Non Performing Assets (Npa) Essay Example For Students

Non Performing Assets (Npa) Essay INTRODUCTION The core banking business is of mobilizing the deposits and utilizing it for lending to industry. Lending business is generally encouraged because it has the effect of funds being transferred from the system to productive purposes which results into economic growth. The debtor take the funds from the bank in the form of credit and he have to payback the principle amount with the interest to the creditor as a result the creditor (Bank)gets the profit in the form of interest and again this profit is reinvested leading to the growth of the economy. However lending also carries credit risk, which arises from the failure of borrower to fulfill its contractual obligations either during the course of a transaction or on a future obligation. Due to non performance of the fund the financial institutions become bankrupt and failed to provide investors with clearer and more complete information thereby introducing a degree of risk that many investors could neither anticipate nor welcome. The Financial companies and institutions are nowadays facing a major problem of managing the Non Performing Assets (NPA) as these assets are proving to become a major setback for the growth of the economy. Undoubtedly, the world economy has slowed down. Globally stock markets have tumbled and business itself is getting hard to do with the simple reason that the banks (creditor) money in the form of funds get blocked. Under such a situation, it goes without saying that banks are no exception and are bound to face the heat of a global downturn. NON PERFORMING ASSET Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI. An amount due under any credit facility is treated as past due when it has not been paid within 30 days from the due date. Due to the improvement in the payment and settlement systems, recovery climate, up gradation of technology in the banking system, etc. , it was decided to dispense with past due concept, with effect from March 31, 2001. Accordingly, as from that date, a Non performing asset (NPA) shell be an advance where; i. interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan, ii. he account remains out of order for a period of more than 180 days, in respect of an overdraft/ cash Credit(OD/CC), iii. the bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted, iv. interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and v. any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the 90 days overdue norm for identification of NPAs, form the year ending March 31, 2004. Accordingly, with effect form March 31, 2004, a non-performing asset (NPA) shell be a loan or an advance where; i. interest and /or installment 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. he bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, iv. interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural 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 An account should be treated as out of order if the outstanding balance remains continuously in excess of the sanctioned limit/ drawing power. In case where the outstanding balance in the principal operating account is less than the sanctioned limit/ drawing power, but there are no credits continuously for six months as on the date of balance sheet or credits are not enough to cover the interest debited during the same period, these account should be treated as out of order. Overdue Any amount due to the bank under any credit facility is overdue if it is not paid on the due date fixed by the bank. INCOME RECOGNITION 1. Income recognition Policy: The policy of income recognition has to be objective and based on the record of recovery. Internationally income from Non-performing assets (NPA) is not recognized on accrual basis but is booked as income only when it is actually received. Therefore, the banks should not charge and take to income account interest on any NPA. 2. Reversal of Income: a) If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the correspondence previous year, should be reversed or provided for if the same is not realised. ) In respect of NPAs, Fees, Commission and similar income that have accrued should have ceased to accrue in the current period and should be reversed or provided for with respect to past periods, if uncollected. c) Leased Assets: ? The net lease rentals on the leased asset accrued and credited in income account before he asset became non-performing should be reversed or provided for in the curr ent accounting period. ? The term ‘ net lease rentals’ would mean the amount of finance charge taken in the credit of Profit Loss Account and would be worked out as gross lease rentals adjusted by amount of Statutory Depreciation. 3. Reporting of NPAs : ? Banks are required to furnish a Report on NPAs as on 31st March each year after completion of audit. The NPAs would relate to the bank’s global portfolio, including the advances at the foreign branches. ? While reporting NPA figures to RBI, the amount held in interest suspense account, should be shown as a deduction from gross NPA as well as gross advances while arriving at the net NPAs. ASSET CLASSIFICATION Banks are required to classify Non-performing assets further into the following three categories based on the period for which the asset has remained Non-performing and the realization of dues: a) Sub-standard Assets ) Doubtful Assets c) Loss Assets Figure 1. 1: Classification of Assets a) Sub-standard Assets: A sub standard asset was one, which was classified as NPA for a period not exceeding two years. With effect from 31st March 2001, a sub-standard asset is one, which has remained NPA for a period less than or equal to 18 months. Such assets will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. b) Doubtful Assets: A doubtful asset was one, which remained NPA for a period exceeding two years. With effect from 31st March 2001, an asset is to be classified as doubtful, if it has remained NPA for a period exceeding 18 months. With effect from March 31, 2005, an asset would be classified as doubtful if it remained in the sub-standard category for 12 months. c) Loss Assets: A loss asset is one where the Bank or external Auditors or the RBI inspection has identified loss but the amount has not been written off wholly. In other words such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. GUIDELINES FOR CLASSIFICATION OF ASSETS 1. Classification of Assets: The assets should be classified into above categories taking into account the degree of well defined credit weaknesses and the extent of dependencies on collateral security for realization of dues. 2. Banks should establish appropriate internal systems: The internal systems should be established by banks to eliminate the tendency to delay or postpone the identification of NPAs, especially in respect of high value of accounts. 3. Account with temporary Deficiencies: The classification of an asset as NPA should be based on the record of recovery. Bank should not classify an advance account as NPA merely due to the existence of some deficiencies, which are temporary in nature as such as non-availability of adequate drawing power based on latest stock. 4. Asset classification to be borrower-wise and not facility-wise: It is difficult to envisage a situation when only one facility to a borrower becomes a problem credit and not others. Therefore, all the facilities granted by a bank to a borrower will have to be treated as NPA and not the particular facility or a part thereof, which has become irregular. 5. Advances under consortium arrangements: Asset classified of accounts under consortium should be based on the record of recovery of the individual member banks and other aspects having a bearing on the recoverability of the advances. 6. Accounts where there is erosion in the value of security: Erosion in the value of security can be reckoned as significant when the realizable value of the security is less than 50 percent of the value assessed by the bank or accepted by RBI at the time of last inspection, as the case may be. Such NPAs may be straightaway classified under doubtful category and provisioning should be made as applicable to doubtful assets. . Agricultural advances: a) In respect of advances granted for agricultural purpose where interest and/ or installment of principal remains unpaid after it has become past due for two harvest seasons but for a period not exceeding two half years, such an advance should be treated as NPA. b) Where the natural calamities impair the repaying capacity of agricultural borrowers, b anks may decide on their own as a relief measure-conversion of the short-term production loan into a term or re-schedulement of the repayment period. ) In such cases of conversion or re-schedulement, the term loan as well as fresh short-term loan may be treated as current dues and need not be classified as NPA. 8. Restructuring/ Rescheduling of Loans: A standard asset where the terms of the loan agreement regarding interest and principal have been renegotiated or rescheduled after the commencement of production should be classified as sub-standard and should remain in such category for at least one year of satisfactory performance under the renegotiated or restructured terms. In case of substandard and doubtful assets also, rescheduling does not entitle a bank to upgrade the quality of advances automatically unless there is satisfactory performance under the rescheduled/ renegotiated terms. 9. Exceptions: As trading involves only buying and selling of commodities and the problems associated with manufacturing units such as bottleneck in commercial production, time and cost escalation, etc. are not applicable to them, these guidelines will not be applied to restructuring/ rescheduling of credit facilities extended to traders. IMPORTANT COMMITTEES The Tandon Committee (1973) was the first committee in Indian Banking sector to set a proper quality wise grading system of advance portfolio. This was followed by the Chore Committee (1980) which was recognised the need for close watch on the quality of loan portfolio. Phendarkar Committee (1981) recognised the need for classifying advance into different categories to index the overall quality of asset portfolio. This was the starting point for the introduction of the health coding system of categorizing bank loan portfolio by the RBI in 1985. his 8 band concept of health coding of advance accounts from health code 1 to 8 was followed by a circular from RBI to Banks (1989), specifying the need to redefine the practise of charging the interest on loans and advances by the banks on new prudential criteria in line with international practises by ceasing to charge interest on Non performing advances. Narsihmam Committee submitted its first report on November 1991 an d gave more specific criteria for prudential norms of income recognition, asset classification, Provisioning and capital adequacy norms. Narsihmam Committee gave its second report in 1998. He strongly opposed the merger of strong banks with weak ones as this would cause in a negative impact on the asset quality of the stronger bank because of the contaminated portfolio of the weak banks. The committee has not made any suggestions to deal with the extremely high non-performing assets of Indian banks, but has suggested that the concept of an Asset Reconstruction Fund be considered. ASSET RECONSTRUCTION COMPANY The Government has proposed an initial paid-up capital of Rs 1,400 crore and an authorised capital of Rs 2,000 crore for the ARC. In view of the large equity base, the Government is keen to ensure the participation of the maximum number of institutional shareholders to cobble up the amount. The task of the ARC would be to buy out the bad assets of banks and FIs and make efforts for their recovery while compensating the lenders at a negotiated price for the assets taken over. The Government has been catalysing the setting up of the ARC within the existing legal framework. The Ministry of Finance is simultaneously processing a legislative Bill to provide the required legal backing to the entity in future to ensure its smooth functioning. While seeking multilateral support for the new company, the Government had initially approached all the three agencies — the World Bank, ADB and IFC — to explore their willingness to take an equity stake in what would be the countrys first ARC. PROVISIONING FOR NPAs Taking into account the time lag between account becoming doubtful of recovery, its recognition as such, the realization of the security and the erosion in the value of security over time charged to the banks, it has been advised by RBI that banks should make provisions against sub-standard assets, doubtful assets and loss assets, as under: ? Loss Assets – The entire assets should be written off, if the assets are permitted to remain in the books for many reason, 100% of the outstanding should be provided for. Doubtful Assets – 100%of the extent to which the advance is not covered by the realizable value of the security to which the bank has a valid recourse and the realizable value is estimated on a realistic basis. ? Sub – Standard Assets – A general provision of 10%of total of the outstanding. 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 18 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. The third schedule to the Banking Regulation Act, 1949, solely governs presentation of advances in the balance sheet. Banks have started issuing notices under the Securitization Act, 2002 directing the defaulter to either pay back the dues to the bank or else give the possession of the secured assets mentioned in the notice. However, there is a potential threat to recovery if there is substantial erosion in the value of security by the borrower or if the borrower has committed fraud. Under such a situation it will be prudent to directly classify the advance as a doubtful or loss asset, as appropriate. Reserve Bank of India (RBI) has merely laid down the minimum provisioning requirement that should be complied with by the concerned bank on a mandatory basis. However, where there is a substantial uncertainty to recovery, higher provisioning should be made by the bank concerned. Table 1. 1: Provisioning for NPAs |Sr. No. Categories |Days Past Due |Provisioning Requirements | |1 |Sub standard |   |10% | |2 |Doubtful |i) upto 1 yr |100% of unsecured + 20% of secured portion | |   |   |ii) 1 to 3 yr |100% of unsecured + 30% of secured portion | |   |   |iii) more than 3 yrs |100% of unsecured + 50% of secured portion | |3 |Loss |   |100% | Note: Implementation of the instructions requiring classif ication of substandard account into doubtful category after 12 months and 100 % provisioning for secured portion of doubtful assets of over 3 years would be deferred by three years. As such the banks should build up adequate provisions over this period to facilitate smooth transition. ADVANCES AND GENERAL INSTRUCTION In whatever form bank advances are granted, they are repayable on demand or at the expiry of some fixed period. Bill of exchange discounted are payable on maturity. Overdrafts and Cash Credits are legally repayable on demand, although the bank seldom exercises the right except in circumstances mentioned below. Loans are payable on the expiry of the periods for which they are granted. In case the loan is repayable in installments and default occurs in the payment of any installment, the entire loan usually becomes immediately recoverable at the option of the bank. Recalling of Advances Banks conduct a regular scrutiny of all the advances and ensure that timely action is taken in each case either for the continuance of the facility on the existing terms or with such modifications as may be considered necessary or for the recovery of the amount if it is decided not to continue the facility. Advances are usually called under the following circumstances: ? death of the borrower or the guarantor. ? Insolvency of the borrower or the guarantor. ? Dissolution of the partnership. ? Failure to renew the document sufficiently before the expiry of the period of limitation. ? Failure to adhere to the terms and conditions of the sanction in spite of bank’s repeated requests. Deterioration of the security. ? Deterioration of the financial position of the party. ? Change in the bank’s policy regarding certain types of advances. The bank may at any time decide to restrict against certain commodities because of their overproduction. ? There may also be other reasons fo r withdrawing the facility e. g. the law and order situation in a certain place is such that it may be risky to continue the advance there. In the cases stated above, the bank endeavors to recover the advance by making the formal demand and thereafter, if necessary, by putting pressure on the borrower or his legal representatives, as the case may be, with a threat of legal action. If there is a guarantor he is also called upon to adjust the account or have it adjusted by the principal. Much will however depend on the honesty of the purpose of the borrower and his legal position at that time. If he is already heading towards insolvency, any indulgence shown to him may further complicate matters for the bank. If the threat of litigation does not have the desired effect, the bank may consider filing a suit. It must however be remembered that the legal proceedings entail a good deal of delay and expenses and the results in the long run are generally not satisfactory. CAUSES FOR RISE IN NPA The RBI has summarized the finer factors contributing to higher level of NPAs in the Indian banking sector as: ? Physician-assisted Suicide Essay ThesisAfter the onset of banking sector reform in India, the Reserve Bank of India initiated a system of Prompt Corrective Action (PCA) with various trigger points and mandatory and discretionary responses by the supervising authority on a real time basis. The PCA framework relied on three major indicators of banking sector performance: Net Non Performing Asset (NPA), Capital-To-Risk-Weighted Assets Ratio (CRAR) and Return on Assets (ROA). The present paper seeked to combine the ratio approach adopted by the Reserve Bank of India with the Assurance Region based measure of technical efficiency to find out a composite Data Envelopment Analysis (DEA) based efficiency indicator of 28 observed commercial banks for 2002-03 to 2004-05. The results showed that the observed private sector commercial banks had higher mean technical efficiency score compared to those of the public sector commercial banks. Out of the 28 observed commercial banks considered for the study, six were found to be efficient. A study of the technical efficiency scores across ownership groups revealed that the observed private sector banks had higher mean technical efficiency scores compared to their public sector counterparts. Finally, most of the observed commercial banks exhibit decreasing returns to scale for the period under observation. Toby (2008) studied the Monetary Policy, Capital Adequacy Regulation and Banking System Soundness in Nigeria The purpose of this research was two-fold. First, the study was intended to determine the effects of bank liquidity management practices (monetary policy outcomes) on industry asset quality, measured with the proportion non-performing loans (npls) in the loans portfolio. Second, it investigated the effects of capital adequacy regulation on selected bank asset quality and efficiency measures. Relevant data were generated from the Central Bank of Nigeria (C. B. N. ) and Nigeria Deposit Insurance Corporation (N. D. I. C. ) official sources, including the balance sheets of selected Nigerian quoted banks. By the use of eight multiple regression equations, it was found that the use of the minimum liquidity ratio (MLR) is irrelevant in controlling industry NPAs. The objective of controlling banking sector liquidity in the Nigerian industry with the MLR may rather increase industry NPAs and culminate in high risk concentrations. The cash reserve ratio (CRR) was more effective tool in controlling the level of NPAs in the industry as a whole and the distressed banks in particular. As the ratio of equity to loans advances increases, we should expect the classified loans ratio to decrease and asset quality to rise, and vice versa. Under regimes of rising equity-to-total-assets (ETA) ratio, we should expect the loan loss reserves ratio to fall, and vice versa. Basak (2009) made an attempt to examine the working and financial performance of the Urban Cooperative Banks (UCBs) that cater to the credit needs of persons of small means. Though some UCBs had performed creditably in the recent years, a large number of them have shown discernible signs of weakness. The operational efficiency was unsatisfactory and characterized by low profitability, ever-growing Non-Performing Assets (NPAs) and relatively low capital base. The large-scale sickness in the UCBs had shaken the public confidence in cooperative banks. In this context, this study was conducted. To make the analysis simpler and presentable, the author took up the Contai Co-operative Bank Ltd. , one of the leading UCBs in West Bengal for a case study. The study was based on secondary data and other information provided by the bank in its published annual reports. The relevant data had been collected for the period from 1995-96 to 2006-07. This data had been analyzed with the help of statistical tools like ratios, percentages, averages and trend analysis, chi-square test, and multiple regression analysis. The objective of the study was to identify and analyze the trend, progress and problems of this bank, to throw light on the problems of swelling NPAs and to offer some meaningful suggestions for improving the efficiency and effectiveness of this bank. The perusal of review of literature revealed that number of studies had been conducted regarding NPAs. But in all these studies the main focus was mainly on the impact of non performing assets on the profitability of the concerns. Its focus remained on the issues related to the operational efficiency which is unsatisfactory with the ever growing nonperforming assets. Such areas like causes that convert the loan assets into NPAs and the remedies to control them were overlooked in the above researches. NEED OF STUDY The need of the study was to reduce the gap that was identified in the previous researches. The researches conducted earlier lay emphasis on the meaning of non performing assets and their performance. It showed that increase and decrease in non performing assets affects the performance and its cost and even affects the economies of scale. The areas like causes of NPAs and remedies to control them were ignored. Considering the ample importance of this aspect, the present study was conducted to know the existence of non performing assets in the banks and to find out the causes of their occurrence. On the basis of such causes, this study evaluated the measures that banks were adopting to manage it. SCOPE OF STUDY The scope of the research was to know about non performing assets present in banks. It included the meaning, types, causes, remedies, RBI regulations related to NPA. The respondents of the study were limited to Amritsar city and the sample size was 50 banks. OBJECTIVES OF STUDY . The study has been undertaken in order to achieve the following objectives: ? To know the number of NPA cases faced by banks. ? To know the reasons due to which loan assets are converted into NPAs. ? To know the remedies used by banks to control NPAs To evaluate the strategies followed by banks to manage NPAs. ? To suggest appropriate strategies to control NPAs. Research methodology is a way to systematically solve the research problem. The research methodology includes the various methods and techniques for conducting a research. Marketing research is the systematic design, collection, analys is and reporting of data and finding relevant solution to a specific marketing situation or problem. I. RESEARCH DESIGN: Research is, thus, an original contribution to the existing stock of knowledge making for its advancement. The purpose of research is to discover answers through the application of scientific procedures. This project has a specified framework for collecting data in an effective manner. Such framework is called â€Å"Research Design†. Type of Research This research is descriptive in nature because it is regarding the knowing of causes of non performing assets prevailing in banks and financial institutions. It includes survey that is conducted in order to gather the already existing information. It even describes the remedies taken by banks and financial institutions in controlling NPAs. II. SAMPLING DESIGN: Sample Universe – Universe refers to the total of the items or units in any field of inquiry. It refers to the geographical area that is covered while conducting the research. Universe for this project was all the banks operating in India. Sampling unit – The target population must be defined that has to be sampled. The sampling unit pertaining to this study was all the banks in Amritsar city. Sample size – This refers to number of respondents to be selected from the universe to constitute a sample. The sample size of 50 banks was taken. Sampling Technique – Convenience Sampling was used to select the sample. Convenient sampling is a non probability sampling technique that attempts to obtain a sample of convenient elements . In case of convenience sampling, the selection of sample depends upon the discretion of the interviewer. In this project, Questionnaire Method was used for the collecting the data. With the help of this method of collecting data, a sample survey was conducted. III. DATA COLLECTION AND ANALYSIS: †¢ Secondary sources: Secondary sources are those which are collected from the already published material. In this study secondary data was collected from books, journals and websites. †¢ Primary Data: Primary data are those which hare collected afresh and for the first time and thus happen to be original in character. In this study primary data was collected from respondents with the help of well structured questionnaire. IV. TOOLS OF PRESENTATION: Tables and figures were used to present the data. V. TOOLS OF ANALYSIS: The analysis was done by using percentages. LIMITATIONS OF STUDY It is said, â€Å"What is worth doing is worth doing best†. In other words a person should aim at perfection. However in real life this is not always possible. Human have to work within the limitation set by the nature and society. That is to say even though every possible effort has been made to make this project report authentic and comprehensive however many constraints were also at play. The major limitations of the study are:- ? Due to paucity of time and resources a countrywide survey was not possible. Hence only Amritsar city has been taken for the study. Since a smaller sample was chosen so it may not be a true representative of the population under study. ? The possibility of the respondent’s responses being biased cannot be ruled out. ? Most of the study was restricted to Internet and published data because of the non availability of primary data. After collecting the data the analysis of data and interpretation is done. Tabulation of data is done wherein classified data is put in the form of tables. After tabulation the analysis work is carried out using various techniques. Statement: To know whether there were non performing assets in the organization. Table 5. 1: Existence of Non Performing Assets in the Organizations |Existence of NPAs |No. f Respondents |%age of responses | |Yes |47 |94 | |No |3 |6 | |Total |50 |100 | Figure 5. 1: Existence of Non Performing Assets in the Organizations Analysis and Interpretation: It was clear from the table that out of 50 respondents majority had non performing assets in their organization. i. e. 94% banks had NPAs and 6% were without it. Statement: To know the number of cases that become NPAs every year. Table 5. 2: Percentage No. of Cases that Become NPAs No. of Cases (%) |No. of Respondents |% age of Responses | |1%-2% |18 |38. 30 | |2%-3% |19 |40. 43 | |3%-4% |4 |8. 51 | |4%-5% |2 |4. 25 | |5%Above |4 |8. 1 | | Total |47 |100 | Figure 5. 2: Percentage No. of Cases that Become NPAs Analysis and Interpretation: It represented that out of 50 banks, 40. 43% of banks had NPAs between 2%-3%, 38. 30% had NPAs between 1%-2%, 8. 51% had between 3%-4% and 5% above while remaining 4. 25% had between 4%-5%. Statement: To know which cases become NPAs mostly. Table 5. 3: Type of Cases Becoming NPAs |Type of Cases |No. of Respondents |% age of Responses | |Fully financed |42 |80. 7 | |Partially financed |10 |19. 23 | |Total |52 |100 | Figure 5. 3: Type of Cases Becoming NPAs Analysis and Interpretation: Most of the cases of fully financed in which the whole project is financed by the lender, were becoming NPAs i. e. 80. 77% and the remaining cases were of partially financed i. e. 19. 23%, in which some amount is provided as a loan. Statement: To know the types of lending that converts into NPAs. Table 5. : Lendings Provided by Institutions that Become NPAs |Types of lending |No. of Respondents |% age o f Responses | |Personal loans |23 |28. 40 | |Housing loans |22 |27. 16 | |Motor Vehicle |13 |16. 05 | |Business Financing |11 |13. 58 | |Project Financing |7 |8. 4 | |Any Other |5 |6. 17 | |Total |81 |100 | Figure 5. 4: Lendings Provided by Institutions that Become NPAs Analysis and Interpretation: According to 28. 40% of banks, personal loans, for 27. 16% housing loans, for 16. 05% loans for motor vehicle, 13. 58% loans for business financing, 8. 64% loans for project financing were becoming NPAs. Remaining 6. 17% falls in any other categories which include loans given against Government guarantee. Statement: To know the security/collateral required by banks against above loans. Table 5. 5: Security/Collateral Required Against Loans |Security |No. of Respondents |%age Responses | |Property |38 |54. 28 | |Fixed Deposits |16 |22. 86 | |Stock in Trade |10 |14. 29 | |Any other |6 |8. 7 | |Total |70 |100 | Figure 5. 5: Security/Collateral Required Against Loans Analysis and Interpretation: From above it was clear that 54. 28% require property for granting loans,22. 86% provide loans against fixed deposits, 14. 29% provide loans against stock and remaining 8. 57% requires other types of security for advancing loans. Statement: To know the main reasons for loan assets becoming NPAs. Table 5. 6: Reasons for Becoming NPAs |Reasons |No. of Respondents |%age of Responses | |Willful Default |20 |28. 7 | |Poor follow-up Supervision |19 |26. 76 | |Market failure |11 |15. 49 | |High targets fixed by banks |9 |12. 68 | |Wrong lending |7 |9. 86 | |Poor legal framework |3 |4. 22 | |Any other |2 |2. 2 | |Total |71 |100 | Figure 5. 6: Reasons for Becoming NPAs Analysis and Interpretation: It is clear from above that 28. 17% considered willful default by borrowers as the main reason for the occurrence of non performing assets. For 26. 76% poor follow-up and supervision, for 15. 49% market failure, for 12. 68% high targets, for 9. 86% wrong lending, for 4. 22% poor legal framework were the reasons for loan assets becoming NPAs. Statement: To know the existence of recovery system prevailing in the organizations for the recovery of NPAs. Table 5. : Existence of Recovery System in the Organization |Recovery system |No. of Respondents |% age of Responses | |Yes |46 |97. 87 | |No |1 |2. 13 | |Total |47 |100 | Figure 5. 7: Existence of Recovery System in the Organization Analysis and Interpretation: Majority i. e. 97. 7% of the banks had recovery system in their organization for controlling NPAs while the remaining 2. 13% did not have any type of recovery system with them. Statem ent: To know the remedies taken by banks to control/manage NPAs. Table 5. 8: Various Remedies to Control NPAs |Remedies |No. of Respondents |% age of Responses | |Proper field investigation |31 |39. 24 | |Strict follow-up |22 |27. 85 | |Effective credit appraisal |19 |24. 5 | |Normal funding limit |0 |- | |Any other |7 |8. 86 | |Total |79 |100 | Figure 5. 8: Various Remedies to Control NPAs Analysis and Interpretation: It was clear from above that 39. 24% considered proper field investigation as effective measure in controlling NPAs. 27. 85% considered strict follow- up, 24. 05% considered effective credit appraisal as the remedies to control NPAs. Statement: To know the performance of recovery system Table 5. 9: Performance of Working of Recovery System |Performance |No. of Respondents |% age of Responses | |Poor |2 |4. 26 | |Fair |6 |12. 77 | |Good |28 |59. 57 | |Very Good |8 |17. 2 | |Excellent |3 |6. 38 | |Total |47 |100 | Figure 5. 9: Performance of Working of Recovery System Analysis and Interpretation: It was clear from the above that 59. 57% of the banks reported the performance of their recovery system as good, for 17. 02% the recovery system was working very good. For 12. 77% the performance was not good but fair. Only 6. 38% reported the working of recovery system as excellent. Statement: To know whether long term strategy would be fruitful in controlling NPAs. Table 5. 0: Fruitfulness of Developing Long Term Strategy |Long term strategy |No. of Respondents |%age of Responses | |Yes |44 |93. 62 | |No |3 |6. 38 | |Total |47 |100 | Figure 5. 10: Fruitfulness of Developing Long Term Strategy Analysis and Interpreta tion: It was also clear that for majority of the banks i. e. 93. 2% long term plans will help in managing non performing assets. For the remaining 6. 38% these would not work in controlling NPAs. Statement: To know the percentage of future targets for NPAs. Table 5. 11: Future Targets for NPAs |Amount (%) |No. of Respondents |%age of Responses | |less than 1% |31 |65. 96 | |1%-2% |12 |25. 53 | |2%-3% |4 |8. 1 | |3%-4% |0 |- | |4% above |0 |- | |Total |47 |100 | Figure 5. 11: Future Targets for NPAs Analysis and Interpretation: From the above data it was clear that for the majority 65. 96% their future targets in controlling NPAs would be less than 1%. 25. 53% of the financial institutions try to range their NPAs between 1%-2% and the remaining 8. 51% try to keep it within the limit of 2%-3%. On the basis of this study, the most crucial points that can be highlighted were as follows: ? Out of 50, majority of the banks had non performing assets in their organization. This showed that many of the loans and advances given by banks were not recovered by them. ? Majority of the banks face less percentage of NPAs every year. This showed that out of total advances, maximum was returned to them by the borrowers. ? Majority of the fully financed cases, in which whole project is financed by banks, become NPAs. ? In maximum of the cases loans were provided against the property of a borrower and against his fixed deposits. ? Mostly the personal loans and housing loans turned into NPAs. This showed that artificial property is shown by borrowers at the time of availing loan. ? Willful default was the main reason causing NPA. A borrower may have enough money but he may not have intention to pay the installment money. ? Poor follow-up was another main reason for NPAs. It was seen that inadequate supervision made the chances of the assets to become NPAs very high. ? In order to control non performing assets, majority of the banks had recovery system in their respective organizations. ? Although many remedies were taken by majority of the banks in controlling NPAs but proper field investigation contributed to the maximum. It helped in accurate verification of income, property of the person who want loan against it. According to majority of the banks the recovery system was working good but not excellent. ? Financial institutions consider the development of long term strategy beneficial in controlling non performing assets. ? Last but not the least many banks aimed at con trolling the non performing assets less than 1%. CONCLUSION Non performing asset is a worrying factor for the banks. It is affecting the profitability of the banks by adding to the cost very badly. Though a good number of preventive moves were taken in this regards but the problem is inev