NPA Reduction Strategies in Indian Public Sector Banks

NPA Reduction Strategies in Indian Public Sector Banks

Mission 2016

CANPAL TEAM A HOPE FOR NPA REDUCTION

My dear friends banking are a concept of accepting deposits from the public and lended it to its various sectors for the economic developments. A healthy banking system is essential for any economy striving to achieve growth and remain stable in competitive global business environment. Indian banks are favorable on growth, asset quality and profitability; RBI and Government have made some notable changes in policies and regulation to help strengthen the sector. These changes include strengthening prudential norms, enhancing the payments system and integrating regulations of commercial banks. In terms of quality of assets and capital adequacy, these banks have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. PSBs need to strengthen institutional skill levels especially in sales and marketing, service operations, risk management and the overall organizational performance ethic & strengthen human capital.

The Structural weaknesses of the Public Sector Banks are fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labour laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus. One of the major drawbacks of PSB is its NPAs. The best indicator for the health of the banking industry in a country is its level of Non-performing assets (NPAs). NPAs are one of the major concerns for banks in India. It reflects the performance of banks. Reduced NPAs generally gives the impression that banks have strengthened their credit appraisal processes over the years and growth in NPAs involves the necessity of provisions, which bring down the overall profitability of banks.

The Reserve Bank of India states that, compared to other Asian countries and the US, the gross non-performing asset figures in India seem more alarming than the net NPA figure. The problem of high gross NPAs is simply one of inheritance. Historically, Indian public sector banks have been poor on credit recovery, mainly because of very little legal provision governing foreclosure and bankruptcy, lengthy legal battles, sticky loans made to government public sector undertakings, loan waivers and priority sector lending. Net NPAs are comparatively better on a global basis because of the stringent provisioning norms prescribed for banks in 1991 by Narasimham Committee. In India, even on security taken against loans, provision has to be created. Further, Indian banks have to make a 100 per cent provision on the amount not covered by the realizable value of securities in case of ''doubtful'' advance, while in some countries; it is 75 per cent or just 50 per cent. The V Study titled “Solvency Analysis of the Indian Banking Sector” reveals that on an average 24 per cent rise.

Issues and Challenges for Banking Industry: The Indian banking system witnessed a series of reforms over the past few years like the deregulation of interest rates, dilution of the government stake in public sector banks and the increased participation of private sector banks but Indian banks (both public and private) have not able to tap the domestic market also to compete in the global market place. New foreign banks are very enthusiastic to gain in the Indian market. There are several challenges that Indian banks will have to face as they look to compete in a globalize environment.

• Risk Management & Basel III

• Consolidation

• Overseas Expansion

• Technology

• Government Reforms

• Non Performing Assets (NPAs)

• Skilled Manpower

• Consumer Protection Non Performing Assets as a major issue and challenge for Banking Industry.

Non-performing Assets are threatening the stability and demolishing bank’s profitability through a loss of interest income, write-off of the principal loan amount itself. RBI issued guidelines in 1993 based on recommendations of the Narasimham Committee that mandated identification and reduction of NPAs be treated as a ‘national priority’ because the level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of resource.

The efficiency of a bank is not always reflected only by the size of its balance sheet but also the level of return on its assets. The NPAs do not generate interest income for banks but at the same time banks are required to provide provisions for NPAs from their current profits.

1. The NPAs have destructive impact on the return on assets in the following ways.

2. The interest income of banks reduced it is to be accounted only on receipt basis.

3. The current profits of the banks are eroded because the providing of doubtful debts and writing it off as bad debts and it limits the recycling funds.

4. The capital adequacy ratio is disturbed and cost of capital will go up.

5. The economic value addition (EVA) by banks gets upset because EVA is equal to the net operating profit minus cost of capital.

6. Depositors do not get rightful returns and many times may lose uninsured deposits. Banks may begin charging higher interest rates on some products to compensate Non-performing loan losses

7. Bank shareholders are adversely affected

8. Bad loans imply redirecting of funds from good projects to bad ones. Hence, the economy suffers due to loss of good projects and failure of bad investments

9. When bank do not get loan repayment or interest payments, liquidity problems may ensue.

One of the basic concepts for reducing NPA is that we have to take efforts by using the suitable recovery mechanism like SARFAESI ACT 2002, Lok Adalats, Compromise Settlement, Credit Information Bureau, DEBT RECOVERY TRIBUNALS, etc.

The gross non-performing asset (GNPA) ratio of the banking sector increased to 4.45 per cent in March 2015 this year, as compared to 4.1 per cent in March 2014, according to the latest data released by the Reserve Bank of India (RBI).

The latest data on asset quality was reported by RBI Deputy Governor Mundra in a speech last month. A copy of the speech was released by the central bank late last evening. Stressed assets ratio, which is GNPA plus restructured standard advances for the system, stood at 10.9 per cent, as at the end of March, 2015 as compared to 10 per cent in March, 2014 and 10.7 per cent in September 2014."The level of distress is not uniform across bank groups and is more pronounced in respect of public sector banks," Mundra said. GNPAs for public sector banks as on March 2015 stood at 5.17 per cent, while the stressed assets ratio stood at 13.2 per cent, which is nearly 230 bps more than that for the system. We have received representations from bigger lenders about non-cooperation from a few lenders. On the other hand, smaller lenders have voiced their concerns about being arm twisted by bigger lenders. Unless, there is proper co-ordination between the interested parties, all the revival efforts are likely to fall flat, Mundra said. “We feel that some of these poorly managed banks could slide below the minimum regulatory threshold of capital if they don't get their acts together soon enough," Mundra said. The minimum capital adequacy ratio that banks have to maintain is nine per cent.

The government has taken a decision to infuse capital in banks that show better efficiency in terms of return on equity and return on assets. As a result, only nine public sector banks have received capital from the government in the previous financial year.

However a part from this CANPAL Unit of Coimbatore circle has initiated steps to reduce the NPA. They Have Issued 5000 notices. As our logo is there that helping hands never hesitate in that way more than 10 volunteers from various branches sat up to 10 pm at gopi branch and generated 5000 notice and send it to by post to minimize the expenses. Tiruvannamalai branch going to conduct Lok Adalat on this Friday like wise every circle have to celebrate this quarter as a NPA free quarter. This type of team must be formed in every district and every circle. CANPAL by this way help the branches to reduce the NPA which will definitely increase the Profit. This is a great ask organized under the leadership of our beloved General Secretary Shri Mani Maran sir. He is motivating the youth of the every circle to came forward and perform by various ways so that this march 2016 comes as a historic day in our bank. This can be done only by the canarits who are known as a performer since the beginning of the bank otherwise in coming quarters we have to see the worst scenarios. We have to adopt the strategy of private sector banks we have to send officers out for recovery.

CBOA JINDABAD

MANI MARAN SIR JINDABAD

Dileep Kumar PO Tiruvannamalai