MANAGEMENT OF NON PERFORMING ASSESTS IN TIRUCHIRAPALLI DISTRICT CENTRAL CO-OPERATIVE BANK Ltd.

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1 S. Yasodhai MANAGEMENT OF NON PERFORMING ASSESTS IN TIRUCHIRAPALLI DISTRICT CENTRAL CO-OPERATIVE BANK Ltd. Dr.T.Unnamalai Assistant Professor, Dept.of. Commerce, Bharathidasan University College, Perambalur. Abstract A strong rural (cooperative banks) banking sector is important for flourishing ecoomy. The failure of the rural (cooperative banks) banking sector may have an adverse impact on other sectors. The present paper focus on. (1) To understand the meanings and nature of NPAS. (2) To examine the reasons for building of NPAS in TDCC Bank. (3) To examine the causes of NPAS in TDCC Bank (4) Management of NPAS in TDCC Bank INTRODUCTION Tiruchirapalli District Central Cooperative Bank (TDCC) is the most important component of rural development of Tiruchy; Karur and Perambalur districts, because TDCC Bank covers three districts. TDCC Bank provides banking facilities and services to both rural and urban people to develop the economy of the three districts. Hence their financial health is a prime concern. Nowadays nonperforming assets (NPAs) are one of the major problematic areas, which require attention. TDCC Bank is facings the problem of mountings of NPAs, which will yield lower income to the bank. TDCC Bank is in a position to provide more reserves against NPAs. Non performing assets means, credit facilities in respect of which interest or instalment of principal is in arrear for two quarters or more. (Prudential Norms- Application to SCB and DCCBs p2).non performing assets also mean an assets which ceases to generate income for a bank. Objective of the study A strong rural (Cooperative Banks) banking sector is important for flourishing economy. The failure of the rural (Cooperative Banks) banking sector may have an adverse impact on other sectors. Non-performing assets are one of the major concerns for (Cooperative Banks) 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 of the banking sector. The NPA growth involves the necessity of provisions, which reduces the over all profitability position of the banks. The paper deals with understanding the concept of NPAs, its magnitude and major causes of NPAs, NPAs of Cooperative banks in Tamilnadu, the NPAs of TDCC Bank, % of NPAs in total loans and advances, provisions for NPAs made by TDCC Bank, and the profitability position of the Bank. 1. To understand the meaning & nature of NPAs. 2. To examine the reasons for bulging of NPAs in TDCC Bank 3. To examine the causes of NPAs in TDCC Bank. 4. Management of NPAs in TDCC Bank Cauvery Research Journal, Volume 3, Issue 1 & 2, Jul Jan

2 Methodology Only secondary data have been collected for this purpose of the study. The simple percentage and average are calculated for this study. Meaning of NPAs An asset is classified as Nonperforming Asset (NPA) if due in the form of principal and interest are not paid by the borrower for a period of 180 (3 months) days. However with effect from March 2004, default status would be given to a borrower if dues are not paid for 90 days. If any advance or credit facility granted by banks to a borrower becomes nonperforming, then the bank will have to treat all the advances/credit facilities granted to that borrower as nonperforming without having any regard to the fact that there may still exist certain advances / credit facilities having performing status. Assets classification and provisioning norms Assets are classified as Standard Assets Sub-standard Assets Doubtful assets Loss assets Standard Assets Standard asset is one, which does not disclose any problem and which does not carry more than normal risk attached to business. Loans and advances which are not, classified under the category of substandard, doubtful, loss assets are classified as standard assets. Provision is required for standard assets 0.25 percent. Forfaiting as a source of Finance for Global Trade Sub-Standard Assets (over due up to 3 years) Staff loan over due less than 3 years. Short term loans whether it is agricultural loan or non- agricultural loan over due from 12 months to 3 years. Instalments for medium term loan and long term loans over due from 6 months to 3 years. Agricultural cash credit out of order from 6 months to 3 years. All other cash credits out of order from 6 months to 3 years. Provision is required for substandard assets 10 per cent. Doubtful Assets Secured loan All agricultural loans, loans cash credits sanctioned against the mortgage of immovable properties and other loans and cash credits covered by reasonable value of securities are classified as secured loans. Category Overdue for 3 years to 4 years. Provision for this category is 20 percent. Overdue for 4years to 6 years. Provision for this category is 30 percent. Overdue for above 6 years. Provision for this category is required 50 percent. Unsecured overdue 100 percent provision is required for unsecured loans. Cauvery Research Journal, Volume 3, Issue 1 & 2, Jul Jan

3 Loss Assets Overdue more than 6 years and 100 percent provision are required for loss assets. This can be explained with the tree diagram. S. Yasodhai Table 1 shows that the non performing assets of Co-operative Bank. Table 1 NON-PERFORMING ASSETS OF CO-OPERATIVE BANKS Year (end- March) Urban cooperative banks (UCBs) Rural co-operative banks Short term structure Long term structure StCB CCBs PACS* SCARDBs PCARDBs N.A N.A N.A N.A N.A N.A N.A N.A N.A N.A N.A N.A * Percentages of overdue to demand. StCBs State Co-operative Banks. CCBs Central Co-operative Banks. PACS Primary Agricultural Credit Societies. SCARDBs State Co-operative Agriculture and Rural Development Banks. PCARDBs Primary Co-operative Agriculture and Rural Development Banks. Note : Prudential norms were made applicable to the UCBs since , the StCBs and CCBs since and SCARDBs and PCARDBs since Source : Reserve Bank for UCBs and NABARD for Rural Co-operative Banks (excluding PACS for which the source is NAFSCOB). Cauvery Research Journal, Volume 3, Issue 1 & 2, Jul Jan

4 Table 2 explains that the Non performing assets of TDCC Bank. Table 2 Non-Performing Assets of TDCC Bank Rs. in Lakhs Year Forfaiting as a source of Finance for Global Trade Amount of NPAs % of increase or decrease Source: SODONR TDCC bank The above analysis shows that each and every year the non- performing assets of TDCC Bank have been increased. During the non-performing assets amounted to Rs lakhs and it has increased by percent during During the non performing assets of the bank was amounted to Rs lakhs and it has increased by 8.84 percent and amounted to Rs lakhs.with the above analysis, it is observed that each and every year the percentage of increasing rate has decreased. Table 3 shows that the percentage of NPAs in the total loans and advances. Table 3 Percentage of NPAs in the Total Loans and Advances Rs.in lakhs Year Amount of NPAs Total loans and advances % of NPAs in Total Loans and Advances Source: SODONR TDCC bank of TDCC bank The above table reveals, the percentage of non-performing assets during in the total loans and advances was 20 percent, it was percent during , it was percent during and the percentage was decreased to percent during The above analysis shows that the percentage of NPAs in the total loans and advances during the study period almost varies between 18 percent to 20 percent. With the help of the above tables 2 & 3 more over the % of NPAs in TDCC Bank is not more than that of over all percentage of NPAs in Cooperative sectors.. Table 4 shows that the provision made by TDCC Bank for NPAs Cauvery Research Journal, Volume 3, Issue 1 & 2, Jul Jan

5 Table 4 Provision for NPAs Year Provision Rs.in lakhs % of increase or decrease Source: SODONR TDCC bank of TDCC bank During the bank made a provision of Rs lakhs, and it has increased by percent, percent and 7.24 percent, , , respectively. Each and every year the bank provides a huge amount for provision against non performing assets. Due to monsoon failure for the past three years, there was a poor recovery from agricultural sector during There is nil recovery from weaver s societies, spinning mills and whole stores. Their financial strength is poor. There is poor recovery from government sponsored schemes like gas loan, etc. So, there is a need to make a huge provision against NPAs. The bankers are in a position to create a reserve for NPAs even though the credit generates income.table -5 shows that the profitability position of TDCC Bank. Table 5 Profitability Position of TDCC bank Year Profit Rs.in lakhs Loss Rs.in lakhs Source: Annual Reports of TDCC bank S. Yasodhai TDCC Bank incurred loss for the year amounted to Rs lakhs. TDCC Bank has performed almost a miracle during the financial year , earning a profit of Rs.9.89 lakhs as against a loss of Rs lakhs during From and the bank sustained loss amounted to Rs and Rs lakhs respectively. TDCC Bank sustained losses for the past years due to nil recovery from weaver s societies, spinning mills and wholesale stores and poor recovery from agricultural sector, government sponsored schemes like gas loan etc. Weaver s societies, spinning mills and wholesale stores are not able to repay their debts because their financial health is not good. Due to monsoon failure for the past three years the due from agricultural sector are also low. Reasons for an account becoming NPA There are several reasons for an account becoming NPA. Internal factors External factors Internal factors (1) Loan borrowed for a particular purpose but not use for the said purpose. (2) Willful defaults External factors (a) Scarcity of raw material, power and other resources for rural industries (b) Monsoon failures Causes for Non Performing Assets A lot of practical problems have been found in Indian banks, especially in cooperative sector banks. A Cooperative sector is important for a flourishing rural Cauvery Research Journal, Volume 3, Issue 1 & 2, Jul Jan

6 economy. Now the cooperative banks are facing the challenges of an open economy due to liberalization policy of our government. Out of 22 DCCBs in Tamilnadu 17 banks termed as red. This is mainly due to agricultural sector advances. The Tamilnadu government waivers the loans and advances borrowed by agricultural sector. Management of NPA Various steps have been taken by the government to recover and reduce NPAs. Some of them are. 1. One time settlement / compromise scheme 2. Lok adalats 3. Debt Recovery Tribunals 4. Securitization and reconstruction of financial assets and enforcement of Security Interest Act Corporate Reconstruction Companies 6. Credit information on defaulters and role of credit information bureaus CONCLUSION With the above analysis, it is observed that the TDCC Bank is faced with bulging of NPAs resulting in lower income higher provisioning making a dent in their profit figures. Since NPA affects the profitability and financial strength of Forfaiting as a source of Finance for Global Trade the bank. The NPAs of TDCC Bank has been increased for the past years due to nil recovery from weaver s societies, spinning mills and wholesale stores and poor recovery from agricultural sector, government sponsored schemes like gas loan etc. Weaver s societies, spinning mills and wholesale stores are not able to repay their debts because their financial health is not good. Due to monsoon failure for the past few years the due from agricultural sector are also low. Government should help the bank because the financial strength of the weaver s societies, spinning mills and wholesale stores is not good. The TDCC Bank would have been still in a better position; if the Government should help the bank to reduce their Non- Performing Assets. REFERENCE 1. Annual Reports of TDCC Bank 2. Bhabatosh Banerjee and Anish Kumar Dan, Management of NPA in Public Sector Banks in India, The Journal of Banking, Volume I, No.I, Jan. - June 2004, P Himedu, P.Mathur, Indian Banking Challenges Ahead, Yojana Feb. 2001, P Prudential Norms-Applicable to SCBs and DCCBs. Cauvery Research Journal, Volume 3, Issue 1 & 2, Jul Jan