19-01-2013, 04:15 PM
NON PERFORMING ASSETS IN ALLAHABAD BANK
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INTRODUCTION TO THE TOPIC:
The Indian banking sector underwent a major transformation in 1969 when a large number of banks were nationalized. The policy thrust in those days was to spread banking services far and wide into the country side. And this objective was largely achieved.
Bank branches increased rapidly and deposit mobilization rose steadily. This has undeniably aided the process of bringing in large amount of savings into the financial markets for development purposes. Besides, targeted lending to priority sectors they led to capital becoming available to new and small enterprises. The expansion of these services not surprisingly, did not come without any ill effects. loans given the banks are there assets and as the repayment of several of the loans were poor, quality of these assets was steadily deteriorating. Credit allocation became “loan melas”, loan proposal evaluations were slack and as a result repayments were very poor.
The first and fore most casualty of banking sector reforms initiated in the early nineties has been “ non-performing assets”(NPA), which were cutting into the banks bottom lines in two ways-
1 Banks were not able to book interest accrued on such assets
2 They had to make provisions for these NPAs
Over the years, much has been talked about NPAs, which has also become
One of the parameters to decide partial autonomy to be given to select banks. How ever, the emphasis so far has been only on identification and quantification of NPAs rather than on ways to reduce and upgrade them.
Though, the term NPA can notes a financial asset of a commercial bank which has stopped earning an expected reasonable return, it is also a reflection of the productivity of the unit, firm, concern, industry and nation
where that asset is idling.
Viewed with this broad perspective, the NPA is a result of an environment which prevents it from performing up to expected levels.
How ever, the global slow down and the fall of banks world wide give India’s financial system some breathing space to catch up. The problem of NPAs is two fold-
1 Tackling the existing NPAs
2 Preventing a build up for additional NPAs
The NPA level has to be brought down to at least 5% to 6%. For this, Indian banks need to set up evaluation of various credit risks, to develop advance skills in risk management and a need to set up speedy recovery mechanism.
The NPAs in bank balance sheet reflects the health the economy. If the economy is doing well and if all its sectors are doing well, bank NPAs will also show an improvement. Hence, it is a joint responsibility of policy- makers, judiciary, entrepreneurs and bankers to collectively fight this problem.
The banking system in India remains handicapped in the absence of an adequate legal framework to ensure expeditious recovery of loans as also enforcement of security.
A Comprehensive banking legislation and enforcement machinery be put in place not only to reduce the quantum of NPAs but also to ensure that such a framework serves as a deterrent for future defaulters.
“Banks are yet another sector where the rot has already set in!”
It is high time to take stringent measures to curb NPAs and see to it that the “NON-PERFORMING ASSETS” may not turn banks into
“NON-PERFORMING BANKS”, instead, steps should be taken to convert
“NON-PERFORMING ASSETS” into “NOW-PERFORMING ASSETS”.
“It is now or never”.
The study conducted to analyse the importance of NPAs in the banking sector. The study lays emphasis to find out the causes for NPAs, impact of NPAs in ALLAHABAD BANK, management of NPAs and projection of NPAs over the next three years.
The study aims to gain an insight into tha aspect of NPAs and impact of NPAs on the profitability of the bank.
The procedure adopted for the study includes the primary statistical tools to correlate results and analyzing the trend of NPAs in over the last 3 years and projecting the extent of NPAs in the next 3 years in ALLAHABAD BANK.
In India, NPAs, which are considered to be at higher levels than those in other countries, of late, attracted attention of public and the subject of high NPAs in banks has also been frequently raised in various areas. These developments have promoted us to undertake a study of NPAs in banks, to understand the problem, its genesis and influence on banking sector.
NEED AND IMPORTANCE:
Ever since introduction and implementation of prudential norms, management of non performing advances has become the most important issue before the banks.
RBI has therefore advised that banks should have a well-laid recovery management policy approved by the board and the same should be put in place for meticulous compliance so that the level of NPA can be brought down.
Management of Non-performing advances covers both recovery of NPA as also regulars review monitoring of NPA accounts, write off etc in terms of prudential norms issued by RBI.
Apart from up gradation and cash recovery, the bank has introduced several OTS modules aiming at various types of borrowers to ensure recovery through compromise settlement. Further, various modifications are also made for operational aspects of the said OTS modules based on infield experiences/revised norms issued by RBI from time to time and changed banking scenario to make the modules/schemes more effective and fruitful.
Apart from recovery of NPAs, various other important issues like review of NPA accounts, monitoring of suitified accounts. Decreed debts, waiver of legal action in deserving cases, write off of bad debts, delegated authority, appropriation of recovery in NPA accounts, estimation of sacrifice, disclose of information, guidelines in respect of implementation of the securitization Act-2004 and sale of financial asset etc, are also important in day to day functioning of the branches/offices.
AIM OF THE PROJECT :
To assess the impact of role of the non-performing assets (NPA’s) on the profitability of the bank.
OBJECTIVES:
1 To study the nature and cause of NPAs
2 To assess the growth and magnitude of NPAs in ALLAHABAD BANK.
3 To study the measures taken by ALLAHABAD BANK to reduce NPAs.
METHODOLOGY:
1 Personal interviews and discussions are conducted with the officials of the bank.
2 Expert’s opinions soughted on various aspects dealing with NPAs.
3 Analysis of annual report, profit and loss account and balance sheet of ALLAHABAD BANK.
SCOPE OF THE STUDY:
The study is laid on macro level and to find the impact of NPAs in ALLAHABAD BANK. It also analyses the efficiency of recovery measures undertaken by ALLAHABAD BANK.