PROJECT REPORT

ON

“A STUDY ON NON-PERFORMING ASSETS

OF STATE BANK OF INDIA”

A Project Submitted to

University of Mumbai

For Partial Completion of the Degree of Master in Commerce

Under the Faculty of Commerce

By

AMANLAL SHIVAJI RAJAK

Under the Guidance of

PROF. C. D. BHOSALE

RAYAT SHIKSHAN SANTHA’S KARMAVEER

BHAURAO PATIL COLLEGE VASHI, NAVI
MUMBAI

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 DECLARATION BY LEARNER

I the undersigned MR. AMANLAL SHIVAJI RAJAK here by, declare that

the work embodied this project work titled “ A STUDY ON NON-

PERFORMING ASSETS OF STATE BANK OF INDIA” forms my own

contribution to the research work carried out under the guidance of “Prof. C. D. BHO-

SALE”is a research of my own research work and has not been previously submitted to

any other University for any other Degree/Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has

been clearly indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been

obtained and presented in accordance with academic rules and ethical conduct.

MR.AMANLAL SHIVAJI RAJAK

Certified by

_______________________________

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 RAYAT SHIKSHAN SANTHA’S
KARMAVEER BHAURAO PATIL
COLLEGE VASHI, NAVI MUMBAI

CERTIFICATE

This is to certify that MR. AMANLAL SHIVAJI RAJAK has worked and

duly completed his Project Work for the degree of Master in Commerce under the Fac-

ulty of Commerce in the subject of “A STUDY ON NON-PERFORMING AS-

SETSOF STATE BANK OF INDIA” and his project are entitled, “Prof. C. D. BHO-

SALE” under my supervision. I further certify that the entire work has been done by

the learner under my guidance and that no part of it has been submitted previously for

any Degree or Diploma of any University.

It is his own work and facts reported by his personal findings and investigation.

Guidance Teacher
Date of Submission:

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 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are no numerous and the

depth is so enormous.

I would like to acknowledgement the following as being idealistic channels and

fresh dimensions in the completion of this project I take this opportunity to thank the

University of Mumbai for giving me chance to do this project.

I would like to thank my Principal DR. V. S. SHIVANKAR for providing the nec-

essary facilities required for completion of this project.

I take this opportunity to thank our Coordinator DR. D. T. SHINDE, for her moral

support and guidance.

I would also like to express my sincere gratitude towards my project guide Prof C. D.

BHOSALE whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference

books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped

me in the completion of the project especially my Parents and Peers who supported

me throughout my project.

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 INDEX

Sr. No Chapter No. Title Page

No.

1 Abstract 05

2 Keywords 05

3 Chapter No. 1 Introduction of Study 06

4 Chapter No. 2 Research Methodology 08

1. Objective of Study
2. Hypotheses
3. Limitations of Study
4. Research design

5 Chapter No. 3 Literature Review 10

1. The Indian Banking System
2. Introduction to SBI
3. List of Board of Directors
4. Features Product and Services
5. Meaning and Types of NPA
6. Impact of NPA on banks
7. NPA at SBI group
8. Early Symptoms
9. Preventive Measures for NPA
10 Guidelines of Government and RBI for
. reduction of NPAs
11. Problems Loans Recovery
Data Analysis, Interpretation and
6 Chapter No. 4 Presentation 61
7 Chapter No. 5 Finding, Conclusion and Suggestions 70
Bibliography 74

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ABSTRACT

After the evolution of banking system, the development and growth has become very prompt as bank
provides a great deal for the better and speedy capital formation in the economy. Banking system has
provided a greater amount of facility for the financial adjustment of the economic activity which is an
important tool for the development and growth.

But there are some difficulties too, in the smooth running of the banking system. One of the biggest
difficulties is the non performing assets of a bank. To grant loan is not a big challenge but the recovery
that loan is one of the biggest issues. In the present paper, the detail, causes and suggestion of the NPA.

KEYWORD:- NPA, Bank, Financial Sector.

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 CHAPTER NO. 1

INTRODUCTION OF STUDY

India being a developing country has been progressing since independence with the great sup-
port of banking system in the country. The role of commercial bank in the progress of the country is
considered as a benchmark. For the high rate of capital formation the role of commercial bank has no
any other alternative. But yet India needs a great amount of development and growth for the time to
come where again the banking system will become a milestone but the banking system has only one
big issue that is of Non Performing Assets.

In general, the non performing assets are found more comparatively in the public sector banks in
comparisons to private bank because of liberal rules for the debt recovery. Now a days the RBI has is-
sued strict guidelines to reduce NPA,s in the banks and due to that the proportion of NPA,s has re-
duced up to the extent but not all together. In the present paper a study is conducted to check the
NPA,s of State Bank Of India during 2012-13 to 2016-17 and suggestion to reduce the NPA,s has also
been drawn.

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 CHAPTER NO. 2

Research Methodology

OBJECTIVES OF THE STUDY

 To analyze the types of assets and effect of NPA on it.

 To study the causes of NPA of Banks
 To study the trends of gross and net NPA during 2013 to 2017

HYPOTHESIS

 NPA affect on financial partition of the bank.

 Credit risk Management is should adopted by the bank for minimize the NPA.

 Above Hypotheses are Positive Proved by following Example :

As per the Balance sheet or data analyses NPA affect the financial partition of the bank.
 Above Hypotheses are Positive Proved by following Example :
As per the data analyses Table no. 4 NPA increase due to the poor credit system
management in the bank.

LIMITATION

 This study is only restricted to State Bank of India only.

 The result of the study may not be applicable to any other banks
 The conclusion of the study is based on the secondary Information. Thus, some amount of sub-
jectivity might remain.

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Research design

The research conducted is to analyze the NPA management in SBI

bank. The nature of research is exploratory as well as diagnostic. This study is based on the
secondary data only of SBI Group. The various data provided by them, the RBI Circulars, journal,
magazines, data from internet will be studied and interpretation made thereof.

 Selection of the sample:-convenience sampling is used

 Sources of Data collection:- the source of data is important consideration for any project.
The data used it:
Secondary data refers to the data which has already been generated and is available for
use. The data is taken from Reserve Bank of India website, SBI website and journals. Secondary in-
formation is also obtained by the medium of internet, books and the journals of various Management
schools and the government web portals.

 Period of the study: - the period of the study is done on the basis of availability of data.
The data are collected i.e. from 2012-13 to 2016-17.
.

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 Chapter No. 3

Literature Review

1. The Indian Banking System

 The Indian Banking System:

Banking in our country is already witnessing the sea changes as the banking sector seeks new technol-
ogy and its applications. The best port is that the benefits are beginning to reach the masses. Earlier
this domain was the preserve of very few organizations. Foreign banks with heavy investments in
technology started giving some “Out of the world” customer services. But, such services were availa-
ble only to selected few- the very large account holders. Then came the liberalization and with it a
multitude of private banks, a large segment of the urban population now requires minimal time and
space for its banking needs.

Automated teller machines or popularly known as ATM are the three alphabets that have changed the
concept of banking like nothing before. Instead of tellers handling your own cash, today there are effi-
cient machines that don’t talk but just dispense cash. Under the

Reserve Bank of India Act 1934, banks are classified as scheduled banks and non-scheduled banks.
The scheduled banks are those, which are entered in the Second Schedule of RBI Act, 1934. Such
banks are those, which have paid- up capital and reserves of an aggregate value of not less then Rs.5
lacs and which satisfy RBI that their affairs are carried out in the interest of their depositors. All com-
mercial banks Indian and Foreign, regional rural banks and state co-operative banks are Scheduled
banks. Non Scheduled banks are those, which have not been included in the Second Schedule of the
RBI Act, 1934.

The organized banking system in India can be broadly classified into three categories: (i) Commercial
Banks (ii) Regional Rural Banks and (iii) Co-operative banks. The Reserve Bank of India is the su-
preme monetary and banking authority in the country and has the responsibility to control the banking
system in the country. It keeps the reserves of all commercial banks and hence is known as the “Re-
serve Bank”.

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 The Structure of Indian Banking:

The Indian banking industry has Reserve Bank of India as its Regulatory Authority. This is a mix of
the Public sector, Private sector, Co-operative banks and foreign banks. The private sector banks are
again split into old banks and new banks.

RBI

scheduled unscheduled

Commercial cooperative

Urban
public private Foreign RRB Rural

BANKING DIVISIONS

 Retail banking – loans to individuals ( auto loan, housing loan, educational loan and
other personal loan) or small business.

 Wholesale banking – loans to mid and large corporate ( working capital loans, project
finance, team loans, lease finance)

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 BANKING DIVISIONS

 Retail banking – loans to individuals ( auto loan, housing loan, educational

loan and other personal loan) or small business.

 Wholesale banking – loans to mid and large corporate ( working capital
loans, project finance, team loans, lease finance)

 Treasury operations – investment in equity, derivatives, commodities, mutu-
al funds, bonds, trading and forex operations.

 Other banking businesses – merchant banking, leasing business, hire pur-
chase, syndication services, etc.

SWOT ANALYSIS

STRENGHTS WEAKNESSES
 Valuable contribution to  Increasing NPA
GDP  Low penetration
 Regulatory environment  Lackofproduct
 Government support differentiation
OPURTUNITIES THREATS
 Modern technology  Unorganized money
 Untapped rural market lending market
 Globalization  Customer
dissatisfaction
 Rise of monopolistic
structures

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 IMPORTANCE OF BANKING SECTOR IN A GROWING ECONOMY

In the recent times when the service industry is attaining greater importance compared to
manufacturing industry, banking has evolved as a prime sector providing financial services to
growing needs of the economy.

Banking industry has undergone a paradigm shift from providing ordinary banking services
in the past to providing such complicated and crucial services like, merchant banking, hous-
ing finance, bill discounting etc. This sector has become more active with the entry of new
players like private and foreign banks. It has also evolved as a prime builder of the economy
by understanding the needs of the same and encouraging the development by way of giving
loans, providing infrastructure facilities and financing activities for the promotion of entre-
preneurs and other business establishments.

For a fast developing economy like ours, presence of a sound financial system to mobilize
and allocate savings of the public towards productive activities is necessary. Commercial
banks play a crucial role in this regard.

The Banking sector in recent years has incorporated new products in their businesses, which
are helpful for growth. The banks have started to provide fee-based services like, treasury op-
erations, managing derivatives, options and futures, acting as bankers to the industry during
the public offering, providing consultancy services, acting as an intermediary between two-
business entities etc.At the same time, the banks are reaching

out to other end of customer requirements like, insurance premium payment, tax payment etc.
It has changed itself from transaction type of banking into relationship banking, where you
find friendly and quick service suited to your needs. This is possible with understanding the
customer needs their value to the bank, etc. This is possible with the help of well-organized
staff, computer based network for speedy transactions, products like credit card, debit card,
health card, ATM etc. These are the present trend of services. The customers at present ask
for convenience of banking transactions, like 24 hours banking, where they want to utilize the
services whenever there is a need. The relationship banking plays a major and important role

13 | P a g e
in growth, because the customers now have enough number of opportunities, and they choose
according to their satisfaction of responses and recognition they get. So the banks have to
play cautiously, else they may lose out the place in the market due to competition, where
slightest of opportunities are captured fast.

Another major role played by banks is in transnational business, transactions and networking.
Many leading Indian banks have spread out their network to other countries, which help in
currency transfer and earn exchange over it.

These banks play a major role in commercial import and export business, between parties of
two countries. This foreign presence also helps in bringing in the international standards of
operations and ideas. The liberalization policy of 1991 has allowed many foreign banks to
enter the Indian market and establish their business. This has helped large amount of foreign
capital inflow & increase our Foreign exchange reserve.

Another emerging change happening all over the banking industry is consolidation through
mergers and acquisitions. This helps the banks in strengthening their empire and expanding
their network of business in terms of volume and effectiveness.

EMERGING SCENARIO IN THE BANKING SECTOR

The Indian banking system has passed through three distinct phases from the time of incep-
tion. The first was being the era of character banking, where you were recognized as a credi-
ble depositor or borrower of the system. This era come to an end in the sixties. The second
phase was the social banking. Nowhere in the democratic developed world, was banking or
the service industry nationalized. But this was practiced in India. Those were the days when
bankers has no clue whatsoever as to how to determine the scale of finance to industry. The
third era of banking which is in existence today is called the era of Prudential Banking. The
main focus of this phase is on prudential norms accepted internationally

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 2. Introduction to SBI

SBI Group-
The Bank of Bengal, which later became the State Bank of India. State Bank of India with its
seven associate banks commands the largest banking resources in India.

Nationalization-

The next significant milestone in Indian Banking happened in late 1960s when the then Indira
Gandhi government nationalized on 19th July 1949, 14 major commercial Indian banks fol-
lowed by nationalization of 6 more commercial Indian banks in 1980.

The stated reason for the nationalization was more control of credit delivery. After this, until
1990s, the nationalized banks grew at a leisurely pace of around 4% also called as the Hindu
growth of the Indian economy .After the amalgamation of New Bank of India with Punjab
National Bank, currently there are 19 nationalized banks in India.

Liberalization-

In the early 1990’s the then Narasimharao government embarked a policy of liberalization
and gave licences to a small number of private banks, which came to be known as New gen-
eration tech-savvy banks, which included banks like ICICI and HDFC. This move along with
the rapid growth of the economy of India, kick started the banking sector in India, which has
seen rapid growth with strong contribution from all the sectors of banks, namely Government
banks, Private Banks and Foreign banks. However there had been a few hiccups for these
new banks with many either being taken over like Global Trust Bank while others like Centu-
rion Bank have found the going tough.

The next stage for the Indian Banking has been set up with the proposed relaxation in the
norms for Foreign Direct Investment, where all Foreign Investors in Banks may be given vot-
ing rights which could exceed the present cap of 10%, at pesent it has gone up to 49% with
some restrictions.

15 | P a g e
The new policy shook the Banking sector in India completely. Bankers, till this time, were
used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new
wave ushered in a modern outlook and tech-savvy methods of working for traditional
banks.All this led to the retail boom in India. People not just demanded more from their banks
but also received more.

CONCERN

Indian economy is one of the fastest growing economies of the world. The economy with its
vital geography and demography has specific requirements in order to traverse to the next
orbit and attain its full potential. Banks enable to cope with finance requirement for few in-
dustries such as infrastructure, housing and real estate etc. India’s infrastructural financing
needs are not only huge but also vital. Traditionally banks have been the major source of in-
frastructure financing and their exposure to infrastructure is already high at 17 per cent. There
are several major concerns which as noted below:

Intensifying competition

Indian banking industry has undergone qualitative changes due to banking sector reforms.
Indian banking sector, which is dominated by state- controlled, has facing formidable chal-
lenges. Due to this new emerging competition, Indian banks, especially PSBs are trying their
best to improve their performance and preparing to compete in the emerging global market.
New private sector banks and foreign banks have more customer- centric policies, high quali-
ty services, new attractive schemes and computerized branches. All these services attracted
more and more customers to their banks. In this context, there is a need to examine the effi-
ciency of public sector banks operating in India. Mainly, competition can intensify and banks
which is efficient. The transaction cost of customers could come down and a bank which is
efficient, nimble and customer focused would always be able to do better than others. As a
result of globalization, many new banks have the Indian banking industry, further intensifying
the competition.

16 | P a g e
Increasing NPA

The asset quality of banks is one of the most important indicator of their financial health. It
also reflects the efficiency of banks’ credit risk management and the recovery environment.
The Indian banks have shown very good performance as far as the financial operations are
concerned. But non- performing assets (NPA) has caused some concerns. Despite write- offs
gross NPAs have continued to rise significantly. The new accretion to NPAs has been much
faster than the reduction in existing NPAs due to lower levels of up gradation and recoveries.
To improve the banks’ ability their non –performing assets (NPAs) and restructured accounts
in an effective manner and considering that almost all branches of banks have been fully
computrized, the Reserve bank of India in its monetary policy statement 2012- 13 proposed
the following measures:

• To mandate banks to put in place a robust mechanism for early detection of signs of
distress, and measures, including prompt restructuring in the case of all viable accounts
wherever required, with view to presenting the economic value such accounts: and

• To mandate banks to have proper system generated- wise data on their NPA accounts,
write offs, compromise settlement, recovery and restructured accounts.

Despite these concerns, it is projected that the Indian banking industry will grow through
leaps and bounds looking at the huge growth potential of Indian economy. High population
base of India, rising disposable income, etc. will drive the growth og Indian banking industry
in the long- term.

COMPANY PROFILE

INTRODUCTIONSTATE BANK OF INDIA

Not only many financial institution in the world today can claim the antiquity and majesty of
the State Bank Of India founded nearly two centuries ago with primarily intent of imparting
stability to the money market, the bank from its inception mobilized funds for supporting
both the public credit of the companies governments in the three presidencies of British India
and the private credit of the European and India merchants from about 1860s when the Indian

17 | P a g e
economy book a significant leap forward under the impulse of quickened world communica-
tions and ingenious method of industrial and agricultural production the Bank became inti-
mately in valued in the financing of practically and mining activity of the Sub-Continent Alt-
hough large European and Indian merchants and manufacturers were undoubtedly thee prin-
cipal beneficiaries, the small man never ignored loans as low as Rs.100 were disbursed in ag-
ricultural districts against glad ornaments. Added to these the bank till the creation of the Re-
serve Bank in 1935 carried out numerous Central – Banking functions.

Adaptation world and the needs of the hour has been one of the strengths of the Bank, In the
post depression exe. For instance – when business opportunities become extremely restricted,
rules laid down in the book of instructions were relined to ensure that good business did not
go post. Yet seldom did the bank contravenes its value as depart from sound banking princi-
ples to retain as expand its business. An innovative array of office, unknown to the world
then, was devised in the form of branches, sub branches, treasury pay office, pay office, sub
pay office and out students to exploit the opportunities of an expanding economy. New busi-
ness strategy was also evaded way back in 1937 to render the best banking service through
prompt and courteous attention to customers.A highly efficient and experienced management
functioning in a well defined organizational structure did not take long to place the bank an
executed pedestal in the areas of business, profitability, internal discipline and above all cred-
ibility A impeccable

financial status consistent maintenance of the lofty traditions if banking an observation of a

high standard of integrity in its operations helped the bank gain a pre- eminent status. No
wonders the administration for the bank was universal as key functionaries of India succes-
sive finance minister of independent India Resource Bank of governors and representatives of
chamber of commercial showered economics on it.

Modern day management techniques were also very much evident in the good old days years
before corporate governance had become a puzzled the banks bound functioned with a high
degree of responsibility and concerns for the shareholders. An unbroken records of profits
and a fairly high rate of profit and fairly high rate of dividend all through ensured

18 | P a g e
satisfaction, prudential management and asset liability management not only protected the
interests of the Bank but also ensured that the obligations to customers were not met. The tra-
ditions of the past continued to be upheld even to this day as the State Bank years itself to
meet the emerging challenges of the millennium.

ABOUT LOGO

THE PLACE TO
SHARE THE NEWS
...……

SHARE THE
VIEWS ……

Togetherness is the theme of this corporate loge of SBI where the world of banking services
meet the ever changing customers needs and establishes a link that is like a circle, it indicates
complete services towards customers. The logo also denotes a bank that it has prepared to do
anything to go to any lengths, for customers.

The blue pointer represent the philosophy of the bank that is always looking for the growth
and newer, more challenging, more promising direction. The key hole indicates safety and
security.

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MISSION, VISION AND VALUES
MISSION STATEMENT:

To retain the Bank’s position as premiere Indian Financial Service Group, with world class
standards and significant global committed to excellence in customer, shareholder and em-
ployee satisfaction and to play a leading role in expanding and diversifying financial service
sectors while containing emphasis on its development banking rule.

VISION STATEMENT:

 Premier Indian Financial Service Group with prospective world-class

Standards of efficiency and professionalism and institutional values.

 Retain its position in the country as pioneers in Development banking.


 Maximize the shareholders value through high-sustained earnings

per Share.

 An institution with cultural mutual care and commitment, satisfying

and Good work environment and continues learning opportunities.

VALUES:

 Excellence in customer service


 Profit orientation

 Belonging commitment to Bank

 Fairness in all dealings and relations

 Risk taking and innovative

20 | P a g e
  Team playing

 Learning and renewal

 Integrity

 Transparency and Discipline in policies and systems.

List of directors on the central board of state bank of India (As on 7th October 2017)

Sl.No Name Designation Under Section of

SBI Act 1955
1. Shri Rajnish Kumar Chairman 19(a)
2. Shri B. Sriram Managing Director 19 (b)
3. Shri P.K. Gupta Managing Director 19 (b)
4. Shri Dinesh Kumar Khara Managing Director 19 (b)
5. Shri Sanjiv Malhotra Director 19 (c)
6. Shri Bhaskar Pramanik Director 19 (c)
7. Shri Pravin Hari Kutumbe Director 19 (c)
8. Shri Basant Seth Director 19 (c)
9. Shri Girish K. Ahuja Director 19 (d)
10. Dr. Pushpendra Rai Director 19 (d)
11. Shri Chandan Sinha Director 19 (f)
12. Shri Rajiv Kumar Director 19 (e)

21 | P a g e
 3. Features Product and Services

PRODUCTS:

State Bank Of India renders varieties of services to customers through the following prod-
ucts:

Personal Loan Product:

SBI Term Deposits

SBI Recurring Deposits
SBI Housing Loan
SBI Car Loan
SBI Educational Loan
SBI Personal Loan
SBI Loan For Pensioners
Loan Against Mortgage Of Property
Loan Against Shares & Debentures
Rent Plus Scheme
Medi-Plus Scheme
Rates Of Interest





SBI Housing loan


SBI Housing loan or Mortgage Loan schemes are designed to make it simple for you to make
a choice at least as far as financing goes!












22 | P a g e
'SBI-Home Loans'

features:

 No cap on maximum loan amount for purchase/ construction of house/ flat


 Option to club income of your spouse and children to compute eligible loan amount

 Provision to club expected rent accruals from property proposed to compute eligible
loan amount
Provision to finance cost of furnishing and consumer durables as part of project cost
 Repayment permitted up to 70 years of age

 Free personal accident insurance cover

 Optional Group Insurance from SBI Life at concessional premium (Upfront premium
financed as part of project cost)

 Interest applied on daily diminishing balance basis

 'Plus' schemes which offer attractive packages with concessional interest rates to
Govt. Employees, Teachers, Employees in Public Sector Oil Companies.

 Special scheme to grant loans to finance Earnest Money Deposits to be paid to Urban
Development Authority/ Housing Board, etc. in respect of allotment of sites/ house/
flat

 No Administrative Charges or application fee

 Prepayment penalty is recovered only if the loan is pre-closed before half of the origi-
nal tenure (not recovered for bulk payments provided the loan is not closed)

 Provision for downward refixation of EMI in respect of floating rate borrowers who
avail Housing Loans of Rs.5 lacs and above, to avail the benefit of downward revision
of interest rate by 1% or more

 In-principle approval issued to give you flexibility while negotiating purchase of a
property

 ·Option to avail loan at the place of employment or at the place of construction

 Attractive packages in respect of loans granted under tie-up with Central/ State Gov-
ernments/ PSUs/ reputed corporates and tie-up with reputed builders (Please contact
your nearest branch for details)

23 | P a g e
SERVICES:

DOMESTIC TREASURY
SBI VISHWA YATRA FOREIGN TRAVEL CARD
BROKING SERVICES
REVISED SERVICE CHARGES
ATM SERVICES
INTERNET BANKING
E-PAY
E-RAIL
RBIEFT
SAFE DEPOSIT LOCKER
GIFT CHEQUES


ATM SERVICES

STATE BANK NETWORKED ATM SERVICES


State Bank offers you the convenience of over 8000 ATMs in India, the largest network in
the country and continuing to expand fast! This means that you can transact free of cost at the
ATMs of State Bank Group (This includes the ATMs of State Bank of India as well as the
Associate Banks – namely, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State
Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Saurashtra, and
State Bank of Travancore) and wholly owned subsidiary viz. SBI Commercial and Interna-
tional Bank Ltd., using the State Bank ATM-cum-Debit (Cash Plus) card.

KINDS OF CARDS ACCEPTED AT STATE BANK ATMs


Besides State Bank ATM-Cum-Debit Card and State Bank International ATM-Cum-Debit
Cards following cards are also accepted at State Bank ATMs: -

1)
 State Bank Credit Card








24 | P a g e
2) ATM Cards issued by Banks under bilateral sharing viz. Andhra Bank, Axis Bank, Bank
of India, The Bank of Rajasthan Ltd., Canara Bank, Corporation Bank, Dena Bank, HDFC
Bank, Indian Bank, Indus Ind Bank, Punjab National Bank, UCO Bank and Union Bank of
India.

3) Cards issued by banks (other than banks under bilateral sharing) displaying Maestro, Mas-
ter Card, Cirrus, VISA and VISA Electron logos

4) All Debit/ Credit Cards issued by any bank outside India displaying Maestro, Master Card,
Cirrus, VISA and VISA Electron logos

Note: If you are a cardholder of bank other than State Bank Group, kindly contact your Bank
for the charges recoverable for usage of State Bank ATMs.

STATE BANK INTERNATIONAL ATM-CUM-DEBIT CARD

Eligibility:

All Saving Bank and Current Account holders having accounts with networked branches and
are:

 18 years of age & above


 Account type: Sole or Joint with “Either or Survivor” / “Anyone or Survivor”

 NRE account holders are also eligible but NRO account holders are not.

25 | P a g e
Benefits:

 Convenience to the customers traveling overseas


 Can be used as Domestic ATM-cum-Debit Card

 Available at a nominal joining fee of Rs. 200/-

 Daily limit of US $ 1000 or equivalent at the ATM and US $ 1000 or equivalent at
Point of Sale (POS) terminal for debit transaction

 Purchase Protection*up to Rs. 5000/- and Personal Accident cover*up to Rs.
2,00,000/-

 Charges for usage abroad: Rs. 150+ Service Tax per cash withdrawal Rs. 15 + Service
Tax per enquiry.

State Bank ATM-cum-Debit (State Bank Cash plus) Card:

India’s largest bank is proud to offer you unparalleled convenience viz. State Bank ATM-
cum-Debit(Cash Plus) card. With this card, there is no need to carry cash in your wallet. You
can now withdraw cash and make purchases anytime you wish to with your ATM-cum-Debit
Card.

Get an ATM-cum-Debit card with which you can transact for FREE at any of over 8000
ATMs of State Bank Group within our country.

26 | P a g e
SBI GOLD INTERNATIONAL DEBIT CARD

E-PAY

Bill Payment at Online SBI (e-Pay) will let you to pay your Telephone, Mobile, Electricity,
Insurance and Credit Card bills electronically over our Online SBI website

E-RAIL

Book your Railways Ticket Online.

The facility has been launched on September 2003 in association with IRCTC. The
scheme facilitates Booking of Railways Ticket Online.

The salient features of the scheme are as under:

 All Internet banking customers can use the facility.


 On giving payment option as SBI, the user will be redirected to onlinesbi.com. After
logging on to the site you will be displayed payment amount, TID No. and Railway
reference no.

 . The ticket can be delivered or collected by the customer.

 The user can collect the ticket personally at New Delhi reservation counter .

 The Payment amount will include ticket fare including reservation charges,
courier charges and Bank Service fee of Rs 10/. The Bank service fee has been
waived unto 31st July 2006.

27 | P a g e
SAFE DEPOSIT LOCKER

For the safety of your valuables we offer our customers safe deposit vault or locker facilities
at a large number of our branches. There is a nominal annual charge, which depends on the
size of the locker and the centre in which the branch is located.

NRI HOME LOAN

SALIENTFEATURES

PURPOSE
Loans to NRIs & PIOs can be extended for the following purposes.

 To purchase/construct a new house / flat


 To repair, renovate or extend an existing house/flat

 To purchase an existing house/flat

 To purchase a plot for construction of a dwelling unit.

 To purchase furnishings and consumer durables, as a part of the project cost

AGRICULTURE / RURAL

State Bank of India Caters to the needs of agriculturists and landless agricultural labourers
through a network of 6600 rural and semi-urban branches. here are 972 specialized branches
which have been set up in different parts of the country exclusively for the development of
agriculture through credit deployment. These branches include 427 Agricultural Develop-
ment Branches (ADBs) and 547 branches with Development Banking Department (DBDs)
which cater to agriculturists and 2 Agricultural Business Branches at Chennai and Hyderabad
catering to the needs of hi-tech commercial agricultural projects.

28 | P a g e
5. Meaning and Types of NPA

Non- performing asset means an asset or account of borrower, which has been classified by a
bank or financial institution as sub- standard, doubtful or loss asset, in accordance with the
directions or guidelines relating to asset classification issued by RBI.

An amount due under any credit facility is treated as ‘past due’ when it has not been paid
within 30 days from the due date. Due to the improvements in the payment and settlement
systems, recovery climate, up gradation of technology in the banking sector, etc, it was de-
cided to dispense with the ‘past due’ concept, with effect from 31st March, 2001.

Accordingly, as from that date, a NPA shall be an advance where,

i. Interest and/or installment of principal remain overdue for a period of more than 180 days
in respect of a term loan

ii. The account remains ‘our of order’ for a period of more than 180 days, in respect of an
overdraft/cash credit

iii. Interest and/or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agriculture purpos-
es

iv. Any amount to be received remains overdue for a period of more than 180 days in respect
of other accounts.

With a view to move towards international best practices, it has been decided to adopt the ’90
days’ overdue norm for identification of NPAs, from 31st March, 2004. Accordingly with
effect from march 31, 2004, a non-perfoming asset (NPA) shell be a loan or an advance
where;

I. Interest and/or installment of principal remain overdue for a period of more than
90 days in respect of a term loan,
II. The account remains ‘out of order’ for a period of more than 90 days in respect
of an overdraft/ cash credit (OD/CC)

29 | P a g e
 III. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
IV. Interest and / or installement of principal remains overdue for two harvest sea-
sons but for a period not exceeding two half years in the case of an advance
granted for agricultural purpose, and
V. Any amount to be recived remains overdue for a period of more than 90 days in
respect of other accounts.

INCOME RECOGNITION- POLICY

 The policy of income recognition has to be objective and based on the record of re-
covery. Internationally income from non-performing assets (NPA) is not recognised
on accrual basis but is booked as income only when it is actually received. Therefore,
the banks should not charge and take to income account interest on any NPA.

 However, interest on advances against term deposits, NSCs, IVPs, KVPs and Life
policies may be taken to income account on the due date, provided adequate margin is
available in the accounts.

 If Government guaranteed advances become NPA, the interest on such advances
should not be taken to income account unless the interest has been realised.

 If any advance, including bills purchased and discounted, become NPA as at the close
of any year, the entire interest accured and credited to income account in the past pe-
riods, should be reversed or provided for if the same is not realized.

30 | P a g e
 ASSET CLASSIFICATION

Assets are classified into following four categories:

 Standard assets

 Sub- standard assets

 Doubtful assets

 Loss assets

Standard Assets:- Standard assets are the ones in which the bank is receiving interest as well
as the principal amount of the loan regularly from the customer. Here it is also very important
that in this case the arrears of interest and the principal amount of loan does not exceed 90
days at the end of financial year. If asset fails to be in category of standard asset that is
amount due more than 90 days then it is NPA and NPAs are further need to classify in sub
categories.

Provisioning norms:

 From the year ending 31. 03. 2000, the banks should make a general provision of a
minimum of 0.40 percent on standard assets on global loan portfolio basis.

 The provisions on standard assets should not be reckoned for arriving at net NPAs.

 The provisions towards standard assets need not be netted from gross advances but
shown seperately as ‘contingent provisions aginst standard assets’ under ‘other liabili-
ties and provisions- others’ in schedule 5 of the balance sheet.

Banks are required to classify non- performing assets further into the following three catego-
ries based on the period for which the asset has remained non- performing and the reasonabil-
ity of the dues:

1) Sub- standard assets

2) Doubtful assets
3) Loss assets

31 | P a g e
 Sub-standard Assets:-- With effect from 31 March 2005, a sub standard asset would be
one, which has remained NPA for a period less than or equal to 12 month. The following fea-
tures are exhibited by sub standard assets: the current net worth of the borrowers / guarantor
or the current market value of the security charged is not enough to ensure recovery of the
dues to the banks in full; and the asset has well-defined credit weaknesses that jeopardise the
liquidation of the debt and are characterized by the distinct possibility that the banks will sus-
tain some loss, if deficiencies are not corrected.

Provisioning norms: a general provision of 10% on total outstanding should be made with-
out making any allowance for DICGC/ECGC guarantee cover securities available.

Doubtful Assets:--A loan classified as doubtful has all the weaknesses inherent in assets
that were classified as sub-standard, with the added characteristic that the weaknesses make
collection or liquidation in full, – on the basis of currently known facts, conditions and values
– highly questionable and improbable. With effect from March 31, 2005, an asset would be
classified as doubtful if it remained in the sub-standard category for 12 months.

Provisioning norms:

 100 percent of the extent to which the advance is not covered by the realisable value
of the security to which the bank has a valid recourse and the realisable value is esti-
mated on a realistic basis.

 In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 percent to 50 percent of the secured portion depending upon the
period for which the asset has remained doubtful:

 Additional provisioning consequent upon the change in the definition of doubtful as-
sets effective from March 31, 2003 has to be made in phases as under:

1. As on31.03.2003, 50 percent of the additional provisioning requirement on the as-
sets which became doubtful on account of new norm of 18 months for transition
from sub-standard asset to doubtful category.

32 | P a g e
 2. As on 31.03.2002, balance of the provisions not made during the previous year, in
addition to the provisions needed, as on 31.03.2002.

 Banks are permitted to phase the additional provisioning consequent upon the reduc-
tion in the transition period from substandard to doubtful asset from 18 to 12 months
over a four year period commencing from the year ending March 31, 2005, with a
minimum of 20 % each year.

Loss Assets:--A loss asset is one which considered uncollectible and of such little value that
its continuance as a bankable asset is not warranted- although there may be some salvage or
recovery value. Also, these assets would have been identified as ‘loss assets’ by the bank or
internal or external auditors or the RBI inspection but the amount would not have been writ-
ten-off wholly.

Provisioning norms: The entire asset should be written off. If the assets are permitted to re-
main in the books for any reason, 100 percent of the outstanding should be provided for.

SALE OF NPA TO OTHER BANKS

 A NPA is eligible for sale to other banks only if it has remained a NPA for at least
two years in the books of the selling bank.

 The NPA must be held by the purchasing bank at least for a period of 15 months be-
fore it is sold to other banbks but not to bank, which originally sold the NPA.

 The NPA may be classified as standard in the books of the purchasing banbk for a pe-
riod of 90 days from date of purchase and therefore it would depend on the record of
recovery with reference of cash flows estimated while purchasing.

 The bank may purchase/ sell NPA only on without recourse basis.

 If the sale is conducted below the net book value, the short fall should be debited to
P&L account and if it is higher, the excess provision will be utilized to meet the loss
on account of sale of other NPA.

33 | P a g e
TYPES OF NPA

A] Gross NPA

B] Net NPA

Gross NPA:Gross NPAs are the sum total of all loan assets that are classified as NPAs as
per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans
made by banks. It consists of all the non standard assets like as sub-standard, doubtful, and
loss assets.

It can be calculated with the help of following ratio:

Gross NPAs Ratio = Gross NPAs

Gross Advances

Net NPA:Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance
sheets contain a huge amount of NPAs and the process of recovery and write off of loans is
very time consuming, the provisions the banks have to make against the NPAs according to
the central bank guidelines, are quite significant. That is why the difference between gross
and net NPA is quite high.

It can be calculated by following_

Net NPAs = Gross NPAs – Provisions

Gross Advances - Provisions

34 | P a g e
 REASONS FOR AN ACCOUNT BECOMING NPA:

FACTORS FOR RISE IN NPAs The banking sector has been facing the serious problems of
the rising NPAs. But the problem of NPAs is more in public sector banks when compared to
private sector banks and foreign banks. The NPAs in PSB are growing due to external as well
as internal factors.

EXTERNAL FACTORS

1· Ineffective recovery tribunal

The Govt. has set of numbers of recovery tribunals, which works for recovery of loans and
advances. Due to their negligence and ineffectiveness in their work the bank suffers the con-
sequence of non-recover, their by reducing their profitability and liquidity.

2. Wilful Defaults

There are borrowers who are able to pay back loans but are intentionally withdrawing it.

These groups of people should be identified and proper measures should be taken in order to
get back the money extended to them as advances and loans.

3·Natural calamities

This is the measure factor, which is creating alarming rise in NPAs of the PSBs. every now
and then India is hit by major natural calamities thus making the borrowers unable to pay
back there loans. Thus the bank has to make large amount of provisions in order to compen-
sate those loans, hence end up the fiscal with a reduced profit. Mainly ours farmers

35 | P a g e
depends on rain fall for cropping. Due to irregularities of rain fall the farmers are not to
achieve the production level thus they are not repaying the loans

4·Industrial sickness

Improper project handling , ineffective management , lack of adequate resources , lack of ad-
vance technology , day to day changing govt. Policies give birth to industrial sickness. Hence
the banks that finance those industries ultimately end up with a low recovery of their loans
reducing their profit and liquidity.

5·Lack of demand

Entrepreneurs in India could not foresee their product demand and starts production which
ultimately piles up their product thus making them unable to pay back the money they borrow
to operate these activities. The banks recover the amount by selling of their assets, which co-
vers a minimum label. Thus the banks record the nonrecovered part as NPAs and has to make
provision for it.

6·Change on Govt. policies

With every new govt. banking sector gets new policies for its operation. Thus it has to cope
with the changing principles and policies for the regulation of the rising of NPAs. Eg. The
fallout of handloom sector is continuing as most of the weavers Co-operative societies have
become defunct largely due to withdrawal of state patronage. The rehabilitation plan worked
out by the Central govt. to revive the handloom sector has not yet been implemented. So the
over dues due to the handloom sectors are becoming NPAs.

INTERNAL FACTORS

1· Defective Lending process

There are three cardinal principles of bank lending that have been followed by the

36 | P a g e
commercial banks since long. i. Principles of safety ii. Principle of liquidity iii. Principles of
profitability

i. Principles of safety By safety it means that the borrower is in a position to repay the loan

both principal and interest. The repayment of loan depends upon the borrowers:

a. Capacity to pay
b. Willingness to pay

Capacity to pay depends upon: 1. Tangible assets 2. Success in business Willingness to pay
depends on: 1. Character 2. Honest 3. Reputation of borrower The banker should, there fore
take utmost care in ensuring that the enterprise or business for which a loan is sought is a
sound one and the borrower is capable of carrying it out successfully .he should be a person
of integrity and good character.

2· Inappropriate technology

Due to inappropriate technology and management information system, market driven

decisions on real time basis can not be taken. Proper MIS and financial accounting system is
not implemented in the banks, which leads to poor credit collection, thus NPA. All the
branches of the bank should be computerized.

3· Improper SWOT analysis

The improper strength, weakness, opportunity and threat analysis is another reason for rise in
NPAs. While providing unsecured advances the banks depend more on the honesty, integrity,
and financial soundness and credit worthiness of the borrower. • Banks should consider the
borrowers own capital investment. • it should collect credit information of the borrowers

37 | P a g e
from a. From bankers b. Enquiry from market/segment of trade, industry, business.c. From
external credit rating agencies. • Analyze the balance sheet True picture of business will be
revealed on analysis of profit/loss a/c and balance sheet. • Purpose of the loan When bankers
give loan, he should analyze the purpose of the loan. To ensure safety and liquidity, banks
should grant loan for productive purpose only. Bank should analyze the profitability, viabil-
ity, long term acceptability of the project while financing.

4· Poor credit appraisal system

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal the
bank gives advances to those who are not able to repay it back. They should use good credit
appraisal to decrease the NPAs.

5· Managerial deficiencies

The banker should always select the borrower very carefully and should take tangible assets
as security to safe guard its interests. When accepting securities banks should consider the 1.
Marketability 2.Acceptability 3.Safety 4.Transferability. The banker should follow the prin-
ciple of diversification of risk based on the famous maxim

“do not keep all the eggs in one basket”; it means that the banker should not grant advances
to a few big farms only or to concentrate them in few industries or in a few cities. If a new
big customer meets misfortune or certain traders or industries affected adversely, the overall
position of the bank will not be affected. Like OSCB suffered loss due to the OTM Cuttack,
and Orissa hand loom industries. The biggest defaulters of OSCB are the OTM
(117.77lakhs), and the handloom sector Orissa hand loom WCS ltd (2439.60lakhs).

38 | P a g e
6· Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of bank
officials to the customer point decreases the collection of interest and principals on the loan.
The NPAs due to wilful defaulters can be collected by regular visits.

7· Re loaning process

Non remittance of recoveries to higher financing agencies and re loaning of the same have
already affected the smooth operation of the credit cycle. Due to re loaning to the defaulters
and CCBs and PACs, the NPAs of OSCB is increasing day by day.

39 | P a g e
 Impact of NPA on banks

In portion of the interest income is absorbed in servicing NPA.NPA is not merely non-
remunerative. It is also cost absorbing and profit eroding.

In the context of severe competition in the banking industry, the weak banks are at dis-
advantage for leveraging the rate of interest in the deregulated market and securing remunera-
tive business growth. The options for these banks are lost. "The spread is the bread for the
banks". This is the margin between the cost of resources employed and the return therefore.
In other words it is gap between the return on funds deployed (Interest earned on credit and
investments) and cost of funds employed (Interest paid on deposits).

When the interest rates were directed by RBI, as heretofore, there was not option
forbanks. But today in the deregulated market the banks decide their lending rates and

borrowing rates. In the competitive money and capital Markets, inability to offer competitive
market rates adds to the disadvantage of marketing and building new NPA has affected the
profitability, liquidity and competitive functioning of banks and finally the psychology of the
bankers in respect of their disposition towards credit delivery and credit expansion.

40 | P a g e
 1. Impact on Profitability

"The efficiency of banks is not always reflected only by the size of its balance sheet but by
the level of return on its assets. NPAS do not generate interest income for the banks, but at
the same time banks are required to make provisions for such NPAS from their current prof-
its. NPAS have a deleterious effect on the return on assets in several ways:

· They erode current profits through provisioning requirements.

· They result in reduced interest income.

· They require higher provisioning requirements affecting profits and accretion

to capital funds and capacity to increase good quality risk assets in future, and

· They limit recycling of funds, set in asset-liability mismatches, etc.

There is at times a tendency among some of the banks to understate the level of NPAs in or-
der to reduce the provisioning and boost up bottom lines. It would only postpone the process.

In the context of crippling effect on a bank's operations in all spheres, asset quality has been
placed as one of the most important parameters in the measurement of a bank's performance
under the CAMELS supervisory rating system of RBI.

41 | P a g e
.
6. NPA at SBI group

From 2012 to 2017 gross NPA was 380,035.87 (in Rs. Cr.) and net NPA was
194,727.53 (in Rs. Cr.) Percentage of Gross NPA s is on average of five year is 5.47%,

Percentage of Net NPA is on average of five year is 2.862%. Return of assets is 0.638%.

Between 01.04.93 to 31.03.2001, SBI Group incurred a total amount of Rs. 31251 Crores to-
wards provisioning NPA. This has brought Net NPA to Rs. 32632 Crores or 6.2% of net ad-
vances. To this extent the problem is contained but a what cost?

This costly remedy is made at the sacrifice of building healthy reserves for future capital ade-
quacy.

The enormous provisioning of NPA together with the holding cost of such non-productive
assets over the years has acted as a severe drain on the profitability of the SBI Group. In turn
SBI Group are seen as poor performers and unable to approach the market for raising
additional capital. Equity issues of nationalized banks that have already tapped the market are
now quoted at a discount in the secondary market. Other bans hesitate to approach the market
to rise new issues. This has alternatively forced SBI Group to borrow heavily from the debt
market to build Tier II Capital to meet capital adequacy norms putting severe pressure on
their profit margins; else they are to seek the bounty of the Central Government for repeated
Recapitalization

Considering the minimum cost of holding NPAs at 7% p.a. (reckoning average cost of funds
at 6% plus 1% service charge) the net NPA of Rs. 32632 Crores absorbs a recurring holding
ost of Rs. 2300 Crores annually. Considering the average provisions made for the last 8 years
which works out to average of Rs. 3300 crores from annum, a size business.

in the face of the deregulated banking industry, an ideal competitive working is reached,when
the banks are able to earn adequate amount of non-interest income to cover their entire oper-
ating expenses i.e. a positive burden. In that event the spread factor i.e. the difference be-
tween the gross interest income and interest cost will constitute its operating prof-
its.Theoretically even if the banks keeps 0% spread, it will still break even in terms of operat-
ing profit and not return an operating loss. The net profit is the amount of the operating profit
minus the amount of provisions to be made including for taxation.

42 | P a g e
 On account of the burden of heavy NPA, many nationalized banks have little option and they
are unable to lower lending rates competitively, as a wider spread is necessitated to cover cost
of NPA in the face of lower income from off balance sheet business yielding non-interest in-
come.

The following working results of SBI Group an identified well managed nationalized banks
for the last two years and for the first nine months of the current financial year, will be re-
vealing to prove this statement.

Non-interest income fully absorbs the operating expenses of this banks in the currentfinancial
year for the first 9 months. In the last two financial years, though such income has substan-
tially covered the operating expenses (between 80 to 90%) there is still a deficit left

43 | P a g e
1 . The strength of SBI Group is indentified by the following positive feature:

1. It's sizeable earnings under of non-interest income substantially/totally meets itsnon-

interest expenses.

2. Its obligation for provisioning requirements is within bounds. (Net NPA/NetAdvances is

1.92%)

It is worthwhile to compare the aggregate figures of the 19 Nationalised banks for the year
ended March, 2001, as published by RBI in its Report on trends and progress of banking in
India.

Interest on Recapitalization Bonds is a income earned form the Government, who had issued
the Recapitalization Bonds to the weak banks to sustain their capital adequacy under a bailout
package. The statistics above show the other weaknesses of the nationalised banks in addition
to the heavy burden they have to bear for servicing NPA by way of provisioning and holding
cost as under:

 Their operating expenses are higher due to surplus manpower employed. Wage costs
total assets is much higher to PSBs compared to new private banks or foreign banks.


 Their earnings from sources other than interest income are meagre. This is due to fail-
ure to develop off balance sheet business through innovative banking products.




2. Impact on Liquidity of the SBI Group

Though SBI Group are able to meet norms of Capital Adequacy, as per RBI guidelines,the
facts that their net NPA in the average is as much as 7% is a potential threat for them.

RBI has indicated the ideal position as Zero percent Net NPA. Even granting 3% net NPA
within limits of tolerance the SBI Group are holding an uncomfortable burden at 7.1% as at
March 2001. They have not been able to build additional capital needed for business

44 | P a g e
expansion through internal generations or by tapping the equity market, but have resorted to
II-Tier capital in the debt market or looking to recapitalization by Government of India.

3. Impact on Outlook of Bankers towards Credit Delivery

The fear of NPA permeates the psychology of bank managers in the SBI Group in entertaining
new projects for credit expansion. In the world of banking the concepts of business and risks are
inseparable. Business is an exercise of balancing between risk and reward. Accept justifiable
risks and implements de-risking steps. Without accepting risk, there can be no reward. The psy-
chology of the banks today is to insulate themselves with zero percent risk and turn lukewarm to
fresh credit. This has affected adversely credit growth compared to growth of deposits, resulting
in a low C/D Ratio around 50 to 54% for the industry.

The fear psychosis also leads to excessive security-consiousness in the approach towards
lending to the small and medium sized credit customers. There is insistence on provision of
collateral security, sometimes up to 200% value of the advance, and consequently due to a
feeling of assumed protection on account of holding adequate security (albeit overconfi-
dence). a tendencytowards laxity in the standards of credit appraisal comes to the fore. It is
well know that the existence of collateral security at best may convert the credit extended to
productive sectors into an investment against real estate, but will not prevent the account
turning into NPA. Further blocked assets and real estate represent the most illiquid security
and NPA in such advances has the tendency to persist for a long duration.

SBI Group have reached a dead-end of the tunnel and their future prosperity depends on an
urgent solution for handling this hovering threat.

4. Impact on Productivity:
High level of NPAs effect the productivity of the banks by increasing the cost of fundsand by
reducing the efficiency of banks employees. Cost of funds is increased becausedue to non-
availability of sufficient internal sources they have to rely on external sourcesto fulfill their
future financial requirements. Productivity of employees is also reduced because it keeps
staff busy with the task of recovery of overdue. Instead of devoting time for planning for de-
velopment through more credit and mobilization of resources thebranch staff would

45 | P a g e
primarily be engaged in preparing a large value of returns and statements relating to sub-
standard, doubtful and loss assets, preparing proposal for filing of suits, waivement of legal
action, compromise, write off or in preparing DICGC claim papers etc.

5.Impact on other Variables:

High level of NPAs also leads to squeezing of interest spread, when asset becomes anNPA
for the first time it adversely affects the spread by not contributing to the interestincome and
from the second year onwards it will have its impact on the bottom line of the balance sheet
because of provisioning to be made for it and not have incremental effect on the spread.

Now a days Govt. does not encourage liberal capital support to be given to banks. Banks are
required to bring their own capital by issuing share to the public, whereas high level of NPAs
leads to lower profits hence less or no profits available for equity shareholders hence lower
EPS and fall in the value of share. During the year 2001-02 share of 12 public sector banks
were traded on the NSE out of which share value of three PSBs have decreased. Low market
value of shares has also forced the banks to borrow heavily debt market to build Tier II capi-
tal to meet capital adequacy norms, putting severe pressure on their profit margin

6. Qualitative aspects of the Micro Level Impact of NPAs:

High incidence of loan defaults shakes the confidence of general public in the soundness of
banking setup and indirectly effects the capacity of the banking system to mop up the depos-
its. It is a blot on the credibility of the banking system. It also leads to loss of trust of foreign
suppliers. Reputed foreign suppliers do not accept letter of credit opened bi Indian banks or
confine their transaction to top Indian banks only. Moreover, it puts negative effect on grant-
ing of autonomy to PSBs whereas it is must for banks in this competitive environment. Banks
having positive net profits for the last three years, Net NPA level below 9%, owned funds of
Rs. 100 Crore, CAR of > 8% are the 4 condition to be fulfilled to get autonomous status,
which becomes difficult in the situation of huge level of NPAs.

Inadequate recovery also inhibits the banks to draw refinance from higher levelagency. The
eligibility of a bank to draw refinance from NABARD is linked to the %age of recovery to
demand in respect of direct, medium and long term loans for agriculture and allied activities.

46 | P a g e
It implies that refinance facility would be progressively reduced depending on the position of
NPAs and also on the No. of years in which a banks branch remains in a particular category
of default. Due to fear of NPAs banks are being taken away from the basic function for which
these were established it is becoming more & more risky and less remunerative. They are
floating their subsidiaries to manage mutual funds, factoring, insurance business, Good mon-
ey is spent to recover bad money. Deterioration in the quality of loan assets and inability to
come with new products makes the Indian banks uncompetitive globally. Due to high cost,
they cannot reduce lending rate to meet the economy's demand of low lending rate. It is also
biggest threat for capital account convertibility.

7. Some areas of Macro-Economic Impact:

It is not only the banks which are affected higher level of NPAs but it is the economy as a
whole which pays for it. Banks are not putting enough resource in lending due to fear of de-
fault. Once the credit to various sectors of the economy slow down, the economy is badly hit.
There is slowdown in growth in GDP, industrial output and fall in the profit margins of the
corporate and consequent depression in the market. Further high level of NPAs can result in
adding to the inflationary potential in the economy and eroding the viability of the credit sys-
tem as a whole.

Not only this, burden of NPAs is to be borne by the society as a whole. When cap-
ital support is given to PSB on A/c of losses booked and/ or erosion of capital due to NPAs, it
comes out of either Govt. budgetary resources or from the public as per Liberalization policy,
whether this money is from tax revenues or from the hard earned saving of the investing pub-
lic, in fact, the society is bearing the cost of these NPAs. Moreover, Govt. holds majority of
shares in PSBs in some banks 100% capital is in its hand. Any dividend declared would have
gone to the Govt. and which can be spent on the welfare and development program.

47 | P a g e
 8. Early Symptoms

By which one can recognize a performing asset turning ti to non- performing asset four
categories of early symptoms

1. Financial
 Non- payment of the very first installment in case of term loan.

 Bouncing of cheque due to insufficient balance in the accounts.

 Irregularity in installment.

 Irregularity of operations in the accounts.

 Unpaid overdue bills.

 Declining current ratio.

 Payment which does not cover the interest and principal amount of that in-
stallment.

 While monitoring the accounts it is found that principal amount is diverted to
sister concern or parent company.






2. Operational and physical:
 If information is received that the borrower has either initiated the process of
winding up or are not doing the business.

 Overdue receivables.

 Stock statement not submitted on time.

 External non- controllable factor like natural calamities in the city where bor-
rower conduct his business.

 Frequent changes in plan.

 Nonpayment of wages.

48 | P a g e
 3. Attitudinal changes:
 Use for personal comfort, stocks and shares by borrowers.

 Avoidance of contact with bank.

 Problem between partners.


4. Others:
 Changes in government policies.

 Death of borrowers.

 Competition in the market.

49 | P a g e
 9. Preventive Measures for NPA

• Early Recognition of the Problem:-

Invariably, by the time banks start their efforts to get involved in a revival process, it’s too
late to retrieve the situation- both in terms of rehabilitation of the project and recovery of
bank’s dues. Identification of weakness in the very beginning that is : When the account
starts showing first signs of weakness regardless of the fact that it may not have become
NPA, is imperative. Assessment of the potential of revival may be done on the basis of a
techno-economic viability study. Restructuring should be attempted where, after an objective
assessment of the promoter’s intention, banks are convinced of a turnaround within a sched-
uled timeframe. In respect of totally unviable units as decided by the bank, it is better to fa-
cilitate winding up/ selling of the unit earlier, so asto recover whatever is possible through
legal means before the security position becomes worse.

• Identifying Borrowers with Genuine Intent:

Identifying borrowers with genuine intent from those who are non- serious with no commit-
ment or stake in revival is a challenge confronting bankers. Here the role of frontline officials
at the branch level is paramount as they are the ones who has intelligent inputs with regard to
promoters’ sincerity, and capability to achieve turnaround. Basedon this objective
assessment, banks should decide as quickly as possible whether it would be worthwhile to
commit additional finance.

In this regard banks may consider having “Special Investigation” of all financial transaction
or business transaction, books of account in order to ascertain real factors that contributed to
sickness of the borrower. Banks may have penal of technical experts with proven expertise
and track record of preparing techno-economic study of the project of the borrowers.

Borrowers having genuine problems due to temporary mismatch in fund flow or sudden re-
quirement of additional fund may be entertained at branch level, and for this purpose a spe-
cial limit to such type of cases should be decided. This will obviate the need to route the ad-
ditional funding through the controlling offices in deserving cases, and help avert many ac-
counts slipping into NPA category.

50 | P a g e
 • Timeliness and Adequacy of response:-

Longer the delay in response, grater the injury to the account and the asset. Time is a crucial
element in any restructuring or rehabilitation activity. The response decided on the basis of
techno-economic study and promoter’s commitment, has to be adequate in terms of extend of
additional funding and relaxations etc. under the restructuring exercise. The package of assis-
tance may be flexible and bank may look at the exit option.

• Focus on Cash Flows:

While financing, at the time of restructuring the banks may not be guided by the convention-
al fund flow analysis only, which could yield a potentially misleading picture. Appraisal for
fresh credit requirements may be done by analyzing funds flow in conjunction with the Cash
Flow rather than only on the basis of Funds Flow.

• Management Effectiveness:-

The general perception among borrower is that it is lack of finance that leads to sickness and
NPAs. But this may not be the case all the time. Management effectiveness in tackling ad-
verse business conditions is a very important aspect that affects a borrowing unit’s fortunes.
A bank may commit additional finance to an aling unit only after basic viability of the enter-
prise also in the context of quality of management is examined and confirmed. Where the de-
fault is due to deeper malady, viability study or investigative audit should be done – it will be
useful to have consultant appointed as early as possible to examine this aspect. A proper
techno- economic viability study must thus become the basis on which any future action can
be considered.

• Multiple Financing:-

I. During the exercise for assessment of viability and restructuring, a Pragmatic and uni-
fied approach by all the lending banks/ FIs as also sharing of all relevant information on the
borrower would go a long way toward overall success of rehabilitation exercise, given the
probability of success/failure.

51 | P a g e
 II. In some default cases, where the unit is still working, the bank should make sure that it
captures the cash flows (there is a tendency on part of the borrowers to switch bankers once
they default, for fear of getting their cash flows forfeited), and ensure that such cash flows
are used for working capital purposes. Toward this end, there should be regular flow of in-
formation among consortium members. A bank, which is not part of the consortium, may not
be allowed to offer credit facilities to such defaulting clients. Current account facilities may
also be denied at non-consortium banks to such clients and violation may attract penal action.
The Credit Information Bureau of India Ltd.(CIBIL) may be very useful for meaningful in-
formation exchange on defaulting borrowers once the setup becomes fully operational.

III. In a forum of lenders, the priority of each lender will be different. While one set of lend-
ers may be willing to wait for a longer time to recover its dues, another lender may have a
much shorter timeframe in mind. So it is possible that the letter categories of lenders may be
willing to exit, even a t a cost – by a discounted settlement of the exposure. Therefore, any
plan for restructuring/rehabilitation may take this aspect into account.

IV. Corporate Debt Restructuring mechanism has been institutionalized in 2001 to provide a
timely and transparent system for restructuring of the corporate debt of Rs. 20 crore and
above with the banks and FIs on a voluntary basis and outside the legal framework. Under
this system, banks may greatly benefit in terms of restructuring of large standard accounts

(potential NPAs) and viable sub-standard accounts with consortium/multiple banking ar-
rangements.

52 | P a g e
 10. Guidelines of Government and RBI for Reduction of NPAs

Compromise settlement schemes:

The RBI/Government of India have been constantly goading the banks to take steps forar-
resting the incidence of fresh NPAs and have also been creating legal and regulatory envi-
ronment to facilitate the recovery of existing NPAs of banks. More significant of them,I
would like to recapitulate at this stage.

The broad framework for compromise or negotiated settlement of NPAs advised by RBIin
July 1995 continues to be in place. Banks are free to design and implement their ownpolicies
for recovery and write-off incorporating compromise and negotiated settlementswith the ap-
proval of their Boards, particularly for old and unresolved cases falling underthe NPA cate-
gory. The policy framework suggested by RBI provides for setting up of anindependent Set-
tlement Advisory Committees headed by a retired Judge of the High Court to scrutinise and
recommend compromise proposals.

Specific guidelines were issued in May 1999 to public sector banks for one time nondiscre-
tionary and non discriminatory settlement of NPAs of small sector. The scheme was opera-
tive up to September 3, 2000. [Public sector banks recovered Rs. 668 crore through compro-
mise settlement under this scheme].

Guidelines were modified in July 2000 for recovery of the stock of NPAs of Rs. 5 croreand
less as on 31 March 1997. [The above guidelines which were valid up to June 30, 2001
helped the public sector banks to recover Rs. 2600 crore by September 2001]. An OTS
Scheme covering advances of Rs. 25000 and below continues to be inoperation and guide-
lines in pursuance to the budget announcement of the Hon'ble Finance Minister providing for
OTS for advances up to Rs. 50,000 in respect of NPAs of small/marginal farmers are being
drawn up.

53 | P a g e
 LokAdaltas:

LokAdalats help banks to settle disputes involving accounts in 'doubtful" and "loss"category,
with outstanding balance of Rs. 5 lakh for compromise settlement underLokAdalats. Debt
Recovery Tribunals have now been empowered to organize LokAdalats to decide on cases of
NPAs of Rs. 10 lakhs and above. The public sectorbanks had recovered Rs. 40.38 crore as on
September 30, 2001, through the forum ofLokAdalat. The progress through this channel is
expected to pick up in the comingyears particularly looking at the recent initiatives taken by
some of the public sectorbanks and DRTs in Mumbai.

Debt Recovery Tribunals:

The Recovery of Debts due to Banks and Financial Institutions (amendment) Act,passed in
March 2000 has helped in strengthening the functioning of DRTs.Provisions for placement
of more than one Recovery Officer, power to attachdefendant's property/assets before
judgement, penal provisions for disobedience ofTribunal's order or for breach of any terms of
the order and appointment of receiverwith powers of realization, management, protection and
preservation of property areexpected to provide necessary teeth to the DRTs and speed up the
recovery of NPAsin the times to come.Though there are 22 DRTs set up at major centres in
the country with AppellateTribunals located in five centres viz. Allahabad, Mumbai, Del-
hi,CalcuttaandChennai, they could decide only 9814 cases for Rs. 6264.71 crore pertaining to
publicsector banks since inception of DRT mechanism and till September 30,

54 | P a g e
 2001. Theamount recovered in respect of these cases amounted to only Rs. 1864.30
crore.Looking at the huge task on hand, with as many as 33049 cases involving Rs.42988.84
crore pending before them as on September 30, 2001, I would like thebanks to institute ap-
propriate documentation system and render all possible assistanceto the DRTs for speeding
up decisions and recovery of some of the well collateralized NPAs involving large amounts.
I may add that familiarisationprogrammes have beenoffered in NIBM at periodical intervals
to the presiding officers of DRTs inunderstanding the complexities of documentation and op-
erational features and otherlegalities applicable of Indian bankingsystem. RBI on its part has
suggested to theGovernment to consider enactment of appropriate penal provisions again-
stobstruction by borrowers in possession of attached properties by DRT Receivers, andnotify
borrowers who default to honour the decree passed against them.

Circulation of information on defaulters:The RBI has put in place a system for periodical cir-
culation of details of willfuldefaults of borrowers of banks and financial institutions. This
serves as a caution listwhile considering requests for new or additional credit limits from de-
faulting borrowing units and also from the directors/proprietors/partners of these entities.
RBIalso publishes a list of borrowers (with outstanding aggregating Rs. 1 croreandabove)
against whom suits have been filed by banks and FIs for recovery oftheir funds, as on 31st
March every year. It is our experience that these measures hadnot contributed to any percep-
tible recoveries from the defaulting entities. However,they serve as negative basket of steps
shutting off fresh loans to these defaulters. Istrongly believe that a real breakthrough can
come only if there is a change in therepayment psyche of the Indian borrowers

Recovery action against large NPAs:

After a review of pendency in regard to NPAs by the Hon'ble Finance Minister, RBIhad ad-
vised the public sector banks to examine all cases of willful default of Rs 1 crore and above
and file suits in such cases, and file criminal cases in regard to willful defaults. Board of Di-
rectors are required to review NPA accounts of Rs. 1 crore and above with special reference
to fixing of staff accountability.On their part RBI and the Government are contemplating
several supporting measures including legal reforms, some of them I would like to highlight.

55 | P a g e
 Corporate Debt Restructuring (CDR):

Corporate Debt Restructuring mechanism has been institutionalised in 2001 to provide a

timely and transparent system for restructuring of the corporate debts of Rs. 20 crore and
above with the banks and financial institutions. The CDR process would also enable viable
corporate entities to restructure their dues outside the existing legal framework and reduce
the incidence of fresh NPAs. The CDR structure has beenheadquartered in IDBI, Mumbai
and a Standing Forum and Core Group foradministering the mechanism had already been put
in place. The experiment howeverhas not taken off at the desired pace though more than six
months have lapsed sinceintroduction. As announced by the Hon'ble Finance Minister in the
Union Budget2002-03, RBI has set up a high level Group under the Chairmanship of
ShriVepaKamesam, Deputy Governor, RBI to review the implementation procedures of
CDRmechanism and to make it more effective. The Group will review the operation of
theCDR Scheme, identify the operational difficulties, if any, in the smoothimplementation of
the scheme and suggest measures to make the operation of thescheme more efficient.

Credit Information Bureau:

Institutionalisation of information sharing arrangements through the newly formedCredit In-

formation Bureau of India Ltd. (CIBIL) is under way. RBI is considering therecommenda-
tions of the S.R.Iyer Group (Chairman of CIBIL) to operationalise thescheme of information
dissemination on defaults to the financial system. The mainrecommendations of the Group
include dissemination of information relating to suitfiledaccounts regardless of the amount
claimed in the suit or amount of credit grantedby a credit institution as also such irregular ac-
counts where the borrower has givenconsent for disclosure. This, I hope, would prevent those
who take advantage of lackof system of information sharing amongst lending institutions to
borrow largeamounts against same assets and property, which had in no small measurescon-
tributed to the incremental NPAs of banks.

Proposed guidelines on willful defaults/diversion of funds:

RBI is examining the recommendation of Kohli Group on willful defaulters. It isworking out
a proper definition covering such classes of defaulters so that creditdenials to this group of
borrowers can be made effective and criminal prosecution canbe made demonstrative against
willful defaulters.

56 | P a g e
 Corporate Governance:

A Consultative Group under the chairmanship of Dr. A. Ganguly was set up by theReserve
Bank to review the supervisory role of Boards of Banks and financialinstitutions and to ob-
tain feedback on the functioning of the Boards vis-à-viscompliance, transparency, disclosure,
audit committees etc. and makerecommendations for making the role of Board of Directors
more effective with aview to minimising risks and overexposure. The group is finalising
itsrecommendations shortly and may come out with guidelines for effective control andsu-
pervision by bank boards over credit management and NPA prevention measures.

Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002:

The Act provides, inter alia for enforcement of security interest for realisation of dueswithout
the intervention of courts or tribunals. The Security Interest (Enforcement)Rules, 2002 has
also been notified by Government to enable Secured Creditors toauthorise their officials to
enforce the securities and recover the dues from theborrowers. As on June 30, 2004, 27 pub-
lic sector banks had issued 61, 263 noticesinvolving outstanding amount of Rs. 19,744 crore,
and had recovered an amount ofRs. 1,748 crore from 24,092 cases.

11. Problems Loans Recovery

1. Inadequate security and Erosion in value of security:

Generally, banks tend to find that there is a major gap in the valuation of the security,as car-
ried out at the time of providing the loan and at the time of loan recovery. Thevalue of the
security has generally deteriorated over the period and according toexperts, it may further de-
teriorate by almost 10-50% if quick action is not taken for itsimmediate sale.

2. Political interferences:

Political interference in the day -to-day functioning of public sector banks created anumber
of problems for them. The populist policies of the national level politicians,such as waiver in
repayment only added to these problems.

57 | P a g e
 3. Slow legal procedure:

Before the establishment of DRTs in 1993, the banks had to approach the normalcourts to re-
cover their dues. There were provisions under various acts whichhampered the smooth take-
over and sale of secured assets. The legal process couldtake years to be completed, with the
borrower having ample scope for delaying thetakeover of assets. A number of loopholes pro-
vided the borrower with opportunitiesto delay or ignore repayment of loans. During this pe-
riod, it was said by someunscrupulous businessmen that - "there is no difference between eq-
uity and debt – younever have to repay either of them ".

4. Swamping of DRTs with cases:

Once DRTs were established to quicken the pace of recovery procedures, the pace ofrecov-
ery improved quite a bit. However, the DRTs were soon drowned in the everincreasing num-
ber of cases. The pending number of cases with the DRTs increasedmanifold during the peri-
od 1993-2002.

5. Misuse of BIFR/SICA:

This was one of the favourite methods of willful defaulters to delay repayment. If thedefault-
er's company is declared sick and taken for financial reconstruction underBIFR, it is not pos-
sible to undertake any recovery proceeding against the company.The procedure of financial
reconstruction can take a number of years together,thereby delaying recovery to a great ex-
tent.

6. Transfer of property Act, English mortgage:

Under provisions of Section 69 of Transfer of Property Act, mortgagee can take possession
of mortgaged property and sell the same without the intervention of the Court only in the
case of English Mortgage. In addition, mortgagee can take possession of mortgaged property
where there is specific provision in mortgage deedand it is situated in the towns of Mumbai,
Kolkata and Chennai only. In other cases, intervention of the court is required. However, this
is very slow and time consuming process and by the time bank /FI is able to get possession;
the asset either does not exist or has become valueless.
58 | P a g e
 State Bank of India

------------------- in Rs. Cr. -------------

Standalone Balance Sheet ------
Mar 17 16-Mar 15-Mar 14-Mar 13-Mar
12 mths 12 mths 12 mths 12 mths 12 mths
EQUITIES AND LIABILI-
TIES

SHAREHOLDER'S FUNDS

Equity Share Capital 797.35 776.28 746.57 746.57 684.03

Total Share Capital 797.35 776.28 746.57 746.57 684.03

Revaluation Reserve 31,585.65 0 0 0 0
Reserves and Surplus 155,903.06 143,498.16 127,691.65 117,535.68 98,199.65

Total Reserves and Surplus 187,488.71 143,498.16 127,691.65 117,535.68 98,199.65

Total Shareholders Funds 188,286.06 144,274.44 128,438.22 118,282.25 98,883.69
Deposits 2,044,751.39 1,730,722.44 1,576,793.24 1,394,408.51 1,202,739.57
Borrowings 317,693.66 224,190.59 205,150.29 183,130.88 169,182.71
Other Liabilities and Provi-
sions 155,235.19 159,875.57 137,698.05 96,412.96 95,455.07

Total Capital and Liabilities 2,705,966.30 2,259,063.03 2,048,079.80 1,792,234.60 1,566,261.04

ASSETS

Cash and Balances with 127,997.62 129,629.33 115,883.84 84,955.66 65,830.41

Reserve Bank of India

Balances with Banks Money

at 43,974.03 37,838.33 58,977.46 47,593.97 48,989.75

Call and Short Notice

Investments 765,989.63 477,097.28 495,027.40 398,308.19 350,927.27

Advances 1,571,078.38 1,463,700.42 1,300,026.39 1,209,828.72 1,045,616.55
Fixed Assets 42,918.92 10,389.28 9,329.16 8,002.16 7,005.02
Other Assets 154,007.72 140,408.41 68,835.55 43,545.90 47,892.03
Total Assets 2,705,966.30 2,259,063.03 2,048,079.80 1,792,234.60 1,566,261.04
OTHER ADDITIONAL
INFORMATION
Number of Branches 16,784.00 16,333.00 16,059.00 15,002.00
17,170.00
Number of Employees 209,567.00 207,739.00 213,238.00 222,033.00 228,296.00
Capital Adequacy Ratios
(%) 13 13 12 13 13
KEY PERFORMANCE
INDICATORS
Tier 1 (%) 10 10 10 9
10
Tier 2 (%) 3 3 2 3 3

59 | P a g e
 ASSETS QUALITY
Gross NPA 98,172.80 56,725.00 61,605.00 51,189.39
112,342.99
Gross NPA (%) 7 7 4 5 5
Net NPA 58,277.38 55,807.02 0 0 21,956.48
Net NPA (%) 4 4 2 3 2
Net NPA To Advances (%) 4 4 2 3 2

CONTINGENT LIABILI-
TIES, COMMITMENTS
Bills for Collection 199,140.17 190,560.35 74,028.42 66,639.54
65,640.42
Contingent Liabilities 1,046,440.93 865,027.48 902,862.16 1,017,329.95 926,378.91
( Source :- www.moneycontrol.com)

60 | P a g e
 Chapter No. 4

Data Analysis, Interpretation and Presentation

(The analysis is based on above balance sheet of the SBI)

STATE BANK OF INDIA

The objective of this analysis is to know the position of SBI in terms of total Assets. From the
time period from 2013 to 2017. A firm’s total assets include all current and fixed assets.

TOTAL ASSET

TABLE 1
YEARS 2013 2014 2015 2016 2017

TOTAL 15662.61 17922.35 20480.80 22590.63 27059.67

ASSET (RS.
In billions)

CHART 1

Total Assets
30000

25000

20000

15000

10000

5000

0
2013 2014 2015 2016 2017

INTERPRETATION
Above graph show that total assets of SBI is increased in 2014 by 2259.74 billion, in 2017
increased by 4469.04 billion. So assets of the SBI bank increased from last five year.

61 | P a g e
 RATIO ANALYSIS: The relationship between two related items of financial is known
as ratio. A ratio is just one number expressed in terms on another. The ratio is customarily
expressed in there different ways. It may be expressed as a proportion between the two fig-
ures. Second, it may be expressed in terms of percentage. Third, it may expressed in terms
of rate.
The use of ratio become increasingly popular during the last few years only. Originally, the
bankers used the current ratio to judge the capacity of borrowings business enterprises to
repay the loan and make regular interest payments. Today it has assumed to be important
tools that anybody connected with the business turns to ratio for measuring the financial
strength and earning capacity of business.

Gross NPA Ratio:

Gross NPA Ratio is the ratio of gross advances of the Bank. Gross is the sum of all loan as-
sets that are classified as NPA as per RBI guidelines, the ratio is to be counted in terms of
percentage and the formula for GNPA is as follows:

Gross NPAs Ratio = Gross NPAs *100

Gross Advances

TABLE 2

YEAR GROSS NPA GROSS GROSS NPA

(IN CRORE) ADVANCES (IN RATIO
CR.)
2013 51189.39 1078557 4.75

2014 61,605.35 1245122 4.95

2015 56725.34 1335424 4.25
2016 98172.80 1509500 6.50
2017 112342.99 1627273 6.90
(Source – annual report)

62 | P a g e
 CHART 2
8

4
Series1

0
2013 2014 2015 2016 2017

INTERPRETATION

The above table and graph makes it very clear that the average gross NPA of SBI is not very
satisfactory. It has seem that the gross NPA which was 4.75% in 2013 increased every year and
finally reached 6.90% in 2017. It seems that SBI need to take more care and follow ideal norms
of granting advances, so that the recovery is satisfactory leading to lower gross NPA.

NET NPA RATIO

The net NPA percentage is the ratio of NPA to net advances in which is to be deducted
from the gross advances. The provision is to be made for NPA account. The formula for
that is.

Net NPA Ratio = Net NPAs *100

Net Advances

63 | P a g e
 TABLE 3

YEAR NET NPA NET ADVANCES NET NPA RATIO

2013 21956.48 1045546.67 2.10

2014 31096.07 1209963.81 2.57
2015 27590.58 1300026.39 2.12
2016 55807.02 1463700.42 3.81

2017 58277.38 1571078.38 3.71

CHART 3

4.5

3.5

2.5

1.5

0.5

0
2013 2014 2015 2016 2017

64 | P a g e
 INTERPRETATION

The above graph presents the NPA ratio of SBI bank. It can be noticed that the NPA ratio
was decreased in 2015 by 0.45%. After that it is continuously increased. The bank had failed
to make sufficient provisions against NPA.

TABLE 4

YEAR ADVANCES INCREASE/ GROSS NPA INCREASE/

( Rs. In billions) DECREASE Rs. In crore) DECREASE
PERCENTAGE PERCENTAGE
2013 10456.17 51189.39
2014 12098.29 15.70 61605.35 20.34
2015 13000.26 07.45 56725.34 -09.07
2016 14637.01 12.59 98172.80 73.06
2017 15710.78 7.34 112342.99 14.44

INTERPRETATION

In this table we can see that increase or decrease in gross NPA is not because of increase in
advances. There is another possibility of increasing in NPA may be this is because of poor
credit system in bank.

65 | P a g e
 CAPITAL ADEQUACY RATIO

The bank manages and maintains capital as a cushion against risk of problem losses and to
protect its depositors and creditors. The future capital requirement of the bank is projected as
a part of its annual business plan, in accordance with its business strategy. In calculating the
capital requirements of the banks, broad parameters viz. balance sheet composition, portfolio
mix, growth rate and relevant discounting are considered. In addition, views regarding market
behavior of interest rate and liquidity positions are also taken into account. Further, the loan
composition and rating matrix is factored in to reflect precision in projections.

The New Capital Adequacy Framework (NCAF) of RBI stipulates the methodology for com-
putation of CRAR which is a ratio of the total capital of the bank to its risk adjusted assets. The
CRAR for the bank is calculated on a quarterly basis and credit, market and operational risks
are considered to arrive at the ratio. The bank has adopted the standardized approach for credit
risk, the Standardized Measurement Method (SMM) for market risk and the Basic Indicator
Approach (BIA) for operational risk. The position of the CRAR of the bank is as follow.

66 | P a g e
TABLE 5

YEAR CAPITALADEQUACY
RATIO
2013 12.92
2014 12.96
2015 12.00
2016 13.12
2017 13.11

CHART 5

CAPITALADEQUACY RATIO
13.4
13.2
13
12.8
12.6
12.4
CAPITALADEQUACY RATIO
12.2
12
11.8
11.6
11.4
2013 2014 2015 2016 2017

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 INTERPRETATION

Each bank needs to create the capital reserve to compensate the non- performing assets.
Here, SBI has shown better capital adequacy ratio with 13.12% in 2016as compared to
12.00% in 2015, 12.92% in 2013, 12.96% in 2014 and 13.11 in 2017. The capital adequacy
ratio is important for them to maintain as per the regulation. Each bank needs to create the
capital reserve to compensate the non- performing assets.

PROVISION RATIO

Provisions are to be made for to keep safety the NPA, and it directly effect on the gross
profit of the banks. The provision ratio is nothing but total provision held for NPA to gross
NPA of the banks. The formula for that is:

Provision Ratio = Total Provision *100

Gross NPAs

(Additional Formula: Net NPA = Gross NPA- Provision

Therefore, provision = Gross NPA – Net NPA)

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 TABLE 6

YEAR TOTAL GROSS NPA PROVISION

PROVISIONS (IN CR.) RATIO
(IN CR.)
2013 16977 51189.39 33.16
2014 21218 61605.35 34.44
2015 25811 56725.34 45.50
2016 33307 98172.80 33.92

2017 40363 112342.99 36.17

CHART 6

50

45

40

35

30

25

20

15

10

0
2013 2014 2015 2016 2017

INTERPRETATION

This ratio indicates the degree of safety measures adopted by the banks. It has direct bearing
on the profitability, dividend and safety of shareholders’ fund, if the provision ratio is less, it
indicates that the banks has made under provision. The highest provisions ratio is showed by
SBI is 45.50% in 2015 as compared to 33.16% in 2013, 34.44% in 2014, 33.92% in 2016 and
36.17% in 2017

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 Chapter No. 5

FINDINGS

The asset quality of banks is one of the most important indicators of their financial health. It
also reflects the efficiency of banks credit risk management and the recovery environment.
The SBI bank has shown very good performance as far as the financial operations are con-
cerned. But non- performing assets (NPA) has caused some concerns. The NPA has been
continuously increasing this was due to ineffective recovery of bank credit, credit recovery
system, inadequate legal provision etc.

Various steps have been taken by the government to recover and reduce NPAs. Some of them
are:

 Formation of the credit information bureau (India) limited (CIBIL)


 Release of willful Defaulter’s list. RBI also releases a list of borrowers with aggregate
outstanding of Rs. 1 crore and above against whom banks have filed suits for recov-
ery of their funds.

 Reporting of funds to RBI.

 Norms of lender’s liability- framing of fair practices code with regard to lender’s lia-
bility to be followed by banks, which indirectly prevents accounts turning into

NPAs on account of bank’s own failure.

 Risk assessment and risk management.

 RBI has advised banks to examine all cases of willful default of Rs. 1 crore and above
and file suits in such cases. Board of directors are required to review NPA accounts of
Rs. 1 crore and above with special references to fixing of staff accountability.

 Reporting quick mortality cases

 Special mention accounts for early identification of bad debts. Loans and advances
overdue for less than one and two quarters would come under this category. However,
these accounts do not need provisioning.

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  Other findings


 1. REASON OF NPA IN BANK

Default by customer
Non-inspection of borrower
Lack of expertise
Imbalance of inventories
Poor credit collection
Lack of trained staff
Lack of commitment to recovery
Change in consumer preference

2 IMPACT OF NPA ON BANK

Govt. Policies
Impact of profitability
Liquidity
Impact on outlook of Banker towards credit delivery
Impact of productivity

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CONCLUSION

A strong banking sector is important for a flourishing economy. The failure of

the banking sector may have an adverse impact on other sectors.
Over the years, much has been talked about NPA and the emphasis so far has been only
on identification and quantification of NPAs rather than on ways to reduce and upgrade
them.
There is also a general perception that the prescriptions of 40% of net bank credit to pri-
ority sectors have led to higher NPAs, due to credit to these sectors becoming stickly
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, man-
gers should make it amply clear to potential borrowers that banks resources are scare 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 house-
holds. Hence selection of right borrowers, viable economic activity, adequate finance and
timely disbursement, correct and use of funds and timely recovery f loans is absolutely
necessary pre conditions for preventing of minimizing the incidence of new NPAs.

To conclude this study we can say about this report, that

 The NPA is slowly decreasing in SBI


 NPAs represent high level of risk and low level of credit appraisal.

 There are so many preventive measures available those can be adopted to stop an As-
set or A/C becoming NPA.

 There are some certain guidelines made by RBI for NPAs which are adopted by
banks.

 BOP is better in all terms than OBC instead of capital adequacy.

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SUGGESTION

 Credit administration: A banks have to strengthen their credit administrative

Machinery and put in place effective credit risk management systems to reduce the
fresh incidence of NPAs.

 Better Inspection: We shall keep a close watch on the manner in which

NPA reduction is taking place.


 Cash Recovery: We should also insist that cash recoveries should more
than offset the fresh write-offs in NPAs.


 Perception: The mindset of the borrowers needs to change so that a culture
of proper utilization of credit facilities and timely repayment is developed.


 Financial System: As you are aware, one of the main reason for corporate default is
on account of diversion of funds and corporate entities should come forward of
avoid this practice in the interest of strong and sound financial system.


 Coordinator: Extending credit involves lenders and borrowers and both should
realize their role and responsibilities. They should appreciate the difficulties of each
other and should endeavor to work contributing to a healthy financial system.

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BIBLIOGRAPHY

MAGAZINES

Investors
Business India

E- NEWSPAPER

The Economic Times

The Business Standard

PUBLISHED MATERIAL

RBI Guidelines Circulars on Income Recognition and Asset Classification

Report on Trend and progress of Banking in India 2012- 13

WEBSITES

www.rbi.org.in
www.google.co.in
www.wiki.answers.com
www.wikipedia.com
www.moneycontrol.com
www.sbi.com

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