CHAPTER 7

SUMMARY AND SUGGESTIONS

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 SUMMARY AND SUGGESTIONS

The current study examines the management of non-performing

assets in India's public and private banks. The study is separated into
two sections. The first section discusses the introduction, literature
review, conceptual framework for nonperforming assets (NPA), profile
of selected banks, and research methods. Profiles of selected banks, as
well as the technique used to conduct the research. The study's second
section consists of data collecting and analysis for all selected banks
with NPAs, as well as comparisons of NPAs and related factors with
other banks. It also covers the handling and Management of
nonperforming assets (NPA) in selected public and private sector
banks.

The significant findings are summarised in the paragraphs

that follow. Any country's major goal is to have a good financial
situation, and a healthy financial system is a key aspect in achieving
that goal. All financial markets and services, including all banks and
financial institutions, are referred to as a financial system.

INTENT OF THE STUDY

1. The most important factor of the study's goal is to look at the
characteristics of performing and non-performing assets in the selected
banks, as well as their impact on their financial status.
2. To review the Reserve Bank of India's (RBI) non-performing asset
guidelines, rules, and regulations, as well as their provisioning.
3. To determine the effectiveness of bank strategies through NPA
analysis.

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4. To gain a better understanding of non-performing assets and to try
to bridge the gap between public and private sector banks in order to
reduce the number of defaults that result in non-performing assets.
5. To investigate the factors that lead to the emergence of non-
performing assets.
6. To investigate the management of non-performing assets (NPAs)
using a variety of approaches and plans before to and after providing
loans and advances to clients.
7. Consider the characteristics of performing and non-performing
assets, as well as their impact on a bank's monetary position.

FINDINGS

RESULTS BASED ON STATISTICAL APPLICATIONS

1. It is found that the public sector banks are failure to

manage their Gross NPA in last five years. Whereas, the private
sector banks performance toward managing their gross NPA is far
better than public sector banks.

2. The all selected private sector banks have better

management than selected public sector bank. It indicates proper
management of loans and advances in private sector banks
comparison to public sector banks.

3. Financial management and NPA Management of HDFC is

best among all selected public and private sector banks.

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4. It is also observed that public sector Banks specially PNB
& BOB are failure in managing their Gross NPA during financial
year 2016 to 2020.

5. The mean of Gross NPA of PNB 14.704 is highest in

Selected Public sector banks and mean NPA of ICICI bank 6.834 is
highest in case of selected private sectors banks.

6. The rise in Gross NPA to Gross Advance ratio highest in

case of PNB 14.21 in year 2020 from 12.90 in year 2016, in case of
Axis Bank its rise 4.86 from 1.67 from year 2016 to 2020.

7. Net NPA to Net Advance ratio is much higher in selected

public sector banks in comparison to selected private sector banks
as all three selected public sector banks having higher Net NPA
Ratio then selected all three private sector banks.

8. Net NPA ratio decreased from year 2016 to year 2020 in

SBI bank is 2.23 from 3.81, in PNB 5.78 from 8.61 and in BOB
3.13 from
5.06. So, we can say that in percentage term it’s decreased in public
sector bank but still they have high Net NPA Ratio.

9. Net NPA ratio increased from year 2016 to year 2020 in

HDFC bank is 0.36 from 0.28, in AXIS Bank 1.56 from 0.70, and
in ICICI Bank its decreased 1.41 from 2.67 from year 2016 to 2020.
So, we can say that in percentage term it’s increased highest in Axis
Bank but still all selected private sector banks have low Net NPA
Ratio in comparison to all selected Public Sector banks.

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10. Net NPA to Net Advance ratio highest in PNB (8.00 %)
among selected public sector banks and ICICI Bank (3.16 %) in
selected private sector Banks.

11. The highest mean of net NPA to net Advance is higher in

case of selected public sector banks in comparison from selected
private sector banks.

12. From all selected public and private sector banks HDFC
Banks having least Net NPA to Net Advance ratio which is
impressive just 0.352 %

13. Mean of Net NPA to Net Advance ratio 3.16 is highest in

ICICI Bank in selected all private sector banks.

14. From all selected six banks, condition of private bank is good.
From all private sector banksshareholders risk level is more in
ICICI bank. In case of all public sector bank condition of
shareholders risk is high in case of PNB.

15. It is noted that there is a major variation in gross NPA ratio

due to time changes i.e., from five years from year 2015-16 to year
2019-20. It is also concluded that there is a major fluctuation in
gross NPA ratio in selected public and private sector banks.

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 Results of Hypothesis Testing
Table 7.1 Results of Testing of Hypotheses

Accept /
Hypothesis Reject of
Hypothesis
H01: There is no significant difference in mean variance Rejected
between the Gross NPAs of the Selected Banks.

H02: There is no significant difference in mean variance

between the Net NPAs of the Selected Banks. Rejected

Concluding Remarks
Six top Indian commercial banks, three each from the public and
private sectors, were chosen to study non-performing assets in the
banking industry. Each bank's performance has been thoroughly
examined in terms of Gross NPA and Net NPA, loans and advances,
and efficiency. Finally, using applicable statistical techniques and the
ANOVA Test, we compared performance across several elements of
Non-Performing Assets.

We evaluated and compared the non-performing assets of the

selected banks from 2015-16 to 2019-20 in this research. According to
the findings of the study, private sector banks outperformed selected
public sector banks.

Gross NPAs and net NPAs (both in absolute and relative terms) have
been evaluated for examining the asset quality of the selected public and

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private sector banks. The findings demonstrate that all three of the
public sector banks studied operates inefficiently when it comes to
managing their loan assets. SBI's performance is superior to that of
PNB and BOB. Because non-performing assets (NPAs) result from the
non-recovery of interest and principal on loan assets, evaluating NPAs
can reveal whether or not a bank's recovery performance is sufficient.
However, in this era of fierce competition with private and
international banks, public sector banks must adopt appropriate
methods to reduce nonperforming assets and maximise asset
utilisation. Banks can use the supplied recommendation ways to
accomplish this. Several methods can be taken to reduce NPAs,
including negotiating with borrowers, taking legal action, rating loan
assets, forming an Assets Reconstruction Committee, establishing a
good information system, regular training, monitoring, and reporting,
and so on. However, no single policy or step can reduce NPA levels
because all of these banks operate their banking businesses in society
under government regulations. Economic, cultural, and other
environmental factors differ in different parts of the country,
necessitating special attention or, to put it another way, specialised
financial planning based on social considerations to reduce NPAs,
banks should devise policies that take into account all of these criteria.

Similarly, in the case of selected private sector banks,

satisfactory performance is noted in the area of loan asset management
in the case of HDFC Bank, ICICI Bank, and AXIS Bank, while AXIS
Bank demonstrated ordinary performance. Because all private sector
banks operate in a highly competitive environment, poor loan recovery
and investment will have a significant impact on the financial health of
banks' capacity to compete. To meet the worldwide standard for
nonperforming assets (NPAs), all banks should develop an effective
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strategy or plan to minimise NPAs, taking into account the
environmental and socio-economic conditions in different regions and
for different types of customers in this country.

Following the financial sector reforms, the banking sector has

seen significant operational changes. To cope with the competitive
atmosphere, some new banks have joined the market with some unique
thinking. These new private-sector banks are well-versed in new
technological parameters and are more attentive and focused on
changing consumer wants. For a significant duration, the banking
service was provided by both state and private sector banks in a
controlled economy. Any company's success, particularly banks', is
driven by its internal strength and ability to respond to external
changes. Without exposure to the most recent technical innovations in
bank operations, it is extremely difficult to stay up with the changing
environment.

In today's extremely competitive global world, banks must

demonstrate exceptional performance in a variety of areas. In
conclusion, while both public and private sector banks in India have
seen tremendous growth as a result of the banking sector reforms,
public sector banks continue to lag far behind. To stay up with the
demanding performance of the private sector banks in India as well as
to compete with global players, it may be suggested that PSBs in India
be more efficient in their overall asset management strategy, employee
performance, cost control, and customer-friendly banking operations.
At the same time, they must pay close attention to asset quality and
review NPA accounts on a regular basis.

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 The Reserve Bank of India (RBI) and the Indian government
have implemented a number of reforms to make Indian banks more
competitive and economically sustainable. The current study also
found that while all of the selected banks' performance improved, they
still have a long way to go before they can compete with overseas
banks. Despite operating in a highly competitive market, it can be
argued that Indian banks are gradually improving their financial
performance.

The effectiveness, alertness, operational efficiency, client

orientation, production of huge volumes of performing assets, and
attainment of optimal levels of productivity will all play a role in
banks' future profitability. In the current competitive market, banks
must provide more value-added services to retail consumers, who are
growing increasingly demanding. The key and main variables that will
affect the banking sector in the days ahead will be to enhance
productivity, ensure required standards of customer service and internal
efficiency, and build competitive edge on an ongoing and regular basis
to mass business. It will also be critical to ensure that each
management and employee performs at their best; therefore, proper
upgrading and training will be essential. Another crucial issue that will
determine the banking system's future is banks' ability to develop and
manage enormous volumes of high-quality assets in an ever-increasing
competitive environment or scenario, while also complying to
prudential standards and maintaining mandated levels of capital
adequacy on risk assets. From years ago, productivity and efficiency
would be the watchwords in the banking industry. Continuous skill
development at all levels, the formation of a vision and mission, and
commitment are some of the essential characteristics that the banking
industry will need to pay close attention to in the future. Banks that
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are proactive have adapted promptly to

154
changing customer needs. Only by paying close attention to the shifting
situation will you be able to survive and perform well.

All banks, public and private, should come forward with a

strategic role to serve the society that is commensurate with the
requirements and aspirations of the population so as to reduce poverty
and income disparity as much as possible by giving loans and advances
to various sectors, with a specific focus on priority and weaker sectors,
in order to assist India, emerge as a world leader. The financial
industry will play a critical role in making the country richer and more
self- sufficient in the next years.

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Suggestions

Select banks are going about recovering their dues from borrowers who
have defaulted throughout the years, under the motto "something is
always better than nothing." However, some suggestions are provided
below to increase loan recovery or reduce the current level of
nonperforming assets (NPAs) at selected banks because the causes of
non-performing assets (NPAs) in all of the examined institutions are
nearly universal.

General suggestions related to all selected public and private

sector banks: -

Suggestions at Sectoral level

Priority Sector

 To achieve high levels of recovery in agricultural and priority

sectors, all that is required is a timely review of sufficient credit
requirements and their uses, a sense of missionary zeal among bankers,
and better confidence between the borrower and the creditor, as well as
personal contact.
 When it comes to modest loans, recovery should be done in a way
that benefits both the borrower and the bank. The borrower should be
provided an intimation letter with the due date and amount due from
them well in advance so that he is mentally prepared to repay.
 Preventive measures: These might be implemented during the pre-
sanction period. A thorough examination of the borrower's background
and honesty. The ability of the borrower to handle the things for which

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the loan was obtained and overcome the problems of the business is
more significant.

Non-Priority Sector

 A considerable portion of NPAs is owed to a few large borrowers,

such as public and private sector entities and medium to large
industries. Banks should focus more on recovering debts from major
borrowers, either with a dedicated team or with a special focus on
them.
 A list of delinquent borrowers with debts of one crore or more
should be published in local newspapers to keep them from becoming
wilful defaulters. As a result, other banks would be aware of the
outstanding balances and be on the lookout for these individuals.
Regular defaulters' names should be published in the press on a regular
basis so that such borrowers are unable to obtain loans from other
institutions.
 Interactions and visits to borrowers' homes with relatively
substantial outstanding balances should be held on a regular basis at
various levels to assess their financial situation and take corrective
measures.
 To address the issue of sickness in medium and large accounts,
banks should first create a system that uses the most up-to-date
information technology to identify the signs that an account is about to
become non-performing, and then take corrective action.
 Because rehabilitation may not be sufficient to address the problem
of industrial disease, banks should create an environment conducive to
corporate reorganisation by placing pressure on fund users.
Diversification, mergers and acquisitions, demerger (spinoff), strategic
alliances and joint ventures, outsourcing, privatisation, and other

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approaches are used in business restructuring.

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Suggestions at Asset Category Level

 Doubtful assets require extra attention or care because they account

for the majority of overall NPAs in all of the institutions studied.
 Assets that are doubtful or lost should be evaluated on a monthly
basis, taking into account the borrowers' financial situation. In the case
of assets with full or higher provisions, options should be explored to
swiftly adjust the account through compromise or write-off.
 All sub-standard assets accounts should be discussed by the
controller and the borrower, and a package should be received and
finalised to correct the irregularity and upgrade the account during the
current financial year.
 Structured interventions in possible issue loans, good account
administration or handling, and a time-bound action plan with regular
monitoring are required to prevent asset deterioration.
 Accounts on the verge of becoming NPA are kept under constant
surveillance, and their status is reviewed once a month by calling an
appropriate return on a monthly basis. These accounts should be
checked on a regular basis and action taken when necessary.

Suggestions at Zonal Level

 At the zonal and regional levels, a special recovery cell should be

established, and task officers should be assigned solely to recovery-
related performance.

 A regional recovery team (task force) should be established for

recovery and delegated to high-level NPA Branches.

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 There should be discussions with significant NPA clients about
settling cases out of court (particularly large accounts). Branches with a
high concentration of NPA should be identified and closely monitored.
These branches' branch managers should be contacted at least once a
month to review the status of each NPA account. He should personally
call them and inform them of recovery options and actions.

 Branch managers organising seminars at the zonal/regional level.

These seminars should be addressed by top executives, with a focus on
NPA reduction through effective involvement of staff members in team
activities to raise awareness of the necessity of recovery.

 In all training centres, at least one session on NPA reduction or

how to handle NPAs should be included in each course, which will aid
in the creation of a positive environment and proper comprehension.

Suggestions at Performance Budgeting Level

 NPA reduction targets set for the year should be feasible and
realistic, taking into account cash accruals creation and profitability.

 Effective monitoring and follow-up are necessary to prevent new

additions (fresh incidence) to NPAs, without which quality declines,
resulting in NPAs and negatively impacting the bank's balance sheets.
This should be accomplished using appropriate and up-to-date
information technology solutions, and the bank should hire information
technology specialists who are dedicated to NPA.

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Suggestions at Managerial Level

 The most prevalent reason for a bank's failure is poor management.

When bank chairpersons (leaders of various levels of instructions)
abuse their powers, the bank's performance will undoubtedly suffer. As
a result, all chairpersons should have veto power over the use of bank
funds and even their portion of the bank's capital.
 Bank officials should be made responsible and accountable for
recovery of NPAs.

 Revamping of organization and its management:

 Banks should have a professional board and it should be

responsible and accountable to shareholders.

 Professionals as Chief Executive Officers (CEOs) should be

appointed and they should have freedom to operate and be responsible
and accountable to the board.

Suggestions at Staff Accountability Level

 Banks should take preventative measures or take actions to prevent

personnel breakdowns. Banks will be required to investigate staff
failures, particularly in large accounts, at all stages of the process.

 For the detection of incipient sickness to early warning signals,

risk- based supervision or tool should be used, as well as thorough and
timely account monitoring.

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 Banks should implement a systematic and thorough recruitment
policy, as well as training programmes, that will prepare a diverse and
well-trained cadre of credit officers who will not only ensure the credit
portfolio's health, but will also be able to deal with the emerging
challenges of liberalisation, competition, and information technology.
Checking the slide of existing standard advances to NPAs in the long
run.

 At the same time, through various training sessions, banks will

need to instil enough confidence in their employees that they can take
reasonable business risks and that their actions will not result in
punitive action.

Other suggestions for NPA Management

Data Mining

In the coming years, data mining will become a requirement,

particularly for those who must evaluate data warehouses comprising
hundreds of gigabytes or terabytes of data in order to map customer
behaviour patterns. Banks may be required to employ data mining to
find their most profitable customers or loan applicants who pose the
greatest risk. They also try to avoid fraud by employing a technique
known as "deviation detection," which looks for events that are out of
the ordinary. The JAM system (Java Agent for Meta Learning) is a
new method for detecting credit card fraud.

Banks and financial institutions (FIs) can employ data mining

techniques to better analyse loans, improve lending programme

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management, and lower the occurrence of problem loans or
nonperforming assets (NPAs). Banks and financial institutions can
utilise data mining tools to identify patterns that distinguish borrowers
who repay on time from those who don't. Such patterns are thought to
be able to forecast when a borrower is about to default. Banks and
financial institutions can utilise data mining technologies not just to
anticipate loan default or poor repayment behaviour during the
decision- making process, but also to predict difficulties with existing
loans. Isolating problem loans allows banks and financial institutions to
focus more attention and assistance on a large number of borrowers,
minimising the risk that their debts would become bank difficulties.
Banks and FIs might plan to shift information and extract the patterns
and characteristics of common in issue loans using data mining tools.

Data mining techniques can be used to estimate whether a loan will go

late in the next 12 months based on prior data. Account information,
borrower demographics, and economic indicators can all be gleaned
from historical data. The principles can be used to calculate and fine-
tune loan reserves, as well as to get business insight into the
characteristics and circumstances of delinquent loans. This will also aid
in determining how much money should be set aside to deal with
problematic loans. As a result, data mining tools will become assets for
banks in the future for controlling bad loan difficulties or reducing
nonperforming assets (NPAs). Data mining products would also be
used by banks to retain consumers, such as separating profitable from
unproductive customers. Detect fraud, market new items to existing
clients, and figure out why customers quit. They'd also identify the
most profitable customers and simulate what would happen if the
banks lost them.

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E-Governance

Given the potential for economic growth and the need to channel
money in the appropriate direction while maintaining effective fiscal
and monetary control, policymakers should coordinate their efforts to
implement electronic governance (E-governance) in the financial
sector. E-governance in the banking industry is the use of electronic
and magnetic media to combine fiscal and monetary management
mechanisms. This will entail complete information system
connectivity, including databases from various banks, financial
institutions, and the Reserve Bank of India, using the most up-to-date
communication modes and protected by state-of-the-art security
architecture tools and devices to ensure information fidelity. E-
governance refers to the application and integration of information
technology into the computing process in order to achieve SMART
(Simple, Moral, Accountable, Responsible, and Transparent)
governance. E-governance redefines the process for keeping client
databases and monitoring transactions, resulting in a paradigm shift in
how a banking system carries out its essential functions. One of the key
contributors to rising NPAs is banks' lack of post-mortem monitoring,
which can be mitigated to a significant extent by successful
implementation of E-governance. Furthermore, in order to have an
effective and meaningful MIS, banks should use tailored software at all
levels to allow them to generate any type of asset quality data or
information uniformly across all operational levels.

The first and the most important step towards E-governance would be
to update the database so as to provide account-wise or borrower-wise
or segment- wise (amount-wise) asset classification-wise/security-
wise/sector-wise (priority sector/ non-priority sector/government

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sponsored scheme/public sector etc)., industry-wise information,

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Account-wise database should, apart from other information, have the
position and status of securities charged to the bank along with the
basis of evaluation. The regulatory authorities can use this database to
derive the causes for the account's NPA status in order to prevent such
incidents in the future. Every account should be assessed and a plan of
action for its resolution should be decided in the first month, and the
position should be reviewed on a regular basis to verify that progress is
being made according to the plan. The database and uniform reporting
would allow Regional/Zonal offices to have a quick list of all newly
added NPA accounts, along with the amount in default, which could
then be followed up with the branches on a regular basis until they
were upgraded. This is critical since immediately targeting all new
additions to NPAs considerably improves the odds of recovering NPAs
to the standard category, which becomes more difficult with time as the
customer's financial situation deteriorates. Because the current system
of yearly plans and budgets for NPA recovery / decrease in existing
NPAs could be done on-line, e-governance would ensure complete
participation at all levels in the settlement of NPAs.

Technology Training: A Pillar of Competitive Edge to Mitigate

Risk
To make technology a competitive advantage, banks would have to
create and upgrade the technology and associated enabling
competences of the primary four important players on a regular basis
(top management, employees, customers and service providers).
Employees would need to learn new skills in order to use technology
effectively and efficiently. The continuous trainingregimen for the staff
would generate the necessary environment for sustainingthe
competitive advantage of
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technology at branch and bank level. The staff that would be
delivering the products should not only be comfortable with technology
offered by the service providers but be competent in enabling and
applying skills also. Presently, a large number of bank employees are
using technology on a ‘as is basis” knowing only the basic navigation,
not being comfortable with trouble shooting aspect of these software
packages or not able to handle or operate beyond that. Any minor issue
necessitates contacting the service provider for assistance. While the
necessity for such interventions has increased as a result of large-scale
computerization, the quality has degraded. In such a scenario, any
technological advantage gained by banks would be a complete waste of
money, as it would not yield the optimum or required returns on
investment. It's also possible that the new agreement's promised
benefits won't be available. As a result, banks must simultaneously
equip their employees through adequate training so that they are self-
aware enough to handle huge investments in technology and create
returns from them.

The architecture of risk management needs to be continuously

evaluated, depending upon market realities, vis-a-vis internal
capabilities. All risks viz. credit, market and operational, need
introduction of sophisticated tools for their measurement and
management as also in-house capacity building on training on these
tools and other technology related issues like data capturing, data
interpretation and understanding of various models or simulations. In
light of the expected increase in lending to small and medium-sized
businesses and retail clients, the training function will be given more
duties. Regulatory and supervisory needs in the banking business have
always changed, necessitating minor and substantial adjustments in

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system designs. Given the expanding global nature of the Indian
banking industry, the necessity will continue to exist in the future.

A perceived need exists for PSBs to overhaul their existing training

systems in order to bring their regionally dispersed workers into
compliance with technology. The new technological system will be
heavily reliant on the relearning paradigm, which will necessitate the
implementation of advanced learning infrastructure based on Learning
Management Systems (LMS). This solution would provide course
developers with the information they need to improve course content in
a timely manner. Through timely intervention of training and
development instruments, the system would also provide crucial
information on employees' learning habits and aid in the
personalization of training courses. As a result, the necessity to re-skill
a significant number of existing workers, as well as mentally prepare
them to face new circumstances, is critical. It's predicted that better-
trained employees will reduce operational risks, lowering the
likelihood of a negative account. The venous target group would
receive technological training at various levels with appropriate
delivery mechanisms.

Regulatory and Legal Environment

As a result of liberalisation and globalisation, the Reserve Bank of

India's role as a controller of the banking industry has been refocused.
The emphasis has definitely shifted from micro-to-macro-monitoring
management. The supervisory role is likewise changing away from
solely on-site inspections and toward off-site surveillance with onsite.
Inspections are also changing away from transaction-based exercises

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and toward risk-based monitoring and auditing. In a completely

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deregulated and globalised banking scenario, a powerful macro
monitoring management system would be required. The RBI's
involvement in safeguarding the system's soundness would be crucial
in reducing bank NPAs by defining capital adequacy standards and
prudential rules for key performance metrics, as well as regulating the
admission and exit of banks, including cross-border institutions, and
many other criteria. The RBI would also assist in the adoption of best
practises, particularly in risk management, provisioning, disclosures,
credit delivery, corporate governance, and reporting, among other
areas. The planned integration of various intermediaries in the financial
system, as well as the adoption of sound and effective corporate
governance, would give the RBI's job a new dimension. For the system
to remain current and competitive, the integration of diverse financial
services will necessitate numerous legal modifications. Many of these
difficulties, such as the dissolution of the SICA/BIFR setup and the
development of a NCLT to come forward and take up industrial re-
construction and many other instruments felt or needed, and actions
have been taken in respect of these issues. In addition, there is an
urgent need to modify India's insolvency and liquidation rules in order
to speed up the recovery of bad debts and prevent borrowers from
taking advantage of the current laws. Furthermore, enabling legislation
is being enacted to allow credit institutions to share credit information
about borrowers through the Credit Information Bureau, which is
required to allow credit institutions to recognise higher risk without
incurring exorbitant costs.

Recent legislation, such as amendments to Debt Recovery Tribunal

procedures and the passage of the SARFAESI Act, 2002, have aided in
improving the climate for bank NPA recovery, but they still require
many changes to have a greater impact. It would be required to give the
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legislation more tools or teeth in order to ensure that creditors can
recover their debts in a reasonable amount of time. By establishing a
well-developed secondary market for the sale of second-hand assets
taken over by ARCs, the procedure for winding up enterprises and
selling assets will be expedited as well. Only one ARC, ARCIL (Asset
Reconstruction Company of India), has been established so far, despite
the urgent need for more ARCs to provide competition in the terms and
conditions on which assets are to be acquired, as banks are currently
forced to accept whatever terms ARCIL puts before them, which has a
negative impact on NPA recovery.

Corporate Debt Restructuring has recently emerged as an effective and

best voluntary technique. This has aided the banking sector in taking
prompt corrective action when corporate or bad loan borrowing runs
into difficulties. As debtors develop confidence in the procedure, the
CDR- setup is projected to become more prominent, making NPA
management somewhat easier. The question of providing legislative
underpinning for the Corporate Debt Restructuring mechanism is
expected to be debated in the near future. With more and multinational
banks opening up shop in India, globalisation has put tremendous
competitive pressure on Indian banks. To effectively compete with
these companies, India's commercial banks must have comparable
financial strength, ensuring that competition is solely between equals.
As a result, even in these days of virtual banking, size matters. Despite
the fact that a bank's size is primarily decided by the size of its balance
sheet, the fundamental concern facing Indian banks is their ability to
grow to a competitive size. Mergers and acquisitions are a quick step
forward in this direction, offering opportunities to share synergies and
lower the cost of product development and delivery through economies
of scale. This trend will
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continue as management strives to meet stakeholder expectations, and
India could see the emergence of only 4-5 world-class banks. As banks
search for specialised markets, a number of regional companies will
emerge to complement the major ones. This situation was envisioned
by Narasimham II as early as 1998, but owing to legal and societal
restrictions, little has been done. However, market forces will likely
compel the elimination of these barriers in the future years, and bank
mergers will no longer be a rare occurrence but a routine corporate
practise. The government is likely to provide new rules for the merging
of PSBs in the near future, which would help to strengthen the Indian
banking system.

General Remedial Measures

We can minimise NPAs by taking one of two techniques. These are

both preventative and curative measures. Preventive methods keep
performing assets from slipping or becoming non-performing assets. In
this preventative strategy, it would be preferable to address the problem
at the outset. Curative measures or approaches assist in converting non-
performing assets to performing assets. These measures designed to
maximize recoveries sothat bank’s NPA will be reduced.

Pre-sanction Appraisal: - When presenting a credit proposal to senior

officials for approval, bank field functionaries should do discreet
inquiries about the promoters and approve only those terms that are
agreeable to both the borrowers and the bank. The approval of loans in
a timely manner is critical. Only loan account securities should be
assessed in terms of their life durability, selling position, dependability,

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demand, and so on. All of the key terms and conditions that the
borrower must follow should be stated clearly.

Post-sanction follows up: - Banks should ensure a frequent vision and

follow-up of information from borrowers to the bank about the growth
of the business and the final use of bank funds. Periodic inspections of
the business or project are required, and it is especially important to
have a dialogue with the borrower about the estimated figure and
actual received potential, as well as borderline NPA accounts that
require prompt diagnosis and remedial measures, as well as special
attention.

The Ripple effect: - This is a phenomenon that follows the

deterioration of a performing asset from the beginning of its illness to
its natural conclusion. The ripple effect also distinguishes the two NPA
components. The first is the 'Apparent NPA,' which is duly reflected
and visible in the balance sheet, and the second is the 'Invisible NPA,'
which is not reflected or visible in any way. The genesis stage of an
NPA occurs when the interest component is likewise unpaid by the
customer, despite the fact that it is recorded as revenue recoverable. It
is a fact that the cost of dealing with a "invisible NPA" is always
significantly lower than the cost of starting salvage operations with an
NPA. As a result, in accounts where one quarter of interest is
consistently unpaid, the reasons for this must be determined, and
appropriate corrective action must be done to ensure that the borrower
moves to position 'A' rather than position 'B,' as shown in the flow
chart below:

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 FLOW CHART

Interest-1 One Quarter interest Two Quarter Interest-

to be paid 1
Instalment paid on
time without Instalment remains to
arrears ------------------------- bepaid
Invisible to NPA,
though Performing
Perfect
Visible NPA
Performing
Assets

Thus, despite differing options, a realistic and timely action or check

would assist banks and borrowers in maintaining a healthy financial
relationship.

Reminder System: - When a loan payment is due, the most cost-

effective method of recovery is to send reminders to the borrower.
However, banks' attempts to deliver reminders on a timely and accurate
basis need to be bolstered.

Visit to borrower's business premises or residence: - Visits must be

meticulously arranged. Frequent visits for hard core debtors are
required, which necessitates the involvement of personnel at all levels
at the bank branch.

Recovery Campus: - During the harvest season, rehabilitation camps

for agricultural advancements should be established in a well-planned
manner. It is also to enlist the assistance of outsiders, such as state
revenue officers, local panchayat officials, bank regional managers,
and so on. It also asks for a professional strategy to publicise the
recovery camps held in the local region, both in terms of agricultural
and industrial advancements to decrease or recover NPAs.

174
Motivate

175
employees to participate in the recovery effort by mobilising as many
debtors as possible through various programmes.

Rehabilitation of sick Units: - From a banker's perspective,

rehabilitation is a process of patiently waiting for the ill unit to recover.
Units that are sick should be detected as soon as possible. If ill units
are determined to be potentially viable, a rehabilitation package must
be created for them without delay, taking into account the RBI's board
requirements.

The package should be implemented at the realist by the bank and

the borrower: - It is necessary to keep a close eye on the
implementation's development. Both banks and borrowers must feel a
feeling of urgency in order for the rehabilitation to be effective.
Government efforts in terms of concessions, assistance, and so on,
should be made on a timely and effective basis.

Re-phasing unpaid loan instalments: - Bankers must be sympathetic

when it comes to science and industrious borrowers. Unpaid loan
instalments may be rescheduled or refunded if such borrowers fail to
pay loan instalments due to natural disasters or other compelling
circumstances. Bankers' efforts in this area must be bolstered in order
to maintain consumer trust and minimise nonperforming assets
(NPAs).

Mergers and Takeovers: It is the process of merging a sick unit with

a healthy unit. A healthy unit comes into contact with a diseased unit.
In the event of a merger, the nonperforming asset will be transformed
to a performing asset since it will be given the status of a healthy unit.

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Sale of pledged and hypothecated goods or property: - In the event
of hypothecation, the bank does not have custody of the commodities,
but in the case of pledge, the bank may simply dispose of the items
charged in its favour if the borrowers default. However, before selling
the items, the bank shall give the borrowers sufficient notice that the
loan is due to be repaid. The new legislation, which went into effect in
June 2002, permits secured lenders to sell or lease assets charged with
them by a defaulting borrower without having to go through a lengthy
judicial process.

Loan Compromise: - A negotiated settlement is a compromise in

which the borrower accepted to pay a particular sum to the banker in
exchange for certain concessions; it should be voluntary. In drafting
the compromise plan, a professional approach should be taken. The
bank is anticipated to create its own 'One Time Settlement' Scheme,
which will benefit both banks and customers. To settle on the loan
compromise, a committee method should be used. Delays in making
choices should be avoided at all costs, as they will stymie recovery.

Other Measures: - Banks should hold seminars and frequent training

programmes on credit and NPA management for all levels of
management. Staff incentives may be used to encourage prompt
recovery of NPAs under the current system.

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Legal Remedial Measures

Recovery through Courts

Once a non-recoverable advance has been detected, the branch/bank

should pursue civil lawsuit as soon as possible. Recovery through the
legal system is a time-consuming and drawn-out process, according to
experience. Nonetheless, the filing of civil cases against nonperforming
assets (NPAs) has nearly become standard practise in the banking
sector. People charged with the responsibility of conducting such civil
litigations must thus grasp the legal procedures and language involved,
particularly at the branch level. Such an understanding will assist the
branch in taking the appropriate measures when preparing a plaint or
initiating a civil suit, as well as in maintaining efficient follow-up with
advocates to ensure that the decree is obtained and executed in a timely
manner.

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Bank have to take care on below noted all stages.

 Pre-Filing Stage
 Filing Stage

 Post-Filing Stage

Debt Recovery Tribunal (DRT)

The banks can file-petition with DRTs. DRTs were formed by the
Government of India in 1993 to speed up the recovery of NPAs owed
to banks and financial institutions. The Act established two types of
tribunals: the Debt Recovery Tribunal and the Debt Recovery
Appellate Tribunal. These tribunals have been given authority to hear
cases / litigations in which the debt owed to any bank, financial
institution, or their consortia exceeds Rs. 10 lacs. In any of these
instances, the bank can file an application with the tribunal under
whose jurisdiction in the specified format, together with the requisite
prescribed papers and an ad- valor filing fee.

Over time, the Debt Recovery Tribunal has seen a significant

improvement in the recovery of bank loans. In the examined 5 years
from 2012 to 2016, the negative percent of amount recovered as
amount involved can be shown. The following are some of the factors
that contribute to poor DRT recovery:

 Lack of infrastructure & manpower etc.

 Lack of banking knowledge by Recovery personal

 Challenge to the verdicts of the appellate tribunals in the

high court.

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 Table 7.2
NPA Recovery by DRT (In Billions)

Particulars 2016 2017 2018 2019 2020

No. of case 24537 32418 29345 52175 40818
referred (i)
Amount involved 693 1008 1331 3065 2456
(ii)
Amount Recovered 64 103 72 106 100
(iii)
(iii) as % of (ii) 9.2 10.2 5.4 3.5 4.1
Source: Trend & Progress of Banking in India and its Various Issues.
Recovery percentage reduced from 9.2 in year 2016 to 4.1 in year
2020.

Credit Information Bureau India Ltd. (CIBIL)

Credit Information Bureau (India) Ltd., (CIBIL) was established in

India in January 2001 in response to the Central Government Budget
recommendations 2000-01. The CIBIL was supposed to be tech-savvy
and tech-driven to assure quick processing, regular updates, and the
availability of error-free data in the system at all times.

Banks and financial institutions have been ordered to produce a list of

suits filed accounts of Rs.1 crore and above as of March 31, 2002, as
well as quarterly updates till December 2002, based on the suggestions
of the Lyer's Working Group and suit filed accounts of wilful
defaulters with a balance of Rs. 25 lacs or more at the end of each
quarter of 2002 with the RBI and CIBIL for a year till March 31, 2003.
The above- mentioned information should then be sent to CIBIL.

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To facilitate CIBIL compliance, the RBI has issued directions to banks
and financial institutions to acquire the agreement of all borrowers for
credit information. The RBI considers the creation of an efficient
CIBIL to be of the utmost significance and priority, and will keep a
careful eye on its progress.

Lok Adalat:

The state government established these volunteer agencies, or adalat, to

help with loan compromise. Lok Adalats convene at various locations
according to the convenience of banks and borrowers at a certain time
and day when both bankers and borrowers must be present. The Lok
Adalat works out an appropriate compromise settlement after
reviewing the material and hearing to both sides.

Following that, Lok Adalat produces a recovery certificate, which

allows the bank to quickly get a decree from the relevant court. This
approach reduces the time it takes to get a decree from the relevant
court, which would otherwise take significantly longer. Because of this
benefit, the government is considering strengthening them and
increasing the monetary cap for recommended instances. Along with
this, a concerted effort should be made to raise awareness of the plan
among consumers and banks. In addition to teaching both banks and
borrowers about Lok Adalats, the Lok Adalat has shown to be an
efficient institution for settling dues on minor loans, and the following
recommendations were provided to banks and financial institutions:

 Ceiling amount for coverage under Lok Adalats would be R s .

10 lacsand above.

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 The scheme may include both suits filed and non-suit filed
accounts inthe doubtful and loss category

 The settlement formula must be flexible according to

requirement.

Table 7.3 NPA Recovery by Lok Adalat (In Billions)

Particulars 2016 2017 2018 2019 2020

No. of case
referred (i) 4456634 3555678 3317897 4080947 5986790

Amount
involved (ii) 720 361 457 535 678

Amount
32 23 18 28 42
Recovered (iii)
(iii) as % of (ii) 4.4 6.3 4 5.3 6.2
Source: Trend & Progress of Banking in India, Various Issues.

Corporate Debt Restructuring (CDR)

Despite their best efforts and intentions, businesses can face financial
difficulties as a result of both internal and external causes beyond their
control. CDR calls for immediate help through restructuring in real

182
situations for the resurrection of the corporation and the safety of the
money provided by banks and FIs.

On August 25, 2001, a three-tiered CDR system was implemented with

the goal of ensuring a prompt and transparent process for restructuring
the corporate debts of viable businesses encountering issues beyond the
reach of other judicial process for the benefit of all parties involved.

A three-tiered structure will be used in the CDR system. CDR Cell,

CDR Standing Forum, CDR Empowered Group

CDR-Standing Forum

All banking and financial institutions and banks that participate in the
CDR system would be represented by the CDR Standing Forum. The
CDR standing forum will be self-governing, creating rules and
guidelines as well as guiding and observed the development of
corporate debt restructuring mechanisms. The forum will also serve as
an official place for creditors and debtors to collaborate on rules and
standards for efficiently implementing debt restructuring programmes.

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At least once

184
every six months, the CDR standing forum shall meet to review,
assess, and track the development of the corporate debt restructuring
system. The forum would also establish or assess the debt restructuring
rules and procedures to be followed by the CDR Empowered Group
and CDR Cell, making sure for their smooth operation and adherence
to the debt restructuring schedule time frame. It can also examine any
judgments made by the CDR Empowered Group and CDR Cell on an
individual basis. The administrative and other costs of all financial
institutions and banks will be shared on a pro rata basis as defined by
the standing forum.

CDR Empowered Group

The specific cases i.e., the CDR Empowered group, under this group,
will decide on each single reported case of corporate debt restructuring.
In addition to ED level officials from IDBI, ICICI Limited, and SBI as
standing members, banking & financial institutions with an exposure to
the concerned firm representation will also be part of the group. Within
90 days or, at the very least, 180 days from the date of referral to the
empowered group, the CDR empowered group would evaluate each
instance of debt restructuring, analyse the feasibility and rehabilitation
capacity of the company's plan, and select the best restructuring
package. The CDR empowered group's decisions are final. If, however,
restructuring is not deemed to be sustainable or practicable, creditors
are allowed to take the required actions to recover debts immediately,
including liquidation or winding up the firm, collectively or
individually.

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CDR Cell

In all of its operations, a CDR cell helps the CDR standing forum and
the CDR empowered group. The CDR cell will undertake an initial
evaluation of proposals received from borrowers or lenders, then seek a
suggested rehabilitation plan and other material, and present the case to
the CDR empowered group within one month to evaluate if
rehabilitation is prima facie viable. Once the CDR empowered cell
determines that the restructuring is presumptively viable, the CDR cell
works with lenders and, if necessary, other specialists to develop a
thorough rehabilitation plan.

Other Features

 CDR is a non-statutory mechanism.

 The CDR mechanism is a voluntary system that relies on

debtor- creditor and inter-creditor contracts.

 The programme will not be applied to accounts with only one

financial institution or bank. Only numerous banking accounts with
outstanding risk of Rs. 20 crore or more by banks and institutions are
covered by the CDR process.

 The CDR system is applicable to standard assets, sub-standard,

and doubtful-assets.

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Company Mergers

Mergers are permitted under the Corporations Act of 1956, section 72-
A of the Income Tax Act was inserted to provide tax relief or benefits
to healthy enterprises that take over sick companies and prepare revival
plans. Due to delays in completing procedures imposed by the High
Court and the Income Tax Department, this scheme has had only a
limited response. Tax incentives have been proven to be insufficient in
motivating or encouraging healthy businesses to participate in the
programme. Bank dues on corporate mergers are unlikely to be
recovered because only 7-8 percent of ill companies are successfully
resurrected.

In light of the worldwide trend of consolidation, the committee on

banking sector reforms proposed mergers between strong banks, both
public and private, as well as banks with financial institutions and non-
bank financial companies (NBFCs). It improves the financials of both
merger banks. In India, the phenomenon of banking mergers is still
relatively new.

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National Company Law Tribunal (NCLT)

The Sick Industrial Companies Act (SICA) will be repealed, and the
Board for Industrial Finance and Reconstruction (BIFR) would be
closed up, as announced in the 2001-02 Budget. As an alternative, it is
proposed that the Companies Act, 1956 be amended to create the
NCLT. All parties involved in the rehabilitation of sick units are
expected to follow the NCLT's orders. There will be ten benches that
will deal with company rehabilitation, reconstruction, and winding up.
It is expected that the entire procedure will take only 2-3 years to
complete, as opposed to the current 10-12 years. The tribunal will be
given further contempt of court powers.

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Securitization & Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002(SARFAESI Act,
2002)

Without having to go through the legal and court procedure, the

SARFAESI Act allows banks and other financial institutions to directly
enforce the security interest agreed to them at the time of loan
approval. Furthermore, the Banks/FIs always have the option of
approaching the DRT, which they can exercise at any time. In this
sense, banks and financial institutions have two options for recovering
their nonperforming assets.

The procedure of enforcing the securities can be done by the banks or

financial institutions themselves, or through Securitization Companies,

189
Asset Reconstruction Companies, and specialised entities constituted
and registered under the requirements of the SARFAESI Act. The bank
now has the right to offer these newly established firms the financial
assets (bank holdings as security against defaulted loan accounts
categorised as NPA). These companies will repay the bank via
negotiated bonds or debentures. After purchasing the asset from the
bank, the Securitization Company or Asset Reconstruction Company
must reclaim the asset from the borrower and then either sell or auction
the asset, or, if the asset is a business, endeavour to resuscitate and
reconstruct the asset.

Table 7.4 NPA Recovery by SARFAESI (In Billions)

Particulars 2016 2017 2018 2019 2020

No. of case
173582 199352 91330 248312 105523
referred (i)
Amount involved
801 1414 818 2891 1966
(ii)
Amount
132 259 264 419 526
Recovered (iii)
(iii) as % of (ii) 16.5 18.3 32.2 14.5 26.7
Source: Trend & Progress of Banking in India and its Various Issues.

This Act is extremely beneficial to banks and financial institutions. The

banks/FIs began the process of recovering their dues under this Act
soon after it was enacted, demonstrating their desire to recover their
NPAs. The Act recognises the importance of enacting legislation that
allows banks and financial institutions (FIs) to self-regulate their
nonperforming assets (NPAs). In the form of Securitization Companies
or Asset Reconstruction Companies, it also opens up an entirely new
area of private enterprise. The Act will result in the rebuilding of

190
depreciating financial assets, many of which are sick industrial units,
providing a significant boost to the economy's overall health.

Asset Reconstruction Company (ARC)

An Asset Reconstruction Company (ARC) is a company that

specialises in asset recovery and liquidation. Banks can assign NPAs to
ARC for a lower Negotiated fee. This is a one-time clearing of sticky
debts or bad loans from the bank's balance sheets.

While the ARC's establishment is beneficial, it would be naive to

expect it to totally fix India's bad loan problem. Nodal resolution
bodies with CDR mechanisms are anticipated to develop as ARCs with
statutory and regulatory authority. ARCs would be a self-help tool for
the banking industry if the government did not provide direct monetary
support. The banks, FIs, and ARCs now have the obligation of cleaning
up the NPAs. Banks and financial institutions (FIs) must be

191
proactive in setting

192
reasonable provisions based on the estimated realisation from
nonperforming assets (NPAs) on their outstanding debts. These
techniques will also allow banks and financial institutions to achieve
internationally accepted standards. ARCs can provide value by
reducing resolution time and increasing recoveries, which is feasible
because to debt consolidation and a focused approach to resolution.

Despite the fact that much more has to be done, the initial response to
ARCIL has been encouraging, if not sufficient. By acquiring large or
small accounts on a portfolio basis, ARCIL was able to raise Rs. 100
crores from the banking sector. ARCIL has bought 189 assets from 16
banks in its first year of operation, totalling Rs. 9600 crores in dues.
Small cases account for 121 of the 189 assets, while medium to big
cases account for 68. In relation to these accounts, ARCIL has begun
implementing a resolution approach.

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Insolvency and Bankruptcy Code (IBC):

Non-performing assets (NPAs) recovered by scheduled commercial

banks through the Insolvency and Bankruptcy Code (IBC) channel
increased to about 61 per cent of the total amount recovered through
various channels in 2019-20 against 56 per cent in 2018-19, according
to latest Reserve Bank of India (RBI) data IBC, under which recovery
is incidental to rescue of companies, remained the dominant mode of
recovery, according to RBI’s “Report on Trend and Progress of
Banking in India 2019-20.”

194
In absolute terms, of the total amount of Rs 1,72,565 crore recovered
through various channels in 2019-20, IBC route accounted for Rs
1,05,773 crore. In 2018-19, of the total recovered amount of Rs
1,18,647 crore, the recovery via IBC channel was Rs 66,440 crore.

“Going forward, insolvency outcomes will hinge around uncertainties

relating to Covid-19. “The government has suspended any fresh
initiation of insolvency proceedings in respect of defaults arising
during one year commencing March 25, 2020 to shield companies
impacted by Covid-19,”

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Much-Needed Banking Reforms in India:

The banking sector is one of the Key for all the economic activities in
the country. A small change in its regulations can affect the entire
economy. The banking sector helps the country boost its economy by
capital accumulation, mobilizing, and allocating the capital for
alternative uses. Really important article written by Ryan North to
some up this issue.

One of the objectives of the country’s economic policies should be to

improve the operational efficiency and upgrade the health and financial
soundness of the Indian banks. Thus, various banking sector reforms
have been introduced in India to promote economic liberalization and
globalization. These reforms assure that Indian banks can meet
internationally accepted standards of performance.

Although the banking industry in India has been through massive

banking frauds and increasing non-performing assets in the last five
years, the banking reforms that started in 2015 have achieved a lot till
now.

196
 The merger of Public Sector Banks is in progress. However,
restructuring of operations in order to increase efficiency and
accountability of PSBs still needs to be done. So, this is the right time
for implementing much-needed reforms to lift the distressed banking
industry in India.

Reasons Behind Banking Reforms in India:

The Indian economy has been subject to a series of difficulties such as

persistent fiscal imbalance, double-digit inflation, and the balance of
payment crisis, etc. At present, the industry debt is already at an all-
time high and banks definitely cannot afford more NPAs. This means
banking sector reforms are needed that will aim to:

 Bring structural changes in the banking system

 Make Indian banks Internationally competitive

 Improve the efficiency and stability of Indian banks

 Remove the operational rigidity in the credit delivery system

Prime Concerns for Much Needed Banking Reforms in India

Former RBI Governor – Raghuram Rajan and former Deputy Governor

– Viral Acharya, in their recently published paper, have suggested
ways to tackle problems of the Indian banking sector. Here are some of
the main concerns they brought up-

Handling Bad Loans-

Banks should develop an online platform for distressed loan sales to

provide real-time transparency. An out-of-court restructuring

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framework needs to be designed for hosting negotiations between
banks and creditors of stressed firms. Private firms should be
encouraged to aggregate and recover loans in sectors where
government interference isn’t necessary.

Boosting The Performance of Public Sector Banks (PSBs)-

Public Sector Banks should be operated independently according to

their objectives so that the government can keep an adequate distance
from the management of PSBs. Payments such as reimbursing costs for
maintaining branches in remote areas should be provided by the
government. It will encourage both private and public sector banks to
compete for delivering on mandates. Incentive structures for
management need to be strengthened to bring in state-of-the-art ideas.

Altering Ownership Structure of Public Sector Banks-

Ownership structures of select PSBs can be altered, where the

government has brought down stakes below 50%. This will create a
safe distance between the government and bank operations, improving
governance. Re-privatization can be undertaken to bring in private
investors who have both financial and technological expertise.

Improving the Lending and Capital Structure-

198
Better capital structures need to be created for the long-term financing
of infrastructure and industrial projects. Borrowers should be allowed
cash-flow based lending along with asset-based lending. Transparency
around frauds and group exposures should be implemented, both at the
bank level and system level to discourage asset-stripping and cash-flow
siphoning

Strengthening Risk Management-

There should be a complete external benchmarking of loans to all the

market-based floating rates in order to create an automatic pass-
through of monetary policy. This will promote natural interest-rate
sensitivity on bank balance-sheets.

Creating Greater Variety in Banking Structures-

On-tap licensing can be availed for banks with an annual invitation for
applications. It will allow entry for better players and create more
vibrant banking. This will help high-performing small finance banks to
become universal banks. Likewise, poorly performing universal banks
can be demoted to a lower status.

These are the long-overdue reforms that are more optimistic and
achievable rather than being revolutionary. While revolutionary ideas

199
have little chance of implementation, these proposals will surely bring
the changes that are needed in the Indian banking sector

RECOMMENDATIONS

 In the banking industry, it is impossible to completely remove

nonperforming assets (NPAs), although we can reduce them.

 To avoid Non-Performing Assets, it's a good idea to focus on

proper planning and execution, policy review, regulation, and
advance tracking.

 Banks should not only take care or take actions to reduce current
NPAs, but they should also take required precautions or steps
when lending money to avoid future NPAs.

 Banks should reformulate their credit appraisal techniques

(credit monitoring).

 Proper evaluation of loan application helps in detecting the

unviable projects.

 Before granting a loan, extensive information on the industry, its

financial position, market reputation, and management should be
gathered.

 The Information about industry, its financial position,

management and other information like financial stake, annual
accounts, stock reports, etc. should be collected prior to sanction
of a loan.

 Industry-Bank Integrated Cell should be established at the bank

200
 level in every branch. Banks should inspect the progress of the
project or the business.

 A proper cell, such as an industry-bank cell, should be developed

to monitor the workings and progress of the industry in order to
avoid non-performing assets (NPAs).

 For certain large-volume customers, a special monitoring

department should be established to analyse comparative
statements, common size statements, comparative risk
statements, compliance, and customer performance on a regular
basis so that necessary actions can be taken to reduce the risk of
NPA.

 All bank employees should receive special training on a regular

basis to keep them up to date on the newest information
technology procedures and practises for managing
nonperforming assets (NPAs).

 To teach employees, the bank should form special committees

such as an audit committee and a risk management committee.

 The senior bank officials should be imparted specialized training

at regular intervals to equip them with latest procedures and
practices of management of NPAs.

 Special monitoring department should be established in large

branches for review of accounts and analyses the comparative
statement, common size statement. Comparative risk and
compliance, terms and conditions of action.

 Proper perception and evaluation of risk is extremely important

of Banks in case of NPAs, like market risk, credit risk, liquidity

201
risk,

202
 default risk, interest rate risk, fore risk and other risks. At present
environment is Fraught with risks of various kinds and
dimensions, a tested and sound credit risk model needs to be put
in a place by banks to hamper NPAs.

 There is no political intervention or pressure in the loan

distribution to any person, such as a farmer or an industrialist.

 At the branch level, the branch manager, in particular, has

responsibility for loan monitoring, management, and recovery

 For loan recovery, banks should use a single window recovery

system or some methods.

 Banks should reformulate their credit appraisal techniques

(credit monitoring).

 Bank should formulate a dedicated team of Chartered

Accountant, Law Professional and IT Professional for each and
every branch level to see all stage pre, post of sanctioning loan
to see business and customer worth.

 Banks should introduce the new system of branch inspection

emphasizing prompt rectification of irregularities and early
warning system for identifying incipiency of NPAs.

 Form taking a cue that “Prevention is always better than cure”,

the banks should accord major thrust on preventive vigilance,
revision of existing guidelines and formulation of new policies
of many policies of many key aspects for better control and
results of declining of NPAs.
 As a measure of on-site surveillance, vigilance officers inspect

203
 branches. In case of any irregularities or deviation are observed
during the inspection, the same should be brought to the notice
of Regional Heads for prompt corrective action.

The above suggestions may be considered, which would go a long way

in further reducing the level of NPAs. Needless to mention here that
reducing the level of NPAs will not only considerably improve the
profitability of the banks and improve the quality of assts, but also
make the Indian banking system stringent, resilient and geared to meet
the challenges of global scenario. Apart from the preventive measures,
there is need to strengthen the existing legal system.

SCOPE FOR FURTHER RESEARCH:

Studying the strength and weakness of legal system and to suggest

legal reforms required for debt recovery, developing a Borrower’s
Credit Rating System to enable banks to have effective Credit
Appraisal, developing comprehensive software for appraisal and
monitoring of borrowers, A detailed analysis of NPAs at bank level to
assess the real problems and to work out strategies for reduction of
NPAs, A detailed study on the Auditors‟ role in disclosing NPAs and
in strengthening internal control mechanisms. Hence, this study
provides the scope for further research in this area.

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FUTURE ENHANCEMENT:

Every research work has certain scope of future enhancement. The

research is tends to the following future enhancement.

a) The research is concluded with Six selected public and private

banks only. Thus, in future other banks can be included for using the
conclusive aspects.

b) The study is only taken for five years financial statements of the
selected banks. Thus, the fluctuations during considered five years
resulted as per the financial conditions of particular bank.

c) The present study of common size analysis has been made but
common size analysis has its own limitations, which also applies
to the study.

d) Non-performing assets are a broad topic, and further research is

needed to fully explore all elements of non-performing assets.

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 BIBLIOGRAPHY:

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