NPA And Management Techniques Used By Banks Finance Essay

Axis Bank, once UTI Bank, is a fiscal services house that had begun operations in 1994, after the Government of India allowed new private Bankss to be established. The Bank was promoted jointly by the Administrator of the Specified Undertaking of the Unit Trust of India ( UTI-I ) , Life Insurance Corporation of India ( LIC ) , General Insurance Corporation Ltd. , National Insurance Company Ltd. , The New India Assurance Company, The Oriental Insurance Corporation and United India Insurance Company UTI-I holds a particular place in the Indian capital markets and has promoted many taking fiscal establishments in the state. The bank changed its name to Axis Bank in April 2007 to avoid confusion with other unrelated entities with similar name. After the Retirement of Mr. P. J. Nayak, Shikha Sharma was named as the bank ‘s pull offing manager and CEO on 20 April 2009.

As on the twelvemonth ended 31 March 2009 the Bank had a entire income of A 13,745.04 crore ( US $ 3.09 billion ) and a net net income of A 1,812.93 crore ( US $ 407.91 million ) .


Rapid Growth in the Bank ‘s nucleus concerns

– Entire Net Progresss grow 55 % yoy to Rs. 75,328 crores

– Sum Investings turn 50 % yoy to Rs. 43,677 crores

– Entire Assets register a 52 % yoy growing, lifting to Rs. 1,37,471 crores

– Share of demand sedimentations in entire sedimentations at 38 %

-Net NPAs at 0.39 % , compared to 0.42 % as at terminal December’07

Definitions of Non-Performing Assets NPA is a loan or an progress where:

1. involvement and/or episode of chief remains delinquent for a period of more than 90 yearss in regard of a term loan ;

2. the history remains “ out-of-order ” in regard of an Overdraft or Cash Credit ( OD/CC ) ;

3. the measure remains delinquent for a period of more than 90 yearss in instance of measures purchased and discounted ;

4. A loan granted for short continuance harvests will be treated as an NPA if the installments of chief or involvement thereon remain delinquent for two harvest seasons ; and

5. a loan granted for long continuance harvests will be treated as an NPA if the installments of chief or involvement thereon remain delinquent for one harvest season.

6. The regular/ad hoc recognition bounds have non been reviewed/ renewed within 180 yearss from the due date/date of ad hoc countenance.

Recovery utilizing Recovery Certificate

aˆ? Recovery Officer returns to retrieve the sum in any

of the undermentioned ways:

a ) fond regard and sale of the movable and immoveable belongings

B ) apprehension and detainment of the suspect

degree Celsius ) naming a receiving system for the direction of the movable oimmovable belongingss

vitamin D ) issue Garnishee Order against 3rd parties.


Provision for NPAs

Asset Classification

Provision Requirements

Standard Assets 0.25 %

Sub-standard Assetss 10 %

Doubtful Assetss ( Doubtful I ) 20 %

Doubtful Assetss ( Doubtful II ) 30 %

Doubtful Assetss ( Doubtful

III ) 100 %

Loss Asset Should be written off

Recognition Rating System

Internal coverage and inadvertence of assets is chiefly differentiated by the recognition evaluations applied. The Bank has developed evaluation tools specific to market section such as big corporates, mid-corporates, SME, fiscal companies and microfinance companies to objectively measure underlying hazard associated with such exposures.

Credit Sanction and related procedures

Know your CustomeraˆY is a prima rule for all activities.

The acceptableness of recognition exposure is chiefly based on the sustainability and adequateness of borroweraˆYs normal concern operations and non based entirely on the handiness of security.

Portfolio degree hazard analytics and describing to guarantee optimum spread of hazard across assorted evaluation categories prevent undue hazard concentration across any peculiar industry sections and proctor recognition hazard quality migration.

Sector specific surveies are sporadically undertaken to foreground hazard and chances in those sectors.

Separate hazard bounds are set up for recognition portfolios like progresss to NBFC and unbarred loans that require particular monitoring.

Review and Monitoring

All recognition exposures, one time approved, are monitored and reviewed sporadically against the sanctioned bounds. Borrowers with lower recognition evaluation are capable to more frequent reappraisals.

Customers with emerging recognition jobs are identified early and classified consequently. Remedial action is initiated quickly to minimise the possible loss to the Bank.




Sum of NPAs ( Gross )

– Substandard


– Doubtful 1


– Doubtful 2


– Doubtful 3


– Loss



Net New people’s army



NPA Ratios

– Gross NPAs to gross progresss ( % )

1.25 %

– Internet NPAs to sack progresss ( % )

0.40 %


Motion of NPAs ( Gross )

– Opening balance as on 1.4


– Additions


– Decreases

( 1,380.47 )

– Shutting balance



Motion of Provision for NPAs

– Opening balance as on 1.4.


– Provision made of old twelvemonth


– Write – offs / Write – dorsum of extra proviso

( 1,041.60 )

– Reclassification of drifting proviso

( 3.25 )

– Shutting balance







Net New people’s army


NPA Ratios

1.09 %

0.40 %

Motion of NPAs ( Gross )



( 489.46 )


Motion of Provision for NPAs



( 344.27 )

( 21.73 )









0.83 %

0.42 %



( 308.27 )




( 154.45 )



Rating Date

Security Type



Rating Type

A 14-10-2010

Debt Progamme



Very Strong With Relatively Higher Standing



Debt Progamme

Pass Through Certificates





Very Strong With Relatively Higher Standing

Highest recognition quality. `AA+ ( ind ) ‘ evaluations indicate a low outlook of recognition hazard. They indicate strong capacity for timely payment of fiscal committednesss. This capacity may change somewhat from clip to clip because of economic conditions.

NPA Management

The Net NPA ‘s after 2008 have come down by 0.02 % boulder clay 31st Mar 2010.The loss assets have increased by 91.87 in comparing to 2009.

Even the shutting balance of Bankss have besides increased in recent old ages.

The Bank has identified 6,042 borrowers eligible under the Agriculture Debt release and debt alleviation strategy announced in the Union Budget 2008- 09 and alleviation amounting to Rs. 43.07 crores was credited to their loan histories. Pursuant to the execution of the debt alleviation strategy, there has been a decrease in Gross NPAs of Rs. 45.20 crores and a write-back of proviso of Rs. 8.27 crores during the one-fourth.

Even the the evaluation is Very Strong With Relatively Higher Standing for Debt Progamme securities. Instruments transporting this evaluation are considered to be of the best quality, transporting negligible investing hazard. Debt service payments are protected by stable hard currency flow, with good border. While the implicit in premises may alter, such alterations as can be visualised are more improbable to impair the strong place of such instruments.

So, we can reason that overall place of the bank is good.


15-Oct 2007

Net NPAs declined to 0.55 % from 0.74 % in the year-ago period, while the capital adequateness ratio ( CAR ) of the bank improved well at 17.59 % against 11.50 % at end-June 2007 and 11.52 % as of end-September 2006.

Source-Business Line

15 -Oct-2010

The bank ‘s plus quality has besides improved. Net non-performing assets ( NPAs ) formed 0.3 % of net progresss. The bank has shown model public presentation in this country as its cyberspace New people’s army have been vibrating about 0.4 % in the last nine quarters.

The bank besides improved its net involvement border ( NIM ) – the spread between the bank ‘s adoption and loaning rates – to 3.7 % , up by about 16 footing points y-o-y. Among its equals, merely HDFC Bank and Punjab National Bank have reported better NIMs.

Source-Economic Timess

Oriental Bank of Commerce

Oriental Bank of Commerce, established on 19 February, 1943, in Lahore ( so a metropolis of British India, and presently in Pakistan ) , is one of the populace sector Bankss in India.

On 14 August 2004, Global Trust Bank Limited ( GTB ) was amalgamated into OBC. GTB was a prima private sector bank in India that was associated with assorted fiscal disagreements taking to a moratorium being imposed by RBI shortly before being merged into OBC.

Oriental Bank of Commerce was nationalised on 15th April in 1980. Then OBC bank had 307 subdivisions with Rs. 282.61 crores as sedimentations and as progress Rs. 152.69.

On shutting Mar 2010 its militias stood at 15,639.44 whereas in 2009 it were 9,855.79

Oriental Bank of Commerce Fact File

Amongst the strongest Bankss in India

High Capital Adequacy Ratio

Consistent Profit-making Bank

One of the Lowest Spreads in Banking Industry

Entire Working crosses the 35700 crore grade

CRISIL Evaluations

The Highest Productivity per Employee

NPA – One of the lowest


Net NPA as % Internet Progress

Oriental Bank of Commerce







OBC ‘s NPA ‘s in 2010 have come down from 0.65 % to 0.87 % reduced by 0.22 % though it was more in 2008 in comparing to 2009 which shows good mark of Maintenance of NPA ‘s.

Sum of non-performing loans ( NPL ) ( September 30, 2009 )

Motion of NPA ( figure in ( Rs. ) crores )

NPA Classification Gross NPA Net NPA

Sub- criterion 421.28 374.24

Doubtful 697.83 240.08

Doubtful-1 298.12 148.98

Doubtful- 2 215.69 91.10

Doubtful-3 184.02 0.00

Loss 59.70 0.00

entire 1178.81 614.32*

NPA ratios 1.54 % 0.66 %

Motion of commissariats for NPAs ( figure in ( Rs. ) crores )

Opening Balance as on


1058.12 442.43

Addition during the twelvemonth 344.24 56.80

Tax write-off during the twelvemonth 223.55 –

Closing balance 1178.81 499.23

NOTE-OBC did non showed proper direction of NPA ‘s so it was difficult to construe it.It did non demo all the necessary histories.

Amalgamation of Global Trust Bank with OBC lead to lift in NPA ‘s in 2004

Recommendations for cut downing NPAs

1. Effective and regular followup of the terminal usage of the financess sanctioned is required to determine any peculation or recreation of financess

2. In instance of new borrowers, particularly corporate borrowers, proper analysis of the hard currency flow statement of last five old ages is to be done carefully.

3. A healthy Banker-Borrower relationship should be developed. Many cases have been reported about forceful recovery by the Bankss, which is against corporate moralss. Debt recovery will be much easier in a congenial environment.

4. States such as Korea, China, Japan, Taiwan have a good functioning Asset Reconstruction/

Recovery mechanism wherein the bad assets are sold to an Asset Reconstruction Company ( ARC ) at an in agreement upon monetary value. In India, there is an absence of such mechanism and whatever exists, it is still in nascent phase.

5. So far the Public Sector Banks have done good every bit far as loaning to the precedence sector is concerned.

However, it is non adequate to do loaning to this sector mandatary ; it must be made profitable by aggressively cut downing the dealing costs. This entails faster encompassing of engineering and minimising certification.

6s. Another manner to pull off the NPAs by the Bankss is Compromise Settlement Schemes or One Time Settlement Schemes. However, under such strategies the Bankss keep the existent sum recovered secret. Under these fortunes, it is necessary to convey more transparence in such trades so that anyflaw could be removed.