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NPAs Reduction Strategies for Commercial Banks in India
1G.V.Bhavani Prasad, 2D.Veena
1,2Dept. of Commerce & Business Management, Kakatiya University,Warangal, India banks. Every bank had to earmark a minimum percentage of A healthy banking system is essential for any economy their loan portfolio to sectors identified as “priority sectors”. The striving to achieve growth and remain stable in competitive manufacturing sector also grew during the 1970s in protected global business environment. Indian banks are favorable on environs and the banking sector was a critical source. The next growth, asset quality and profitability; RBI and Government wave of reforms saw the nationalization of 6 more commercial have made some notable changes in policies and regulation banks in 1980. Since then the number of scheduled commercial to help strengthen the sector. These changes include banks increased four-fold and the number of bank branches strengthening prudential norms, enhancing the payments increased eight-fold.
system and integrating regulations of commercial banks. In terms of quality of assets and capital adequacy, these banks After the second phase of financial sector reforms and have clean, strong and transparent balance sheets relative liberalization of the sector in the early nineties, the Public to other banks in comparable economies in its region. PSBs Sector Banks (PSBs) found it extremely difficult to compete need to strengthen institutional skill levels especially in sales with the new private sector banks and the foreign banks. and marketing, service operations, risk management and the The new private sector banks first made their appearance overall organizational performance ethic & strengthen human after the guidelines permitting them were issued in January 1993. Eight new private sector banks are in operation. These Structural weaknesses such as a fragmented industry banks due to their late start have access to state-of-the-art structure, restrictions on capital availability and deployment, technology, which in turn helps them to save on manpower lack of institutional support infrastructure, restrictive labour costs and provide better services. Since then the growth of the laws, weak corporate governance and ineffective regulations banking industry in India has been a continuous process [1]. beyond Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus. One of the major drawbacks of As far as the present scenario is concerned the banking industry is in a transition phase. The Public Sector Banks, which are the The best indicator for the health of the banking industry in foundation of the Indian Banking system account for more than a country is its level of Non-performing assets (NPAs). NPAs 78 per cent of total banking industry assets. Unfortunately they are one of the major concerns for banks in India. It reflects are burdened with excessive Non Performing assets, massive the performance of banks. Reduced NPAs generally gives the manpower and lack of modern technology [2].
impression that banks have strengthened their credit appraisal processes over the years and growth in NPAs involves the Indusind bank was the first set up private bank in India.IDBI, necessity of provisions, which bring down the over al profitability ING Vyasa Bank, SBI Commercial and International Bank Ltd, Dhanalakshmi Bank Ltd, Karur Vysya Bank Ltd, Bank of The Indian banking sector is facing a serious problem of NPA. Rajasthan Ltd are some Private Sector Banks. Public sector The magnitude of NPA is comparatively higher in public sectors banks include Punjab national bank, Vijaya bank, UCO bank, banks. To improve the efficiency and profitability of banks the oriental bank, Al ahabad bank, Andhra bank. ANZ Grindlays NPA need to be reduced and controlled.
Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank This paper deals with understanding the concept of NPAs, are some foreign banks operating in India. its magnitude and major causes for an account becoming non-performing and strategies for managing NPA in Indian II. Norms of NPAs in banking industry The history of the Basel International codes and Standards Banking System in India, Commercial Banks, PSB, SCB, NPS (BIS) relating to minimum capital adequacy for banks goes back to the developed countries' initiative in 1988 to protect the Organization for Economic Cooperation and Development The Indian Banking industry, which is governed by the Banking (OECD) banks from the financial crises common during the Regulation Act of India, 1949 can be broadly classified into 1980s. Basel I norms, were set out in 1988 and accepted two major categories, scheduled banks and non-scheduled over the years by around 100 Central Banks across the globe banks. Scheduled banks comprise commercial banks and the under what came to be known as the Basel Accord. The co-operative banks. In terms of ownership, commercial banks original accord, now known as Basel-I, was quite simple and can be further grouped into nationalized banks, the State adopted a straight-forward `one size fits al approach' that Bank of India and its associate banks, regional rural banks does not distinguish between the differing risk profiles and risk and private sector banks (the old/ new domestic and foreign). management standards across banks. The Indian monetary These banks have over 67,000 branches spread across the authorities implemented the Basel II by 1999 [3].
The banks were to assess their assets and off-balance-sheet risks taken and incorporate them on their balance-sheet. Basel During the first phase of financial reforms, there was a I norms prescribed a minimum capital adequacy ratio (CRAR) nationalization of 14 major banks in 1969. This crucial step [1] of 8 % for Banks which were signatories to the Basel Accord. led to a shift from Class banking to Mass banking. This in turn .
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minimum capital requirements for banks, the Basel I framework in net non performing assets (NPAs) have been registered by 25 public sector and commercial banks during the second capture certain additional risks in the minimum capital ratio but quarter of the 2009 as against 2008 [7].
also includes two additional areas, Supervisory Review Process According to the RBI, "Reduction of NPAs in the Indian banking and Market Discipline through increased disclosure. (4) sector should be treated as a national priority item to make the Thus emerged RBI guidelines on investments and operations system stronger, resilient and geared to meet the challenges risk, paving the way for adoption of what have come to be of globalisation. It is necessary that a public debate is started soon on the problem of NPAs and their resolution." Issues and Challenges for Banking Industry: It is the second accord which focuses on operational risk along The Indian banking system witnessed a series of reforms with market risk and credit risk. Basel II tries to ensure that over the past few years like the deregulation of interest rates, the anomalies existed in Basel I are corrected. The process of dilution of the government stake in public sector banks and the implementing Basel II norms in India is being carried out in increased participation of private sector banks but Indian banks phases. Phase I has been carried out for foreign banks operating (both public and private) have not able to tap the domestic in India and Indian banks having operational presence outside market also to compete in the global market place. New foreign banks are very enthusiastic to gain in the Indian market.
In phase I , al other scheduled commercial banks (except Local Area Banks and RRBs) wil have to adhere to Basel I guidelines There are several challenges that Indian banks will have to by March 31, 2009. With the deadline of March 31, 2009 for face as they look to compete in a globalize environment. full implementation of Basel II norms fast approaching, banks are looking to maintain a cushion in their respective capital reserves. The minimum capital to risk-weighted asset ratio (CRAR) in India is placed at 9%, one percentage point above the Basel I requirement. Al the banks have their Capital to Risk Weighted Assets Ratio (CRAR) above the stipulated requirement of Basel guidelines (8%) and RBI guidelines (9%). As per Basel II norms, Indian banks should maintain tier I capital of at least The Government of India has emphasized that public sector banks should maintain CRAR of 12%. For this, it announced Non Performing Assets as a major issue and chal enge for measures to re-capitalize most of the public sector banks, as Banking Industry: these banks cannot dilute stake further, as the Government is Non-performing Assets are threatening the stability and required to maintain a stake of minimum 51% in these banks demolishing bank’s profitability through a loss of interest income, write-off of the principal loan amount itself. RBI issued guidelines in 1993 based on recommendations of the Narasimham Committee that mandated identification and Gross NPA is a advance which is considered irrecoverable, for reduction of NPAs be treated as a ‘national priority’ because bank has made provisions, and which is stil held in banks' the level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of resource [9].
The financial reforms in Indian bank industy have helped largely Net NPA is obtained by deducting items like interest to clean NPA which was around Rs. 52,000 crores in the year due but not recovered, part payment received 2004. The earning capacity and profitability of the bank are and kept in suspense account from Gross NPA. highly affected due to this NPA.
The Reserve Bank of India states that, compared to other Asian IV. Impact of NPAs on Banking Operations countries and the US, the gross non-performing asset figures The efficiency of a bank is not always reflected only by the size in India seem more alarming than the net NPA figure. of its balance sheet but also the level of return on its assets. The problem of high gross NPAs is simply one of inheritance. The NPAs do not generate interest income for banks but at the Historical y, Indian public sector banks have been poor on credit same time banks are required to provide provisions for NPAs recovery, mainly because of very little legal provision governing from their current profits. foreclosure and bankruptcy, lengthy legal battles, sticky loans made to government public sector undertakings, loan waivers 1. The NPAs have destructive impact on the return on assets Net NPAs are comparatively better on a global basis because 2. The interest income of banks reduced it is to be accounted of the stringent provisioning norms prescribed for banks in 3. The current profits of the banks are eroded because the In India, even on security taken against loans, provision has providing of doubtful debts and writing it off as bad debts to be created. Further, Indian banks have to make a 100 per cent provision on the amount not covered by the realizable 4. The capital adequacy ratio is disturbed and cost of capital value of securities in case of ' doubtful' advance, while in some countries, it is 75 per cent or just 50 per cent [6].
5. The economic value addition (EVA) by banks gets upset The ASSOCHAM Study titled “Solvency Analysis of the Indian because EVA is equal to the net operating profit minus Banking Sector”, reveals that on an average 24 per cent rise 48 InternatIonal Journal of ManageMent & BusIness studIes
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V. Causes responsible for increasing NPAs emerging problems in credit exposures at an early stage. Further, The banking sector has been facing the serious problems of it is revealed that the indicators which may trigger early warning the rising NPAs. In fact PSBs are facing more problems than system depend not only on default in payment of instal ment and the private sector banks and foreign banks. The NPAs in PSBs interest but also other factors such as deterioration in operating are growing due to external as well as internal factors.
and financial performance of the borrower, weakening industry characteristics, regulatory changes, and general economic One of the main causes of NPAs in the banking sector is the conditions. Early warning signals can be classified into five Directed loans system under which commercial banks are broad categories viz.
required to supply 40% percentage of their credit to priority Most significant sources of NPAs are directed loans supplied (c) Banking to the “micro sector” are problematic of recoveries especially (d) Management and when some of its units become sick or weak. PSBs 7 percent (e) External factors.
of net advances were directed to these units [11].
Financial related warning signals generally emanate from the Poverty elevation programs like IRDP, RREP, SUME, SEPUP, borrowers’ balance sheet, income expenditure statement, JRY, PMRY etc., failed on various grounds in meeting their statement of cash flows, statement of receivables etc. Fol owing objectives. The huge amount of loan granted under these common warning signals are captured by some of the banks schemes was totally unrecoverable by banks due to political having relatively developed EWS.
manipulation, misuse of funds and non-reliability of target audience of these sections. Loans given by banks are their 2. Financial warning signals assets and as the repayments of several of the loans were • Persistent irregularity in the account poor, the quality of these assets was steadily deteriorating. • Default in repayment obligation • Devolvement of LC/invocation of guarantees In India the scope for branch expansion in rural and semi- • Deterioration in liquidity/working capital position urban areas is vast and also necessary. Increasingly, NBFCs • Substantial increase in long term debts in relation to operating at such places are coming under regulatory pressure and are likely to abandon their intermediation role. These • Declining sales branches find priority sector financing as the main business • Operating losses/net losses available especially in rural/semi-urban centers. Operational • Rising sales and falling profits restructuring of banks should ensure that NPAs in the priority • Disproportionate increase in overheads relative to sales sectors are reduced, but not priority sector lending. This will • Rising level of bad debt losses Operational warning remain a priority for the survival of banks. Any decisions about insulating Indian banks from priority sector financing should not • Low activity level in plant be reached until full-scale research is undertaken, taking into • Disorderly diversification/frequent changes in plan account several sources including records of credit guarantee • Nonpayment of wages/power bills • Evidence of aged inventory/large level of inventory Various steps have been taken by the government and RBI to recover and reduce NPAs. These strategies are necessary to 3. Management related warning signals • Lack of co-operation from key personnel • Change in management, ownership, or key personnel Preventive measures are to prevent the asset from becoming • Fudging of financial statements a non performing asset. Banks has to concentrate on the • Diversion of funds following to minimize the level of NPAs.
• Declining bank balances/declining operations in the The origin of the flourishing NPAs lies in the quality of managing credit assessment, risk management by the banks concerned. • Opening of account with other bank Banks should have adequate preventive measures, fixing pre- • Return of outward bills/dishonored cheques sanctioning appraisal responsibility and having an effective • Sales transactions not routed through the account post-disbursement supervision. Banks should continuously • Frequent requests for loan monitor loans to identify accounts that have potential to • Frequent delays in submitting stock statements, financial data, etc. Signals relating to external factors It is important in any early warning system, to be sensitive to • Economic recession signals of credit deterioration. A host of early warning signals • Emergence of new competition are used by different banks for identification of potential NPAs. • Emergence of new technology Most banks in India have laid down a series of operational, • Changes in government / regulatory policies financial, transactional indicators that could serve to identify • Natural calamities w w w. i j m b s . c o m
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Know your client’ profile (KYC): Most banks in India have a utilized for purposes other than those for which finance was system of preparing `know your client’ (KYC) profile/credit granted. The list of wil ful defaulters is required to be submitted report. As a part of `KYC’ system, visits are made on clients to SEBI and RBI to prevent their access to capital markets. and their places of business/units. The frequency of such visits Sharing of information of this nature helps banks in their due depends on the nature and needs of relationship. (14) diligence exercise and helps in avoiding financing unscrupulous Credit Assessment and Risk Management Mechanism: Credit elements. RBI has advised lenders to initiate legal measures assessment and Risk management mechanism are ever lasting including criminal actions, wherever required, and undertake solution to the problem of NPAs. Managing credit risk is a much a proactive approach in change in management, where more forward-looking approach and is mainly concerned with appropriate [16].
managing the quality of credit portfolio before default takes place. The documentation of credit policy and credit audit B. Curative Management immediately after the sanction is necessary to upgrade the The curative measures are designed to maximize recoveries so quality of credit appraisal in banks. In a situation of liquidity that banks funds locked up in NPAs are released for recycling. overhang the enthusiasm of the banking system is to increase The Central government and RBI have taken steps for control ing lending with compromise on asset quality, raising concern about incidence of fresh NPAs and creating legal adverse selection and potential danger of addition to the NPAs and regulatory environment to facilitate the recovery of existing stock. It is necessary that the banking system is equipped NPAs of banks. They are: with prudential norms to minimize if not completely avoid the problem of credit risk and develop an effective internal credit 1. One Time Settlement Schemes risk models for the purpose of credit risk management.
This scheme covers al sectors sub – standard assets, doubtful Organizational restructuring: With regard to internal factors or loss assets as on 31st March 2000. All cases on which the leading to NPAs the onus for containing the same rest with banks have initiated action under the SRFAESI Act and also the bank themselves. These wil necessities organizational cases pending before Courts/DRTs/BIFR, subject to consent restructuring improvement in the managerial efficiency, skill decree being obtained from the Courts/DRTs/BIFR are covered. up gradation for proper assessment of credit worthiness and a However cases of wil ful default, fraud and malfeasance are not change in the attitude of the banks towards legal action, which covered. As per the OTS scheme, for NPAs up to Rs. 10crores, is traditionally viewed as a measure of the last resort.
the minimum amount that should be recovered should be 100% Reduce Dependence on Interest: The Indian banks are largely of the outstanding balance in the account. depending upon lending and investments. The banks in the developed countries do not depend upon this income whereas 2. Lok Adalats 86 percent of income of Indian banks is accounted from interest Lok Adalat institutions help banks to settle disputes involving and the rest of the income is fee based. The banker can earn account in “doubtful” and “loss” category, with outstanding sufficient net margin by investing in safer securities though not balance of Rs. 5 lakh for compromise settlement under Lok at high rate of interest. It facilitates for limiting of high level Adalat. Debt recovery tribunals have been empowered to of NPAs gradual y. It is possible that average yield on loans organize Lok Adalat to decide on cases of NPAs of Rs. 10 lakh and advances net default provisions and services costs do not and above. This mechanism has proved to be quite effective exceed the average yield on safety securities because of the for speedy justice and recovery of small loans. The progress through this channel is expected to pick up in the coming years The grading of the bank’s risk assets is an important internal 3. Debt Recovery Tribunals (DRTs) control tool. It serves the need of the Management to identify The Debt Recovery Tribunals have been established by the and monitor potential risks of a loan asset. The purpose of Government of India under an Act of Parliament (Act 51 of identification of potential NPAs is to ensure that appropriate 1993) for expeditious adjudication and recovery of debts preventive / corrective steps could be initiated by the bank to due to banks and financial institutions. The Debt Recovery protect against the loan asset becoming non-performing. Most Tribunal is also the appel ate authority for appeals filed of the banks have a system to put certain borrowable accounts against the proceedings initiated by secured creditors under under watch list or special mention category if performing the Securitization and Reconstruction of Financial Assets and advances operating under adverse business or economic Enforcement of Security Interest Act. conditions are exhibiting certain distress signals. These accounts generally exhibit weaknesses which are correctable The recovery of debts due to banks and financial institution but warrant banks’ closer attention. The categorization of such passed in March 2000 has helped in strengthening the function accounts in watch list or special mention category provides of DRTs. Provision for placement of more than one recovery early warning signals enabling Relationship Manager or Credit officer, power to attach defendant’s property/assets before Officer to anticipate credit deterioration and take necessary judgment, penal provision for disobedience of tribunal’s order or preventive steps to avoid their slippage into non performing for breach of any terms of order and appointment of receiver with power of realization, management, protection and preservation of property are expected to provide necessary teeth to the DRTs and speed up the recovery of NPAs in the times to come. DRTs RBI has issued revised guidelines in respect of detection of which have been set up by the Government to facilitate speedy wil ful default and diversion and siphoning of funds. As per recovery by banks/DFIs, have not been able make much impact these guidelines a wil ful default occurs when a borrower on loan recovery due to variety of reasons like inadequate defaults in meeting its obligations to the lender when it has number, lack of infrastructure, under staffing and frequent capacity to honor the obligations or when funds have been adjournment of cases. It is essential that DRT mechanism is
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strengthened and vested with a proper enforcement mechanism A> Unlocking capital for the banking system and the to enforce their orders. Non observation of any order passed economy by the tribunal should amount to contempt of court, the DRT The primary objective of Arcil is to expedite recovery of the should have right to initiate contempt proceedings. The DRT amounts locked in NPAs of lenders and thereby recycling should empowered to sell asset of the debtor companies and capital. Arcil thus, provides relief to the banking system by forward the proceed to the winding – up court for distribution managing NPAs and help them concentrate on core banking activities thereby enhancing shareholders value. B. Creating a vibrant market for distressed debt assets Securitization is a relatively new concept that is taking roots / securities in India offering a trading platform for in India of late. It is still in its infancy with only a few market players. Securitization is considered an effective tool for Arcil has made successful efforts in funneling investment from improvement of capital adequacy. It is also seen as a tool both from domestic and international players for funding these for transferring the reinvestment risk, apart from credit risk acquisitions of distressed assets, followed by showcasing them helping the banks to maintain proper match between assets to prospective buyers. This has initiated creation of a secondary and liabilities. Securitization can also help in reducing the market of distressed assets in the country besides hastening risk arising out of credit exposure norms and the imbalances their resolution. The efforts of Arcil would lead the country’s of credit exposure, which can help in the maintenance distressed debt market to international standards. of healthy assets. The SARFAESI Act intends to promote Securitization, pool together NPAs of banks to realize them C. To evolve and create significant capacity in the system and make enforcement of Security Interest Transfer.
for quicker resolution of NPAs by deploying the assets The SARFAESI Act-2002 is seen as a booster, initial y, for With a view to achieving high delivery capabilities for resolution, banks in tackling the menace of NPAs without having to Arcil has put in place a structure aimed at outsourcing the approach the courts. With certain loopholes stil remaining various sub-functions of resolution to specialized agencies, in the act, the experiences of banks were that the Act in its wherever applicable under the provision of the Securitization present form would not serve the envisaged objective of Act, 2002. Arcil has also encourage, groomed and developed optimum recovery of NPAs, particularly with the hard-core NPA many such agencies to enhance its capacity in line with the borrowers dragging the banks into endless litigation to delay growth of its activity [20].
the recovery process. The Supreme Court decision in regard to certain proviso of the SARFAESI Act also vindicated this view. VIII. Corporate Debt Restructuring (CDR) This section deals with the features of Securitization and its Corporate Debt Restructuring (CDR) framework is to ensure resourcefulness in tackling NPAS and about the SARFAESI Act, timely and transparent mechanism for restructuring of the its resourcefulness and limitations in tackling the NPA borrowers corporate debts of viable entities facing problems, outside and the implication of the recent Supreme Court judgment. the purview of BIFR, DRT and other legal proceedings, for the benefit of al concerned. In particular, the framework wil aim at With the steady sophistication of the Indian Financial Services preserving viable corporate that are affected by certain internal Sector, the structured finance market is also growing significantly, and external factors and minimize the losses to the creditors of which Securitization occupies a prominent place. With Basel and other stakeholders through an orderly and coordinated II norms imminently being implemented by 2008, banks are restructuring programme.
required to pool up huge capital to offset the credit risk and operational risk components. Securitization, therefore, is seen CDR system in the country will have a three-tier structure: to be an effective and vibrant tool for capital formation for A. CDR Standing Forum This empowerment encouraged the three major players in A. CDR Standing Forum : Indian banking system, namely, State Bank of India (SBI), ICICI Bank Limited (ICICI) and IDBI Bank Limited (IDBI) to come The CDR Standing Forum would be the representative general together to set-up the first ARC. Arcil was incorporated as a body of all financial institutions and banks participating in CDR public limited company on February 11, 2002 and obtained its system. All financial institutions and banks should participate certificate of commencement of business on May 7, 2003. In in the system in their own interest. CDR Standing Forum will pursuance of Section 3 of the Securitization Act 2002, it holds be a self-empowered body, which wil lay down policies and a certificate of registration dated August 29, 2003, issued by guidelines, guide and monitor the progress of corporate debt the Reserve Bank of India (RBI) and operates under powers restructuring.
conferred under the Securitization Act, 2002. Arcil is also a "financial institution" within the meaning of Section 2 (h) (ia) of B. CDR Empowered Group: the Recovery of Debts due to Banks and Financial Institutions The CDR Empowered Group would be mandated to look into each case of debt restructuring, examine the viability Arcil is the first ARC in the country to commence business of and rehabilitation potential of the Company and pprove the resolution of non-performing assets (NPAs) upon acquisition restructuring package within a specified time frame of 90 days, from Indian banks and financial institutions. As the first ARC, or at best 180 days of reference to the Empowered Group.
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The CDR Standing Forum and the CDR Empowered Group will later the gross NPA are increased, it reached to Rs. 84747 be assisted by a CDR Cell in all their functions. The CDR Cell crores in the year 2009-10. On the other hand the recovery wil make the initial scrutiny of the proposals received from percentage of NPA s increased, 17%by DRTs and 14.7% by borrowers / lenders, by cal ing for proposed rehabilitation SARFAESI Act from the year 2003-04 to 81% by DRTs and plan and other information and put up the matter before the 33% by SARFAESI Act in 2008-09. Following the gross NPAs CDR Empowered Group, within one month to decide whether the recovery percentage decreased to 32% by DRTs and 30% rehabilitation is prima facie feasible, if so, the CDR Cell will by SARFAESI Act in the year 2009-10. The increase in level proceed to prepare detailed Rehabilitation Plan with the help of of NPAs and diminishing percentage of recoveries are due to lenders and if necessary, experts to be engaged from outside. Indian banks has largely fol owed a lagged cyclical pattern If not found prima facie feasible, the lenders may start action with regard to credit growth. This underlined the pro-cyclical behaviour of the banking system, wherein asset quality can get compromised during periods of high credit growth and this can result in the creation of nonperforming assets for banks CDR will be a Non-statutory mechanism. CDR mechanism will in the later years [23].
be a voluntary system based on debtor-creditor agreement and inter-creditor agreement. The scheme wil not apply to XII. Credit Information Bureau accounts involving only one financial institution or one bank. The institutionalization of information sharing arrangement The CDR mechanism will cover only multiple banking accounts is now possible through the newly formed Credit Information / syndication / consortium accounts with outstanding exposure Bureau of India Limited (CIBIL) It was set up in January 2001, by of Rs.20 crore and above by banks and institutions. The CDR SBI, HDFC, and two foreign technology partners. This wil prevent system will be applicable only to standard and sub-standard those who take advantage of lack of system of information accounts. However, as an interim measure, permission for sharing amongst leading institutions to borrow large amount corporate debt restructuring will be made available by RBI on against same assets and property, which has in no measures the basis of specific recommendation of CDR "Core-Group", if a contributed to the incremental of NPAs of banks. (24) minimum of 75 per cent (by value) of the lenders constituting banks and FIs consent for CDR, irrespective of differences in XIII. Conclusion asset classification status in banks/ financial institutions. There The problem of NPAs can be achieved only with proper credit would be no requirement of the account / company being sick assessment and risk management mechanism. In a situation NPA or being in default for a specified period before reference of liquidity overhang, the enthusiasm of the banking system to increase lending may compromise on asset quality, raising This approach would provide the necessary flexibility and concern about their adverse selection and potential danger of facilitate timely intervention for debt restructuring. Prescribing addition to the stock of NPAs. It is necessary that the banking any milestone(s) may not be necessary, since the debt system is to be equipped with prudential norms to minimize restructuring exercise is being triggered by banks and financial if not completely to avoid the problem of NPAs. The onus institutions or with their consent. In no case, the requests of for containing the factors leading to NPAs rests with banks any corporate indulging in willful default or misfeasance will themselves. This wil necessitates organizational restructuring, be considered for restructuring under CDR [21].
improvement in the managerial efficiency and skil up gradation for proper assessment of credit worthiness. It is better to X. Circulation of Information of Defaulters avoid NPAs at the nascent stage of credit consideration by The RBI has put in place a system for periodical circulation of putting in place of rigorous and appropriate credit appraisal details of willful defaulters of banks and financial institutions. mechanisms. The RBI also publishes a list of borrowers (with outstanding aggregate rupees one crore and above) against whom banks References and financial institutions in recovery of funds have filed suits [1] Commercial Banks in India: Growth, Chal enges and as on 31st March every year. It wil serve as a caution list Strategies/Benson Kunjukunju. New Delhi, New Century while considering a request for new or additional credit limits Pub., 2008, xx, 342 p., tables, ISBN 81-7708-150- from defaulting borrowing units and also from the directors, [2] Business.mapsofindia.com/banks-in-india/ last update proprietors and partners of these entities [22].
[3] [Online] Available : http://gvkk.blogspot.com/ Basel Among the various channels of recovery available to banks [4] [Online] Available : www.chil ibreeze.com Opportunities for dealing with bad loans, the SARFAESI Act and the Debt Recovery Tribunals (DRTs) have been the most effective in terms [5] [Online] Available : http:www.scribd.com.doc/33616788/ of amount recovered. The amount recovered as percentage of amount involved was the highest under the DRTs, followed [6] S. Lakshmi Narasimhan, “NPAs improve, but need more by SARFAESI Act. The RBI has directed the PSBs to examine al cases of wil ful default of Rs. One crore and above and [7] 24% rise in Banks NPAs in 2nd QR and Capital Adequacy file criminal cases against wil ful defaulters. The board of Ratio declines by 2% Points, says Assoc ham directors are requested to review NPAs accounts of one crore [8] “Banking in India – issues and challenges for the future, and above with special reference to fix staff accountability in report code:INDR-0005, Report length:25 pages, year of [9] S.N. Bidani , “Managing Non-performing Assets in The gross NPAs of the banks is gradual y declined from Rs. 70861 crores in 2001 - 02 to Rs. 50552 crores in 2006 – 07, [10] “Are non - Performing Assets Gloomy or Greedy from Indian
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[11] M. Karunakar, Mrs. K.Vasuki, Mr. S. Saravanan [Online] Available : www.aensionline.com/rjss/rjss/2008/4 [12] [Online] Available : www.adb.org/Documents/Books/ [13] [Online] Available : http://www.123eng.com/forum/ [14] [Online] Available : management paradise.com/forums/ [15] [Online] Available : http://www.mbaknol.com/business- finance/actions-taken-by-rbi-to-tackle-the-accumulation- [16] Jigar J. Soni. “A Project on Comparitve Analysis On Non Performing Assets Of Private and Public Sector Banks” , [17] [Online] Available : http://www.scribd.com/ [18] [Online] Available : http://www.mbaknol.com/business- finance/management-resolution-of-npas-legal-and- [19] [Online] Available : http://www.drt.co.in/ [20] [Online] Available : www.books.iupindia.org/overview.
[21] [Online] Available : knowledge_centre/publications/papers/NPA_S1_Arcil- [22] [Online] Available : http://www.cdrindia.org/ [24] Report on trend and progress of banking in India 2004- w w w. i j m b s . c o m
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Source: http://www.ijmbs.com/13/bhawani.pdf

Conferment of the degree of doctor of laws, honoris causa

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