A Comparative Analysis of Non- Performing Assets (NPAs) of Selected Commercial Banks in India

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1 A Comparative Analysis of Non- Performing Assets (NPAs) of Selected Commercial Banks in India Samir * Deepa Kamra** ABSTRACT With the introduction of international norms for income recognition, asset classification and provisioning in the banking sector, managing NPAs has emerged as one of the major challenges facing Indian banks. Banks today are judged not only on the basis of number of branches and volume of deposits but also on the basis of quality of assets. Non-performing assets constitute a major portfolio of the Banks portfolio and hence are an inevitable burden on the banking industry. NPAs adversely affect the profitability, liquidity and solvency of the banks. This paper analyses the position of NPAs in selected banks namely State Bank of India (SBI), Punjab National Bank (PNB) and Central Bank of India (CBI).It also highlights the policies pursued by the banks to tackle the NPAs and suggests a multi-pronged strategy for speedy recovery of NPAs in banking sector. Keywords: Non-Performing Assets, Priority sector, Sector-wise Classifications I. INTRODUCTION The incidence of non-performing assets (NPAs) is affecting the performance of the credit institutions both financially and psychologically. Non-performing asset (NPA) is not only non-performing but also makes the banker and the bank non-performing as it: Prevents or delays recycling of funds. denies income from the asset by way of interest Erodes profit by way of provisions. NPA is a disorder resulting in non-performance of a portion of loan portfolio leading to no recovery or less recovery / income to the lender. NPAs represent the quantified Credit Risk. It also plays havoc on the mental make-up of the banker where in the banker tries to go slow on lending, fearing future NPAs, it may lead to delay and denial of credit resulting in low off- take of lendable funds. NPAs are an inevitable burden on the banking industry. Hence, the success of a bank depends upon the methods of managing NPAs and keeping them within tolerance level. II. AIM AND METHODOLOGY Aim of the present research paper is to analyze the trends in NPAs in terms of values, gross and net NPAs as a percentage of gross advances and net advances, gross and net NPAs as a percentage of Total Assets respectively. The paper details about the sector-wise classification of NPAs, reasons for their occurrence, *Asst. Professor, Dept. of Commerce, Swami Shraddhanand College, University of Delhi, New Delhi. ** Asst. Professor, Dept. of Business Studies, Deen Dayal Upadhyaya College, University of Delhi, New Delhi. Opinion: International Journal of Management 68

2 the effects of NPAs on banks, and frequency distribution of public sector banks by ratio of net NPAs to net advances. The study spans the period starting from to The data for the study has been sourced from Reserve Bank of India(RBI) bulletins, statistical tables relating to banks in India, Report on trend and progress of banking in India, issued by the RBI. The study also suggests multi-pronged and diversified strategy for speedy recovery of NPAs in commercial banks in India. III. CONCEPTUAL FRAMEWORK OF NPAS The concept of NPAs originated when Reserve Bank of India introduced prudential norms, on the recommendations of the Narashimam Committee in the year As per the prudential norms laid down by RBI, An asset is considered as non-performing if interest on installments of principal due remain unpaid for more than180 days(from March31,2004, it has been decided to adopt the,90 days, overdue norm for identification of NPAs). In simple words, as long as the expected income is realized from the asset, it is treated as performing asset but when it fails to generate income or deliver value on due date it is treated as non-performing asset. Growth of non-performing assets on the balance sheet of banks erodes the solvency, profitability and financial health of banks. With a view to moving towards international best practices and to ensure greater transparency, 90 days overdue norm for identification of NPAs instead of 180 days has been adopted from the year ending March 31 st Accordingly, a non-performing asset would 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 remain out of order, in respect of overdraft/cash credit; III. the bill remain overdue for a period of more than 90 days in case of bill 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 purposes; and V. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. (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). Banks have been advised by the RBI that they should identify the non-performing assets and ensure that interest on such assets is not recognized as income and taken to the profit and loss account. Banks are to recognize their income on accrual basis in respect of income on performing assets and on cash basis in respect of income on non-performing assets. Any interest accrued and credited to income account must be cancelled by a reserve entry once the credit facility comes under the category of non-performing assets. 3.1 Assets Classification and Provisions Banks are required to classify the loan assets (advances) into four categories viz. I. Standard assets II. Sub-standard assets III. Doubtful assets; and IV. Loss assets Standard Advances/Assets: are those, which do not disclose any problem and do not carry more than normal risk attached to the business. Such assets are considered to be performing asset. A general provision of 0.25% has to be provided on global loan portfolio basis. Sub-Standard Advances: With effect from 31 March 2005, a substandard asset would be one, Which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize liquidation of the debt and are characterized by distinct possibility that bank will sustain some loss. Accordingly a general provision Opinion: International Journal of Management 69 *

3 of 10% on outstanding has to be provided on substandard assets. Doubtful assets- These are the assets which have remained NPAs for a period exceeding 12 months and which are not considered as a loss advance. Banks have to provide 100 percent of the unsecured portion of the outstanding advance after netting realized amount in respect of DICGC scheme (Deposit Insurance and Credit Guarantee Corporation) and realized/realizable amount of guarantee cover under ECGC (Export Credit Guarantee Corporation) schemes. Period for which the Provision requirements (%) advance has remained in Doubtful category Up to one year 20 One to three years 30 More than three years I. Outstanding stock of NPAs - 60 percent with effect from as on March31,2004 March31, percent with effect from March 31, percent with effect from March31,2007 II. Advances classified as 100 percent with effect from doubtful for more than March 31,2005 three years on or after April1,2004 Loss Assets Loss assets are those where loss has been identified by the bank or internal /external auditors or RBI inspectors but the amount has not been written off, wholly or partially. Any NPAs would get classified as loss assets if they were irrecoverable or marginally collectible and cannot be classified as bankable asset. Companies have to provide 100% of these outstanding advances. Note: provision towards standard assets should not be deducted from advances but shown separately as contingent provisions against standard assets under Other liabilities and provisions others in schedule V of the balance sheet. 3.2 Reasons for NPAs in Banks An account does not become an NPA overnight. It gives signals sufficiently in advance that steps can be taken to prevent the slippage of the account into NPA category. An account becomes an NPA due to causes attributable to the borrower, the lender and for reasons beyond the control of both. An internal study conducted by the RBI shows that in the order of prominence, the following factors contribute to NPAs. Internal Factors Diversion of funds for -Expansion/diversification/modernization. -Taking up new projects. -Helping/promoting associate concerns. Time/cost overrun during the project implementation. Inefficient management. Strained labour relations. Inappropriate technology/technical problems. Product obsolescence, etc. Poor credit Appraisals, monitoring and follow up, improper SWOT analysis on the part of banks. External Factors Recession. Input or power shortage. Price escalation. Exchange rate fluctuation. Accidents and natural calamities. Changes in government policy such as excise, import and export duties, pollution control order etc. Willful defaulters have been there because they knew that legal recourse available to the lenders is time consuming and slow. Sickness of the industry also leads to gradual erosion of the liquidity and units start failing to honour its obligations for the loan payments. Heavy funds are locked up in these units. Political tool-directed credit to SSI and Rural sectors has been there Manipulation by the debtors using political influence has been a cause for high industrial bad debts. Opinion: International Journal of Management 70

4 In the current perspective, the Economic Survey, (paragraph 5.32) identifies the following as the main reasons for the growing NPAs: a) Switchover to a system- based identification of NPAs by PSBs b) prevailing macro-economic situation in the country; c) Increased interest rates in the recent past; d) Lower economic growth; and e) Aggressive lending by banks in the past, especially during good times. 3.3 NPAs: Effect on the Performance of banks The large percentages of NPAs have a deleterious impact on a bank s profit in a number of ways: they result in reduced interest income They erode (eat into) current profits through provisioning requirements. it leads into erosion of capital base and reduction in their competitiveness Through creation of reserves and provisions that come from profits, to act as cushions for loan losses. Decline in profit has its bearing on variables like Capital to Risk Weighted Assets Ratio (CRAR and cost). To quote the committee on banking sector reforms (Narasimham Committee II, 1998) NPAs constitute a real economic cost to the nation is that they reflect the application of scarce capital & credit funds to unproductive uses. The money locked up in NPAs is not available for productive uses to the extent that bank seek to make provisions for NPAs or write them off. It is a charge on their profits, NPAs, in short, is not just a problem for banks; they are bad for the economy. IV. ANALYSIS OF PERFORMANCE WITH REFERENCE TO NPAS Non-performing assets are one of the important parameters of analyzing financial performance of banks. This part of the paper focuses on trend analysis of NPAs and evaluates the financial health of commercial banks. 4.1 Gross NPAs and Net NPAs (as a percentage of advances and Total Assets) Gross NPAs is an advance which is considered irrecoverable, for bank has made provisions, and which is still held in banks books of account.net NPAs are obtained from gross NPAs after deduction of the following: Interest due but not received: i.e. balances in interest suspense account. Claims received from credit guarantors and kept in suspense accounts pending final settlement. Part payment received and kept in suspensions ;and Total provisions held. Similarly gross advances consists of bills purchased and discounted, cash credits, overdrafts and loans and term loans, whereas net advance is calculated by netting out bills discounted, DICGC claims etc., from gross advances. Gross NPA is a better indicator than net NPAs since the former does not incorporate the endogenous provisioning process; this is because banks make provisioning for NPAs according to their capacities.net NPAs does not present a true picture of NPAs so they will have to be supplemented by gross NPAs figures. Table-1 Gross and Net NPAs of SBI, PNB and CBI as a percentage of advances and assets during to GROSS NPAs/ GROSS ADVANCES RATIO and GROSS NPAs TO TOTAL ASSETS RATIO GNPA/GADV GNPA/T.ASSETS Year SBI PNB CBI SBI PNB CBI Opinion: International Journal of Management 71

5 Source: Compiled from Statistical Tables Relating to Banks in India, Various issues It is observed from the Table 1. The gross NPAs to gross advance ratio has shown a declining trend in selected commercial banks over the period of study. Gross NPAs to Gross advance ratio of SBI decreased from percent in to 3.28 percent in In case of PNB, this ratio shows a significant decline from percent to 1.71 percent in CBI has shown commendable progress in restricting this ratio with a decline from 25 percent in to 2.32 percent in A significant improvement in recovery of NPAs, along with a rise in gross loans and advances led to sharp decline in the gross NPAs to gross advances ratio. The settings of the Asset Reconstruction Company Limited (ARCIL), Debt Recovery Tribunal and the SARFASEI Act have been effective in recovering of NPAs in the banking sector. The gross NPAs as percentage of total assets have significantly reduced across all the banks from to This decline can be attributed to the significant improvement in the asset quality with a rapid increase in quantum of credit to the commercial sector. High level of NPAs in PSBs can be attributed to the following possible factors: 1. Various credits related welfare programs are carried out through public sector banks as they have a widespread network in the rural areas. 2. The problem of high gross NPAs is also one of inheritance. Historically, Indian public sector banks have been poor on credit recovery due to a weak legal provision governing foreclosure and bankruptcy, lengthy legal battles, sticky loans made to PSUs, loan waivers and priority sector lending. 3. PSBs also suffer due to lax system of granting advances, poor post-loan follow up and politically motivated policy framework. All banks have been making efforts to contain the NPAs level and reduce the drag on their profitability. Even as individual banks devised various policies for containment of NPAs, the magnitude of the problem of slippage of performing assets to NPAs category has become a cause of permanent concern in the banks. 4.2 Analysis of NPAs in SBI, PNB and CBI on basis of Net NPAs/Net Advances and Total Assets Table-2 NET NPAs/ NET ADVANCES RATIO and NET NPAs TO TOTAL ASSETS RATIO NNPA/NADV NNPA/T.ASSETS Year SBI PNB CBI SBI PNB CBI Source: Compiled from Statistical Tables Relating to Banks in India, Various issues Opinion: International Journal of Management 72

6 It is observed from the table that Net NPAs to Net Advance ratio has shown a declining trend in selected commercial banks over the period of study. Net NPAs to Net Advance ratio of SBI decreased from 7.3 percent in to 1.72 percent in In case of PNB, this ratio has improved from percent to 0.53 percent in CBI exhibits commendable progress with a decline from percent in to 0.69 percent in The asset quality of banks in India has been improving over the past few years as reflected in the declining NPA to Advances ratio. It is noteworthy that notwithstanding the pressures of a slowdown in the economy and an uncertain macroeconomic scenario, the net NPA to net Advances ratio remained stable in case of SBI, while for the other two banks exhibited a decline in this ratio. 4.3 SECTOR WISE NPAS OF SBI, PNB AND CBI The total NPAs of banks are classified into three categories viz. Priority Sector, Public Sector and Non priority Sector. The Sectoral distribution of NPAs showed a growing proportion of priority sector NPAs between 2009 and Priority sector NPAs, which constituted approximately half of the total NPAs of domestic banks up to 2008, exhibited a steep decline in 2009 attributable primarily to the Agricultural Debt Waiver and Debt Relief Scheme of Between 2009 and 2010, the share of priority sector NPAs increased for domestic banks, partly a reflection of the impact of the financial crisis and the economic slowdown that had set in thereafter STATE BANK OF INDIA The proportion of NPAs in Priority Sector to the total NPAs of the SBI has significantly increased from percent to percent and the total amount of NPAs in Public sector decreased from Rs crores in to Rs.235 crores in At the end of March 2010, the percentage of Priority sector NPAs in Total NPAs was per cent for State Bank of India The sharp rise in NPAs of nonpriority sector was reflective of the slowdown in the economy and stressed financial conditions of corporates. The NPAs in the priority sector increased during , mainly due to increase in NPAs of the agriculture sector. Table 3 Sector-Wise Classification of NPAs of SBI Year Priority % Public Sector % Non Priority % Total NPAs % Sector (i) NPAs (ii) Sector NPAs (ii) (i+ii+iii) r * r** r* =Coefficient of Correlation between the amounts of different sectors to the total amounts. r** =Coefficient of Correlation between the proportion of different sectors to the total amounts. Opinion: International Journal of Management 73

7 The calculated value of coefficient of correlation,r, of the different sectors to the total amounts of sector wise NPAs observed a positive correlation,but the proportionate NPA recovery in the Priority Sector has recorded a negative correlation,r = which shows increase in NPAs in the priority Sector Punjab National Bank The proportion of NPAs in Priority Sector to the Total NPAs of the PNB has significantly increased from percent to percent whereas the Non-Priority Sector amounts decreased from Rs crores in to Rs.739 crores in The value of Public sector NPAs shows a fluctuating trend over the period of study and is minimum in the year Table 4 Sector-Wise Classification of NPAs of PNB Year Priority % Public Sector % Non Priority % Total NPAs % Sector (i) NPAs (ii) Sector NPAs (ii) (i+ii+iii) r* r** r* =Coefficient of Correlation between the amounts of different sectors to the total amounts. r** =Coefficient of Correlation between the proportion of different sectors to the total amounts. The calculated value of coefficient of correlation, r, of the different sectors to the total amounts of sector wise NPAs observed a positive correlation in case of public sector NPAs and non-priority sector NPAs but negative correlation of has been observed in case of priority sector to the total NPAs amount, also the proportionate NPA recovery in the Priority Sector has recorded a high degree of negative correlation, r = which shows increase in NPAs in the priority Sector Central Bank of India The proportion of NPAs in Priority Sector to the Total NPAs of CBI has increased from percent to percent whereas the Non-Priority Sector amounts decreased from Rs crores in to Rs.8 crores in The value of Public sector NPAs shows a fluctuating trend over the period of study and is minimum in the year Non-Priority Sector amounts decreased from Rs crores in to Rs.792 crores in Public sector NPAs shows a fluctuating trend over the period of study and is minimum in the year Opinion: International Journal of Management 74

8 Table 5 Sector-Wise Classification of NPAs of CBI Year Priority % Public Sector % Non Priority % Total NPAs % Sector (i) NPAs (ii) Sector NPAs (ii) (i+ii+iii) r* r** r* =Coefficient of Correlation between the amounts of different sectors to the total amounts. r** =Coefficient of Correlation between the proportion of different sectors to the total amounts. The calculated value of coefficient of correlation, r, of the different sectors to the total amounts of sector wise NPAs observed a positive correlation in case of public sector NPAs, Priority sector and non-priority sector NPAs, also the proportionate NPA recovery in the Priority Sector has recorded a high degree of negative correlation, r = which shows increase in NPAs in the priority Sector. 4.4 PRIORITY SECTOR NPAS IN SBI, PNB and CBI The Priority Sector includes Agriculture, Small-scale Industries (SSIs) and Other Sectors, with a view to ensure flow of credit to these underdeveloped sectors, commercial banks in India were advised to grant at least 40 percent of their total advances to the borrowers in the Priority Sectors. Following tables depict the priority sector composition of NPAs in selected banks i.e. SBI, PNB and CBI. Table 6 Priority Sector NPAs of SBI Year Agriculture (i) % SSI(ii) % Others(iii) % Total Priority % Sector (i+ii+iii) Opinion: International Journal of Management 75

9 r R² r = Coefficient of Correlation,R 2 =Coefficient of Determination Table 7 Priority Sector NPAs of PNB Year Agriculture (i) % SSI(ii) % Others(iii) % Total Priority % Sector (i+ii+iii) r R² r = Coefficient of Correlation,R 2 =Coefficient of Determination Table 8 Priority Sector NPAs of CBI Year Agriculture (i) % SSI(ii) % Others(iii) % Total Priority % Sector (i+ii+iii) r R² r = Coefficient of Correlation,R 2 =Coefficient of Determination Opinion: International Journal of Management 76

10 The decline in Priority Sector NPAs during was contributed by the agricultural sector, partly reflecting the effect of the debt waiver scheme for farmers announced by the Central Government in 2007.NPAs of SBI decreased from Percent at the end of March 2001 to percent at the end of March The NPAs in case of SSIs declined from percent in to in The other sectors amount of NPAs increased from Rs crores with percent at the end of March 2001 to Rs crores with percent at the end of March 2010.The calculated value of coefficient of correlation,r, of Priority Sector shows that there is a positive Correlation as regards the recovery of mounting NPAs in Agriculture, SSI and other sectors to the total Priority Sector of PSBs, coefficient of correlation being 0.48,0.34 and.68 over the period of study in case of SBI. 4.5 Distribution of PSBs by Ratio of Net NPAs to Net Advances The distribution of PSBs using the ratio of net NPAs to net Advances is used to examine the performance of banks in improving the recovery of mounting NPAs; this ratio has been divided into 4 categories i.e. up to 2%,2-5%, 5-10% and above 10%.The table reveals that all the PSBs were under the category of below 2% of net NPAs at the end March 2009.This shows that there is an effective recovery of mounting NPAs in all the PSBs and improvement in the financial health of Indian banks in recent years. Table 9 Distribution of PSBs by Ratio of net NPAs to net advances Year No. of PSBs lie under the rate of NPA Total Below 2% 2%-5% 5%-10% Above 10% PSBs V. CONCLUSION The incidence of non-performing assets (NPAs) is affecting the performance of credit institutions both financially and psychologically. The non-performing assets have become a major cause of concern. Imbibing the credit management skills has become all the more important for improving the bottom-line of the banking sector. It becomes essential to master the expertise for monitoring exposure levels, industry scenarios and timely action in respect of troubled industries. Skills of NPA management, include working out negotiated settlements, compromises constituting active settlement, advisory committees, restructuring and rehabilitation, effective recourse to suitable legal remedies are to be supplemented with most suitable legal reforms by banks to recover dues well in time so that the financial soundness of the banking sector will not be undermined. On the international front, the various global risks associated with the banking industry will expose the credit assets to greater risks while serious efforts need to be taken for recovery measures, banks need to be equipped with necessary risk appraisal system to minimize credit defaults. The position of NPAs continues to haunt Indian banking Sector. Several experiments have been tried to curb NPAs (viz., BIFR/SICA, lok adalats, DRTs, OTS, SARFAESI etc) but nothing has hit the mark in tackling NPAs. The validity of both DRT/ Securitization act was challenged and still hangs in dilemma, which has dampened the spirits of bankers. A clear discrimination is warranted while formulating any strategy in addressing the problem of genuine and willful defaulters. There should be a real crackdown on willful defaulters and their assets whether or not charged to banks should be declared as national assets and be disposed in a transparent manner, without major legal hurdles. Opinion: International Journal of Management 77

11 Nevertheless, the process of NPA management does not start after filing a suit but starts with the identification of a right borrower. The problem of NPA is greater in the public sector banks as compared to private and foreign banks in India. Similarly, the problem of NPAs is more in non-priority sector than priority and public sector. Further, SSI sector has largest share in the total NPA of priority sector. As a result of this, financial health of banks has been affected adversely. Hence, banks in India must apply the basic principles of financial management to solve the problems of mounting NPA. From the above analysis, following suggestions emerge which may contribute towards reduction in the mounting non-performing assets in banks; Improving the recovery management-sound functioning of banks depends on timely recovery of credit, hence, banks should develop suitable recovery programs for assessing and classifying the over dues, monitoring accounts,keeping regular contact with borrowers,fixing recovery targets, arranging recovery camps, training the personnel and linking marketing of produce and recovery. Improving the corporate governance practices- Government of India had initiated many economic reforms in the financial sectors but minimal attention has been devoted to the issues of corporate governance in banks.bod are the key players in the management of banks but they are granted little autonomy. The nominees of Government /RBI dominate the banks boards due to their vast powers. Hence, there is an urgent need to remove the dominance in order to take appropriate decision to improve their financial health. Upgrading Technology- Computer based banking system has helped the bank management to solve some of the inherent problems. Computerization can further help the management in getting required information in order to take proper decisions while granting loans/advances. Inculcating ethics in borrowers- Ethics in borrowers is necessary to make the banking sector more efficient. However, many borrowers are defaulters not because of low income but due to lack of ethics.hence, banks should use NGO s and other voluntary organizations to educate the borrowers regarding the importance of timely repayment of credit. Improving the credit Management- Management of credit is essential for proper functioning of banks. Preparation of credit planning, appraisal of credit proposals, timely sanction and disbursements, post sanction follow-up and need based credit are the some areas of credit management that needs improvement in order to reduce the NPAs. Effective legal system - Government of India/RBI had initiated many legal measures to bring down NPA in banks. However, there are some flaws in each legal measure which need improvement in order to bring down NPA in banks. When the RBI grants new banking license, there should be a condition that for the first 10 years there cannot be any loan write-offs. Later, writeoff amounts must be borne by the shareholders, which is to be certified by external auditors. A separate statement should be made so that all stakeholders are aware to what extent their profits were affected due to the write-off. Banks should reduce dependence on interest income- Indian banks are largely dependent on the lending and investment as in comparison to developed countries. Indian banks should look for sources (income) from fee based services and products. Credit Information Bureau- The institutionalization of information sharing arrangement is now possible through the newly formed Credit information Bureau of India Limited (CIBIL) it was set up in the year 2001, by SBI, HDFC, and two foreign technology partners. This will prevent those who take advantage of lack of system of information sharing amongst leading institutions to borrow large amount against same assets and property, which has in no measures contributed to the incremental of NPAs of banks. Opinion: International Journal of Management 78

12 Circulation of Information of Defaulters- RBI has put in place a system for periodical circulation of details of willful defaulters of banks and financial institutions. RBI also publishes a list of borrowers (with outstanding aggregate rupees one crore and above) against whom banks and financial institutions in recovery of funds have filed suits as on 31 st March every year. This serves as a caution list while considering a request for new or additional credit limits from defaulting borrowing units and also from the directors, proprietors and partners of these entities. Debt Recovery Tribunals (DRTs) - In the context of recovery from NPAs, banks and FIs depend heavily on DRTs. These tribunals were set up for suits of the value of recovery over Rs. 10 lakhs, while High Courts and District Courts would take up cases of lesser values. The government has amended the Debt Recovery Tribunal (procedures) rules, 2003 to facilitate better administration of the act including plural remedies for banks like power to attach defendant s property before judgement etc. They have the huge task on their hands. (DRTs were set up under the recovery of debts due to banks and financial institution act, 1993). The following table depicts the NPAs recovered through various channels by SCBs. Table 10 NPAs recovered by SCBs through Various Channels(Amount in Rs. Crores) One-time Lok DRTs SARFAESI Settlement/ Adalats Act compromise Scheme No. of Cases # Amount Involved Amount Recovered No. of Cases # Amount Involved Amount Recovered No. of Cases # Amount Involved Amount Recovered No. of Cases # Amount Involved Amount Recovered No. of Cases # Amount Involved Amount Recovered No. of Cases # Amount Involved Amount Recovered** No. of Cases # Amount Involved Amount Recovered** No. of Cases # Amount Involved Amount Recovered** No. of Cases # Amount Involved Amount Recovered** # Number of notices issued under section 13(2) of the SARFAESI Act. Source: Report on Trend and Progress of Banking in India, Various issues, RBI. **Refers to amount recovered during the given year which could be with reference to cases during the given year as well as during the earlier years. Opinion: International Journal of Management 79

13 Using the new institutions and legal options, banks and financial institutions accelerated their recovery of NPAs. In 2002, SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) was passed and it empowered the creditors to foreclose non-performing loans and the underlying collateral without going through a lengthy judicial or tribunal process. This act was passed with the aim of enabling banks and financial institutions to realize long-term assets, manage the problem of liquidity, reduce asset liability mismatches and improve recovery by taking possession of securities, selling them and reducing NPAs. The ordinance also allows banks and financial institutions to utilize the services of ARCs/SCs for speedy recovery of dues from defaulters and to reduce their NPAs. The ordinance contains provisions that would make it possible for ARCs/SCs to take possession directly of the secured assets and/or the management of the defaulting borrower companies without resorting to the time-consuming process of litigation and without allowing borrowers to take shelter under the provisions of SICA/BIFR. All these efforts improved the recovery of NPAs by commercial banks. The NPAs recovered by scheduled commercial banks through various channels is presented in the above Table. During , total amount of NPAs recovered through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), Debt Recovery Tribunals (DRTs) and Lok Adalats registered a decline compared with the previous year. Of the total amount recovered through these channels, recoveries under the SARFAESI Act constituted almost 70 per cent. At present, there are 33 DRTs and five Debt Recovery Appellate Tribunals across the country. SARFAESI Act and the debt recovery tribunals (DRTs) have proved to be most effective in terms of amount recovered among the various channels of recovery for dealing with bad loans..in terms of cases, the highest number ( ) were to the lok adalats and the lowest (57838) to the DRTs over the period In terms of the amount involved, the DRTs recovered the highest amount of around Rs crores out of Rs crores and Lok Adalats the least, Rs crores out of Rs crores for the period In terms of the recovery, 58 percent of the amount involved was recovered through one time settlement/compromise schemes. DRTs recovered around 30.5 percent and lok Adalats recovered around 5.63 percent, while percent of the amount was recovered under the SARFAESI Act for the period VI. REFERENCES 1. Pricewaterhouse Coopers, Management of nonperforming assets by Indian banks, IBA Bulletin, Jan Samir and Anubha (2005), Management of nonperforming assets (NPAs) in public sector, private-sector and foreign banks, pp.71-76, vol.vii, No-1&2 in Musings, journal of management, Centre For Management Development. 3. Shri A.S. Shiralashetu and Dr.Akash, S.B.(2006), Management of non-performing assets in commercial banks-some issues, Banking and finance 4. Dr. G.Sudarsana Reddy, (2004) Management of non-performing assets (NPAs) in Public sector banks, Banking and finance. 5. Samir, Deepa Kamra and N.S Rana.(2010) Non-Performing Assets(NPAs) impede performance of Public Sector Banks, pp.6-13,vol. 7,No.3 in Masterstroke, The Journal of Master School of Management, ISSN Report on Trend and Progress of banking in India, Various Issues. 7. Statistical Tables relating to Banks in India, Various Issues Opinion: International Journal of Management 80