Management of Non-Performing Assets in District Central Cooperative Banks in India

Transcription

1 Available online at International Journal of Advanced Scientific Research & Development Vol. 03, Spl. Iss. 01, Ver. I, Mar 2016, pp e-issn: p-issn: Management of Non-Performing Assets in District Central Cooperative Banks in India ARTICLE INFO Article History: Received: 18 Feb 2016; Accepted: 19 Feb 2016; Published online: 09 Mar Key words: Classification of Non- Performing Assets (NPAs), Problems of NPA, Monitoring NPAs. V. SAMBATH Assistant Professor of Commerce, T.B.M.L College, Porayar. ABSTRACT Lending is always associated with the credit risk, which arises out of the borrower s default in repaying the loan in stipulated time, hence faced merger and strict action by RBI for having failed in successfully managing their NPAs. The inflating bubble of NPA may the balance sheets of the banks if they fail to prevent further slippage of NPAs by means of better credit monitoring overcome the problems of NPA. Copyright 2016 IJASRD. This is an open access article distributed under the Creative Common Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. INTRODUCTION NPA has become a very vital area for any bank. Turning account as NPA erodes the profit and at subsequent stage, if not controlled, the capital also. In awarding gradation to the banks by RBI and the statutory auditors, NPA is the most important determining factor. As per RBI guidelines, the asset classification and provisioning is required to be done correctly. Cooperatives banks have played an important role in the socio economic development of rural masses. A small beginning was made with the enactment of first Cooperative Credit Societies Act in 1904 and now the cooperative system has completed a century. At present, there are more than 5 lakh cooperative societies which have deeply penetrated in the rural economy. The short term and longterm cooperative banking structure has met the demand for agriculture and allied agriculture credit needs of the farmers in India. The short-term cooperative banking structure consists of 30 State Cooperative Banks (SCBs) at the State level, 367 District Central Cooperative Bank (DCCB) at the District level, and Primary Agriculture Cooperative Societies/Banks (PACBs) at the village level. Here, the DCCBs being the middle tier between SCBs and PACBs, occupy a position of strategic importance. Since 1912 the co-operative credit institutions have been playing a pivotal role in the financial system of the economy. The co-operative banking system fills in the gaps of banking needs of small and medium income groups not adequately met by the public and private sector banks and supplements the efforts of the commercial banks in How to cite this article: Sambath, V., (2016). Management of Non-Performing Assets in District Central Cooperative Banks in India. International Journal of Advanced Scientific Research & Development (IJASRD), 03 (01/I), [Special Issue Mar 2016], pp

2 Management of Non-Performing Assets in District Central Cooperative Banks in India mobilizing savings and meeting the credit needs of the local population. Urban Cooperative Banks (UCBs) are mostly engaged in retail banking. The UCBs expanded by leaps and bounds in the 1970s and 1990s. both these decades were periods of high economic growth, which led to a great demand for funds inadequately met by public sector banks. In 1993 the Narasimham Committee recommended the liberalization of norms for Co-operative Banks, which led to a surge in the number of co-operative Banks. Out of the 2,090 UCBs, approximately 600 are in Maharashtra. In kolhapur district, there are 64 urban cooperative Banks, spread up through 432 branches in and outside the district. Urban co-operative banks are comparatively small in terms of size and turnover and they are primarily engaged in retail banking. Like other banks, the UCB s profitability and liquidity is threatened by increasing NPA. Even their survival is endangered. Therefore, the banks have to monitor strictly their NPA, constantly keep an eye on NPA movement and take concrete steps to bring it down. 1.1 Classification of Asset as Non-Performing Assets (NPA) An asset becomes non-performing when it ceases to generate income for the Bank. Earlier an asset was considered as Non Performing Asset (NPA) based on the concept of Past Dur. However, with effect from March 31, 2001, the concept of Past Due has been changed. Now from that date a Non-Performing Asset (NPA) is an advance, where: Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a Term Loan. The account remains out of order for a period of more than 90 days, in respect of any type of working capital. The bill remains overdue for a period of more than 90 days in case of bills purchased and discounted. Interest and/or instalment of principle remain overdue for two harvest seasons but for a period not exceeding two half years in case of agricultural advances specified to be for that purpose. These advances are detailed herein below. For non-specified agricultural advances the identification of NPA is to be done on the same basis as non-agricultural advances. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. 1.2 Objectives of the Study The present study was undertaken with the following objectives: 1. To understand the concept of NPA and classification of asset as per RBI guidelines. 2. To examine the asset classification and NPA movement of central cooperative banks in India 3. To analyse the management of NPA central cooperative banks Ltd. 1.3 Problem of NPAs In India, the total overdues of DCCBs during was Rs crore which has increased over the years and stood at Rs crore in the year Volume 03, Special Issue 01, Version I 09 th March

3 International Conference on Issues and Challenges in Global Advancement of Business (ICGAB 2016) Organized by Department of Business Administration, R.V.S. College of Arts & Science, Karaikal , Puducherry, India. This was around 32.8 percent to the total loan demand. Consequently, the total NPAs were Rs core which constituted percent of total loans and advances outstanding as on This has increased over the years and stood at Rs crore constituting percent in the year Still a large number of DCCBs had net NPAs ranging between 8 percent to 20 percent of net loans and advances. The Committee on Banking Sector Reforms has underlined the need to reduce the average level of net NPAs for all banks to below 5 percent by the year 2002 and also pointed out that no other single indicator reflects the status of quality of assets and its impact on banks viability than the figure of net NPAs in relation to advances. National Bank for Agricultural and Rural Development s (NABARD) Annual Report showed that the number of DCCBs as on 31 st March 2007 fallen into the non-complying Section 11 (1) of the Banking Regulation Act 1949 (As Applicable to cooperative Societies) had increased to 127 as compared to 58 as on 31 st march The total erosion in the value of assets of these 127 DCCBs was aggregated to Rs crore, while erosion in deposits of these DCCBs was to the extent of Rs crore. Further, the accumulated losses had also increased from Rs.1758 crore in the year to Rs.5275 crore in the year Management of NPAs in District Central Cooperative Banks in India The problem of tackling NPAs is twofold, viz., recovery of NPAs and avoidance of slippage of standard assets to NPAs. In this regard the following strategies have to be adopted by the DCCBs to tackle the problem of NPAs. (i) Strengthening Pre-Sanction Appraisal: At pre disbursement stage, appraisal techniques of bank need to be sharpened. All technical, economic, commercial, organizational and financial aspects of the project need to be appraised realistically. A major cause for NPA is fixation of unrealistic repayment schedule. It may be fixed by taking into account the gestation or moratorium period, harvesting season, income generation, surplus available etc. if the repayment schedule is defective both with reference to quantum of installment and period of recovery assets have a tendency to become non-performing assets. Further DCCBs should set up an economic research wing at their Head office, which should provide a data on various types of farm and nonfarm activities and rural industrious etc., required for proper appraisal of the loan (ii) Post Sanction Supervision: At the post disbursement stage, bankers should ensure that the advance does not become NPA through proper follow up and supervision. They should also ensure both asset creation and asset utilization. Bankers can do either off-site surveillance or onsite inspection to detect whether the project is likely to become an NPA. (iii) Special Mentions Accounts: The DCCBs were suggested to introduce a new assets category between standard and substandard for their own internal monitoring and follow-up. In line with international best practices but keeping in view the local requirements, assets may be transferred to this category once the earliest signs of sickness/irregularities are identified by the early alert system. Special mentioned accounts are not classified as NPAs. This would help the DCCBs to look at the problems right from the beginning. 27 Volume 03, Special Issue 01, Version I 09 th March 2016

4 Management of Non-Performing Assets in District Central Cooperative Banks in India (iv) Recovery Camps: The recovery caps should be organized frequently in rural areas. Government should ask the local revenue authorities to extend the full cooperation to the DCCB/PACBs in organizing such recovery camps. (v) Recovery Cell: DCCBs should set up independent recovery and legal cell at their head office manned by well-qualified and competent law officers with adequate supporting staff for effective monitoring of recovery of accounts. (vi) Incentives to the Honest Repayment: Incentives can be given to honest repayers to create a better climate for repayment. The possibility of honouring best loanees and best employees during cooperative weak celebrations can be chalked out. (vii) Management information System: Proper steps should be taken to computerize all DCCBs and PACBs within the district connected to the State Cooperative Bank. It makes monitoring loan accounts more effective and efficient. DCCBs should create a database of their NPA portfolio on well- designed formats to provide meaningful inferences, which would help in evolving effective strategies as well as account specific action plan for preventing slippage of performing assets in to NPA. (viii) Lok Adalats: Lok Adalats have gained importance over period of time as a forum to settle the disputes/settlements among the parties. Lok Adalats may prove to be advantageous for the banks because long pending cases could be immediately taken up for settlement. NABARD has issued guidelines to cooperative banks for compromise settlements of dues through Lok Adalats. For the recovery of commercial banks loans, the Lok Adalats have proved a very good agency for quick justices and settlement of dues. So, DCCBs should approach Lok Adalats for settlement of their claims against the borrowers covering under the chronic NPAs. (ix) Role of Government Agencies: Cooperatives Banks nwards, have been extending financial assistances to the various classes of the people under priority sector lending schemes including those belonging to weaker sections. The bulk of loan assistances provided by the banks under priority sector pertain to the programmes sponsored by the state Governments. As such, the Government Department /Organizations could play a vital role in creating right recovery climate, which in turn, facilitate DCCBs to reduce their NPAs. Government should not announce any waiving schemes or loan melas. This approach of the Government spoils the banking environment. Government should also introduce the Model Act in all states so as to ensure better support from the members. (x) Creating Loyal Members: Members of the cooperatives are the owners and the users of the institutions. The financial health of PACBs depends on members loyal to the bank in the form of repaying the loan obligations within the due date. The mindset of the members to wait for loan waivers and lethargy to reply the loan should be eradicated through effective member education programmes which may create loyal cooperators, which in turn will reduce the NPAs at gross root level. (xi) Personal Touch with the Borrowers: The growth of NPAs consumes the precious time of the staff for preparing a large volume of turns and statements relating to substandard, doubtful and loss assets, preparing proposals for filling of suits, monitoring legal action, compromise and write off etc. so, DCCBs should take some measures to gain personal touch with the customers through effective customer relationship management. Volume 03, Special Issue 01, Version I 09 th March

5 International Conference on Issues and Challenges in Global Advancement of Business (ICGAB 2016) Organized by Department of Business Administration, R.V.S. College of Arts & Science, Karaikal , Puducherry, India. 1.5 Monitoring NPAs For successful monitoring of NPAs, the banks have to follow three-fold policy: Preventive, detective and Corrective. Preventive policy should invariably include the adequate expertise in the sector financed, full control over loan documents, control and audit of credit process effectively, frequent customer contacts, strictly avoidance of misuse of authority, control over excess drawings/overdrafts, periodical evaluation of securities, continuous vigil over the conduct of loan accounts, compliance of audit/inspection irregularities, effective system of identifying border-line NPAs etc. Detective policy includes listening to the early warning signals like persistent irregularity in the account, defaults in repayment obligations and frequent demands for adhoc limits from the parties and also identifying pressure on loan accounts, exceptionally increasing or decreasing turnover on current accounts, cash credit and overdrafts, delays in realization of bills receivables etc. Corrective measures should necessarily include building strong recovery mechanism of course, having freedom work without any undue interference, proper communication of the facts, discussion/ negotiation with the defaulters and finally legal action as per guidelines in this connection. CONCLUSION A non performance Assets (NPA) is defined as a credit facility in respect of which the interest and or instalment of principal has remained part due for a specified period of time. The committee of Non-Performing Assets of public sector Banks (1998) rightly observed that NPA is a double edged knife that tells on a bank s profitability. However, the problem of NPA s is likely to become chronic dues the external factors, which are generally beyond the reach of management. It is, therefore, suggested that, Cooperative Bank should fake utmost possible care that the external environmental factors do not adversely affect its efforts of monitoring NPAs. High NPAs in the banks have devastating effects not only on the banks but also the economy as a whole the formulation of the good policy will be of no use unless it is implemented in true spirit. REFERENCE [1] Ravichandran. K & Mayilsamy. R (2007), Rehabilitation Programme for weak District Central Cooperative Banks, India Cooperative Review, published by National Cooperative Union of India, Vol. 45, No.2, October, p [2] NABARD ( ), Annual Report, &101 [3] Ranjith Kumar Das (2002), Recovery and Overdue Problems of RRBs with Particular Reference to Uttar Banga Kshetiriya GRAMIN Bank, Banking Finance, Vol. XV, No.10, October, pp [4] Sudarsana Reddy, G. (2004), Management of NPAs in public sector Banks, Banking Finance, Vol.XV11, No.3, March, p Volume 03, Special Issue 01, Version I 09 th March 2016

6 Management of Non-Performing Assets in District Central Cooperative Banks in India [5] RBI (1974) The Report of the Study Team on Overdues of Cooperative Credit Institutions, p.14. [6] GOI (1998), Committee on Banking Sector Reforms, p.28, 22, 24, 35 & 59. [7] GOI (1991), The Committee on the Financial System, p. 54 & 56. [8] Ravichandran. K & Mailsamy. R (2008), Non-Performing Assets in Cooperative Banks Abhijeet Pubilcation, New Delhi. Pp [9] Ramachandra Reddy. B et.al (2004), Management of NPAs in Banks and Financial Institutions, Serials Publications, New Delhi, p.225&225. [10] Ramachandran, R. S. and Kaveri, V.S. (1993), Non-Performing Advances: Some Issues, Pranjnan, Vol. XXII, No.2, pp [11] Ravichandran. K & Revathi Bala. M (2008), Rural Credit Access, Use and Repayment, Abhijeet Publication, New Delhi.Pp [12] Co-operative banking - Indian Institute of Banking & Finance. - Published by Rajiv Beri for Macmillan Publication India Ltd, 2/10. Ansari Road, Daryaganji, New Delhi Volume 03, Special Issue 01, Version I 09 th March