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Unmasking India’sNPA issues – canthe banking sectorovercome thisphase?
B | Unmasking India’s NPA issues
ContentsExecutive summary ................................................2
Is the NPA “crisis” just the tip of the iceberg? .........3
Triggers leading to the NPA predicament .................4
Restructuring applications - need for cautious ..........evaluation ...............................................................6
Perils of third party nexus .......................................8
Inadequacy of existing mechanisms to identifyNPAs .......................................................................9
Declaring NPA borrowers as “wilful defaulter” or“fraud” ................................................................. 10
A slow but steady future outlook ........................... 11
Regulatory sustenance for Banking Inc. ................ 12
Conclusion ............................................................ 13
Survey approach ................................................... 14
1Unmasking India’s NPA issues |
Arpinder SinghPartner and National LeaderFraud Investigation & DisputeServices
Abizer DiwanjiPartner and National LeaderFinancial Services
Mukul ShrivastavaPartnerFraud Investigation & DisputeServices
Introduction
2 | Unmasking India’s NPA issues
Executive summary
Use of forensic audit to ascertainintent of the borrower
91%
Change in political/ regulatoryenvironment leading to
business loss
43%
Remedial measures
Current environment
Root causes
NPA crisis in India is set toworsen
72%
Lapses in the initialborrower due diligence
(pre-sanction)
64%
Diversion of funds tounrelated business/ fraud
87%
Misuse of restructuring norms
72%
Technology and data analytics
warning signals
56%
Developing internal skillsets on credit assessment/evaluation
68%
Need for a mechanism toidentify hidden NPAs
86%
India is seeing a regulatory upheaval in the way the Government is addressing the NPA “crisis”. The road to recovery is longand winding. But bankers are cautiously optimistic that the NPA situation will improve albeit at a slow pace.
3Unmasking India’s NPA issues |
Bankers say,
current debt servicing
Financial Institutions/Non
3.44.2 4.1 4.5 4.6
12.3 2.2 2.5 2.5
9.210.2 10
10.7 11.1
Mar'13 Sep'13 Mar'14 Sep'14 Mar'15
NNPAsGNPAs Overall stressed advances
(in %)*
assets
15%72%
Is the NPA “crisis” just thetip of the iceberg?
The rise of stressed assets
4 | Unmasking India’s NPA issues
While corporate
So the question remains, is the rise in NPAsdue to internal lapses in due diligence at banks or are complexities of business making it
Triggers leading to the NPApredicament
87% 64%
54%
Bankers say,
returns have driven the
5Unmasking India’s NPA issues |
Case study
6 | Unmasking India’s NPA issues
Restructuring applications -need for cautious evaluation
Bankers say,
Aggr
egat
ede
bt-I
NRin
cror
es
Total casesapproved
Cases underconsideration of CDR EG
Cases rejected beforeadmission or approval
1,00,000
2,00,000
3,00,000
4,00,000
5,00,000
0
5cases
122cases
2008-09
1,00,000
2,00,000
3,00,000
4,00,000
5,00,000
0
225cases
520cases (only 15% of the cases have exited sucessfully)
647cases
2014-15 (upto Dec’14)
Aggr
egat
ede
bt-I
NRin
cror
es
CDR cell - Progress Report as on 31 Dec 2014 (since inception) | Total: 647 cases
Analysis of corporates approaching CDR
7Unmasking India’s NPA issues |
Bankers say,
EY Viewpoint
accounts 72% 19%
“Framework for dealing with loanfrauds”,
8 | Unmasking India’s NPA issues
Perils of third party nexus
chartered accountants
people to cast aspersions on the 2 of 3
9Unmasking India’s NPA issues |
•
•
•
•
•
•
According to the respondents, the following areas required substantial focus to enhance
• Periodic reviews of the automated mechanism to check for errors on a proactivebasis
•NPA status
• Enhanced internal skills to reduce dependency on outsourced vendors for managing
Bankers say,
Inadequacy of existingmechanisms to identify NPAs
EY viewpoint
•
•
•
•
•
•
as internal audits and concurrent audits
This highlighted the need to strengthen
86%
10 | Unmasking India’s NPA issues
Declaring NPA borrowers as“wilful defaulter” or “fraud”
Bankers say,
Case study
Detailed background checks revealed
properties and diverted to other business
36% 32%
44%
11Unmasking India’s NPA issues |
Case study
A slow but steady futureoutlook
56%
56%background checks
68%skill sets on credit
47%accounts
25%Market intelligence
12 | Unmasking India’s NPA issues
Regulatory sustenance forBanking Inc.
•banks
•
•
•
13Unmasking India’s NPA issues |
Conclusion
14 | Unmasking India’s NPA issues
Survey approach
44%
22%
11%
10%
10%3%
Business functions of respondents
Credit/ Operations
Others
Legal/ Compliance Asset Recovery Audit/ Finance Vigilance
50%
34%
16%
Corporate loans (INR in crores) held by respondents’ bank
100,000 and above
0 – 30,00030,000 – 100,000
68%
21%
10%
1%Nature of business
A public sector unit A private sector unit A foreign bank A co-operative bank
15Unmasking India’s NPA issues |
Notes
16 | Unmasking India’s NPA issues
FIDS India•
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Our services•
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About EY Fraud Investigation& Dispute Services
17Unmasking India’s NPA issues |
Arpinder Singh Partner and National Leader
Sandeep Baldava Partner
Vivek Aggarwal Partner
Mukul Shrivastava Partner
Anurag Kashyap Partner
Anil Kona Partner
Rajiv Joshi Partner
Yogen Vaidya Partner
Dinesh Moudgil Partner
Jagdeep Singh Partner
Vikram Babbar
Kochi
Kolkata
Pune
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