A STUDY ON MANAGEMENT OF NON-PERFORMING ASSETS IN INDIAN OVERSEAS BANK, PORUR

Presented By,MANIKANDAN.L

2010201039

IOB-INTRODUCTION Founded on : February 10, 1937 Founded By : Mr.M.Ct.M. Chidambaram Chettiar Headquarters : Chennai, India Key Person : Mr.M.Narendra, Chairman & MD IOB was nationalized in 1969 IOB has 2555 domestic and 6 overseas

branches IOB was the first Bank to venture into consumer

credit

IOB, PORUR BRANCH

Branch was established to support W.S. Industries as an extension counter.

Established as a full commercial bank from January 2005

Specialty : Started as an ALL WOMEN branch Employees : 20

NEED FOR THE STUDY

To study the kind of role NPAs play in the operations of the bank

To evaluate and analyze the credit worthiness of the borrower to prevent NPA

To know the variables that are available to control and prevent NPA

To study the financial performance of the bank with respect to NPA and measures adopted to prevent assets from becoming NPA

PROBLEM STATEMENT

As an investor (depositors) or creditors point of view NPA of any co-operative, nationalized or private bank is an important thing in study of the financial position of a bank.

If NPA is greater than the PA, then it would create a problem or can cause failure of a bank in near future.

Main focus is on NPA of the bank because from last ten years, number of banks are becoming failures due to high NPA ratios

So it is very important for success of any bank to maintain PA and having less or zero NPA

RESEARCH OBJECTIVE

PRIMARY OBJECTIVES: To study the magnitude and trend of NPA in IOB,

Porur branch To study the impacts of NPA on the operating

profits of the bank through statistical and comparative ratio analyses.

To perform a comparative analysis with other public and private sector banks with respect to NPA

RESEARCH OBJECTIVE (CONTD.)

SECONDARY OBJECTIVES: To study the existing debt recovery and NPA

management methods To study the strength and weakness in

recovery aspect, and provision created for NPAs

To study the credit worthiness of JK healthcare, the major borrower and defaulter

To offer necessary measures for effective management and prevention of NPAs in the light of our findings.

RESEARCH METHODOLOGY Research Design : Empirical and Analytical Sources of Data: Primary data : Personal interviews with bank

officials and observations Secondary Data : IOB’s Annual Reports IOB’s Quarterly Bulletins IOB’s Website Details of major defaulter from the bank Research articles, other banks’ websites and

reports

WORK DONE TILL NOW

Studying the meaning, classification and importance of NPA

Literature Review Data Collection of NPA details from the bank Collection of details of JK healthcare Identifying the comparative ratios for

financial analysis Formulating the hypotheses for the analysis

HYPOTHESES

There is no significant association between gross NPAs and gross advances

Net NPAs and net advances are not significantly associated

Sub-standard, doubtful and loss assets on an average do not differ significantly

There is no significant reduction in the portion of gross NPAs to gross advances.

The average assets of various sectors not differ significantly.

LITERATURE REVIEW

The challenge of NPAs to public sector banks

Impacts of NPA on banks’ profitability Accounting ratios Factors related to NPA Banks’ lending policy Debt recovery management methods

NPA : NON-PERFORMING ASSET

Meaning:

An asset, including a leased asset, becomes nonperforming when it ceases to generate income for the bank.

A NPA is a loan or an advance where Interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan.

CLASSIFICATION OF ASSETS

 

 

 

Performing Asset (PA) Non Performing Assets (NPA)

Loan Asset

Standard Assets Substandard Doubtful Loss

RBI has specified norms on providing provisions for various classes of NPL as follows:Substandard Assets: 20%Doubtful Assets: 100% of unsecured portion, 20-50% on secured portionLoss Assets: 100%

CONT…. Standard Assets : These are loans which do not

have any problem are less risk. Substandard : A substandard asset would be

one, which has remained NPA for a period less than or equal to 12 months

Doubtful : An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

Loss : A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.

RATIO ANALYSIS

1.GROSS NPA RATIO:

Gross NPA ratio Gross NPA

= -------------------------------- *100

Gross advances

2.NET NPA RATIO

Gross NPA-Provision

Net NPA Ratio =----------------------------------* 100 Gross Advances-Provisions

CONTD.. 3. PROVISION RATIO

Total Provision

Provision Ratio=------------------------*100

Gross NPAs

4. PROBLEM ASSET RATIO

TotalAssets

Problem Asset Ratio = ----------------------*100

GrossNPAs

CONTD..

5. CAPITAL ADEQUACY RATIO

Capital * 100

Capital Adequacy Ratio =---------------------------

Risk Weighted Assets

6. SUB-STANDARD ASSETS RATIO

total substandard assets*100

Substandard Assets =------------------------------------

Ratio Gross NPAs

CONTD..

7.DOUBTFUL ASSET RATIO:

total doubtful assets*100

Doubtful Asset Ratio=-----------------------------

Gross NPAs

8.LOSS ASSET RATIO:

Total Loss Assets*100

Loss Asset Ratio=--------------------------------

Gross NP A

NPA OVER YEARS AT IOB,PORUR

2005 2006 2007 2008 2009 2010 2011 20120

5000000

10000000

15000000

20000000

25000000

30000000

NPA against Year

NPA

OVERVIEW OF WORK TO BE DONE

Data collection of NPA of various banks Performing statistical analysis on the collected data

to test the hypotheses Performing ratio and trend analysis on collected

data Interpretation of analyzed data and representation

of findings Studying existing methods to prevent NPA Offering necessary measures for management and

prevention of NPAs from findings and research