project fo non performing asset

8/12/2019 project fo non performing asset

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A

PROJECT REPORT

ON

Comparative Analysis

on

Non Performing Assets

of

Private And Public Sector Bans

SUBMITTED IN PARTIAL FULFILLMENT OF REQUIRMENT OF PG

PROGRAMME

Session! "#$"%"#$&

Supervised by Submitted

by

Prof' Smriti Sood

JatinC(aud(ary

)niversity business sc(ool *ano+

umar

[Comparative analysis on NPA of Private & Public sector Banks] Page 1[University Business School, Panjab University, Chandigarh]


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Pan+ab university San+eev

umar

c(andigar( ,as Sa(ota

ACKN!"#$%#N'ACKN!"#$%#N'

!ith a dee( sense o) gratitude *e e+(ress our thans to all those *ho have been

instru-ental in the develo(-ent o) the (roject re(ort.

!e are also grate)ul to University Business School, Panjab University, Chandigarh *ho

gave us a valuable o((ortunity o) involving us in real business (roject. !e are greatly

than)ul to Prof' Smriti Sood*hose (ositive attitude, guidance and )aith in our ability

s(urred us to (er)or- *ell.

!e are also indebted to all Ban -anagers, )riends and associates )or their valuable

)eedbac, sti-ulated suggestions and over*hel-ing su((ort *ithout *hich the (roject

*ould not have been a success.

[Comparative analysis on NPA of Private & Public sector Banks] Page /[University Business School, Panjab University, Chandigarh]


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CERT-.-CATE

!e here by declare that the (roject re(ort entitled CO*PARAT-,E ANA/0S-S ON

NON PER.OR*-N1 ASSETS O. PR-,ATE AN2 P)B/-C SECTOR BAN3S

sub-itted in (artial )ul)ill-ent o) the re0uire-ents )or the degree o) &asters o) Business

Ad-inistration to )niversity Business Sc(ool4 Pan+ab )niversity4C(andigar(4 -ndia4are

our original *or and not sub-itted )or the a*ard o) any other degree, di(lo-a, )ello*shi(,

or any other si-ilar title or (ries.

NA*E

S-1NAT)RE

Jatin C(aud(ary

*ano+ umar

San+eev umar

,as Sa(ota

2ate!

Place!



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Table of Contents

'able o) Contents.....................................................................................................................4#+ecutive Su--ary.................................................................................................................5

bjectives6...........................................................................................................................5

7esults6................................................................................................................................8Conclusion6..........................................................................................................................8

7eco--endations6..................................................................................................................8

7#S#A7C9 '9$"%:............................................................................................;'y(e o) 7esearch.................................................................................................................;

Sco(e o) the Study...............................................................................................................;

Sa-(ling (lan......................................................................................................................;

ur objectives......................................................................................................................;

Source o) data collection.....................................................................................................>> crores.'he -agnitude o) NPAs in bans and )inancial institutions is over 7s.1,4>,>>> crores.

!hile gross NPA re)lects the 0uality o) the loans -ade by bans, net NPA !hile gross NPA re)lects the 0uality o) the loans -ade by bans, net NPA

sho*s the actual burden o) bans. No* it is increasingly evident that the -ajor de)aulterssho*s the actual burden o) bans. No* it is increasingly evident that the -ajor de)aulters

are the big borro*ers co-ing )ro- the non?(riority sector. 'he bans and )inancialare the big borro*ers co-ing )ro- the non?(riority sector. 'he bans and )inancial

institutions have to tae the initiative to reduce NPAs in a ti-e bound strategic a((roach.institutions have to tae the initiative to reduce NPAs in a ti-e bound strategic a((roach.

Public sector bans )igure (ro-inently in the debate not only because they Public sector bans )igure (ro-inently in the debate not only because they

do-inate the baning industries, but also since they have -uch larger NPAs co-(ared *ithdo-inate the baning industries, but also since they have -uch larger NPAs co-(ared *ith

the (rivate sector bans. 'his raises a concern in the industry and acade-ia because it isthe (rivate sector bans. 'his raises a concern in the industry and acade-ia because it is

generally )elt that NPAs reduce the (ro)itability o) a bans, *eaen its )inancial health andgenerally )elt that NPAs reduce the (ro)itability o) a bans, *eaen its )inancial health and

erode its solvency.erode its solvency.

=or the recovery o) NPAs a broad )ra-e*or has evolved )or the -anage-ent =or the recovery o) NPAs a broad )ra-e*or has evolved )or the -anage-ent

o) NPAs under *hich several o(tions are (rovided )or debt recovery and restructuring.o) NPAs under *hich several o(tions are (rovided )or debt recovery and restructuring. Bans and =@s have the )reedo- to design and i-(le-ent their o*n (olicies )or recoveryBans and =@s have the )reedo- to design and i-(le-ent their o*n (olicies )or recovery

and *rite?o)) incor(orating co-(ro-ise and negotiated settle-ents.and *rite?o)) incor(orating co-(ro-ise and negotiated settle-ents.

Objectives:Objectives:

'he basic idea behind undertaing the %rand Project on NPA is to6'he basic idea behind undertaing the %rand Project on NPA is to6

1.1. 'o no* the conce(t o) Non Per)or-ing Assets and various tools to -anage NPAs'o no* the conce(t o) Non Per)or-ing Assets and various tools to -anage NPAs

via theoretical analysis.via theoretical analysis.

/./. 'o co-(are level o) NPAs in (ublic and (rivate sector bans and analye their'o co-(are level o) NPAs in (ublic and (rivate sector bans and analye their

)inancial (er)or-ance at di))erent level o) NPAs via co-(arative analysis.)inancial (er)or-ance at di))erent level o) NPAs via co-(arative analysis.

2.2. 'o do a co-(arative analysis o) NPAs in (riority and non?(riority lending by (ublic'o do a co-(arative analysis o) NPAs in (riority and non?(riority lending by (ublic

and (rivate sector bans.and (rivate sector bans.

3.3. 'o do a ratio and trend analysis o) NPAs level in (ublic and (rivate sector bans.'o do a ratio and trend analysis o) NPAs level in (ublic and (rivate sector bans.



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Results:Results:

Coclusio:Coclusio:

Recommendations!



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RESEARC6 *ET6O2O/O10

T!"e o# Rese$%c&T!"e o# Rese$%c&

T(e researc( met(odology adopted for carrying out t(e study 7ere

@n this (roject 2escriptive researc( met(odologies*ere use.

At the )irst stage theoretical study is atte-(ted.

At the second stage 9istorical study is atte-(ted.

At the 'hird stage Co-(arative study o) NPA is undertaen.

Sco"e o# t&e Stu'!Sco"e o# t&e Stu'!

Conce(t o) Non Per)or-ing Asset

%uidelines

@-(act o) NPAs

7easons )or NPAs

Preventive &easures

'ools to -anage NPAs

S$("li) "l$S$("li) "l$'o (re(are this Project *e too )ive bans )ro- (ublic sector as *ell as )ive bans

)ro- (rivate sector.

Ou% objectivesOu% objectives

'he basic idea behind undertaing the %rand Project on NPA is to6

1. 'o no* the conce(t o) Non Per)or-ing Assets and various tools to -anage NPAsvia theoretical analysis.

/. 'o co-(are level o) NPAs in (ublic and (rivate sector bans and analye their

)inancial (er)or-ance at di))erent level o) NPAs via co-(arative analysis.

2. 'o do a co-(arative analysis o) NPAs in (riority and non?(riority lending by (ublic

and (rivate sector bans.

[Comparative analysis on NPA of Private & Public sector Banks] Page ;[University Business School, Panjab University, Chandigarh]


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3. 'o do a ratio and trend analysis o) NPAs level in (ublic and (rivate sector bans.

Sou%ce o# '$t$ collectioSou%ce o# '$t$ collectio

'he data collected )or the study *as secondary as *ell as (ri-ary data in Nature.

[Comparative analysis on NPA of Private & Public sector Banks] Page [University Business School, Panjab University, Chandigarh]


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-ntroduction to t(e topic-ntroduction to t(e topic

'he three letters NPAD Strie terror in baning sector and business circle today. NPA is

short )or- o) Non Per)or-ing AssetD. 'he dreaded NPA rule says si-(ly this6 *hen

interest or other due to a ban re-ains un(aid )or -ore than8# days, the entire ban loan

auto-atically turns a non (er)or-ing asset. 'he recovery o) loan has al*ays been (roble-

)or bans and )inancial institution. 'o co-e out o) these )irst *e need to thin is it (ossible

to avoid NPA, no can not be then le)t is to loo a)ter the )actor res(onsible )or it and

-anaging those )actors.

2efinitions!2efinitions!

An asset, including a leased asset, beco-es non?(er)or-ing *hen it ceases to generate

inco-e )or the ban.

A Enon?(er)or-ing assetF NPA *as de)ined as a credit )acility in res(ect o) *hich the

interest andG or instal-ent o) (rinci(al has re-ained E(ast dueF )or a s(eci)ied (eriod o)

ti-e.

!ith a vie* to -oving to*ards international best (ractices and to ensure greater

trans(arency, it has been decided to ado(t the E*+ '$!s, ove%'ue,nor- )or identi)ication o)

NPAs, )ro- the year ending &arch 21, />>3. Accordingly, *ith e))ect )ro- &arch 21,

/>>3, a non?(er)or-ing asset NPA shall be a loan or an advance *hereH

@nterest andG or instal-ent o) (rinci(al re-ain overdue )or a (eriod o) -ore

than days in res(ect o) a ter- loan,



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'he account re-ains Eout o) orderF )or a (eriod o) -ore than days, in

res(ect o) an verdra)tGCash Credit $GCC,

'he bill re-ains overdue )or a (eriod o) -ore than days in the case o) bills

(urchased and discounted,

@nterest andGor instal-ent o) (rinci(al re-ains overdue )or t*o harvest seasons

but )or a (eriod not e+ceeding t*o hal) years in the case o) an advance granted

)or agricultural (ur(oses, and

Any a-ount to be received re-ains overdue )or a (eriod o) -ore than days

in res(ect o) other accounts.

As a )acilitating -easure )or s-ooth transition to days nor-, bans have been

advised to -ove over to charging o) interest at -onthly rests, by A(ril 1, />>/. 9o*ever,

the date o) classi)ication o) an advance as NPA should not be changed on account o)

charging o) interest at -onthly rests. Bans should, there)ore, continue to classi)y an

account as NPA only i) the interest charged during any 0uarter is not serviced )ully *ithin

1;> days )ro- the end o) the 0uarter *ith e))ect )ro- A(ril 1, />>/ and days )ro- the

end o) the 0uarter *ith e))ect )ro- &arch 21, />>3.

6-STOR0 O. -N2-AN BAN3-N1

[Comparative analysis on NPA of Private & Public sector Banks] Page 1/[University Business School, Panjab University, Chandigarh]


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Aban is a )inancial institution that (rovides baning and other )inancial services. By the

ter- b$-is generally understood an institution that holds a Baning "icenses. Baning

licenses are granted by )inancial su(ervision authorities and (rovide rights to conduct the

-ost )unda-ental baning services such as acce(ting de(osits and -aing loans. 'here are

also )inancial institutions that (rovide certain baning services *ithout -eeting the legal

de)inition o) a ban, a so?called Non?ban. Bans are a subset o) the )inancial services

industry.

'he *ord b$-is derived )ro- the @talian b$c$.*hich is derived )ro- %er-an and -eans

bench. 'he ter-s banru(t and IbroeI are si-ilarly derived )ro- b$c$ %ott$, *hich re)ers

to an out o) business ban, having its bench (hysically broen. &oneylenders in Northern@taly originally did business in o(en areas, or big o(en roo-s, *ith each lender *oring

)ro- his o*n bench or table.

'y(ically, a ban generates (ro)its )ro- transaction )ees on )inancial services or the interest

s(read on resources it holds in trust )or clients *hile (aying the- interest on the asset.

$evelo(-ent o) baning industry in @ndia )ollo*ed belo* stated ste(s.

Baning in @ndia has its origin as early as the Jedic (eriod. @t is believed that the

transition )ro- -oney lending to baning -ust have occurred even be)ore &anu,

the great 9indu urist, *ho has devoted a section o) his *or to de(osits and

advances and laid do*n rules relating to rates o) interest.

Baning in @ndia has an early origin *here the indigenous baners (layed a very

i-(ortant role in lending -oney and )inancing )oreign trade and co--erce. $uring

the days o) the #ast @ndia Co-(any, *as the turn o) the agency houses to carry on

the baning business. 'he %eneral Ban o) @ndia *as )irst oint Stoc Ban to be



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established in the year 18;5. 'he others *hich )ollo*ed *ere the Ban 9industan

and the Bengal Ban.

@n the )irst hal) o) the 1 and the Ban o) &adras

in 1;32. 'hese three bans also no*n as Presidency bans *ere a-alga-ated in

1 and a ne* ban, the @-(erial Ban o) @ndia *as established in 1


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and (rovisioning by bans, on the basis o) objective criteria *as laid do*n by the

7eserve Ban. 'he introduction o) ca(ital ade0uacy nor-s in line *ith international

standards has been another i-(ortant -easure o) the re)or-s (rocess.

1. Co-(rises balance o) e+(ired loans, co-(ensation and other bonds such as

National 7ural $evelo(-ent Bonds and Ca(ital @nvest-ent Bonds. Annuity

certi)icates are e+cluded.

/. 'hese re(resent -ainly non? negotiable non? interest bearing securities issued to

@nternational =inancial @nstitutions lie @nternational &onetary =und,

@nternational Ban )or 7econstruction and $evelo(-ent and Asian $evelo(-ent

Ban.

2. At boo value.

3. Co-(rises accruals under S-all Savings Sche-e, Provident =unds, S(ecial

$e(osits o) Non? %overn-ent

@n the (ost?nationaliation era, no ne* (rivate sector bans *ere allo*ed to be set

u(. 9o*ever, in 1> croreH

iii 'he shares should be listed on the stoc e+changeH

iv 'he head0uarters o) the ban should be (re)erably located in a centre *hich

does not have the head0uarters o) any other banH and

v 'he ban *ill be subject to (rudential nor-s in res(ect o) baning

o(erations, accounting and other (olicies as laid do*n by the 7B@. @t *ill

have to achieve ca(ital ade0uacy o) eight (er cent )ro- the very beginning.



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A high level Co--ittee, under the Chair-anshi( o) Shri &. Narasi-ha-, *as

constituted by the %overn-ent o) @ndia in $ece-ber 1


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1? 1 Un(recedented e+(ansion in geogra(hical coverage, sta)),

business L transaction volu-es and directed lending to

agriculture, SS@ L SB sector

&anual syste-s struggle to handle e+(onential rise in transaction

volu-es ??

utsourcing o) data (rocessing to service bureau begins

Bac o))ice syste-s only in &ultinational &NC bansM o))ices

1


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1> Ne* delivery channels lie A'&, Phone baning and @nternet

baning and convenience o) any branch baning and auto s*ee(

(roducts introduced by ne* (rivate and &NC bans

7etail baning in )ocus, (roli)eration o) credit cards

Co--unication in)rastructure i-(roves and beco-es chea(.

@$7B' sets u( JSA' net*or )or Bans

%ovt. o*ned bans )eel the heat and atte-(t to res(ond using

inter-ediary technology, 'BA i-(le-entation surges ahead

under )iat )ro- Central Jigilance

Co--ission CJC, :/K threat consu-es last t*o years

/>>>?/>>2 Alternate delivery channels )ind *ide consu-er acce(tance

@' Bill (assed lending legal validity to electronic transactions

%ovt. o*ned bans and old (rivate bans start i-(le-enting

CBSs, but initial atte-(ts )ace (roble-s

Bans enter insurance business launch debit cards

Source6 &.:.K9AN, @N$@AN =@NANC@A" S:S:#&D,2rd edition Publication by 'A'A

&c%ra* hill

[Comparative analysis on NPA of Private & Public sector Banks] Page 1;[University Business School, Panjab University, Chandigarh]


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NON PER.OR*-N1 ASSETS 9NPA:

;6AT -S A NPA 9NON PER.OR*-N1 ASSETS: days )ro- the due date. $ue to the i-(rove-ent in the (ay-ent and settle-ent

syste-, recovery cli-ate, u( gradation o) technology in the baning syste- etc, it *as

decided to dis(ense *ith (ast due conce(t, *ith e))ect )ro- &arch 21, />>1. Accordinglyas )ro- that date, a Non (er)or-ing asset shell be an advance *here

i. @nterest andGor install-ent o) (rinci(al re-ain overdue )or a (eriod o) -ore than

1;> days in res(ect o) a ter- loan,

ii. 'he account re-ains Eout o) order E )or a (eriod o) -ore than 1;> days ,in res(ect o)

an overdra)tGcash credit $GCC

[Comparative analysis on NPA of Private & Public sector Banks] Page 1> (ercent o) the e+tent to *hich the )inance is not secured by the realisable value o) the

leased asset. 7ealisable value to be esti-ated on a realistic basis. -n addition to t(e above

(rovision, the )ollo*ing (rovision on the net boo valueo) the secured portionshould be

-ade, de(ending u(on the (eriod )or *hich asset has been doubt)ul6

Period age of provision

U( to one year />

ne to three years 2>

&ore than three years 4>



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/oss assets !%

'he entire asset should be *ritten?o)). @) )or any reason, an asset is allo*ed to re-ain in

boos, 1>> (ercent o) the su- o) the net invest-ent in the lease and the unrealised (ortion

o) )inance inco-e net o) )inance charge co-(onent should be (rovided )or. >net boo

value>:

1uidelines for Provisions under Special1uidelines for Provisions under Special

CircumstancesCircumstances

1overnment guaranteed advances1overnmentguaranteed advances

!ith e))ect )ro- 21 &arch />>>, in res(ect o) advances sanctioned against State%overn-ent guarantee, i) the guarantee is invoed and re-ains in de)ault )or -ore than t*o0uarters 1;> days at (resent, the bans should -ae nor-al (rovisions as (rescribed in

(aragra(h 3.1./ above.

As regards advances guaranteed by State %overn-ents, in res(ect o) *hich guaranteestood invoed as on 21.>2./>>>, necessary (rovision *as allo*ed to be -ade, in a (hased

-anner, during the )inancial years ending 21.>2./>>> to 21.>2./>>2 *ith a -ini-u- o) /4

(ercent each year.

Advances granted under rehabilitation (acages a((roved byAdvances granted under rehabilitation (acages a((roved by

B@=7Gter- lending institutions6B@=7Gter- lending institutions6



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@n res(ect o) advances under rehabilitation (acage a((roved by B@=7Gter- lendinginstitutions, the (rovision should continue to be -ade in res(ect o) dues to the ban on t(e

e5isting credit facilitiesas (er their classi)ication as sub?standard or doubt)ul asset.

As regards the additional )acilities sanctioned as (er (acage )inalised by B@=7 andGor

ter- lending institutions, (rovision on additional )acilities sanctioned need not be -ade )or

a (eriod o) one year)ro- the date o) disburse-ent.

@n res(ect o) additional credit )acilities granted to SS@ units *hich are identi)ied as sic

[as de)ined in 7PC$ circular No.P"N=S.BC.48 G>5.>3.>1G/>>1?/>>/ dated 15 anuary

/>>/] and *here rehabilitation (acagesGnursing (rogra--es have been dra*n by the

bans the-selves or under consortiu- arrange-ents, no (rovision need be -ade )or a

(eriod o) one year.

Advances against term deposits4 NSCs eligible for surrender4Advances against term deposits4 NSCs eligible for surrender4

-,Ps4 3,Ps4 and life policies are e5empted from provisioning-,Ps4 3,Ps4 and life policies are e5empted from provisioning

reDuirements'reDuirements'

6o7ever4 advances against gold ornaments4 government6o7ever4 advances against gold ornaments4 government

securities and all ot(er inds of securities are not e5empted fromsecurities and all ot(er inds of securities are not e5empted from

provisioning reDuirements'provisioning reDuirements'

'reat-ent o) interest sus(ense account6'reat-ent o) interest sus(ense account6



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A-ounts held in @nterest Sus(ense Account should not be reconed as (art o) (rovisions.

A-ounts lying in the @nterest Sus(ense Account should be deducted )ro- the relative

advances and therea)ter, (rovisioning as (er the nor-s, should be -ade on the balances

a)ter such deduction.

Advances covered by #C%CG$@C%C guaranteeAdvances covered by #C%CG$@C%C guarantee

@n the case o) advances guaranteed by $@C%CG#C%C, (rovision should be -ade only )or

the balance in e5cess of the a-ount guaranteed by these Cor(orations. =urther, *hile

arriving at the (rovision re0uired to be -ade )or doubt)ul assets, realisable value o) the

securities should )irst be deducted )ro- the outstanding balance in res(ect o) the a-ount

guaranteed by these Cor(orations and then (rovision -ade as illustrated hereunder6

E6$("le

utstanding Balance 7s. 3 lahs

$@C%C Cover 4> (ercent

Period )or *hich the advance has re-ained

doubt)ul

&ore than 2 years re-ained

doubt)ul

Jalue o) security held

e+cludes *orth o) 7s.

7s. 1.4> lahs

P%ovisio %e2ui%e' to be ($'e

utstanding balance 7s. 3.>> lahs



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"ess6 Jalue o) security held 7s. 1.4> lahs

Unrealised balance 7s. /.4> lahs

"ess6 $@C%C Cover

4>Q o) unrealisable balance

7s. 1./4 lahs

Net unsecured balance 7s. 1./4 lahs

Provision )or unsecured (ortion o) advance 7s. 1./4 lahs 1>> (ercent o)

unsecured (ortion

Provision )or secured (ortion o) advance 7s. >.84 lahs 4> (ercent o)

secured (ortion

'otal (rovision re0uired to be -ade 7s. /.>> lahs

Advance covered by C1TS- guaranteeAdvance covered by C1TS- guarantee

@n case the advance covered by C%'S@ guarantee beco-es non?(er)or-ing, no (rovision

need be -ade to*ards the guaranteed (ortion. 'he a-ount outstanding in e+cess o) the

guaranteed (ortion should be (rovided )or as (er the e+tant guidelines on (rovisioning )or

non?(er)or-ing advances. '*o illustrative e+a-(les are given belo*6

E6$("le I



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Asset classi)ication status6 $oubt)ul &ore than 2 yearsH

C%'S@ Cover 84Q o) the a-ount outstanding or

84Q o) the unsecured a-ount or

7s.1;.84 lah, *hichever is the

least

7ealisable value o) Security 7s.1.4> lah

Balance outstanding 7s.1>.>> lah

"ess 7ealisable value o)security

7s. 1.4> lah

Unsecured a-ount 7s. ;.4> lah

"ess C%'S@ cover 84Q 7s. 5.2; lah

Net unsecured and uncovered

(ortion6

7s. /.1/ lah

Provision ReDuired

Secured (ortion 7s.1.4> lah 7s. >.84 lah 4>Q

Unsecured L uncovered (ortion 7s./.1/ lah 7s. /.1/ lah 1>>Q

'otal (rovision re0uired

7s. /.;8 lah



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E6$("le II

Asset classi)ication status $oubt)ul &ore than 2 yearsH

C%'S@ Cover 84Q o) the a-ount outstanding

or84Q o) the unsecured a-ount or

7s.1;.84 lah, *hichever is the

least

7ealisable value o) Security 7s.1>.>> lah

Balance outstanding 7s.3>.>> lah

"ess 7ealisable value o)

security

7s. 1>.>> lah

Unsecured a-ount 7s. 2>.>> lah

"ess C%'S@ cover 84Q 7s. 1;.84 lah

Net unsecured and uncovered

(ortion6

7s. 11./4 lah

Provision ReDuired

Secured (ortion 7s.1>.>> lah 7s. 4.>> lah 4>Q

Unsecured L uncovered (ortion 7s.11./4 lah 7s.11./4 lah 1>>Q



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'otal (rovision re0uired

7s. 15./4 lah

Tae%out financeTae%out finance

'he lending institution should -ae (rovisions against a Mtae?out )inanceM turning into NPA

(ending its tae?over by the taing?over institution. As and *hen the asset is taen?over by

the taing?over institution, the corres(onding (rovisions could be reversed.

Reserve for E5c(ange Rate .luctuations Account 9RER.A:Reserve for E5c(ange Rate .luctuations Account 9RER.A:

!hen e+change rate -ove-ents o) @ndian ru(ee turn adverse, the outstanding a-ount o)

)oreign currency deno-inated a loan *here actual disburse-ent *as -ade in @ndian

7u(ee *hich beco-es overdue goes u( corres(ondingly, *ith its attendant i-(lications o)

(rovisioning re0uire-ents. Such assets should not nor-ally be revalued. @n case such assets

need to be revalued as (er re0uire-ent o) accounting (ractices or )or any other re0uire-ent,

the )ollo*ing (rocedure -ay be ado(ted6

'he loss on revaluation o) assets has to be booed in the banMs Pro)it L "oss Account.

Besides the (rovisioning re0uire-ent as (er Asset Classi)ication, bans should treat the )ull

a-ount o) the 7evaluation %ain relating to the corres(onding assets, i) any, on account o)

=oreign #+change =luctuation as (rovision against the (articular assets.



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'i-e and e))orts o) -anage-ent is another indirect cost *hich ban has to bear due to

NPA. 'i-e and e))orts o) -anage-ent in handling and -anaging NPA *ould have diverted

to so-e )ruit)ul activities, *hich *ould have given good returns. No* dayFs bans have

s(ecial e-(loyees to deal and handle NPAs, *hich is additional cost to the ban.

Credit loss!%Credit loss!%

Ban is )acing (roble- o) NPA then it adversely a))ect the value o) ban in ter-s o) -aret

credit. @t *ill lose itFs good*ill and brand i-age and credit *hich have negative i-(act to

the (eo(le *ho are (utting their -oney in the bans .



52/99

REASONS .OR NPA!REASONS .OR NPA!

Reasons can be divided in to t7o broad categories!%

A4 Ite%$l F$cto%

B4 E6te%$l F$cto%

7 A 4 Ite%$l F$cto%s:87 A 4 Ite%$l F$cto%s:8

@nternal =actors are those, *hich are internal to the ban and are controllable by bans.

Poor lending decision6

Non?Co-(liance to lending nor-s6

"ac o) (ost credit su(ervision6

=ailure to a((reciate good (ayers6



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#+cessive overdra)t lending6

Non 'rans(arent accounting (olicy6

7 B 4 E6te%$l F$cto%s:87 B 4 E6te%$l F$cto%s:8

#+ternal )actors are those, *hich are e+ternal to bans they are not controllable by bans.

Socio (olitical (ressure6

Chang in industry environ-ent6

#ndangers -acroecono-ic disturbances6

Natural cala-ities

@ndustrial sicness

$iversion o) )unds and *ill)ul de)aults

'i-eG cost overrun in (roject i-(le-entation

"abour (roble-s o) borro*ed )ir-

Business )ailure



54/99

@ne))icient -anage-ent

bsolete technology

Product obsolete

Early symptoms by 7(ic( one can recogniFe aEarly symptoms by 7(ic( one can recogniFe a

performing asset turning in to Non%performingperforming asset turning in to Non%performingassetasset

.our categories of early symptoms!%.our categories of early symptoms!%

%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

9 $ : .inancial!9 $ : .inancial!

Non?(ay-ent o) the very )irst install-ent in case o) ter- loan. Bouncing o) che0ue due to insu))icient balance in the accounts.

@rregularity in install-ent.

@rregularity o) o(erations in the accounts.

Un(aid over due bills.

$eclining Current 7atio.

Pay-ent *hich does not cover the interest and (rinci(al a-ount o) that install-ent.

!hile -onitoring the accounts it is )ound that (artial a-ount is diverted to sisterconcern or (arent co-(any.

9 " : Operational and P(ysical!



55/99

@) in)or-ation is received that the borro*er has either initiated the (rocess o)

*inding u( or are not doing the business.

verdue receivables.

Stoc state-ent not sub-itted on ti-e.

#+ternal non?controllable )actor lie natural cala-ities in the city *here borro*er

conduct his business.

=re0uent changes in (lan.

Non (ay-ent o) *ages.

9 : Attitudinal C(anges!

Use )or (ersonal co-)ort, stocs and shares by borro*er.

Avoidance o) contact *ith ban.

Proble- bet*een (artners.

9 & : Ot(ers!

Changes in %overn-ent (olicies. $eath o) borro*er.

Co-(etition in the -aret.



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Preventive *easurement .or NPAPreventive *easurement .or NPA

E$%l! Reco)itio o# t&e P%oble(:8E$%l! Reco)itio o# t&e P%oble(:8

@nvariably, by the ti-e bans start their e))orts to get involved in a revival (rocess, itFs too

late to retrieve the situation? both in ter-s o) rehabilitation o) the (roject and recovery o)

banFs dues. @denti)ication o) *eaness in the very beginning that is 6 !hen the account

starts sho*ing )irst signs o) *eaness regardless o) the )act that it -ay not have beco-e

NPA, is i-(erative. Assess-ent o) the (otential o) revival -ay be done on the basis o) a

techno?econo-ic viability study. 7estructuring should be atte-(ted *here, a)ter an

objective assess-ent o) the (ro-oterFs intention, bans are convinced o) a turnaround

*ithin a scheduled ti-e)ra-e. @n res(ect o) totally unviable units as decided by the ban, it

is better to )acilitate *inding u(G selling o) the unit earlier, so as to recover *hatever is

(ossible through legal -eans be)ore the security (osition beco-es *orse.

I'eti#!i) Bo%%o5e%s 5it& Geuie Itet:8I'eti#!i) Bo%%o5e%s 5it& Geuie Itet:8[Comparative analysis on NPA of Private & Public sector Banks] Page 45[University Business School, Panjab University, Chandigarh]


57/99

@denti)ying borro*ers

*ith genuine intent )ro- those *ho are non? serious *ith no co--it-ent or stae in revival

is a challenge con)ronting baners. 9ere the role o) )rontline o))icials at the branch level is

(ara-ount as they are the ones *ho has intelligent in(uts *ith regard to (ro-otersF

sincerity, and ca(ability to achieve turnaround. Base don this objective assess-ent, bans

should decide as 0uicly as (ossible *hether it *ould be *orth*hile to co--it additional

)inance.

@n this regard bans -ay consider having GSpecial -nvestigationH o) all )inancial

transaction or business transaction, boos o) account in order to ascertain real )actors that

contributed to sicness o) the borro*er. Bans -ay have (enal o) technical e+(erts *ith

(roven e+(ertise and trac record o) (re(aring techno?econo-ic study o) the (roject o) the

borro*ers.

Borro*ers having genuine (roble-s due to te-(orary -is-atch in )und )lo* or

sudden re0uire-ent o) additional )und -ay be entertained at branch level, and )or this

(ur(ose a s(ecial li-it to such ty(e o) cases should be decided. 'his *ill obviate the need to

route the additional )unding through the controlling o))ices in deserving cases, and hel(

avert -any accounts sli((ing into NPA category.

Ti(eliess $' A'e2u$c! o# %es"ose:8Ti(eliess $' A'e2u$c! o# %es"ose:8

"onger the delay in res(onse, grater the injury to the account and the asset. 'i-e is a crucial

ele-ent in any restructuring or rehabilitation activity. 'he res(onse decided on the basis o)

techno?econo-ic study and (ro-oterFs co--it-ent, has to be ade0uate in ter-s o) e+tend

o) additional )unding and rela+ations etc. under the restructuring e+ercise. 'he (acage o)

assistance -ay be )le+ible and ban -ay loo at the e+it o(tion.

Focus o C$s& Flo5s:8Focus o C$s& Flo5s:8[Comparative analysis on NPA of Private & Public sector Banks] Page 48[University Business School, Panjab University, Chandigarh]


58/99

!hile )inancing, at the ti-e o) restructuring the bans -ay not be guided by the

conventional )und )lo* analysis only, *hich could yield a (otentially -isleading (icture.

A((raisal )or )resh credit re0uire-ents -ay be done by analying )unds )lo* in conjunction

*ith the Cash =lo* rather than only on the basis o) =unds =lo*.

M$$)e(et E##ectiveess:8M$$)e(et E##ectiveess:8

'he general (erce(tion a-ong borro*er is that it is lac o) )inance that leads to sicness

and NPAs. But this -ay not be the case all the ti-e. &anage-ent e))ectiveness in tacling

adverse business conditions is a very i-(ortant as(ect that a))ects a borro*ing unitFs

)ortunes. A ban -ay co--it additional )inance to an aling unit only a)ter basic viability o)the enter(rise also in the conte+t o) 0uality o) -anage-ent is e+a-ined and con)ir-ed.

!here the de)ault is due to dee(er -alady, viability study or investigative audit should be

done it *ill be use)ul to have consultant a((ointed as early as (ossible to e+a-ine this

as(ect. A (ro(er techno? econo-ic viability study -ust thus beco-e the basis on *hich any

)uture action can be considered.

Multi"le Fi$ci):8Multi"le Fi$ci):8

A' $uring the e+ercise )or assess-ent o) viability and restructuring, a Pragmatic and

unified approac( by all the lending bansG =@s as also sharing o) all relevant

in)or-ation on the borro*er *ould go a long *ay to*ard overall success o)

rehabilitation e+ercise, given the (robability o) successG)ailure.

B' @n so-e de)ault cases, *here the unit is still *oring, the ban should -ae sure

that it captures t(e cas( flo7sthere is a tendency on (art o) the borro*ers to

s*itch baners once they de)ault, )or )ear o) getting their cash )lo*s )or)eited, and

ensure that such cash )lo*s are used )or *oring ca(ital (ur(oses. 'o*ard this end,



59/99

there should be regular )lo* o) in)or-ation a-ong consortiu- -e-bers. A ban,

*hich is not (art o) the consortiu-, -ay not be allo*ed to o))er credit )acilities to

such de)aulting clients. Current account )acilities -ay also be denied at non?

consortiu- bans to such clients and violation -ay attract (enal action. 'he Credit

-nformation Bureau of -ndia /td'9C-B-/:-ay be very use)ul )or -eaning)ul

in)or-ation e+change on de)aulting borro*ers once the setu( beco-es )ully

o(erational.

C' @n a )oru- o) lenders, the (riority o) each lender *ill be di))erent. !hile one set o)

lenders -ay be *illing to *ait )or a longer ti-e to recover its dues, another lender

-ay have a -uch shorter ti-e)ra-e in -ind. So it is (ossible that the letter

categories o) lenders -ay be *illing to e+it, even a t a cost by a discounted

settle-ent o) the e+(osure. 'here)ore, any (lan )or restructuringGrehabilitation -ay

tae this as(ect into account.

2' Corporate 2ebt Restructuring -echanis- has been institutionalied in />>1 to

(rovide a ti-ely and trans(arent syste- )or restructuring o) the cor(orate debt o)

7s. /> crore and above *ith the bans and =@s on a voluntary basis and outside the

legal )ra-e*or. Under this syste-, bans -ay greatly bene)it in ter-s o)

restructuring o) large standard accounts (otential NPAs and viable sub?standard

accounts *ith consortiu-G-ulti(le baning arrange-ents.


Credit DefaultCredit Default

Inability to PayInability to Pay Willful defaultWillful default

UnviableUnviable ViableViable

Lok AdalatLok Adalat

Debt RecoveryDebt Recovery

TribunalsTribunalsSecuritization

Act

AssetAsset

ReconstructionReconstruction

o!roiseo!roise

Re"abilitationRe"abilitation

Consortiu #inanceConsortiu #inanceSole $ankerSole $anker

Cor!orate Debt Restructurin%Cor!orate Debt Restructurin%

#res" Issue of#res" Issue of

Ter LoanTer LoanConversionConversion

into WCTLinto WCTL

#res" WC Liit#res" WC Liit Re!"aseent ofRe!"aseent of

Re!ayent PeriodRe!ayent Period


61/99

nce NPA occurred, one -ust co-e out o) it or it should be -anaged in -ost e))icient

-anner. "egal *ays and -eans are there to over co-e and -anage NPAs. !e *ill loo

into each one o) it.

/ill#ul De#$ult :8/ill#ul De#$ult :8

A] "o Adalat and $ebt 7ecovery 'ribunal

B] Securitiation Act

C] Asset 7econstruction

ok Adalat!ok Adalat!

"o Adalat institutions hel( bans to settle dis(utes involving account in

doubt)ulD and lossD category, *ith outstanding balance o) 7s. 4 lah )or co-(ro-ise

settle-ent under "o Adalat. $ebt recovery tribunals have been e-(o*ered to organie

"o Adalat to decide on cases o) NPAs o) 7s. 1> lah and above. 'his -echanis- has

(roved to be 0uite e))ective )or s(eedy justice and recovery o) s-all loans. 'he (rogress

through this channel is e+(ected to (ic u( in the co-ing years.

Debt "e#o$ery %ribunals(D"%)!Debt "e#o$ery %ribunals(D"%)!

'he recovery o) debts due to bans and )inancial

institution (assed in &arch />>> has hel(ed in strengthening the )unction o) $7's.

Provision )or (lace-ent o) -ore than one recovery o))icer, (o*er to attach de)endantFs

(ro(ertyGassets be)ore judg-ent, (enal (rovision )or disobedience o) tribunalFs order or )or

breach o) any ter-s o) order and a((oint-ent o) receiver *ith (o*er o) realiation,

-anage-ent, (rotection and (reservation o) (ro(erty are e+(ected to (rovide necessary



62/99

teeth to the $7's and s(eed u( the recovery o) NPAs in the ti-es to co-e. $7's *hich

have been set u( by the %overn-ent to )acilitate s(eedy recovery by bansG$=@s, have not

been able -ae -uch i-(act on loan recovery due to variety o) reasons lie inade0uate

nu-ber, lac o) in)rastructure, under sta))ing and )re0uent adjourn-ent o) cases. @t is

essential that $7' -echanis- is strengthened and vested *ith a (ro(er en)orce-ent

-echanis- to en)orce their orders. Non observation o) any order (assed by the tribunal

should a-ount to conte-(t o) court, the $7' should have right to initiate conte-(t

(roceedings. 'he $7' should e-(o*ered to sell asset o) the debtor co-(anies and )or*ard

the (roceed to the *inding u( court )or distribution a-ong the lenders

I$bilit! to P$!I$bilit! to P$!

&onsortium arrangements&onsortium arrangements::

Asset classi)ication o) accounts under

consortiu- should be based on the record of recovery of t(e individual member bans

and other as(ects having a bearing on the recoverability o) the advances' !here the

re-ittances by the borro*er under consortiu- lending arrange-ents are (ooled *ith oneban andGor *here the ban receiving re-ittances is not (arting *ith the share o) other

-e-ber bans, the account *ill be treated as not serviced in the boos o) the other -e-ber

bans and there)ore, be treated as NPA. 'he bans (artici(ating in the consortiu- should,

there)ore, arrange to get their share o) recovery trans)erred )ro- the lead ban or get an

e+(ress consent )ro- the lead ban )or the trans)er o) their share o) recovery, to ensure

(ro(er asset classi)ication in their res(ective boos.

Co%"o%$te 'ebt Rest%uctu%i) 9CDR:Co%"o%$te 'ebt Rest%uctu%i) 9CDR:



63/99

B$c-)%ou'B$c-)%ou'

@n s(ite o) their best e))orts and intentions, so-eti-es cor(orate )ind the-selves in )inancial

di))iculty because o) )actors beyond their control and also due to certain internal reasons.

=or the revival o) the cor(orate as *ell as )or the sa)ety o) the -oney lent by the bans and

=@s, ti-ely su((ort through restructuring in genuine cases is called )or. 9o*ever, delay in

agree-ent a-ongst di))erent lending institutions o)ten co-es in the *ay o) such

endeavours.

Based on the e+(erience in other countries lie the U.K., 'hailand, Korea, etc. o)

(utting in (lace institutional -echanis- )or restructuring o) cor(orate debt and need )or a

si-ilar -echanis- in @ndia, a Cor(orate $ebt 7estructuring Syste- has been evolved, as

under 6

ObjectiveObjective

'he objective o) the Cor(orate $ebt 7estructuring C$7 )ra-e*or is to ensure

ti-ely and trans(arent -echanis- )or restructuring o) the cor(orate debts o) viable entities

facing problems4 outside t(e purvie7 of B-.R4 2RT and ot(er legal proceedings4 fort(e benefit of all concerned'@n (articular, the )ra-e*or *ill ai- at (reserving viable

cor(orate that are a))ected by certain internal and e+ternal )actors and -ini-ie the losses

to the creditors and other staeholders through an orderly and coordinated restructuring

(rogra--e.

St%uctu%e:St%uctu%e:

C$7 syste- in the country *ill have a three?tier structure6



64/99

9A: C2R Standing .orum

9B: C2R Empo7ered 1roup

9C: C2R Cell

9A CDR St$'i) Fo%u( :9A CDR St$'i) Fo%u( :

'he C$7 Standing =oru- *ould be the re(resentative general body o) all )inancial

institutions and bans (artici(ating in C$7 syste-. All )inancial institutions and bans

should (artici(ate in the syste- in their o*n interest. C$7 Standing =oru- *ill be a sel)?

e-(o*ered body, *hich *ill lay do*n (olicies and guidelines, guide and -onitor the

(rogress o) cor(orate debt restructuring.

'he =oru- *ill also (rovide an o))icial (lat)or- )or both the creditors and

borro*ers by consultation to a-icably and collectively evolve (olicies and guidelines )or

*oring out debt restructuring (lans in the interests o) all concerned.

'he C$7 Standing =oru- shall co-(rise Chair-an L &anaging $irector,

@ndustrial $evelo(-ent Ban o) @ndiaH &anaging $irector, @ndustrial Credit L @nvest-ent

Cor(oration o) @ndia "i-itedH Chair-an, State Ban o) @ndiaH Chair-an, @ndian Bans

Association and #+ecutive $irector, 7eserve Ban o) @ndia as *ell as Chair-en and

&anaging $irectors o) all bans and )inancial institutions (artici(ating as (er-anent

-e-bers in the syste-. 'he =oru- *ill elect its Chair-an )or a (eriod o) one year and the

(rinci(le o) rotation *ill be )ollo*ed in the subse0uent years. 9o*ever, the =oru- -ay

decide to have a !oring Chair-an as a *hole?ti-e o))icer to guide and carry out the

decisions o) the C$7 Standing =oru-.

A C$7 Core %rou( *ill be carved out o) the C$7 Standing =oru- to assist the

Standing =oru- in convening the -eetings and taing decisions relating to (olicy, on

behal) o) the Standing =oru-. 'he Core %rou( *ill consist o) Chie) #+ecutives o) @$B@,



65/99

@C@C@, SB@, Ban o) Baroda, Ban o) @ndia, Punjab National Ban, @ndian Bans

Association and a re(resentative o) 7eserve Ban o) @ndia.

'he C$7 Standing =oru- shall -eet at least once every si+ -onths and *ould

revie* and -onitor the (rogress o) cor(orate debt restructuring syste-. 'he =oru- *ould

also lay do*n the (olicies and guidelines to be )ollo*ed by the C$7 #-(o*ered %rou(

and C$7 Cell )or debt restructuring and *ould ensure their s-ooth )unctioning and

adherence to the (rescribed ti-e schedules )or debt restructuring. @t can also revie* any

individual decisions o) the C$7 #-(o*ered %rou( and C$7 Cell.

'he C$7 Standing =oru-, the C$7 #-(o*ered %rou( and C$7 Cell described in

)ollo*ing (aragra(hs shall be housed in @$B@. All )inancial institutions and bans shall

share the ad-inistrative and other costs. 'he sharing (attern shall be as deter-ined by the

Standing =oru-.

CDR E("o5e%e' G%ou" $' CDR Cell:CDR E("o5e%e' G%ou" $' CDR Cell:

'he individual cases o) cor(orate debt restructuring shall be decided by the C$7

#-(o*ered %rou(, consisting o) #$ level re(resentatives o) @$B@, @C@C@ "i-ited and SB@as standing -e-bers, in addition to #$ level re(resentatives o) )inancial institutions and

bans *ho have an e+(osure to the concerned co-(any. @n order to -ae the C$7

#-(o*ered %rou( e))ective and broad based and o(erate e))iciently and s-oothly, it *ould

have to be ensured that each )inancial institution and ban, as (artici(ants o) the C$7

syste-, no-inates a (anel o) t*o or three #$s, one o) *ho- *ill (artici(ate in a s(eci)ic

-eeting o) the #-(o*ered %rou( dealing *ith individual restructuring cases. !here,

ho*ever, a ban G )inancial institution has only one #+ecutive $irector, the (anel -ay

consist o) senior o))icials, duly authoried by its Board. 'he level o) re(resentation o)

bansG )inancial institutions on the C$7 #-(o*ered %rou( should be at a su))iciently

senior level to ensure that concerned ban G =@ abides by the necessary co--it-ents

including sacri)ices, -ade to*ards debt restructuring.



66/99

'he #-(o*ered %rou( *ill consider the (reli-inary re(ort o) all cases o) re0uests

o) restructuring, sub-itted to it by the C$7 Cell. A)ter the #-(o*ered %rou( decides that

restructuring o) the co-(any is (ri-a?)acie )easible and the enter(rise is (otentially viable

in ter-s o) the (olicies and guidelines evolved by Standing =oru-, the detailed

restructuring (acage *ill be *ored out by the C$7 Cell in conjunction *ith the "ead

@nstitution.

'he C$7 #-(o*ered %rou( *ould be -andated to loo into each case o) debt

restructuring, e5amine t(e viability and re(abilitation potential of t(e Company and

a((rove the restructuring (acage *ithin a specified time frame of 8# days4or at best 1;>

days o) re)erence to the #-(o*ered %rou(.

'here should be a general authorisation by the res(ective Boards o) the (artici(ating

institutions G bans in )avour o) their re(resentatives on the C$7 #-(o*ered %rou(,

authorising the- to tae decisions on behal) o) their organiation, regarding restructuring o)

debts o) individual cor(orate.

'he decisions o) the C$7 #-(o*ered %rou( shall be )inal and action?re)erence

(oint. @) restructuring o) debt is )ound viable and )easible and acce(ted by the #-(o*ered

%rou(, the co-(any *ould be (ut on the restructuring -ode. @), ho*ever, restructuring is

not )ound viable, the creditors *ould then be )ree to tae necessary ste(s )or i--ediate

recovery o) dues and G or li0uidation or *inding u( o) the co-(any, collectively or

individually.

CDR Cell:CDR Cell:

'he C$7 Standing =oru- and the C$7 #-(o*ered %rou( *ill be assisted by a

C$7 Cell in all their )unctions. 'he C$7 Cell *ill -ae the initial scrutiny o) the

(ro(osals received )ro- borro*ers G lenders, by calling )or (ro(osed rehabilitation (lan and



67/99

other in)or-ation and (ut u( the -atter be)ore the C$7 #-(o*ered %rou(, *ithin one

-onth to decide *hether rehabilitation is (ri-a )acie )easible, i) so, the C$7 Cell *ill

(roceed to (re(are detailed 7ehabilitation Plan *ith the hel( o) lenders and i) necessary,

e+(erts to be engaged )ro- outside. @) not )ound (ri-a )acie )easible, the lenders -ay start

action )or recovery o) their dues.

'o begin *ith, C$7 Cell *ill be constituted in @$B@, &u-bai and ade0uate

-e-bers o) sta)) )or the Cell *ill be de(uted )ro- bans and )inancial institutions. 'he

C$7 Cell -ay also tae outside (ro)essional hel(. 'he initial cost in o(erating the C$7

-echanis- including C$7 Cell *ill be -et by @$B@ initially )or one year and then )ro-

contribution )ro- the )inancial institutions and bans in the Core %rou( at the rate o) 7s.4>

lah each and contribution )ro- other institutions and bans at the rate o) 7s.4 lah each.

All re)erences )or cor(orate debt restructuring by lenders or borro*ers *ill be -ade

to the C$7 Cell. @t shall be the res(onsibility o) the lead institution G -ajor staeholder to

the cor(orate, to *or out a (reli-inary restructuring (lan in consultation *ith other

staeholders and sub-it to the C$7 Cell *ithin one -onth. 'he C$7 Cell *ill (re(are the

restructuring (lan in ter-s o) the general (olicies and guidelines a((roved by the C$7

Standing =oru- and (lace )or the consideration o) the #-(o*ered %rou( *ithin 2> days

)or decision. 'he #-(o*ered %rou( can a((rove or suggest -odi)ications, so, ho*ever,

that a )inal decision -ust be taen *ithin a total (eriod o) days. 9o*ever, )or su))icient

reasons the (eriod can be e+tended -a+i-u- u(to 1;> days )ro- the date o) re)erence to

the C$7 Cell.

Ot&e% #e$tu%es:Ot&e%#e$tu%es:

C$7 *ill be a Non?statutory -echanis-.

C$7 -echanis- *ill be a voluntary syste- based on debtor?creditor agree-ent and

inter?creditor agree-ent.



68/99

'he sche-e *ill not a((ly to accounts involving only one )inancial institution or

one ban. 'he C$7 -echanis- *ill cover only -ulti(le baning accounts G syndication G

consortiu- accounts *ith outstanding e+(osure o) 7s./> crore and above by bans and

institutions.

'he C$7 syste- *ill be a((licable only to standard and sub?standard accounts.

9o*ever, as an interi- -easure, (er-ission )or cor(orate debt restructuring *ill be -ade

available by 7B@ on the basis o) s(eci)ic reco--endation o) C$7 ICore?%rou(I, i) a

-ini-u- o) 84 (er cent by value o) the lenders constituting bans and =@s consent )or

C$7, irres(ective o) di))erences in asset classi)ication status in bansG )inancial institutions.

'here *ould be no reDuirement of t(e account I company being sic4 NPA or being in

default for a specified(eriod be)ore re)erence to the C$7 %rou(. 9o*ever, potentially

viable cases of NPAs 7ill get priority' 'his a((roach *ould (rovide the necessary

)le+ibility and )acilitate ti-ely intervention )or debt restructuring. Prescribing any

-ilestones -ay not be necessary, since the debt restructuring e+ercise is being triggered

by bans and )inancial institutions or *ith their consent. @n no case, the re0uests o) any

cor(orate indulging in *il)ul de)ault or -is)easance *ill be considered )or restructuring

under C$7.

7e)erence to Cor(orate $ebt 7estructuring Syste- could be triggered by i any or

-ore o) the secured creditor *ho have -ini-u- />Q share in either *oring ca(ital or

ter- )inance, or ii by the concerned cor(orate, i) su((orted by a ban or )inancial

institution having stae as in i above.

Le)$l B$sisLe)$l B$sis

'he legal basis to the C$7 -echanis- shall be (rovided by the 2ebtor%Creditor

Agreement 92CA: and the -nter%Creditor Agreement''he debtors shall have to accede



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to the $CA, either at the ti-e o) original loan docu-entation )or )uture cases or at the

ti-e o) re)erence to Cor(orate $ebt 7estructuring Cell. Si-ilarly, all (artici(ants in the

C$7 -echanis- through their -e-bershi( o) the Standing =oru- shall have to enter into a

legally binding agree-ent, *ith necessary en)orce-ent and (enal clauses, to o(erate the

Syste- through laid?do*n (olicies and guidelines.

St$'8Still Cl$use:St$'8Still Cl$use:

ne o) the -ost i-(ortant ele-ents o) $ebtor?Creditor Agree-ent

*ould be >stand still> agreement binding for 8# days4or 1;> days by both sides. Under

this clause, both the debtor and creditors shall agree to a legally binding >stand%still>

7(ereby bot( t(e parties commit t(emselves not to taing recourse to any ot(er legal

action during the Mstand?stillM (eriod, this *ould be necessary )or enabling the C$7 Syste-

to undertae the necessary debt restructuring e+ercise *ithout any outside intervention

judicial or other*ise.

'he @nter?Creditors Agree-ent *ould be a legally binding agree-ent a-ongst the

secured creditors, *ith necessary en)orce-ent and (enal clauses, *herein the creditors

*ould co--it the-selves to abide by the various ele-ents o) C$7 syste-. =urther , the

creditors shall agree that i) K of secured creditors by value4 agree to a debt

restructuring (acage, the sa-e *ould be binding on the re-aining secured creditors.

Accouti) t%e$t(et #o% %est%uctu%e' $ccoutsAccouti) t%e$t(et #o% %est%uctu%e' $ccouts

'he accounting treat-ent o) accounts restructured under C$7 *ould be governed by the

(rudential nor-s indicated in circular $B$. BP. BC. 3.>3; G />>>?>1 dated

&arch 2>, />>1. 7estructuring o) cor(orate debts under C$7 could tae (lace in the

)ollo*ing stages6

[Comparative analysis on NPA of Private & Public sector Banks] Page 5>1. @n the conte+t o) restructuring o) the accounts, the



73/99

)ollo*ing stages at *hich the restructuring G rescheduling G renegotiation o) the ter-s o)

loan agree-ent could tae (lace, can be identi)ied6

Be)ore co--ence-ent o) co--ercial (roductionH

A)ter co--ence-ent o) co--ercial (roduction but be)ore the asset has

been classi)ied as sub standard,

A)ter co--ence-ent o) co--ercial (roduction and a)ter the asset has been

classi)ied as sub standard.

@n each o) the )oregoing three stages, the rescheduling, etc., o) (rinci(al andGor o) interest

could tae (lace, *ith or *ithout sacri)ice, as (art o) the restructuring (acage evolved.

T%e$t(et o# Rest%uctu%e' St$'$%' Accouts:T%e$t(eto# Rest%uctu%e' St$'$%' Accouts:

A rescheduling o) the instal-ents o) principal alone, at any o) the a)oresaid )irst t*o stages

*ould not cause a standard asset to be classi)ied in the sub standard category (rovided the

loanGcredit )acility is )ully secured.

A rescheduling o) interest elementat any o) the )oregoing )irst t*o stages *ould

not cause an asset to be do*ngraded to sub standard category subject to the condition that

the a-ount o) sacri)ice, i) any, in the ele-ent o) interest, measured in present value

terms, is either *ritten o)) or (rovision is -ade to the e+tent o) the sacri)ice involved. =or

the (ur(ose, the )uture interest due as (er the original loan agree-ent in res(ect o) an

account should be discounted to the (resent value at a rate a((ro(riate to the ris category

o) the borro*er i.e., current P"7R the a((ro(riate credit ris (re-iu- )or the borro*er?

category and co-(ared *ith the (resent value o) the dues e+(ected to be received under

the restructuring (acage, discounted on the sa-e basis.



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@n case there is a sacri)ice involved in the a-ount o) interest in (resent value ter-s,

as at b above, the a-ount o) sacri)ice should either be 7ritten off or provision madeto

the e+tent o) the sacri)ice involved.

T%e$t(et o# %est%uctu%e' sub8st$'$%' $ccouts:T%e$t(eto# %est%uctu%e' sub8st$'$%' $ccouts:

A rescheduling o) the instal-ents o) (rinci(al alone, *ould render a sub?standard

asset eligible to be continued in the sub?standard category )or the s(eci)ied (eriod,

providedthe loanGcredit )acility is fully secured.

A rescheduling o) interest ele-ent *ould render a sub?standard asset eligible to becontinuedto be classi)ied insub standardcategory )or the s(eci)ied (eriod subject to the

condition that the a-ount o) sacri)ice, i) any, in the ele-ent o) interest, measured in

present value terms, is either *ritten o)) or (rovision is -ade to the e+tent o) the sacri)ice

involved. =or the (ur(ose, the )uture interest due as (er the original loan agree-ent in

res(ect o) an account should be discounted to the (resent value at a rate a((ro(riate to the

ris category o) the borro*er i.e., current P"7 R the a((ro(riate credit ris (re-iu- )or

the borro*er?category and co-(ared *ith the (resent value o) the dues e+(ected to be

received under the restructuring (acage, discounted on the sa-e basis.

@n case there is a sacri)ice involved in the a-ount o) interest in (resent value ter-s,

as at b above, the a-ount o) sacri)ice should either be *ritten o)) or (rovision -ade to the

e+tent o) the sacri)ice involved. #ven in cases *here the sacri)ice is by *ay o) *rite o)) o)

the pastinterest dues, the asset should continue to be treated as sub?standard.

U" )%$'$tio o# %est%uctu%e' $ccouts:U" )%$'$tio o# %est%uctu%e' $ccouts:

'he sub?standard accounts *hich have been subjected to restructuring etc., *hether in

res(ect o) (rinci(al instal-ent or interest a-ount, by *hatever -odality, *ould be eligible

to be u(graded to the standard category only a)ter the s(eci)ied (eriod i.e., a (eriod o) one



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year a)ter the date *hen )irst (ay-ent o) interest or o) (rinci(al, *hichever is earlier, )alls

due, subject to satis)actory (er)or-ance during the (eriod. 'he a-ount o) (rovision -ade

earlier, net o) the a-ount (rovided )or the sacri)ice in the interest a-ount in (resent value

ter-s as a)oresaid, could also be reversed a)ter the one year (eriod. $uring this one?year

(eriod, the sub?standard asset *ill not deteriorate in its classi)ication i) satis)actory

(er)or-ance o) the account is de-onstrated during the (eriod. @n case, ho*ever, the

satis)actory (er)or-ance during the one?year (eriod is not evidenced, the asset

classi)ication o) the restructured account *ould be governed as (er the a((licable (rudential

nor-s *ith re)erence to the (re?restructuring (ay-ent schedule.

Gee%$l:Gee%$l:

'hese instructions *ould be a((licable to all ty(e o) credit )acilities including

*oring ca(ital li-its, e+tended to industrial units, (rovided they are )ully covered by

tangible securities.

As trading involves only buying and selling o) co--odities and the (roble-s

associated *ith -anu)acturing units such as bottlenec in co--ercial (roduction, ti-e and

cost escalation etc. are not a((licable to the-, these guidelines should not be a((lied to

restructuringG rescheduling o) credit )acilities e+tended to traders.

!hile assessing the e+tent o) security cover available to the credit )acilities, *hich

are being restructuredG rescheduled, collateral security *ould also be reconed, (rovided

such collateral is a tangible security (ro(erly charged to the ban and is not in the intangible

)or- lie guarantee etc. o) the (ro-oterG others.

Ico(e %eco)itioIco(e %eco)itio



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'here *ill be no change in the e+isting instructions on inco-e recognition.

Conse0uently, bans should not recognise inco-e on accrual basis in res(ect o) the (rojects

even though the asset is classi)ied as a standard asset i) the asset is a Inon (er)or-ing assetIin ter-s o) the e+tant instructions. @n other *ords, *hile the accounts o) the (roject -ay be

classi)ied as a standard asset, bans shall recognise inco-e in such accounts only on

realisation on cash basis i) the asset has other*ise beco-e Enon (er)or-ingF as (er the

e+tant delin0uency nor- o) 1;> days. 'he delin0uency nor- *ould beco-e days *ith

e))ect )ro- 21 &arch />>3.

Conse0uently, bans, *hich have *rongly recognised inco-e in the (ast, should

reverse the interest i) it *as recognised as inco-e during the current year or -ae a

(rovision )or an e0uivalent a-ount i) it *as recognised as inco-e in the (revious years.

As regards the regulatory treat-ent o) inco-e recognised as E)unded interestF and

Econversion into e0uity, debentures or any other instru-entF bans should ado(t the

)ollo*ing6

Fu'e' Ite%est:Fu'e' Ite%est:@nco-e recognition in res(ect o) the NPAs, regardless o) *hether

these are or are not subjected to restructuringG reschedulingG renegotiation o) ter-s o) the

loan agree-ent, should be done strictly on cash basis, only on realisation and not i) the

a-ount o) interest overdue has been )unded. @), ho*ever, the a-ount o) )unded interest is

recognised as inco-e, a (rovision )or an e0ual a-ount should also be -ade si-ultaneously.

@n other *ords, any )unding o) interest in res(ect o) NPAs, i) recognised as inco-e, should

be )ully (rovided )or.

Cove%sio ito e2uit!. 'ebetu%es o% $! ot&e%Cove%sio ito e2uit!. 'ebetu%es o% $! ot&e% ist%u(et:ist%u(et: 'he a-ountoutstanding converted into other instru-ents *ould nor-ally co-(rise (rinci(al and the

interest co-(onents. @) the a-ount o) interest dues is converted into e0uity orany ot(er



77/99

instrument, and inco-e is recognised in conse0uence, )ull (rovision should be -ade )or

the a-ount o) inco-e so recognised to o))set the e))ect o) such inco-e recognition. Such

(rovision *ould be in addition to the a-ount o) (rovision that -ay be necessary )or the

de(reciation in the value o) the e0uity or other instru-ents, as (er the invest-ent valuation

nor-s. 9o*ever, i) the conversion o) interest is into e0uity, *hich is 0uoted, interest

inco-e can be recognised at -aret value o) e0uity, as on the date o) conversion, not

e+ceeding the a-ount o) interest converted to e0uity. Such e0uity -ust therea)ter be

classi)ied in the Iavailable )or saleI category and valued at lo*er o) cost or -aret value. @n

case o) conversion o) (rinci(al and Gor interest in res(ect o) NPAs into debentures, such

debentures should be treated as NPA, ab initio, in the sa-e asset classi)ication as *as

a((licable to loan just be)ore conversion and (rovision -ade as (er nor-s. 'his nor-

*ould also a((ly to ero cou(on bonds or other instru-ents *hich see to de)er the liability

o) the issuer. n such debentures, inco-e should be recognised only on realisation basis.

'he inco-e in res(ect o) unrealised interest, *hich is converted into debentures or any

other )i+ed -aturity instru-ent, should be recognised only on rede-(tion o) such

instru-ent. Subject to the above, the e0uity shares or other instru-ents arising )ro-

conversion o) the (rinci(al a-ount o) loan *ould also be subject to the usual (rudential

valuation nor-s as a((licable to such instru-ents.

P%ovisioi)P%ovisioi)

!hile there *ill be no change in the e+tant nor-s on (rovisioning )or NPAs, bans

*hich are already holding (rovisions against so-e o) the accounts, *hich -ay no* be

classi)ied as EstandardF, shall continue to hold the (rovisions and shall not reverse the sa-e.



78/99

S"eci$l C$sesS"eci$l C$ses

A##ounts 'ith temporary defi#ien#ies!A##ounts 'ith temporary defi#ien#ies!

'he classi)ication o) an asset as NPA should be based on the record o) recovery.

Ban should not classi)y an advance account as NPA -erely due to the e+istence o) so-e

de)iciencies *hich are te-(orary in nature such as non?availability o) ade0uate dra*ing

(o*er based on the latest available stoc state-ent, balance outstanding e+ceeding the li-it

te-(orarily, non?sub-ission o) stoc state-ents and non?rene*al o) the li-its on the due

date, etc. @n the -atter o) classi)ication o) accounts *ith such de)iciencies bans -ay )ollo*

the )ollo*ing guidelines6

Bans should ensure that dra*ings in the *oring ca(ital accounts are covered bythe ade0uacy o) current assets, since current assets are )irst a((ro(riated in ti-es o) distress.

$ra*ing (o*er is re0uired to be arrived at based on the stoc state-ent *hich is current.

9o*ever, considering the di))iculties o) large borro*ers, stoc state-ents relied u(on by

the bans )or deter-ining dra*ing (o*er should not be older than three -onths. 'he

outstanding in the account based on dra*ing (o*er calculated )ro- stoc state-ents older



79/99

than three-onths, *ould be dee-ed as irregular. A *oring ca(ital borro*er account *ill

beco-e NPA i) such irregular dra*ings are (er-itted in the account )or a continuous (eriod

o) 1;> days even though the unit -ay be *oring or the borro*erMs )inancial (osition is

satis)actory.

7egular and ad hoc credit li-its need to be revie*edG regularised not later than

three -onths )ro- the due dateGdate o) ad hoc sanction. @n case o) constraints such as non?

availability o) )inancial state-ents and other data )ro- the borro*ers, the branch should

)urnish evidence to sho* that rene*alG revie* o) credit li-its is already on and *ould be

co-(leted soon. @n any case, delay beyond si+ -onths is not considered desirable as a

general disci(line. 9ence, an account *here the regularG ad hoc credit li-its have not been

revie*edG rene*ed *ithin 1;> days )ro- the due dateG date o) ad hoc sanction *ill be

treated as NPA.

A##ounts regularised near about the balan#e sheet date!A##ounts regularised near about the balan#e sheet date!

'he asset

classi)ication o) borro*er accounts *here a solitary or a )e* credits are recorded be)ore the

balance sheet date should be handled *ith care and *ithout sco(e )or subjectivity. !here

the account indicates inherent *eaness on the basis o) the data available, the account

should be dee-ed as a NPA. @n other genuine cases, the bans -ust )urnish satis)actory

evidence to the Statutory AuditorsG@ns(ecting ))icers about the -anner o) regularisation o)

the account to eli-inate doubts on their (er)or-ing status.

Asset &lassifi#ation to be borro'er-'ise and not fa#ility-'iseAsset &lassifi#ation to be borro'er-'ise and not fa#ility-'ise

@t is di))icult to envisage a situation *hen only one )acility to a borro*er beco-es a

(roble- credit and not others. 'here)ore, all the )acilities granted by a ban to a borro*er

*ill have to be treated as NPA and not the (articular )acility or (art thereo) *hich has

beco-e irregular.

[Comparative analysis on NPA of Private & Public sector Banks] Page 8 (er cent o) the value assessed by the ban or

acce(ted by 7B@ at the ti-e o) last ins(ection, as the case -ay be. Such NPAs -ay be

straighta*ay classi)ied under doubt)ul category and (rovisioning should be -ade as

a((licable to doubt)ul assets.

@) the realisable value o) the security, as assessed by the banG a((roved valuesG 7B@

is less than 1> (er cent o) the outstanding in the borro*er accounts, the e+istence o) security

should be ignored and the asset should be straighta*ay classi)ied as loss asset. @t -ay be

either *ritten o)) or )ully (rovided )or by the ban.

Ad$an#es to A&S*SS #eded to &ommer#ial +anks!Ad$an#es to A&S*SS #eded to &ommer#ial +anks!

@n res(ect o)

agricultural advances as *ell as advances )or other (ur(oses granted by bans to ceded

PACSG =SS under the on?lending syste-, only that (articular credit )acility granted to

PACSG =SS *hich is in de)ault )or a (eriod o) t*o harvest seasons not e+ceeding t*o hal)

yearsGt*o 0uarters, as the case -ay be, a)ter it has beco-e due *ill be classi)ied as NPA

and not all the credit )acilities sanctioned to a PACSG =SS. 'he other direct loans L

[Comparative analysis on NPA of Private & Public sector Banks] Page ;>[University Business School, Panjab University, Chandigarh]


81/99

advances, i) any, granted by the ban to the -e-ber borro*er o) a PACSG =SS outside the

on?lending arrange-ent *ill beco-e NPA even i) one o) the credit )acilities granted to the

sa-e borro*er beco-es NPA.

Ad$an#es against %erm Deposits, S&s, ./0/, et#!Ad$an#esagainst %erm Deposits, S&s, ./0/, et#!

Advances against

ter- de(osits, NSCs eligible )or surrender, @JPs, KJPs and li)e (olicies need not be treated

as NPAs. Advances against gold orna-ents, govern-ent securities and all other securities

are not covered by this e+e-(tion.

oans 'ith moratorium for payment of interestoans 'ith moratoriumfor payment of interest

@n the case o) ban )inance given )or industrial (rojects or )or agricultural

(lantations etc. *here -oratoriu- is available )or (ay-ent o) interest, (ay-ent o) interest

beco-es MdueM only a)ter the -oratoriu- or gestation (eriod is over. 'here)ore, such

a-ounts o) interest do not beco-e overdue and hence NPA, *ith re)erence to the date o)

debit o) interest. 'hey beco-e overdue a)ter due date )or (ay-ent o) interest, i) uncollected.

@n the case o) housing loan or si-ilar advances granted to sta)) -e-bers *here

interest is (ayable a)ter recovery o) (rinci(al, interest need not be considered as overdue

)ro- the )irst 0uarter on*ards. Such loansGadvances should be classi)ied as NPA only *hen

there is a de)ault in re(ay-ent o) instal-ent o) (rinci(al or (ay-ent o) interest on the

res(ective due dates

A)%icultu%$l $'v$cesA)%icultu%$l $'v$ces

[Comparative analysis on NPA of Private & Public sector Banks] Page ;1[University Business School, Panjab University, Chandigarh]


82/99

@n res(ect o) advances granted )or agricultural (ur(ose *here interest andGor

instal-ent o) (rinci(al re-ains un(aid a)ter it has beco-e (ast due )or t*o harvest seasons

but )or a (eriod not e+ceeding t*o hal)?years, such an advance should be treated as NPA.

'he above nor-s should be -ade a((licable to all direct agricultural advances as listed at

ite-s 1.1, 1.1./ i to vii, 1.1./ viiia1 and 1.1./ viiib1 o) &aster Circular on

lending to (riority sector No. 7PC$. P"AN. BC. 1/G>3.>1G />>1? />>/ dated 1 August

/>>1. An e+tract o) the list o) these ite-s is )urnished in the Anne+ure @@. @n res(ect o)

agricultural loans, other than those s(eci)ied above, identi)ication o) NPAs *ould be done

on the sa-e basis as non agricultural advances *hich, at (resent, is the 1;> days

delin0uency nor-.

!here natural cala-ities i-(air the re(aying ca(acity o) agricultural borro*ers,

bans -ay decide on their o*n as a relie) -easure ? conversion o) the short?ter-

(roduction loan into a ter- loan or re?schedule-ent o) the re(ay-ent (eriodH and the

sanctioning o) )resh short?ter- loan, subject to various guidelines contained in 7B@

circulars 7PC$.No.P"=S.BC.1/;G>4.>3.>/G5.


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the (ur(ose o) recognition o) inco-e. !ith e))ect )ro- 1st A(ril />>>, advances sanctioned

against State %overn-ent guarantees should be classi)ied as NPA in the nor-al course, i)

the guarantee is invoed and re-ains in de)ault )or -ore than t*o 0uarters. !ith e))ect

)ro- &arch 21, />>1 the (eriod o) de)ault is revised as -ore than 1;> days.

T$-e8out Fi$ce:T$-e8out Fi$ce:

'aeout )inance is the (roduct e-erging in the conte+t o) the )unding o) long?

ter- in)rastructure (rojects. Under this arrange-ent, the institutionGthe ban )inancing

in)rastructure (rojects *ill have an arrange-ent *ith any )inancial institution )or

trans)erring to the latter the outstanding in res(ect o) such )inancing in their boos on a (re?

deter-ined basis. @n vie* o) the ti-e?lag involved in taing?over, the (ossibility o) a

de)ault in the -eanti-e cannot be ruled out. 'he nor-s o) asset classi)ication *ill have to

be )ollo*ed by the concerned banG)inancial institution in *hose boos the account stands

as balance sheet ite- as on the relevant date. @) the lending institution observes that the

asset has turned NPA on the basis o) the record o) recovery, it should be classi)ied

accordingly. 'he lending institution should not recognise inco-e on accrual basis and

account )or the sa-e only *hen it is (aid by the borro*erG taing over institution i) the

arrange-ent so (rovides. 'he lending institution should also -ae (rovisions against any

asset turning into NPA (ending its tae over by taing over institution. As and *hen the

asset is taen over by the taing over institution, the corres(onding (rovisions could be

reversed. 9o*ever, the taing over institution, on taing over such assets, should -ae

(rovisions treating the account as NPA )ro- the actual date o) it beco-ing NPA even

though the account *as not in its boos as on that date.

Post8s&i"(et Su""lie%0s C%e'itPost8s&i"(et Su""lie%0s C%e'it

@n res(ect o) (ost?shi(-ent credit e+tended by the bans covering e+(ort o) goods to

countries )or *hich the #C%CFs cover is available, #@& Ban has introduced a guarantee?

cu-?re)inance (rogra--e *hereby, in the event o) de)ault, #@& Ban *ill (ay the



84/99

guaranteed a-ount to the ban *ithin a (eriod o) 2> days )ro- the day the ban invoes the

guarantee a)ter the e+(orter has )iled clai- *ith #C%C.

Accordingly, to the e+tent (ay-ent has been received )ro- the #@& Ban, the

advance -ay not be treated as a non?(er)or-ing asset )or asset classi)ication and

(rovisioning (ur(oses.

E6"o%t P%oject Fi$ce:E6"o%t P%oject Fi$ce:

@n res(ect o) e+(ort (roject )inance, there could be instances *here the actual

i-(orter has (aid the dues to the ban abroad but the ban in turn is unable to re-it the

a-ount due to (olitical develo(-ents such as *ar, stri)e, UN e-bargo, etc.

@n such cases, *here the lending ban is able to establish through docu-entary

evidence that the i-(orter has cleared the dues in )ull by de(ositing the a-ount in the ban

abroad be)ore it turned into NPA in the boos o) the ban, but the i-(orterMs country is not

allo*ing the )unds to be re-itted due to (olitical or other reasons, the asset classi)ication

-ay be -ade a)ter a (eriod o) one year )ro- the date the a-ount *as de(osited by the

i-(orter in the ban abroad.

A'v$ces u'e% %e&$bilit$tio $""%ove' b! BIFR; TLI:A'v$ces u'e% %e&$bilit$tio $""%ove' b! BIFR; TLI:

Bans are not

(er-itted to u(grade the classi)ication o) any advance in res(ect o) *hich the ter-s have

been re?negotiated unless the (acage o) re?negotiated ter-s has *ored satis)actorily )or a

(eriod o) one year. !hile the e+isting credit )acilities sanctioned to a unit under

rehabilitation (acages a((roved by B@=7Gter- lending institutions *ill continue to be

classi)ied as sub?standard or doubt)ul as the case -ay be, in res(ect o) additional )acilities

sanctioned under the rehabilitation (acages, the @nco-e 7ecognition, Asset Classi)ication

nor-s *ill beco-e a((licable a)ter a (eriod o) one year )ro- the date o) disburse-ent.



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ROLE OF ARCIL :8

'his e-(o*er-ent encouraged the three -ajor (layers in @ndian baning syste-, na-ely,State Ban o) @ndia SB@, @C@C@ Ban "i-ited @C@C@ and @$B@ Ban "i-ited @$B@ to

co-e together to set?u( the )irst A7C. Arcil *as incor(orated as a (ublic li-ited co-(any

on =ebruary 11, />>/ and obtained its certi)icate o) co--ence-ent o) business on &ay 8,

/>>2. @n (ursuance o) Section 2 o) the Securitiation Act />>/, it holds a certi)icate o)

registration dated August />2, issued by the 7eserve Ban o) @ndia 7B@ and o(erates

under (o*ers con)erred under the Securitiation Act, />>/. Arcil is also a I)inancial

institutionI *ithin the -eaning o) Section / h ia o) the 7ecovery o) $ebts due to Bans

and =inancial @nstitutions Act, 1


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Uloc-i) c$"it$l #o% t&e b$-i) s!ste( $' t&e ecoo(!

'he (ri-ary objective o) Arcil is to e+(edite recovery o) the a-ounts loced in

NPAs o) lenders and thereby recycling ca(ital. Arcil thus, (rovides relie) to the

baning syste- by -anaging NPAs and hel( the- concentrate on core baning

activities thereby enhancing shareholders value.

C%e$ti) $ vib%$t ($%-et #o% 'ist%esse' 'ebt $ssets ; secu%ities i I'i$ o##e%i) $

t%$'i) "l$t#o%( #o% Le'e%s

Arcil has -ade success)ul e))orts in )unneling invest-ent )ro- both )ro- do-estic

and international (layers )or )unding these ac0uisitions o) distressed assets, )ollo*ed

by sho*casing the- to (ros(ective buyers. 'his has initiated creation o) a secondary

-aret o) distressed assets in the country besides hastening their resolution. 'he

e))orts o) Arcil *ould lead the countryFs distressed debt -aret to international

standards.

To evolve $' c%e$te si)i#ic$t c$"$cit! i t&e s!ste( #o% 2uic-e% %esolutio o#NPAs b! 'e"lo!i) t&e $ssets o"ti($ll!

!ith a vie* to achieving high delivery ca(abilities )or resolution, Arcil has (ut in

(lace a structure ai-ed at outsourcing the various sub?)unctions o) resolution to

s(ecialied agencies, *herever a((licable under the (rovision o) the Securitisation

Act, />>/. Arcil has also encourage, groo-ed and develo(ed -any such agencies to

enhance its ca(acity in line *ith the gro*th o) its activity.



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ANA/0S-S

=or the (ur(ose o) analysis and co-(arison bet*een (rivate sector and (ublic sector bans,

*e tae )ive?)ive bans in both sector to co-(are the non (er)or-ing assets o) bans. =or

understanding *e )urther bi)urcate the non (er)or-ing assets in (riority sector and non

(riority sector, gross NPA and net NPA in (ercentage as *ell as in ru(ees, de(osit

invest-ent advances.

$e(osit @nvest-ent Advances is the )irst in the analysis because due to these *e can

understand the *here the ban stands in the co-(etitive -aret. As at end o) -arch />>;,

in (rivate sector @C@C@ Ban is the highest de(osit?invest-ent?advances )igures in ru(ees

crore, second is 9$=C Ban and K'AK Ban has least )igures.

@n (ublic sector bans Punjab National Ban has highest de(osit?invest-ent?advances but

*hen *e loo at gra(h )irst three -eans Ban o) Baroda and Ban o) @ndia are al-ost the

si-ilar in nu-bers and $ena Ban is stands )or last in (ublic sector ban. !hen *e

co-(are the (rivate sector bans *ith (ublic sector bans a-ong these bans, *e can



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understand the -ore nu-ber o) (eo(le (re)er to choose (ublic sector bans )or de(osit?

invest-ent.

But *hen *e co-(are the (rivate sector ban @C@C@ Ban *ith the (ublic sector bans

@C@C@ Ban is -ore de(osit?invest-ent )igures and )irst in the all bans.

2EPOS-T%-N,EST*ENT%A2,ANCES 9 RS'CRORE: of bot( sector bans and

comparison among t(em4 year "##%#L'

BAN3 2EPOS-T -N,EST*ENT A2,ANCES

A=-S LM"M #K K8MM$

62.C $##M8 &88& M&"

-C-C- "&&&$ $$$&K& ""KM$M

3OTA3 $M&"& 8$&" $KKK"

-N2)S-N2 $8# MM# $"8K

TOTA/ &ML"L "$#"K #K$

[Comparative analysis on NPA of Private & Public sector Banks] Page ;;[University Business School, Panjab University, Chandigarh]


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