REASONS OF BURGEONING AGRI NPAs AND STEPS TO IMPROVE

RECOVERY MACHENISM

Internship report submitted to SBI in completion of requirement of summer

internship at State bank of India

OM PRAKSH
Roll No.- 37
A.N. College, Patna

MRs. MINAKSHI KUMARI SINGH

Branch Manager, SBI
Bihta Branch, Bihta

JUNE 03 2013 TO AUGUST 02 2013

Introduction
The main business of a banking company is to receive deposits and lend money.
Receiving deposit involves no risk, since it is the banker who owes a duty to repay the deposit,
whenever it is demanded. On the other hand, lending always involves much risk because there
is no certainty of repayment. A banker shall be very cautious in lending, because he is not
lending money out of his own capital. A major portion of the money lent comes from the
deposits received from the public. These deposits are mostly repayable on demand. Hence,
while lending money, a banker should follow a very cautious policy. The risk involved in
lending business makes it very important as it involves making prominent decisions. Therefore
while sanctioning credit the banker should appraise the project reasonably or else it leads to the
non-repayment of loans and advances. Most of the banks today in India are facing the default
risk wherein some part of the profit is reserved for covering the non-performing assets.
Agri NPAs means1 A loan granted for short duration crops will be treated as NPA, if the installment of
principal or interest thereon remains overdue for two crop seasons,
2 A loan granted for long duration crops will be treated as NPA, if the installment of
principal or interest thereon remains overdue for one crop season,
3 For the purpose of these guidelines, 'long duration' crops would be crops with crop
season longer than one year and crops, which are not 'long duration' crops would be treated as
'short duration' crops,
4 The crop season for each crop, which means the period up to harvesting of the crops
raised, would be as determined by the State Level Bankers' Committee in each State.

5 Depending upon the duration of crops raised by an agriculturist, the above NPA
norms would also be made applicable to agricultural term loans availed of by him. In respect of
agricultural loans, other than those specified in the Annex and term loans given to nonagriculturists, identification of NPAs would be done on the same basis as non agricultural
advances which, at present, is the 90 days delinquency norm.
6 Banks are urged to ensure that while granting loans and advances, realistic
repayment schedules may be fixed on the basis of cash flows / fluidity with the borrowers. This
would go a long way to facilitate prompt repayment by the borrowers and thus improve the
record of recovery in agricultural advances (RBI, 2013).
All the banks including the regional rural banks are now operating under core
banking solutions (CBS).The core banking helps the banks to track NPAs functionally on daily
basis. This enables SBI an up-to-date IRAC status. The State Bank of India follow a system of
monitoring in which it starts tracking NPA 90 days before the date on which agri loans become
NPA. This date is called as NPA Reckon date (NPA reckon date= due date for repayment +
crop season period). As per IRAC (Income Recognition Asset Classification) norm stipulated
by RBI for banks, SBI tracks IRAC Status which changes from 0 to 1, 1 to 2, 2 to 3, 3 to 4, if
interest not serviced or irregularity or installment overdue remains for 7-29 days, =>30 days,
=> 60 days, => 90 days respectively (Understanding nonperforming assets in agriculture and
ways to minimise them,2012, October). During this period the bank officials take the
appropriate action. If the loan remains NPA, there is compromise settlement. Despite tracking
IRAC Status, AGRI NPAs are increasing causing concern for banks. RBI, in its report on bank
outstanding sector wise, found bank outstanding increasing in all four sectors (i.e., agriculture

and allied, industry, personal loans and services). Among these sectors agriculture and allied
and service sectors registered more bank outstanding (Bank outstanding sector wise, 2013).
There were several researches related to NPAs. Even RBI found priority lending is the
cause of this increase. While talking with bank officials and farmers the previous research
hypotheses were found not to be enough to hit at the root causes, therefore we formulated 13
hypotheses. Some of them were confirmatory in nature like expectation of debt waiver by
government causes increase in agri NPAs, and some were exploratory in nature like knowledge
of rate of interest affects Agri NPAs
Research Objectives
1 To know the agri loan holders level of awareness about agri loans.
2 To know the reasons of increasing agri NPAs.
3 To give suggestions to SBI about the steps to improve recovery mechanisms.
4 To know and understand the functioning of banks.
Scope
1 Management and Economics This project will be helpful for management students,
economics students as it uses the concepts of management and economics.
2 Banking and Finance- The project uses the various concepts of banking and finance. It
will benefit the banking and finance sector.
3 Human resource planning- This project uses the concept of human resource planning
and will be beneficial for banks in human resource aspects.
3

4 Study of farmers attitude and perception- This project includes the attitude and
perception of farmers so it will useful in this regard.
5 Researchers- It will be useful for researchers.
Limitations
Every work has certain limitations to it. It is only this limitation which gives a chance
for the next researcher to cross this hurdle and proceed the research. The Limitations which I
faced during the course of this study were:1

It was a study which was conducted in only eight weeks which is indeed a very
short time for such an elaborate study.

It is only restricted to Bihta, Patna hence the results cannot be generalized for
whole of India of which the area covered is not even a percent.

The research being based on interview and personal observation. This suffers
from hiding the true facts by the respondents.
Methodology Analysis

Respondents
Agriculture loan holding farmers were selected as respondents. Out of 112 agri
loan holders of SBI, Bihta, Main Branch spread over 7 villages, 78 respondents were contacted
personally at the branch and at their homes. They were informed about new financial scale
circulated by SBI for new agri loan to prompt the contact.
Materials and procedure
Before preparing a schedule having 13 questions, 4 questions with 3 options and 9
questions with 2 options, bank officials and some of the farmers who visited the bank branch
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were interviewed to gather maximum and relevant information regarding Agri NPAs and to
formulate appropriate questionnaire.
Data collection
Respondents of a particular village were contacted within 2 to 3 days to minimise
the effect of opinion of one respondent on the other. They were asked to be relaxed and not to
consider this visit as an official visit for loan amount collection so that the genuine information
can be obtained to know the true reasons of burgeoning Agri NPAs. They were asked questions
one by one and responses were noted in the schedule.
Statistical tools
Here non- parametric test was adopted. Chi Square (test) as a test of independence
was carried out in order to know about the whether the differences observed among effect of
different variables on the non performing assets of a bank. The value of the test-statistic is:
= (Ofi-Efi)/Efi where Ofi is the observed frequency and Efi is the expected
frequency.
The degrees of freedom were calculated by using the formula (r-1) (c-1). Then the
critical value was determined from the chi square normal distribution table. To make our study
more accurate we took 5% level of significance. Then based on the critical value we concluded
whether sufficient data was available to accept the null hypothesis or not.
Findings
Results of Chi square analysis
1.

0:

1:

The NPA is independent of the knowledge of interest.

The NPA is dependent on the knowledge of interest.

5

16.40
3.84

.05,1

2.

0:

1:

The NPA is independent of the knowledge of date of due payment.

The NPA is dependent on the knowledge of date of due payment.
8.68

2 .05,1

3.

4.

5.

3.84

NPA is independent of the fear to be questioned.

0:

1 ::

NPA is dependent on the fear to be questioned.

13.19
3.84

.05,1

NPA is independent of the expectation of government announcement of debt waiver.

0:

1 ::

NPA is dependent on the expectation of government announcement of debt waiver.

5.99

.05,2

0:

1:

8.347

NPA is unrelated to death of family member.

NPA is related to death of family member.

.05,1

0.123
3.84

0:

6.

1:

NPA is independent of marriage of son/daughter.

NPA is dependent on marriage of son/daughter.
3.57
3.84

.05,1

7.

0:

1:

NPA is independent of illness of family member of farmer.

NPA is dependent on illness of family member of farmer.

5.77

2 .05,1

3.84

8.

0:

NPA is independent of information related to status of agri loan.

1 :NPA

is dependent on information related to status of agri loan.

11.48

2 .05,2

9.

0:

5.99

NPA is independent of lack of markets.

1 :NPA

2 .05,2

10.

0:

1:

is dependent on lack of markets.

8.88
5.99

NPA is independent of presence or absence of concerned bank officials.

NPA is dependent on presence or absence of concerned bank officials.

.0494

2 .05,1

3.84

11.

0:

1:

NPA is independent of bad harvest.

NPA is dependent on bad harvest.
10.689

2 .05,2

12.

0:

5.99

NPA is independent of knowledge of how to service debt.

1 :NPA

is dependent on knowledge of how to service debt.

9.665

2 .05,2

5.99

13.

0:

NPA is independent of proper attention paid to by concerned bank official.

1 :NPA

is dependent on proper attention paid to by concerned bank official.

9.82

2 .05,1

3.84

Conclusions
Out of 13 null hypotheses, 3 were true and 10 were rejected leading to conclude the
following reasons of increasing Agri NPAs:1.

Bad Harvest- vagaries of monsoon creating problems for farmers. Farmers lack

the irrigation facilities and do not have access to modern technology.

2.
agri debts.

3.

Death of the loan holder- death of loan holders creates problem for recovery of

Lack of information about the debt payment- farmers lack information about the

amount and due date of their debt payment, as their understanding of agri loan is inadequate.

4.

Death or illness of family member of farmers- the death or illness of family

members of farmers creates problem for them to pay interest or debt on due date.

5.

Lack of information regarding the benefits of agri loans- some of the Farmers do

not know the benefits and how they can use agri loans in better manner.

6.

Usages of sale of proceeds in some other purpose some farmers use the sale of

proceeds in some other purpose -like activities leading to increase in income. For example
opening of shops or expansion of shop, if they already have.

7.

Expectation of loan waiver- Some farmers wait for the government announcement

of debt waiver.

8.

Migration of loan holder- some farmers do not pay on their due date, either they

go some other part of country for work and so they do not have information regarding loan
status.

9.
Lack of market for farmers produce- some farmers have to wait for right price for
their produce. So they do not pay debt or interest on time.
10. Negligence by concerned bank officials- some bank officials treat agri loans as
small token, this causes the rise in agri NPAs.
The research showed that the following steps can be taken to improve recovery of agri
NPAs:1.

Informing farmers about the amount and due date of debt and interest payment-

Time to time farmers should be informed about the status and due date of loan servicing and
the information should be in written.
2.

Training the farmers for better utilization and management of agri loans- Some of

the farmers do not the benefits they can get from agri loans and how they can use them better.
If farmers are shown the benefits, they will try to use the loans in better manner and irregularity
in loan accounts can be minimized.
3.

Circulation of local Language materials pertaining to agri loans benefits and use-

the banks should circulate materials related to agri loan usage and benefits with some examples
citing the better use leading to income expansion will bring down the agri NPAs.
4.

Retaining the field officer for some definite period and use of local agent- if field

officer is retained, farmers will have not to wander for knowledge and the appointment of agent
will help in better communication.
5.

Inspection of use of agri loan by field officer before and after harvest- field officer

should inspect the use of agri loans before and after the harvest properly.
6.

Treating agri loans as important as other loans by bank officer- Some bank

officials do not pay the proper attention to agri loans. If they monitor properly and take the
proper and timely action agri NPAs can be brought down. As this is evident from the
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comparative status of agri NPAs which came down to 12 from 26 within the span of one- and half month.
References
Kothari, C.R. (2004). Research Methodology: Methods & Techniques (2nded.). New Delhi,
India: New Age International publisher.
Majumdar, Alok (2000, December).NPAs: Recovery Blues, Treasury Management, pp 66-49.
Keller, Gerald (2009). Statistics for Management (2nded.). New Delhi, India: Cenage Learning.
https://www.sbi.co.in.
https://www.rbi.org.in.
https://google.com.
https://www.ijbmi.org/papers/Vol (2)1/Version_1/D212638.pdf.
https://www.wikipedia.com.
https:// Articles.economictimes.indiatimes.com Collections Npas.
S.B.I.R.D (2012, October). UNDERSTANDING NON PERFORMING ASSETS IN
AGRICULTURE AND WAYS & MEANS TO MINIMISE THEM. State bank Institute of Rural
Development.

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