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Submitted in partial fulfillment of requirements for

the award of the Post Graduate Diploma in Management (PGDM)

Registration No:-


This is to certify that the project titled “Study on NPA and Its Management in
PSU Banks with Reference of SBI Bank” is an original work of the Student
and is being submitted in partial fulfillment for the award of the Post Graduate
Diploma in Management in NMIMS University. This report has not been
submitted earlier either to this University or to any other University/Institution
for the fulfillment of the requirement of a course of study.


Place: Place:
Date: Date:

There are a number of important people I want to thank, without whose support,
guidance, encouragement, and help this work would not have been possible. I would
also like to give my greatest thanks to God who deserves the ultimate praise and
credit for all good things in my life.

First and foremost, I want to thank………….. (Guide Name), who has been my
advisor and mentor throughout my studies. Without sir’s patient criticism, continual
support, effective teaching, and constant challenge and encouragement to give my
very best efforts to my undertakings, I would not have learned what I needed to nor
been prepared to complete this dissertation and future work. Much of what I have
learned about the craft of research has come from Sir, and I am forever grateful for the
opportunity to have studied under his guidance.

I would not have made it through this research without the support, encouragement,
teaching, and friendship of fellow students in the program.

A strong banking sector is important for flourishing economy. The failure of the banking
sector may have an adverse impact on other sectors. Non-performing assets are one of the
major concerns for banks in India.

NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a
large number of credit defaults that affect the profitability and net-worth of banks and also
erodes the value of the asset. The NPA growth involves the necessity of provisions, which
reduces the over all profits and shareholders value.

The issue of Non Performing Assets has been discussed at length for financial system all over
the world. The problem of NPAs is not only affecting the banks but also the whole economy.
In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of
the industry and trade.

This report deals with understanding the concept of NPAs, its magnitude and major causes for
an account becoming non-performing, projection with special reference to SBI bank.


1 CHAPTER 1 Introduction

2 CHAPTER 2 Objective of the Study

3 CHAPTER 3 Literature Review

4 CHAPTER 4 Research Methodology

5 CHAPTER 5 Data Analysis & Interpretation

6 CHAPTER 6 Finding, Suggestion and Conclusion

The significant job of bank market analysts in changing the saving money framework in
India. Business analysts must be progressively 'mainstreamed' inside the operational structure
of business banks. Aside from the customary working of full scale examining, the bury
linkages between treasuries, managing rooms and exchanging rooms of banks should be seen
not just with the everyday needs of operational need, yet in addition with systematic
substance and strategy prescience.

Saving money part changes in India has advanced quickly on perspectives like loan fee
deregulation, decrease in statutory save necessities, prudential standards for financing costs,
resource order, salary acknowledgment and provisioning. In any case, it couldn't coordinate
the pace with which it was relied upon to do. The achievement of these standards at the
execution stages without rebuilding the managing an account area in that capacity is making

Amid pre-nationalization period and after freedom, the keeping money area stayed in private
hands Large enterprises who had their control in the administration of the banks were using
significant bit of monetary assets of the managing an account framework and subsequently
low need was agreed to need parts. Administration of India nationalized the banks to make
them as an instrument of financial and social change and the command given to the banks
was to extend their systems in rustic zones and to offer advances to need segments, for
example, little scale enterprises, independently employed gatherings, farming and plans
including ladies.

To a specific degree the keeping money part has accomplished this order. Lead Bank Scheme
empowered the saving money framework to grow its system plannedly and make accessible
keeping money arrangement to the expansive number of populace and contact each stratum
of society by stretching out credit to their gainful undertakings. This is obvious from the way
that populace per office of business bank has descended from 66,000 in the year 1969 to
11,000 out of 2016. Thus, offer of advances of open division banks to need part expanded
shape 14.6% in 1969 to 44% of the net bank credit. The quantity of store records of the
saving money framework expanded from more than 3 crores in 1969 to more than 30 crores.
Obtained accounts expanded from 2.50 lakhs to over 2.68 crores.

Without a sound and successful saving money framework in India it can't have a solid
economy. The managing an account arrangement of India ought in addition to the fact that
hassle be free it ought to have the capacity to address new difficulties presented by the
innovation and some other outer and inward factors.

For as far back as three decades India's managing an account framework has a few
remarkable accomplishments surprisingly. The most striking is its broad reach. It is never
again kept to just metropolitans or cosmopolitans in India. Truth be told, Indian saving money
framework has come to even to the remote corners of the nation. This is one of the primary
reasons of India's development procedure.

Money related part change in India has advanced quickly on viewpoints like loan fee
deregulation, decrease for possible later use necessities, boundaries to passage, prudential
standards and hazard based supervision. However, advance on the auxiliary institutional
viewpoints has been much slower and is a reason for concern. The shielding of frail
organizations while changing operational standards of the amusement is rolling out usage of
operational improvements troublesome and incapable. Changes required to handle the NPA
issue would need to traverse the whole range of legal, country and the organization to be
genuinely powerful.

In changing economy keeping money and monetary area get high need. Indian saving money
part of having a significant issue due non performing. The budgetary changes have helped
generally to clean NPA was around Rs. 52,000 crores in the year 2016. The winning limit and
benefit of the bank are exceedingly influenced because of this

Non-Performing Asset implies an advantage or record of borrower, which has been ordered
by a bank or money related establishment as sub-standard, dicey or misfortune resource, as
per the headings or rules identifying with resource arrangement issued by The Reserve Bank
of India. The dimension of NPA go about as a marker demonstrating the investors credit
dangers and productivity of assignment of asset
Banking in India

Banking in India begun in the most recent many years of the eighteenth century. The most
seasoned bank in presence in India is the State Bank of India, a legislature possessed bank
that follows its starting points back to June 1806 and that is the biggest business bank in the
nation. Focal saving money is the obligation of the Reserve Bank of India, which in 1935
formally assumed control over these duties from the then Imperial Bank of India, consigning
it to business saving money capacities. After India's freedom in 1947, the Reserve Bank was
nationalized and given more extensive forces. In 1969 the legislature nationalized the 14
biggest business banks; the administration nationalized the six next biggest in 1980.

Right now, India has 88 planned business banks (SCBs) - 27 open part banks (that is with the
Government of India holding a stake), 29 private banks (these don't have government stake;
they might be freely recorded and exchanged on stock trades) and 31 remote banks. They
have a joined system of more than 53,000 branches and 17,000 ATMs. As per a report by
ICRA Limited, a rating office, general society segment banks hold more than 75 percent of
aggregate resources of the keeping money industry, with the private and remote banks
holding 18.2% and 6.5% individually.

Early history
Managing an account in India began in the most recent many years of the eighteenth century.
The principal banks were The General Bank of India, which began in 1786, and the Bank of
Hindustan, the two of which are currently ancient. The most established bank in presence in
India is the State Bank of India, which began in the Bank of Calcutta in June 1806, which
very quickly turned into the Bank of Bengal. This was one of the three administration banks,
the other two being the Bank of Bombay and the Bank of Madras, every one of the three of
which were built up under sanctions from the British East India Company. For a long time the
Presidency banks went about as semi national banks, as did their successors. The three banks
converged in 1925 to frame the Imperial Bank of India, which, upon India's freedom, turned
into the State Bank of India.

Indian traders in Calcutta built up the Union Bank in 1839, yet it flopped in 1848 as an
outcome of the financial emergency of 1848-49. The Allahabad Bank, set up in 1865 and as
yet working today, is the most seasoned Joint Stock bank in India. It was not the first
however. That respect has a place with the Bank of Upper India, which was built up in 1863,
and which made due until 1913, when it fizzled, with a portion of its benefits and liabilities
being exchanged to the Alliance Bank of Simla.

At the point when the American Civil War halted the supply of cotton to Lancashire from the
Confederate States, advertisers opened banks to back exchanging Indian cotton. With
expansive presentation to theoretical endeavors, the majority of the banks opened in India
amid that period fizzled. The contributors lost cash and lost enthusiasm for keeping stores
with banks. In this way, managing an account in India remained the elite space of Europeans
for next quite a few years until the start of the twentieth century.

Outside banks too began to arrive, especially in Calcutta, during the 1860s. The Comptoire
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;
branches in Madras and Pondichery, at that point a French settlement, pursued. HSBC built
up itself in Bengal in 1869. Calcutta was the most dynamic exchanging port in India,
primarily because of the exchange of the British Empire, thus turned into a managing an
account focus.

The primary altogether Indian joint stock bank was the Oudh Commercial Bank, set up in
1881 in Faizabad. It flopped in 1958. The following was the Punjab National Bank, built up
in Lahore in 1895, which has made due to the present and is currently one of the biggest
banks in India.

Around the turn of the twentieth Century, the Indian economy was going through a general
time of dependability. Around five decades had passed since the Indian Mutiny, and the
social, mechanical and other framework had moved forward. Indians had set up little banks,
the majority of which served specific ethnic and religious networks.

The administration banks commanded keeping money in India yet there were additionally
some trade banks and various Indian joint stock banks. Every one of these banks worked in
various fragments of the economy. The trade banks, for the most part claimed by Europeans,
focused on financing remote exchange. Indian joint stock banks were for the most part under
promoted and came up short on the experience and development to contend with the
administration and trade banks. This division let Lord Curzon to watch, "In regard of
managing an account it appears we are obsolete. We resemble some antiquated cruising ship,
partitioned by strong wooden bulkheads into discrete and bulky compartments."

The period somewhere in the range of 1906 and 1911, saw the foundation of banks roused by
the Swadeshi development. The Swadeshi development roused nearby specialists and
political figures to establish banks of and for the Indian people group. Various banks built up
then have made due to the present, for example, Bank of India, Corporation Bank, Indian
Bank, Bank of Baroda, Canara Bank and Central Bank of India.

The enthusiasm of Swadeshi development prompt building up of numerous private banks in

Dakshina Kannada and Udupi area which were bound together before and known by the
name South Canara ( South Kanara ) region. Four nationalized banks began in this area and
furthermore a main private segment bank. Consequently unified Dakshina Kannada locale is
known as "Support of Indian Banking".

From World War I to Independence

The period during the First World War (1914-1918) through the end of the Second World War
(1939-1945), and two years thereafter until the independence of India were challenging for
Indian banking. The years of the First World War were turbulent, and it took its toll with
banks simply collapsing despite the Indian economy gaining indirect boost due to war-related
economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in
the following table:

Years Number of banks Authorised capital Paid-up Capital

that failed (Rs. Lakhs) (Rs. Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5
1916 13 231 4

1917 9 76 25

1918 7 209 1

The segment of India in 1947 unfavorably affected the economies of Punjab and West
Bengal, deadening managing an account exercises for a considerable length of time. India's
freedom denoted the finish of a routine of the Laissez-faire for the Indian managing an
account. The Government of India started measures to assume a functioning job in the
monetary existence of the country, and the Industrial Policy Resolution embraced by the
administration in 1948 visualized a blended economy. This came about into more prominent
inclusion of the state in various sections of the economy including managing an account and
back. The significant strides to direct saving money included:

 In 1948, the Reserve Bank of India, India's focal keeping money specialist, was
nationalized, and it turned into an organization claimed by the Government of India.

 In 1949, the Banking Regulation Act was ordered which engaged the Reserve Bank of
India (RBI) "to manage, control, and review the banks in India."

 The Banking Regulation Act likewise given that no new bank or part of a current bank
could be opened without a permit from the RBI, and no two banks could have normal

However, despite these provisions, control and regulations, banks in India except the State
Bank of India, continued to be owned and operated by private persons. This changed with the
nationalisation of major banks in India on 19 July, 1969.

By the 1960s, the Indian saving money industry has turned into a critical instrument to
encourage the improvement of the Indian economy. In the meantime, it has risen as a
substantial business, and a discussion has resulted about the likelihood to nationalize the
saving money industry. Indira Gandhi, the-then Prime Minister of India communicated the
aim of the GOI in the yearly gathering of the All India Congress Meeting in a paper entitled
"Stray musings on Bank Nationalization." The paper was gotten with positive excitement.
From there on, her turn was quick and sudden, and the GOI issued a statute and nationalized
the 14 biggest business saves money with impact from the midnight of July 19, 1969.
Jayaprakash Narayan, a national pioneer of India, portrayed the progression as a
"masterstroke of political savvy." Within about fourteen days of the issue of the law, the
Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill,
and it got the presidential endorsement on 9 August, 1969.

A second portion of nationalization of 6 more business banks followed in 1980. The

expressed purpose behind the nationalization was to give the administration more control of
credit conveyance. With the second portion of nationalization, the GOI controlled around
91% of the saving money business of India. Later on, in the year 1993, the administration
consolidated New Bank of India with Punjab National Bank. It was the main merger between
nationalized banks and brought about the decrease of the quantity of nationalized banks from
20 to 19. After this, until the 1990s, the nationalized banks developed at a pace of around 4%,
closer to the normal development rate of the Indian economy.

The nationalized banks were credited by a few, including Home pastor P. Chidambaram, to
have helped the Indian economy withstand the worldwide money related emergency of 2007-

In the mid 1990s, the then Narsimha Rao government set out on an approach of advancement,
authorizing few private banks. These came to be known as New Generation well informed
banks, and included Global Trust Bank (the first of such new age banks to be set up), which
later amalgamated with Oriental Bank of Commerce, UTI Bank(now re-named as Axis
Bank), ICICI Bank and HDFC Bank. This move, alongside the fast development in the
economy of India, revived the managing an account part in India, which has seen quick
development with solid commitment from all the three areas of banks, in particular,
government banks, private banks and outside banks.
The following stage for the Indian saving money has been setup with the proposed unwinding
in the standards for Foreign Direct Investment, where every single Foreign Investor in banks
might be given casting a ballot rights which could surpass the present top of 10%,at present it
has run up to 49% with a few confinements.

The new approach shook the Banking division in India totally. Investors, till this time, were
utilized to the 4-6-4 technique (Borrow at 4%; Lend at 6%; Go home at 4) of working. The
new wave introduced a cutting edge viewpoint and technically knowledgeable techniques for
working for customary banks.All this prompted the retail blast in India. Individuals requested
more from their banks as well as gotten more.

As of now (2007), keeping money in India is by and large genuinely develop as far as supply,
item range and reach-despite the fact that span in rustic India still remains a test for the
private segment and remote banks. As far as nature of benefits and capital ampleness, Indian
banks are considered to have perfect, solid and straightforward accounting reports with
respect to different banks in similar economies in its district. The Reserve Bank of India is an
independent body, with negligible weight from the legislature. The expressed arrangement of
the Bank on the Indian Rupee is to oversee instability yet with no settled conversion scale and
this has generally been valid.


The budgetary division changes in the nation were started in the start of the 1990s.The
changes have realized an ocean change in the profile of the keeping money part. Our usage of
the changes procedure has had a few novel highlights. Our monetary area changes were
attempted from the get-go in the change cycle. Quite, the changes procedure was not driven
by any keeping money emergency, nor was it the result of any outer help bundle. Plus, the
plan of the changes was made through residential mastery, accepting the worldwide
encounters in this regard. The changes were deliberately sequenced concerning the
instruments to be utilized and the targets to be accomplished. Hence, prudential standards and
supervisory fortifying were presented right off the bat in the change cycle, trailed by
financing cost deregulation and a steady bringing down of statutory acquisitions. The more
perplexing parts of lawful and bookkeeping measures were introduced along these lines when
the fundamental principles of the changes were at that point set up.
People in general segment banks keep on being a prevailing piece of the saving money
framework. As on March 31, 2008, the PSBs represented 69.9 percent of the total resources
and 72.7 percent of the total advances of the Scheduled business managing an account
framework. An interesting element of the change of people in general area banks was the
procedure of their money related rebuilding. The banks were recapitalised by the
administration to meet prudential standards through recapitalisation bonds. The system of
hiving off awful credits to a different government resource the board organization was not
viewed as suitable in perspective of the ethical risk. The ensuing divestment of value and
offer to private investors was embraced through an open offer and not by deal to vital
speculators. Thusly, all the general population area banks, which issued offers to private
investors, have been recorded on the trades and are liable to a similar divulgence and market
discipline norms as other recorded elements. To address the issue of bothered resources, a
system has been created to enable offer of these advantages for Asset Reconstruction
Companies which work as free business substances.

As respect the prudential administrative structure for the managing an account framework,
we have made some amazing progress from the regulated financing cost routine to
deregulated loan fees, from the arrangement of Health Codes for an eight-crease, judgmental
credit grouping to the prudential resource characterization dependent on target criteria, from
the idea of basic statutory least capital and capital-store proportion to the hazard delicate
capital ampleness standards – at first under Basel I system and now under the Basel II
routine. There is a lot more noteworthy concentrate presently on enhancing the corporate
administration set up through "fit and legitimate" criteria, on empowering incorporated
hazard the executives frameworks in the banks and on advancing business sector discipline
through more straightforward divulgence norms. The arrangement attempt has from the start
been to benchmark our administrative standards with the worldwide prescribed procedures,
obviously, keeping in view the residential objectives and the nation setting. The consultative
methodology of the RBI in figuring the prudential directions has been the sign of the current
administrative routine which empowers assessing a wide assorted variety of perspectives on
the current issues.

The usage of changes has had an inside and out helpful effect on the budgetary soundness of
the managing an account framework, as confirm by the huge enhancements in various
prudential parameters. Let me quickly feature the enhancements in a couple of striking
money related markers of the managing an account framework.
The banking industry in India is undergoing a major transformation due to changes in
economic conditions and continuous deregulation. These multiple changes happening one
after other has a ripple effect on a bank (Refer fig. 2.1) trying to graduate from completely
regulated sellers market to completed deregulated customers market.

Deregulation: This continuous deregulation has made the Banking market extremely
competitive with greater autonomy, operational flexibility, and decontrolled interest rate and
liberalized norms for foreign exchange. The deregulation of the industry coupled with
decontrol in interest rates has led to entry of a number of players in the banking industry. At
the same time reduced corporate credit off take thanks to sluggish economy has resulted in
large number of competitors battling for the same pie.

· New rules: As a result, the market place has been redefined with new rules of the game.
Banks are transforming to universal banking, adding new channels with lucrative pricing and
freebees to offer. Natural fall out of this has led to a series of innovative product offerings
catering to various customer segments, specifically retail credit.
· Efficiency: This in turn has made it necessary to look for efficiencies in the business. Banks
need to access low cost funds and simultaneously improve the efficiency. The banks are
facing pricing pressure, squeeze on spread and have to give thrust on retail assets

· Diffused Customer loyalty: This will definitely impact Customer preferences, as they are
bound to react to the value added offerings. Customers have become demanding and the
loyalties are diffused. There are multiple choices, the wallet share is reduced per bank with
demand on flexibility and customization. Given the relatively low switching costs; customer
retention calls for customized service and hassle free, flawless service delivery.

· Misaligned mindset: These changes are creating challenges, as employees are made to
adapt to changing conditions. There is resistance to change from employees and the Seller
market mindset is yet to be changed coupled with Fear of uncertainty and Control orientation.
Acceptance of technology is slowly creeping in but the utilization is not maximised.

· Competency Gap: Placing the right skill at the right place will determine success. The
competency gap needs to be addressed simultaneously otherwise there will be missed
opportunities. The focus of people will be on doing work but not providing solutions, on
escalating problems rather than solving them and on disposing customers instead of using the
opportunity to cross sell.

Strategic options with banks to cope with the challenges

Leading players in the industry have embarked on a series of strategic and tactical initiatives
to sustain leadership. The major initiatives include:
· Investing in state of the art technology as the back bone of to ensure reliable service
· Leveraging the branch network and sales structure to mobilize low cost current and savings
· Making aggressive forays in the retail advances segment of home and personal loans
· Implementing organization wide initiatives involving people, process and technology to
reduce the fixed costs and the cost per transaction
· Focusing on fee based income to compensate for squeezed spread, (e.g. CMS, trade

SBI Group

The Bank of Bengal, which later turned into the State Bank of India. State Bank of India with
its seven partner banks directions the biggest saving money assets in India.


The following critical turning point in Indian Banking occurred in late 1960s when the then
Indira Gandhi government nationalized on nineteenth July 1949, 14 noteworthy business
Indian banks pursued by nationalization of 6 more business Indian banks in 1980.

The expressed explanation behind the nationalization was more control of credit conveyance.
After this, until 1990s, the nationalized banks developed at a relaxed pace of around 4%
additionally called as the Hindu development of the Indian economy.

After the amalgamation of New Bank of India with Punjab National Bank, at present there
are 19 nationalized banks in India.


In the mid 1990's the then Narasimha Rao government set out an approach of progression and
offered licenses to few private banks, which came to be known as New age technically
knowledgeable banks, which included banks like ICICI and HDFC. This move alongside the
quick development of the economy of India, kick began the saving money area in India,
which has seen fast development with solid commitment from every one of the divisions of
banks, in particular Government banks, Private Banks and Foreign banks. Anyway there had
been a couple of hiccups for these new keeps money with numerous either being assumed
control like Global Trust Bank while others like Centurion Bank have discovered the going

The following stage for the Indian Banking has been set up with the proposed unwinding in
the standards for Foreign Direct Investment, where every single Foreign Investor in Banks
might be given casting a ballot rights which could surpass the present top of 10%, at present
it has run up to 49% with a few limitations.

The new strategy shook the Banking area in India totally. Investors, till this time, were
utilized to the 4-6-4 strategy (Borrow at 4%; Lend at 6%; Go home at 4) of working. The new
wave introduced a cutting edge viewpoint and well informed techniques for working for
conventional banks. This prompted the retail blast in India. Individuals requested more from
their banks as well as gotten more.


As of now (2010), generally speaking, saving money in India is considered as genuinely

develop as far as supply, item range and reach-despite the fact that scope in rustic India still
remains a test for the private part and remote banks. Indeed, even as far as nature of
advantages and capital ampleness, Indian banks are considered to have perfect, solid and
straightforward monetary records when contrasted with different banks in equivalent
economies in its area. The Reserve Bank of India is an independent body, with insignificant
weight from the legislature. The expressed approach of the Bank on the Indian Rupee is to
oversee instability with no expressed conversion scale and this has generally been valid.

With the development in the Indian economy anticipated that would be solid for a long while
particularly in its administrations division, the interest for managing an account
administrations particularly retail keeping money, home loans and speculation
administrations are required to be solid. M&As, takeovers, resource deals and significantly
more activity (as it is disentangling in China) will occur on this front in India.

In March 2006, the Reserve Bank of India enabled Warburg Pincus to expand its stake in
Kotak Mahindra Bank (a private part bank) to 10%. This is the first run through a speculator
has been permitted to hold over 5% in a private segment bank since the RBI declared
standards in 2005 that any stake surpassing 5% in the private part banks would should be
reviewed by them.

As of now, India has 88 booked business banks (SCBs) - 28 open area banks (that is with the
Government of India holding a stake), 29 private banks (these don't have government stake;
they might be freely recorded and exchanged on stock trades) and 31 outside banks. They
have a joined system of more than 53,000 branches and 21,000 ATMs. As indicated by a
report by ICRA Limited, a rating office, general society segment banks hold more than 75
percent of aggregate resources of the managing an account industry, with the private and
outside banks holding 18.2% and 6.5% respectively.SBI is the main bank comprising 26%
support openly segment banks and 39% cooperation in business banks in India.

Banking in India

1 Central Bank Reserve Bank of India

State Bank of India, Allahabad Bank, Andhra Bank,

Bank of Baroda, Bank of India, Bank of Maharashtra,
Canara Bank, Central Bank of India, Corporation Bank,
2 Nationalized
Dena Bank, Indian Bank, Indian overseas Bank, Oriental
Bank of Commerce, Punjab and Sind Bank, Punjab
National Bank, Syndicate Bank, Union Bank of India,
United Bank of India, UCO Bank, and Vijaya Bank.
Bank of Rajasthan, Bharat overseas Bank, Catholic
Syrian Bank, Centurion Bank of Punjab, City Union
Bank, Development Credit Bank, Dhanalaxmi Bank,
3 Private Banks
Federal Bank, Ganesh Bank of Kurundwad, HDFC Bank,
ICICI Bank, IDBI, IndusInd Bank, ING Vysya Bank,
Jammu and Kashmir Bank, Karnataka Bank Limited,
Karur Vysya Bank, Kotak Mahindra Bank, Lakshmivilas
Bank, Lord Krishna Bank, Niantic Bank, Ratnakar Bank,
Sangli Bank, SBI Commercial and International Bank,
South Indian Bank, Tamil Nadu Mercantile Bank Ltd.,
United Western Bank, UTI Bank, YES Bank.

Structure of Indian Banking

Reserve Bank of India is the regulating body for the Indian Banking Industry. It is a mixture
of Public sector, Private sector, Co-operative banks and foreign banks.

Reserve Bank of India

Scheduled Banks

Scheduled Scheduled Co-operative

Commercial Banks Banks

Public Sector Banks Private Sector Banks Foreign Banks Regional Rural Banks
Scheduled Urban cooperative Bank

Scheduled State co-operative Banks

Nationalized Banks

SBI & its Associates

Old Private Sector Banks New Private Sector Banks


Not just numerous budgetary organization on the planet today can guarantee the artifact and
glory of the State Bank Of India established almost two centuries prior with essentially
expectation of giving steadiness to the currency advertise, the bank from its commencement
assembled assets for supporting both the general population credit of the organizations
governments in the three administrations of British India and the private credit of the
European and India shippers from about 1860s when the Indian economy book a critical jump
forward under the drive of revived world interchanges and clever strategy for mechanical and
horticultural creation the Bank turned out to be personally in esteemed in the financing of
basically and mining movement of the Sub-Continent Although vast European and Indian
traders and producers were without a doubt thee important recipients, the little man never
overlooked advances as low as Rs.100 were dispensed in agrarian areas against happy
trimmings. Added to these the bank till the formation of the Reserve Bank in 1935 did
various Central – Banking capacities

Adjustment world and the necessities of great importance has been one of the qualities of the
Bank, In the post melancholy exe. For example – when business openings turn out to be
amazingly limited, rules set down in the book of guidelines were relined to guarantee that
great business did not go post. However only occasionally did the bank negate its incentive as
withdraw from sound keeping money standards to hold as grow its business. A creative
cluster of office, obscure to the world at that point, was concocted as branches, sub branches,
treasury pay office, pay office, sub pay office and out understudies to misuse the chances of
an extending economy. New business technique was likewise avoided path in 1937 to render
the best managing an account benefit through incite and gracious thoughtfulness regarding

A profoundly effective and experienced administration working in a very much characterized

authoritative structure did not assume long to position the bank an executed platform in the
regions of business, benefit, inside control or more all validity A perfect money related status
predictable upkeep of the grandiose customs if keeping money a perception of an elevated
expectation of respectability in its tasks helped the bank gain a pre-prominent status. No
miracles the organization for the bank was all inclusive as key functionaries of India
progressive fund clergyman of free India Resource Bank of governors and agents of assembly
of business showered financial matters on it.

Advanced administration procedures were likewise especially apparent in the great old day's
prior years corporate administration had turned into a perplexed the banks bound worked
with a high level of duty and worries for the investors. A whole record of benefits and a
genuinely high rate of benefit and genuinely high rate of profit all through guaranteed
fulfillment, prudential administration and resource risk the executives secured the premiums
of the Bank as well as guaranteed that the commitments to clients were not met.

The customs of the past kept on being maintained even right up 'til the present time as the
State Bank years itself to address the developing difficulties of the thousand years.


Fellowship is the subject of this corporate loge of SBI where the universe of saving money
administrations meet the regularly changing clients needs and builds up a connection that
resembles a circle, it shows finish administrations towards clients. The logo likewise signifies
a bank that it has arranged to effectively go to any lengths, for clients.

The blue pointer speak to the theory of the bank that is continually searching for the
development and more current, all the more difficult, additionally encouraging course. The
key opening shows wellbeing and security.

Mission Statement:

To hold the Bank's situation as debut Indian Financial Service Group, with world class
gauges and huge worldwide focused on greatness in client, investor and worker fulfillment
and to assume a main job in growing and broadening monetary administration areas while
containing accentuation on its advancement managing an account rule.


 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.


 Excellence in customer service

 Profit orientation

 Belonging commitment to Bank

 Fairness in all dealings and relations

 Risk taking and innovative

 Team playing

 Learning and renewal

 Integrity

 Transparency and Discipline in policies and systems.

Organization Structure



G. M G.M G. M G.M G. M

(Operations) (C&B) (F&S) (I) & CVO (P&D)

Zonal officers
Functional Heads

Regional officers

Former Associate Banks

SBI acquired the control of seven banks in 1960. They were the seven provincial banks of ex-
Indian regal states. These were renamed, prefixing them with 'State Bank of'. These seven
keeping money establishments were State Bank of Bikaner and Jaipur (SBBJ), State Bank of
Hyderabad (SBH), State Bank of Indore (SBN), State Bank of Mysore (SBM), State Bank of
Patiala (SBP), State Bank of Saurashtra (SBS) and State Bank of Travancore (SBT). Every
single one of these banks got indistinguishable logo from the parent bank, SBI.
The gets ready for making SBI a uber keep money with trillion dollar business by combining
the partner banks began in 2008, and in September that year, SBS converged with SBI. The
precise one year from now, State Bank of Indore (SBN) likewise blended. Around the same
time, a backup named Bharatiya Mahila Bank was shaped. The arrangements for converging
of the 6 relate banks (State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank
of Mysore, State Bank of Patiala, State Bank of Travancore and Bharatiya Mahila Bank) by
gaining their organizations incorporating resources and liabilities with SBI began in 2016.
The merger was affirmed by the Union Cabinet on 15 June 2016. The State Bank of India and
all its partner banks utilized a similar blue Keyhole logo. The State Bank of India wordmark
generally had one standard typeface, yet in addition used different typefaces.

On 15 February 2017, the Union Cabinet affirmed the merger of five connect manages an
account with SBI. What was ignored, in any case, were distinctive annuity obligation
techniques and bookkeeping rules for terrible advances, in light of territorial dangers.
The State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State
Bank of Patiala and State Bank of Travancore, and Bharatiya Mahila Bank were converged
with State Bank of India with impact from 1 April 2017.

Non-banking subsidiaries
Apart from its five associate banks (merged with SBI since April 1, 2017), SBI also has the
following non-banking subsidiaries:
 SBI Capital Markets Ltd
 SBI Funds Management Pvt Ltd
 SBI Factors & Commercial Services Pvt Ltd
 SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)
 SBI Life Insurance Company Limited
 SBI General Insurance

In March 2001, SBI (with 74% of the total capital), joined up with BNP Paribas (with 26%
of the rest capital), to create a joint venture life insurance company called SBI Life Insurance
company Ltd. In 2004, SBI DFHI (Discount and Finance House of India) was founded using
its head office in Mumbai.
Listings and shareholding
As on 31 March 2017, Government of India held around 61.23% equity shares in SBI.
The Life Insurance Corporation of India, itself state-owned, is the largest non-promoter
shareholder in the company with 8.82% shareholding

Shareholders Shareholding

Promoters: Government of India 61.23%

FIIs/GDRs/OCBs/NRIs 11.17%

Banks & Insurance Companies 10.00%

Mutual Funds & UTI 8.29%

Others 9.31%

Total 100.0%

The equity shares of SBI are listed on the Bombay Stock Exchange, where it is a constituent
of the BSE SENSEX index, and the National Stock Exchange of India, where it is a
constituent of the CNX Nifty. Its Global Depository Receipts (GDRs) are listed on
the London Stock Exchange

SBI is one of the largest employers in the country with 209,567 employees as on 31 March
2017, out of which there were 23% female employees and 3,179 (1.5%) employees with
disabilities. On the same date, SBI had 37,875 Scheduled Castes (18%), 17,069 Scheduled
Tribes (8.1%) and 39,709 Other Backward Classes (18.9%) employees. The percentage of
Officers, Associates and Sub-staff was 38.6%, 44.3% and 16.9% respectively on the same
date. Around 13,000 employees have joined the Bank in FY 2016-17. Each employee
contributed a net profit of ₹511,000 (US$7,800) during FY 2016-17

Recent awards and recognition

 SBI was ranked as the top bank in India based on tier 1 capital by The
Banker magazine in a 2014 ranking.

 SBI was ranked 232nd in the Fortune Global 500 rankings of the world's biggest
corporations for the year 2016.
 SBI was named the 29th most reputed company in the world according
to Forbes 2009 rankings

 SBI was 50th Most Trusted brand in India as per the Brand Trust Report 2013,an
annual study conducted by Trust Research Advisory, a brand analytics company and
subsequently, in the Brand Trust Report 2014, SBI finished as India's 19th Most
Trusted Brand in India.

Background of the Study

Conceding of credit for monetary exercises is the prime obligation of keeping money.
Aside from raising assets through crisp stores, borrowings and reusing of assets got once
again from borrowers comprise a noteworthy piece of financing credit administration
movement. Loaning is for the most part empowered in light of the fact that it has the impact
of assets being exchanged from the framework to beneficial purposes, which results into
financial development. Anyway loaning additionally conveys a hazard called credit chance,
which emerges from the disappointment of borrower. Non-recuperation of advances
alongside intrigue shapes a noteworthy obstacle during the time spent credit cycle.
Consequently, these advance misfortunes influence the Banks gainfulness on a substantial
scale. Despite the fact that total end of such misfortunes isn't conceivable, yet banks can
generally plan to keep the misfortunes at a low dimension. Non-performing Asset (NPA) has
developed since over 10 years as a disturbing risk to the saving money industry in our nation
sending troubling signs on the manageability and bearableness of the influenced banks. The
positive aftereffects of the chain of measures influenced under managing an account changes
by the Government of India and RBI as far as the two Narasimhan Committee Reports in this
contemporary period have been killed by the evil impacts of this flooding danger. Regardless
of different remedial advances managed to tackle and end this issue, solid outcomes are
escaping. It is a broad and all unavoidable infection went up against all around on managing
an account and budgetary organizations.

Fundamental point of any individual is the use of cash in the best way since the India is
nation where the greater part of the populace has issue of running the family in the most
productive way. Anyway Indian individuals confronted huge number of issue till the
improvement of the undeniable keeping money part. The Indian managing an account
segment came into the creating nature generally after the 1991 government approach. The
saving money segment has truly helped the Indian individuals to use the single cash in the
best way as they need. Individuals currently have begun putting their cash in the banks and
banks likewise give merchandise returns on the stored sum. The general population presently
have at the most comprehended that banks give them great security to their stores thus
abundance sums are put resources into the banks. In this way, banks have helped the general
population to accomplish their financial goals.

Objective of the Study

Following are the objectives of the study:

 Study of NPA in public sector banks with reference of SBI bank

 What types of challenges banking industry is facing with special reference to NPA.

 How SBI bank cope with NPA and its impact in recent economic crisis.

 To find the factors that would affect level of NPAs.

 To analyze the significance of each variable that might affect the NPA level.

 To understand what is Non Performing Assets and what are the underlying reasons for

the emergence of the NPAs.

 To understand the impacts of NPAs on the operations of the banks.

 To know what steps are being taken by the Indian banking sector to reduce the NPAs?

 To evaluate the comparative ratio of the banks with concerned to the NPAs.

Need of the Study

The banks acknowledge the stores of the general population as well as give them credit
offices to their improvement. Indian managing an account division has the country in
building up the business and administration areas. In any case, as of late the banks are
confronting the issue of credit hazard. It is discovered that many general individuals and
representatives acquire from the banks yet because of some certifiable or different reasons are
not ready to reimburse back the sum attracted to the banks. The sum which isn't offered back
to the banks is known as the non performing resources. Numerous banks are confronting the
issue of NPAs which hampers the matter of the banks. Because of NPAs the pay of the banks
is lessened and the banks need to make the huge number of the arrangements that would
abridge the benefit of the banks and because of that the monetary execution of the banks
would not demonstrate great outcomes.

The principle point behind making this report is to realize how open division banks are
working their business and how NPAs assume its job to the activities of people in general
segment banks. The report NPAs are grouped by the part, business, and state savvy. The
present examination additionally centers around the current framework in India to tackle the
issue of NPAs and similar investigation to comprehend which bank is assuming what job with
worried to NPAs. In this way, the examination would help the leaders to comprehend the
budgetary execution and development of open part banks when contrasted with the NPAs.

This report investigates an observational way to deal with the examination of Non-
Performing Assets (NPAs) with unique reference of SBI bank in India. The dimension of
NPAs is one of the drivers of monetary dependability and development of the saving money
area. This report expects to locate the major components which affect NPAs of banks. A
model comprising of two kinds of components, viz., macroeconomic factors and bank-
particular parameters, is created and the conduct of NPAs of the three classes of banks is
watched. The exact examination evaluates how macroeconomic factors and bank-explicit
parameters influence NPAs of a specific classification of banks. The macroeconomic
variables of the model included are GDP development rate and extract obligation, and the
bank-particular parameters are Credit Deposit Ratio (CDR), advance introduction to need
segment, Capital Adequacy Ratio (CAR), and liquidity chance. The outcomes demonstrate
that development in NPAs throughout the years can be clarified well by the elements
considered in the model for general society and private part banks. The other imperative
outcomes got from the investigation incorporate the finding that banks' introduction to need
area loaning lessens NPAs.

Limitations of the Study

The limitation that, I felt in my study are:
 It was critical for me to gather the financial data of the every bank of the public sector

banks so the better evaluation of the performance of the banks are not possible.

 Since my study is based on the secondary data, the practical operation as related to

the NPAs are adopted by the banks are not learned.

 Since the Indian banking sector is so wide so it was possible for me to cover all the

banks of the Indian banking sector.



Activity for implementation of security intrigue can be started just if the anchored resource is
named Nonperforming resource. Non performing resource implies a benefit or record of
borrower, which has been characterized by bank or money related establishment as sub –
standard, suspicious or misfortune resource, as per the bearing or rules identifying with
resources order issued by RBI. A sum due under any acknowledge office is treated as "past
due "when it isn't been paid inside 30 days from the due date. Because of the enhancement in
the installment and settlement framework, recuperation atmosphere, up degree of innovation
in the saving money framework and so on, it was chosen to forgo "past due "idea, with
impact from March 31, 2001. In like manner as from that date, a Non performing resource
shell be a development where
I. Intrigue as well as portion of main stay past due for a time of over 180 days in regard of a
term advance,
ii. The record stays 'out of request 'for a time of over 180 days, in regard of an
overdraft/money credit (OD/CC)
iii. The bill stays past due for a time of over 180 days if there should arise an occurrence of
bill acquired or limited.
iv. Intrigue as well as main stays past due for two collect season yet for a period not
surpassing two half years if there should arise an occurrence of a development conceded for
horticultural reason, and
v. Any add up to be gotten stays late for a time of over 180 days in regard of different records
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt ’90 days overdue ‘norms for identification of NPA
s, from the year 2004, a non performing asset shell be a loan or an advance where;
i. Interest and/or instalment 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)
iii. The bill remains overdue for a period of more than 90 days in case of bill purchased or
iv. Interest and/or principal remains overdue for two harvest season but for a period not
exceeding two half years in case of an advance granted for agricultural purpose, and
v. Any amount to be received remains overdue for a period of more than 90 days in respect of
other accounts

Out of order
A record ought to be treated as out of request if the remarkable equalization remains
ceaselessly in overabundance of endorsed limit/drawing power. on the off chance that where
the outstanding equalization in the chief working record is not exactly the authorized
sum/drawing power, however there are no credits consistently for a half year as on the date of
monetary record or credit are insufficient to cover the intrigue charged amid a similar period
these record ought to be treated as 'out of request'.
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on due date
fixed by the bank.


The saving money part has been confronting the major issues of the rising NPAs. In any case,
the issue of NPAs is more out in the open part banks when contrasted with private area banks
and remote banks. A solid managing an account division is vital for a thriving economy. The
disappointment of the keeping money area may adversy affect different divisions. The Indian
saving money framework, which was working in a shut economy, now faces the difficulties
of an open economy. On one hand a secured domain guaranteed that banks never expected to
create modern treasury activities and Asset Liability Management abilities. Then again a mix
of coordinated loaning and social keeping money consigned productivity and aggressiveness
to the foundation. The net outcome was unsustainable NPAs and therefore a higher successful
expense of saving money administrations.
The problem India Faces is not lack of strict prudential norms but
i. The legal impediments and time consuming nature of asset disposal proposal.
ii. Postponement of problem in order to show higher earnings.
iii. Manipulation of debtors using political influence.

Macro Perspective Behind NPAs

A great deal of functional issues have been found in Indian banks, particularly out in the open
division banks. For Example, the legislature of India had given a huge wavier of Rs. 15,000
Crs. under the Prime Minister ship of Mr. V.P. Singh, for provincial obligation amid 1989-90.
This was not a remarkable episode in India and left a negative impact on the payer of the
Destitution rise programs like IRDP, RREP, SUME, SEPUP, JRY, PMRY and so on., bombed
on different grounds in meeting their targets. The immense measures of advance allowed
under these plans were absolutely unrecoverable by banks because of political control, abuse
of assets and non-dependability of target gathering of people of these segments. Advances
given by banks are their advantages and as the reimbursements of a few of the credits were
poor, the characteristics of these benefits were consistently breaking down. Credit portion
moved toward becoming 'Lon Melas', advance proposition assessments were slack and thus
reimbursements were extremely poor. There are a few purposes behind a record getting to be
* Internal Factors
* External Factors

 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
consequence of non-recover, their by reducing their profitability and liquidity.
 Willful Defaults
There are borrowers who are able to payback 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.
 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
compensate those loans, hence end up the fiscal with a reduced profit.
Mainly ours framers depends on rain fall for cropping. Due to irregularities of rain fall the
framers are not to achieve the production level thus they are not repaying the loans.
 Industrial sickness
Improper project handling , ineffective management , lack of adequate resources , lack of
advance 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.
 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
covers a minimum label. Thus the banks record the non recovered part as NPAs and has to
make provision for it.
 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.
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.

Apart from these factors there may be others external factors which can cause of NPA’s, these
factors are:
1. Sluggish legal system - Long legal tangles Changes that had taken place in labour laws
Lack of sincere effort.
2. Scarcity of raw material, power and other resources.
3. Industrial recession.
4. Shortage of raw material, raw material\input price escalation, power shortage, industrial
recession, excess capacity, natural calamities like floods, accidents.
5. Failures, non payment\ over dues in other countries, recession in other countries,
externalization problems, adverse exchange rates etc.
6. Government policies like excise duty changes, Import duty changes etc.,

 Defective Lending process
There are three cardinal principles of bank lending that have been followed by the
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.
 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.
 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.
1. Banks should consider the borrowers own capital investment.
2. It should collect credit information of the borrowers from
a. From bankers
b. Enquiry from market/segment of trade, industry, business.
c. From external credit rating agencies. · Analyse the balance sheet
True picture of business will be revealed on analysis of profit/loss a/c and balance sheet.
3. Purpose of the loan
When bankers give loan, he should analyse the purpose of the loan. To ensure safety and
liquidity, banks should grant loan for productive purpose only. Bank should analyse the
profitability, viability, long term acceptability of the project while financing.
 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.
 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 principle 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 (2439.60 lakhs).
 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.
 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.
Apart from these the other internal factors are:
1. Funds borrowed for a particular purpose but not use for the said purpose.
2. Project not completed in time.
3. Poor recovery of receivables.
4. Excess capacities created on non-economic costs.
5. In-ability of the corporate to raise capital through the issue of equity or other debt
instrument from capital markets.
6. Business failures.
7. Diversion of funds for expansion\modernization\setting up new projects\ helping or
promoting sister concerns.
8. Willful defaults, siphoning of funds, fraud, disputes, management disputes, mis-
appropriation etc.,
9. Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-ups,
delay in settlement of payments\ subsidiaries by government bodies etc.,


1. Owners do not receive a market return on there capital .in the worst case, if the banks fails,
owners loose their assets. In modern times this may affect a broad pool of shareholders.
2. Depositors do not receive a market return on saving. In the worst case if the bank fails,
depositors loose their assets or uninsured balance.
3. Banks redistribute losses to other borrowers by charging higher interest rates, lower
deposit rates and higher lending rates repress saving and financial market, which hamper
economic growth.
4. Non performing loans epitomise bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital, and by extension, labour and natural resources.
5. Non performing asset may spill over the banking system and contract the money stock,
which may lead to economic contraction. This spill over effect can channelize through
liquidity or bank insolvency: a) when many borrowers fail to pay interest, banks may
experience liquidity shortage. This can jam payment across the country, b) illiquidity
constraints bank in paying depositors .c) undercapitalised banks exceeds the banks capital

What caused such high NPAs in the system until 1995?

Some key reasons for huge NPAs until mid-1990s are as follows:
 Absence of competition: The entire banking sector was state-owned; there was complete
absence of any kind of competition from the private sector.
 Lack of focus and control: The government-controlled operations of banks resulted in
favoritisms in terms of lending, besides lack of focus on quality of lending. Managements
of banks lacked any control on operations of their banks, while directors largely were
influenced by the will of power-circles.
 Collateral-based lending and a dormant legal recourse system: Collateral was
considered king. Under the name of collateral, large sums of loans were disbursed, and in
the absence of an active legal recovery system, loan repayment and quality considerations
took a back seat.
 Corruption and bureaucracy: Political interference and lack of supervision increased
corruption and redtapism in the banking system. This resulted in complete dilution of
credit quality and control procedures.
 Inadequacy of capital and tools relating to asset quality monitoring: Banks suffered
from shortage of capital funds to pursue any meaningful investments in quality control,
loan monitoring, etc. This inadequacy of funds, together with the absence of independent
management, led to low focus on asset quality tracking and taking corrective actions.

The circumstance changed after 1993, when the Reserve Bank of India (RBI) with the
administration's help, concocted a few choices on overseeing Indian banks that had a healthy
effect, and the future never looked such a great amount in charge hereafter.
There was a huge decrease in the non-performing resources (NPAs) of SCBs in 2011-12, in
spite of selection of multi day misconduct standard from March 31, 2012. The gross NPAs of
SCBs declined from 4.0 percent of aggregate resources in 2010-11 to 3.3 percent in 2011-12.
The comparing decrease in net NPAs was from 1.9 percent to 1.2 percent. Both gross NPAs
and net NPAs declined in outright terms. While the gross NPAs declined from Rs. 68,717
crore in 2010-11 to Rs. 64,787 crore in 2011-12, net NPAs declined from Rs. 32,670 crore to
Rs. 24,617 crore in a similar period. There was additionally a noteworthy decrease in the
extent of net NPAs to net advances from 4.4 percent in 2010-11 to 2.9 percent in 2011-12.
The noteworthy decrease in the net NPAs by 24.7 percent in 2011-12 when contrasted with
8.1 percent in 2010-11 was for the most part because of higher arrangements (up to 40.0
percent) for NPAs made by SCBs.

The decrease in NPAs in 2011-12 was seen over all bank gatherings. The decrease in net
NPAs as an extent of aggregate resources was very critical on account of new private division
banks, trailed by PSBs. The proportion of net NPAs to net advances of SCBs declined from
4.4 percent in 2010-11 to 2.9 percent in 2011-12. Among the bank gatherings, old private area
banks had the most noteworthy proportion of net NPAs to net advances at 3.8 percent pursued
by PSBs (3.0 percent) new private division banks (2.4 percent) and remote banks
(1.5 percent)
An investigation of NPAs by divisions uncovers that in 2011-12, advances to non-need parts
represented main part of the exceptional NPAs on account of PSBs (51.24 percent of
aggregate) and for private segment banks (75.30 percent of aggregate). While the offer of
NPAs in agribusiness part and SSIs of PSBs declined in 2011-12, the offer of other need
divisions expanded. The offer of credits to other need segments in need segment loaning
additionally expanded. Measures taken to diminish NPAs incorporate reschedulement,
rebuilding at the bank level, corporate obligation rebuilding, and recuperation through Lok
Adalats, Civil Courts, and obligation recuperation councils and trade off settlements. The
recuperation the executives got a noteworthy fillip with the sanctioning of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI)
Act, empowering banks to understand their levy without intercession of courts and councils.
The Supreme Court in its judgment dated April 8, 2012, while maintaining the protected
legitimacy of the Act, struck down segment 17 (2) of the Act as illegal and as opposed to
Article 14 of the Constitution of India. The Government changed the applicable arrangements
of the Act to address the worries communicated by the Supreme Court in regards to a
reasonable arrangement to borrowers through a statute dated November 11, 2012. It is normal
that the energy in the recuperation of NPAs will be continued with the revisions to the Act.

The changed rules for trade off settlement of perpetual NPAs of PSBs were issued in January
2011 and were reached out now and again till July 31, 2012. The cases recorded by SCBs in
Lok Adalats for recuperation of NPAs remained at 5.20 lakh including a measure of Rs. 2,674
crore (prov.). The recuperations affected in 1.69 lakh cases added up to Rs. 352 crore (prov.)
as on September 30, 2012. The quantity of cases recorded under water recuperation courts
remained at 64, 941 as on June 30, 2012, including a measure of Rs. 91,901 crore. Out of
these, 29, 525 cases including a measure of Rs. 27,869 crore have been settled. The sum
recuperated was to Rs. 8,593 crore. Under the plan of corporate obligation rebuilding
presented in 2009, the quantity of cases and estimation of advantages rebuilt remained at 121
and Rs. 69,575 crore, individually, as on December 31, 2012. Iron and steel, refinery,
composts and media transmission segments were the real recipients of the plan. These
segments represented more than two-third of the estimations of advantages rebuilt.

Capital adequacy Ratio

The idea of least funding to hazard weighted resources proportion (CRAR) has been created
to guarantee that banks can retain a sensible dimension of misfortunes. Utilization of least
CRAR ensures the enthusiasm of investors and advances dependability and proficiency of the
money related framework. Toward the finish of March 31, 2012, CRAR of PSBs remained at
13.2 percent, an enhancement of 0.6 rate point from the earlier year. There was additionally
an enhancement in the CRAR of old private segment banks from 12.8 percent in 2010-11 to
13.7 percent in 2011-12. The CRAR of new private division banks and remote banks enlisted
a decrease in 2011-12. For the SCBs in general the CRAR enhanced from 12.7 percent in
2010-11 to 12.9 percent in 2011-12. All the bank bunches had CRAR over the base 9 percent
stipulated by the RBI. Amid the present year, there was further enhancement in the CRAR of
SCBs. The proportion in the main portion of 2004-05 enhanced to 13.4 percent when
contrasted with 12.9 percent toward the finish of 2011-12. Among the bank gatherings, a
significant enhancement was seen on account of new private area banks from 10.2 percent as
toward the finish of 2011-12 to 13.5 percent in the primary portion of 2012-13. While PSBs
and old private banks kept up the CRAR at nearly indistinguishable dimension from in the
earlier year, the CRAR of outside banks declined to 14.0 percent in the main portion of 2012-
13 when contrasted with 15.0 percent as toward the finish of 2011-12.
The above picture is clear as crystal. Over the timeframe, Indian business banks have
indicated colossal enhancement as far as nature of credit. NPAs, both at gross and net
dimensions, as a level of advances, have fallen reliably. The gross NPA/Advances proportion
has tumbled from 16% in FY05 to under 2.5% in FY16. Banks shown extraordinary power
over acknowledge quality, as even in the midst of falling IIP and GDP development, they kept
on indicating less NPAs. This is an extremely amazing pointer that features the way that
Indian keeping money has demonstrated generous enhancement as far as resource quality
administration even in unfavorable large scale financial conditions. FY07, FY09 and FY10
saw impressive fall in modern creation from the then existing dimensions. Be that as it may,
this did not prompt any expansion in bank NPAs. Despite what might be expected, banks
enhanced NPA proportions significantly through the activity of solid resource quality
observing projects. The present condition is again demonstrating a decrease in GDP, and IIP
development rates as log jam hits request and utilization over every single real part. In any
case, we unequivocally trust that administrations of best Indian banks have put 'NPA
Management and Control' as one of their best needs, and that despite the fact that there would
be a hop in NPAs as an extent of aggregate resources, the saving money part can withstand
this hop and still rise as a solid entertainer in these to a great degree troublesome occasions.
What changed the scenario of NPAs?
Some of the key factors that contributed to the fall in NPAs in the Indian banking
 Introduction of rivalry: The RBI opened up entryways for the private division
investment in the Indian managing an account industry. HDFC, the central home loan
moneylender, got the main endorsement to begin a private bank in the change driven
period. HDFC Bank was offered authorization to carry on business saving money
activities. Numerous new private banks and outside banks were permitted later, which
got the much-required rivalry in the Indian keeping money industry.

 Guidelines on NPAs, pay acknowledgment, capital ampleness: One of the key

explanations behind such an uncommon fall in framework NPAs was the presentation
of advantage and capital quality rules. These standards, presented based on the
Narasimhan Committee report in 1993, revolutionarily affected the manner in which
banks oversaw and controlled their advantage book.
 Separation of control: Bank administrations were given a free hand to maintain their
organizations as the Ministry of Finance and the RBI moved far from controlling
positions to administering and directing positions. This empowered sheets of Indian
banks to accept uninfluenced calls as to loaning and resource control.

 Improvement of the lawful plan of action system: This is another critical advance.
Through Debt Recovery Tribunal (DRT), Lok Adalat instrument for little advances,
and One-Time Settlement (OTS) component for focused on advances in 1999, the
national bank guaranteed that there is a snappy tidy up of sticky resources, in order to
empower banks to begin working with a fresh start. The lawful response for sums
loaned has been an imperative supporter of benefit quality enhancement.

 Capital implantation: Public banks were permitted to cut down the administration
holding to 51%, in this way empowering stream of new cash for much-required banks
and furthermore reserving in venture enthusiasm from market members. Governing
body presently turned out to be more autonomous, and a blended part of people got
understanding from different fragments of the money related world.

 Establishment of CIBIL: Credit Information Bureau of India Ltd was set up in 2000.
This foundation began to keep up a database of borrowers and their record of loan
repayment. This filled in as an exceptionally powerful instrument for advance
endorsing and resource quality upkeep. Banks utilize the database to guarantee credit
does not fall in the hands of a borrower, with a terrible credit record.

 Asset Reconstruction Company: ARCs were allowed to work from 2002; these
establishments helped the expulsion of bank's emphasis on terrible resources by
getting their awful advances, in this way fortifying their accounting reports.

 Corporate Debt Restructuring, SICA: The CDR system, wiped out enterprises
restoration establishments empowered tending to issues of harried borrowers through
viable hand-holding and bank bolster. This averted further slippage of advantage
 Exposure limits (segment insightful and borrower-wise): The RBI set up strict
presentation limits for keeps money as for delicate parts like land and capital markets.
Also, confines on sums a bank can loan to a particular borrower, or a borrower gather
helped in non-grouping of assets as advances in a couple of hands, consequently
enhancing the danger of default.

 Risk the board instruments: The RBI guaranteed that banks have compelling danger
estimation, the executives and control frameworks set up, in order to stay away from
credit stuns. Resource obligation the board (ALM), esteem in danger (VAR), control
on wobbly sheet exposures, credit hazard weightages, and so forth are couple of ideas
that empowered banks to successfully control NPAs.

Basel Report Framework and India

Various risks in bank
Liquidity Risk
Market Liquidity Risk arises when a bank is unable to conclude a large transaction in a
particular instrument near the current market price. Funding Liquidity Risk is defined as the
inability to obtain funds to meet cash flow obligations. For banks, funding liquidity risk is
more crucial.
Interest Rate Risk
Interest Rate Risk (IRR) is the exposure of a Bank’s financial condition to adverse
movements in interest rates. Banks have an appetite for this risk and use it to earn returns.
IRR manifests itself in four different ways: re-pricing, yield curve, basis and embedded
Pricing Risk
Pricing Risk is the risk to the bank’s financial condition resulting from adverse movements in
the level or volatility of the market prices of interest rate instruments, equities, commodities
and currencies. Pricing Risk is usually measured as the potential gain/loss in a
position/portfolio that is associated with a price movement of a given probability over a
specified time horizon. This measure is typically known as value-at-risk (VAR).
Foreign Currency Risk
Foreign Currency Risk is pricing risk associated with foreign currency.
Market Risk
The term Market Risk applies to (i) that part of IRR which affects the price of interest rate
instruments, (ii) Pricing Risk for all other assets/portfolio that are held in the trading book of
the bank and (iii) Foreign Currency Risk.
Strategic Risk
Strategic Risk is the risk arising from adverse business decisions, improper implementation
of decisions, or lack of responsiveness to industry changes. This risk is a function of the
compatibility of an organization’s strategic goals, the business strategies developed to achieve
those goals, the resources deployed against these goals, and the quality of implementation.
Reputation Risk
Reputation risk is the risk arising from negative public opinion. This risk may expose the
institution to litigation, financial loss, or a decline in customer base.
Transaction Risk
Transaction risk is the risk arising from fraud, both internal & external, failed business
processes and the inability to maintain business continuity and manage information.
Compliance Risk
Compliance risk is the risk of legal or regulatory sanctions, financial loss or reputation loss
that a bank may suffer as a result of its failure to comply with any or all of the applicable
laws, regulations, codes of conduct and standards of good practice. It is also called integrity
risk since a bank’s reputation is closely linked to its adherence to principles of integrity and
fair dealing.
Operational Risk
The term Operational Risk includes both compliance risk and transaction risk but excludes
strategic risk and reputation risk.
Credit Risk
Credit Risk is most simply defined as the potential of a bank borrower or counter-party to fail
to meet its obligations in accordance with agreed terms. For most banks, loans are the largest
and most obvious source of credit risk.

Banking Regulation and Supervision

The Need for Regulation
Banking is one of the most heavily regulated businesses since it is a very highly leveraged
(high debt-equity ratio or low capital-assets ratio) industry. In fact, it is an irony that banks,
which constantly judge their borrowers on debt-equity ratio, have themselves a debt-equity
ratio far too adverse than their borrowers! In simple words, they earn by taking risk on their
creditors’ money rather than shareholders’ money. And since it is not their money
(shareholders’ stake) on the block, their appetite for risk needs to be controlled.

Goals and Tools for Bank Regulation and Supervision

The principle objective of all controllers is the dependability of the managing an account
framework. In any case, controllers can't be concerned exclusively with the security of the
managing an account framework, for if that was the main reason, it would force a tight saving
money framework, in which checkable stores are completely sponsored by totally safe
resources – in the extraordinary, cash. Concurrent with this essential concern is the need to
guarantee that the money related framework works productively. As we have seen, banks
need to go out on a limb to be ready to go in spite of a likelihood of disappointment. Truth be
told, Alan Greenspan puts it concisely, `providing establishments with the adaptability that
may prompt disappointment is as critical as allowing them the chance to succeed'.
The twin supervisory or administrative objectives of security and effectiveness of the
monetary framework regularly appear to pull in inverse ways and there is much discussion
seething on the nature and degree of the exchange off between the two. Despite the fact that
exceptionally fascinating, it is outside the extent of this answer to expound upon. Rather,
given us a chance to investigate the rundown of a few devices that controllers utilize:
• Restrictions on bank exercises and managing an account business joins: To maintain a
strategic distance from irreconcilable situations that may emerge when banks participate in
assorted exercises, for example, securities endorsing, protection guaranteeing, and land
• Restrictions on local and outside bank passage: The supposition here is that powerful
screening of bank section can advance solidness.
• Capital Adequacy: Capital fills in as a support against misfortunes and thus likewise against
disappointment. Capital sufficiency is regarded to control chance hunger of the bank by
adjusting the motivating forces of bank proprietors to contributors and different lenders.
• Deposit Insurance: Deposit protection plans are to anticipate far reaching bank runs and to
ensure little contributors yet can make moral peril (which implies in straightforward terms the
penchant of the two firms and people to go out on a limb when safeguarded).
• Information exposure and private segment checking: Includes confirmed reviews as well as
evaluations from worldwide rating organizations. Includes guiding banks to create exact, far
reaching and merged data on the full scope of their exercises and hazard the board methods.
• Government Ownership: The supposition here is that legislatures have satisfactory data and
impetuses to advance socially alluring ventures and in extraordinary cases can exchange the
investors' misfortune to citizens! Government possession can, now and again, advance
financing of politically appealing tasks and not the monetarily proficient ones.
• Mandated liquidity holds: To control credit development and to guarantee that banks have a
sensible measure of fluid advantages for meet their liabilities.
• Loan grouping, provisioning gauges and enhancement rules: These are controls to oversee
credit chance.

The Basel I Accord

Basel Committee on Banking Supervision (BCBS)
On 26th June 1974, various banks had discharged Deutschmarks to Bank Herstatt in
Frankfurt in return for dollar installments that should have been conveyed in New York.
Because of contrasts in time zones, there was a slack in dollar installments to counter-party
banks amid which Bank Herstatt was exchanged by German controllers, i.e. before the dollar
installments could be influenced.
The Herstatt mischance provoked the G-10 nations (the G-10 is today 13 nations: Belgium,
Canada, France, Germany, Italy, Japan, Luxembourg, Netherlands, Spain, Sweden,
Switzerland, United Kingdom and United States) to shape, towards the finish of 1974, the
Basel Committee on Banking Supervision (BCBS), under the protection of the Bank for
International Settlements (BIS), involving Central Bank Governors from the partaking
BCBS has been instrumental in institutionalizing bank directions crosswise over wards with
extraordinary accentuation on characterizing the jobs of controllers in cross-jurisdictional
circumstances. The advisory group meets four times each year. It has around 30 specialized
working gatherings and teams that meet frequently.

1988 Basel Accord

In 1988, the Basel Committee distributed an arrangement of negligible capital necessities for
banks, known as the 1988 Basel Accord. These were authorized by law in the G-10 nations in
1992, with Japanese banks allowed an all-encompassing change period.

The 1988 Basel Accord concentrated principally on layaway chance. Bank resources were
arranged into five hazard cans i.e. gathered under five classes as indicated by credit hazard
conveying hazard weights of zero, ten, twenty, fifty and 100%. Resources were to be grouped
into one of these hazard containers dependent on the parameters of counter-party (sovereign,
banks, open area ventures or others), security (e.g. home loans of private property) and
development. By and large, government obligation was sorted at zero percent, bank
obligation at 20%, and other obligation at 100%. 100%. OBS exposures, for example,
execution assurances and letters of credit were brought into the count of hazard weighted
resources utilizing the system of variable credit transformation factor. Banks were required to
hold capital equivalent to 8% of the hazard weighted estimation of advantages. Since 1988,
this system has been logically presented in part nations as well as in every single other nation
having dynamic universal banks. The 1988 accord can be condensed in the accompanying
Total Capital = 0.08 x Risk Weighted Assets (RWA)
The accord provided a detailed definition of capital. Tier 1 or core capital, which includes
equity and disclosed reserves, and Tier 2 or supplementary capital, which could include
undisclosed reserves, asset revaluation reserves, general provisions & loan–loss reserves,
hybrid (debt/equity) capital instruments and subordinated debt.

Value at Risk (VAR)

VAR is a strategy for surveying hazard that utilizes standard factual systems and furnishes
clients with an outline proportion of market chance. For example, a bank may state that the
everyday VAR of its exchanging portfolio is rupees 20 million at the 99 percent certainty
level. In basic words, there is just a single shot in 100, under typical economic situations, for
a misfortune more noteworthy than rupees 20 million to happen. This single number abridges
the bank's presentation to showcase hazard and the likelihood (one percent, for this situation)
of it being surpassed. Investors and supervisors would then be able to choose whether they
feel great at this dimension of hazard. If not, the procedure that prompted the calculation of
VAR can be utilized to choose where to trim hazard.
Without going into the related math, it ought to be referenced here that there exist three
techniques for registering VAR, viz. Delta-Normal, Historical Simulation and Monte Carlo
Simulation, the last one being the most calculation serious and typically the most refined one.
In a lighter vein, a meaning of VAR that was found at the site stated, `A
number concocted by purveyors of panaceas for monetary hazard planned to misdirect senior
administration and controllers into false certainty that advertise chance is enough
comprehended and controlled.'
1996 Amendment to incorporate Market Risk
In 1996, BCBS distributed a correction to the 1988 Basel Accord to give an unequivocal
capital pad to the value dangers to which banks are uncovered, especially those emerging
from their exchanging exercises. This change was brought into impact in 1998.
Salient Features
• Allows banks to utilize restrictive in-house models for estimating market dangers.
• Banks utilizing exclusive models must process VAR day by day, utilizing a 99th percentile,
one-followed certainty interim with a period skyline of ten exchanging days utilizing a
chronicled perception time of no less than one year.
• The capital charge for a bank that utilizes a restrictive model will be the higher of the earlier
day's VAR and multiple times the normal of the day by day VAR of the former sixty business
• Use of `back-testing' (ex-post correlations between model outcomes and genuine execution)
to land at the `plus factor' that is added to the increase factor of three.
• Allows banks to issue here and now subordinated obligation subject to a secure statement
(Tier 3 capital) to meet a piece of their market dangers.
• Alternate institutionalized methodology utilizing the `building square' approach where
general market hazard and explicit security chance are ascertained independently and
• Banks to isolate exchanging book and check to showcase all portfolio/position in the
exchanging book.
• Applicable to both exchanging exercises of banks and non-keeping money securities firms.

Evolution of Basel Committee Initiatives

The Basel I Accord and the 1996 Amendment thereto have evolved into Basel II, as depicted
in the figure above.
The New Accord (Basel II)
Close on the heels of the 1996 amendment to the Basel I accord, in June 1999 BCBS issued a
proposal for a New Capital Adequacy Framework to replace the 1988 Accord.
The proposed capital framework consists of three pillars: minimum capital requirements,
which seek to refine the standardised rules set forth in the 1988 Accord; supervisory review
of an institution's internal assessment process and capital adequacy; and effective use of
disclosure to strengthen market discipline as a complement to supervisory efforts. The accord
has been finalized May 2004 and the final draft is expected by the end of June 2004. For
banks adopting advanced approaches for measuring credit and operational risk the deadline
has been shifted to 2008, whereas for those opting for basic approaches it is retained at 2006.

The Need for Basel II

The 1988 Basel I Accord has extremely constrained hazard affectability and needs chance
separation (expansive brush structure) for estimating credit chance. For instance, all
companies convey a similar hazard weight of 100 percent. It likewise offered ascend to a
critical hole between the administrative estimation of the danger of a given exchange and its
real monetary hazard. The most alarming symptom of the hole among administrative and real
monetary hazard has been the mutilation of money related basic leadership, including a lot of
administrative exchange, or speculations made based on administrative limitations instead of
honest to goodness financial chances. The strict standard based methodology of the 1988
accord has additionally been scrutinized for its `one measure fits all' solution. Furthermore, it
needed appropriate acknowledgment of acknowledge chance mitigants, for example, credit
subordinates, securitisation, and pledges.
The ongoing instances of fakes, demonstrations of psychological oppression, hacking, have
brought into center the operational hazard that the banks and money related organizations are
presented to.
The proposed new accord (Basel II) is asserted by BCBS to be `an enhanced capital
sufficiency structure expected to cultivate a solid accentuation on hazard the board and to
empower progressing upgrades in banks' hazard appraisal capacities'. It likewise looks to give
a `level playing field' for universal rivalry and endeavors to guarantee that its usage keeps up
the total administrative capital prerequisites as acquiring under the current accord. The new
structure intentionally incorporates motivating forces for utilizing further developed and
modern methodologies for hazard estimation and endeavors to adjust the administrative cash-
flow to inner hazard estimations of banks subject to supervisory survey and market exposure.

Minimum Capital Requirements
There is a need to look at proposed changes in the measurement of credit risk and operational

Credit Risk
Three alternate approaches for measurement of credit risk have been proposed. These are:
• Standardised
• Internal Ratings Based (IRB) Foundation
• Internal Ratings Based (IRB) Advanced
The standardised approach is similar to the current accord in that banks are required to slot
their credit exposures into supervisory categories based on observable characteristics of the
exposures (e.g. whether the exposure is a corporate loan or a residential mortgage loan). The
standardised approach establishes fixed risk weights corresponding to each supervisory
category and makes use of external credit assessments to enhance risk sensitivity compared
to the current accord. The risk weights for sovereign, inter-bank, and corporate exposures are
differentiated based on external credit assessments. An important innovation of the
standardised approach is the requirement that loans considered `past due’ be risk weighted at
150 per cent unless, a threshold amount of specific provisions has already been set aside by
the bank against that loan.
Credit risk mitigants (collaterals, guarantees, and credit derivatives) can be used by banks
under this approach for capital reduction based on the market risk of the collateral instrument
or the threshold external credit rating of recognised guarantors.

Reduced risk weights for retail exposures, small and medium size enterprises (SME) category
and residential mortgages have been proposed. The approach draws a number of distinctions
between exposures and transactions in an effort to improve the risk sensitivity of the resulting
capital ratios.

The IRB approach uses banks’ internal assessments of key risk drivers as primary inputs to
the capital calculation. The risk weights and resultant capital charges are determined through
the combination of quantitative inputs provided by banks and formulae specified by the
Committee. The IRB calculation of risk weighted assets for exposures to sovereigns, banks,
or corporate entities relies on the following four parameters:

 Probability of default (PD), which measures the likelihood that the borrower will
default over a given time horizon.
 Loss given default (LGD), which measures the proportion of the exposure that will
be lost if a default occurs.
 Exposure at default (EAD), which for loan commitment measures the amount of the
facility that is likely to be drawn in the event of a default.
 Maturity (M), which measures the remaining economic maturity of the exposure.

Operational Risk
Within the Basel II framework, operational risk is defined as the risk of losses resulting from
inadequate or failed internal processes, people and systems, or external events.
Operational risk identification and measurement is still in an evolutionary stage as
compared to the maturity that market and credit risk measurements have achieved.
As in credit risk, three alternate approaches are prescribed:
• Basic Indicator
• Standardised
• Advanced Measurement (AMA)

Supervisory Review Process

Pillar 2 introduces two critical risk management concepts: the use of economic capital, and
the enhancement of corporate governance, encapsulated in the following four principles:

• Principle 1: Banks should have a process for assessing their overall capital adequacy in
relation to their risk profile and a strategy for maintaining their capital levels.

The key elements of this rigorous process are:

• Board and senior management attention;

• Sound capital assessment;

• Comprehensive assessment of risks;

• Monitoring and reporting; and

• Internal control review.

• Principle 2: Supervisors should review and evaluate banks’ internal capital adequacy
assessments and strategies, as well as their ability to monitor and ensure their compliance
with regulatory capital ratios. Supervisors should take appropriate supervisory action if
they are not satisfied with the result of this process.

This could be achieved through:

• On-site examinations or inspections;

• Off-site review;

• Discussions with bank management;

• Review of work done by external auditors; and

• Periodic reporting.

• Principle 3: Supervisors should expect banks to operate above the minimum regulatory
capital ratios and should have the ability to require banks to hold capital in excess of the

• Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from
falling below the minimum levels required to support the risk characteristics of a
particular bank and should require rapid remedial action if capital is not maintained or

Prescriptions under Pillar 2 seek to address the residual risks not adequately covered under
Pillar 1, such as concentration risk, interest rate risk in banking book, business risk and
strategic risk. `Stress testing’ is recommended to capture event risk. Pillar 2 also seeks to
ensure that internal risk management process in the banks is robust enough. The combination
of Pillar 1 and Pillar 2 attempt to align regulatory capital with economic capital

Market Discipline
The focus of Pillar 3 on market discipline is designed to complement the minimum capital
requirements (Pillar 1) and the supervisory review process (Pillar 2). With this, the Basel
Committee seeks to enable market participants to assess key information about a bank’s risk
profile and level of capitalization—thereby encouraging market discipline through increased
disclosure. Public disclosure assumes greater importance in helping banks and supervisors to
manage risk and improve stability under the new provisions which place reliance on internal
methodologies providing banks with greater discretion in determining their capital needs.


The purpose of research is to discover answers to the questions through the application of
scientific procedures. The main aim of research is to find out the truth which is hidden and
which has not been discovered as yet. Though each research study has its own specific
purpose, we may think of research objectives as falling into a number of following broad
 To gain familiarity with a phenomenon or to achieve new insights into it.
 To portray accurately the characteristics of a particular individual, situation or a
 To determine the frequency with which something occurs or with which it is
associated with something else.
 To test a hypothesis of a casual relationship between variables.

Research approach is an approach to deliberately take care of the exploration issue. It might
be comprehended as an art of concentrate how inquire about is done experimentally. In it we
contemplate the different advances that are for the most part embraced by a scientist in
concentrate his exploration issue alongside the rationale behind them.

Research procedure has numerous measurements and research techniques do establish a piece
of the examination philosophy. The extent of research technique is more extensive than that
of research strategies. Along these lines, when we discuss look into system we discussion of
the exploration strategies as well as consider the rationale behind the techniques we use with
regards to our examination ponder and clarify why we are utilizing a specific strategy or
method and why we are not utilizing others so inquire about outcomes are equipped for being
assessed either by the scientist himself or by others. Why an examination think about has
been attempted, what information have been gathered and what specific strategy has been
received, why specific system of breaking down information has been utilized and a large
group of comparable other inquiry are normally addressed when we discuss investigate
procedure concerning an exploration issue or study.
Research is regularly depicted as dynamic; tenacious and methodical procedure of request
went for finding, deciphering and reexamining realities. This scholarly examination delivers a
more noteworthy comprehension of occasions, practices or hypotheses and makes reasonable
application through laws and speculations. At the end of the day we can state, the motivation
behind research is to find answers to the inquiries through the utilization of logical strategies.
The fundamental point of research is to discover reality which is covered up and which has
not been found so far.

Research strategy is an approach to deliberately take care of the examination issue. It might
be comprehended as a study of concentrate how investigate is done logically. In it we
consider the different advances that are by and large embraced by an analyst in concentrate
his examination issue alongside the rationale behind them.

The research methodology means the way in which we would complete our
prospected task. Before undertaking any task it becomes very essential for any one to
determine the problem of study. I have adopted the following procedure in completing my
study report.
1. Formulating the problem
2. Research design
3. Determining the data sources
4. Analysing the data
5. Interpretation
6. Preparing research report

1) Formulating the Problem

I am interested in the banking sector and I want to make my future in the banking
sector so decided to make my research study on the banking sector. I analysed first the
factors that are important for the banking sector and I came to know that providing credit
facility to the borrower is one of the important factors as far as the banking sector is
concerned. On the basis of the analysed factor, I felt that the important issue right now as far
as the credit facilities are provided by bank is non performing assets. I started knowing about
the basics of the NPAs and decided to do study on the NPAs. So, I choose the topic “A
Comparative Study of Non Performing Assets” with special reference to State bank Of India.
(2) Research Design
The research design tells about the mode with which the entire project is prepared.
My research design for this study is basically descriptive. Because, I have utilized the large
number of data of the banks

Enlightening exploration incorporates studies and certainty discovering enquiries of various

types. The significant motivation behind engaging examination is depiction of the situation,
as it exists at present. The fundamental normal for this technique is that the analyst has no
power over the factors; he can just report what has occurred or what is going on. It is
additionally called as ex post facto look into. Most ex post facto inquire about ventures are
utilized for engaging investigations in which scientist tries to gauge such things as, recurrence
of shopping, inclinations of individuals, or comparable information.

Descriptive research also includes attempts by the researcher to discover causes even when
they cannot control the variables. The methods of research utilized in descriptive research are
survey methods of all kinds.

Why descriptive research?

In this case descriptive study was most suitable because it helped in giving focus to the
preferences, knowledge, beliefs & satisfaction of a group of people in a given population and
characteristics of the successful and unsuccessful companies. Moreover it helped in
determining the relationships between two or more variables.

(3) Determining the Data Source

The data source can be primary or secondary. The primary data are those for data
which are used for the first time in the study. However such data take place much time and
are also expensive. Whereas the secondary data are those data which are already available in
the market. These data are easy to search and are not expensive too. For my study I have
utilized totally the secondary data. Which is raw in state I analysed this data for my research

Source of Secondary Data

 Annual reports of banks
 Reports of RBI
 Internet
 Books etc.

Data generated by the comparison of banks:

For this purpose I compare following facts or data of banks
 Comparison of credit growth with GNPA and NNPA
 Between credit growth and repo rate
 Comparison of unsecured loans
 Comparison of deposit growth
 Comparison of provision coverage

(4) Analysing the Data

The primary data would not be useful until and unless they are well edited, tabulated
and analysed. When the person receives the primary data many unuseful data would also be
there. So, I analysed the data and edited them and turned them in the useful tabulations. So,
that it can become useful in my report.

As no study could be successfully completed without proper tools and techniques, same with
my project. For the better presentation and right explanation I used tools of statistics and
computer very frequently. And I am very thankful to all those tools for helping me a lot.

Basic tools which I used for project from statistics are-

- Bar Charts
- Pie charts
- Tables

(5) Interpretation of the Data

With use of analysed data I managed to prepare my project report. But the analysing
of data would not help the study to reach towards its objectives. The interpretation of the data
is required so that the others can understand the crux of the study in more simple way without
any problem so I have added the chapter of analysis that would explain others to understand
my study in simpler way. In this segment I interpret my findings in the form of graphs and

(6) Project Writing

This is the last step in preparing the project report. The objective of the report writing was to
report the finding of the study to the concerned authorities.
Financial of SBI Bank
Performance Review – Quarter ended December 31, 2016
• Profit after tax of Rs. 1,272 crore; 25% increase over second quarter
• 23% year-on-year increase in operating profit for the quarter ended December 31, 2016
• Strong capital adequacy ratio of 15.6%; highest among large Indian banks
• 19% year-on-year reduction in costs due to cost rationalization measures

Capital adequacy
The Bank’s capital adequacy at December 31, 2016 as per Reserve Bank of India’s revised
guidelines on Basel II norms was 15.6% and Tier-1 capital adequacy was 12.1%, well above
RBI’s requirement of total capital adequacy of 9.0% and Tier-1 capital adequacy of 6.0%.

Asset quality
At December 31, 2015, the Bank’s net non-performing asset ratio was 1.95% on an
unconsolidated basis. The consolidated net NPA ratio of the Bank and its subsidiaries was
1.6%. The specific provisions for nonperforming assets (excluding the impact of farm loan
waiver) were Rs. 868 crore (US$ 185 million) in Q2-2016 compared to Rs. 878 crore (US$
187 million) in Q1-2016.
 Consolidated net NPA ratio of the Bank and its subsidiaries at 1.6%

 Gross retail NPLs of Rs. 69.57 bn and net retail NPLs of Rs. 26.77 bn at September
30, 2015

 Unsecured products constitute 57% of net retail NPLs

Dec Mar Sep Dec 31,2016 y-o-y
31,2015 31,2016 30,2016 growth

Cash & bank balances 310.02 380.41 356.13 270.83 (12.6)%

Investments 1053.12 1114.54 971.48 1065.38 1.2%

Of which: equity 71.19 81.34 99.93 111.02 55.9%

investment in

Advances 2155.17 2256.16 2219.85 2125.21 (1.4)%

Fixed & other Assets 248.69 246.84 302.25 282.67 13.7%

Total Assets 3767.00 3997.95 3849.70 3744.10 (0.6)%

Balance Sheet: Liabilities (Rs. In billion)

Dec 31,2015 Mar 31,2016 Sep 30,2016 31-Dec-16 Y-o-y growth

Net worth 465.14 464.7 486.45 500.35 7.60%

Equity capita 11.12 11.13 11.13 11.13 -

Reserve 454.01 453.57 475.32 489.22 7.8%

Preference capital 3.50 3.50 3.50 3.50 0.0%

Deposits 2297.79 2444.31 2234.02 2090.65 9.0%

Total borrowings 816.27 863.99 948.49 990.69 21.4%

of-which-overseas 469.7 514.86 592.68 578.49 23.2%

other liabilities 184.3 221.45 177.25 158.91 13.8%

Total liabilities 3767.00 3997.95 3849.7 3744.1 0.6%

Items 2012- 2013- 2014- 2015- 2016- Group All Banks'
13 14 15 16
Average 17 Average
2016-17 2016-17
No. of offices 419 515 569 716 1268 359 795
No. of employees 13609 18029 25384 33321 40686 7232 11573
Business per 1010. 880.0 905.0 1027. 1008. 717.52 634.09
employee (in Rs. 00 0 0 00 00
Profit per employee 12.00 11.00 10.00 9.00 10.00 5.72 4.67
(in Rs. lakh)
Capital and 8360 12900 22556 24663 46820 3973 3994
reserves & surplus
Deposits 68109 99819 16508 23051 24443 29351 42026
3 0 1
Investments 43436 50487 71547 91258 11145 12096 14888
Advances 62648 91405 14616 19586 22561 22539 31355
3 6 6
Interest income 9002 9410 14306 21996 30788 3093 3919
Other income 3065 3416 4181 6928 8811 733 751
Interest expended 7015 6571 9597 16358 23484 2108 2633
Operating expenses 2571 3299 5001 6691 8154 881 977
Cost of Funds 3.59 3.02 4.01 5.34 6.40 6.13 5.81
Return on advances 6.94 5.75 4.58 4.08 4.33 4.87 4.11
adjusted to CoF
Wages as % to total 5.70 7.47 7.41 7.01 6.57 10.34 13.96
Return on Assets 1.31 1.48 1.30 1.09 1.12 1.15 1.16
CRAR 10.36 11.78 13.35 11.69 13.97 14.30 13.00
Net NPA ratio 2.21 1.65 0.72 1.02 1.55 1.09 1.00


I analysed the above banks on various parameters to find out how they are placed in terms of
business growth, efficiency and the comfort they provide in terms of their current financial
standing and business exposures.

The growth-related variables indicate the last 5-year CAGR banks achieved in advances and
deposits. It also carries a ranking of these banks in terms of their latest CASA ratio. Axis
Bank emerges as an out-performer in this category.

On efficiency-related parameters, the cost/income ratio, quality of advances and the extent of
loan loss-loss provision coverage have been reviewed, and banks have been accordingly

PNB leads the pack with high scores in each variable.

In the next segment, certain comfort-related yardsticks have been compared. Capital-raising
by banks to bolster future growth, real estate exposure and overseas dependence for the
business have been compared. Although PNB did not raise any fresh capital and ranks last on
that metric, it ranks as the best bank with lower real estate and foreign exposure, which is
critical during a global economic slowdown. Also, we analysed banks that generate the
maximum core interest income as a proportion of total income. SBI Bank and Axis Bank
have greater proportions of their income coming from 'other income' and these segments
might have greater tendency to show slower growth in the current scenario. A detailed
analysis of the above parameters is presented in the ensuing paragraphs.
The chart below shows that the last 5 years loan growth achieved by India's major banks.
HDFC Bank showed consistent growth over the last 3 years (even though it shows a slight
falling trend in the 5-year chart). Axis Bank achieved a high compounded annual growth
during this period, followed by SBI Bank.

Loan growth CAGR (from FY12 to FY16)

In terms of the deposit growth (CAGR) achieved by these banks during the last 5 years, Axis
Bank and HDFC Bank retain top two slots as seen in loan growth. SBI Bank registered a
deposit growth of just 6% in FY16. This was in sharp contrast to the 40% growth the bank
achieved in the 4 years before FY16.

Deposits growth CAGR (from FY12 to FY16)

43% 20% 20% 35% 38% 17% 14%
Unsecured loans primarily include personal loans and credit card exposures, priority sector
lending in rural areas, education loans, credits to SMEs (small and medium entrepreneurs) up
to Rs 5 lakh, etc. Exposure of Indian banks towards unsecured loans rose consistently over
the years. As shown in the chart below, ICICI Bank has the highest, with around 30% of its
total loans exposed to such loans.
Though there is no direct correlation between loan losses and unsecured loan exposure, in an
economic slowdown scenario, such exposure will carry a greater stress, and hence, a higher
probability of default. Banks need to be extremely vigilant in terms of monitoring these loans
regularly, so that losses in the form of NPAs do not increase unreasonably and dent the
quality of the loan book.

However, a review of the gross NPA ratio, i.e., GNPA as a percentage of advances indicates
that HDFC Bank and other banks have ensured that the NPA increase is proportionate to that
of the loan growth. In fact, PSU banks have shown tremendous improvement in terms of loan
quality, as the GNPA ratio for these banks fell from average 8-9% levels to less than 3%
levels in the last 5 years. Only SBI Bank has shown deterioration of its loan quality as
reflected in its increasing GNPA ratio. The main reason for this increase is that the bank has
substantial exposure to the retail segment, including huge exposure to the real estate segment
at almost 36% of total loans that includes close to 30% exposure in the form of housing loans.
The retail segment constitutes close to 75% of SBI Bank's NPAs.


Total loan book: Rs. 2,125 bn Total retail loan book: Rs. 1,145 bn

Gross NPA is the ratio of gross NPA to gross advances of the bank. Gross NPA is the
sum of all loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be
counted in terms of percentage and the formula for GNPA is as follows:

Gross NPA ratio = gross NPA/Gross advances *100

The table above indicates the quality of the credit portfolio of the banks. High gross NPA
ratio indicates the low credit portfolio of bank and vice-versa.

Gross NPA of all the banks decrease from year 2013 to 2014. But from year 2014 onwards it
starts increasing. Similiary, GNPA of SBI bank first decrease to 1.5% from 4.7 in year 2015.
But than increasees to the level of 4.14 % in December 2016.
The Net NPA ratio is the ratio of net NPA to advances, in which the provision is to be
deducted from the gross advance. The provision is to be made for NPA account. The formula
for that is:

Net NPA Ratio = Gross NPA-provision / Gross Advances- provision * 100

The ratio indicates the degree of risk in the portfolio of the banks. High NPA ratio indicates
the high quantity of risky assets in the banks for which no provision are made.

Here, NNPA ratio decrease from year 2012 to 2017. But in last two years NNPA ratio
increase little bit due to global meltdown. Same is the case with SBI Bank. Whose NNPA
ratio decreases to 72% in year 2014 from 3.5% in year 2012. But it increases to 1.95% in
December 2016.
Capital adequacy ratio can be defined as ratio of the capital of the bank, to its assets,
which are weight/adjusted according to risk attached to them i.e.

Capital Adequacy Ratio = capital / risk weighted assets * 100

As per prudential norms banks were required to achieve 8% CAR, increased to 9% by March

It is clear from the graph that in last few year CAR increases which indicates that indian
banks are in more strong position than theiar counter parts in rest of the world.

SBI bank also maintains good CAR than required as per norms. Which shows that despite of
exposure of global melt down health of SBI remains unaffect.
In terms of control over costs, the below table explains cost/income ratios of these banks over
the last 5 years. At the end of FY16, all banks have a similar cost/income ratio averaging
between 48- 50%. However, Bank of India has substantially lower cost-to-income ratio of
A not-so-encouraging sign in terms of NPA management of Indian banks is the fact that the
loan loss coverage ratio for banks as a group has reduced over the last 2 years. From 60%
levels, the coverage ratio has fallen to around 55%.
In terms of provision coverage for specific banks, Axis Bank has a low coverage ratio in the
private bank group at around 50%, and the SBI has a ratio of 42%, the lowest in PSU banks
in the comparison chart below.

Provision Coverage for Specific banks

Basel II Disclosures

Q1-FY 2017

Capital adequacy as at December 31, 2016 (Standalone)

INR in billions, except ratios
Tier - 1 capital
Tier - 2 capital
Total capital funds of the Bank
Total capital reqiured
Tier - 1 capital adequacy ratio
Total capital adequacy ratio

Table 14 Rupees in billion
Risk area Amount
Credit risk 310.61
Market risk 18.35
Operational risk 18.51
Total capital requirement at 9% 347.47
Total capital funds of the Bank 540.79
Total risk weighted assets 3,860.87
Capital adequacy ratio 14.01%



The issue of Non-Performing Assets (NPAs) in the monetary division has been a zone of
worry for all economies and decrease in NPAs has turned out to be synonymous with
practical proficiency of money related mediators. In spite of the fact that NPAs are an asset
report issue of individual banks and monetary establishments, it has more extensive
macroeconomic ramifications. It is imperative that, if goals systems for recuperation of duty
from NPAs are not set up rapidly and effectively, these advantages would break down in an
incentive after some time and just piece esteem would be acknowledged toward the end. It
should, be that as it may, be remembered that NPAs are a fundamental piece of the business
money related part and the players are in as they are in the matter of going out on a limb and
their income mirror the hazard they take. They work in a situation, where there would be
defaults and also decay in portfolio esteem, as market developments can never be anticipated
with assurance. It is in this unique circumstance, that nations have embraced administrative
measures and the controlling structure has been given by the Basel rules.

There are different explanations behind resources turning non-performing and there can be
elective goals techniques. Distinguishing proof of the reasons and convenient activity are the
way to enhanced benefit of money related division middle people. In this unique
circumstance, the subtle elements of the CAMEL demonstrate that RBI presented for
assessing execution of banks and the requirement for this emerged from the foundational age
of extensive volume of NPAs. CAMEL covers capital sufficiency, resource quality, the
executives quality, profit capacity and liquidity.

Indian economy and NPAs

Undoubtedly the world economy has slowed down, recession is at its peak, globally stock
markets have tumbled and business itself is getting hard to do. The Indian economy has been
much affected due to high fiscal deficit, poor infrastructure facilities, sticky legal system,
cutting of exposures to emerging markets by FIIs, etc.

Further, international rating agencies like, Standard & Poor have lowered India's credit rating
to sub-investment grade. Such negative aspects have often outweighed positives such as
increasing forex reserves and a manageable inflation rate.Under such a situation, it goes
without saying that banks are no exception and are bound to face the heat of a global
downturn. One would be surprised to know that the banks and financial institutions in India
hold non-performing assets worth Rs. 1,10,000 crores.
Global Developments and NPAs
The center keeping money business is of activating the stores and using it for loaning to
industry. Loaning business is by and large supported in light of the fact that it has the impact
of assets being exchanged from the framework to beneficial purposes which results into
monetary development.

Anyway loaning additionally conveys credit chance, which emerges from the disappointment
of borrower to satisfy its legally binding commitments either over the span of an exchange or
on a future commitment.

An inquiry that emerges is how much hazard can a bank stand to take ? On the off chance that
after case, these goliath corporates wound up bankrupt and neglected to furnish financial
specialists with clearer and more entire data in this way presenting a level of hazard that
numerous speculators could neither envision nor welcome. The historical backdrop of
monetary establishments additionally uncovers the way that the greatest saving money
disappointments were because of credit chance.

Because of this, banks are limiting their loaning tasks to anchored roads just with satisfactory
security on which to fall back upon in a circumstance of default.

Execution as far as gainfulness is a benchmark for any business endeavor including the
saving money industry. In any case, expanding NPAs directly affect banks productivity as
lawfully banks are not permitted to book pay on such records and in the meantime banks are
compelled to make arrangement on such resources according to the Reserve Bank of India
(RBI) rules.

Hold Bank of India (RBI) has issued rules on provisioning necessity regarding bank
progresses. Regarding these rules, bank propels are chiefly arranged into
Standard Assets: Such an asset is not a non-performing asset. In other words, it carries not
more than normal risk attached to the business.

Sub-standard Assets: Which has remained NPA for a period less than or equal to 12 months.
Doubtful Assets: This has remained in the sub-standard category for a period of 12 months
.Loss Assets: Here loss is identified by the banks concerned or by internal auditors or by
external auditors or by Reserve Bank India (RBI) inspection.

In terms of RBI guidelines, as and when an asset becomes a NPA, such advances would be
first classified as a sub-standard one for a period that should not exceed 12 months and
subsequently as doubtful assets.
It should be noted that the above classification is only for the purpose of computing the
amount of provision that should be made with respect to bank advances and certainly not for
the purpose of presentation of advances in the banks balance sheet.

Standard Assets – general provision of a minimum of 0.25%

Substandard Assets – 10% on total outstanding balance, 10 % on unsecured exposures

identified as sub-standard & 100% for unsecured “doubtful” assets.

Doubtful Assets – 100% to the extent advance not covered by realizable value of security. In
case of secured portion, provision may be made in the range of 20% to 100% depending on
the period of asset remaining sub-standard

Loss Assets – 100% of the outstanding

Management of NPA
During initial sage the percentage of NPA was higher. This was due to show ineffective
recovery of bank credit, lacuna in 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 Wilful 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 recovery of their funds
Reporting of Frauds to RBI
Norms of Lender’s Liability – framing of Fair Practices Code with regard to lender’s
liability 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 wilful 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 reference 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


Compromise Settlement Schemes
Restructuring / Reschedulement
Lok Adalat
Corporate Debt Restructuring Cell
Debt Recovery Tribunal (DRT)
Proceedings under the Code of Civil Procedure
Board for Industrial & Financial Reconstruction (BIFR)/ AAIFR
National Company Law Tribunal (NCLT)
Sale of NPA to other banks
Sale of NPA to ARC/ SC under Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act 2002 (SRFAESI)

The description for these points are below

1. Restructuring and Rehabilitation
a. Banks are free to design and implement their own policies for restructuring/
rehabilitation of the NPA accounts

b. Reschedulement of payment of interest and principal after considering the Debt

service coverage ratio, contribution of the promoter and availability of security
2. Corporate Debt Restructuring
a. The objective of CDR is to ensure a timely and transparent mechanism for
restructuring of the debts of viable corporate entities affected by internal and external
factors, outside the purview of BIFR, DRT or other legal proceedings
b. The legal basis for the mechanism is provided by the Inter-Creditor Agreement (ICA).
All participants in the CDR mechanism must enter the ICA with necessary
enforcement and penal clauses.
c. The scheme applies to accounts having multiple banking/ syndication/ consortium
accounts with outstanding exposure of Rs.10 crores and above.
d. The CDR system is applicable to standard and sub-standard accounts with potential
cases of NPAs getting a priority.
e. Packages given to borrowers are modified time & again
f. Drawback of CDR – Reaching of consensus amongst the creditors delays the process

3. DRT Act
a. The banks and FIs can enforce their securities by initiating recovery proceeding under
the Recovery if Debts due to Banks and FI act, 1993 (DRT Act) by filing an
application for recovery of dues before the Debt Recovery Tribunal constituted under
the Act.
b. On adjudication, a recovery certificate is issued and the sale is carried out by an
auctioneer or a receiver.
c. DRT has powers to grant injunctions against the disposal, transfer or creation of third
party interest by debtors in the properties charged to creditor and to pass attachment
orders in respect of charged properties
d. In case of non-realization of the decreed amount by way of sale of the charged
properties, the personal properties if the guarantors can also be attached and sold.
e. However, realization is usually time-consuming
f. Steps have been taken to create additional benches

4. Proceeding under Code of Civil Procedure

a. For claims below Rs.10 lacs, the banks and FIs can initiate proceedings under the
Code of Civil Procedure of 1908, as amended, in a Civil court.
b. The courts are empowered to pass injunction orders restraining the debtor through
itself or through its directors, representatives, etc from disposing of, parting with or
dealing in any manner with the subject property.
c. Courts are also empowered to pass attachment and sales orders for subject property
before judgment, in case necessary.
d. The sale of subject property is normally carried out by way of open public auction
subject to confirmation of the court.
e. The foreclosure proceedings, where the DRT Act is not applicable, can be initiated
under the Transfer of Property Act of 1882 by filing a mortgage suit where the
procedure is same as laid down under the CPC.


a. BIFR has been given the power to consider revival and rehabilitation of companies
under the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA), which
has been repealed by passing of the Sick Industrial Companies (Special Provisions)
Repeal Bill
b. The board of Directors shall make a reference to BIFR within sixty days from the date
of finalization of the duly audited accounts for the financial year at the end of which
the company becomes sick
c. The company making reference to BIFR to prepare a scheme for its revival and
rehabilitation and submit the same to BIFR the procedure is same as laid down under
the CPC.
d. The shelter of BIFR misused by defaulting and dishonest borrowers
e. It is a time consuming process


a. 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
b. The NPA must be held by the purchasing bank at least for a period of 15 months
before it is sold to other banks but not to bank, which originally sold the NPA.
c. The NPA may be classified as standard in the books of the purchasing bank for a
period of 90 days from date of purchase and thereafter it would depend on the record
of recovery with reference to cash flows estimated while purchasing
d. The bank may purchase/ sell NPA only on without recourse basis
e. 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.

a. SARFESI provides for enforcement of security interests in movable (tangible or
intangible assets including accounts receivable) and immovable property without the
intervention of the court
b. The bank and FI may call upon the borrower by way of a written legal notice to
discharge in full his liabilities within 60 days from the date of notice, failing which
the bank would be entitled to exercise all or any of the rights set out under the Act.
c. Another option available under the Act is to takeover the management of the secured
d. Any person aggrieved by the measures taken by the bank can proffer an appeal to
DRT within 45 days after depositing 75% of the amount claimed in the notice.
e. Chapter II of SARFESI provides for setting up of reconstruction and securitization
companies for acquisition of financial assets from its owner, whether by raising funds
by such company from qualified institutional buyers by issue of security receipts
representing undivided interest in such assets or otherwise.
f. The ARC can takeover the management of the business of the borrower, sale or lease
of a part or whole of the business of the borrower and rescheduling of payments,
enforcement of security interest, settlement of dues payable by the borrower or take
possession of secured assets
g. Additionally, ARCs can act as agents for recovering dues, as manager and receiver.
h. Drawback – differentiation between first charge holders and the second charge

8. Second Amendment & SARFESI

a. The second amendment and SARFESI are a leap forward but requirement exists to
make the laws predictable, transparent and affordable enforcement by efficient
mechanisms outside of insolvency
b. No definite time frame has been provided for various stages during the liquidation
c. Need is felt for more creative and commercial approach to corporate entities in
financial distress and attempts to revive rather than applying conservative approach of
d. Tribunals have largely failed to serve the purpose for which they were set up. NCLT
would be over-burdened with workload. Change in eligibility criteria for making a
reference would itself generate a greater workload.
e. The second amendment stops short of providing a comprehensive bankruptcy code to
deal with corporate bankruptcy.
f. Does not introduce the required roadmap of the bankruptcy proceeding viz:
Application for initiating
Appointments & empowerment of trustee
Operational and functional independence
Accountability to court
Monitoring and time bound restructuring
Mechanism to sell off
Number of time bound attempts for restructuring
Decision to pursue insolvency and winding up
Strategies for realization and distribution
g. Need for new laws & procedures to handle bankruptcy proceedings in consultation
with RBI

Perceived Impact
Adapting to Basel II will be more demanding for some institutions than for others, based on
factors including current risk management practices, business size, geographical spread, risk
types, specific business, portfolio, and market conditions

Impact on various entities in financial markets

Aside from banks and controllers, who are straightforwardly influenced by Basel II, clients,
rating organizations, capital markets and other money related organizations (outside the
extent of Basel II) will likewise be influenced. Banks should execute an endeavor wide
hazard the board structure, which will involve building up pertinent procedures and
assembling, incorporating and dissecting vast measure of information. Utilizing quantitative
strategies to oversee chance - and to convey capital dependent on dangers - requires high
caliber and high recurrence information.

Clients will find that they need to adapt to expanded requests for convenient data from banks
that are on IRB approaches. Hazard based valuing of credit items will turn into the standard
as banks start separating clients according to their hazard profiles. More dangerous borrowers
are probably going to discover their acquiring costs going up as well as credit lines taken care

Rating offices may confront more rivalry as the market for them will extend and develop,
which will be a driver for them to be more straightforward in their rating procedure.

Great quality appraised corporates will favor capital markets to banks for their financing.
Securitisation and credit subordinates will progressively be utilized as credit hazard
supporting apparatuses.

Basel II is additionally prone to affect money related organizations that don't need to conform
to it. Non-saving money enterprises, for example, Visa organizations, renting organizations,
car makers and agents, or retailers' financing arms might not need to satisfy the conceivably
broad revelation prerequisites endorsed by Basel II nor make interests in overseeing
operational hazard, which will put them at an upper hand opposite banks.
Impact on emerging markets and smaller banks
In an attempt to assess the impact of Pillar 1 requirements of capital adequacy, BCBS did
undertake a few quantitative impact surveys (QIS), the last of which is referred to as QIS-3.
The results indicated that, in general, banks’ required capital will decrease with respect to
credit risks and increase with respect to operational risks. However, in Asia and other
emerging markets, several factors may raise the required capital even for credit risks, as real
estate continues to be widely used as collateral for business loans, and the standardised
approach, which is the most likely approach for many banks, places a 150 per cent risk
weight on non-performing loans. Basel II will increase the level of capital that is required for
banking institutions in the emerging markets, mainly owing to the new operational risk
charge, which will be higher if the basic indicator approach is used.
By application of differential risk weights on the basis of sovereign rating as a benchmark,
the capital inflows in emerging markets could be seriously affected as most of the borrowers
in such markets will be categorised under the speculative grade.

Smaller banks would find the investments on Basel II compliance too big for their existing
After all these points, I just want to say that NPA is a big problem of banks. Due to this crisis

the NPA are also increased. That’s why all the banks are facing problems and SBI Bank is top

most in those banks, SBI Bank has a big exposure in that crisis as compare to other banks. So

banks have to take care of those banks.

My Recommendations are:

1. Strengthening provision norms and loan classification standards based on

forward looking criteria (like future cash flows) were implemented.

2. Through securitization they can reduce NPA

3. Speed of action- the speedy containment of systematic risk and the domestic

credit crunch problem with the injection of large public fund for bank

recapitalization are critical steps towards normalizing the financial system.

4. Strengthening legal system

5. Maintain required capital adequacy ratio as per basel 2 norms. That means

now the provision for NPL will be more. This may look a conservative

approach. But it should be implemented to reduce risk.

6. Modification in accounting system

7. Use the concept of credit derivative

8. Aligning of prudential norms with international standard.

 Pandey I M , financial management, Vikas publication, new Delhi
 Khan M Y and K Jain “management accounting: Tata Mcgraw-Hill Publishing
Company Limited, New Delhi
 Malhotra Naresh, Marketing Research
 Annual reports of ICICI bank from year 2012 to 2017
 Annual reports of HDFC from year 2012 to 2017
 Annual reports of SBI from year 2012 to 2017
 Annual reports of Bank of Boarda from year 2012 to 2017
 Annual reports of Bank of India from year 2012 to 2017
 Research paper of Prasanta K Reddy
 in india