Chapter-6 RECOVERY OF LOANS AND NPAS

Chapter-6 RECOVERY OF LOANS AND NPAS RECOVERY Performance analysis of a bank cannot be conducted solely on the basis of resources mobilised or advances made. Resources mobilisation, deployment of resources and recycling of resources are three main centres of banking business operations. Therefore, recovery is equally important activity in banking. Recovery in co-operative banks is still more important as they are supposed to meet their social commitments too. Any delay in recovery hampers the recycling of funds and banks ability to return the loans to higher financial institutions is also impaired. As a result, good borrowers and prospective members suffer. Overdue problem is harmful for defaulter borrowers too. When they fail to return the money, bank charges them penal rate of interest. It burdens them with more financial liabilities and they could not avail of fresh loans. Any delay in recovery on the part of co-operative bank management also creates a situation for mis-utilization of funds at the hands of borrowers as they may spend their borrowings on nonproductive activities. The advances of co-operative banks are mainly directed towards agriculture, tiny/small scale industries and small business enterprises. These sectors are characterised by higher risks and lower returns. These activities can easily succumb to the vagaries of nature, changes in government policies and other pulls from various quarters. (Padmanabhan, (1997) found that the following factors have a bearing on recovery of loans in the agriculture and rural sector: 136

- Low production/productivity level in the farms owned by small and marginal farmers on account of inadequate finance, non-adoption of scientific agriculture practices, etc; - Occurrence of natural calamities (drought, flood, pest attack, etc.) - A large number of small farmers/small units have been facing marketing problems; - Crowding of activities leads to non-viability of large number small/tiny industrial units; - Lack of managerial expertise and technical competence; - Imperfect rural markets-farmers/rural entrepreneurs not realising remunerative prices and exploitation by middlemen; - Infrastructure constraints-absence of backward and forward linkage; - The mortality rate is very high in case small borrowers who are not getting adequate extension support at the appropriate time from various agencies; and - The recovery climate has been vitiated by waiver of loans and therefore, a part of borrower community, despite income generation, is unwilling to repay bank s dues. Finding that the recovery of loans is essential for the smooth and efficient working of co-operative banks, an effort has been made to study the recovery position of some of these selected banks in Punjab and Haryana. Absolute amount recovered during a year is important for a bank for its funds management. It helps the bank to rotate and plough back the funds. On the other hand, per centage of recovery to total demand of bank (demand means amount to be recovered during the year/ season) is also an important factor and indicates the 137

efficiency of the bank in recovery management. Therefore both absolute and relative recovery positions have been studied. Tables 6.1A, 6.3A, 6.5A, 6.7A, 6.9A, 6.11A, 6.13A and 6.15A present total demand of the DCCBs, which are annexured as annexure I. PUNJAB DCCBs HIGH PROFITABILITY DCCBs IN PUNJAB Trend Analysis Table 6.1 : Trends in Recovery of Loans in High Profitability DCCBs in Punjab :1999-00 to 2007-08 ( in lakh) Year Short-term Medium-term Other Total Agrl. Non-Agrl. Agrl. Non- Agrl. Loans Loans 1999-00 16048 2066 180 304 18598 2000-01 17426 315 214 992 18947 2001-02 17982 407 218 1107 21 19735 2002-03 20670 254 291 1978 23193 2003-04 21775 959 401 1307 24442 2004-05 24250 2253 552 1644 28699 2005-06 24994 2035 682 2006 2291 32008 2006-07 23658 2672 388 1645 1999 30362 2007-08 35605 2571 176 2134 3146 43632 Average 22489.78 1503.56 344.67 1457.44 1864.25 26624.00 C.V. 26.02 67.08 51.64 40.53 70.90 30.39 C.G.R. 8.55 23.56 8.00 18.76 10.53 t-value 6.76*** 1.78 1.20 3.01** 8.96*** Trend Equation Constant 12946.76 308.06 203.42 562.19 12920.25 Beta 1908.80 239.10 28.25 179.05 2740.55 t-value 5.26*** 2.26* 1.28 3.94*** 6.56*** Note : *** Significant at 1% level ** Significant at 5 % level *Significant at 10 % level 138

It is clear from Table 6.1 that total recovery increased significantly from 18598 lakh in 1999-00 to 43632 lakh in 2007-08 at the compound growth rate of 10.53 per cent per annum in high profitability DCCBs, Punjab. Similarly, there was a significant increase in the recovery of short-term agricultural loans (8.55%) and medium-term non-agricultural loans (18.76%). Recovery of short-term agricultural loans increased from 16048 lakh to 35605 lakh from 1999-00 to 2007-08, while medium-term non-agricultural loans recovery increased from 304 lakh to 2134 lakh during the same period. Though there was an overall increase in recovery of short-term non-agricultural loans and medium-term agricultural loans, but the increase appeared to be non-significant. Recovery in relation to Demand A perusal of Table 6.2 provides that on the average the proportionate share of total recovery out of demand came to be 96.23 per cent in high profitability DCCBs of Punjab. It was 100.74 per cent of the demand in short-term agricultural loans. It exceeded 100 per cent in the case of short-term agricultural loans, i.e., 167.16 per cent recovery of demand during the year 2000-01. Normally, it may not be more than 100 per cent as recovery cannot be more than demand. But it was due to advance recovery received in that year. Recovery as percentage of demand for loan came to be 76.54 percent in the case of short-term non-agricultural loan, 81.04 per cent in medium-term agricultural loan and 71.18 per cent in medium-term non-agricultural loan. The recovery of other loans could not be studied due to the absence of demand as well as demand for other loans in 5 out of 9 years under study. There was a significant decline in recovery of medium-term non-agricultural loans at the rate of -2.44 per cent compounded annually. 139

Table 6.2 : Recovery in relation to Demand for Loan in High Profitability DCCBs in Punjab 1999-00 to 2007-08 (Percentage) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 91.67 81.69 81.82 83.06 90.19 2000-01 167.16 53.03 88.80 77.80 151.15 2001-02 90.48 55.60 83.52 74.70 6.36 87.02 2002-03 90.94 90.07 89.26 67.51 88.29 2003-04 91.61 74.75 90.93 65.09 87.63 2004-05 91.84 78.42 89.61 67.13 88.73 2005-06 92.68 83.23 89.50 72.05 88.49 90.04 2006-07 94.22 87.18 93.72 70.03 89.88 91.56 2007-08 96.11 84.91 22.22 63.27 90.92 91.47 Average 100.74 76.54 81.04 71.18 68.92 96.23 C.V. 24.78 17.50 27.58 9.01 60.53 21.47 C.G.R. -2.43 3.93-7.86-2.44-2.26 t-value 0.97 1.68 1.53 3.19** 1.02 Trend Equation Constant 117.06 63.30 98.65 80.20 110.16 Beta -3.26 2.65-3.52-1.80-2.79 t-value 1.01 1.70 1.27 3.19* 1.05 Note : ** Significant at 5 % level *Significant at 10 % level On an average, medium-term non-agricultural loans were only 10.18 per cent of total loan outstandings (Table 5.2), hence, their declining recovery per centage would affect the per centage of total recovery only to a marginal extent. The overall recovery position in high profitability DCCBs in Punjab seems to be good. High per centage of recovery may be the reason for stagnation in recovery. 140

Trend Analysis AVERAGE PROFITABILITY DCCBs IN PUNJAB Table 6.3 : Trends in Loans Recovery in Average Profitability DCCBs in Punjab: 1999-00 to 2007-08 ( in lakh) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 18728 1016 556 981 1134 22415 2000-01 21374 1176 435 1120 3460 27565 2001-02 20569 1355 397 1216 4058 27595 2002-03 22260 1826 592 1456 5421 31555 2003-04 27871 2290 173 1958 6067 38359 2004-05 28368 3198 193 2503 6067 40329 2005-06 36056 3731 485 3326 3852 47450 2006-07 36852 3769 652 4013 3764 49050 2007-08 48838 3897 111 5820 5731 64397 Average 28990.67 2473.11 399.33 2488.11 4394.89 38746.11 C.V. 34.21 48.10 49.38 65.48 36.64 34.27 C.G.R. 12.06 21.04-9.44 25.24 11.89 12.90 t-value 9.70*** 10.84*** 1.32 15.33*** 1.82 15.45*** Trend Equation Constant 11995.62 354.19 512.00-287.06 2767.06 15340.37 Beta 3399.27 423.78-22.53 555.03 325.57 4681.12 t-value 7.20*** 11.74*** 0.87 6.86*** 1.76 9.81*** Note : *** Significant at 1% level Table 6.3 depicts that recovery increased significantly from 22415 lakh in 1999-00 to 64397 lakh in 2007-08 in average profitability DCCBs in Punjab. It is encouraging to note that the recovery of short-term agricultural loan, short-term nonagricultural loans and medium-term non-agricultural loans registered a significant 141

increase during the same period. It increased from 18728 lakh in 1999-00 to 48838 lakh in 2007-08 in short-term agricultural loans. The increase was from 1016 lakh to 3897 lakh and from 981 lakh to 5820 lakh from 1999-00 to 2007-08 respectively in short-term non- agricultural loans and medium-term non agricultural loans. Recovery in relation to Demand Table 6.4 : Recovery in relation to Demand for Loan in Average Profitability DCCBs in Punjab: 1999-00 to 2007-08 (Percentage) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 93.34 88.35 53.67 91.43 85.52 90.94 2000-01 94.42 86.47 33.75 89.53 94.00 91.22 2001-02 92.30 91.74 46.43 91.02 84.45 89.72 2002-03 89.52 93.50 76.98 88.94 86.89 88.98 2003-04 93.35 93.74 20.26 84.98 88.76 90.70 2004-05 93.45 94.78 21.98 84.25 88.76 90.80 2005-06 93.75 93.98 66.44 78.39 86.35 91.49 2006-07 91.85 91.24 94.08 79.15 84.79 90.08 2007-08 94.43 91.59 80.43 80.43 89.31 92.31 Average 92.94 91.71 54.89 85.35 87.65 90.69 C.V. 1.66 3.01 48.25 6.03 3.39 1.09 C.G.R. 0.06 0.61 7.18-2.04-0.12 0.14 t-value 0.27 1.74 0.91 6.71*** 0.25 0.95 Trend Equation Constant 92.65 88.96 32.13 94.10 88.12 90.08 Beta 0.06 0.55 4.55-1.75-0.11 0.12 t-value 0.27 1.72 1.41 6.80*** 0.28 0.96 Note : *** Significant at 1% level 142

A glance at Table 6.4 provides that the proportionate share of total recovery out of total demand for loans worked out to be 90.69 per cent on the average of 9 years under study. The average proportion of recovery out of demand was the highest to the tune of 92.94 per cent in the case of short-term agricultural loans, followed by 91.71 per cent in short-term non-agricultural loans, 87.65 per cent against other loans and 85.35 per cent in the case of medium-term non-agricultural loans. The recovery as a proportion of demand was found to be the lowest to the tune of 54.89 per cent in the case of medium-term agricultural loans. The proportionate recovery of medium-term non-agricultural loans showed a significant decline at the rate of -2.04 per cent compounded annually. The recovery as percentage of demand of all types of loans except medium-term non- agricultural loans has shown a stagnant trend. LOW PROFITABILITY DCCBs IN PUNJAB Trend Analysis It can be observed from Table 6.5 that total recovery of loans increased significantly from 20687 lakh in 1999-00 to 49317 lakh in 2007-08 at the compound growth rate of 12.85 per cent per annum. It is pertinent to note that recovery of all types of loans, except other loans, increased significantly. The Compound Growth Rate of recovery was the highest to the order of 63.52 per cent in the case of medium-term agricultural loans, followed by 35.10 per cent in short-term non-agricultural loans. Thus, in general terms, recovery of every type of loan registered a significant increase during the period of study. 143

Table 6.5 : Trends in Loans Recovery in Low Profitability DCCBs in Punjab : 1999-00 to 2007-08 ( in lakh) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 20319 6 37 313 12 20687 2000-01 19024 9 3 1124 12 20172 2001-02 21133 15 16 1486 32 22682 2002-03 21909 23 10 1607 17 23566 2003-04 27467 27 75 2199 5 29773 2004-05 29082 30 80 2290 8 31490 2005-06 36566 51 259 2675 59 39610 2006-07 40836 71 288 3312 7 44514 2007-08 45546 59 285 3420 7 49317 Average 29098.00 32.33 117.00 2047.33 17.67 31312.33 C.V. 33.51 70.98 105.46 49.84 99.26 34.64 C.G.R. 12.19 35.10 63.52 26.99-5.36 12.85 t-value 10.02*** 9.93*** 3.11** 4.53*** 0.52 12.18*** Trend Equation Constant 12065.18-7.42-83.25 209.58 16.83 12202.02 Beta 3406.38 7.95 40.05 367.55 0.17 3822.10 t-value 8.71*** 7.93*** 5.13*** 15.94*** 0.07 9.74*** Note : *** Significant at 1% level ** Significant at 5 % level Recovery in relation to Demand Table 6.6 reveals that on an average, proportionate share of recovery out of demand for loan appeared to be 83.05 per cent. The proportion of recovery out of demand appeared to be the highest to the order of 85.18 per cent in the case of shortterm agricultural loans, followed by 68.50 per cent in medium-term non-agricultural loans. The proportion of recovery out of demand was found to be the lowest to the 144

tune of 23.11 per cent in the case of other loans. The total recovery as a proportion of total demand remained constant at about 83 per cent, while it increased significantly in the case of short-term agricultural loans at the rate of 0.59 per cent and 16.33 per cent compounded annually in medium-term loans. Table 6.6 : Recovery in relation to Demand for Loan in Low Profitability DCCBs in Punjab: 1999-00 to 2007-08 (Percentage) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 84.20 26.09 50.00 77.09 25.00 83.81 2000-01 83.82 29.03 11.54 81.45 3.60 82.45 2001-02 84.12 39.47 41.03 78.21 4.51 81.56 2002-03 82.63 46.00 17.54 70.30 12.23 81.13 2003-04 85.10 48.21 68.18 69.63 5.75 83.43 2004-05 85.83 60.00 55.17 62.48 9.88 83.25 2005-06 87.11 37.23 84.36 59.22 95.16 84.28 2006-07 86.30 45.81 68.74 59.70 25.93 83.26 2007-08 87.54 37.82 66.43 58.38 25.93 84.30 Average 85.18 41.07 51.44 68.50 23.11 83.05 C.V. 1.92 25.15 47.39 13.08 123.66 1.36 C.G.R. 0.59 5.13 16.33-4.43 22.04 0.24 t-value 3.99*** 1.62 1.90* 8.36*** 1.46 1.46 Trend Equation Constant 82.68 32.18 21.31 83.99 2.31 82.06 Beta 0.50 1.78 6.03-3.10 4.16 0.20 t-value 4.04*** 1.42 2.44** 7.78*** 1.15 1.47 Note : *** Significant at 1% level ** Significant at 5 % level *Significant at 10 % level 145

On the other hand, the proportion of recovery out of demand declined significantly at the rate of -4.43 per cent per annum in the case of medium-term nonagricultural loans. The proportion of recovery of other loans remained fluctuating from 4.51 per cent to 95.16 per cent during the period of study. It shows that vast fluctuations exist in the recovery of other loans in relation to the demand which hamper the growth of these banks. Total recovery had registered a significant growth rate in all the categories of selected DCCBs during the period of study. Average recovery per centage to demand in total loans during the period of study was 96.23, 90.69 and 83.05 per cent respectively in the high, average and low profitability DCCBs. It may be inferred that recovery position of the DCCBs had directly affected with the profitability of the banks. Short-term agricultural loans had recorded the highest per centage of recovery in all types of selected DCCBs in Punjab. Expertise of DCCBs staff in handling agricultural customers and immediate reavailability of the loan may be the important factor for this. ALL SELECTED DCCBs IN PUNJAB Trend Analysis Table 6.7 describes that total recovery of loans increased significantly at the CGR of 12.22 per cent per annum from 61700 lakh in 1999-00 to 157346 lakh in 2007-08 in all the selected DCCBs in Punjab. It is encouraging to observe that recovery of all types of loans, except medium-term agricultural loan, increased significantly during the period under study. 146

Table 6.7 : Trends in Loans Recovery in the Selected DCCBs in Punjab : 1999-00 to 2007-08 ( in lakh) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 55095 3088 773 1598 1146 61700 2000-01 57824 1500 652 3236 3472 66684 2001-02 59684 1777 631 3809 4111 70012 2002-03 64839 2103 893 5041 5438 78314 2003-04 77113 3276 649 5464 6072 92574 2004-05 81700 5481 825 6437 6075 100518 2005-06 97616 5817 1426 8007 6202 119068 2006-07 101346 6512 1328 8970 5770 123926 2007-08 129989 6527 572 11374 8884 157346 Average 80578.44 4009.00 861.00 5992.89 5241.11 96682.44 C.V. 31.11 51.68 36.09 51.07 41.07 32.97 C.G.R. 11.13 19.58 4.22 23.45 19.42 12.22 t-value 11.95*** 3.82*** 0.96 8.78*** 3.54*** 16.78*** Trend Equation Constant 37003.28 654.83 632.17 484.72 1685.69 40466.36 Beta 8714.45 670.83 45.77 1101.63 711.08 11243.29 t-value 8.23*** 5.08*** 1.17 15.48*** 5.62*** 9.90 Note : *** Significant at 1% level Recovery in relation to Total Demand A perusal of Table 6.8 provides that on an average, the proportion of recovery out of total demand worked at 88.98 per cent. It was highest to the order of 91.37 per cent in the case of short- term agricultural loan, followed by 85.43 per cent and 84.39 per cent in short-term non-agricultural loan and other loans respectively. The average proportion of recovery out of demand came to 75.04 per cent in the case of medium- 147

term non- agricultural loan and 59.68 per cent in medium-term agricultural loan in all the selected DCCBs in Punjab. The recovery as a per cent of demand was stagnant in all types of loans except a significant decline at the rate of -2.94 per cent in the case of medium-term non-agricultural loan. Table 6.8 : Recovery in relation to Demand for Loan in All the Selected DCCBs in Punjab : 1999-00 to 2007-08 (Percentage) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 89.29 83.41 58.12 86.61 83.41 88.20 2000-01 103.71 75.57 41.90 82.85 86.50 99.21 2001-02 88.71 79.08 54.63 80.73 70.33 86.17 2002-03 87.49 92.04 77.52 73.56 85.26 86.27 2003-04 89.77 86.62 46.19 73.15 83.02 87.44 2004-05 90.13 87.04 50.34 70.85 87.84 87.73 2005-06 90.89 88.78 79.27 69.36 87.20 88.59 2006-07 90.05 88.59 87.02 69.18 86.25 87.84 2007-08 92.32 87.74 42.09 69.07 89.70 89.42 Average 91.37 85.43 59.68 75.04 84.39 88.98 C.V. 5.27 6.08 28.86 8.85 6.72 4.46 C.G.R. -0.35 1.43 2.04-2.94 1.24-0.40 t-value 0.52 2.10* 0.53 7.75*** 1.41 0.70 Trend Equation Constant 93.19 79.53 51.90 86.43 79.33 90.90 Beta -0.36 1.18 1.56-2.28 1.01 0.38 t-value 0.56 2.10* 0.68 7.22*** 1.48 0.72 Note : *** Significant at 1% level *Significant at 10 % level 148

HARYANA DCCBs HIGH PROFITABILITY DCCBs IN HARYANA Trend Analysis The data presented in Table 6.9 reveals that total recovery of loans increased significantly from 23622 lakh in 1999-00 to 52293 lakh in 2007-08 at the compound growth rate of 10.36 per cent per annum. Table 6.9 : Trends in Loans Recovery in High Profitability DCCBs in Haryana: 1999-00 to 2007-08 ( in lakh) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 18810 1585 109 544 2574 23622 2000-01 23139 2036 48 811 1713 27747 2001-02 26558 1987 60 692 3738 33035 2002-03 25438 3688 486 411 6760 36783 2003-04 28953 3541 265 728 5274 38761 2004-05 36058 2364 414 520 11399 50755 2005-06 36842 2061 557 444 7444 47348 2006-07 40052 5682 500 727 1879 48840 2007-08 40105 2791 611 1050 7736 52293 Average 30661.67 2859.44 338.89 658.56 5390.78 39909.33 C.V. 25.49 44.70 65.62 30.69 60.19 26.24 C.G.R. 9.93 8.64 35.48 2.79 11.59 10.36 t-value 9.97*** 1.76 3.38** 0.67 1.25 8.03*** Trend Equation Constant 16735.81 1643.94-18.28 543.14 2624.36 21530.26 Beta 2785.12 243.10 71.43 23.08 553.28 3676.02 t-value 11.81*** 1.61 4.90*** 0.87 1.40 9.22*** Note : *** Significant at 1% level ** Significant at 5 % level 149

Similarly, the recovery of short-term agricultural loans increased significantly from 18810 lakh to 40105 lakh during the same period, while recovery of mediumterm agricultural loans increased significantly from 109 lakh in 1999-00 to 611 lakh in 2007-08. Though an increase was recorded in recovery of all other types of loans but the wide fluctuations turned the increase non-significant in high profitability DCCBs in Haryana. Recovery in relation to Demand Table 6.10 : Recovery in relation to Demand for Loan in High Profitability DCCBs in Haryana :1999-00 to 2007-08 (Percentage) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 79.23 67.62 62.64 56.49 98.24 79.16 2000-01 81.69 75.27 41.38 68.38 94.33 81.26 2001-02 79.53 74.70 1.86 61.13 99.36 74.79 2002-03 79.82 81.11 82.37 46.13 99.75 82.33 2003-04 78.11 83.61 74.86 61.18 98.43 80.41 2004-05 83.75 77.58 81.50 52.58 98.95 85.86 2005-06 80.51 76.39 76.83 45.21 97.64 81.93 2006-07 79.53 94.12 71.94 56.58 91.75 80.82 2007-08 77.51 75.23 83.58 55.79 97.59 79.25 Average 79.96 78.40 64.11 55.94 97.34 80.64 C.V. 2.34 9.42 41.81 13.14 2.69 3.68 C.G.R. -0.16 1.85 18.61-1.80-0.25 0.36 t-value 0.51 1.72 1.00 1.07 0.70 0.72 Trend Equation Constant 80.58 71.17 37.07 61.24 98.55 79.24 Beta -0.12 1.45 5.41-1.06-0.24 0.28 t-value 0.49 1.68 1.75 1.14 0.70 0.71 150

The analysis of data presented in Table 6.10 highlights that the proportion of recovery out of total demand for loan emerged to be 80.64 per cent at the average level in high profitability DCCBs in Haryana. The highest proportion of recovery out of demand was found to be 97.34 per cent in the case of other loans, while it was lowest to the tune of 55.94 per cent in medium-term non-agricultural loans. Shortterm and medium-term agricultural loans recorded 79.96 and 64.11 per cent as average recovery. The proportion of recovery out of demand remained almost stagnant in all types of loans. This indicated that level of recovery was stagnant in high profitability DCCBs in Haryana. Thus, there is need to increase the proportion of recovery, particularly in the case of medium-term agricultural and non-agricultural loans. AVERAGE PROFITABILITY DCCBs IN HARYANA Trend Analysis It is obvious from Table 6.11 that total recovery increased significantly at a compound growth rate of 14.82 per cent per annum from 17630 lakh in 1999-00 to 54108 lakh in 2007-08 in average profitability DCCBs in Haryana. It is encouraging to note a significant increase in recovery of all types of loans. The compound growth rate was the highest to the order of 99.27 per cent in the case of other loans, followed by 48.00 per cent in medium-term agricultural loan. The rate of increase was found to be the lowest to the tune of 3.27 per cent in the case of medium-term non-agricultural loan, followed by 12.83 per cent in the case of short-term agricultural loan and 18.39 per cent in recovery of short-term non-agricultural loan in average profitability DCCBs in Haryana. 151

Table 6.11 : Trends in Loans Recovery in Average Profitability DCCBs in Haryana:1999-00 to 2007-08 ( in lakh) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 15435 1596 110 486 3 17630 2000-01 17613 1630 94 468 246 20051 2001-02 14762 2331 126 500 10 17729 2002-03 16592 3575 211 516 10 20904 2003-04 24851 4255 969 517 30 30622 2004-05 28702 4461 1140 528 37 34868 2005-06 30813 2433 950 558 600 35354 2006-07 32283 2467 1133 536 1511 37930 2007-08 36136 13628 1455 669 2220 54108 Average 24131.89 4041.78 687.56 530.89 518.56 29910.67 C.V. 34.03 92.63 79.14 10.98 155.69 40.64 C.G.R. 12.83 18.39 48.00 3.27 99.27 14.82 t-value 6.75*** 2.39** 5.22*** 4.30*** 2.44** 7.94*** Trend Equation Constant 9879.72-268.97-235.28 442.22-637.28 9180.42 Beta 2850.43 862.15 184.57 17.73 231.17 4146.05 t-value 8.11*** 2.15* 6.64*** 3.99*** 3.34*** 6.92*** Note : *** Significant at 1% level ** Significant at 5 % level *Significant at 10 % level Recovery in relation to Demand Table 6.12 brings out that on the average the proportionate share of recovery out of total demand for loan appeared to be 77.95 per cent. It was highest to the order of 83.45 per cent in the case of short-term non-agricultural loan and lowest to the tune of 45.49 per cent in other loans. Average recovery performance in shortterm agricultural loans was 77.54 per cent and it was 78.22 per cent in medium-term 152

agricultural loans. The increase in proportion of recovery out of demand was found to be significant in the case of short-term non-agricultural loan. The proportion of recovery of all other types of loans registered almost stagnation in average profitability DCCBs in Haryana. Table 6.12 : Recovery in relation to Demand for Loan in Average Profitability DCCBs in Haryana:1999-00 to 2007-08 (Percentage) Year Short-term Medium-term Other Total Agrl. Non-Agrl Agrl. Non- Agrl. Loans Loans 1999-00 76.63 73.55 89.43 58.84 100.00 75.79 2000-01 77.65 74.36 86.24 72.45 80.66 77.31 2001-02 76.40 77.86 76.36 78.86 13.33 76.45 2002-03 77.15 81.36 47.10 79.75 13.33 77.22 2003-04 78.42 87.86 82.26 78.45 7.46 78.98 2004-05 81.35 89.08 87.42 75.32 8.79 81.63 2005-06 79.96 84.83 80.30 74.60 40.49 78.89 2006-07 75.79 85.01 75.43 70.07 69.38 75.95 2007-08 74.52 97.16 79.46 71.70 76.00 79.33 Average 77.54 83.45 78.22 73.34 45.49 77.95 C.V. 2.72 9.08 16.15 8.73 80.00 2.45 C.G.R. -0.07 3.01-0.26 0.87 0.43 0.41 t-value 0.18 5.33*** 0.10 0.70 0.03 1.39 Trend Equation Constant 77.77 71.10 80.23 70.72 52.17 76.33 Beta -0.04 2.47-0.40 0.52-1.33 0.32 t-value 0.15 5.21*** 0.23 0.61 0.27 1.38 Note : *** Significant at 1% level LOW PROFITABILITY DCCBs IN HARYANA Trend Analysis Table 6.13 shows that total recovery of loans increased significantly at the growth rate of 7.82 per cent compounded annually from 38860 lakh in 1999-00 to 153

67531 lakh in 2007-08 in low profitability DCCBs in Haryana. Similarly, the recovery of short-term agricultural loans increased significantly from 28402 lakh to 59013 lakh during the same period. Table 6.13: Trends in Loans Recovery in Low Profitability DCCBs in Haryana : 1999-00 to 2007-08 ( in lakh) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 28402 7832 577 985 1064 38860 2000-01 34178 2762 330 750 2206 40226 2001-02 31223 4739 196 735 12 36905 2002-03 31547 6658 136 330 147 38818 2003-04 39832 5798 741 518 139 47028 2004-05 38673 8691 967 517 169 49017 2005-06 49874 7399 1356 493 200 59322 2006-07 50692 5954 1003 499 344 58492 2007-08 59013 6730 985 547 256 67531 Average 40381.56 6284.78 699.00 597.11 504.11 48466.56 C.V. 26.13 28.08 59.86 32.42 140.35 22.73 C.G.R. 9.14 4.87 20.73-6.33-8.77 7.82 t-value 7.36*** 1.07 2.01* 1.89* 0.49 6.64*** Trend Equation Constant 22346.66 5241.36 132.17 830.61 1205.78 29757.55 Beta 3606.90 208.68 113.37-46.70-140.33 3741.92 t-value 7.05*** 0.91 2.93** 2.33* 1.71 6.70*** Note : *** Significant at 1% level ** Significant at 5 % level *Significant at 10 % level A slightly significant increase in the recovery of medium-term agricultural loan (from 577 lakh to 985 lakh) during the same period was also observed. There 154

was almost stagnation in recovery of short- term non-agricultural loan as indicated by the non-significant t-value, while abrupt changes in recovery of other loans (these fluctuated between 12 lakh in 2001-02 and 2206 lakh in 2000-01) turned the growth rate non-significant. A significant decline in the recovery of medium-term non-agricultural loan could be observed in low profitability DCCBs in Haryana. Recovery in relation to Demand Table 6.14 : Recovery in relation to Demand for Loan in Low Profitability DCCBs in Haryana: 1999-00 to 2007-08 (Percentage) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 70.25 91.05 86.64 48.12 97.88 73.55 2000-01 69.83 84.00 87.77 39.31 99.10 70.89 2001-02 70.73 86.97 80.99 40.36 85.71 71.43 2002-03 68.55 87.18 47.72 42.91 16.41 69.81 2003-04 75.36 91.51 79.85 31.74 41.62 75.74 2004-05 70.71 94.13 77.17 48.14 15.13 72.76 2005-06 75.68 91.22 89.45 39.57 15.66 76.00 2006-07 67.30 88.29 88.06 36.99 23.39 67.99 2007-08 71.36 91.06 105.80 37.26 15.27 71.71 Average 71.08 89.49 82.60 40.49 45.57 72.21 C.V. 3.94 3.46 18.73 13.07 82.51 3.64 C.G.R. 0.20 0.54 2.51 1.87-22.43-0.10 t-value 0.37 1.23 0.86 1.14 4.36*** 0.20 Trend Equation Constant 70.34 87.13 72.28 44.38 103.82 72.54 Beta 0.15 0.47 2.07-0.78-11.65-0.07 t-value 0.39 1.22 1.04 1.17 4.24*** 0.18 Note : *** Significant at 1% level 155

Table 6.14 presents that the proportion of recovery out of total demand for loan came to be 72.21 per cent on the average of 9 years under study. The proportion of recovery out of demand was the highest to the order of 89.49 per cent in the case of short- term non-agricultural loan while it was lowest to the tune of 40.49 and 45.57 per cent in the case of medium-term non-agricultural loan and other loans. There was a significant decline in proportion of recovery out of demand in the case of other loans. It came down from 97.88 per cent in 1999-00 to only 15.27 per cent in 2007-08. The proportion of recovery out of demand in all other types of loans remained almost stagnant in low profitability DCCBs in Haryana. On the basis of above analysis it can be inferred that absolute recovery had registered a significant growth in all the selected DCCBs in Haryana during the period of study. Average per centage of total recovery to demand during the period of study was 80.64, 77.54 and 72.72 respectively in high, average and low profitability DCCBs. Hence, it may be deduced that profitability had direct correlation with recovery position of DCCBs. Proportionate recovery of shortterm agricultural loan was 79.96, 77.564 and 71.08 per cent respectively in high, average and low profitability DCCBs. ALL SELECTED DCCBs IN HARYANA Trend Analysis A glance at Table 6.15 provides that total recovery of loans increased significantly from 80112 lakh in 1999-00 to 173932 lakh in 2007-08 in all the selected DCCBs in Haryana at the compound growth rate of 10.34 per cent per 156

annum. Similarly, there was a significant increase in recovery of short-term agricultural loans from 62647 lakh to 135254 during the same period. Table 6.15: Trends in Loans Recovery in the Selected DCCBs in Haryana: 1999-00 to 2007-08 ( in lakh) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 62647 11013 796 2015 3641 80112 2000-01 74930 6428 472 2029 4165 88024 2001-02 72543 9057 382 1927 3760 87669 2002-03 73577 13921 833 1257 6917 96505 2003-04 93636 13594 1975 1763 5443 116411 2004-05 103433 15516 2521 1565 11605 134640 2005-06 117529 11893 2863 1495 8244 142024 2006-07 123027 14103 2636 1762 3734 145262 2007-08 135254 23149 3051 2266 10212 173932 Average 95175.11 13186.00 1725.44 1786.56 6413.44 118286.56 C.V. 27.30 35.51 63.53 17.44 47.06 27.47 C.G.R. 10.28 10.48 29.85-0.40 10.31 10.34 t-value 11.31*** 2.97** 4.09*** 0.16 1.83 13.22*** Trend Equation Constant 48962.67 6616.33-121.39 1815.97 3192.86 60467.96 Beta 9242.45 1313.93 369.37-5.88 644.12 11564.42 t-value 11.45*** 3.18** 6.34*** 0.14 1.91* 11.57*** Note : *** Significant at 1% level ** Significant at 5 % level *Significant at 10 % level The increase was also found to be significant in recovery of short-term nonagricultural loans and medium-term agricultural loans. The recovery of short-term non-agricultural loans increased from 11013 lakh in 1999-00 to 23149 lakh in 157

2007-08 while the recovery of medium-term agricultural loans increased from 796 lakh in 1999-00 to 3051 lakh in 2007-08. The abrupt increase in recovery of other loans in 2007-08 turned the increasing trend non-significant. Recovery in relation to Demand Table 6.16 : Recovery in Relation to Demand for Loan in all the Selected DCCBs in Haryana: 1999-00 to 2007-08 (Percentage) Year Short-term Medium-term Other Agrl. Non-Agrl Agrl. Non- Agrl. Loans Total Loans 1999-00 74.30 83.97 82.66 52.53 98.14 75.62 2000-01 74.96 78.53 78.54 54.25 95.81 75.34 2001-02 74.89 81.57 10.52 53.72 97.64 73.65 2002-03 74.02 83.97 62.96 54.49 89.27 75.78 2003-04 76.99 88.19 80.28 50.65 89.32 78.09 2004-05 77.75 89.75 82.25 56.62 88.87 79.57 2005-06 78.25 86.96 83.62 50.24 79.40 78.61 2006-07 73.11 89.93 79.02 51.84 65.54 73.96 2007-08 73.94 92.12 87.35 52.91 81.54 76.17 Average 75.36 86.11 71.91 53.03 87.28 76.31 C.V. 2.44 5.13 33.38 3.78 11.99 2.68 C.G.R. 0.07 1.63 8.06-0.34-3.76 0.25 t-value 0.21 4.34*** 0.84 0.67 3.84*** 0.71 Trend Equation Constant 75.07 79.16 56.44 53.91 103.46 75.33 Beta 0.06 1.39 3.09-0.18-3.23 0.20 t-value 0.22 4.48*** 1.00 0.66 4.21*** 0.72 Note : *** Significant at 1% level The analysis given in Table 6.16 shows that on the average of 9 years under study, the proportion of recovery out of total demand for loans came to be 76.31 per 158

cent. It ranged from as low as 53.03 per cent in the case of medium-term nonagricultural loan to as high as 87.28 per cent in other loans. There was a significant increase in the proportion of recovery out of demand for short-term non-agricultural loan, while in spite of the highest average recovery, the proportion of recovery out of demand for other loans declined significantly at the rate of -3.76 per cent per annum. The overall recovery position of loans demands special attention in certain areas of loans, particularly in the case of other loans where there has been a declining trend. The stagnation in the proportion of recovery out of demand for other types of loans is also a cause of concern for the selected DCCBs in Haryana. Comparison of Loans Recovery in Punjab and Haryana Table 6.17: Comparison of Loans Recovery in DCCBs in Punjab and Haryana during 1999-00 to 2007-08 ( in lakh) Recovery Punjab Haryana Mean SD Mean SD t-value ST-Agrl. 80578 25068 95175 25983 1.21 ST-Non Agrl. 4009 2072 13186 4682 5.38*** MT-Agrl. 861 311 1725 1096 2.28** MT-Non Agrl. 5993 3061 1787 312 4.10*** Others 5241 2152 6413 3018 0.95 Total 96682 31876 118287 32493 1.42 Note : *** Significant at 1% level ** Significant at 5 % level Table 6.17 presents the comparison of average recovery of different types of loans in DCCBs in Punjab and Haryana. The total mean recovery came to be 96682 159

lakh in Punjab which was statistically at par with 118287 lakh in Haryana as indicated by the non-significant t-value. However, the mean recovery of short-term non-agricultural loan and medium-term agricultural loan was significantly higher in Haryana as compared to that in Punjab. On the other hand, the recovery of mediumterm non-agricultural loan was significantly higher in DCCBs in Punjab as compared to that in DCCBs in Haryana. Table 6.18 explains that proportion of recovery out of demand for loan appeared to be 88.98 per cent in DCCBs in Punjab, which was significantly higher than that in DCCBs in Haryana, i.e., 76.31 per cent. The proportion of recovery out of demand for short-term agricultural loan and mediumterm non-agricultural loan was also significantly higher in DCCBs in Punjab as compared to those in DCCBs in Haryana. Table 6.18 : Comparison of Proportion of Recovery in Demand for Loan in DCCBs in Punjab and Haryana during 1999-00 to 2007-08 Recovery/Demand Punjab Haryana Mean SD Mean SD ST-Agrl. 91.37 4.82 75.36 1.84 ST-Non Agrl. 85.43 5.19 86.11 4.42 MT-Agrl. 59.68 17.22 71.91 24.00 MT-Non Agrl. 75.04 6.64 53.03 2.00 Others 84.39 5.67 87.28 10.46 Total 88.98 3.97 76.31 2.05 t-value Note : *** Significant at 1% level ** Significant at 5 % level *Significant at 10 % level 160

On the basis of whole analysis, it can be said that the proportion of recovery out of demand for loan was more encouraging in Punjab as compared to the fluctuating and unstable trends in DCCBs in Haryana. Therefore, the recovery management of loans ought to be made efficient in Haryana. NON - PERFORMING ASSETS IN CO-OPERATIVE BANKS The Narasimham Committee (1991) on financial system made several recommendations with regard to reforms in the financial sector. One of the most important recommendations made by the committee relates to the reflection of actual financial health of the banks in their Profit & Loss Accounts and Balance-sheets. The committee recommended that 1. The prudential norms for income recognition should be objective and based on actual record of recovery rather than on any subjective consideration. 2. The classification of assets should be done on the basis of objective criteria which would ensure a uniform and consistent application of norms. 3. The provisioning should be made on the basis of classification of assets into four categories, viz. standard, substandard, doubtful and loss assets. While accepting the above recommendations, RBI issued guidelines to Commercial Banks and the Urban Co-operative Banks to adopt the above system from the year 1992-93. Regional Rural Banks were advised to implement the norms of income recognition and asset classification from the year ending 31 st March, 1996 (Provisioning to be made from the year ending 31 st March, 1997). Further, it was decided by RBI that the prudential norms of income recognition, asset classification and provisioning be extended to the State Co-Operative Banks and the Central Co- 161

operative Banks from the year ending 31 st March, 1997 (PSCB, 2001). RBI (1996) guidelines on the subject are summarised below: (i) INCOME RECOGNITION a) The State Co-operative Banks and Central Co-operative Banks (SCBs/CCBs) should not take the unrealised income to Profit and Loss Account. In States where the SCBs/CCBs are required to take such unrealised income to P and L A/c as per the relative provisions of the State Act/Rules, those banks will have to make full provisions for equivalent amount by charging interest to overdue loans and if such interest remains unrealised, the same may not be taken to income account and matching provision be made. Accrued interest taken into account in the previous year should also be provided in full in cases where the same has become overdue. b) Fees, commission and other income may be treated as income only if the account is classified as Standard. Besides, a matching provision should be created in the extent such items were treated as income in the previous year but not realised in the subsequent year. c) Fees and commission earned as a result of renegotiation or rescheduling of outstanding debit should be recognised on an accrual basis over the period of time covering the renegotiated or rescheduling of credit. d) In the case of credit facilities guaranteed by government overdue interest can be taken to profit and loss account only if matching provision is made. e) The bills purchased /discounted should be treated as overdue if the same remain unpaid. Interest may be charged to search bills and taken to profit and loss account only if matching provision is made. 162

(ii) CLASSIFICATION OF ASSETS As per guidelines of RBI (1996), classification of agricultural and nonagricultural loans is required to be done into two broad categories: Performing Assets (Standard Assets) The borrower accounts which do not disclose any problem and do not carry more than normal risk attached to business qualify for classification as standard assets. In other words, all current loans, short-term agriculture loans and nonagriculture loans which have not become NPAs may be treated as standard assets. Non-Performing Assets The Securitization Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 defined non- performing assets (NPAs) as an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful, or loss assets in accordance with the direction or guidelines relating to assets classification issued by the RBI. NPA is defined generally as a credit facility in respect of which interest and/ or principal in arrears have not been received for one quarter or more. NORMS FOR ASSET CLASSIFICATION Criteria for Classification of Assets On the basis of age of overdues, classification of agricultural and nonagricultural loans is required to be done into the following four categories: (1) Good/Standard Assets Standard asset is one which does not disclose any problem and which does not carry more than normal risk attached to business. Thus, in general, all the current 163

loans, short-term agricultural and non-agricultural loans which have not become NPAs may be treated as standard assets. (2) Sub-standard Assets A non-performing asset may be classified as sub-standard on the basis of the following criteria: a) An asset, which has remained overdue for a period not exceeding 3 years in respect of both agricultural and non-agricultural loans should be treated as sub-standard. b) In the case of all types of term loans, where instalments are overdue for a period not exceeding 3 years, the entire outstanding term loan should be treated as sub-standard. c) An asset, where the terms and conditions of the loan regarding the payment of interest and repayment of principal have been renegotiated or rescheduled after commencement of production, should be classified as sub-standard and should remain so in such category for at least two years of satisfactory performance under renegotiated or rescheduled terms. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling unless there is satisfactory compliance of the above conditions. 3. Doubtful Asset A non-performing asset may be classified as doubtful on the basis of following criteria: a) An asset which has remained overdue for a period exceeding three years in respect of both agricultural and non-agricultural loans should be treated as doubtful. 164

b) In the case of all types of term loans, where instalments are overdue for more than three years, the entire outstandings in term loans should be treated as doubtful. 4. Loss Assets Loss assets are those where loss is identified by the bank/auditors/rbi/ NABARD inspectors but the amount has not been written off wholly or partly. In other words an asset,which is considered unrealisable and/or of such little value that its continuance as a doubtful asset is not worthwhile, should be treated as loss asset. Such loss assets will include overdue loans in which cases (a) decree or execution petitions have been time barred or documents are lost or no other legal proof is available to claim the debt, (b) where the members and their sureties are declared insolvent or have died leaving no tangible assets, (c) where the members have left the areas of operation of the society leaving no property, their sureties have also no means to pay the dues, (d) where the loan is fictitious or when gross misutilisation is noticed, and (e) amounts, which cannot be recovered in case of liquidated societies. (iii) PROVISIONING NORMS ON THE BASIS OF ASSETS CLASSIFICATION Provisioning is necessary, considering the erosion in the value of security charged to the banks over a period of time. Therefore, after the assets of DCCBs/SCBs are classified into various categories (standard, sub-standard, doubtful and loss assets) necessary provision has to be made for the same. The details of provisioning requirements in respect of various categories of assets are mentioned below (RBI, 1996). 165

1. Standard Asset Provision is required to be made as follows: (a) On direct advances to agriculture and SME sectors : 0.25% (b) On all other types of advances : 0.40% 2. Sub-standard Asset A general provision of 10% of the total outstandings in this category may be made. 3. Doubtful Assets (a) 100% is to be made of the extent to which the advance is not covered by realisable value of securities to which the bank has a valid recourse and the realisable value is estimated on a realisation basis (b) Over and above item (a), provision is to be made depending upon the period for which an asset has remained overdue/npa, 20% to 100% of the secured portion (i.e., estimated realisable value of the outstandings on the following basis: Criteria % Provision Overdues above 3 years and up to 4 years 20% Overdues over 4 years, but not exceeding 6 years 30% Overdues exceeding 6 years 100% IV. Loss Asset 1. The entire loss asset should be written off. If the assets are permitted to retain in the books for any reason, 100% of the outstanding thereof should be fully provided for. 166

2. The following aspects, however, may be kept in view while making provisions (RBI, 1996). (i) All agricultural loans may be treated as fully secured as the same are disbursed against charge on land as provided in the respective State Co-operative Societies Acts/Rules. (ii) Liability towards Provident Fund and gratuity should be estimated on actuarial basis and full provided for (iii) Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and life policies are exempted from provisioning. Therefore, the above accounts may not be classified as NPAs/Overdue. (iv) Advances against gold ornaments, government securities and all other kinds of securities are not exempted from provisioning requirements. (v) The investment portfolio of a bank would normally consist of both approved securities (Predominately Government Securities) and Other (shares, debentures and bonds of co-operative and other institutions). Investments in approved securities should be bifurcated into permanent and current investments. Permanent investments are those which banks intend to hold till maturity and current investments are those which banks intend to deal in, i.e., buy and sell on a day-to-day basis. Banks should keep not more than 50% of their investments in permanent category. While the depreciation in respect of permanent investments is not likely to affect their realisable value on maturity, depreciation need not be provided for investments in the permanent category. Investments under current category should be carried at lower of cost value 167

of market value, on a consistent basis. Depreciation in the current investments, if any, should thereof be fully provided for. Banks following a more prudent method of valuation (e.g., all the investments marked to market) should continue to do so and there should not be slip back in their case. Investments should be shown in the balance-sheet net of depreciation. It is, however, open to banks to show the book value of investments, the depreciation there against and net amount of investments separately. As regards valuation of securities other than approved securities these should be valued at lower of cost price or market value. Investment in the shares of cooperative institutions, however, may be valued at carrying cost price. NON-PERFORMING ASSETS IN DCCBs Non-performing assets are a very serious problem in financial institutions. NPAs have been the single most vexing problem faced by the banks. It resulted in deteriorating the process of resources mobilization in terms of non-recovery of loans, loss of interest thereof and the provisions made to accommodate these non-recovered loans. This affects business activity very badly, particularly in terms of re-advancing the loans and hence, earning interest. Banks that have been identified as weak are mainly so because of loss of their income, high carrying cost of NPAs, both in terms of their funding as well as provisioning and general stagnation of operations caused by NPAs in their books. In DCCBs, this problem is more acute due to political interference and subsidized finance (Sabina, 2008). Therefore, it is very much relevant here to study the trends in non-performing assets. PUNJAB DCCBs 168

HIGH PROFITABILITY DCCBs IN PUNJAB Table 6.19: Trends in NPAs in High Profitability DCCBs in Punjab : 1999-00 to 2007-08 ( in lakh) Year Total NPAs Provisions Made Loans Outstanding 1999-00 1135.90 456.80 16361 6.94 2000-01 1375.61 516.67 24329 5.65 2001-02 1996.57 692.19 30013 6.65 2002-03 2758.85 659.43 34445 8.01 2003-04 2605.77 834.42 34615 7.53 2004-05 3054.75 965.61 35286 8.66 2005-06 3045.79 1228.25 39564 7.70 2006-07 3203.91 1924.88 32986 9.71 2007-08 3506.93 2197.57 43632 8.04 Average 2520.45 1052.87 32359.00 7.65 C.V. 33.10 58.98 24.99 15.35 C.G.R. 14.25 21.65 2.06 t-value 5.64*** 11.03*** 0.62 Trend Equation Constant 1073.51 5.70 8.47 Beta 289.39 209.43 0.16 t-value 8.05*** 6.38 0.57 Projections 2014-15 5703.75 3356.58 11.03 2019-20 7150.70 4403.73 11.83 % Change Over 2007-08 2014-15 62.64 52.74 37.23 2019-20 103.90 100.39 47.18 % of NPAs to Loans Outstanding Note : *** Significant at 1% level 169

A cursory look at Table 6.19 reveals that NPAs increased from 1135.90 lakh in 1999-00 to 3506.93 lakh in 2007-08, registering a significant growth at the rate of 14.25 per cent compounded annually. The provisions made also depict a significantly increasing trend from 456.80 lakh to 2197.57 lakh during the same period in high profit DCCBs in Punjab. The rate of increase was higher in provisions (21.65%) as compared to NPAs (14.25%). It shows that these DCCBs had failed to recover their old NPAs and due to ageing of the NPAs provisions had to be made as a higher rate. Hence, recovery of old NPAs is essential for these banks. Trend equation shows that NPAs would increase by 62.64 per cent in 2014-15 and further to 103.90 per cent in 2019-20 over those during 2007-08, if this trend is not checked. The further trend is similar in the case of provisions made against NPAs. The proportion of NPAs in outstanding loans fluctuated between a minimum of 5.65 per cent in 2000-01 to a maximum of 9.71 per cent in 2006-07 with an overall average of 7.65 per cent during the period of study. Compound growth rate of percentage of NPAs to loans outstanding was recorded at 2.06 per annum. AVERAGE PROFITABILITY DCCBs IN PUNJAB The analysis given in Table 6.20 indicates that the NPAs increased from 711.48 lakh in 1999-00 to 2993.76 lakh in 2007-08 registering a significant compound growth rate of 21.26 per cent per annum. The provisions made against NPAs also showed significant increase during this period. This shows that average profitability DCCBs in Punjab used to make proportionate provisions to accommodate NPAs. It can be said that the NPAs would increase by 72.36 per cent in 2014-2015 and 123.83 per cent in 2019-20 over 2007-08 in the average profitability DCCBs in 170