02-07-2014, 11:13 AM
“A Study on Non-Performing Assets of Bank of Maharashtra
ANALYSIS OF UNIVERSAL COUPLING UNDER DIFFERENT TORQUE.pdf (Size: 786.65 KB / Downloads: 88)
ORIGIN AND HISTORY OF BANK OF MAHARASHTRA
Bank of Maharashtra was registered on September 16, 1935 with an authorized
capital of Rs.10.00 lakh. The Bank actually began its process on 8th October 1936 in pune,
under the chairmanship of Shri.Dhondumama. Sathe. Ever since its inception, Bank of
Maharashtra is known as common man's bank. The Bank's initial help to small units has
given birth to many of today's industrial houses.
The present chairman of Bank of Maharashtra is Shri.Allen C.A. Pereira and consists
of Board of Directors under whom the Bank functions. Bank of Maharashtra has its Head
Office situated at Shivaji nagar in Pune, which is known as Lokmangal karyalay. Later on
in the year 1946, it entered into Karnataka and started its first branch in Hubli. Bank of
Maharashtra began to progress to a great extent and expanded its banking business all over
India. It is amongst the top 14 nationalized banks in India.
In July 1969, Bank of Maharashtra was nationalized along with 13 other banks.
After nationalization, the Bank expanded rapidly and today its branch network comprises of
1375 branches and 30 extension counters spread over 22 states and 2 union territories (as of
31st March 2008). Bank of Maharashtra has the largest network of branches by any Public
sector bank in the state of Maharashtra.
EVOLUTION OF INFORMATION TECHNOLOGY IN BANK OF MAHARASHTRA
Several IT projects, encompassing various facets of modern day banking
have been launched.
1) ATM Project :-
140 new ATM’s were set up during the year. ATM usage registered an
impressive increase during the year. Several value added services like College/Hostel Fee
payment through ATM’s issue of monthly, quarterly, season tickets for suburban train of
IT POLICY AND IS SECURITY POLICY
The Bank has framed a comprehensive IT policy and is security policy with
the assistance of professional of IT security consultants. The policy standards and
procedures have been disseminated to application owners for implementations.
Security awareness training is being conducted for end users on ongoing basis.
INTRODUCTION TO NON-PERFORMING ASSETS
Non Performing Asset means an asset or account of borrower, which has been
classified by a bank or financial institution as sub-standard, doubtful or loss asset, in
accordance with the directions or guidelines relating to asset classification issued by
The Reserve Bank of India.
With a view to move towards internationally accepted norms for asset
classification and income recognition, RBI has been “tightening” the definition of
NPA’s in a phased manner. Thus, from the norm of classifying only those assets as
non-performing which are four quarters past due, which was applicable until 1993,
RBI moved to the norm of three quarters past due in 1994 and then two quarters (90
days) past due in 1995. In 2001, RBI tightened this further by removing the “past
due” concept. As a result, NPA’s are to be recognized 30 days earlier than they
were before 2001. RBI has now advised banks to move to the 90 days norm for
recognizing loans as non-performing with the effect from March 31, 2004.This
tightening of norms, coupled with some years of economic recession, resulted in an
increase in the recognized stock of NPA’s in the Indian Financial System over the
RBI GUIDELINES ON CLASSIFICATION OF BANK ASSETS
Reserve Bank of India (RBI) has issued guidelines on provisioning requirement
with respect to bank advances. In terms of these guidelines, bank advances are mainly,
classified into:-
1). Standard Assets:-
Such an asset is not a non-performing asset. In other words, it carries not more than
normal risk attached to the business.
2). Sub-Standard Assets:-
It is classified as non-performing assets for a period not exceeding 12 months.
3). Doubtful Assets:-
An asset that has remained NPA for a period exceeding 12 months is a doubtful
asset.
4). Loss Assets:-
Here loss is indentified by the bank concerned or by the internal auditors or by the
external auditors or by Reserve Bank of India (RBI) inspection. In terms of RBI
guidelines, as and when an asset become a NPA, such advance would be first classified
as a sub-standard one for a period that should not exceed 12 months and subsequently
as doubtful assets. It should be noted that the above classification is only for the
purpose of computing the amount of provision that should be made with respect to
UNDERLYING REASONS FOR NPAs
following factors contribute to NPAs:-
Internal Factors:-
1). Diversion of funds for expansion/diversification/modernization taking
up new projects, helping/promoting associate concerns.
2). Time/Cost overrun during the project implementation stage.
3). Business (product, marketing, etc) failure.
4). Inefficiency in management.
5). Slackness in credit management and monitoring.
6). Inappropriate technology/technical problems.
7). Lack of co-ordination among leaders.
External Factors:-
1). Recession.
2). Input/Power shortage.
3). Price Escalation.
4). Exchange Rate Fluctuation.
Analysis of Factors Contributing to NPA’s
stupendous scale amongst Commercial Banks and Financial Institutions in the
preceding decade and particularly in the early Nineties would lead to the following
conceptualization:-
PSBs performed creditably all through in respect of all parameters set for them. But
in the early Nineties the truth emerged that PSBs were suffering from acute capital
inadequacy and many of them were depicting negative profitability. This is because
the parameters set for they are functioning were deficient and they did not project
the paramount needs for these corporate goals. Incorrect goals perception and
identification led them to wrong destination.
Pre-reform era witnessed PSBs functioning under the overall control and direction
of the Finance Ministry. Along with Reserve Bank of India (RBI) it
decided/directed all aspects of working of the Bank. Banks were not free to price
their products in competition with each other. They could not freely cater their
funds in the best interest as they considered. It was thus a directed and the role of
bank management was ‘executory
CONCLUSION
The situation calls for an urgent action by all concerned for improvement. Based on
our experience we consider that the branches will have to constantly work to prevent the
NPA virus from contaminating the new credit portfolio. Also concurrently they will have to
reinforce effective strategies to remove the virus from the existing NPA portfolio. The task
although difficult is achievable. Monitoring and follow-up are the key watchwords in the
task of managing and reducing NPAs.
FOCUSED STRATEGIES
Constant follow-up and periodically dialogue with the borrower to know the
prospects of his business and difficulties, if any, faced. Case to case review of
NPAs and replacement of loan to suit the revised income generation pattern so that
he is able to repay dues of the bank as per his generation capacity.
2) Branch recovery team consisting of 2/3 resourceful staff members/officials, should
be formed (if not so) at each critical branch. The team member should be exhorted
to set up recovery endeavours and produce quick tangible results.
3) Establishment of “District Recovery Team” at each District Headquarter with the
help of District Headquarters, with the help of District Co-ordinate’s/Lead
Bank Officers/Nodal Officers of the concerned district to liaise (link) with the
ASSET CLASSIFICATION AS TOOL KIT TO BRING DOWN THE BRANCH NPAs TO THE BEAREST MINIMUM
Credit Appraisal and Advance Monitoring
End use of funds should be monitored by effectively following up QIS statements,
analysing them.
2. Verify the financials submitted by the borower and compare it with that of
assumption made at the time of previous sanction.
3. Pre-sanction visit to the sites of collateral security should invariable be done by the
appraising officers before accepting them as collateral. The field staff branch
manager, division managers, should inspect this at yearly or half yearly intervals.
4. Borowers are willing to furnish any detail on their assets and liabilities and execute
any document before disbursement of loan. Obtain all relevant details and
documents prior to disbursing the loan/advance.
5. Book fresh quality advances and market for such advances. At present we are
financing to those who have approached us. Approach good borrower and bring to
our books. Marketing is the need of hour.
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SUB-STANDARD ASSETS
A sizeable portion of NPA is in sub-standard category. It should be possible to
upgrade account in this segment.
II. Ensure that sub-standard account does not slip down to doubtful and loss category.
III. Efforts should be made to upgrade the account to standard categories NPAs affect
our balance sheet four ways:
a) We cannot book income.
b) Capital adequacy ratio gets affected.
c) NPAs require provisioning from post tax profits.
d) Affects image in international level.
IV. Once the amount become NPA verify whether documentation is in order. If not
rectify it first
DOUBTFUL ASSETS
quality of assets in the NPA categories from sub-standard to doubtful assets and
then to loss assets. One reason could be that appropriate action as mentioned above
is not taken in case of sub-standard assets. Secondly suit field accounts in various
civil courts/debts recovery tribunal is not followed up in the manner required ad or
are getting very little attention. These accounts particularly suit field/decreed
account required constant review at the operating level so that appropriate steps like
enforcing decree, facilitating compromises or write off if need be initiated instead
of holding such un-remunerative accounts on long term basis in your books as
NPAs.
2) Issues raised by advocates should be tackled to get the suits diposed of and
executive the decreased so obtained to reduced the NPAs.
3) Where branches have got backlog in settlement to DICGC claims, such claims
should be followed up rigorously. For this purpose dealing official at the branch
should explore the possibilities of getting the claim settled at an earliest in
consideration with the DICGC Chennai/Mumbai.
EXCESSIVE FOCUS ON CREDIT RISK MANAGEMENT
The most important business implication of the Naps is that it lead to the credit
risk management assuming priority would thus be pre-occupied with recovery
procedures rather than concentrating on expanding business. As already mentioned here
in above, a bank with high level of NPAs would be forced to incurr carrying costs on a
non-income yielding assets. Other consequence would be reduction in interest income,
high level of provisioning, stress on profitability and capital adequacy, gradual decline
in ability to meet steady increase in cost, increased pressure on Net Interest Margin
RURAL ADVANCES AND RECOVERY MANAGEMENT
PROBLEMS OF RECOVERY
There are a number of factors which contribute to the recovery problem, some of
which crop up rights at the inception of the project and before the loan is disbursed.
MANAGING RECOVERY OF RURAL ADVANCES
Our recovery problems can be given fresh looks as under:
Basically each branch engaged in rural lending has to loan for recovery of loans
disbursed by it. The manager should be familiar with the prospects of recovery through
internal and external factor. Knowledge about willful defaulters is equally important.
Thus Three-Pronged Strategy is necessary;
CONCLUSION
NPA is a weapon, which affects bank profitability due to interest income not being
recognized on NPA accounts and loan loss previously incurred to be absorbed from profit
earned. Also the provisions are to be made on the NPA accounts which will reduce the
profits of the Bank. The bank must adopt structured NPAs management policy for
elimination or reducing the NPAs in the Bank.