

Public Sector Gross NPAs (Rs.Crore)

1999 43.70 53.4 2.90 51710

2000 44.50 53.5 2.00 53294

2001 45.43 51.35 3.22 53174.12

2002 44.49 53.54 2.00 56506.34

2003 47.20 50.70 2.10 52807

2004 47.74 51.14 1.12 34989.7

2005 49.05 50.00 0.94 47696.48

2006 54.07 45.11 0.82 41378.23

2007 59.46 39.27 1.27 38601.8

2008 63.62 35.63 0.75 39748.51

89


It has been seen from the Table 5.4 from 1999 to 2008 SBI has high NPA

as compared to PSB or nationalised in priority sector. The proportion of

gross NPAs in priority sector lending to gross NPA of SBI group was

44.6% in March 1999 and in March 2008 58.49%. Like the public sector

bank even in case of SBI non-priority sector had considerably reduced

as compared to the priority sector. In 1999 the share of SBI under non-

priority sector was 51.9% of its gross NPA and in 2008 it declined

considerably to the extent of 40.88%.The share of SBI under PSB

showed remarkable improvement. In 1999 the share of gross NPA was

3.5% and in 2008 it showed 0.63% under its public sector segment which

is very impressive.

90

Table 5.4

Bank Group wise and Sector wise NPAs (percent of NPAs to Gross NPAs)

Year

Ending

March

Priority

Sector

Non-

Priority

Sector

Public

Sector

SBI PSB SBI PSB SBI PSB

1999 44.6 43.7 51.9 53.4 3.5 2.9

2000 45.2 44.5 51.9 51.5 2.8 2.0

2001 44.2 45.4 49.8 51.4 6.0 3.2

2002 45.7 44.5 51.2 53.5 3.1 2.0

2003 47.5 47.2 49.4 50.7 3.1 2.1

2004 47.07 47.54 51.48 51.24 1.45 1.22

2005 47.39 49.05 51.48 50.0 1.13 49.05

2006 54.95 54.07 44.10 45.11 0.95 0.82

2007 57.15 59.46 41.6 39.27 1.50 1.27

2008 58.49 63.62 40.88 35.63 0.63 0.75


Bank wise data on proportion of NPAs in priority sector advances to

gross NPAs which shows that the PSB ratio on priority sector ranges

from 33% of its NBC and it reached up to as high as 53.3%of its NBC.As

on 2008 OBC in spite of taking over Global trust bank had 41.8 % highest

was 51.3% by Indian Bank on its priority sector The ratio is compared

91

with its NBC value. The ratio in a particular sector is almost identical

since the regulatory body monitors and passes the rules and regulations

on a Uniform basis.

b. Agricultural Lending

Agricultural lending should not exceed one-fourth of the agricultural

sub-target of 18%, i.e.4.5% of NBC for the purpose of computing the

achievements of banks under the 18% targets. As per the available data

OBC had the least NPA during the research period between 1999 to

2008.The level of NPA was 6.61 in 2006.The level of NPA in three banks

During the research period exceeded 30% of agricultural advances.

Bank of India, Indian Overseas Bank and PNB are the three banks which

had the high level of NPA. Out of these three banks Bank of India had

32.01% of NPA in 2008. (As shown In the Appendix 1).The cause of

concern in those banks where NPA in agricultural credit to gross NPA

exceeded 20%.These banks have to take special initiative for reducing

their NPAs proportion in agricultural lending at least to the average

level of PSBs. It is stipulated that 40% of the priority sector credit should

go to agricultural lending (18% of NBC), keeping 40% in view, the

distribution of PSBs according to the percentage share of NPAs in

agricultural advances to NPAs in priority sector credit is calculated. It is

noted that banks wherein NPAs in agricultural credit is contributing

maximum NPA, the reason need to be identified and urgent remedial

measures should be initiated at all level. In case of high or low NPA it

appears to be not a good proposition. In fact to that extent it affects the

profitability of the bank because the net NPA is adjusted from the

92

reserve set aside by the bank and it reduces the profits of the banks

such. With the result it has an impact on the performance of the bank.

c. Small Scale Industries

Under PSB the highest level of NPA was 37.8% to gross NPA and

subsequently it had marginally reduced and in 2008 it reached to the

level of 34% in this segment. The reduction level cannot be termed as

satisfactory situation. The lowest level of SSI under PSB is 12.4% in

1999 and it further reduced and in 2007 it reached to the extent of 5.7%

and in 2008 it showed an increase in the same level and increased to the

tune of 9% in 2008.In the case of SBI group the lowest level of NPA

12.6% in 1999 and subsequently there was a marginal reduction in NPA

level to the extent of 6.31% in 2008 and highest level of NPA in 1999 was

37.8% and in the same segment the least NPA level was 14.1% in 2007

and in 2008 It increased to 15.2 which clearly shows that there is some

fault in the system and which should be monitored and reduced to the

previous level or even lesser than the same. In 2000 the level of gross

NPA of OBC reached to 31.4 and it improved in its health condition

under this segment and reached to the level of 13.7% in 2007 and again

in 2008 it increased to 19.8%. During this period the study also reveals

that Indian bank in the year 1999 it had the gross NPA level to the extent

of 13.2% in 1999 and subsequently it increased to 36.7% in 2006 and

later reduced to 34.0% in 2008. These study shows that these level of

NPAs need to draw up a time bound strategy For reducing their NPA

levels need to draw a time bound strategy for reducing their NPA level in

SSI segment of priority sector advances.(Refer to Appendix 2)

93

4. Other priority Sector

Table 5.5

Bank Group wise NPAs in Other Priority Sector Credit to Gross NPAs of

PSBs (March Ending) Source: RBI Publication

Sr.

No

Bank

Group1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

A

State

Bank

Group

Lowest 5.6 8.0 5.5 2.4 10.1 8.5 14.4 14.1 12.4 16.1

Average 10.2 11.2 10.4 11.1 11.9 15.5 19.7 25.4 27.4 26.6

Highest 16.0 17.8 12.0 22.1 19.2 22.9 26.0 31.3 31.3 33.9

B

Public

Sector

Bank

Lowest 5.6 6.9 5.5 2.4 8.2 9.9 7.1 15.4 15.7 17.1

Average 10.9 11.8 12.1 11.9 11.9 15.5 17.4 22.4 27.5 28.2

Highest 17.7 22.0 22.3 22.2 22.2 29.3 33.3 32.6 36.6 39.9

94

The advances granted to small business, retail trades, roads and water

transport Operators, professionals, educated self-employed, housing,

etc, are usually covered under the other priority (OPS). During the recent

years the share of OPS to NBC of the PSBs has been increasing. During

the reform period (1991-1996) the share of OPS to NBC of the PSB was

8% to 10%, it got slightly reduced in 1997 and 1998.Since then there was

an increase in the OPS advances. In PSB the lowest level of NPA was 2.4

% in 2002 and in the same level it was 17.1% in 2008 this shows an

increase in the level of NPA. In 1999 the ratio of NPA was 5.6% and there

was reduction until 2002 and steep increase in the level of NPA. In the

highest level the PSB shows an increase ratio. In 1999 it had the

percentage of 17.7 and showed an upward tendency of 39.9% of gross

NPA Bank group wise data shows the NPA level in SBI and its

Associates in lower segment it was 5.6% in 1999 and 2.4% in 2002. This

shows that in the year 2002 the performance of the PSB and S.

BIremains the same. In the highest segment in 1999 the NPA showed

16% of its SSI gross NPA and there was reduction in the level of NPA

in2001which showed 12% under SSI category. Subsequently there was

an increase and it reached to the extent of 39.9% under the highest level

in SSI segment. Bank wise data from 1999 to 2004 the ratio of NPA was

under control i.e. the ratio was less than 30%.Since 2005 onwards they

exceeded the limit of 30% gross NPA. Canara bank in the year 2007 had

36.6% proportion under OPS and it reduced drastically to 25.3% in 2008

and Indian Bank in 2006 and 2007 had 31.8% and 39.4% respectively

Union bank of India showed in 2007 31.3% and in 2008 39%, similarly

95

Corporation Bank in 2007 had a gross NPA of 34.9% and in 2008

exhibited a ratio of 39.9%. Union Bank of India showed 31.9 in 2007 and

39.0%. These ratios give an alarming status to the banks. These PSBs

should provide special attention on these sectors without ignoring other

sectoral NPA. (Refer to Appendix 3 and Table 5.5)

5.4 CO-OPERATIVE BANKING SECTOR

5.4.1 The year 2002-03 was marked by a revival in industrial growth with

a buoyant services sector. There has been a reduction in the ratio of

non-performing assets (NPAs) to advances with various initiatives, such

as, improved risk management practices and greater recovery efforts,

driven, inter alia, by the recently enacted Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest

(SARFAESI) Act, 2002.Co-operative banks recorded moderate growth

with less than satisfactory profitability.

5.4.2. Non-Performing Assets of Rural Co-operatives

a. Problems of NPAs in the commercial banking sector have been a

focus of policy attention in recent years. Given the importance of

rural co-operatives, it would be useful to examine whether this

problem needs special focus in the co-operative sector also.

b. Prudential norms relating to asset classification have been

extended to the StCB and CCBs since 1996-97 and to SCARDBs

and PCARDBs since 1997-98, so as to reflect their true financial

health.

96

5.4.3. Asset Classification and Provisioning Norms:

The asset classification and provisioning norms for Tier I UCBs would

continue to be different from Tier II UCBs as follows: (i) the 180 day loan

delinquency norm for NPAs was extended by one year, i.e., up to March

31, 2009; (ii) the 12-month period for classification of a 'sub-standard'

asset in 'doubtful' category by Tier I UCBs would be made effective from

April 1, 2009 instead of April 1, 2008. Education loans were earlier

classified as a part of ‘consumer credit’ for the purpose of capital

adequacy and attracted risk weight of 125 per cent. After a review, UCBs

were advised not to classify education loans as 'consumer credit' for the

purpose of capital adequacy norms. Accordingly the risk weight

applicable to educational loan would be 100% as against

125%.Scheduled UCBs were advised to submit the structural liquidity

statement and interest rate sensitivity statement through the asset-

liability managment (ALM) module provided in the off-site surveillance

software (OSS).

5.4.4. Asset quality and recovery performance:

The NPAs to loans ratio of DCCBs improved to 18.5 per cent at end-

March 2007 from 19.8 per cent at end-March 2006. This was mainly due

to decline in NPAs in the ‘substandard’ category. Substantial asset

slippage was noticed both in the ‘doubtful’ and ‘loss assets’ category.

The recovery to demand ratio also improved. Provisions made

significantly exceeded the provisions required. The NPA ratio in respect

of DCCBs varied significantly across the States from 4.8 per cent to 76.4

per cent at end-March 2007. Only in four States (Haryana, Himachal

97

Pradesh, Punjab and Rajasthan), the NPA ratio was less than 10 per

cent, while the NPA ratio was higher than 50 per cent in Jharkhand (76.4

per cent) and Bihar (54.5 per cent). NPAs in two States, viz., Jharkhand

and Tamil Nadu declined in 2006-07 as compared with the previous year.

However, the NPA ratio in three States, Haryana, Himachal Pradesh and

Punjab, which traditionally had relatively lower NPAs (less than 20 per

cent), declined further, while in two States, Uttarakhand and Rajasthan,

the NPA ratio increased. NPAs, as percentage of advances made by

SCARDBs, varied widely across States at end-March 2007 from 100 per

cent in Manipur to 0.03 per cent in Punjab. In as many as seven States

(Assam, Manipur, Orissa, Jammu and Kashmir, Bihar, Gujarat and Uttar

Pradesh), the NPA ratio was more than 50 per cent. In all, the NPA ratio

in only four States (Punjab, Kerala, Madhya Pradesh and West Bengal)

was less than 20 per cent.

Table 5.6

Gross Non-Performing Assets to Total Advance of Urban Cooperative

Banks

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

11.7 12.2 16.1 21.9 19.0 22.7 23.2 18.9 NA 15.5


98

Source:RBI Report

Net Non-performing Assets to Total Advance of Urban Co-

operative Banks

19992000 2001 2002 2003 2004 2005 2006 2007 2008

_ _ _ _ 13.0 12.1 12.5 12.3 8.8 7.7

The trend analysis in Table 5.6 shows that there is a fluctuation in the

gross NPA of Scheduled Urban Cooperative bank. In 1999 the level of

gross NPA was 11.7% and subsequently in 2002 it increased to 21.9%

and in 2003 it reduced to 19% and again in 2004 it rose to 22.7% and in

2005 it increased to 23.2%. This shows comparing to other sector of

banks cooperative bank has more NPA since they give preferences to

priority and weaker section of the borrowers. The data for net NPA to

99

total advances is available only from 2003. Hence in trend analysis in

comparison with Gross NPA the data from 2003 onwards is

reflecting.Net NPA is comparatively much less than the gross NPA.2003

the percentage of net NPA was 13.0 and 2005 there is an increase in the

net NPA. Later there was a reduction in the level of NPA and 2008 the

net NPA exhibited 7.7% under the banner of cooperative bank (Refer to

Appendix 4). The Reserve Bank of India Act, 1934 was amended in

January 1997 to provide a comprehensive legislative framework for

regulation of NBFCs. The amended Act, inter alia, provided for

compulsory registration and minimum NOF for all NBFCs. The RBI

revised the approach towards detecting the frauds in the parent body

and reports it to its subsidiaries or Joint ventures. The recovery

performance was excellent. 96.4 % of the assets were free from default

and the gross NPAs formed 3.6% only. In view of large increase in credit

to the commercial real estate sector over the last one year and the

extent of restructured advances in this sector, it would be prudent to

build cushion against likely non-performing assets (NPAs). Accordingly,

it is proposed to increase the provisioning requirement for advances to

the commercial real estate sector classified as ‘standard assets’ from

the present level of 0.40 per cent to 1 per cent.

5.5. Non Baking Financial company

The recovery performance was excellent. 96.4 % of the assets were free

from default and the gross NPAs formed 3.6% only. Loss assets

accounted for 0.8% only. NBFC is very cautious in lending the loan.

100

Table 5.7

Percentage of Gross NPA to Gross Advance and Net NPA to Net

Advance of NBFC

Year Gross NPAs to Gross

Advances

Net NPAs to Net

Advances

2001 11.5 5.6

2002 10.6 3.9

2003 8.8 2.7

2004 8.2 2.4

2005 5.7 2.5

2006 3.6 0.5

2007 2.2 0.2

2008 2.1 0*

2009 P 2.7 0*

P: Provisional.

* : Provision exceeds NPA

Source: Half-Yearly Returns.

The trend analysis in Table 5.7 Gross NPA and Net NPA of NBFC clearly

exhibit that there is overall reduction in the Gross and Net NPA since

2001 to 2009.since the Net NPA is calculated after the adjustment made

from the reserves set aside in the balance sheet. In 2001and 2002 the

101

Net NPA is approximately 50% of gross NPA and since 2003 onwards it

is more than 50% difference between Gross NPA and Net NPA.

5.6. Private Sector Banks:

The Private Banks are generally classified as Old Private Banks and

New Private Banks. In this study it has considered as only private

banks and no classification have been made since many merger and

acquisition is taking place.

5.5.1. Weaker section advances made by the private banks with respect

to agricultural credit the trend shows in 2004 ICICI gave agricultural

loan to the extent of 42.43% to the weaker sections. The very same year

Jammu and Kashmir Bank Ltd gave 27.91 % to the weaker sections

against agricultural loan. Bank of Punjab provided 23.62 to the weaker

sections. RBI passed a resolution stating Total credit should be 40% to

be given to the priority sector out of which 18% must compulsorily be

paid to the agricultural sector. As compared to the said level the

advances of weaker section for agricultural purpose is on a higher slab.

Average of a private bank against the agricultural lending to weaker

section fluctuated at a certain period of time. In 2001 3.58% of its

advance and in 2002 it increased to 5.43% and subsequently it

decreased to 1.74 in 2003. Later in 2004 it had shown an increased

trend ranging up to 5.71%.Later in 2005, 2006 and 2007 it shows a dip in

the advances made by the private bank to agricultural sector to weaker

sections. In 2008 there is an increased trend which reached up to 3.50%

of the advances (Refer to Appendix 5)

102

5.5.2. Agricultural Advances:

As per the available data the agricultural advances by the private banks

shows that in the year 2000 the advance provided 10.44% and there is a

steep increase in the year 2004 which shows average lending towards

agriculture is 269.56%.The steep increase is due to high advances made

by HDFC and ICICI to agricultural sector. In 2005 the average reduced to

10.83% and in 2006 it increased to 12.80% of its total lending to

agricultural sector. Similarly 2007 it increased to 13.44% and in 2008 it

progressed to 14.96% to agricultural lending. Agricultural lending is

divided into two categories viz; direct agricultural and indirect

agricultural lending. Indirect agricultural lending shows gradual

progress during the study period. This classification is not available for

the year 1999 and 2000. In 2001 it shows indirect agricultural lending

was 5.58% of its total agriculture. Subsequently it increased to 10.52%

of its total agriculture in 2002. Similarly there was a reduction in indirect

agricultural lending in the year 2003, it reduced to 9.08% of its total

agricultural lending. In the year 2004 it increased to 82.57% due to steep

increase in the advance made by HDFC and ICICI in its agricultural

lending. In 2005 and 2006 the lending rate was moderate and it

increased to 5.62% and 6.03% respectively. In 2007 it increased to 9.21%

of its total agricultural lending and in 2008 it reduced to 6.33% of its

total agricultural advances to weaker Section. Second category of

agricultural lending was on direct agricultural lending. Even in case of

direct advances there is a fluctuation on year to year basis. In 2001 it

shows a trend of 5.24% of its agricultural advances and in 2002 it

103

reduced to 4.89% of its total agricultural advances. In 2003 it increased

to 5.38%.Similar to the total and indirect agricultural advances even the

direct agricultural advances also shows a steep increase in the year

2004. The percentage of direct agriculture is 190.0%. Subsequently in

the year 2005 there is a reduction in the agricultural advances which is

6.99%.Later in the year 2006 it is 8.88% and in 2007 it showed an

increase in the agricultural advances at 9.30%. In 2008 the direct

agricultural advances is 10.7% of its total advances. There is a

correlation between the advances made to the agricultural and

advances provided to the weaker section. The magnitude or the

measurement of NPA is based on the advances made and the amount of

recovery made during the credit period. In 2001 the level of agricultural

NPA was 5.83% and slowly it increased to 12.54% in 2006 and in 2007 it

reduced to 12.25 which is very insignificant and in 2008 it further

reduced to 10.40.The reduction and increase in agricultural lending is

inevitable and since it depends upon the climatic conditions, quality of

the crops etc, there seems to be more contingent factor which leads to

non performing assets. The NPA level under the category of advance

made to the weaker section revealed that performance of recovery

proceedings have shown great improvement level since 2001 to 2008. In

the year 2001 the NPA level under advance to weaker section exhibited

positive movement i.e. in 2001 it was 17.35% and subsequently it

reduced to 8.00%.This reveals that individual private banks could

perform the recovery procedures in better manner as compared to their

advances made to this class of borrowers. (Refer to Appendix6)

104

Priority Sector Bank: Table 5.8

Advances to the Priority Sector by Private Bank as on Last Friday of the

Year

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Agriculture 9.5 9.1 9.6 8.5 10.8 12.3 12.1 13.5 12.8 15.4

SSI/Small

Enterprise18.9 15.7 14.4 13.7 8.3 7.1 5.4 4.2 3.9 13.4

Other Priority 13.0 13.9 14.42 14.4 21.3 23.1 24.5 23.4 22.9 17.5


The advances to the priority sector by Private Bank is classified as

agricultural, SSI and other Priority Sector. In Table 5.8 Agricultural

advances in 2008 is the highest i.e. 15.4% and lowest is 8.5% in the year

2002.There is a constant increase in the advance made by the private

bank in the agricultural sector except 2007 shows a downward

movement and later it increased in 2008.In case of SSI the trend shows

there is a reduction in the advance made by private bank to the SSI

sector. In the year 1999 it had the highest advance in SSI sector to the

extent of 18.9%. Least is 3.9% in 2007 and in 2008 it increased to 13.4%.

This shows that once again the concentration in SSI unit has increased.

105

In case of other priority sector the trend shows there was an increase

since 1999 to 2005 and since then there is a reduction in the advances

made by the private banks. In 1999 it was13% priority advances and in

2005 it showed the highest level of the advances 24.5% and later it

showed a reduction in the level of advances. It reduced to 17.5% in 2008.

As compared between SSI and Priority sector level of NPA in SSI

showed positive trend i.e. there was reduction in the level of NPA but the

priority sector showed increased level. The average of all the banks NPA

under priority sector was 30.64% in 2001and NPA increased to 45.35%

under priority sector and in 2008 the level of NPA was 41.61%.This

shows there was a reduction in NPA from 2007 to 2008.As compared to

SSI and Priority Sector the level of NPA under priority sector is very

high. The cause of high level NPA in sector shall be analysed in the

sixth chapter of this research. Bank wise analysis shows the level of

NPA in SBI Commercial and International Bank Ltd had 100% NPA under

priority sector during 2006 and 2008.Nainital Bank had 82.78% in 2001

and 70.15% in 2004. Many other banks at various levels had above 50%

NPA during this research period.

5.5.3. Small Scale Industries (SSI)

The general trend in the level of NPA under SSI is reducing since 2001 to

2008. The percentage of NPA is not available for the year 1999 and

2000.The level of NPA in the year 2001 was 17.73% and it marginally

increased to 17.87% in 2002.Since then 2003 onwards there is a

reduction in the level of NPA from 14.65% to 13.12% in 2008. During this

106

research period as compared to Priority Sector, Agricultural lending and

SSI lending the level of NPA under SSI sector is marginal and the

position had shown considerable improvement due to stringent rules

and regulations imposed by the RBI and Basel II norms. Initially banks

like Catholic Syrian Bank, ICICI Bank, Karur Vysya Bank, Development

Bank, City Union bank Ltd, J&K Ltd, Ratnakar Bank Ltd, SBI

international, Sangali Bank and Bank of Punjab showed the level of NPA

above 20%. Nainital showed 47.73% as level of NPA. Subsequently it

reduced to 16.51% under SSI though on a higher level of NPA but as

compared to the position in 2001 it showed remarkable improvement in

2008. Tamilnad Mercantile Bank had 30.07% NPA level under SSI sector

and it reduced to 18.61% in 2008 which though high level as compared

to Public Sector Bank but it reduced to a great extent in the year 2008.

(Refer to Appendix 7)

5.5.4. Other Priority Sector:

The RBI has classified the different sector as priority sector, agricultural

sector, non priority sector, SSI and other priority sector. The cumulative

level of NPA under other priority sector also showed an increasing trend

like priority sector. Under the said classification only the SSI sector

revealed the declining trend. These classifications were not available for

1999 and 2000. In 2001 it has exhibited 9.89% as its level of NPA under

private banks and later increased to 13.00% in the year 2003 and in the

year 2004 it showed downward movement and again 2005 onwards it

revealed upward trend i.e. since 2005 it had 13.5% and in 2006 the level

107

of NPA under OPS (Other Priority Sector) had 15.79%, in 2007 the level

increased to 19.29% and reached 19.47% in 2008. Bank wise analysis

revealed Nainital bank had consistently high level of NPA since 2003

0nwards.39.42%, 40.54%, 40.32%, 42.62%, 34.05% and 36.48% for 2003,

2004, 2005, 2006, 2007 and 2008 respectively. Other private banks had

moderate level of NPA and it can be controlled and reduced with proper

implementation and legal formulation which shall be discussed in the

later chapter. (Refer to Appendix 8)

5.5.5 Gross NPA/Gross Advances and Net NPA/ Net Advance

Table 5.9

Year Gross NPA (%) Net NPA (%)

1999 11.5 7.68

2000 9.74 6.25

2001 10.22 6.58

2002 11.22 7.12

2003 10.65 6.57

2004 9.71 5.39

2005 7.12 3.84

2006 4.96 1.93

2007 4.44 1.57

2008 2.48 0.91

Source RBI web site and trend and progress of banking

108

In the aforesaid Table 5.9 comparison is brought about between Gross

NPA and Net NPA as to private banks with respect to the total advance

made by the entire sector. There is certainly reduction in the gross and

net NPA as to its advances. In 1999 the gross NPA was 11.5% in 2000 it

was reduced to 9.77% but in 2001 there was an increase in level of NPA

to 10.22% and in 2002 it increased to 11.22% of the advance made by the

private banks. Since 2003 onwards there is a reduction in the gross NPA

in relation to its advances. In 2008 it touched 2.48% in the NPA level.

The level of NPA reduced in the year 1999,2000 & 2001.In 2002 the level

of NPA increased to 7.12% and then on there was deterioration in the

level of NPA. In 2008 the level of net NPA was 0.91% to its advances.

Hence the legal frame work and recovery procedures are being properly

implemented by the private sector bank.

5.5.6. In the below mentioned table it shows that Private banks Gross

NPA and Net NPA with relation to the total assets. (Gross NPA/Total

Assets & Net NPA/Total Assets) As per the table shown the gross NPA

in 1999 was 5.55% of its total Assets. Later there was a reduction in the

gross NPA level which reduced to 1.32 in 2008.

109

Gross NPA and Net NPA in a Private Sector Banks

This statistics shows that the reserves retained by the bank during this

period could adjust the gross NPA and mitigate majority of the NPA and

reduce its net NPA level. Table 5.10 as stated below.

Table 5.10

YEAR Gross NPA % NET NPA %

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

5.55

4.45

4.73

4.89

4.87

4.41

3.76

2.81

1.98

1.32

3.35

2.85

2.97

3.15

2.93

2.22

1.7

1.04

0.87

0.5


110

5.5.7 Table 5.11

Gross Profit/Loss and Net Profit/Loss

Year Gross Profit Net Profit

1999 1.42 0.72

2000 1.86 1.34

2001 1.67 0.48

2002 2.35 0.95

2003 2.41 0.84

2004 2.36 0.85

2005 1.48 0.23

2006 1.58 0.50

2007 1.68 -0.02

2008 1.85 0.98


The aforesaid Table 5.11 shows the comparison between the Gross

Profit/Loss and Net Profit/Loss. In 1999 the gross profit made by the

private banks were 1.42% and net profit was 0.72 which means in 1999

the net profit earned is 50% of the gross profit. There is no stability in

the profitability of the private banking sector. The earning varies from

111

year to year. Since the profit depends upon various other factors such

as the success of the borrower there is fluctuation in the earning

capacity of the banks. In 2002 the gross profit earned by the private

banking sector was 2.35%, in 2003 the gross profit was 2.41% and 2004

again it reduced to 2.36%. In 2008 the gross profit earned by the private

banks was 1.85%.Similarly the net profit earned by the banks were

0.72% and in 2001 the net profit was 0.48 and again there is a dip in the

profit in the year 2005 0.23% of the profit and in 2007 further there is a

reduction of profit which reveals -0.02.in 2008 it achieved gross profit of

1.98% and net profit was0.98, almost 50% of the gross profit.

5.6. Conclusions:

In many other studies the researchers have done a study separately Public

Sector bank, Private Sector Bank, Cooperative Banks. In this research the

detailed study has been covered by comparison and the position has been

highlighted. Minute details have been included and each sector has been

analyzed. In this chapter secondary data are collected and the analysis

along with the graphical representations has been made. Performances of

public banks are better as compared to other banking sectors. NBFC is

recommended to increase the level of advances to various other sectors.

112

CHAPTER 6

POLICIES AND STAGE WISE ANALYSIS OF DATA ON NPA

6.1. Introduction

This chapter is divided into four parts, namely

Stage I Policies and Procedural Analysis

Stage II Appraisal stage

Stage III Disbursement stage

Stage IV Post Disbursement stage

Sample Collections are carried in the following manner:

Types of Banks Total No. of

Banks

Sample

size

Public Banks 20 18

SBI subsidiaries 07 07

Private Sector Banks 22 15

Scheduled Urban Co-operative Banks 53 15

NBFC (Multi Finance Loan) 114 30

Facilitators (Bank Advocates, Bank

Chartered Accountant, Industrial

borrower, individual borrower

collection Agent)

- 81

Samples were collected at random

The questionnaire was presented to bank official with prior appointment.

As far as possible the corporate office or head office or the zonal office

provided the information. In some banks branch manager with the

permission of his higher officials or due to introduction of technology

113

could provide information for the entire banks. Similarly questionnaire

was presented to other facilitators to find out their views regarding bad

loans and non performing assets

6.1. a. Data Collection

Data analysis was analysed to meet the objectives and were presented

in graphical manner to bring about comparison to meet the above

objectives. Tables of all the Responses were drawn for the data. Simple

Statistical and Graphical method is used to present the facts observed

by the study. Apart from the graphical representation the data were

tested through Cornbach Alpha for finding the reliability of the data

collected. Similarly certain variables like agricultural, weaker section,

SSI and Non priority sector were put to CHI-SQUARE testing. The result

of which are exhibited in the following manner

6.1.b.CHI-SQUARE TEST

Which sector contributes maximum NPA in their bank and their

percentage?

SSI Agriculture Weaker

Section

Non-

priority

No of

Responses

14 31 16 36

Solution:

The Data Collected is Unbiased.

Every Response can only be any of the one response above, i.e. 1/4.

Total no of Responses are 97 i.e. 97 X 1/4 = 24.5

114

Observed

Frequency OiF

Desired

Frequency Ei

(Oi -

Ei)(Oi - Ei)2 (Oi - Ei)2

/Ei

SSI 14 24.25 -10.25 105.06 4.33

Agriculture 31 24.25 6.75 45.56 1.88

Weaker

Section 16 24.25 -8.25 68.06 2.81

Non-

priority 36 24.25 11.75 138.06 5.69

14.71

6.2 Policies and Procedural Analysis

1.

Kindly indicate your

Banks business

(deposits + advances)

(Rs. in crore)

Less than

Rs.25,000

Rs.25,000

to

Rs.50,000

Rs.50,000 to

Rs.1,00,000

Rs.1,00,000

and Above

Co-op Bank 87% 13% 0% 0%

NBFC 42% 14% 29% 14%

Private Sector 43% 13% 25% 19%

Public Sector 0% 0% 12% 88%

Cumulative Score 37% 8% 15% 40%

115

Analysis Reveals

Public Sector is the Dominating player, as it has the maximum share in

terms of the Business. Cumulative score has an equal share from the

co-operative as well as Public Sector Bank. 88% of the public sector

banks have a business above 1, 00,000 Crores. Majority of the Co-

operative Banks has a turnover less than 25000 Crores. In case of NDFC

and private Bank less than 50% has the business less than 25000

Crores.29% of NBFC and 25% of Private Banks have business above

50000 Crores and up to 100000 Crores.

2 Whether your bank has/has not adopted the Following:

q2_a

Integrated Risk management

Division YES NO

Co-op Bank 93% 7%

NBFC 100% 0%

Private Sector 100% 0%

Public Sector 100% 0%

Cumulative Score 98% 2%

116

Analysis Reveals

All the banks incorporated the integrated management except few of the

cooperative banks Because of the size of the banks. Total 15 SUC banks

were asked this information out of which 93% had integrated

management and also adopted modern technology. As far as PSB,

Private Banks, NBFC all the banks adopted integrated management. PSB

was 25 in number including. The SBI and its associates, Private banks

were 15 in number and NBFC were 30 in number.

Analysis Reveals

All the Banks under study compulsorily follows the Operational Risk

Management Policy. The question asked was close end questions and

3 Risk management Policy on NPA YES NO

Co-op Bank 100% 0%

NBFC 100% 0%




117

100% were in positive reaction stating that their banks have adopted the

necessary operational policy in relation to the NPA policy.

q2_c Operational Risk management Policy on

NPA

YES NO

Co-op Bank 100% 0%

NBFC 100% 0%




Analysis Reveals

All the Banks under study compulsorily follows the Operational Risk

Management Policy. The question asked was close end questions and

100% were in positive reaction stating that their banks have adopted

the necessary operational policy in relation to the NPA policy

118

q2_d Information Technology Policy YES NO

Co-op Bank 100% 0%

NBFC 100% 0%




Analysis Reveals

Analysis Reveals

All the banks have adopted the information technology to meet the

customer’s needs and only a small portion of the public sector ban has

not adopted the information technology. As far as NBFC, Private Banks

and Cooperative banks showed 100% for adoption of technology

3 Which method you have planned

to use for measurement of NPA?

Early

stage

Alert

Stage

Advance

Stage

Co-op Bank 74% 13% 13%

NBFC 29% 71% 0%

Private Sector 32% 42% 26%

Public Sector 45% 45% 10%

Cumulative Score 46% 41% 13%

119

Analysis Reveals

Analysis Reveals

Equal Responses have been observed during the Early stage and Alert

Stage, Pertaining to Planning of measurement of NPA. Reasonable

share of 13% have an Intervention an Advanced Stage, which is majorly

contributed by Private sector. NBFC is more stringent in their rules and

shall take appropriate action against the borrowers at an early stage

itself.

4 How would you

assess the progress

of NPA in your Bank

Poor slow Moderate Good

Co-op Bank 0% 13% 40% 47%

NBFC 13% 29% 29% 29%




120

Analysis Reveals

42% of the cumulative score says their progress is Good. Almost equal

% has the opinion on Slow and Moderate Progress. Across Groups the

Responses for Poor and Slow are Minor as compare to Moderate and

Good

5 What is the

quantum of losses

because of ‘frauds’

in your bank?

Less

than

25%

Above

25%-

50%

Above

50%-75%

Above

75%

Co-op Bank 100% 0% 0% 0%

NBFC 88% 12% 0% 0%




121

Analysis Reveals

All the Banks under study had expressed the Quantum of Losses

because of frauds to be less than 25%.In case of private banks and Co-

operative Banks all the respondents accepted for fraud less than

25%.As per information provided by the NBFC 13% of fraud lie between

25% and 50%.4% of the public banks were of the opinion that their fraud

lie between 50% and 75% fraud.

6 What is the status of

outstanding entries in

priority sector in Bank?

Poor Low Medium High

Co-op Bank 7% 33% 53% 7%

NBFC 13% 24% 63% 0%




122

Analysis Reveals

Majority of the banks under study belongs to low and medium term

outstanding.High score of outstsanding is against the private banks.the

study revels that 53% of the priority sector outstanding against the

cooperative banks and 63% against NBFC.Private sector shows almost

equal distribution between low and medium outstanding.The study

revels that in case of public sector bank 36% of the respondent banks

informed that their outstanding againt priority sector is poor and 40%

accpt it as moderate outstanding.

7

Have you responded to RBI’s NPA

undertaken as part of ‘Risk based

Supervision’?

YES NO

Co-op Bank 87% 13%

NBFC 88% 12%




123

Analysis Reveals

Marjory All the Banks under study Responded to RBIs Risk Based

Supervision. Exceptions are Co-operative banks and NBFC, followed by

Private Sector with a minor share. 100% Public Sector banks followed

the Risk Based Supervision. 94% Private Banks, 88% NBFC, And 87% of

Co-operative Banks followed these procedures.

8 What is your view on the

regulatory measure proposed

by BIS on NPA?

Low Medium High NIL

Co-op Bank 14% 72% 14% 0%

NBFC 50% 25% 0% 25%




124

Analysis Reveals

Majorly All the Banks under study Expressed Medium and Low View on

the Regulatory measure proposed by BIS on NPA.50% of NBFC is of the

opinion that the regulatory measures proposed by BIS are low, 71% of

the Co-operative Bank ,69% Private Sector banks,48% of the opinion

that the Regulatory measures provided by BSI is medium in nature.14%

each Co-operative Bank and Public Sector Banks is of the opinion that

Regulatory measure proposed by BSI is high level. No NBFC opines the

measures proposed are high.

9 According to you

what percentage are

the regulatory

measures proposed

by BIS on NPA?

Less

than

25%

25% to

50%

50% to

75%

Above

75%

Co-op Bank 25% 37% 13% 25%

NBFC 100% 0% 0% 0%




125

Analysis Reveals

Majorly All the Banks under study Expressed that the Percentage is

below 50%. Reasonable share of 23% of cumulative share can be

observed for above 50%. 100% NBFC, 70% Private Bank and 53% Public

sector Banks is of the opinion that 25% are the regulatory measures

proposed by the bank.37% Co-operative Banks, 30% private Banks and

16% ranges between 25% to 50% proposed by BSI on NPA.13% Co-

operative Banks and 21% Public Sector Banks are of the opinion that it

ranges between 50% to 75% and 25% Cooperative Bank and 11% are

above 75% proposed by BSI on NPA.

10 What percentage of

account attributes

NPA in your bank?

Less

than

25%

25% to

50%

50%

to

75%

Above

75%

Co-op Bank 87% 13% 0% 0%

NBFC 86% 0% 14% 0%




126

Analysis Reveals

Majorly All the Banks under study Expressed that the Percentage is

below 25%.Above 25% to 75%NPA is observed by 11% cumulative,

which is major contributed by NBFC, Co-operative bank followed by

Public Sector under study. 87% Co-operative Bank,86% NBFC, 100%

Private Bank and 84% Public sector has expressed their opinion that

less than 25% of the account outstanding in their bank is NPA.

11 What precautions

does your bank

adopt in providing

loan to the

customer?

Collateral

Security

Guarantee Guarantee

and

Collateral

Security

Any other

measures

Co-op Bank 11% 11% 78% 0%

NBFC 30% 10% 60% 0%




127

Analysis Reveals

Majority of the Banks under study prefers Guarantee & Collateral

Security both. NBFC Focuses approximately 1/3 component as Collateral

Security and nearly 2/3 accepts both Guarantee and collateral

simultaneously.30% of NBFC and 24% Public Sector Bank accepts only

collateral security. Nominal percentage such as 14% private and 15%

public Sector banks accept only Guarantee. High percentage of banks

such as 78% Co-operative Bank, 60% NBFC, 63% Private Sector Bank

and 56% Public Sector Banks accept both Guarantee and collateral

security.

12 What type of loan

does your bank

provide to your

customer?

Retail

Loan

Education

al Loan

Agricultur

al Loan

Personal

Loan

Co-op Bank 29% 24% 26% 21%

NBFC 25% 25% 25% 25%




128

Analysis Reveals

Majority of the Banks under study prefers Retail and Agricultural loan.

Public Sector bank doesn’t prefer Personal Loan. Almost all the sector

gives equal importance to all kinds of loan except Public Sector Banks..

31% of the private banks gives loan to this category. Public Sector bank

gives equal preferences to educational loan and agricultural loan. 35%

each category the preference is provided by the Public Sector Banks.

NBFC gives equal preference in all the categories.

13 What age group

does your bank

prefer in providing

credit to the

customer? Why?

18 years

to 25

years

Above 25

years - 40

years

Above 40

years - 60

years

Above

60

years

Co-op Bank 11% 54% 35% 0%

NBFC 26% 37% 37% 0%




129

Analysis Reveals

Most Preferable age group for providing Loan is 25 - 40, as compared

below 25 and above 60 yrs. 26% of NBFC and public sector banks prefer

to give loan to the age group of 18 years to 25 years. Majority of the CO-

operative Banks and private banks give preference of loan to borrower

above 25 years and up to the age of 40 years.54% of the Co-operative

banks and 46% of private banks prefer to give loan to borrowers less

than 40 years. 37% of the NBFC gives loan to age between the ages of

40 to 60 years.

1

4

What are the follow

up measures in

reading the

outstanding credit?

Sale of

Collateral

Security

Filing a

suit in the

Court

Appointing

Recovery

Agent

Co-op Bank 43% 27% 20%

NBFC 29% 29% 39%




130

Analysis Reveals

More than 75% prefers to Collateral Security, and Filing suit for

outstanding credit. Appointing of Recovery Agent is most preferred by

NBFC and least preferred by Private Sector.43% of the CO-operative

Banks prefer sale of securities in case of default in the payment of loan

amount.37% in case of Private Banks and 36% in case of Public Sector

Banks.40% each Private Bank and public bank prefer to file a suit in the

court. Maximum preference is given by a recovery agent for the

collection of outstanding dues. 3% NBFC did not respond to this

question and 6% of private sector did not respond to this question.

15

Does your Bank prefer

Mortgage? Pledge Mortgage

Co-op Bank 6% 94%

NBFC 0% 100%




131

Analysis Reveals

Majority of the Banks under study Prefers Mortgage, over pledge. Pledge

is preferred to some extend only by Public and Private sector Banks.6%

Co-operative Banks prefer only pledge and 32% private banks prefer

pledge and 23% prefer pledge.94% Co-operative Banks prefer mortgage

100% NBFC prefer Mortgage.68% Private Bank and 77% public Banks

prefer mortgage of the property.

16 What percentage of the

business of the issue of

Credit Card is a cause for

NPA?

0-25 26-50 50-75 75-100

Co-op Bank 67% 0% 0% 33%

NBFC 33% 67% 0% 0%




132

Analysis Reveals

73% agrees that Issue of credit card has been a cause for NPA for range

of less than 25%. 67% of the Co-operative is of the opinion that if the

credit card is issued it could cause at least less than 25% of NPA. Hence

the cooperative banks do not prefer credit card. They prefer Kissan Card.

NBFC is also of the same opinion like the Co-operative banks. 75% of

private Banks and 79% of the Public Sector banks share the same views

that it could cause less than 75% of NPA if the cards are issued.67% of

NBFC share the same views as that of a private banks.

17 What measures do

you take while

issuing Credit Card

to your customer?

Educational

Background

Age Monthly

Wages

Value

Of

Asset

Co-op Bank 13% 13% 61% 13%

NBFC 0% 50% 50% 0%




133

Analysis Reveals

The Cooperative Banks refer to their Kissan credit card only should be

able to read and write and basic literacy.13% cooperative bank deals

with the educational ad age factor of the card holder. 61% give

importance to the monthly remuneration of the card holder.13%.In case

of default the lender can recover the money from sale of the property.

50% each NBFC gives importance to age and wages in case of issue of

credit card. In case of private banks 24% provide weight age to

educational background,38% weight age to the age of the borrowers and

33% weight age to the monthly income of the borrowers so that the

bankers can avoid the account to be termed as NPA. 19% public sector

bank gives importance to educational background.

18 What is the trend

of educational

loan?

High

Risk

Medium

Risk

Low

Risk

None

of the

above

Co-op Bank 7% 46% 40% 7%

NBFC 0% 100% 0% 0%




134

Analysis Reveals

Majority in the study group feels Educational Loan to be of Low and

Medium Risk. 40% and 46% 0f the Cooperative banks feels that risk

involved is either low or medium as the case may be.100% NBFC

respondent feel that it is medium risk. 20% of the private banks opine

the educational rule has high risk than any other kinds and 50% accept

to high risk in business. In case of public banks 54% of the public

sector banks identifies as medium risk and 31% as low risk

19 Which level of

management is

made accountable

for not recovering

the outstanding

credit?

Officer Manager General

Manager

Vice-

Presid

ent

Co-op Bank 26% 61% 9% 4%

NBFC 0% 87% 13% 0%




135

Analysis Reveals

The Trend observed is the Manager is Primarily held accountable then

followed by officer grade for not recovering the outstanding

credit.61,87,47,48,55% respectively holds manager responsible in case of

default by the borrowers.29% of the public bank says that a default

committed by the officer. Later 29% opined that general manager should

be made accountable.

20 Who shall be made liable in

case of failure to recover

the outstanding loan

amount?

Bank Employee Customer

Co-op Bank 25% 37% 38%

NBFC 33% 17% 50%




136

Analysis Reveals

Reasonable share of responses also agrees that employee and bank

shall also be made liable. Cooperative banks under this prevailing

situation equal percentage have stated that the employee and the

customer should be made liable 33% of NBFC is of the opinion that in

case of outstanding amount employee should be made liable and 50%

by the customer. 67% of the responses of the private bank are customer

should be made liable. 43% and 31% of the responses of the public bank

is employee and customer respectively.

21 What level of credit

in case of default

CIBIL helps in

bringing awareness

to the bank?

Initial

Defaulters

Will Full

Defaulters

Persistent

Defaulters

None of

The

Above

Co-op Bank 17% 17% 58% 8%

NBFC 9% 58% 33% 0%




137

Analysis Reveals

The awareness is largely being brought in case of will full Defaulters,

followed by Persistent Defaulters. In case of response received for

cooperative Banks 17% is in favour of the initial default. Similarly 17%

received is in favour of wilful default.58% is in favour of persistent

default. In case of NBFC 58% response received is in favour of wilful

default and 33% is in favour of persistent default. private Banks

response states that majority response is in favour of wilful default i.e.

58% is in favour of wilful default and 24% is in favour of persistent

default. Only 12% responses were under the opinion that initial default

could be a cause of NPA. The response from Public Sector Bank is

almost equal in all level.30% is in favour of initial default, 37% is in

favour of wilful default and 33% is in favour persistent default.

138

22 In realizing the

amount whom

does your bank

appoint?

Recovery

agent

Files

Suit

Meeting

with

Borrower

Appointm

ent of

Arbitrator

Co-op Bank 11% 27% 31% 31%

NBFC 18% 26% 30% 26%




Analysis Reveals

Meeting with the Borrower is the Most Preferred way for Recovery. Filing

a suit is the second most preferred option for recovery, dominating by

Public sector banks. Meeting with the borrower is most acceptable

wherein 31% each meeting with borrowers and appointing arbitrator 27%

response prefer to file a suit and 11% prefer to appoint recovery agent. In

case of NBFC 26% each of response goes in favour of filing a suit and

appointing arbitrator,30% response is for meeting the borrower and 18%

in case of recovery agent. In case of private sector 31% is in favour of

filing a suit and 40% is in favour of meeting the borrower. Other category

has only marginal response. In case of public sector banks 35%

139

response is in favour of filing suit in court and 39 % is in favour

appointing an arbitrator. 22% is in favour of appointing recovery agent.

23 Does your bank incur losses

since recovery involves a

huge cost thus resulting in

reduction in banks profit?

Low Medium High

Co-op Bank 66% 7% 27% 0%

NBFC 0% 100% 0% 0%




Analysis Reveals

Majorly Banks under study consider Low and Medium Level contribution

in terms of recovery cost impacting banks profit. 66% of the response is

in favour of low cost involved in comparison to profitability and 27%

response states high level of cost involved with the result reducing the

profitability of the banks. In case of NBFC 100% response received is in

favour of medium cost involved and to that extent they opine that

140

profitability is reduced. In case of private sector bank 75% response

received highlights medium cost and 13% cost involved is low cost in

recovering the outstanding amount. In case of Public Sector 65%

response received is low cost incurred for recovery procedure and 27%

medium cost involved and 8% high cost involved.

24 Who does the bank

issues the Credit

Cards?

Farmers Students Weaker

Section

Vendors

Co-op Bank 50% 0% 0% 50%

NBFC 0% 33% 33% 34%




Analysis Reveals

Issuing of Credit Card to Farmers is only encouraged by the Co-op

Banks, followed by Public Sectors. Co-operative Bank issues credit card

i.e. Kissan card to farmers and vendors who are dealing in cultivated

goods as vendors. Private, Public and NBFC have moreover similar

141

opinion pertaining to issuing credit card to students and weaker section.

Cooperative bank have a response of 50% each to farmers and vendors

as aforesaid who are small time vendors selling cultivable goods. NBFC

issues to students, weaker sections and vendors. 34% response in case

of vendors and 33% response in case of students and weaker sections.

Private banks gives equal importance to almost all sections. Weaker

sections and Student received 33% each response and 23% response in

case of vendors and 11% in case of farmers. PSB gives preference in

order of Student, Weaker section, Farmers and Vendors. The percentage

of response is 34%, 26%, 24% and 16% respectively.

25 Which Section of

people contribute

maximum credit

card outstanding?

Farmers Students Weaker

Section

Vendors

Co-op Bank 63% 0% 0% 37%

NBFC 0% 50% 0% 50%




142

Analysis Reveals

As Students and weaker Sections are Preferred in terms of issuing of

credit card, hence their contribution towards outstanding is High, as

compare to farmers and Vendors in case of private banks and PSB. In

case of co-operative sector there is high level of outstanding amount

from the farmers and vendors. As far as NBFC is concerned the analysis

revels that they do not prefer to give to farmers. In Cooperative Bank

farmer’s outstanding amount is 63% where as vendors outstanding

amount is 37%.In case of NBFC student contribution to outstanding

dues and vendor’s contribution is equal i.e. 50% each. In case of private

banks all section contribute to the outstanding amount out of which 40%

outstanding amount is from student, 30% from weaker sections, 20%

farmer and 10% from vendor. PSB is similar to private banks wherein all

the sections contributes to outstanding amount against the card.41%

from students,29% from weaker section, 17% from vendor and 13%

against farmers.

26 Any special remedial

measures adopted by

the bank in recovery

procedures?

Sanction Monitoring NPA

Recovery

Co-op Bank 16% 48% 36%

NBFC 17% 39% 44%




143

Analysis Reveals

Half of the group have adopted remedial measures at Monitoring level,

followed by NPA Recovery level .In case of Co-operative banks the

remedial measures adopted at the time of monitoring is 48% whereas

NBFC and private bank has 39% remedial measures and PSB has made

63% provisions against monitoring stage. During NPA recovery stage

36% in case of co-operative banks, 44% in case of NBFC, 43% in case of

private banks and 34% in case of PSB.2% of the private bank did not

respond.

27 How much time does it take

to recover the money from

your customer?

Within the

Time Limit

Beyond

Time Limit

Co-op Bank 71% 29%

NBFC 50% 50%




144

Analysis Reveals

Apart from NBFC, all other amongst the group majorly recover the

money within the Time Limit. Beyond the Time limit is almost 50% in

case of NBFC, rest others have reasonable share. On analysing it is very

evident that NBFC has 50% share in both stages i.e. within time limit and

beyond time limit whereas Co-operative bank has 71%, Private Banks

71% and PSB 66% within time limit. In case beyond time limit Co-

operative bank has 29%, Private bank has 29% and PSB has 34%

respectively.

28 Whether a Foreign

Currency Loan is also

available from the Bank,

if yes, whether it be

availed overseas?

India Foreign

Country

Partly in

India and

partly in

Foreign

Country

Co-op Bank 71% 29% 0%

NBFC - - -




145

Analysis Reveals

Majority of the Foreign Currency is given in India only, where as foreign

Country comprises to 26%.NBFC has no foreign currency arrangement.

Hence it shows Nil. Private sector and Public sector has these kinds of

facilities for their customers. Private Banks and PSB also facilitate the

availability of foreign currency loan in India as well as outside India. Co-

operative bank need to cater special arrangement for such functions

with the help of RBI and other banks.

29 Does the bank finance for the development of complex?

Housing Complex

Commer-cial

Complex

Agricultural Land

Under Developed

areas

Co-op Bank 25% 33% 33% 9%

NBFC 24% 35% 24% 17%



Cumulative

Score 22% 32% 27% 19%

146

Analysis Reveals

With respect to financing for developmental Project, Commercial

Projects are most Preferred, followed by Agricultural and Housing

Project. Under the study Cooperative bank preferred 33% commercial

complex loan, 33% finance for the development of agricultural land, 25%

finance for housing complex and 9% for underdeveloped areas. NBFC

prefers to finance for commercial project than housing and agricultural

purpose. Private bank give more preference to commercial development

secondly to housing complex and then to agricultural land and at last to

the underdeveloped areas. Public bank through their study explains that

more preference is given to agricultural land then to the commercial

development land, thirdly underdeveloped areas and lastly for the

commercial purpose.

147

30 Which sector does

bank prefer to give

loan to their

borrowers?

Priority Cooperative Weaker

Section

Commercial

Establishment

Co-op Bank 43% 18% 18% 21%

NBFC 20% 27% 6% 47%




Analysis Reveals

Every Institution has their own set Priority sector, which they prefer to

Lend over the other sector. The Cooperative banks feedback shows that

they provide more facilities to priority sector than cooperative societies.

Besides this sector to have better viability 21% Co-operative banks

highlighted more preference to the Commercial establishment. 18%

each to weaker and cooperative sector. NBFC has a high preferential

treatment to commercial establishment followed by Cooperative sector.

Since Cooperative movement brings about certain unity amongst the

members NBFC gives second preference to this kind of movement.43%

loan is provided by NBFC to priority sector to the tune of 43% and

148

followed by 23% for commercial establishment and remaining sector

only nominal value of loan is granted. PSB gives maximum preference

to priority sector followed by weaker section, Cooperative sector and

lastly to the commercial establishment. 30% in case of priority

sector,27% in case of weaker section, 25% in case of co-operative sector

and 18% in case of commercial establishments.

31 Which sector contributes maximum NPA in their bank and their percentage?

SSI Agriculture Weaker Section

Non-priority

Co-op Bank 26% 17% 17% 40%

NBFC 0% 40% 0% 60%




Analysis Reveals

NBFC observes a Bigger share of NPA, from Non Priority Sector.

considering the group’s cumulative score. Maximum NPA is from Non

149

Priority sector, followed by Agriculture. Maximum NPA in case of

Cooperative bank as per the research study shows Non-priority sector

followed by SSI. Similarly in case of NBFC maximum NPA is from Non-

priority sector followed by agricultural sector.60% from priority sector and

40% from agricultural sector. In case of private sector 40% NPA is from

Non-priority sector and 30% from agricultural sector, 17% from weaker

sections and 13% from SSI. PSB has 39% level of NPA from agricultural

sector, 29% from Non-priority sector, 20% from weaker section and 12%

from SSI.

6.3. PART-A: APPRAISAL STAGE

Part A_1 Lack of critical presentation

appraisalAgree Disagree

Co-operative Bank 87% 13%

NBFC 75% 25%

Private Bank 80% 20%



150

Analysis Reveals

Majority of the Group Agrees, that there is a lack of critical presentation

Appraisal. Cooperative bank strongly agrees where as PSB has shown a

reasonable amount of disagreement.87%, 75%, 80% and 72% of

Cooperative banks, NBFC, Private Bank and PSB feel one of the causes

for account becoming bad or NPA is the criticality of the business is not

properly presented by the borrower. As compared to critical agreement

proportion of disagreement is very nominal.

Part A_2 Deliberate attempt of

loose appraisalAgree Disagree


NBFC 75% 25%




151

Analysis Reveals

Majority of the group in the study agrees that there is a deliberate

attempt of loose appraisal. 87% of the private banks strongly agree to

this factor and 40% of the PSB strongly disagrees to this factor. The

analysis shows that the banker is unable to get the clear idea about the

borrowers business and their intention. 80% 0f the co-operative bank

and 75% of the NBFC also agrees along with the private sector banks.

Cumulatively73% of the banks strongly accept regarding the concept of

deliberate attempt of loose appraisal and 27% banks cumulatively

disagrees to this concept.

Part A_3 Submission of unrealistic project

by the borrowerAgree Disagree


NBFC 62% 38%




152

Analysis Reveals

Majority of the Group Agrees, that there are unrealistic projects

submitted by borrower, but Reasonably good Amount of Responses say

that they Disagree. Private Bank strongly agrees where in Co-operative

banks has reasonable disagreement Cumulative score of 62% shows

that the bankers is of the opinion that there are unrealistic project

submission is one of the cause for NPA. Similarly There is a strong

support from the private sector bank to the extent of 80% of the private

banks in the study sample was of the opinion that they present project

submission which may be partially unrealistic or it may be fully

unrealistic.62% of the NBFC, 53% of the Co-operative and 56% agrees to

the views of the private banks. 38% cumulatively disagreed to the views

of projection of unrealistic views.

Part

A_4

Preparation of incorrect

loan repayment scheduleAgree Disagree


NBFC 62% 38%




Analysis Reveals

153

Analysis Reveals

When the question was raised to the respondent the study sample

revealed that majority of the banks disagreed to the incorrect loan

repayment schedule. As per the study conducted the sample shows

private banks strongly agrees but PSB strongly disagrees to this

statement. Cumulative score of 62% disagrees and 38%agreed to this

schedule.67% Private bank and 62% NBFC agreed to default repayment

and 67% Co-operative and 84% PSB disagreed to default repayment.

Part

A_5

Incorporation of improper assessment of

experience of the borrower or his

capacity to pursue the business activity.

Agree Disagree


NBFC 37% 63%




154

Analysis Reveals

Majority of the Group agrees, and reasonable strength responded

disagreement. PSB strongly feels that there is improper assessment

where in NBFC strongly disagrees with it.80% of Private banks and 72%

of PSB agreed to the statement that improper assessment is one of the

factor for bad loan or NPA.63% of the NBFC disagreed and 47%

Cooperative banks disagreed regarding improper assessment of

repayment schedule. Cumulatively 65% of the banks agreed for this

statement and 35% disagreed.

Part

A_6

Non-Availability of reliable market

study to the credit officerAgree Disagree


NBFC 37% 63%




155

Analysis Reveals

All the Group under study has almost 50 - 50 view, pertaining to non

availability of reliable market study.50% of the Private banks,53% of

Cooperative banks and 56% PSB agrees to the non availability of the

reliable market study and 63% NBFC strongly disagrees to the non

availability and cumulative score of 52% banks agreed and 48%

disagreed.

Part A_7

Non-Availability of Industry wise data on

demand & Supply to the Credit officerAgree Disagree


NBFC 50% 50%




Analysis Reveals

Majority group in the study agrees to Non availability of Industry wise

data, to which a reasonable strength disagrees. Public sector strongly

156

agrees to the same, to which NBFC strongly disagrees. when the

response was put before the response and 64% PSB and 60% Private

banks agree to the non availability of the industry wise data for

verification and execution of the act and decisions.

Part A_8

Reliance on provisional/ unaudited data

as submitted by the borrower to Bank.Agree Disagree


NBFC 50% 50%

Private Bank 93% 7%



Analysis Reveals

Majority group in the study agrees that relying on the unaudited and

provisional data is one of the factors for NPA to which a reasonable

strength disagrees. Private bank strongly agrees to the same to which

NBFC disagrees. NBFC have almost 50-50 views on these issues.

Cumulative score of 67% agrees to this fact of unaudited and

157

provisional data and 33% disagree to the fact. 93% of private banks,67%

of Cooperative bank and56% strongly agrees to this factor for

becoming NPA.50% NBFC disagrees and others agree.

Part A_9

Lack of network/ information system

amongst branches/ banks enabling

borrowers to enjoying banks funds

from more than one bank.

Agree Disagree


NBFC 63% 37%

Private Bank 93% 7%



Analysis Reveals

Majority in the groups agree that there is lack of network system

amongst the branches /banks enabling the borrowers to enjoy the fund

from more than one bank. Multiple borrowing is one of the factors for an

account turning NPA. Cumulative score of 72% banks from the study

group have accepted and 28% disagrees.93% private banks, 80%

158

cooperative banks and 72% PSB agree. In case of NBFC 63% agrees and

37% disagrees to the fact.

Part A_10

Lack of confidence in credit

officersAgree Disagree


NBFC 37% 63%




Analysis Reveals

Majority group in the study disagrees of having 70% score in the study

group and 30% agrees to this issue as a cause of NPA.87% of

Cooperative banks, 63% of NBFC ,76% of PSB disagreed to this

response when questioned to them.53% of Private banks accepted on

this factor. Majority disagrees of having lack of confidence in the credit

officers and minor strength agrees to it.

159

Part A_11

Lack of knowledge in the subject to

credit officerAgree Disagree


NBFC 25% 75%




Analysis Reveals

70% cumulative scores disagree to the factor regarding lack of

knowledge in the Subject to credit officers.80% of Co-operative banks

and 75% of NBFC strongly disagreed to the lack of knowledge of the

credit officers. Whereas 68% PSB disagreed. The opinion of the private

banks and public banks were almost identical.40% of private banks

agreed to this factor and 32% of PSB agreed. Minor strength agreed and

majority strength disagreed.

160

Part A_12

Lack of Economy Lack of

economic Study on the Production

activity of the proposed borrower

Agree Disagree


NBFC 50% 50%




Analysis Reveals

Majority in the study sample agrees to the fact regarding the lack of

economic viability on the production activity of the borrowers business.

NBFC has 50-50 views on this factor.73% of the Co-operative banks and

53% of private banks agrees to this issues.52% of the PSB disagrees to

the fact that the lenders have lack of knowledge on the economic

viability of the borrower’s business production. Cumulative Score of

56% agrees and 44% disagrees.

161

Part A_13

Fear of staff accountability on account

turning NPA in future in the mind of credit

officer at the time of appraisal

Agree Disagree


NBFC 63% 37%




Analysis Reveals

65% of the study sample agrees for the factor that staff fear for being

held responsible for any account going wrong.35% disagrees on this

response.87% Co-operative banks, 63% NBFC, 67% Private banks and

52% PSB agrees to this responsibility to be shared by the staff. On

analyzing the figures it is found that almost the opinion of PSB agreeing

and disagreeing similar.

162

Part A_14

Absence of right to select good

borrowers by the credit department

Agree Disagree


NBFC 37% 63%




Analysis Reveals

Officer in charge of credit department exclusively does not have the

right to choose the borrowers. They can perform their duties through

certain predetermined policy.60% of the Co-operative Banks disagrees

on this fact. similarly 63% NBFC disagrees on this views.80% of the

Private banks asserts this views and 56% PSB also asserted their views

and agreed to this fact regarding lack of power to choose by the credit

department. Average of the cumulative score shows that 56% agrees

and 44% disagrees to the absence of right to select good borrowers by

the credit department.

163

Part A_15

Non-availability of skilled/ trained staff

in credit departmentAgree Disagree


NBFC 12% 88%




Analysis Reveals

60% of the average cumulative score of the sample study disagrees

about the non availability of the skilled staff in the credit department to

which 40% agrees. Sector wise analysis shows that 67% of the Co-

operative banks, 88% of the NBFC and 60% of the PSB strongly

disagrees to the fact about the non availability of the skilled staff in the

department. 60% of the private bank agrees to this fact regarding non

availability of the skilled staff in the department is one of the cause for

the account turning NPA.

164

Part A_16

Fraudulent approach of borrowers Agree Disagree


NBFC 25% 75%




Analysis Reveals

Average of the cumulative score of the study group has almost similar

views about borrowers having fraudulent approach. Cumulative score

shows 52% disagreed and 48% agreed to the fraudulent approach of the

borrowers. Sectoral analysis of the study sample shows that 54% of the

Co-operative bank,75% 0f the NBFC,and 64% of the PSB disagrees to

the fraudulent approach of the banks.80% of the private banks agrees to

the fact that borrowers fraudulent approach can be one of the cause for

NPA in banking industry.

165

Part A_17

Fraudulent and irresponsible attitude of

bank officialsAgree Disagree


NBFC 75% 25%




Analysis Reveals

Average of the cumulative score of group under study agrees to which

41% of the banks disagree and 59% agree with respect to bank official

having fraudulent and irresponsible attitude. 67% of the Co-operative

banks, 75% of NBFC and 79% private banks agrees with fraudulent and

irresponsible attitude of the bank officials but opinion of PSB differ from

these views.63% of PSB disagree with the views of other sectoral banks

and financial institution.

166

Part B: Sanction and Disbursement

Part B_1

Indulgent approach to family/ group

connection/ long standing relationship

than to the project viability.

Agree Disagree


NBFC 75% 25%




Analysis Reveals

On comparison between long relationship and project viability the

majority views highlight the preference of relationship over the project

viability.67% of the study sample under Cooperative banks disagrees

with this views.75% of NBFC sample survey agrees to the concept of

long standing relations to project viability 67% of private banks agrees

and 72% PSB agrees to relationship over project viability.

167

Part B_2

Political interference i.e. pressure to

sanction loanAgree Disagree


NBFC 50% 50%




Analysis Reveals

Average of the cumulative score of 55% is of the views that there is

political interference for sanctioning the loan and 45% disagreed on this

issue. NBFC gave equal views regarding acceptance and non

acceptance from politicians where as 71% Cooperative banks disagreed

to the political interference and 60% of Private Banks and 68% of PSB

agreed to this views.

168

Part B_3

Political favouritism to particular

borrower in order to please politiciansAgree Disagree


NBFC 75% 25%




Analysis Reveals

Average of 71% of the cumulative score of group under study has

agreed to existence of political favouritism to which 29% disagreed on

these grounds.73% Cooperative banks agreed to the political

favouritism towards the borrower in order to please the

politicians.75%of NBFC,53% of private banks and 80% PSB agreed to

political favouritism to please politician.

169

Part B_4

Delay in decision making in sanction of

loanAgree Disagree


NBFC 75% 25%




Analysis Reveals

Majority of the group under the study agrees that delay in decision

making in sanction of a loan is a challenge. Cumulative score of 71%

agrees and 29% disagrees to the delay in decision making. 87% of

cooperative banks agree to this views.75% of Cooperative banks,60% of

the private sector, 68% of the PSB agrees to these views. Since there is

a delay in decision making due to indulgence of external and internal

factors there can be a fluctuation in the level of project submitted and

with the result the account may turn NPA. Maximum percentage of

disagreement shown is from Private banks.

170

Part B_5

Delay in disbursement in credit

facilities i.e. untimely financeAgree Disagree


NBFC 63% 37%




Analysis Reveals

Disbursement of finance at appropriate time is very essential as far as

any project is concerned. When opinions of the different banks within

the study group were conducted the analysis shows that cumulative

score of 67% agrees to the fact there is a delay in disbursement in

finance assistance.33% disagreed to the same. Only 40% private bank

had a major share in disagreeing the fact. Other banks have much less

than 40% disagreement under such circumstances strong disagreement

came from the private sector for delay in disbursement. 73% cooperative

banks 63%NBFC, 60% Private sector; PSB 68% respectively.

171

Part B_6

Disbursement of loan before the

compliance of terms and conditions

of sanction

Agree Disagree


NBFC 50% 50%




Analysis Reveals

Majority of the group agrees that Disbursement of loan before the

compliance exist and cumulative score of 63% agrees and 37%

disagrees to the fact of compliance of the loan account. NBFC has 50%-

50% views. exactly 50% agrees and 50% disagrees the same. Study

group which comprise of 25 PSB out of which 76% PSB agrees to the

disbursement of loan before the compliance of the terms and conditions

and out of 15 private sector banks 60% agrees to the compliance of the

terms and conditions only after the disbursement of loan. 53% of the

Cooperative banks from the study sample of 15 Urban Schedule Banks

172

agree to the fact that disbursement of loan should be made before

compliance of the terms and conditions. Maximum percentage of study

groups that disagrees is NBFC.

Part B_7

Incomplete and defective legal

documentationAgree Disagree


NBFC 63% 37%




Analysis Reveals

84% of the PSB under study group consisting of sample size of 25 banks

including SBI and its associates agrees to incomplete and defective legal

documentation. 63% NBFC out of 30 sample study group agrees to the

defective legal documentation and so also may not be complete.60% out

of the study sample of 15 Urban Schedule Co-operative Banks agrees to

173

the incomplete and defective legal documents.60% of the study group

consisting of 15 private banks disagreed to the defective and incomplete

legal document can be the cause of an account becoming NPA during

sanction and disbursement period. Cumulative score of 65% agreed and

35% disagreed on the fact that one of the reason for the account turning

NPA is due to incomplete and defective legal documents.

Part C: Post Disbursement Stage

Part C_1

Unavailability of audited financial

statements in time.Agree Disagree


NBFC 25% 75%




174

Analysis Reveals

Cumulative score of 68% of the group under study disagrees to the fact

that the audited financial statement is not available in time could be a

cause of NPA. Only 67% of private banks agree to the non availability of

the audited financial account 87% Cooperative banks, 75% NBFC and

76% PSB disagrees to the fact that non availability of the audited

financial statement is a cause of NPA. According to these banks

unaudited statement is not a cause of a factor where a loan becomes

bad or NPA.

Part C_2

Non-submission of stock and other

required periodical statements by the

borrowers

Agree Disagree


NBFC 37% 63%




175

Analysis Reveals

Cumulative score under the study group exhibits 51% agrees and 49%

disagrees to the fact that non submission of stock and other required

statement by the borrowers. 80% Private banks and 52% PSB agree to

the fact that due to non submission of stock and other required

statement by the borrowers where as 73% Cooperative banks and 63%

NBFC disagrees to the non submission of statement and other relevant

information.

Part C_3

Negligent approach by the bank officials in

regards to inspection of stock etc.Agree Disagree


NBFC 88% 12%




176

Analysis Reveals

Cumulative score of the group under the study shows that 63% agrees

at times there could be negligence on the bank officials to which 37%

disagrees. They opine that the officials approach is not negligent. 53%

cooperative banks,87% NBFC,67%Private Banks, 60% PSB agrees to the

fact that feels that one of the factors for an account becoming NPA

could be negligence of bank officials or Bank’s negligent approach.

Part C_4


required periodical statements by the

borrowers

Agree Disagree


NBFC 38% 62%




177

Analysis Reveals

Cumulative score of group under the study 56% agrees regarding the

issue raised to the banks. The issues were with respect to non

submission of stock which 49% disagrees. 37% Co-operative banks,38%

NBFC and 80% PSB agrees to the fact that Cause of account becoming

bad could be due to absence of effective monitoring by the banks.48%

private banks disagrees to this issues raised to the study sample.

Part C_5

Absence of close supervision of loan

accountAgree Disagree


NBFC 50% 50%




178

Analysis Reveals

Cumulative score of the group under study shows 52% agreed for the

absence of close supervision of loan account.48% of the responses

disagreed for the same.60% Cooperative banks disagreed to the fact

that there is absence of close supervision amongst the banks. Similarly

NBFC agreed and disagreed equal in number. The 67% score of private

banks agrees to the absence of close supervision where as 52% PSB

also agrees to the fact like private banks that there is absence of close

supervision of all the accounts by the banks.

Part C_6

Delayed detection of warning signals Agree Disagree


NBFC 50% 50%

Private Bank 93% 7%



179

Analysis Reveals

Study group is under the impression that there is still delayed detection

of warning signal.60% of the total sample survey conducted agrees to

this views to which total 40% disagrees to this views.93% of private

banks out of sample size of 15 accepts to this delayed detection of

warning signal. Only a small magnitude disagrees to the same. Whereas

52% of the PSB agrees to the delayed detection.

Part C_7

Delay in initiating remedial

measures and actions Agree Disagree


NBFC 63% 37%

Private Bank 93% 7%



180

Analysis Reveals

62% cumulative score of the group under study agrees that delay in

initiating remedial measures and actions as to 38% of the score disagree

to the fact. Individual sector wise analysis exhibit that 93% private

banks strongly agrees that there is delay in initiating remedial measures

and only a marginal percentage disagrees to the fact. 62% NBFC also

similar to the private sector is of the opinion there is a delay in initiating

legal and remedial action against the defaulters.60% under the sample

size of SUC bank has the same opinion as that of Private banks and

NBFC Only 56% of the PSB dies agree and feels there is no delay in

remedial measures.

6.4. SECTION – III

sec3_1

Out of various steps to reduce NPA level one

way is to go for compromise settlement. Are

you in favour of this method?

YES NO


NBFC 75% 25%




181

Analysis Reveals

Cumulative Score of the group under the study shows that 82% agrees

to the compromise and settle to reduce the level of NPA in their bank to

which 18% were not in favour of compromise or one time settlement.

67% Co-operative banks agrees for compromise and settlement for

reducing the level of NPA. Similarly 75% of the NBFC sample study and

100% of private banks were in favour of settlement to reduce the level of

NPA to which 87% PSB agrees overall from the sample size as

mentioned above. PSB includes even SBI and its 7 associates

sec3_2

Can this method develop a tendency among bank

borrowers to make deliberate attempt of default

and then ask for concession in interest?

YES NO


NBFC 75% 25%




182

Analysis Reveals


that compromise and settlement can be misused by the borrowers to

which 38% disagrees.80% response from private banks strongly agrees

so also 75% NBFC agrees and similarly 65% of PSB under study groups

agrees to the same.60% Cooperative banks under study group disagrees

to the views presented by other three groups that this settlement can be

misused by the borrowers.

sec3_3

What is your opinion about credit

monitoring system existing presently in

Indian banking system is it adequate?

YES NO


NBFC 50% 50%




183

Analysis Reveals


that the existing credit monitoring system is adequate to which 36%

disagrees. Private banks strongly agrees with 80% score whereas 67%

Cooperative banks agree to this fact that credit monitoring is adequate.

PSB with 61% agrees to the view that the existing system is adequate to

which NBFC shows equal opinion regarding agreement and

disagreement.

sec3_4

Do you feel that improvement in this

system is necessary?YES NO


NBFC 38% 62%




184

Analysis Reveals

Cumulative Score of the group under study shows that 68% feels there

is a need for improvement of the existing credit monitoring system to

which 32% of the study sample disagrees. Cooperative bank and private

bank with score of 80% each agrees that there is a need for

improvement and PSB with a score of 65% agrees for the need to

improve the system. NBFC with a score of 62% disagrees to the need for

improvement.

sec3_5

Do you feel that specialized cadre skilled officer be

selected and posted in credit department of bank

for better appraisal and delivery of the credit?

YES NO


NBFC 50% 50%




185

Analysis Reveals


is a need for specialised and skilled officer to be selected for the credit

department to which 38% of the study sample disagrees. Cooperative

bank with 53% score agrees and private bank with score of 90% agrees

that there is a need for specialised and skilled officer to selected for the

credit department and PSB with a score of 59% agrees for the need for

specialized and skilled officer. NBFC with a score of 50% disagrees and

50% agrees for specialized and skilled officer in the credit department

sec3_6

Will this selection help bank to reduce the

risk of account becoming NPA in early

stage or even in future?

YES NO


NBFC 62% 38%




186

Analysis Reveals


is a need for specialised and skilled officer to be selected for the credit

department will reduce the level of NPA to which 30% of the study

sample disagrees. Cooperative bank with 67% score agrees and private

bank with score of 80% agrees that there is a need for specialised and

skilled officer to selected for the credit department with the result the

NPA percentage can be reduced and PSB with a score of 70% agrees for

the need for specialized and skilled officer to bring down the NPA

percentage. NBFC with a score of 62% agrees and 37% disagrees for

reduction in bad loans.

sec3_7

Whether there is a need of a special recovery

officer in bank for better recovery?YES NO


NBFC 75% 25%




187

Analysis Reveals

Cumulative Score of the group under study shows that 62% feels there is

a need for special recovery officer to be selected for the credit

department will reduce the level of NPA to which 37% of the study sample

disagrees. Cooperative bank with 60% score agrees and private bank with

score of 80% disagrees that there is a need for special recovery officer to

selected for the credit department with the result the NPA percentage can

be reduced and PSB with a score of 78% agrees for the need for special

recovery officer to bring down the NPA percentage. NBFC with a score of

75% agrees and 25% disagrees for reduction in bad loans.

sec3_8

Do you favour appointments of External

Recovery Agents to recover banks hard

core dues?

YES NO


NBFC 75% 25%




188

Analysis Reveals


is a need for external recovery agent for collection of hard core dues to

reduce the level of NPA to which 29% of the study sample disagrees.

Cooperative bank with 47% score agrees and disagrees with 53% and

private bank with score of 80% agrees that there is a need for recovery

agent for collection of hard core dues to reduce the level of NPA

percentage can be reduced and PSB with a score of 83% agrees for the

need for recovery agent for collection of dues to bring down the NPA

percentage. NBFC with a score of 75% agrees and 25% disagrees for


sec3_9

Do you favour cash incentive scheme for

banks staff for recovery of duesYES NO


NBFC 50% 50%




189

Analysis Reveals


is a need for incentives to staff is good option and will reduce the level

of NPA to which 36% of the study sample disagrees. Cooperative bank

with 47% score agrees and private bank with score of 80% agrees that

there is a need for incentives to staff with the result the NPA

percentage can be reduced and PSB with a score of 74% agrees for the

need for incentives to staff shall motivate them to work hard and bring

down the NPA percentage. NBFC with a score of 50% agrees and 50%

disagrees for reduction in bad loans

190

sec3_10

Whether a system of “credit audit” i.e.

verification of total proposal financially and

technically by audit people before disbursement

of loan be introduced in banking industry?

(Above certain limit)

YES NO


NBFC 75% 25%




Analysis Reveals


is a need for introducing a credit audit before disbursement is good

option and will reduce the level of NPA to which 32% of the study

sample disagrees. Cooperative bank with 53% score agrees and private

bank with score of 50% agrees that there is a need for introducing a

credit before disbursement and with the result the NPA percentage can

be reduced and PSB with a score of 83% agrees for the need for audit

191

before the disbursement to bring down the NPA percentage. NBFC with

a score of 75% agrees and 25% disagrees for reduction in bad loans.

sec3_11

Can this system be made compulsory/

statutory like or similar to internal audit

in the bank?

YES NO


NBFC 100% 0%




Analysis Reveals


is a need for introducing a credit audit before disbursement is good

option and should be made compulsory and will reduce the level of NPA

to which 32% of the study sample disagree. Cooperative bank with 67%

score agrees and private bank with score of 40% agrees and 60%

disagrees that there is a need for introducing a credit audit before

disbursement is good option and should be made compulsory with the

192

result NPA percentage can be reduced and PSB with a score of 70%

agrees introducing a credit audit before disbursement is good option

down the NPA percentage. NBFC with a score of 100% agrees for


sec3_12

Whether the scope of separate Rating

Agencies like ICRA, CRISIL, CARE etc. be

extended for the purpose of giving risk

rating to borrowable parties in order to

sanction loan speedily?

YES NO


NBFC 50% 50%




Analysis Reveals

Cumulative Score of the group under study shows that 68% feels that

setting up a separate rating agency for risk rating is required to reduce

the level of NPA to which 32% of the study sample disagrees. Co-

193

operative bank with 67% score agrees and private bank with score of

70% agrees that there is a need for separate rating agency is with the

result the NPA percentage can be reduced and PSB with a score of 74%

agrees for the setting up a separate rating agency to bring down the

NPA percentage. NBFC with a score of 50% agrees and 50% disagrees

for reduction in bad loans.

sec3_13

Whether such risk rating system if introduced

should cover all the aspects of credit

proposal such as type of product, nature of

industries, market demand and supply,

technology changes, interest structures etc.

YES NO


NBFC 50% 50%




Analysis Reveals

Cumulative Score of the group under study shows that 80% feels the

rating System should cover all items such as type of product, nature of

194

the industries, Market demand and supply, technology changes, interest

rate etc. shall reduce the level of NPA to which 20% of the study sample

disagrees. Cooperative bank with 87% score agrees and private bank

with score of 90% agrees that there is a need for rating system with all

the details such as demand, supply, technology etcwith the result the

NPA percentage can be reduced and PSB with a score of 83% agrees

for the need to have systematic rating system which shall bring down

the NPA percentage. NBFC with a score of 50% agrees and 50%

disagrees for reduction in bad loans.

sec3_14

Whether Management Information System on

the performance of various sectors of the

economy as also NPA data covering banks is

developed in banking industries for better

credit appraisal?

YES NO


NBFC 63% 37%




195

Analysis Reveals

Cumulative Score of the group under study shows that 80% agrees that

Management Information system on the performance of various sector

of Economy need to be developed to which 20% of the study sample


with score of 90% agrees that there is a need for specialised

information system. PSB with a score of 96% agrees for the need for

specialized information system to bring down the NPA percentage.

NBFC with a score of 63% agrees and 37% disagrees for reduction in

bad loans.

sec3_15

Are you in favour of fixing of

responsible on bank officials when

particular accounts turn NPA?

YES NO


NBFC 62% 38%




196

Analysis Reveals


is a need for fixing of bank officials for an account to become NPA due

to their oversight or negligence etc. reduce the level of NPA to which

24% of the study sample disagrees. Cooperative bank with 64% score

agrees and private bank with score of 70 % agrees that there is a need

for fixing of bank officials with the result the NPA percentage can be

reduced and PSB with a score of 91% agrees for the need for

specialized and skilled officer to bring down the NPA percentage. NBFC

with a score of 62% agrees and 37% disagree for reduction in bad loans

sec3_16

Whether in your opinion “strict

appraisal” will help to reduce the

chances of any account turning NPA?

YES NO


NBFC 75% 25%




197

Analysis Reveals


concept of Strict appraisal will reduce the level of NPA to which 11% of

the study sample disagrees. Cooperative bank with 93 % score agrees

and private bank with score of 90% agrees that there is a need for strict

appraisal with the result the NPA percentage can be reduced and PSB

with a score of 91% agrees for the need for specialized and skilled

officer to bring down the NPA percentage. NBFC with a score of 75%

agrees and 25% disagrees for reduction in bad loans.

sec3_17

Whether this “Strict Appraisal” will become

harassment to the borrower?YES NO


NBFC 88% 12%




198

Analysis Reveals


concept of Strict appraisal will become harassment to the borrowers

and will reduce the level of NPA to which 23% of the study sample


with score of 70% agrees that for strict appraisal will become

harassment for the credit department and PSB with a score of 78%

agrees for the need for harassment to the borrowers. NBFC with a score

of 88% agrees and 12% disagrees

199

6.5. SECTION IV

sec4_1

It is often said that Lawyers/ advocates

delays the hearing of the case before Courts

by taking dates. Do you agree.

YES NO


NBFC 75% 25%




Analysis Reveals


Lawyers or Advocate is the cause for adjournment which result in delay

in Justice to which 30% of the study sample disagrees. Cooperative

bank with 60 % score agrees and private bank with score of 90% agrees

that lawyers are the cause for the delay in court orders. and PSB with a

score of 65% agrees that advocate is the cause for the delay. NBFC with

a score of 75% agrees and 25% disagrees for the cause of delay.

200

sec4_2

Is it a fact that bank does not provide their

advocates with proper papers/ list of

securities and documents during hearing

of the case before Court?

YES NO


NBFC 88% 12%




Analysis Reveals


Incomplete documentation and securities delays the Justice and

completion of the court procedures to which 41% of the study sample


with score of 80% agrees that insufficient papers or securities is a cause

for the delay in court orders and PSB with a score of 48% agrees that

improper documents pose problems to lawyers to get orders. NBFC with

a score of 88% agrees and 12% disagrees for the cause of delay.

201

sec4_3

Is it true that most of the bankers do not

care to renew loan documents in time?YES NO


NBFC 50% 50%




Analysis Reveals


Renewal of documentation lacks and delays the Justice and completion

Of the court procedures to which 45% of the study sample disagrees.

Cooperative bank with 40% score agrees and private bank with score of

80% agrees that non renewal or delayed renewal is a cause for the delay

in court orders and PSB with a score of 61% agrees the same. NBFC

with a score of 50% agrees and 50% disagrees for the cause of delay.

202

sec4_4

Do you feel that delay in getting decree

from court to recover bank’s dues make

such recovery impossible difficult?

YES NO


NBFC 25% 75%




Analysis Reveals


delay in getting decree from the court to recover dues makes recovery

impossible or difficult to which 48% of the study sample disagrees.


40% agrees that delay in getting decree is one of the cause for the delay

in recovery procedures and PSB with a score of 61% agrees the same.

NBFC with a score of 25% agree and 75% disagrees for the cause of

delay.

203

sec4_5

Do you agree that time consuming and

tedious legal procedure is responsible for

slow recovery of banks overdues?

YES NO


NBFC 75% 25%




Analysis Reveals


lengthy and tedious procedures are the cause for delay in recovery of

the dues. to which 32% of the study sample disagrees. Cooperative bank

with 67% score agrees and private bank with score of 70% agrees that

delay in recovery of the dues is one of the cause for the delay in

recovery procedures and PSB with a score of 65% agrees the same.

NBFC with a score of 75% agree and 25% disagrees for the cause of

delay.

204

sec4_6

Do you agree that outdated laws are the major

causes for ineffective recovery of banks dues?YES NO


NBFC 100% 0%




Analysis Reveals


amendment of laws are required to be made often so that recovery

procedures can be made faster to which 18% of the study sample


with score of 80% agrees that amendment need to be made quite often to

keep pace with the current scenario. PSB with a score of 87% agrees the

same. NBFC with a score of 100% agree for the cause of delay to be

outdated laws.

205

sec4_7

Do you feel that effective working of Board

for Industrial and Financial Reconstruction

(BIFR) will help banks to recover the long

outstanding dues?

YES NO


NBFC 62% 38%




Analysis Reveals


effective functioning of BIFR will enable the banks to recover long

outstanding dues to which 23% of the study sample disagrees.


90% agrees that effective functioning of BIFR will reduce the NPA

level.PSB with a score of 87% agrees the same. NBFC with a score of

62% agree for the reduction of NPA and recovery of dues.

206

sec4_8

Do you feel that the Public Debt Recovery

Act (DRT) be extended or made applicable

in all the states of India for fast recovery of

banks dues?

YES NO


NBFC 75% 25%




Analysis Reveals

All three groups in the study have almost similar views. 80% borrowers

agree that DRT should work more effectively and should be extended to

wider jurisdiction . 86% facilitator’s opinion shows recovery of due is

possible with efficient functioning and wider coverage of jurisdiction. 82

% banks are also of the same opinion as borrowers and facilitators to

which 20% borrowers, 14% facilitators and 18% banks disagree with the

view efficiency DRT and DRAT.

207

Sec4_9 is an open end question. The question asked was regarding the

reason for considerable delay in getting the decree from the court for

bank’s dues. Since it is an open end question with three reasons for the

delay the opinion is considered for findings and recommendations

chapter. It is not presented by graphical representation.

6.6. ANALYSIS ON DATA’S COLLECTED FROM BANK’S,

FACILITATORS AND BORROWERS

APPRAISAL STAGE:

Part A_1

Lack of critical presentation appraisal Agree Disagree

Borrower 90% 10%

Facilitator 90% 10%

BANK 78% 22%

208

Analysis Reveals

Borrowers and facilitators have similar stand point as 90% agrees and

10% disagrees. Banks has slight difference where 78% agrees and 22%

disagrees to this views.

Part A_2

Deliberate attempt of loose appraisal Agree Disagree

Borrower 90% 10%

Facilitator 80% 20%

BANK 73% 27%

Analysis Reveals

Majority of the group in the study agrees that there is a deliberate

attempt of loose appraisal. 73% banks strongly agree to this factor and

27% of the bank strongly disagrees to this factor. The analysis shows

that the banker is unable to get the clear idea about the borrowers

business and their intention. 80% 0f the facilitator and 90% of the

borrowers also agree along with the banks.

209

Part A_3

Submission of unrealistic project by

the borrowerAgree Disagree

Borrower 70% 30%

Facilitator 71% 29%

BANK 62% 38%

Analysis Reveals

Majority of the group in the study agrees that there is submission of

unrealistic Project report by the borrowers. 62% banks strongly agree to

this factor and 38% of the bank strongly disagrees to this factor. The

analysis shows that the banker is unable to get the clear idea about the

borrowers business and their intention. 71% 0f the facilitator and 70% of

the borrowers also agree along with the banks.

210

Part A_4

Preparation of incorrect loan repayment

scheduleAgree Disagree

Borrower 60% 40%

Facilitator 45% 55%

BANK 38% 62%

Analysis Reveals

Borrowers have very different opinion about the repayment plan.60%

borrowers agrees to this statement and 40% disagree to this

opinion.62% banks disagree to which 48% agree to this views.45%

facilitators agree to the defective repayment schedule and 65% disagree

to default in repayment structure.

211

Part A_5

Incorporation of improper assessment of

experience of the borrower or his capacity

to pursue the business activity.

Agree Disagree

Borrower 60% 40%

Facilitator 65% 35%

BANK 65% 35%

Analysis Reveals

All the three groups in the study has almost same stand bearing a

marginal difference. Opinion of the banks and the facilitators were

identical regarding improper assessment or their capacity to pursue the

business activity.65% each banks and facilitators agreed to this factor of

assessment.60% of the Borrowers agreed to improper assessment.

212

Part A_6

Non-Availability of reliable market

study to the credit officerAgree Disagree

Borrower 60% 40%

Facilitator 63% 37%

BANK 52% 48%

Analysis Reveal

Market study to the credit officers.60% of the borrowers agrees to this

fact and 40% disagrees to this statement where as 63% of the facilitators

and 52% of the banks revealed their consent to agree 37% facilitators

and 48% banks disagrees with the non availability of credit officer

Part A_7

Non-Availability of Industry wise data on

demand & Supply to the Credit officerAgree Disagree

Borrower 50% 50%

Facilitator 71% 29%

BANK 59% 41%

213

Analysis Reveals

The entire group in the study has different views pertaining to non

availability of industry wise data on demand and supply to the Credit

officer. Borrowers have equal opinion on non availability of data.50%

borrowers agrees and 50% disagrees. 71% facilitators agree to this

views and 29% disagrees.59% opine that there is no proper information

to the credit officers.

Part A_8

Reliance on provisional/ unaudited

data as submitted by the borrower to

Bank.

Agree Disagree

Borrower 65% 35%

Facilitator 65% 35%

BANK 67% 33%

214

Analysis Reveals

The entire group in the study has different views reliability on the

provisions of the unaudited accounts. Borrowers and Facilitators have

similar views. 65% borrowers and 65% facilitators were having their

identical opinion borrower agrees and 50% disagrees. 67% facilitators

agree to this views and 29% disagrees.59% opine that there is no proper

information to the credit officers.

Part A_9

Lack of network/ information system

amongst branches/ banks enabling

borrowers to enjoying banks funds from

more than one bank.

Agree Disagree

Borrower 75% 25%

Facilitator 80% 20%

BANK 78% 22%

215

Analysis Reveals

All the group in the study has almost similar stand point.75% of

borrowers agree there is lack of network/information system amongst

banks enabling borrowers to enjoying bank funds from more than one

bank and 80% facilitators have similar views.78% banks from the sample

selected agree to the multiple borrowing and 22% disagree to the

prevailing multiple borrowing.

Part A_10

Lack of confidence in credit

officersAgree Disagree

Borrower 50% 50%

Facilitator 36% 64%

BANK 30% 70%

216

Analysis Reveals

All the group in the study has different stand point.50% of borrowers

agree there is lack of confidence in the credit officers and 36%

facilitators agree to this views and 64% disagree regarding the

confidence level of the credit officer.30 % banks from the sample

selected agree to the lack of confidence level on the credit officer and

60% disagree to the issues on lack of confidence in their bank

employees

Part A_11

Lack of knowledge in the subject to

credit officerAgree Disagree

Borrower 50% 50%

Facilitator 37% 63%

BANK 30% 70%

217

Analysis Reveals


agree there is lack of knowledge in the subject to the credit officers and

37% facilitators agree to this views and 63% disagree regarding the level

of knowledge in the subject to the credit officer.30 % banks from the

sample selected agree to the lack of knowledge in the subject to the

credit officer and 70% disagree to the issues on lack of knowledge in

their bank employees.

Part A_12

Lack of Economic Study on the Production

activity of the proposed borrowerAgree Disagree

Borrower 55% 45%

Facilitator 55% 45%

BANK 56% 44%

218

Analysis Reveals

All the group in the study has same stand point.55% of borrowers agree

there is lack of Economic Study on the Production activity of the

proposed borrower and 55% facilitators agree to this views and 45%

disagree regarding the lack of Economic Study on the Production

activity of the proposed borrower.56 % banks from the sample selected

agree to the lack of knowledge in the production activity and 44%

disagree to the issues on lack of knowledge in the borrowers activity.

Part A_13

Fear of staff accountability on account

turning NPA in future in the mind of

credit officer at the time of appraisal

Agree Disagree

Borrower 70% 30%

Facilitator 55% 45%

BANK 65% 35%

219

Analysis Reveals


agree there is fear of staff accountability on account turning NPA in

future in the minds of the credit officer and 55% facilitators agree to this

views and 45% disagree regarding the accountability on account turning

NPA.65 % banks from the sample selected agree to the staff

accountability on account turning NPA and 44% disagree to the issues

on lack of knowledge in the borrower’s activity.

Part A_14

Absence of right to select good

borrowers by the credit departmentAgree Disagree

Borrower 85% 15%

Facilitator 49% 51%

BANK 56% 44%

220

Analysis Reveals

The entire group in the study has different stand point.85 % of borrowers

strongly agree that the credit department does not have any option to

select by the credit department. And 49% facilitators agree to these

views and 51% disagree regarding the non availability of option to

choose the borrower by the credit department.56 % banks from the

sample selected agree to the non availability of the option by the credit

department 44% disagree. Banks response is very distinct from that of

the borrower.

Part A_15

Non-availability of skilled/ trained staff in

credit departmentAgree Disagree

Borrower 55% 45%

Facilitator 55% 45%

BANK 40% 60%

221

Analysis Reveals

Bank responded 60% against the views of non availability of skilled and

trained staff and only 40% accepted it. Similarly Borrower’s opinion and

Facilitator’s opinion were very similar and 55% agreed to the fact due to

lack of trained and skilled staff were as 45% failed to disagree this issue.

Part A_16

Fraudulent approach of borrowers Agree Disagree

Borrower 55% 45%

Facilitator 67% 33%

Bank 48% 52%

222

Analysis Reveals

Average of the study group reveals that 55% of the borrowers admit that

NPA is due to fraudulent approach adopted by the borrowers High

percentage of facilitator is of the opinion that NPA is due to fraud

committed by the borrower. High percentage precisely means 67% of

the facilitator opines this issue. Similarly 48% bank is under the opinion

that fraudulent act of the borrower is one of the causes for NPA in

banking industry.

Part A_17

Fraudulent and irresponsible

attitude of bank officials

Agree Disagree

Borrower 55% 45%

Facilitator 67% 33%

Bank 59% 41%

223

Analysis Reveals

Average of the study group shows 60% response agrees to the

fraudulent and irresponsible attitude of the bank official.55 % of

borrowers strongly agree that there is a fraudulent and irresponsible

attitude of the bank official and 67% facilitators agree to this views and

33% disagree regarding the fraudulent act of the bank official.59% banks

from the sample selected agree to the fraudulent act of the bank official

and 41% disagree.


Part B_1

Indulgent approach to family/ group

connection/ long standing relationship

than to the project viability.

Agree Disagree

Borrower 40% 60%

Facilitator 67% 33%

BANK 62% 38%

224

Analysis Reveals

Borrowers and facilitators have similar stand point as 90% agrees and

10% disagrees. Banks has slight difference where 78% agrees and 22%

disagrees to this views.

Part B_2

Political interference i.e. pressure to

sanction loanAgree Disagree

Borrower 30% 70%

Facilitator 61% 39%

BANK 55% 45%

Analysis Reveals

30 % of borrowers feel that there is a political interference and 70%

disagree to this concept. Banks and facilitators possess similar opinion

61% and 55% agree to this views and 39 % disagree regarding political

interfearance.39 % and 45%facilitators and banks disagree with this

opinion.

225

Part B_3

Political favouritism to particular borrower

in order to please politiciansAgree Disagree

Borrower 45% 55%

Facilitator 63% 37%

BANK 71% 29%

Analysis Reveals

45 % of borrowers feel that there is a political favouritism to the

borrowers in order to please the politicians and 55% disagree to this

concept. Banks and facilitators possess similar opinion 71% and 63%

agree to this views and 29 % disagree regarding political

interfearance.37 % and 29%facilitators and banks disagree with this

opinion.

Part B_4

Delay in decision making in

sanction of loanAgree Disagree

Borrower 55% 45%

Facilitator 76% 24%

BANK 71% 29%

226

Analysis Reveals

55 % of borrowers feel that there is a delay in decision making with the

result the project and the business could be termed old and out of

fashion. And 45% disagree to this concept. Banks and facilitators

possess similar opinion 71% and 76% agree to this views and 29 %

disagree regarding political interference. 24 % and banks disagree with

this opinion.

Part B_5

Delay in disbursement in credit

facilities i.e. untimely financeAgree Disagree

Borrower 58% 42%

Facilitator 64% 36%

BANK 67% 33%

227

Analysis Reveals

8 % of borrowers feel that there is a delay in disbursement in credit

facility i.e. untimely finance can be a factor for an account becoming

NPA because when there is a delay the project viability may become

obsolete and out dated. With the result the project and the business

could be termed old and out of fashion and 42% disagree to this

concept. Banks and facilitators possess similar opinion 67% and 64%

agree to this views and 33% banks disagree regarding political

interference 36 % facilitator disagree with this opinion.

Part B_6

Disbursement of loan before the

compliance of terms and conditions of

sanction

Agree Disagree

Borrower 50% 50%

Facilitator 69% 31%

BANK 63% 37%

228

Analysis Reveals

Borrowers have 50-50 stand in terms of instances where the loans are

Disbursed Even before the compliance of terms and conditions of

sanction. 50% disagree to this concept. 63% Banks and 69% facilitators

possess similar opinion and 37% banks and 31% facilitators disagree

regarding disbursement before fulfilling the conditions. Disbursement

the means the loan sanctioning should be kept ready at the time of final

signature and loan should be immediately disbursed

Part B_7

Incomplete and defective legal

documentationAgree Disagree

Borrower 55% 45%

Facilitator 65% 35%

BANK 65% 35%

229

Analysis Reveals

55 % of borrowers feel that there is a defective and incomplete legal

documentation and 45% borrower disagree to this concept. Banks and

facilitators possess similar opinion 65 % each possess the similar

views. 35% of both facilitators as well as banks disagree that there are

instances where incomplete and defective legal documentation are

presented for the purpose of sanctioning loan.

PART C: POST DISBURSEMENT STAGE

Part C_1

Unavailability of audited financial

statements in time.Agree Disagree

Borrower 30% 70%

Facilitator 33% 67%

BANK 32% 68%

230

Analysis Reveals

All the three groups share similar views. 32% amongst across the

groups are of the opinion that unavailability of the audited financial

statement is a concern for the cause of NPA, but 68% had different

opinion.30% borrowers had the opinion that submission of unaudited

statement of account could be the cause for NPA. 33% facilitators

opined that submission of unaudited statement can the problem of

NPA.32% banks are also of the same opinion as borrowers and

facilitators to which 70% borrowers, 67% facilitators and 68% banks

disagreed to the concept of compromise and settlement.

Part C_2


required periodical statements by

the borrowers

Agree Disagree

Borrower 35% 65%

Facilitator 43% 57%

BANK 51% 49%

231

Analysis Reveals

All the three groups have distinct response to this statement. A concern

for the 35% borrowers had the opinion that non submission of

statement of stock and other required periodical statements by the

borrower be the cause for NPA. 43% facilitators opined that non

submission of statement of stock and other relevant document can be

the problem of NPA.51 % banks are also of the same opinion as

borrowers and facilitators to which 65% borrowers, 57% facilitators and

49% banks disagreed to the concept of compromise and settlement.

Part C_3

Negligent approach by the bank officials in

regards to inspection of stock etc.Agree Disagree

Borrower 50% 50%

Facilitator 55% 45%

BANK 63% 37%

232

Analysis Reveals

All the three groups have distinct response to this statement. A concern

for the 50% borrowers had the opinion that negligent approach by the

bank officials in regard to inspection of stock can be the cause for NPA.

55% facilitators opined that negligent approach by the officer in-charge

can be the problem of NPA.63 % banks are also of the same opinion as


37% banks disagreed to the concept of compromise and settlement.

Part C_4

Absence of effective monitoring Agree Disagree

Borrower 60% 40%

Facilitator 53% 47%

BANK 56% 44%

233

Analysis Reveals

All the three groups have similar response for absence of effective

monitoring. 60% borrowers had the opinion that absence of effective

monitoring by the bank officials in regard can be the cause for NPA.

53% facilitators opined that absence of strong monitoring approach by

the officer in-charge can be the problem of NPA.56 % banks are also of

the same opinion as borrowers and facilitators to which 40% borrowers,

47% facilitators and 44% banks disagreed to the concept of lack of

effective monitoring by the bank officials.

Part C_5

Absence of close supervision of loan

accountAgree Disagree

Borrower 60% 40%

Facilitator 51% 49%

BANK 52% 48%

234

Analysis Reveals

All the three groups have different response for absence of close

supervision of loan account. Opinion between facilitator and banks are

close knit. 60% borrowers had the opinion that absence of effective

supervision by the bank officials in regard can be the cause for NPA.

51% facilitators opined that absence of strong monitoring approach by

the officer in-charge can be the problem of NPA.52 % banks are also of


49% facilitators and 48% banks disagreed to the concept of lack of

effective supervision of the loan account.

Part C_6

Delayed detection of warning signals Agree Disagree

Borrower 65% 35%

Facilitator 76% 24%

BANK 60% 40%

235

Analysis Reveals

Bank and the borrower has almost similar approach.60% borrowers had

the opinion that delayed detection of warning signal can be the cause

for NPA. 51% facilitators agrees that delayed detection of warning signal

can be the source for the loan account becoming NPA.52 % banks are

also of the same opinion as borrowers and facilitators to which 40%

borrowers, 49% facilitators and 48% banks disagreed to the concept of

delayed detection of warning signal is bad.

Part C_7

Delay in initiating remedial

measures and actions Agree Disagree

Borrower 65% 35%

Facilitator 78% 22%

BANK 62% 38%

236

Analysis Reveals

63% agrees that there is delay in initiating remedial measures and

actions wherein 37% differed in their approach. Opinion between

borrowers and banks are close knit. 65% borrowers had the opinion that

there is a delay in initiating remedial measures by the officials can be

the cause for NPA. 78% facilitators opined that absence of initiative by

the bank officer for remedial measures can be the problem of NPA.62 %

banks are also of the same opinion as borrowers to which 35%


delay in remedial measures.

SECTION – III

sec3_1

Out of various steps to reduce NPA level

one way is to go for compromise

settlement. Are you in favour of this

method?

YES NO

Borrower 85% 15%

Facilitator 80% 20%

BANK 82% 18%

237

Analysis Reveals

Banks borrowers and facilitator have slightly similar opinion. Approach

made by borrowers, facilitators and banks are close knit. 85% borrowers

had the opinion that compromise and settlement can be the cause for

NPA. 80% facilitators opined that one time settlement and compromise

by the borrowers to the bank official can reduce the problem of NPA.82


which 15% borrowers, 20% facilitators and 18% banks disagreed to the

concept of compromise and settlement with the borrowers.

sec3_2

Can this method develop a tendency

among bank borrowers to make deliberate

attempt of default and then ask for

concession in interest?

YES NO

Borrower 70% 30%

Facilitator 69% 31%

BANK 62% 38%

238

Analysis Reveals

Banks borrowers and facilitator have slightly similar opinion. Approach

made by borrowers, facilitators and banks are close knit.62% across the

group agrees that borrower may misuses the compromise options. 70%

borrowers had the opinion that compromise and settlement can be

misappropriated and the borrowers may ask for concession or waiver of

interest is a concern and can be the cause for NPA. 69% facilitators

opined that settlement of loan amount by means of compromise by the

borrowers to the bank official can be the problem of NPA. 63% banks

are also of the same opinion as borrowers and facilitators to which 30%


compromise and settlement can be misused by the borrower by not

making payment deliberately and subsequently asking for relief in the

interest rate.

239

sec3_3

What is your opinion about credit

monitoring system existing presently in

Indian banking system is it adequate?

YES NO

Borrower 70% 30%

Facilitator 55% 45%

BANK 64% 36%

Analysis Reveals

Banks borrowers and facilitator have slightly different opinion. 70%

borrowers had the opinion that inadequate monitoring of credit on loan

account can be the cause for NPA. 55% facilitators opined that credit

monitoring by banks in India is not appropriate should be improved by

the banks to reduce the problem of NPA.64 % banks are also of the

same opinion as borrowers and facilitators to which 30% borrowers,

45% facilitators and 36% banks disagreed to the concept of inadequate

credit monitoring by banks in India.

240

sec3_4

Do you feel that improvement in this system

is necessary?YES NO

Borrower 45% 55%

Facilitator 64% 36%

BANK 68% 32%

Analysis Reveals

Banks borrowers and facilitator have slightly different opinion. 45%

borrowers had the opinion that improvement in the system can reduce

the level of NPA. 64% facilitators opined that system is in adequate and

improvement need to be made to reduce the level of NPA.68 % banks



inadequate credit monitoring system in India.

241

sec3_5

Do you feel that specialized cadre skilled

officer be selected and posted in credit

department of bank for better appraisal and

delivery of the credit?

YES NO

Borrower 70% 30%

Facilitator 67% 33%

BANK 62% 38%

Analysis Reveals

All three groups in the study have similar views. 66% average across

the group agrees that specialised and skilled officer can definitely

contribute well. 60% borrowers had the opinion that skilled and efficient

credit officer can reduce the level of NPA. 76% facilitators opined that

efficiency of credit department need to be increased by appointing

skilled officer to reduce the level of NPA.70 % banks are also of the


242

33% facilitators and 38% banks disagreed to the fact that skilled and

efficient officer’s appointment shall reduce the level of NPA.

sec3_6

Will this selection help bank to reduce

the risk of account becoming NPA in

early stage or even in future?

YES NO

Borrower 60% 40%

Facilitator 76% 24%

BANK 70% 30%

Analysis Reveals

All three groups in the study have marginal difference in their views.

60% borrowers had the opinion that selection of skilled and efficient

credit officer can reduce the level of NPA in early stage or in future. 76%

facilitators opined that efficiency of credit department need to be

increased by appointing skilled officer to reduce the level of NPA and

possible to be deducted at early stage itself.70 % banks are also of the


243

24% facilitators and 30% banks disagreed to the fact that skilled and

efficient officer’s appointment shall reduce the level of NPA neither at

early stage nor in future.

sec3_7

Whether there is a need of a special

recovery officer in bank for better

recovery?

YES NO

Borrower 75% 25%

Facilitator 59% 41%

BANK 62% 38%

Analysis Reveals

All three groups in the study have marginal similarities in their views.

75% borrowers had the opinion that selection of recovery officer can

reduce the level of NPA in early stage or in future. 59% facilitators

opined that efficiency of credit department need to be increased by

appointing recovery officer to recover the dues efficiently which in turn

244

will reduce the level of NPA and possible to be deducted at early stage

itself.62% banks are also of the same opinion as borrowers and


disagreed to the fact that appointment of recovery officer shall not make

any difference in the performance of the banks.

sec3_8

Do you favour appointments of External

Recovery Agents to recover banks hard

core dues?

YES NO

Borrower 60% 40%

Facilitator 63% 37%

BANK 71% 29%

Analysis Reveals


60% borrowers agree for appointment of external recovery agency for

hard core due which enable to reduce the level of NPA in early stage or

in future. 63% facilitators opined that appointment of recovery agent can

245

produce better performance to recover the dues efficiently which in turn


itself.71 % banks are also of the same opinion as borrowers and


disagreed to the fact that appointment of recovery agent shall not make

any difference in the performance of the banks or recovery status of the

bank.

sec3_9

Do you favour cash incentive scheme for

banks staff for recovery of duesYES NO

Borrower 60% 40%

Facilitator 55% 45%

BANK 64% 36%

Analysis Reveals


60% borrowers agree for cash incentives for recovery of hard core due

246

which enable to reduce the level of NPA in early stage or in future. 55%

facilitators opined that cash incentives can motivate the staff and can

produce better performance to recover the dues efficiently which in turn


itself.64 % banks are also of the same opinion as borrowers and


disagreed to the fact that cash incentives shall not make any difference

in the performance of the banks or recovery status of the bank.

sec3_10

Whether a system of “credit audit” i.e.

verification of total proposal financially and

technically by audit people before

disbursement of loan be introduced in

banking industry? (Above certain limit)

YES NO

Borrower 45% 55%

Facilitator 65% 35%

BANK 68% 32%

247

Analysis Reveals

All three groups in the study have difference in their views. 60%

borrowers agree with the concept of credit audit. Credit audit should be

conducted before the disbursement of the loan amount. 55% facilitators

opined that performance of credit audit at appraisal or disbursement

stage will enable to eliminate the sanction of defective loan account

which in turn will reduce the level of NPA and possible to be deducted

at early stage itself.64 % banks are also of the same opinion as


36% banks disagreed to the fact that there could be any difference in the

performance of the bank due to credit audit.

sec3_11

Can this system be made compulsory/

statutory like or similar to internal audit in

the bank?

YES NO

Borrower 60% 40%

Facilitator 71% 29%

BANK 68% 32%

248

Analysis Reveals


borrowers agree with the concept of credit audit. and also agreed that it

should be made as a statutory requirement for better recovery

proceedings.71% facilitators opined that performance of credit audit at

appraisal or disbursement stage will enable to eliminate the sanction of

defective loan account which in turn will reduce the level of NPA and

possible to be deducted at early stage itself. 68 % banks are also of the


29% facilitators and 32% banks disagreed to the fact that there could be

any difference in the performance of the bank Inspite of making credit

audit as statutory requirement.

sec3_12

Whether the scope of separate Rating

Agencies like ICRA, CRISIL, CARE etc. are

extended for the purpose of giving risk

rating to borrowable parties in order to

sanction loan speedily?

YES NO

Borrower 60% 40%

Facilitator 74% 26%

BANK 68% 32%

249

Analysis Reveals


borrowers agree with separate credit agencies for credit audit.74%

facilitators opined that performance of credit agencies at appraisal or

disbursement stage will enable to eliminate the sanction of defective

loan account which in turn will reduce the level of NPA and possible to

be deducted at early stage itself. 68 % banks are also of the same

opinion as borrowers and facilitators to which 40% borrowers, 26%

facilitators and 32% banks disagreed to the fact that there could be no

difference it the success of the bank

sec3_13

Whether such risk rating system if introduced

should cover all the aspects of credit proposal

such as type of product, nature of industries,

market demand and supply, technology

changes, interest structures etc.

YES NO

Borrower 50% 50%

Facilitator 73% 27%

BANK 80% 20%

250

Analysis Reveals


borrowers agree to the audit and rating system to cover all the factors

73% facilitators opined that performance of credit rating by agencies at

appraisal or disbursement stage will enable to reduce the level of NPA

and banks are also of the same opinion as borrowers and facilitators to


fact that there could be no difference to the success

sec3_14

Whether Management Information System on

the performance of various sectors of the

economy as also NPA data covering banks is

developed in banking industries for better

credit appraisal?

YES NO

Borrower 45% 55%

Facilitator 80% 20%

BANK 80% 20%

251

Analysis Reveals


borrowers agree to the concept of Management Information System on

the various sectors of the economy for better credit appraisal.80 %

facilitators opined that MIS and information system will be helpful in

increasing the performance of the bank. 80% banks are also of the same


facilitators and 20% banks disagreed to the fact that there could be no

difference to the success

sec3_15

Are you in favour of fixing of responsible on

bank officials when particular accounts turn

NPA?

YES NO

Borrower 75% 25%

Facilitator 82% 18%

BANK 76% 24%

252

Analysis Reveals


borrowers agree to the concept of fixing the responsibility on the bank

officials in case of account turning NPA .82 % facilitators opined that

responsibility to hold bank officer or officials more vigilant. 76% banks


borrowers, 18% facilitators and 24% banks disagreed to the fact that

there could be no difference shall be made in case the officials are held

responsible.

sec3_16

Whether in your opinion “strict appraisal”

will help to reduce the chances of any

account turning NPA?

YES NO

Borrower 75% 25%

Facilitator 88% 12%

BANK 89% 11%

253

Analysis Reveals

All three groups in the study have slightly similar views. 75% borrowers

agree to the concept that strict appraisal can reduce the account turning

NPA. 88% facilitator’s opinion shows that having 89% banks are also of


12% facilitators and 11% banks disagreed to the fact that there should

be strict appraisal to reduce the level of NPA.

sec3_17

Whether this “Strict Appraisal” will become

harassment to the borrower?YES NO

Borrower 85% 15%

Facilitator 56% 44%

BANK 77% 23%

254

Analysis Reveals


agree to that strict appraisal being a kind of harassment can reduce the

account turning NPA. 88% facilitator’s opinion shows that strict

appraisal can be a source of harassment to the borrowers. 89% banks


borrowers, 12% facilitators and 11% banks disagreed to the fact that

strict appraisal shall be a cause of harassment to the borrowers.

SECTION IV

sec4_1

It is often said that Lawyers/ advocates

delays the hearing of the case before Courts

by taking dates. Do you agree.

YES NO

Borrower 80% 20%

Facilitator 73% 27%

BANK 70% 30%

255

Analysis Reveals


agree that due to delay attitude of the advocates or lawyers by taking

adjournment the justice is postponed indefinitely. 73% facilitator’s

opinion shows that the court order is delayed due adjournment opted by

advocates or lawyers.70% banks are also of the same opinion as


30% banks disagreed to the fact that advocates or lawyers are the cause

for delayed court order.

sec4_2

Is it a fact that bank does not provide their

advocates with proper papers/ list of

securities and documents during hearing

of the case before Court?

YES NO

Borrower 65% 35%

Facilitator 61% 39%

BANK 59% 41%

256

Analysis Reveals


agree that banks do provide advocates or lawyers with complete and

proper document during hearing of the case before the court. 61%

facilitator’s opinion shows that the court order is delayed due to

improper documentation or papers at the time of court hearing.59 %

banks are also of the same opinion as borrowers and facilitators to


fact that advocates or lawyers are not provided with required

documents or incomplete papers during the court proceedings.

sec4_3

Is it true that most of the bankers do not

care to renew loan documents in time?YES NO

Borrower 60% 40%

Facilitator 55% 45%

BANK 55% 45%

257

Analysis Reveals


agree that banks do not renew the loan account from time to time.55%

facilitator’s opinion shows that non renewal of loan account and

upgradation of document is a cause of NPA.55 % banks are also of the


45% facilitators and 45% banks disagreed that non renewal of the loan

account is no barriers for the success of the bank.

sec4_4

Do you feel that delay in getting decree

from court to recover bank’s dues make

such recovery impossible or difficult?

YES NO

Borrower 65% 35%

Facilitator 55% 45%

BANK 52% 48%

258

Analysis Reveals

All three groups in the study have different views. 65% borrowers agree

that delay in getting the decree creates recovery of loan amount difficult

or impossible.55% facilitator’s opinion shows that delay in court order

leads to impossibility or difficult in recovering due from the borrowers.

.52 % banks are also of the same opinion as borrowers and facilitators to

which 35% borrowers, 55% facilitators and 48% banks disagreed that

delay in decree is a concern for recovery.

sec4_5

Do you agree that time consuming and

tedious legal procedure is responsible for

slow recovery of banks overdues?

YES NO

Borrower 60% 40%

Facilitator 68% 32%

BANK 68% 32%

259

Analysis Reveals

All three groups in the study have identical views. 60% borrowers agree

that tedious and time consuming legal procedure are one of the factors

for account turning NPA.68% facilitator’s opinion shows that

cumbersome and delayed procedure could be the cause for NPA.68 %

banks are also of the same opinion as borrowers and facilitators to

which 40% borrowers, 32% facilitators and 32% banks disagreed for

delayed legal and lengthy procedure.

sec4_6

Do you agree that outdated laws are the major

causes for ineffective recovery of banks dues?YES NO

Borrower 40% 60%

Facilitator 67% 33%

BANK 82% 18%

260

Analysis Reveals


that out dated laws need to be amended at a lucid intervals.67%

facilitator’s opinion shows that old and outdated laws need to be

amended..82 % banks are also of the same opinion as borrowers and


disagreed that regarding outdated laws.

sec4_7

Do you feel that effective working of Board for

Industrial and Financial Reconstruction (BIFR)

will help banks to recover the long outstanding

dues?

YES NO

Borrower 60% 40%

Facilitator 76% 24%

BANK 77% 23%

261

Analysis Reveals


effective working of BIFR will enable bank to recover long outstanding

dues. 76% facilitator’s opinion shows BIFR should function more

effectively to enable recovery faster. . 77 % banks are also of the same


facilitators and 23% banks disagree with the efficiency of BIFR.

sec4_8

Do you feel that the Public Debt Recovery Act

(DRT) be extended or made applicable in all the

states of India for fast recovery of banks dues?

YES NO

Borrower 80% 20%

Facilitator 86% 14%

BANK 82% 18%

262

Analysis Reveals

All three groups in the study have almost similar views. 80% borrowers

agree that DRT should work more effectively and should be extended to

wider jurisdiction. 86% facilitator’s opinion shows recovery of due is

possible with efficient functioning and wider coverage of jurisdiction. 82


which 20% borrowers, 14% facilitators and 18% banks disagree with the

view efficiency DRT and DRAT.

6.7. Conclusions

In this chapter the analysis have been carried out in two parts:

Comparison between the banks (PSB, Private Banks, Co-operative

Banks and NBFC)

Comparisons between the Borrowers, Facilitators and Banks.

263

In both the comparison the analysis has been classified into three stages

and four sections. In section II there are open end questions which are

considered for findings and conclusions in chapter no 8 and 9 in this

research thesis. The views of respondents are taken for the suggestion

they are not exhibited in the graphical representations. All close end

questions are presented in graphical representation.

Unstructured interviews conducted with bank officials are also projected

in chapter no. 7 and 8 in the following chapters in this thesis. The

policies practised by the banks have been presented in this chapter

which gives clear idea as to what percentage of response from the banks

have been received and what is their opinions available and the

implementations of policies by a particular sectors.

264

CHAPTER 7

MANAGEMENT OF NPAs IN PRIORITY AND NON PRIORITY SECTOR

ADVANCES OF BANKS

7.1 Introduction

Priority sector was regarded as a “People’s Sector” by the policy

makers, regulators and banks till 1990. As stated earlier, during 1969-

1991, institutional viability was neglected, risk management practices

missing, credit provided under concessional interest’s rates and loans

were wrongly allocated. Combining all these factors resulted in decline

in profit margins and increased over dues. The NC-I tried to correct

these weaknesses by introducing the priority sector credit targets from

40-10 percent. The GoI did not accept this recommendation. In Indian

economy feels that the high level of the NPAs and low productivity of

capital that the economy had in the late 1980s and early 1990s was

caused by directed credit. Government of India and the RBI have not

denied this views directly, but attempted to mitigate the risks by

reforming priority sector credit by widening/ expanding the scope,

definition and liberalized interests rates, etc.

7.1. a. Findings of the Studies/Reports

The main factors responsible for increasing NPAs in priority sector

advances as reported by studies conducted by the PSBs were: poor

management and failure to detect the causes of incipient sickness; lack

of management capability of the borrowers; absence of regular visits to

units by the branch staff to monitor the operations; and lack of proper

infrastructure in the areas. Some of the reports and studies on NPAs

265

show that the problem of NPAs is perceived as post-sanction

inadequacy in supervision, monitoring and follow-up of the end- use of

the funds .This perception may not be altogether wrong, but the real

problem lies elsewhere. According to many bankers who were and are

associated with priority sector advances, felt that, the accounts

becoming NPAs is primarily due to undue delay in project appraisal and

project implementation. The causes of NPAs external to banks as

identified by these studies are factors beyond the scope of activities and

operational control of the credit agencies. These are:

(i) The environment in which the credit agencies functions and

extend finance to all the activities in the rural areas,

(ii) The susceptibility of large parts of the country to repeated

droughts in the rain fed areas under floods resulting in

extensive crop damages impaired the repaying capacity of the

borrowers and disrupt the credit delivery systems at all levels;

(iii) The inadequate income generation capacity affects recoveries

mostly in resource-poor and backward areas;

(iv) The inadequacy of arrangements for marketing of agricultural/

rural produce, and, lack of transportation also affects recovery

of loans; and

(v) The increasing participation of banks in weaker section

financing mostly through government-sponsored programmes

and also political interference undermine the credit discipline.

As far as factors internal to the credit systems are concerned, these

studies found that the structural weakness of the credit agencies,

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deficiencies in the loan policies and procedures, ineffective supervision

and improper monitoring of the end and the use of credit, poor customer

service and lack of rapport with borrowers commutatively lead to

accounts becoming NPAs. While granting loans, the integrity of the

borrowers is not properly assessed. Needless to state that default in

lending adversely affected recycling of credit, squeezed-up the

resources and is closely linked with the banks heading towards a state

of financial un-sustainability. In order to combat the problems of

defaults as well as to ensure financial viability, the RBI and NABARD

have brought out several policy and institutional measures.

If NPA recovery rate is high, further disbursement would be

automatically high. If NPA rises beyond particular limits, the health of

the banking system would be jeopardized. The recycling fund should be

made healthy and strong credit monitoring system should be performed

at appropriate time and place for detection of loan account turning bad.

An effective monitoring along with SARFEASI and Basel Accord would

change the situation of NPAs in the Indian Banking system at par with

international standard and bring resilience for strong and vibrant

financial system to realize the objectives of the reform measures

implemented.

7.2. Action Plans for management of NPAs

Identification of activities and solvency state of borrowers for hiring

their package of service monitoring since initial stages and incentives to

staff for recovering efficiently and reward for long associations and

liaisoning with the government and other recovery officers.

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7.2. a. Financing Small and Marginal Farmers

Agriculture has been the most important sector contributing to the

overall economic growth as well as providing livelihood to a very

significant proportion of rural population in India, besides having been

an instrument of food security to children and women in particular. After

country’s Independence, Government of India and Reserve Bank of India

both are committed to expand and deepen the rural financial

intermediaries in the country sides so as to facilitate the rural

households’ easy access to credit for farm sector development.

Table7.1

Flow of institutional credit to agriculture and allied activities Rs. Crore

Institutional

Credit from

02-03 03-04 04-05 05-06 06-07 07-08 08-09

Cooperative

Banks

23716 26959 31424 39786 42480 48258 35747

RRBS 6070 7581 12404 15223 20435 25312 25852

Commercial

Banks

39774 52441 81481 125477 166485 181087 202856

Grand Total 69560 86981 125309 180486 229400 254657 264455

As per Table 7.1 in the year 2006-07, commercial banks were advised to

grant relief of two percentage points in the interest rate on the principal

amount up to Rs.1 lakh on each crop loan granted by banks during

kharif and Rabi of 2005-06, and credit the relief so granted to the

borrower’s account before March 31, 2006... On analysing the availability

of the institutional credit to agricultural and other activities there is a

facilities provided by the Commercial banks, RRB and Cooperative

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banks. The credit limit has increased from 23716 to 48258 in the year

2007-08 and subsequently due to changing scenario of the banks due to

farmer suicide and there was a reduction by the Cooperative Banks. The

credit created was only 35747 in 2008-09.RRB increased its institutional

credit limit from 6070 in 2002-03 to 25852 in 2008-2009. Commercial bank

released a credit from 399774 in 2002-2003 increased to 202856 in 2008-

09.Total credit increased from 69560 to 264455 in 2008-09.

As mentioned in Table 7.2 in the next page the Kissan Credit Card (KCC)

Scheme was introduced in 1998-99 to enable the farmers to purchase

agricultural inputs and draw cash for their production needs. During

2007-08, 84.7 lakh KCCs amounting with limits aggregating Rs. 88,264

Crores were issued. During 2008-09 (till February 2009), a total of 47.26

lakh KCCs amounting with limits aggregating Rs. 26,828 Crores were

issued. Total KCC issued by the Cooperative banks, RRB and

Commercial banks amount to 808.00 lakh since 1998-99 to 2008-09.out

of this Cooperative banks issued 358.63 lakh and 336.74 by Public

Sector Commercial Banks and RRB issued 112.63 lakh. Major KCC is

issued by the Cooperative banks to help the farmers though involve risk

associated with farming.

7.3. Risks Associated with Agricultural Lending

7.3. a. Profitability and Risk of On-Farm Lending

The major factors that affect banker and farmer behaviour in on-farm

lending operations are the expected profitability of and the risks related

to on-farm investments. Risks can be of different natures and include

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those associated with the impact of unfavourable weather on production

(drought, hail, floods etc.) diseases and pest’s damage, economic risks

due to uncertain markets and prices, productivity and management risks

related to the adoption of new technologies.

Table7.2

Agency-wise KCCs issued (Lakh)

Year Co-operative RRBs Public sector Total

Banks commercial banks

1998-99 1.56 0.06 6.22 7.84

1999-00 35.95 1.73 13.66 51.34

2000-01 56.14 6.48 23.90 86.52

2001-02 54.36 8.34 30.71 93.41

2002-03 45.79 9.64 27.00 82.43

2003-04 48.78 12.75 30.94 92.47

2004-05 35.56 17.29 43.95 96.8

2005-06 25.98 12.49 41.65 80.12

2006-07 22.97 14.06 48.08 85.11

2007-08 20.91 17.73 46.06 84.7

2008-09# 10.63 12.06 24.57 47.26

Total 358.63 112.63 336.74 808.00

Source: NABARD # Up to February 28, 2009

7.3. b. Market and price risks

Price uncertainty due to market fluctuations is particularly severe

where information is lacking and where markets are imperfect, features

that are prevalent in the agricultural sector in many developing

countries.

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7.3. c. Risk of loan: collateral limitations

Problems associated with inadequate loan collateral pose specific

problems to rural lenders. Land is the most widely accepted asset for

use as collateral, because it is fixed and not easily destroyed. It is

often prized by owners above its market value and it has a high scarcity

value in densely populated area. Small holder farmers with land that has

limited value, or those who have only usufruct rights, are less likely to

have access to bank loans.

7.3. d. Moral hazard risks in distorted credit

Potentially serious risk problems have raised from the effects of failed

directed credit programs. The impact on the loan repayment discipline

is pervasive. Borrowers, who have witnessed the emergence and

demise of lending institutions, have been discouraged from repaying

their loans. Further people have repeatedly received government funds

under the guise of “loans". Loan clients have been conditioned to

expect concessionary terms for institutional credit.

7.3. e. Risk from changes in domestic and international policies:

Policy changes and state interventions can have a damaging impact on

both borrowers and lenders. For the latter they can contribute significantly

to covariant risks. Many low-income economies under the structural

adjustment program have slashed their farming subsidies. This has had,

for instance, a serious effect on the costs and the demand for

fertilizer. Reducing government expenditures as an essential part of

structural adjustment programs may also affect employment

opportunities in the public sector. Costs may even reduce agricultural

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production levels, if extension services are suddenly discontinued.

7.3. F.Subsidised Interest Rate

It was assumed that most farmers were too poor to save, that informal

financial markets were dominated by monopolist money lenders who

charged usurious interest rates, and that commercial banks were too

conservative to lend to most farmers.

7.3. g. Policy Framework

Agricultural insurance has a significant role in farming, in particular for

small farmers. However, its applicability in any given situation is defined

by the test as to whether it is the most cost-effective means of

addressing a given risk.

7.3. h. Government’s role

Government should refrain from imposing/ dictating stipulations on

banks viz, resource allocations; directed/ targeted/ sub-targeted

credit; fixation of interest rates; restricting geographical area for

financing; loan write offs/interest waiver; Government sponsored

programs linked with subsidy for farmers & with no consideration to

provision of backward & forward linkages as well as supported by

technical feasibility & financial viability of credit based farm sector

projects.

7.3. i. Housing loans fraud in banks:

Miscreants will always try to exploit such a situation by observing the

process of sanction of loan by banks and the lacunas in the system. As

it is said that strength of the chain lies in the weakest link, so whichever

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is the weakest point of our processing of proposal will be vulnerable to

fraud. The magnitude is also increasing on account of financial sector

reforms and globalization. E-Banking has added a new dimension of

frauds as necessary security awareness, knowledge and expertise is not

available with people in operation side. Fierce competitions amongst the

banks to excel performance and to grab more and more business from

others have made the banks to let loose internal control system, norms

and procedures.

7.4. Case Study

7.4. a.Sanmati Sahakari Bank Ltd

Sanmati Sahakari Bank Ltd; selected for the present study was

set up in Ichalkaranji in 1996. The bank won four First Prizes at

district level and one National Level Awards in the “Innovation in

Cross Selling” category during 2007-2008.Out of the four prizes,

two important prizes are “The Best Bank Management Prize” and

“The Best Recovery Management Prize”.

Though the bank was established in 1996, the study covered the

period of seven years 2002-2008.For the present study, to

examine the NPA management of the sample bank, the data

regarding asset classification, gross and net NPA have been

analyzed.. The bank’s major loan segments are allied sector, auto

loans, retailing, housing, personal and educational. In the

financial year 2007-08 the bank had participated in the

competition held by Kholhapur District Urban Cooperative Banks

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Cooperative Association Ltd; through the category of Small

Banks having deposits below Rs.50Crores. The study focused on

the asset classification, computation, of gross NPAs and Net

NPAs, their comparison with gross advances and net advances

respectively and also the movement of gross and net NPAs

through the study period as stated in Table 7.3

Table 7.3

Gross and Net NPA of Sanmati Sahakari Bank Ltd. (Rs. In lakh)

Year (End March) Gross NPA Net NPA

2002

2003

2004

2005

2006

2007

2008

27.85 (8.13)

46.11 (10.81)

76.12 (13.20)

96.07 (13.79)

88.05 (9.98)

95.65 (8.54)

150.30 (11.31)

19.29 (5.77)

32.16 (7.78)

37.26 (6.93)

42.21 (6.56)

13.59 (1.59)

61.15 (6.320

26.08 (2.03)

Note: Figures in the bracket shows percentage to total loan outstanding

Source: Records of sanmati bank Ltd.

It can be seen that the standard assets of the Sanmati Sahakari Bank as

per prudential norms by RBI. It can be seen that standard assets i.e.

performing assets ranged between 86.21% (2005) and 91.74% (2002).

The mean value of Sanmati Standard Assets stood 89.16%.This mean

that the bank has got good revenue generating power because 89% of

loan is disbursed which have been giving the bank regular and steady

income in terms of interest. Sanmati Bank remained alert about the

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alarming signals of NPAs and achieved good consistency in maintaining

its asset quality. Certain assets show that they are under the shadow of

NPA. This shows bank management has been very careful in preventing

their assets from slippage to NPAs. Gross and Net NPA both are in grey

zones in managing the quality of assets of a bank. Comparatively net

NPA is in danger area. Inability to keep it under control leads to NPA.

For Cooperative bank Gross NPA should never increase beyond 15%

and Net NPA 10%. Gross NPA has increased from 27.85 Lakh in 2002 to

150.30 Lakh in 2008.It has increased almost 5.40 times. However the

percentage of gross NPA has increased to 1.39 times over the same

period. Further Net NPA has increased from 19.29 in 2002 to 26.08 Lakh

in 2008.The highest value of Gross NPA touched 13.79 in 2005 whereas

the percentage of Net NPA to net advance reached 7.78% in 2003.Thus

from the available information it can be inferred that Sanmati’s

Management of Net NPA is quiet rigorous than its Gross NPAs. On the

basis of available data it may be concluded that on an average remained

Monitoring system of NPA both Gross as well as net is appreciable. On

the whole it may be concluded that the monitoring of Sanmati Bank is

quiet satisfactory.

7.4. b. Lehman’s fall- a study on Financial Institution

A study carried out by the Federal Reserve Bank of Minneapolis

revealed that preceding the collapse of Lehman brother’s lenders made

as much return as the equity investors. During 1926- 1970, US equity

investors received a return of 7% point more than what bondholders

had. But during 1982-1999 the same had fallen to less than 1%.Indeed a

275

study carried out by the Credit Suisse revealed that equity investment in

the US yielded almost close to zero return in real terms during 2000-

2008.This is quiet contrary to the expectations of the US investors.

Since 1802goverment control they have been enjoying a return in

excess of an average of 4% over government bondholders. Following

such untruly profit without proper supervision and credit bubble finally

burst. Improved financial literacy results in better understanding of

financial products both assets and liabilities products by the customer.

Such knowledgeable consumers make more discerning choice of

investments and other financial products.

7.4. C.The collapse of the Global Trust Bank

On July 24, 2004, RBI imposed 3 month moratorium on withdrawals

exceeding Rs. 10000/- for depositors of the Global Trust Bank (GTB).

Depositors were caught by surprise and close to a run on the bank

ensued. The government allayed the fears of the depositors within 48

hours though announcing the merger of the bank with Oriental Bank of

Commerce (OBC) a healthy profit making public sector banks. Collapse

of a private bank is not a new concept. Nedungadi Bank BenarasState

Bank within two preceding years to GTB. The fall of GTB is special for

several reasons. For one, unlike the failures, GTB is a “new” PSB started

in 1994with several high profile investors, including the International

Finance Corporation. The case also raises troubling questions about the

supervisory mechanism in India. At the time of its collapse, GTB had a

portfolio, 20% of which was made of NPAs. Its total losses amounted to a

whopping Rs. 272 Crores in 2003-04.The RBI was aware of the problems

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of GTB since at least 2001-02.In March 2002, RBI’s special audit found

that GTB had a negative net worth, a quiet different figure from GTB’s

own audited results showing a net worth of Rs.400 Crores. The RBI

forced GTB to change its auditors and complained about the old auditors

to the institute of the Chartered Accountant of India.GTB was in RBI’s

close inspection since then and in September, 2003 the apex bank

expressed satisfaction at its positive operating profits.

The financial mismanagement is only one portion of the fact. The bank’s

promoter, Ramesh Gelli, had been indicted of close relationship with

Ketan Parekh, master mind behind a major stock market scam. The

promoters had been blamed for rigging the stock price of GTB before a

proposed merger with the UTI bank in 2001.Gelli was forced to step

down as GTB chairman after these findings. He made his way back to the

GTB board yet again. These issues raise important questions about

corporate governance in the banks and the efficacy of the regulators in

the system.

Merging failing banks with healthy private sector banks seems to be

favoured strategy of the RBI and government. Benares State Bank was

merged with the Bank of Baroda and Nedungadi Bank with Punjab

National Bank. With the merger of GTB with the several times larger

OBC, a bank with Zero NPAs and a profit of Rs.686 Crores in 2003-04,

confirms the pattern. Apparently OBC was on a look out for a bank with

strong presence in the south and GTB fitted the bill in that regard.

Clearly the government will not let private bank depositors suffer.

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Notwithstanding the moral hazard issues pointed by many, probably

best serves the depositors. The effect on the PSB with which they are

merged and on the financial system as a whole can be maintained if

monitored properly by the regulators.

7.5. Conclusions

The retail loan has contributed significantly in credit growth of the

banks in past few years. It has also fuelled overall economic growth.

Assets impairment in housing loan in India so far is much less than

other sector and there is no systemic finance bubble as such. Since

retail loan is different ball game and banks have no previous experience,

it is necessary that banks should put in place required risk management

system so that credit is given to right person and default is kept to

minimum. With setting up of CIBIL credit history of the borrowers will

come handy to manage operational risks. Housing Finance is an

emerging area having a huge potential for the deployment of bank

funds. It is also social responsibility of the government to provide

shelter to the people and therefore a lot of initiatives are being taken by

the government to provide houses to the public. Systems and

procedures of public sector banks are very good, if followed properly,

the chances of fraud will be minimized upto a great extent. Nevertheless

above mentioned precautions will enable the bankers to curb frauds and

public money can be saved.

The traditional canons of lending and investment VIZ liquidity, safety and

profitability hold good even today. Liquidity through inflow of funds by

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way of payment of interest and repayment of instalment by borrowers

can be ensured by lending to those who can repay the loans. Safety of

loans can be ensured by taking adequate and realisable security with

required margins. Thus in absolute terms both gross NPA and net NPA

increased despite extension of certain advances bank need to exercise

better risk management and vigil to avoid future slippage in asset

quality, the regulator highlighted in their annual report. According to

Committee on Financial Sector Assessment, which under took some

survey and revealed that Indian banking system could withstand

significant shocks arising from the credit quality, interest rate and

liquidity conditions. As domestic banks cater to the needs of

globalization of Indian business, bank need to maintain quality of the

assets under risk based supervision. Hence regulatory body should be

more vigilant in monitoring be it in priority sector or SSI or non priority

sector.

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CHAPTER 8

FINDINGS AND CONCLUSIONS

8.1. Introduction

Banking in has transformed itself from a sluggish business to a dynamic

industry since the economic liberalisation of the 1990s.The mighty PSBs

dominated until 1990s and enjoyed strong system support and the

benefits of government ownership. They still hold 70% of the sector’s

assets. Private banks have focused on leaner retail banking operations,

and are wilfully moving away from the bank brand hub with more focus

on the other channels like online banking mobile banking etc. New

private sector banks in the country are leading from the front with the

nifty technology and sophisticated management, while the PSB have

well documented processes, with multiple levels of controls and

approvals, and are more branch-oriented.PSB has not experienced the

kind of losses that financial institutions of other countries have faced.

Supported by the strong economic growth of the past, prudent

regulations, absence of complex financial products and low defaulters

ratio, the sector managed to withstand the global financial turmoil.

Indian banks have proved to be efficient users of capital and compare

positively with the banking sector in other emerging markets on metrics

like profitability and NPAs.

8.1. a. NPA is those loans given by banks or financial institutions which

borrowers default in making payment of principal amount or interest.

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When a bank is not able to recover the loan given or not getting regular

interest on such loan, the flow of funds in banking industry is affected.

Also the earning capacity is adversely affected. This has direct and

immediate impact on bank profitability and efficiency. Under the

prudential norms, banks are not allowed to book any income from NPA.

Also they have to make necessary provisions for NPA which affects the

profitability adversely. Lower profitability of banking sector affects its

growth and expansion. NPA is double edged sword. On one hand banks

cannot recognize interest income on NPA and on the other hand, it is a

drain of bank’s profitability. Moreover profits earned are required to be

diverted for provision on NPA. The high level of NPA is dangerous to the

very existence of banks. Many banks in East Asian countries had to

close down due to high level of NPA.

8.1. b. Since there is slow down in economy since last two years, credit

off take has come down significantly. While there is plenty of liquidity,

the fear of NPA resulted in banks exhibiting a definite reluctance to lend.

Such situation has had an adverse effect on profitability as income by

way of interest on advances reduces, whereas due to excess liquidity in

the system, interest expenditure on deposits increases.

8.1. c. Public sector banks in India are covering nearly 85% of Indian

banking. Inspite of various private sector banks, and starting of new

private sector banks, the PSBs are dominating as far as banking

business in India is concerned. The profitability and operational

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efficiency of each PSB is different from that of others and most of them

are having poor efficiency and profitability.

8.1. d. Organizational restructuring for improving governance of the

banks and enhancement in management involvement and efficiency.

Financial restructuring refers to injecting capital by the government with

required and necessary conditions. Systemic restructuring provides for

legal changes and institutional building for supporting the restructuring

process.

8.2. Major findings on the basis of the primary data and

secondary data

8.2. a. PSB is the dominating player as it has maximum share in terms of

the business. The banks have incorporated the integrated risk

management exception to this are some small cooperative banks purely

because of their size.

8.2. b.The banks and NBFC has incorporated the operational risk

management as suggested by RBI and Basel II. Inspite of the policies

laid down by regulators for prevention of frauds the banks are of the

opinion that still the fraud persist by the borrowers.

8.2. c. NBFC focus on Collateral security and guarantee, with the result

NBFC has least percentage of NPA and all the banks and the financial

institutions follow the securitisation process which has been discussed

in length in chapter 5 of this thesis. The banks and the FI should

consider these factors while accepting the collateral securities viz:

8.2. d. Bank is of the opinion Credit card outstanding is one of the

causes for NPA especially in private sector. Private Banks issue credit

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card to weaker sections and students and outstanding amount against

these cards under these category is high.

8.2. e. Educational loan is the least risk based since they are issued

against the collateral securities. Similarly the Finance Minister beside

bar-coding the mark sheets the suggestion put forward by the banks

and financial institution include radio-frequency identifications (REFID)

for the loan availed or a notation in the degree certificates of the

borrower that would provide the loan details. This will enable the bank

to plan their repayment mode.

8.2. f. CIBIL enables to get information about defaulters but the small

banks find it difficult to enrol as a member because of high membership

fees.

8.2. g. The banks prefer to lend loans to priority and agricultural sector

as per the RBI norms and maintain the percentage notified by the RBI. In

order to minimise the agricultural risk the banks and FI insist on

insurance crops to the agricultural borrowers.

8.2. h. Precautionary measures to be taken by the banks against the

borrowers fraudulent act with respect to housing loan is discussed

under chapter 6 of this thesis.

8.2.i. Political interference and political favouritism for sanctioning has

been a cause strongly supported by the private banks and disagreed by

the Cooperative banks NBFC and public sector were neutral in its

approach. Delay in sanctioning as well as disbursement of loan is one of

the causes which was strongly agreed by Cooperative bank and

disagreed by private banks. These factors can be arrested by the Credit

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Monitoring Officer by scrutinizing thoroughly all documents and

rejecting if there is a default in fulfilling the policy and procedures by the

borrowers. Delay in sanctioning and disbursement of loans is a cause of

NPA.

8.2. j. A realistic and timely action or check would help the banks and

borrowers to maintain good functional relationship despite difference of

opinion. However the bankers should be firm in conveying their

decisions which think are in the best interest of the borrowers and bank

at the earliest without wasting much of the borrower time. If these

policies are not followed there could be delay and fluctuation in the

economic conditions may cause imbalances and the entire act of the

borrower and the bank may become futile. Failure to perform this act

can cause reduction in the profit of the banks.

8.2. k. Unstructured interviews were carried out with banks officials and

it was found that some banks give preference to community members.

Management tries to help their community without giving preference

financial strength of the borrowers officer can enable reduction strongly

recommended by the Public Sector Bank and disagreed by the Private

Bank Compulsory credit audit is opined by the banks and NBFC except

the private banks. According to PSB, private Banks and Cooperative

Banks felt strict appraisal shall be a source of reduction in NPA NBFC

disagreed with this fact of reduction. Complicated and delayed legal

procedures are the cause of NPA.

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8.3. Priority, SSI and Non-Priority Sector Advances of Banks

during Post-Reform Period

8.3. a. If the distribution of NPAs was proportionate to the distribution of

bank’s credit the total NPAs would be less than they are in fact. The

problem of NPA cannot be substantiated only due to priority sector.

Political personalities and traders and corporate houses manage to

commit default and avail priority loans. As such priority sector may have

a greater tendency of NPA in all the banks still they account only for a

small portion of gross NPA.

8.3.b. Impact was high during first phase of reform period, subsequently

the flow of credit to priority sector reduced significantly. RBI passed a

rule in their notification that priority lending should be 40% out of which

18% shall be for agricultural advances 10% for SSI. Since agricultural

and weaker section did not get much attention there is a credit crunch

and which showed an impact in the beginning of post reform period.

Agricultural advances increased from 1999 to 2008. There has been a

constant reduction in the percentage of advance provided to the SSI. In

1999 the percentage of SSI advances achieved was 17.3% were as in the

year 2002 it dropped to 3.91% and in 2008 of percentage was 10.9%.

8.3.c. The trend analysis shows that there is a fluctuation in the gross

NPA of Scheduled Urban Cooperative bank. In 1999 the level of gross

NPA was 11.7% and subsequently in 2002 it increased to 21.9% and in

2003 it reduced to 19% and again in 2004 it rose to 22.7% and in 2005 it

increased to 23.2%. This shows comparing to other sector of banks

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cooperative bank has more NPA since they give preferences to priority

and weaker section of the borrowers.

8.3. d. The trend analysis of Gross NPA and Net NPA of NBFC clearly

shows that there is overall reduction in the Gross and Net NPA since

2001 to 2009.since the Net NPA is calculated after the adjustment

made from the reserves set aside in the balance sheet. In 2001and

2002 the Net NPA is approximately 50% of gross NPA and since 2003

onwards it is more than 50% difference between Gross and Net NPA.

8.3.e. Several Committees, Task Forces and Research Studies have

identified the main causes for the increasing of NPAs in priority sector

advances of the banks. The banks face NPAs due to external and

internal factors. External factors are due to non viable activities in

rural areas. The internal factors are due to faulty assessment of the

loan, ineffective supervision and absence of timely action, etc.

External factors are more dangerous than internal factors. External

factors are natural calamities, wrong selection of borrowers etc.

8.3.f. In the management of NPAs reduction of NPA is healthy practice

than curing it at a later date. Reward for the bank staff and punishment

for the defaulter borrowers. The banker should realize that they have

lent the loan and should also recover personally and should not

depend on some external factor. Recovery of loan is the sole

responsibility of bankers who agreed to grant loan. On the other hand

a combination of directed lending and social banking relegated

profitability and competitiveness to the background. The net result

was unsustainable NPAs and consequently a higher effective cost of

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banking service. One of the main causes of NPAs into banking sector

is the directed loans system under which commercial banks are

required a prescribed percentage of their credit (40%) to priority

sector. The problem India faces is not lack of strict prudential norms

but

8.4. Conclusions

Bhagirathi Gramvikas Pratishthan, a Registered Voluntary organization

working in the Kokan Region of Maharashtra, Specifically working in

the Area of Rural Development. As a part of routine Project planning,

Bhagirathi’s Team had done a Baseline Survey to identify the financial

requirements of Rural Populations, and the purpose of requirement.

After the Detailed analysis, they found that; The Financial requirement

of Rural Person or a Farmer is quite less. I.e. amount ranging between

Rs. 5,000/- to Rs. 20,000/.

The Challenges a Rural Person encounters specifically for availing the

loan is the Time Taken for Disbursement, as well as multiple visit to

Bank for availing the Loan is not a viable option. As the rural person or

farmer has to travel to a long distance, due to which the loss of time and

money for travel is one of the major reason, along with the disturbance

in routine farm activity. All these Factors make the loan Disbursement a

Painful task for the Rural Customer. Over and above this, at times the

Designated Bank official will have a Negative Perception towards the

Farmer and Agro allied activity, which further increases the frustration

of rural customer while availing the loan. All these Findings were

287

analyzed, and a Recommendation was given to Saraswat Bank. And

Bhagirathi’s Team also suggested that; Rural People are basically very

much sensitive and Emotional, Keeping these things in Mind, if the

Loans are disbursed in single Visit and also Bank officials Good

Behaviour which would make the rural customer feel Respected and his

dignity is maintained. As the Rural Customer would make all his efforts

to maintain the relation with the bank, and he will ensure that the Dues

are always paid on time. Following Bhagirathi’s Recommendation,

Saraswat Bank had implemented the Concept of Single Day

Disbursement of Loans to Rural Customers. And it has been greatly

welcomed by the customers and appreciated. Seeing the Response from

the Rural Customers, Saraswat Bank’s Senior Officials are also assured

and Confident about the Timely repayment by these customers in future.

Source:

Personal Interaction with Dr. Prasad Deodar, President – Bhagirathi

Gramvikas Pratishthan, Sindhudurg, Maharashtra.

(Website: www.bhagirathgram.org)

288

CHAPTER 9

SUGGESTION & RECOMMENDATIONS

9.1. The future picture of Commercial banks more so the banks &

financial institution seem to be brighter. Study suggests that the NPAs

of banks & FI will decline marginally both in terms of Gross and Net

figures over next three years. This may be due to higher provisions,

which the banks have been providing. The real issues are percentage of

NPA declining over the years but the absolute figures seem to be

increasing. A strong banking sector is important for a flourishing

economy. The failure of the banking sector may have an adverse impact

on other sectors.

9.2. Credit to priority sectors have higher NPAs, due to increase in

outstanding amount in priority sector the banks face problems in further

disbursement and increase their existing profits. Hence managers of

rural and semi-urban branches generally sanction these loans. In the

changed context of new prudential norms and emphasis on quality

lending and profitability, managers should make it amply clear to

potential borrowers that banks resources are scarce and these are

meant to finance viable ventures so that these are repaid on time and

relevant to other needy borrowers for improving the economic lot of

maximum number of households. Hence, selection of right borrowers,

viable economic activity, adequate finance and timely disbursement,

correct end use of funds and timely recovery of loans is absolutely

289

necessary pre-conditions for preventing or minimizing the incidence of

new NPAs.

9.3. RBI should provide a Credit Code Number to each borrower & that

should be quoted by the borrower at the time of taking loans. Similarly

these numbers should be exhibited in a separate website which may be

accessed by the banks or by the financial institutions. This will reduce

the multiple borrowings by the Individual borrower. At the time of

opening an account he should be asked to quote the Credit code

number. This measure will reduce the multiple borrowing & with the

result the creditors can assess the creditability of the borrowers & his

repayment capacity.

9.4. RBI should bring about a notification with respect to Guarantor his

credit code number can also be verified and the solvency state of the

guarantor should be authenticated by the banker were he maintains his

savings account .RBI should set up a Flying Squad department to

introspect credit audit to be conducted by the credit auditors at random

on a regular basis.

9.5. Each auditor should be assigned a particular set of banks for a

limited period & should be in rotation, which shall reduce the

favouritism & obligations from either side. The RBI should maintain a

site exclusively where a creditor gets detaild information along with his

existing loan and solvency state. Similarly RBI should maintain in its

site Red, Amber and Green. It enables the creditor to know that whether

290

the borrower is a defaulter, or casual defaulter or a regular in honouring

his commitment

9.6. The landmark change in rural banking was achieved when the

scheme of social control was adopted in 1967, and it was given a boost

by the nationalisation of banks, in 1969.With the nationalization of banks

focus shifted to rural India which constituted the bulk of the neglected

sector. The premise of creating infrastructure in rural India for which

credit mechanism has been developed can be achieved if we are able to

create bankable projects and invite private sector to participate in the

growth.

9.7. The project based approach in the rural sector will not only allow

the micro sector (farmers /smallholders) to link to SME (agro

processing) and the large scale segment but also extend commercial

banks, cooperative banks and financial institution. So far the banks

have ventured agrarian financing only covering priority sector credit.

Developing an SPV also involves special activity. There is a need to

develop a vision and implementation framework for public private

partnership (PPP) in Indian agriculture across the food value chain.

Thus the banks and FI can help the borrowers in rural India by

developing infrastructure through macro and micro project. Thus

following steps become crucial for the development by the bank.

Developing proper institutional mechanisms for agricultural

sector

Creating an appropriate legal Frame Work

291

Data base development (farmers, crops, pricing land mapping)

with respect to contract

To fix the title of the land, as there are no sacrosanct

documentary proof to the charge of the land

Institutional mechanism for taping the inflow of the cash of the

farmers

Scientific methods for assessing the creditworthiness of the

rural entrepreneur/farmer/developer

Proper marketing of banking products and schemes

Scientific methods for risk mitigation

9.8. Therefore, the future vision strategy is very crucial for developing a

proper mechanism for integrating the PSB, Private Bank, Cooperative

Banks and NBFC for the needs of rural India for achieving holistic

growth in banking industries.

9.9. Future scope of study the researcher can take long term or term

lending, Rural Cooperative banks or state cooperative banks and make a

comparative study on these sectors of the banks and Financial

Institutions.

292

Appendix 1

NPAs Agriculture/Gross NPAs

Sr.No

Name of the

Banks 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

1 State Bank of

India Group 15.1 14.90 14.90 13.80 17.50 16.50 15.36 17.46 18.93 21.82

2 Bank of India 13.32 18.62 13.80 11.69 14.08 19.10 17.88 21.34 20.57 32.01

3 Canara Bank 10.87 15.93 16.60 20.17 15.55 13.99 10.34 18.69 15.36 18.72

4 Indian Bank 8.74 8.21 11.20 9.32 11.87 29.40 17.58 16.97 11.78 9.93

5 Punjab

National Bank 15.11 12.12 11.20 10.72 10.29 19.87 9.47 13.77 19.09 30.48

6 Union Bank of

India 17.60 15.15 13.70 12.65 12.35 20.60 13.57 16.96 17.64 19.59

7 Bank of

Maharashtra 16.79 15.35 20.50 23.36 20.90 21.23 18.14 15.71 12.17 13.84

8 Oriental Bank

of Commerce 12.15 10.78 18.20 10.48 10.78 25.36 7.14 6.61 8.88 13.06

9 Allahabad

Bank 12.29 11.59 10.10 11.09 12.46 13.36 19.95 19.77 29.34 27.52

10 Corporation

Bank 14.52 15.66 13.80 14.64 12.84 10.50 9.93 7.23 10.39 13.2

11 Indian

Overseas

Bank 11.17 10.35 11.60 9.72 10.66 24.15 7.10 7.81 8.16 30.72

12 Bank of

Baroda 15.59 15.96 16.70 14.39 15.13 16.44 14.08 14.68 20.48 22.11

13 Dena Bank 11.80 12.88 7.90 8.09 8.74 20.10 12.92 11.85 12.87 22.04

293

14 United Bank of

India 13.43 16.78 15.00 15.08 19.01 20.36 20.81 19.69 18.10 17.56

15 Central Bank

of India 13.02 10.91 10.70 11.74 13.60 22.1 13.59 15.4 17.52 22.8

16 Andhra Bank 11.38 10.48 11.27 16.71 16.18 17.30 10.11 9.67 4.70 3.42

17 Punjab and

Sind Bank 8.28 8.93 8.31 6.96 9.92 10.73 56.86 8.33 21.65 39.28

18 Syndicate

Bank 13.76 13.36 14.63 15.03 15.55 14.11 11.07 12.42 12.78 14.01

19 Uco Bank 16.58 13.37 16.72 15.17 14.33 12.21 10.7 14.73 17.51 21.11

20 Vijaya Bank 13.62 13.35 17.71 16.96 16.60 23.46 12.48 6.55 8.69 10.75

21 The IDBI LTD _ _ _ _ _ _ _ 0.5 5.3 3.1

Source: RBI Publication & WWW.rbi.org.in

294

Appendix 2

Distribution of PSBs According to percentage of NPAs in SSI to NPAs Priority Sector

Lending

Percentage of NPAs in SSI to Gross NPAs

Sr.

No

Name of the

Bank 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

1 State Bank of

India Group 19.4 19.1 18.8 18.6 18.1 15.0 12.36 12.1 10.8 10.1

2 Bank of India 12.4 10.7 15.6 15.4 18.3 19.1 19.1 21.3 21.9 22.9

3 Canara Bank 18.7 22.0 31.8 22.5 24.2 14.0 12.9 24.0 10.1 4.72

4 Indian Bank 13.2 14.3 19.8 18.2 23.8 29.4 35.8 36.7 34.3 34.0

5 Punjab

National Bank 17.1 23.6 21.1 19.4 14.7 19.9 24.3 25.4 29.2 27.4

6 Union Bank

of India 24.1 20.7 17.2 16.2 19.6 20.6 18.1 14.7 13.4 17.4

7 Bank of

Maharashtra 18.4 19.9 27.5 21.9 21.8 21.2 20.3 18.6 15.3 15.5

8 Oriental Bank

of Commerce 27.5 31.4 14.5 26.6 21.2 25.4 19.0 14.5 13.7 19.8

9 Allahabad 18.4 17.5 14.4 14.3 14.6 13.4 18.5 13.0 14.3 12.5

10 Corporation 18.0 16.3 17.8 11.2 12.4 10.5 9.7 7.11 5.7 9.0

11 Indian

Overseas

Bank 20.3 20.6 20.9 20.9 20.2 24.2 25.1 27.4 33.2 26.6

12 Bank of

Baroda 22.2 16.9 18.7 17.5 18.8 16.4 18.4 20.8 13.8 12.4

13 Dena Bank 21.4 14.1 13.6 17.8 19.7 20.1 19.3 19.3 17.3 10.2

295

14 United Bank

of India 24.1 20.7 17.2 16.2 19.6 20.4 20.5 19.1 18.1 23.2

15 Central Bank

of India 24.5 23.5 22.7 23.4 23.0 22.1 23.9 22.6 20.2 27.1

16 Andhra Bank 23.9 22.6 22.6 24.3 22 18.9 17.3 14.9 9.7 18.9

17 Punjab and

Sind Bank 18.7 18.8 21.1 19.4 14.7 12.9 7.2 21.1 14.4 18.0

18 Syndicate

Bank 24.2 23.2 22.9 22.5 19.7 19.2 18.1 13.4 43.5 9.8

19 Uco Bank 23.9 24.8 16.4 14.3 16.3 11.0 12.1 12.9 33.4 11.8

20 Vijaya Bank 14.9 14.8 22.8 15.8 15.3 15.5 11.8 5.8 56.4 6.6

21 The IDBI LTD _ _ _ _ _ _ _ 0.9 4.9 3.1


296

Appendix 3

Proportion of NPA in Other priority Sector Credit to Gross NPAs of Public Sector Banks

Percentage of NPAs in Other Priority Sector to Gross NPAs (March Ending)

Sr.

No Name of the Bank 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

1 State Bank Group 10.2 11.2 10.4 11.1 11.9 15.5 19.7 25.4 27.4 26.6

2 Bank of India 8.7 6.9 11.0 10.1 10.5 12.9 14.5 18.1 23.8 29.2

3 Canara Bank 8.2 13.0 12.0 7.6 14.6 14.5 18.8 18.2 36.6 25.3

4 Indian Bank 7.0 7.5 8.9 8.9 13.2 24.2 29.8 31.8 39.4 17.1

5

Punjab National

Bank 9.1 11.2 13.5 14.4 13.0 12.4 12.8 18.5 25.7 25.3

6 Union Bank of India 16.8 21.7 18.5 22.2 26.9 29.3 21.3 28.9 31.3 39.0

7

Bank of

Maharashtra 17.7 22.0 16.5 15.7 17.3 19.3 20.2 19.1 27.9 34.6

8

Oriental bank of

Commerce 9.6 14.7 22.3 9.1 8.7 12.1 8.0 11.3 15.65 21.4

9 Allahabad bank 12.7 12.1 13.2 13.3 14.9 22.5 21.8 29.9 27.7 31.8

10 Corporation bank 11.0 18.0 14.5 14.9 16.1 22.6 30.5 26.0 34.9 39.9

11

Indian Overseas

Bank 8.9 8.1 8.7 7.8 6.2 11.7 14.2 17.2 21.9 24.8

12 Bank of Baroda 9.8 10.6 9.3 8.9 8.8 9.9 11.1 15.4 19.8 31.3

13 Union Bank of India 15.0 14.1 14.2 13.8 15.1 17.0 21.3 28.9 31.3 39.0

14

United Bank of

India 16.8 21.7 18.5 22.2 26.9 29.3 33.3 32.6 29.4 30.6

15

Central Bank of

India 15.6 15.5 15.3 15.5 16.4 18.8 23.0 21.5 24.4 20.4

297

16 Andhra Bank 14.2 14.1 14.04 17.04 15.65 20.79 27.08 25.11 23.84 14.35

17

Punjab and Sind

Bank 17.2 11.4 9.66 8.23 21.53 10.24 6.83 14.66 34.49 23.94

18 Syndicate Bank 9.30 13.4 14.84 14.85 14.63 17.36 23.10 29.50 43.47 35.88

19 Uco Bank 17.4 17.7 22.29 17.87 18.83 19.91 21.33 24.27 33.35 39.40

20 Vijaya Bank 12.0 12.1 17.06 19.13 35.55 19.35 25.24 47.71 56.38 60.84

21 The IDBI LTD _ _ _ _ _ _ _ _ _ _


298

Appendix 4

Table: Loans Sanctioned and Disbursed under RIDF

(As at end-March 2009)

Source: NABARD.

RIDF YearNo. of

ProjectsCorpus

(Rs. Crores)Loans Sanctioned

(Rs. Crores)

Loans Disbursed

(Rs. Crores)

Ratio of loansdisbursed to loans

sanctioned(Per cent)

1 2 3 4 5 6 7I 1995 4,168 2,000 1,906 1,761 92.4

II 1996 8,193 2,500 2,636 2,398 91.0

III 1997 14,345 2,500 2,733 2,454 89.8

IV 1998 6,171 3,000 2,903 2,482 85.5

V 1999 12,106 3,500 3,434 3,055 89.0

VI 2000 43,168 4,500 4,489 4,071 90.7

VII 2001 24,598 5,000 4,582 4,053 88.5

VIII 2002 20,887 5,500 5,950 5,142 86.4

IX 2003 19,548 5,500 5,639 4,870 86.4

X 2004 17,190 8,000 7,717 6,198 80.3

XI 2005 29,875 8,000 8,301 5,728 69.0

XII 2006 42,279 10,000 10,601 5,771 54.4

XIII 2007 36,948 12,000 12,749 5,057 39.7

XIV 2008 85,527 14,000 14,719 3,013 20.5

Total 3,65,003 86,000 88,359 56,052 63.4

Separate window of Bharat Nirman Programme

XII 2006 4,000 4,000 4,000 100.0

XIII 2007 4,000 4,000 4,000 100.0

XIV 2008 4,000 4,000 4,000 100.0

Total 12,000 12,000 12,000 100.0

Source: NABARD.

299

Appendix 5

Advances of private Bank to Agriculture & weaker Sections as on last reporting Friday 0f March

Weaker Section Advances

Sr.

No Name of the Bank 2001 2002 2003 2004 2005 2006 2007 2008

1

Catholic Syrian Bank

Ltd 2.72 6.09 0.93 0.00 1.45 1.6 1.69 1.63

2

Development Credit

Bank Ltd. 0.08 4.93 0.05 0.01 0.67 0.7 3.29 3.79

3 HDFC Bank Ltd _ 6.23 0.00 0.00 0.10 1.0 0.70 2.30

4 ICICI Bank Ltd 0.65 7.55 0.00 42.43 0.07 0.5 0.80 0.72

5

UTI Bank Ltd/Axis

Bank Ltd _ 6.82 0.00 0.32 0.13 0.5 1.11 2.03

6 Karur Vysya Bank Ltd 3.75 9.41 4.30 1.02 4.12 4.5 4.17 4.16

7 Indus Ind Bank _ 6.45 0.00 0.00 _ _ 0.09 0.31

8

Tamilnad Mercantile

Bank Ltd 1.59 8.78 0.00 1.34 2.39 6.9 6.27 6.56

9 Danalakshmi Bank Ltd 1.94 7.04 2.09 1.65 0.67 3.2 6.43 7.18

10 Lakshmi Vilas Bank 4.02 11.58 3.76 0.37 5.33 5.1 6.59 6.92

11

Kotak Mahindra Bank

Ltd _ _ _ 0.00 _ _ _ _

12 Fedral Bank Ltd 6.53 14.68 4.36 8.24 3.16 7.2 6.50 9.06

13 Yes Bank Ltd _ _ _ _ _ _ _ _

14 Bank of Rajasthan 3.27 8.83 2.46 2.53 _ 1.9 1.12 1.42

15

Vysya Bank/Ing Bank

Ltd 1.65 13.04 3.59 2.04 3.16 3.8 3.86 2.65

16 Centurion Bank Ltd _ 0.00 0.00 23.62 3.39 0.8 0.53 0.24

17 City Union Bank Ltd 4.5 2.66 0.82 0.64 1.36 1.7 1.54 1.83

18

Jammu and Kashmir

Bank Ltd 12.1 3.07 3.62 27.91 3.04 3.1 3.13 6.03

19 Karnataka Bank Ltd 1.3 2.04 2.04 4.18 2.07 1.7 1.37 1.26

20

Ganesh Khurwad

Bank Ltd _ _ _ 1.11 10.12 10.2 NA NA

300

21

Lord Krishna Bank

Ltd _ _ _ 0.13 0.29 0.9 1.03 NA

22 Nainital Bank Ltd 9.1 6.40 5.10 0.19 3.08 2.4 1.24 8.2

23 Ratnakar Bank Ltd 2.7 1.71 1.51 0.09 0.98 1.8 2.23 2.41

24

SBI Commercial &

International Bank Ltd _ _ 0.00 0.00 _ _ _ _

25 South Indian Bank Ltd 2.60 2.17 1.94 2.87 3.42 2.7 4.05 4.49

26 Sangli Bank Ltd 3.94 4.28 5.08 0.28 2.28 2.0 7.63 NA

27

United Western India

Ltd 2.04 7.32 5.35 10.32 4.84 5.1 NA NA

28 Bank of Punjab _ 0.00 0.00 23.62 3.39 0.8 0.53 0.24

29 Global Trust Bank _ 0.00 0.10 0.00 NA NA NA NA

30 IDBI Bank Ltd _ 0.00 0.00 0.00 NA NA NA NA

31

UTI Bank Ltd/Axis

Bank Ltd _ 0.16 0.00 0.32 0.13 0.5 NA NA


301

Appendix 6Non-Performing Assets in Advances to Weaker Section Under Priority Sector with reference to Private

Sector Banks

Sr. No Name of the Bank 2001 2002 2003 2004 2005 2006 2007 2008

1Catholic Syrian Bank Ltd 67.23 49.24 44.09 26.49 28.70 51.2 32.09 61.94

2Development Credit Bank Ltd. 0.43 79.66 27.03 1.94 0.75 64.66 0.01 _

3 HDFC Bank Ltd _ _ _ _ _ _ _ 0.03

4 ICICI Bank Ltd 27.18 _ _ 0.00 _ _ _ _

5UTI Bank Ltd/Axis Bank Ltd _ _ _ 0.00 _ _ __ _

6 Karur Vysya Bank Ltd 2.56 5.52 5.80 5.70 5.88 3.75 3.75 3.75

7 Indus Ind Bank Ltd _ _ _ _ _ _ _ _

8Tamilnad Mercantile Bank Ltd 13.00 4.79 1.76 6.1 9.23 4.48 _ 0.8

9 Danalakshmi Bank Ltd 3.19 15.62 39.82 25.99 _ _ _ _

10Lakshmi Vilas Bank Ltd 3.14 10.85 9.09 3.85 1.72 0.99 0.24 0.70

11Kotak Mahindra Bank Ltd _ _ _ _ _ _ _ _

12 Fedral Bank Ltd 18.36 13.19 11.72 11.99 9.07 6.79 4.60 5.70

13 Yes Bank Ltd _ _ _ _ _ _ _ _

14 Bank of Rajasthan Ltd 30.73 31.93 39.72 31.67 _ 23.34 15.71 11.06

15Vysya Bank/Ing Bank Ltd 29.88 _ 14.8 6.55 5.74 3.36 6.94 1.3

16 Centurion Bank Ltd _ _ NA _ _ _ _ _


18Jammu and Kashmir Bank Ltd 30.99 6.21 23.29 14.03 12.78 13.34 13.32 1.77


20Ganesh Khurwad Bank Ltd 5.61 _ _ _ 8.77 _ NA NA

21 Lord Krishna Bank Ltd 16.19 _ 19.67 23.61 _ _ NA NA

22 Nainital Bank Ltd 11.92 10.21 8.28 5.78 10.09 1.27 _ _

23 Ratnakar Bank Ltd 15.27 12.6 13.38 15.71 27.19 21.33 14.68 _

24SBI Commercial & International Bank Ltd _ _ _ _ _ _ _ _

25 South Indian Bank Ltd 29.62 15.53 27.17 28 35.24 40 9.34 7.10

26 Sangli Bank Ltd 24.85 14.68 20.17 18.51 _ 16.67 17.10 NA

27United Western India Ltd 12.61 14.77 24.32 13.14 15.65 23.29 NA NA

28 Bank of Punjab 10 _ NA _ NA NA NA NA

29 Global Trust Bank _ _ NA _ NA NA NA NA

30 IDBI Bank Ltd 11.90 _ NA _ NA NA NA NA

31UTI Bank Ltd/Axis Bank Ltd _ _ NA 0.00 NA _ NA NA


302

Appendix 7Sectorwise Non Performing Assetsof Private Sector Bank As on 31st March -----(SSI)

Sr.

No

Name of the Bank 2001 2002 2003 2004 2005 2006 2007 2008

1 Catholic Syrian

Bank Ltd

21.19 23.62 21.92 22.29 22.30 19.95 26.76 19.78

2 Indus Ind Bank 19.87 10.67 13.95 7.35 3.78 4.81 1.04 0.81

3 HDFC Bank Ltd 9.73 12.02 11.30 7.59 4.48 3.28 8.91 12.23

4 ICICI Bank Ltd 21.92 3.04 2.48 3.27 1.83 1.60 0.03 0.31

5 UTI Bank Ltd/Axis

Bank Ltd

5.52 5.66 4.04 10.94 11.38 3.70 6.59 3.04

6 Karur Vysya Bank

Ltd

20.27 27.52 24.97 28.37 31.03 24.40 26.37 24.16

7 Bank of Rajasthan 7.60 16.61 7.25 9.54 11.3 11.81 9.82 16.56

8 Tamilnad

Mercantile Bank

Ltd

30.07 28.34 25.72 27.51 26.48 30.19 20.38 18.61

9 Danalakshmi Bank

Ltd

10.92 9.16 9.19 20.93 18.88 17.48 14.74 13.05

10 Lakshmi Vilas

Bank

19.65 22.32 26.92 21.17 23.80 22.71 23.82 10.99

11 Kotak Mahindra

Bank Ltd

_ _ _ 0.00 _ _ _ 7.47

12 Fedral Bank Ltd 11.72 13.39 15.62 13.97 14.74 13.95 12.48 9.12

13 Yes Bank Ltd _ _ _ _ _ _ _ _

14 Development

credit Bank

26.47 32.54 33.09 25.36 14.26 18.79 38.98 12.57

15 Vysya Bank/Ing

Bank Ltd

15.90 16.64 11.23 16.45 11.27 14.80 15.77 6.99

303

16 Centurion Bank

Ltd

0.32 4.40 _ 0.00 _ 3.57 2.67 18.30

17 City Union Bank

Ltd

24.10 30.05 27.51 27.92 21.41 12.60 4.58 7.46

18 Jammu and

Kashmir Bank Ltd

27.27 32.30 21.49 17.69 20.22 15.86 5.69 8.37

19 Karnataka Bank

Ltd

18.07 19.34 17.50 17.97 20.62 19.32 15.87 16.76

20 Ganesh Khurwad

Bank Ltd

16.84 9.64 13.45 6.82 14.79 16 NA NA

21 Lord Krishna Bank

Ltd

12.47 9.47 8.90 9.47 9.49 10.54 2.85 NA



24 SBI Commercial &

International Bank

Ltd

20.57 7.21 4.15 17.96 0.71 _ _ _

25 South Indian Bank

Ltd

18.13 27.86 16.06 38.56 18.41 13.56 13.88 23.04

26 Sangli Bank Ltd 20.57 7.21 4.15 17.96 0.71 _ _ _

27 United Western

India Ltd

7.33 23.36 11.53 13.87 15.88 16.42 NA NA

28 Bank of Punjab 25.05 12.17 8.06 7.69 4.40 NA NA NA

29 Global Trust Bank 7.54 43.03 21.46 11.79 NA NA NA NA


31 UTI Bank Ltd/Axis

Bank Ltd

5.52 5.66 4.04 10.94 11.38 3.70 NA NA


304

Appendix 8 Source: RBI Publication & WWW.rbi.org.in

Sectorwise Non Performing Assets of Private Sector Bank As on 31st March -----Other

Priority

Sr.No

Name of the

Bank 2001 2002 2003 2004 2005 2006 2007 2008

1

Catholic Syrian

Bank Ltd 24.67 24.31 23.43 26.94 26.64 27.61 38.19 34.95

2 Indus Ind Bank 0.15 4.72 1.86 10.42 9.23 7.11 7.65

3 HDFC Bank Ltd _ _ _ 0.00 _ 29.88 11.80 5.28

4 ICICI Bank Ltd _ 0.20 0.01 0.05 0.11 0.59 14.03 4.68

5

UTI Bank

Ltd/Axis Bank

Ltd 6.54 0.22 0.91 0.00 1.46 0.08 _ 17.85

6

Karur Vysya

Bank Ltd 6.50 3.93 5.37 6.29 6.36 7.02 10.46 8.94

7

Bank of

Rajasthan 6.18 11.58 11.20 11.15 10.95 11.31 14.78

8

Tamilnad

Mercantile Bank

Ltd 8.84 14.09 22.45 13.46 7.07 13.36 13.58 17.11

9

Danalakshmi

Bank Ltd 15.61 13.46 18.68 40.40 18.74 0.75 35.92 23.46

10

Lakshmi Vilas

Bank 5.80 7.35 10.88 20.20 18.50 24.03 21.69 20.62

11

Kotak Mahindra

Bank Ltd _ _ 35.74 23.19 38.49 4.95 0.89

12 Fedral Bank Ltd 11.99 15.36 18.72 21.00 21.69 29.56 43.73 51.86

13 Yes Bank Ltd _ _ _ _ _ _ _ _

14

Development

credit Bank 18.26 11.40 9.45 11.37 5.92 4.53 5.14 3.20

15

Vysya Bank/Ing

Bank Ltd 8.66 25.70 33.70 13.46 18.81 20.08 9.53 24.98

305

16

Centurion Bank

Ltd _ _ _ 3.81 3.07 2.85 0.28 7.09

17

City Union Bank

Ltd 6.7 7.4 7.31 9.86 9.33 7.99 9.18 11.60

18

Jammu and

Kashmir Bank

Ltd 18.89 20.28 20.28 18.47 30.36 25.41 24.33 30.53

19

Karnataka Bank

Ltd 5.96 6.49 5.67 6.04 7.28 11.16 12.98 13.76

20

Ganesh

Khurwad Bank

Ltd 10.69 11.40 13.71 9.87 15.73 16.90 NA NA

21

Lord Krishna

Bank Ltd 1.41 1.85 2.47 3.62 3.86 4.37 3.81 NA

22

Nainital Bank

Ltd 18.03 15.83 39.42 40.54 40.32 42.62 34.05 36.48

23

Ratnakar Bank

Ltd 15.50 12.28 20.60 20.48 14.33 33.82 32.28 23.62

24

SBI Commercial

& International

Bank Ltd _ _ _ 0.00 _ _ 4.05 _

25

South Indian

Bank Ltd 10.57 11.24 8.97 18.92 14.60 18.22 46.33 49.61


27

United Western

India Ltd 8.36 8.50 10.29 13.75 24.18 24.62 NA NA

28 Bank of Punjab 1.15 1.53 1.24 2.76 0.94 NA NA NA

29

Global Trust

Bank _ 0.29 _ 0.00 NA NA NA NA

30 IDBI Bank Ltd _ _ 7.06 23.83 NA NA NA NA

31

UTI Bank

Ltd/Axis Bank

Ltd 6.54 0.22 0.19 0.00 1.46 0.08 NA NA

306

Appendix 8-A - Comparison with other priorities

Advances of private Bank to Agriculture & weaker Sections

Weaker Section Advances

Sr

.

N

o Name of the Bank 2001 2002 2003 2004 2005 2006 2007 2008

1

Catholic Syrian

Bank Ltd 2.72 6.09 0.93 0.00 1.45 1.6 1.69 1.63

2

Development Credit

Bank Ltd. 0.08 4.93 0.05 0.01 0.67 0.7 3.29 3.79

3 HDFC Bank Ltd _ 6.23 0.00 0.00 0.10 1.0 0.70 2.30

4 ICICI Bank Ltd 0.65 7.55 0.00 42.43 0.07 0.5 0.80 0.72

5

UTI Bank Ltd/Axis

Bank Ltd _ 6.82 0.00 0.32 0.13 0.5 1.11 2.03

6

Karur Vysya Bank

Ltd 3.75 9.41 4.30 1.02 4.12 4.5 4.17 4.16

7 Indus Ind Bank _ 6.45 0.00 0.00 _ _ 0.09 0.31

8

Tamilnad Mercantile

Bank Ltd 1.59 8.78 0.00 1.34 2.39 6.9 6.27 6.56

9

Danalakshmi Bank

Ltd 1.94 7.04 2.09 1.65 0.67 3.2 6.43 7.18

10 Lakshmi Vilas Bank 4.02 11.58 3.76 0.37 5.33 5.1 6.59 6.92

11

Kotak Mahindra

Bank Ltd _ _ _ 0.00 _ _ _ _

12 Fedral Bank Ltd 6.53 14.68 4.36 8.24 3.16 7.2 6.50 9.06

13 Yes Bank Ltd _ _ _ _ _ _ _ _

14 Bank of Rajasthan 3.27 8.83 2.46 2.53 _ 1.9 1.12 1.42

15

Vysya Bank/Ing

Bank Ltd 1.65 13.04 3.59 2.04 3.16 3.8 3.86 2.65

16 Centurion Bank Ltd _ 0.00 0.00 23.62 3.39 0.8 0.53 0.24


307

18

Jammu and Kashmir

Bank Ltd 12.1 3.07 3.62 27.91 3.04 3.1 3.13 6.03


20

Ganesh Khurwad

Bank Ltd _ _ _ 1.11

10.1

2 10.2 NA NA

21

Lord Krishna Bank

Ltd _ _ _ 0.13 0.29 0.9 1.03 NA



24

SBI Commercial &

International Bank

Ltd _ _ 0.00 0.00 _ _ _ _

25

South Indian Bank

Ltd 2.60 2.17 1.94 2.87 3.42 2.7 4.05 4.49


27

United Western

India Ltd 2.04 7.32 5.35 10.32 4.84 5.1 NA NA

28 Bank of Punjab _ 0.00 0.00 23.62 3.39 0.8 0.53 0.24

29 Global Trust Bank _ 0.00 0.10 0.00 NA NA NA NA


31

UTI Bank Ltd/Axis

Bank Ltd _ 0.16 0.00 0.32 0.13 0.5 NA NA


308

Sir / Ma’am,

I am a Research Scholar registered with Padamshree Dr. D.Y.Patil University’s Department of Management Studies, CBD Belapur for Ph.D. The Research Work is being carried out under the guidance of Dr. Rajinder S. Aurora. The topic of my research is “NPA’s-A comparative Analysis on Banks & Financial Institutions & its Implications”. As a part of my research work I am required to substantiate my hypothesis through primary data. I am writing to you in this connection. I shall be highly obliged if you could spare some time from your busy schedule and respond to the questionnaire attached herewith. We would like to assure you that the data collected would be used only for the purpose of research and the same shall be kept confidential.

Looking forward to your support in this regard and thanking you in anticipation, I remain

Yours truly,Mrs. Sumathi GopalResearch Scholar

Annexure-QUESTIONNAIRE-1

Research Topic: Impact of NPA’s on Profitability of Banks - A Comparative Study of Public, Private and Co-operative Banks and Other Financial Institutions - With Reference To Indian Economy)

Name of the Research Guide: Dr. Rajinder S. Aurora of Dr. D. Y. Patil Institute of Management Studies Belapur, Navi Mumbai.

*******

309

Name of the Bank & Address:

______________________________________________________________

______________________________________________________________

Please tick marks ( √ ) in the relevant columns

1. Kindly indicate your Banks business (deposits + advances) (Rs. in crore)

Less than Rs.25,000 Rs.25,000 to Rs.50,000

Rs.50,000 to Rs.1,00,000 Rs.1,00,000 and Above

2. Whether your bank has/has not adopted the following: Yes No

Integrated Risk management Division

Risk management Policy on NPA

Operational Risk management Policy on NPA

Information Technology Policy

3. Which method you have planned to use for measurement of NPA?

Early stage Alert Stage Advance Stage

4. How would you assess the progress in measurement of NPA in your banks?

Poor Slow Moderate Good

310

5. What is the quantum of losses because of ‘frauds’ in your bank?

Less than 25% Above 25%- 50% Above 50%-75% Above 75%

6. What is the status of outstanding entries in priority sector in Bank?

Poor Low Medium High

7. Have you responded to RBI’s NPA undertaken as part of ‘Risk based Supervision’?

Yes No

8. What is your view on the regulatory measure proposed by BIS on NPA?

Low Medium High NIL

9. According to you what percentage are the regulatory measures proposed by BIS on NPA?

Less than 25 25% to 50% 50% to 75% Above 75%

10. What percentage of account attribute NPA in your bank?

Less than 25% 25%-50% 50%-75% Above 75%

11. What precautions does your bank adopt in providing loan to the customer?

Collateral Guarantee Guarantee and Any other Security

Collateral Security measures12. What type of loan does your bank provide to your customer?

Retail Loan Educational Loan Agricultural Loan Personal Loan

311

13. What age group does your bank prefer in providing credit to the customer? Why?

18 years to Above 25 years Above 40 years Above 60 25 years – 40 years -60 years years

14. What are the follow up measures in reading the outstanding credit?

Sale of Collateral Security Filing a suit in the Court Appointing Recovery

Agent

15. Does your Bank prefer Mortgage?

Pledge Mortgage

16. What percentage of the business of the issue of Credit Card is a cause for NPA?

0-25 26-50 50-75 75-100

17. What measures do you take while issuing Credit Card to your customer?

Educational Background Age Monthly Wages Value Of Ass

18. What is the trend of educational loan?

High Risk Medium Risk Low Risk None of the above

19. Which level of management is made accountable for not recovering the outstanding credit?

Officer Manager General Manager Vice-President

312

20. Who shall be made liable incase of failure to recover the outstanding

loan amount?

Bank Employee Customer

21. what level of credit in case of default CIBIL helps in bringing

awareness to the bank ?

Initial Defaulters Will Full Defaulters Persistent Defaulters None of The

Above

22. In realizing the amount whom does your bank appoint?

Recovery agent Files Suit Meeting with Borrower Appointment of Arbitrator

23. Does your bank incur losses since recovery involves a huge cost thus resulting in reduction in banks profit?

Low Medium High NIL

24.Whom does the bank issues the Credit Cards?

Farmers Students Weaker Section endors

25. Which Section of people contribute maximum credit card

outstanding?

Farmers Students Weaker Section

Vendors

26. Any special remedial measures adopted by the bank in recovery

procedures?

Sanction Monitoring NPA Recovery

313

27. How much time does it take to recover the money from your

customer?

Within the Time Limit Beyond Time Limit

28. Whether a Foreign Currency Loan is also available from the Bank, if yes, whether it be availed overseas?

India Foreign Country Partly in India and partly in Foreign Country

29. Does the bank finance for the development of complex?

Housing Complex Commercial Complex Agricultural Land Under

Developed areas

30. Which sector does bank prefer to give loan to their borrowers?

Priority Cooperative Weaker Section Commercial Establishment

31. Which sector contributes maximum NPA in their bank and their percentage?

SSI Agriculture Weaker Section Non-priority

314

ANNEXURE- Questionnaire 2

INTERVIEW FOR THE PURPOSE OF RESEARCH ON NPA/ BAD LOANS FOR PH.D.

NAME: _______________________________________________________

STATUS : __________________________________________________

ADDRESS : ___________________________________________________

__________________________________________________

QUALIFICATION: _______________________TEL. NO.________________

SECTION – I

Following are some of the causes of any Bank Account turning NPA/ BAD. In case you disagree with any of the cause please give reason in support.

PART-A : APPRAISAL STAGE Please Put

1) Lack of critical presentation appraisal

__________________________________________________

Agree

Disagree

2) Deliberate attempt of loose appraisal

__________________________________________________

Agree

Disagree

3) Submission of unrealistic project by the borrower

__________________________________________________

Agree

Disagree

4) Preparation of incorrect loan repayment schedule

__________________________________________________

Agree

Disagree

5) Incorporation of improper assessment of experience of the borrower or his capacity to pursue the business activity.__________________________________________________

Agree

Disagree

7) Non-Availability of reliable market study to the credit officer__________________________________________________

Agree

Disagree

8) Reliance on provisional/ unaudited data as submitted by the borrower to Bank.__________________________________________________

Agree

Disagree

9) Lack of network/ information system amongst branches/ banks enabling borrowers to enjoying banks funds from more than one bank.__________________________________________________

Agree

Disagree

10) Lack of confidence in credit officers__________________________________________________

Agree

Disagree

315

11) Lack of confidence in credit officers__________________________________________________

Agree

Disagree

12) Lack of knowledge in the subject to credit officer__________________________________________________

Agree

Disagree

13) Fear of staff accountability on account turning NPA in future in the mind of credit officer at the time of appraisal__________________________________________________

Agree

Disagree

14) Absence of right to select good borrowers by the credit department__________________________________________________

Agree

Disagree

15) Non-availability of skilled/ trained staff in credit department__________________________________________________

Agree

Disagree

16) Fraudulent approach of borrowers__________________________________________________

Agree

Disagree

17) Fraudulent and irresponsible attitude of bank officials__________________________________________________

Agree

Disagree


1) Indulgent approach to family/ group connection/ long standing relationship than to the project viability.__________________________________________________

Agree

Disagree

2) Political interference i.e. pressure to sanction loan__________________________________________________

Agree

Disagree

3) Political favouritism to particular borrower in order to please politicians__________________________________________________

Agree

Disagree

4) Delay in decision making in sanction of loan__________________________________________________

Agree

Disagree

5) Delay in disbursement in credit facilities i.e. untimely finance__________________________________________________

Agree

Disagree

6) Disbursement of loan before the compliance of terms and conditions of sanction__________________________________________________

Agree

Disagree

7) Incomplete and defective legal documentation__________________________________________________

Agree

Disagree

316

PART C : POST DISBURSEMENT STAGE

1) Unavailability of audited financial statements in time.

__________________________________________________

Agree

Disagree

2) Non-submission of stock and other required periodical

statements by the borrowers

__________________________________________________

Agree

Disagree

3) Negligent approach by the bank officials in regards to

inspection of stock etc.

__________________________________________________

Agree

Disagree

4) Absence of effective monitoring

__________________________________________________

Agree

Disagree

5) Absence of close supervision of loan account

__________________________________________________

Agree

Disagree

6) Delayed detection of warning signals

__________________________________________________

Agree

Disagree

7) Delay in initiating remedial measures and actions

__________________________________________________

Agree

Disagree

SECTION – IIPART – A

In your opinion are three any causes other than mentioned above

1) ________________________________________________________

2) ________________________________________________________

3) ________________________________________________________

4) ________________________________________________________

5) ________________________________________________________

PART – B

Which in your opinion and experience are the main causes responsible

for any account turning NPA out of causes mentioned above. (Only five

in each of the following category)

317

1) Any account going bad at an early stage

1) ________________________________________________________

2) ________________________________________________________

3) ________________________________________________________

4) ________________________________________________________

5) ________________________________________________________

2) Any account going bad at an early stage

1) ________________________________________________________

2) ________________________________________________________

3) ________________________________________________________

4) ________________________________________________________

5) ________________________________________________________

SECTION – III

1. Out of various steps to reduce NPA level one way is to go

for compromise settlement. Are you in favour of this

method?

YES/NO

2. Can this method develop a tendency among bank

borrowers to make deliberate attempt of default and then

ask for concession in interest?

YES/NO

3. What is your opinion about credit monitoring system

existing presently in Indian banking system, is it

adequate?

YES/NO

4. Do you feel that improvement in this system is necessary? YES/NO

5. Do you feel that specialized cadre skilled officer be

selected and posted in credit department of bank for better

appraisal and delivery of the credit?

YES/NO

6. Will this selection help bank to reduce the risk of account

becoming NPA in early stage or even in future?

YES/NO

7. Whether there is a need of a special recovery officer in

bank for better recovery?

YES/NO

318

8. Do you favour appointments of External Recovery Agents

to recover banks hard core dues?

YES/NO

9. Do you favour cash incentive scheme for banks staff for

recovery of dues

YES/NO

10. Whether a system of “credit audit” i.e. verification of total

proposal financially and technically by audit people before

disbursement of loan be introduced in banking industry?

(Above certain limit)

YES/NO

11. Can this system be made compulsory/ statutory like or

similar to internal audit in the bank?

YES/NO

12. Whether the scope of separate Rating Agencies like ICRA,

CRISIL, CARE etc. be extended for the purpose of giving

risk rating to borrowal parties in order to sanction loan

speedily?

YES/NO

13. Whether such risk rating system if introduced should

cover all the aspects of credit proposal such as type of

product, nature of industries, market demand and supply,

technology changes, interest structures etc.

YES/NO

14. Whether Management Information System on the

performance of various sectors of the economy as also

NPA data covering banks be developed in banking

industries for better credit appraisal?

YES/NO

15. Are you in favour of fixing of responsible on bank officials

when particular accounts turns NPA?

YES/NO

16. Whether in your opinion “strict appraisal” will help to

reduce the chances of any account turning NPA?

YES/NO

17. Whether this “Strict Appraisal” will become harassment to

the borrower?

YES/NO

319

SECTION - IV

1. It is often said that Lawyers/ advocates delays the hearing of the

case before Courts by taking dates. Do you agree.

YES/NO

2. Is it a fact that bank does not provide their advocates with proper

papers/ list of securities and documents during hearing of the

case before Court?

YES/NO

3. Is it true that most of the bankers does not care to renew loan

documents in time?

4. Do you feel that delay in getting decree from court to recover

bank’s dues make such recovery impossible difficult?

5. Do you agree that time consuming and tedious legal procedure is

responsible for slow recovery of banks overdues?

6. Do you agree that outdated laws are the major causes for

ineffective recovery of banks dues?

7. Do you feel that effective working of Board for Industrial and

Financial Reconstruction (BIFR) will help banks to recover the

long outstanding dues?

8. Do you feel that the Public Debt Recovery Act (DRT) be extended

or made applicable in all the states of India for fast recovery of

banks dues?

9. What in your opinion are the main reasons for considerable delay

in getting decree from the Court of law for Bank’s dues?

i) ______________________________________________________

_________________________________________________________

ii) ______________________________________________________

_________________________________________________________

iii)______________________________________________________

_________________________________________________________

320

Abbreviation

ABC: Adjusted Bank Credit

ABS: Asset Backed Securities

AFCs: Assets Financing Companies

ALM: Asset Liability Management

AMC: Asset Management Company

ANBC: Adjusted Net Bank Credit

ARC: Asset Reconstruction Company

BCBS: Basel Committee on Banking Supervision

BFS: Board for Financial Supervision

BIS: Beaureu of international Settlement

CADP: Common area development programme

CAPM: Capital Assets Pricing Model

CAR: Credit Adequate Ratio

CARE: Credit Analysis and Research Ltd

CCF: Credit Conversion Factor

CFSA: Committee on financial sector assessment

CIBIL: Credit Information Bureau Ltd

CLO: Collateralized Loan Obligation

CPs: Commercial Papers

CPC: Civil Procedure Code

CRR: Cash Reserve Ratio

CRAR: Capital Risk Weighted Asset Ratio

CRISIL: Credit Rating Information Service of India Ltd

DDP: Dessert development programme

DEA: Data Envelopment Analysis

DFI: Development Financial Institution

321

DICGC: Deposit Insurance and credit Guarantee Corporation

DPAP: Draught prone area programme

DRDA: District rural development agency

DRT: Debt Recovery Tribunal

DRAT: Debt Recovery Applet Tribunal

DGA: Duration Gap Analysis

ECAIs: External Credit Assessment Institutions

ECGC: Export Credit Guarantee Corporation

FDI: Foreign Direct Investment

FI: Financial Institution

GOI: Government of India

GTB: Global Trust Bank

HFC: Housing Finance Company

IRDP: integrated rural development programme

IRAC: Income Recognition and Asset Classification

IRS: Interest rate swaps

KCCS: Kissan Credit Card Scheme

KYC: Know your Customer

LGD: Laws given default

MBS: Mortgaged Backed Securities

MFAL: Marginal farmer’s agricultural labourers

MOU: Memorandum of Understanding

MPBF: Maximum Permissible Bank Finance

MSME: Micro Small and medium enterprise

NABARD: National Bank for Agricultural and Rural Development Bank

NBC: Net Bank Credit

NBFC: Non Banking Financial Companies

NBFI: Non Banking Financial Institution

322

NC: Narasimham Committee

NGO: Non Governmental Organisation

NHB: National Housing Banks

NPA: Non Performing Asset

OBC: Oriental Bank of Commerce

OPS: Other Priority Sector

OSS: Off-Site Surveillance Software

OTS: One Time Settlement

PACS: Primary Agricultural Credit Societies

PEO: Programme evaluation Organization

PLR: Prime Lending Rate

PSA: Priority Sector Advances

PSB: Public Sector Bank

PTC: Private Trust Company

PCBs: Primary Cooperative Banks

RFIs: Rural Financial Institutions

RIDF: Rural Infrastructure Development Fund

ROA: Return on Asset

RRB: Regional Rural Bank

SACP: Special Agricultural Credit Plan

SARFAESI: Securitization and reconstruction of financial asset and

Enforcement of Security Interest

SCB: Scheduled Commercial Bank

SEB: Salary Earners’ Bank

SFDA: Small farmer’s development agency

SGSY: Swarna Jayanti Gram Swarozgar Yojna

SHGs: Self Help Groups

SIDBI: Small Industry Development Bank of India

323

SLR: Statutory liquid Ratio

SME: Small and medium enterprise

SPV: Special Purpose Vehicle

SSI: Small Scale Industry

STCBs: State Cooperative Banks

TAFCUB: Task Force for Cooperative Urban Bank

TGA: Traditional Gap Analysis

UCB: Urban Cooperative Bank

VC: Venture Capital

WPI: Whole Sale Price Index

324

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Cooperative Banks” Professional Banker, Icfai Journal, Published

by Icfai University Press, October, pp 56-62

50.Satish Chander Gupta50 (2009) “Competition in Banking Sector:

Changing Dynamics”, the Analyst, Chartered Financial Analyst,

October, pp 21, 22 & 25

51.Amit Singh Sisodiya and Ramana Pemmaraju51 (2009) “Indian

Banking Sector: Signs of Resilience” The Analyst, Chartered

Financial Analyst, October, pp 26-33

52.Tarun Bhatia52 (2009) “Healthy Capitalisation: Cushioning the

Crisis” The Analyst, Chartered Financial Analyst, October, pp 58-

59, 62-63

53.R.Vaidyanathan53 (2009) “Consolidation of Banks: Challenges

Ahead” The Analyst, Chartered Financial Analyst, October, pp 69-

70 &72

54.Jagadish. R. Raiyani54 (2010) Performance Analysis of SSI in India,

Professional Banker, Icfai Journal, Published by Icfai University

Press, March, pp 40-45

331

55.Ghatponde55: “Recovery of Bank loans – an investigation into the

existing judicial process review of costs and time factors and

recommendations” to The Indian Banks Associations, 1991-92

56.V.K. Sudhakar56: Bank of Baroda had submitted dissertation on the

subject of “Policies and Perspectives of NPA Reduction in Public

Sector Banks” to The Indian Banks Association, Mumbai, 1997-98.

57.Ranjana Kumar57 (2004) “Move towards Risk Based Supervision of

Banks: The Role of the Central Banker and the Market Players,

Vinimaya, Vol. XXIV, No.1, NIBM Publication, pp 5-12

58.C.Rangarajan58 Governor, RBI, Speech at the Bankers’ Training

Centre of the Nepal Rashtra Bank Katmandu on 18th May 1997,

59.Dr.Bimal Jalan59, Governor RBI, in s speech titled “Banking and

Finance in the New Millennium” delivered at 22nd Bank Economists

Conference, New Delhi, and 15th February, 2001

60.G.P.Muniappan60, Deputy Governor, RBI at CII Banking Summit

2002 at Mumbai on April, 2002.

61.Research Report OF Fourth International Conference on Ethiopian

Economy61June (2006): A Study on Non-Performing Assets with

Special Reference to Commercial Banks Ethiopia

62.V.Leeladhar62, Deputy Governer, Reserve Bank of India at the

Seminar on Basel II: Implementation Challenges in Banks in

association with the Federal Reserve Bank New York, organised by

NIIBM on Jan 15th & 16th, 2007

332

63.RBI, “Report of the Committee on banking Sector Reforms”

(Narasimham Committee)

64.NABARD “Report of the Committee on the Rural Credit”, (V.S.Vyas

Committee),Mumbai

65.RBI “Trend and Progress of Banking in India” (Various Years)

66.Report of the various Committees

CHAPTER 4

1) Sankar Thappa “Securitization”, Vinimaya, Vol. XXVII No.2, 2006-

2007, pp 60

2) Uday Bose “SARFAESI Act: An Effective Recovery Tool”,

Vinimaya, Vol.XXV, NO.4, pp 44

3) Rajesh Mokashi, “The Analyst: Chartered Financial Analyst”,

October, 2009 ICFAI University Publication pp87.

4) Ibid (3)

5) Ibid (2)

6) Mohan.R. Lavi, “Scratching the Surface of SARFAESI”, Article,

Financial Express, 2005

7) Ibid (7)

8) IBA Bulletin, July 2003

9) Banerjee B.P. “Guide to the SARFAESI Act”, 2002, Wadhwa

Publication.

10) Vinimaya, June 2003, NIBM, Pune

333

11) Chalam (1999), Gopal, “Securitization-General Principle”, the

Management Account, October 1999.

12) Paramasivam Thirumoorthy, “Future Flow Securitization- An

Innovative Financing Technique”.

13) “For Indian infrastructure Sector” (2003), Management and

Accounting Research, Vol 7 Nos. 1&2, July – December 2003.

14) Gordan, E and K. Natrajan (1997), Emerging Scenario of financial

Services, Himalaya Publication House, 1997

15) Guruswamy.S. (2004), Financial Services and Markets, Vijoy Nicole

Imprint Pvt. Ltd, 2004

16) Khan.M.Y. (2004), Financial Services, Tata McGraw Hill, 2004

CHAPTER 5

References:

1. In the 1960s and 1970s the CRR was 5% but was raised to 15% in early

1991.The SLR was 25% in 1970 and was increased to 38.5% in 1991-

nearly to the level of its upper limit of 40%

2. With respect to priority sector or directed lending, priority sector

target of 33% of total advances was introduced in 1974 with the ratio

gradually being raised to 40% in 1985.These were the sub-targets for

agriculture, small farmers weaker section credit.

3. S.Khasnobis, (2006) ‘NPAs: Emerging Challenges’, Indian Banker, IBA

Publication, November 2006, Vol.I-No.11, pp17-20

4. RBI report on Trend and Progress of banking in India: 1997-1998 pp27

5. Nephi’s Law relating to Non Banking Financial Companies, A Nabhi

Publication, 1994, pp. 1, 3, 5

334

6. Reserve Bank of India Bulletin, August 97, p. 591

7. Machiraju H.R.: Indian Financial System, Vikas Publishing House Pvt.

Limited, 1998, p. 7.1

8. CMIE, Monthly Review of Indian Economy, Dec. 1997, pp. 129-131.

9. Reserve Bank of India Bulletin, July 1998, p. 581

10. CMIE, Monthly Review of Indian Economy, May 1999, pp. 119.

11. CMIE, Monthly Review of Indian Economy, June 1999, pp. 110.

CHAPTER 7

1. Shete. N.B., “Priority Sector Advances of Banks during the Post-

Reform Period”, Prajnan, VOL.XXXI, No. 1, 2002-2003, NIBM, Pune,

pp21-37

2. Gulati, Ashok and Seema Bathla, “Institutional Credit to Indian

Agriculture: Defaults and policy Options”, Occasional paper 23,

NABARD, Mumbai, August 2002

3. Shete. N.B. Agricultural Lending Revisited”, Working Paper, NIBM,

Pune, September 2002

4. Dr.M.S.Phogat, “Housing Loan Frauds in banks”, “The Indian

Banker”, VOL.I No 5, May 2006, pp 19-20

5. Dr.Amrit Patel, “Financing Small and Marginal Farmers”, “The

Indian Bankers”, VOL.I-No 4, April 2006, 24-32

6. Prasanta Kumar Mallik, “Housing Loan Frauds in banks”, “The

Indian Banker”, VOL.I- No 4, April 2006, 20-23

335

7. RBI ‘Guidance Note on Credit Risk Market’, 12th October, 2002

8. Bank for International Settlements ‘Consultative Document’, April

2003

9. Dr.K.K.Ammannaya ‘Managing Capital for Risk Coverage’ ‘The

Indian Banker’, Vol.III No 12, December 2008.

10. ‘The Analyst –Chartered Financial Analyst’ the Icfai University

Press, October 2009

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