GRAND PROJECT PROPOSAL ON Management of non-performing assets and its impact on performance of State Bank of India in Ahmadabad region.

SUBMITTED TO: Mr. J.M.Bhatt B.K.SCHOOL OF BUSINESS MANAGEMENT GUJARAT UNIVERSITY SUBMITTED BY:
PRITESH CHAUDHARI(MAJOR-FINANCE, MINOR-MARKETING-11147) PRAGNESH CHAUDHARI(MAJOR-FINANCE, MINOR-MARKETING-11193)

Characterization of proposal:
1) 2) 3) 4) 5) 6) 7) Introduction of NPA Objectives of the study Proposed research methodology Time Frame Limitation Learning Literature review

Non- Performing Assets

INTRODUCTION
NPA is the three letters Strike terror in banking sector and business circle today. NPA is short form of Non-Performing Asset. The dreaded NPA rule says simply this: when interest or other due to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non performing asset. The recovery of loan has always been problem for banks and financial institutions. To avoid an asset becoming an NPA, following points need attention.

Definitions:

An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A non-performing asset (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained past due for a specified period of time. With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the 90 days

overdue norm for identification of NPAs, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a nonperforming asset (NPA) shall be a loan or an advance where; Interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan, The account remains out of order for a period of more than 90 days, in respect of an Overdraft/Cash Credit (OD/CC), Interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. As a facilitating measure for smooth transition to 90 days norm, banks have been advised to move over to charging of interest at monthly rests, by April 1, 2002. However, the date of classification of an advance as NPA should not be changed on account of charging of interest at monthly rests. Banks should, therefore, continue to classify an account as NPA only if the interest charged during any quarter is not serviced fully within 180 days from the end of the quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from March 31, 2004.

OBJECTIVES OF THE STUDY

To evaluate NPAs (Gross and Net) in the SBI of Ahmedabad region. To analyse financial performance of banks at different level of NPA. To Know the Concept of Non-Performing Asset. To Know the Impact of NPAs. To Know the Reasons for NPAs. To learn Preventive Measures. To know the about management of NPA in banks.

PROPOSED RESEARCH METHODOLOGY

A) TYPE OF RESEARCH DESIGN:-Simple Random sampling B) DATA COLLECTION:i. PRIMARY SOURCES:- we would contact 50 officers of SBI in the region. We would approach the customers also subject to possibility and permission from the bank. SECONDARY SOURCES:-Internet, brochure/handouts of banks books, Newspapers,

ii.

C) SAMPLING DESIGN: We are expecting to meet the Bank officer (RO) and Bank manager. D) Sample size: We are taking 115 SBI branch of Ahmedabad region.

DATA ANALYSIS
We are planning to analyze the data with the use of different tools. For example: - Questionnaire of the respondent will be analyzed with the help of excel. While the responses of bank managers will be recorded and analysis will be carried out by sitting both of we together so that result may not be biased.

LIMITATIONS
Due to time and cost constraints the geographical scope of the study is limited to the banks situated in Ahmedabad. The sample size consists of ahmedabad region therefore; perfect generalizations to a larger population regarding the survey results may not sound proper. The statistical tools applied while analysis suffers from inherent demerits.

LEARNIGS:
1) Clear picture of NPA management in the bank 2) Reason behind the emergence of NPA 3) Preventive steps taken by executives to reduce the NPA in public sector bank (e.g. SBI) 4) Knowledge about maintenance of profit by eliminating risk of NPA

Time Frame of the Project:

1) Secondary data collection 2) Primary data collection from the bank 3) Summarization and evaluation of data 4) Findings & conclusion 5) Preparation of final project 6) Submission of the project Chapterization: 1) Introduction of Indian banking industry 2) Company Profile (State Bank of India) 3) Research Design 4) Recovery Management 5) Survey Results and Analysis 6) Findings 7) Recommendation and Suggestion 5 days 7 days 10 days 5 days 5 days

LITERATURE REVIEW
Non-Performing Assets engender negative impact on banking stability and growth. Issue of NPA and its impact on erosion of profit and quality of asset was not seriously considered in Indian banking prior to 1991. There are many reasons cited for the alarming level of NPA in Indian banking sector. Asset quality was not prime concern in Indian banking sector till 1991, but was mainly focused on performance objectives such as opening wide networks/branches, development of rural areas, priority sector lending, higher employment generation, etc. The accounting treatment also failed to project the problem of NPA, as interest on loan accounts were accounted on accrual basis. Amongst the various desirable characteristics of a well-functioning financial system, the maintenance of a few non-performing assets (NPA) is an important one. NPAs beyond a certain level are indeed cause for concern for everyone involved because credit is essential for economic growth and NPAs affect the smooth flow of credit. Banks raise resources not just on fresh deposits, but also by recycling the funds received from the borrowers. Thus, when a loan becomes nonperforming, it affects recycling of credit and credit creation. Apart from this, NPAs affect profitability as well, since higher NPAs require higher provisioning, which means a large part of the profits needs to be kept aside as provision against bad loans. Therefore, the problem of NPAs is not the concern of the lenders alone but is, indeed, a concern for policy makers as well who are involved in putting economic growth on the fast track.

The accumulated and enormous level of NPA in post-liberalization period forced policy makers to reform banking sector. A Committee on Banking Sector Reforms known as Narasimham Committee was set up by RBI to study the problems faced by Indian banking sector and to suggest measures revitalize the sector. The committee identified NPA as a major threat and recommended prudential measures for income recognition, asset classification and provisioning requirements. These measures embarked on transformation of the Indian banking sector into a viable, competitive and vibrant sector. The committee recommended measures to improve operational flexibility and functional autonomy so as to enhance efficiency, productivity and profitability.

NPA may be classified into Gross NPA and Net NPA. Gross NPA is the total of substandard advances, doubtful assets and loss assets. Net NPA is calculated by deducting the total of; (1) Balance in interest suspense account, (2) DICGC claims received and held for pending adjustment, (3) Part payment received and kept in suspense account, and (4) Total provisions held from the Gross NPA. Literature focused on post-liberalization period mainly focused on trends in movement of NPA, its major reasons, impact and effectiveness of various NPA management measures. Most of these

studies utilized NPA ratios to derive conclusions on NPA in postliberalization period.