NPAs have turned to be a major stumbling block affecting the profitability of Indian banks before 1992,banks did not disclose the bad debts sustained by them and provision made by them fearing that it may have an adverse. Owing to the low levels of profitability, banks owned funds had to be strengthened by repeated infusion of additional capital by the government. The introduction of prudential norms strengthen the banks financial position and enhance transparency is considered as a milestone measure in the financial sector reform. These prudential norms relate to income recognition, asset classification, provisioning for bad and doubtful debts and capital adequacy. the objectives of the study, and the study was conducted in Punjab & sind bank., on "An analysis of NPA in commercial banks with special reference to Punjab & sind bank". To analyze the NPA level of Punjab & sind bank. To study the recovery procedures of Punjab & sind bank. To examine how far the bank has been successful in reducing the NPA level. INTRODUCTION OF BANKING SECTOR Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 49,000 ATM HISTORY OF PUNJAB AND SIND BANK It was in the year 1908, when a humble idea to uplift the poorest of poor of the land culminated in the birth of Punjab & Sind Bank with the far-sighted vision of luminaries like Bhai Vir Singh, Sir Sunder Singh Majitha and Sardar Tarlochan Singh. They enjoyed the highest respect with the people of Punjab. The bank was founded on the principle of social commitment to help the weaker section of the society in their economic endeavours to raise their standard of life. Decades have gone by, even today Punjab & Sind Bank stands committed to honor the social commitments of the founding fathers. VISION & MISSION
Corporate Vision We envision to emerge as a strong vibrant Bank through synchronization of the human, financial and technological resources.
Corporate Mission To put in place the effective Risk Management and Internal Control Systems. To adopt and operationalise high-level technology standards. To strive to achieve excellence in Customer Service. To achieve the highest standards of transparency and accountability in the conduct of banking business. To adopt professional approach in effectively managing financial as well as non-financial risks. To maximize profitability and profits of the Bank with due compliance of prudential guidelines. To maximize competitive risk adjusted return on capital, through planned reduction in the average cost of funds, increased yield on advances and investments besides reduction in cost of operations.
2.INTRODUCTION The Indian has been liberalized and globalize during the last decade or so. It has exposed the Indian financial sector to international competition in fairly significant manner. To cope with the growing competition in the present scenario the Indian banks have embarked on a massive exercise to revamp the system. Despite the overall progress made by the financial system over the years, the operational efficiency of the banking system has been unsatisfactory, characterized by low profitability, high and growing NPAs and relatively low capital base. NPAs have turned out to be a major stumbling factor affecting the profitability of Indian banks. Before 1992,bank did not disclose the bad debts sustained by them and the provision made by them fearing that it may have an adverse impact. The banks used to take income even on NPAs on accrual basis. This helped them to disclose false profits. Owing to low levels of profitability, the banks owned funds had to be strengthened by repeated intention of additional capital by the government. The introduction of prudential norms to strengthen the banks financial position and enhance transparency is considered as a milestone measure in the financial sector reforms. These prudential norms, which relate to income recognition, asset classification, provisioning for bad and doubtful debt and capital adequacy serve three great purposes. 1. Income recognition norms reflect a true picture of the income and expenditure of the bank. 2. The asset classification and provisioning norms help in assessing the quality of the asset portfolio of the bank. 3. They also act as tool of financial discipline and compel banks to look at the quality of loans assets and the risk attached to the lending In India, NPAs are considered to at higher levels than most other countries, have of late attracted the attention of public as also of international institutions. This has gained further prominence in the wake of transparency and disclosures measures initiated by R.B.I. during the recent years .We have also to conform to international accounting standards, if Indian banks are to get their due place and recognition in the global market.
. OBJECTIVE OF THE STUDY The general objective of the study was to analyze the NPA level in commercial banks. However the study was conducted with the following specific objectives. To analyze the NPA level of Punjab & sind bank Limited. To study the recovery procedures of Punjab & sind Bank Limited. To examine how far the bank has been successful in reducing the NPA level. To suggest measures for efficient management of NPAs. To bring out en explorative & descriptive report on "Analysis of NPA in commercial banks, with special reference to Punjab & sind Bank Ltd.,
. METHODOLOGY OF THE STUDY A purposeful investigation of a problem research helps an organization in finding out causes and clues for making sound and effective decisions by applying scientific methodology to the art of management. Research can be of two types namely Exploratory research and Conclusive research. Exploratory research is investigation of relationships among variables without knowing why they are studied. It borders on an idle curiosity approach, differing from it only in that the investigator thinks there may be a payoff in the application somewhere in the forest of questions. In Conclusive research there are two types namely Descriptive research and Experimental research. Descriptive research allows both implicit & explicit hypotheses to be tested depending on the research problem. Experiments are artificial in the sense that the situations are usually created for testing purposes in experimental research. Based on all these facts and suggestion from the project guide 'Descriptive & Exploratory Research Methodology' is adapted for this project work.
Sampling Technique Sampling refers to selecting a part of the population to represent the characteristics of the population. However, in this study, Finance Manager of the bank is the source of data and therefore, since he is the only one source of information, there is no question of any sampling.. Secondary data:- were collected from the published annual reports of the Punjab & Sind Bank and other sources. Such data collected were analyzed for some kind of a trend and its impact on the profit of the bank.
2.3. TOOLS USED FOR ANALYSIS OF DATA The data collected were analyzed with the help of statistical tools like frequency, percentage and trend analysis. Tables are used to represent the consolidated data. Graphical representation is also used for better comprehension & presentation.
LIMITATIONS OF THE STUDY The major limitation of the study was the paucity of time. Even then, maximum care has been taken to arrive at appropriate conclusion. Following are the limitations of the study: This study is restricted to Punjab & Sind Bank only. For the purpose of collecting vital information, Finance Manager of the bank is only contacted & interviewed. Since he is an individual, his biases may have creped into the data given. Though the subject matter pertains to commercial banks, only one scheduled bank. is considered for this study. Other commercial banks, as also the other scheduled banks are outside the purview of this study. Data pertains to NPA from 2000 -2001 to 2006 - 2007 only.
Review of literature
1) Are Non Performing Assets Gloomy from Indian Perspective ? By : Arpita .A ,14 February 2010 The contaminated portfolio is definitely a bane for any bank. It puts severe dent on the liquidity and profitability of the bank where it is out of proportion. It is needless to mention, that a lasting solution to the problem of NPAs can be achieved only with proper credi Â assessment and risk management mechanism. It is necessary that the banking system is to be equipped with prudential norms to minimize if not Â completely to avoid the problem of NPAs. The onus for containing the factors Â leading to NPAs rests with banks themselves. This will necessitates organizational restructuring, improvement in the managerial efficiency and skill up gradation for proper assessment of credit worthiness It is better to avoid NPAs at the nascent stage of credit consideration by putting in place of rigorous and mappropriate credit appraisal mechanisms 2) Non-Performing Assets in Indian Banks
Bansal. Kumar Sathish The Indian banking sector is facing a serious problem of NPA. The extent of NPA is comparatively higher in public sectors banks. (Table II&III). To improve the efficiency and profitability, the NPA has to be scheduled. Various steps have been taken by government to reduce the NPA. It is highly impossible to have zero percentage NPA. But at least Indian banks can try competing with foreign banks to maintain international standard. 3)Majumdar Alok, NPAs : Recovery Blues, Treasury Management (Dec.2000) pp. 46-49. A strong banking sector is important for a flourishing economy. The failure of the banking sector may have an adverse impact on other sectors. Over the years, much has been talked about NPAs and the emphasis so far has been only on identification and quantification of NPAs rather than on ways to reduce and upgrade them. There is also a general perception that the prescription of 40% of net bank credit to priority sectors have led to higher NPAs, due to credit to these sectors becoming sticky. Managers of rural and semi-urban branches generally sanction these loans. In the changed context of new prudential norms and emphasis on quality lending and profitability, managers should make it amply clear to potential borrowers that banks resources are scarce and these are meant to finance viable ventures so that these are repaid on time and relevant to other needy borrowers for improving the economic lot of maximum number of households. Hence, selection of right borrowers, viable economic activity, adequate finance and timely disbursement, correct end use of funds and timely recovery of loans is absolutely necessary pre conditions for preventing or minimizing the incidence of new NPAs.
NON-PERFORMING ASSETS AND PROVISIONING
A CONCEPTUAL REVIEW
Narasimham Committee The government of India set up a nine member committee under the chairman ship of Mr. Narasimham, the former of governor of Reserve bank of India, to examine the structure and functioning of the existing financial systems of India and suggest financial reforms. The report of the committee was tabled in the parliament of December 17th 1991. The main recommendations of the committee are 1. A phased achievement of 8% capital adequacy ratio. 2. A phased reduction f statutory liquidity ratio; 3. Prudential guidelines governing the functioning of financial institutions; and 4. Proper classification of assets and full disclosure and transparency of banks and financial institutions. Most of the recommendations have been accepted by the government. While the most of the recommendations made by the committee in the 1 phase have been accepted for implementation, either in a single step or in a phased manner, some of them are yet to be considered for the same. These measures implemented so far have revolutionized the structure of the banking industry and its operations.
Concept of NPAs as per Narasimham Committee Recommendations The Narasimham committee recommendations suggested that loans and advances in banks should classified in to performing and non performing on the basis of the health of the loans assets and the record of adherence to repayment of installments and interest on due dates. The committee also recommended that the banks be allowed to book to income by way of interest debited to an account only when it was found realizable with in a given time frame. The committee suggested that the banks should make provision for all NPAs on the basis of classification of such assets based on the age of irregularity, security cover available etc. The RBI accepted the recommendations of the committee with regard to introduction of norms for income recognition and asset classification and provisioning an advised the banks to implement the same in a phased manner beginning 1st April 1992. The asset of a bank are cash and balances with RBI, balances with banks and money at call and short notice, investment in government and other securities, advances (including loans and advances, bill purchased, discounts and other credit facilities), fixed and other assets.
Performing and non-performing assets A performing asset is an advance, which generate income to the bank by way of interest and their charges. An NPA is an advance of borrower account which does not generate income for the bank but they incur various inherent costs like a) Cost of deposit b) Cost of servicing c) provisioning at appropriate rates d) Capital adequacy requirements on these assets and e) Cost of recovery.
Identification of NPAs Identification of an account as NPA depends upon the nature of borrowal account whether it is a) Operative b) Non operative c) Bills d) Agricultural advances or any other miscellaneous accounts.
A. Operative like cash credit, over draft etc: - A cash credit / over draft account will have to be treated as NPA if account remains out of order for more than 180 days. An account shall be out of order if any one of the following conditions exist:- a. The balance outstanding remakes continuously in excess of the sanctioned limit during the last six months prior to balance sheet. b. The balance outstanding is within the limit / drawing / drawing power but there is no credit in the account continuously for six months as on the balance sheet date. c. There is credit but such credit is not enough to cover the interest debited during the six month as on the date of banks balance sheet.
B. Non operative like term loans, borrowal account with repayment programs: - If interest / installment of principal remain overdue for a period of more than 180 days. Note: When the prudential norms were introduced in 1992, the concept of 'past due' was incorporated and it was classified that an amount should be classified as past due when it remains outstanding for 30 days beyond the due date. However due to improvement in the payment and settlement systems, recovery climate, up gradation of technology in banking systems etc. It has been decided by RBI to dispense with the past due concept with effect from 31st March 2001. Hence to all account to become NPA, cut off date is September 30th of the Year under audit.
C. Bill purchased / Discounted / Negotiated: - A bill purchased / discounted / negotiated becomes NPA, if it remains overdue and unpaid for two quarters or more. For bills discounted, for the unusance period and grace period should be taken to consideration for arriving at the due date.
D. Agricultural advances: - Agricultural advances where interest and or installments of principal remains unpaid after it has become past due for two harvest season but for a period exceeding to half years should be treated as NPA.
E. Miscellaneous accounts Any other credit facility or account should be treated as NPA if any amount to be received in respect of that facility or amount remains unrealized / uncovered for a period of two quarters.
Gross NPA and Net NPA As per RBI circular gross advance means all outstanding loans and advances for which refinance has been received but excluding rediscounted risks and advances written off at Head Office level. The gross NPA and net NPA are always expressed as a percentage of advances. The percentage of gross NPA to advances including all Interest Suspense account where the bank is following the accounting practice of debiting interest to the customer account and crediting Interest Suspense account. The following are deducted from gross NPA to arrive at net NPA. a. Balance in Interest Suspense account, if applicable; b. Deposit Insurance Guarantee Corporation / Export Credit Guarantee Corporation claim receive and pending adjustment; c. Part payment received and kept in Suspense account; d. Total provisions held excluding technical write off made at Head Office and provision of standard assets. RBI has advised that while reporting banks has to reduce technical write off made at Head Office from gross advance also.
Asset classification Norms A critical analysis for a comprehensive review and uniform credit monitoring was introduced in 1985 to 86 by RBI by way of the Head Code system in banks which provide information regarding the health of the individual advances, quality of credit portfolio and the extend of advances causing concern in relation to total advances. It was consideredthat information would be off immense use to bank management for control purposes. RBI advised all commercial banks on 07/11/1985 to introduce the Health code classification assigning each approval account with a health code (in eight categories) indicating its quality. Despite all these true picture was still not displayed. In order the ensure greater transparency in the borrowal account and to reflect actual health quality of banks in the balance sheet, RBI introduced prudential regulation relating to Income Recognition, Asset classification and provisioning as recommended by the Narasimham Committee with certain modifications in a phased manner over a three year period beginning from 1992 - 1993. The Narasimham committee is of the view that for the purpose of provisioning banks and financial institutions should classify their assets by compressing the health V code into four broad groups, taking into account the degree of well defined credit weakness and the extend of dependence on security for realization of dues as below: Standard asset: Standard asset is one, which does not disclose any problems and does not carry more than normal risk attached to the business. Sub standard assets: Sub standard asset is one, which is a non-performing asset for a period not exceeding 18 months. Doubtful assets: Doubtful asset is one, which has remained as a non-performing assets for a period exceeding 18 months. A loan classified as doubtful has all the weakness inherent as that of substandard account with the added characteristics that the weaknesses make collection or liquidation of outstanding dues in such an account in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Loss assets: Loss assets is one, where loss has been identified by the banks or internal or external auditors or RBI inspecting official but the amount has not been written off, wholly or partly.
Adoption of 90 days norm: The RBI has advised banks to adopt 90 days norm instead of 180 days for classification of assets as in impaired one with effect from MARCH 2004 and to start making additional provisions for such asserts from March 2002 to absorb the impact due to reduction of NPA period. The accounts which may turn NPA with 90-day period have to be identified and 10% provision to be found out.
Guidelines for classification of assets The classification of assets into above categories should be done taking into account the degree of well-defined credit weakness and the extend of dependence on collateral security for realization of dues. Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs, especially in respect of high value accounts. The bank may fix a minimum cut off point to decide what would constitute a high value account depending upon their respective business levels. The cut off point will be valid for the entire accounting year.
Accounts with temporary deficiencies: - The classification of assets as NPA should be based on record of recovery. Banks should not classify an advance as NPA merely due to the existence of some deficiencies which are temporary in nature such as non availability of adequate drawing power base don the latest available stock statement, balance outstanding exceeding the limits temporarily, non submission of stock statements and non renewal of the limits on the due date etc.
Asset classification to be borrower-wise and not facility-wise a. It is difficult to envisage a situation when only one facility to a borrower becomes a problems credit and not others. Therefore, all the facilities granted by a bank to a borrower will have to be treated as NPA and not the particular facility or part there of which has become irregular. b. If the debits arising out of development of letters of credit or invoked guarantees are parked in a separate account, the balance outstanding in that account also should be treated as a part of the borrowers principal operating account for the purpose of application of prudential loans on income recognition, asset classification and provision. Asset classification of accounts under consortium should be based on the record of recovery of the individual member banks and other aspects having a bearing on the recoverability of the advances. Where the remittances by the borrower under consortium lending arrangements are pooled with one bank and / or where the banks receiving remittances is not parting with the share of other member banks, the account will be treated as not serviced in the books of the other member banks and therefore, be treated as NPA. The banks particularly in the consortium should, therefore, arrange to get their share of recovery transferred from the lead bank or get an express consent from the lead bank for the transfer of their share of recovery, to ensure proper asset classification in their respective books.
Accounts where there is erosion in the value of security a. A NPA need not go through various stages of classification in cases of serious credit impairment and such assets should be straight away classified as doubtful or loss asset as appropriate. Erosion in the value of security can be reckoned as significant when realizable value of the security is less than 50% of the value assessed by the bank or accepted by the RBI at the time of last inspection, as the case may be. Such NPAs may be straight away classified under doubtful category and provisioning should be made as applicable to doubtful assets. b. If the realizable value of the security has assessed by the bank/approved valuers / RBI is less than 10% of the outstanding in the borrowal accounts, the existence of security should be ignored and the asset should be straight away classified as loss asset. It may be either written off or fully provided for by the bank.
Up gradation of NPA Up gradation of with in the doubtful status or upgrading it from the doubtful to substandard shall not be made due to subsequent recoveries unless the account is regularized and comes out of the NPA status. In other words, the date on which an account become irregular shall not be changed due to subsequent recoveries, till regularization of the account.
Income recognition Interest income is recognized on an approval basis - except in case of NPAs where it is recognized on receipt. This means income can be recognized only on receipt for NPA accounts. For performing assets, income can be recognized on the basis of receipts, accrual or both. Due to the implementation of the prudential norms "accrual concept" has been changed into "recoverability concept" in recognizing in the income on NPA.
Provisioning There is time lag between an account becoming doubtful for recovery, the realization of security and erosion over a period of time in its value. So RBI directive now requires the banks to make provisions in their balance sheet for all non-standard loss assets.
Doubtful assets: a. 100 percent of the extend to which the advance is not covered by realizable value of the security to which the banks has a valid recourse and the realizable value is estimated on a realistic basis. b. In regard to the secured portion, provision may be made on the following basis, at the rate ranging from 20% to 50% of the secured portion depending upon the period for which the asset has remained doubtful. c. Additional provisioning consequent upon the change in the definition of doubtful assets effective from March 31st 2001 has to be made in phases as under. Ø As on 31-03-2001, 50% of the additional provisioning requirement on the assets, which became doubtful on account of new norm of 18 months for transition from substandard asset to doubtful category. Ø As on 31-03-2002, balance of the provisions not made during the previous year, in addition to the provisions needed, as on 31-03-2002. d. Banks are permitted to phase the additional provisioning consequent upon the reduction in the transition period from sub standard to doubtful assets from 18 to 12 months over a four year period commencing from the year ending March 31st 2005, with a minimum of 20% each year.
Sub standard assets A general provision of 10% on total outstanding should be made without making any allowance for DICGC / ECGC guarantee cover and securities available.
Standard assets a. From the year ending 31-03-2000, the banks should make a general provision of a minimum of 0.25% of standard assets on global loan portfolio basis. b. The provisions on standard assets should not be reckoned for arriving at net NPAs. c. The provision towards standard assets need not be netted from gross advances but shown separately as "contingent provisions against standard assets" under 'other liabilities and provisions - others' in schedule five of the balance sheet. For arriving at the provision amount, the following matters may be kept in mind. a. For finding the secured portion only the tangible security (both primary and collateral) is considered. b. As the outstanding in the ledger as on March 31st include interest transferred to the uncollected INTEREST account. This amount has to be reduced from the outstanding amount. DICGC/ECGC cover available cannot be reduced in the case of advances classified as sub standard before applying 10% provision.
Reasons for Mounting NPAs there are several factors related to the borrower, which adversely affect their repayment. These include: Â· Diversion of funds as revealed by an RBI study. Â· Technological changes Â· Power shortage Â· Business failures Â· Inefficient management Â· Industrial recession Â· Strained labour relations Â· Price escalation Â· Serious inherent operational problems Â· Natural calamities
PERFORMANCE AND PROGRESS OF PUNJAB & SIND BANK Performance and progress made by the Punjab & sind bank can be measured by analyzing the various parameters like the deposits, advances, net profit, cost of deposit, staff productivity etc. of the bank over past few years.
THE DEPOSITS OF PUNJAB & SIND BANK
(FROM 2002-03 TO 2007-08)
Amount in Crores
Deposits of the bank
Increase / Decrease over the previous years figure
% Increase / decrease over the previous years figure
Index with year 2002-03 as base year 2002-03 840.58
--- 100.00 2003-04 915.96 151.34 +18.0 108.97 2004-05 1138.67 222.71 24.3 135.46 2005-06 1296.31 157.64 13.8 154.22 2006-07 1477.87 181.56 14.0 175.82 2007-08 1639.54 161.67 10.9 195.05 The aggregate deposits of the bank has increased from 840.58 crore to 1639.543 crores during the period 2002-03 to 2007-08. On analyzing the trend of such increase in the deposits over the period we can clearly see that it is increasing at a decreasing rate. The modest growth especially during the last three years is mainly due to a conscious decision on to shed the highest cost deposits, more particularly from institutions. With focus on bringing down the cost of deposit, field function areas have been constantly exhorted to step up the share of low cost of deposit.
ADVACES OF THE PUNJAB & SIND BANK
(FROM 1998-99 TO 2007-08)
Amount in Crores
Advance of the Bank (Rs)
Increase / Decrease over the previous years figure
% Increase / decrease over the previous years figure
Index with year 1998-99 as base year 1998-99 110.6
--- 100.00 1999-00 163.26 53.0 48.16 148.34 2000-01 285.89 122.63 75.11 259.76 2001-02 448.59 162.70 56.91 407.87 2002-03 562.41 114.00 25.37 512.07 2003-04 576.06 13.65 2.40 523.41 2004-05 605.23 29.17 5.10 549.91 2005-06 776.31 171.08 28.6 705.35 2006-07 965.22 188.91 24.0 876.99 2007-08 993.51 28.29 2.90 902.70 The aggregate advances of the bank has increased from 110.06 crores to 993.51 crores during the period 1998-99 to 2007-08.The credit appraisal system was fine tuned and effective system was put to place to ensure the quality of asset. A tenor linked prime lending rate was introduced during the year 2001 to give a boost to short term lending. Exposure to various sectors is strictly maintained within the stipulated ceiling. The system and procedures were streamlined to incipient irregularities in the asset step without delay. A substantial positive change in credit dispensation and monitoring was initiated through a visited credit policy. Which primarily aim at segmentation of the retail and corporate portfolios for improved thrust in both these areas.
COST OF DEPOSIT OF PUNJAB & SIND BANK
(FROM 97-98 TO 01-02)
Percentage of cost
Increase / Decrease over the previous year 2003-04 10.28
--- 2004-05 10.35 0.07 2005-06 9.49 (-0.86) 2006-07 8.92 (-0.57) 2007-08 8.53 (-0.39) The cost of deposit of Punjab & sind bank shown a constant decrease during the period 2004-05 to 2007-08 except for the year 2004-05 in which there was a slight increase of .07%. On analyzing the trend of decrease in the cost of deposit we can see that it is decreasing at decreasing rate. Such a decreasing trend in the cost of deposit, achieving by systematic branch wise monitoring. Also shift in deposit portfolio of the bank from high cost deposit to low cost deposit also has contributed to the efforts.
NET PROFIT OF PUNJAB & SIND BANK
(FROM 2000-01 TO 2007-08)
Amount in crores
Net Profit of the Bank
Increase / Decrease over the previous years figure
% Increase / decrease over the previous years figure
Index with year 00-01 as base year 2000-01 442
--- 100.00 2001-02 472 30 6.78 106.78 2002-03 791 319 67.6 178.96 2003-04 840 49 6.2 190.05 2004-05 387 -453 54.2 87.56 2005-06 1128 741 191.5 255.20 2006-07 677 -451 39.9 153.20 2007-08 1007 330 48.7 277.83 The profitability of the bank has increased from 4.42 crores to 10.07 crores during the period 2001-02 to 2007-08.this increase was not steady. The banks profitability was severely affected during the years 2004-05 and 2006-07.One of the reasons was the continuous fall in the interest and the adverse market conditions due to which the profit n trading in investment was reduced by 3.18 crores Voluntary Retirement Scheme (VRS) also added to the burden by an amount of 2.48 crores. Another major contribution was the impaired loan assets, which were written off instead of being provided for. The continuous fall in the interest rate continued even in 2007-08, but the treasury market contributed appreciably to the profitability.
STAFF PRODUCTIVITY OF PUNJAB & SIND BANK
(FROM 01-02 TO 01-02)
Productivity / Business per employee
Increase / Decrease over the previous years figure
% Increase / decrease over the previous years figure
Index with year 2000-01 as base year 2000-01 63.0
--- 100.00 2001-02 96.6 36.0 54.14 152.38 2002-03 115.00 19.0 19.79 182.54 2003-04 121.00 6.9 3.90 192.06 2004-05 131.17 10.17 8.26 208.21 2005-06 153.66 22.49 17.56 243.90 2006-07 184.28 30.62 19.50 292.51 2007-08 199.24 14.96 5.40 316.25 The staff productivity of the banks has increased from 63 lakhs to 199.24 lakhs over the period 2000-01 to 2007-08.The bank has recognized that up gradation of employee skills at all levels is essential to meet competitive challenges. Accordingly, the Punjab & sind bank's staff training imparts timely training to the employees covering areas like forex, credit, non-performing assets management, priority sector, human resource management, automation, customer service, marketing etc. The bank is also at times introduce staff welfare measures aimed at increasing the motivational level of employees with a futuristic vision and to offer ANALYSIS OF NPAs OF PUNJAB & SIND BANK LMITED A bank is an institution, which deals with money and credit. It accepts deposits from public, makes the funds available to those who need them, and helps in the remittances of money from one place to another. In other words, a banks collects money from those who have it to spare or who are saving it out of their income and it lends money to those who require it. A unique function of the bank is to create credit. In fact, credit creation is the natural outcome of the process of advancing loans as adopted by the banks. When a bank advances a loan to its customers it does not lend cash but open an account in the borrower's name and credit the amount of loan to this account. Thus whenever a bank grants a loan, it creates an equal amount of bank deposit. Creation of such deposit is called credit creation. Which results in a net increase in the money stock of the economy. Banks have the ability to create many times more than their deposit and this ability of multiple credit creation depends up on the cash reserve ratio of the banks. When these loans taken are not repaid so much of funds has gone out of the financial system and the cycle of lending-repaying-re lending is broken. The bank has to repay it's depositors and others from whom money has been borrowed. If the borrowers does not repay, the bank has to borrow additional capital funds to repay the depositors and creditors. This lead to a situation where bank also reluctant to lend fresh loans thus chocking the system. Once the credit to the various sectors of the economy slows down, economy is badly hurt. There will be slow down in the growth in industrial output and fall in the profit margins of the corporate and subsequent in the markets.
FIGURES RELATING TO NON-PERFORMING ASSETS (GROSS &NET)AND THEI PERCENTAGE WITH PROVISIONS MADE TOWARDS THEM.
Particular Gross NPA N.A. N.A. 9635.89 11756.70 13489.00 14586.00 Net NPA N.A. N.A. 7531.26 8582.33 10167.00 10955.00 Net Advances N.A. N.A. 61080.78 77457.85 89656.08 93953.09 Net NPA to Net Advances 4.51 11.01 12.31 11.08 11.34 11.66 Provision towards NPA 225.00 661.00 629.00 1070.00 3322.00 3631.00 Net profit during the year 791.00 840.00 387.00 1128.00 677.00 1007.00 In this study an attempt is made to analyze the non-performing asset level of Punjab & sind bank by analyzing the various figures relating to the bank in the terms of gross non performing asset, net non performing asset, net advances, provision made towards non performing assets each year which have been complied from the various years annual report of the bank.
NET NPA FIGURES OF PUNJAB & SIND BANK
(FROM 2004-05 TO 2007-08) Gross NPA N.A. N.A. 9635.89 11756.70 13489.00 14586.00 Net NPA N.A. N.A. 7531.26 8582.33 10167.00 10955.00
ANALYSIS The aggregate net non-performing asset of the bank is on an upward trend. But taking on a yearly basis, not much trend could be identified out of the four years of data considered for analysis, net non-performing asset, increased at an increasing rate registering an increase of 14% and 18.5% respectively. But in the third year there was a decline in the rate of increase, say, and the net non performing assets increased only by 7%. This can be seen from the chart above.
INTEPRETATION The movement of NPA seems to have increased at an increasing rate, even though slight decrease is observed in the rate of growth in some years. So from data analyzed above, it can be assumed that the bank has taken either stringent steps to reduce the NPA or it might not have given more advances during that year.
NET ADVANCES OF PUNJAB & SIND BANK
(FROM 2004-05 TO 2007-08)
2007-08 Net Advances N.A. N.A. 61080.78 77457.85 89656.08 93953.09 Particulars:
ANALYSIS The advances of the bank show an upward trend through the period 2004-05 to 2007-08. This can be seen from the data regarding the advances of the bank during this period. Net advances of the bank increased by 26.8% in the first year, 15.8% in the second year 4.8% in the third year. From this it could be seen that such increase in net advances is increasing at a decreasing rate over the period under study.
INTERPRETATION Non-performing assets being a direct result of advances, it may have resulted from increase in the net advances. While increasing advances may be necessary for the survival & progress of the bank itself, it should not mean increased justification for the higher incidence of non-performing assets. If recovery were good, perhaps, NPA could have been reduced. In other words, increased NPA can be directly attributed to non-recovery advances made to borrowers, in time.
NET NON PERFORMING ASSETS OF PUNJAB & SIND BANK AS A PERCENTAG OF NET ADVANCES
(FROM 2002-03 TO 2007-08)
Net NPA to Net Advances
ANALYSIS To understand the real impact of non-performing assets, the chart is drawn taking the net non-performing assts of the bank as a percentage of the net advances. From such chart, what can be seen is that the said percentage (the net non performing assets as percentage of net advances) was constantly increasing for the first three years and showed a sudden decline in 2005-2006s before increasing again.
INTERPRETATION Even though there was a sharp increase in the advances given by the bank in the year 1999-2000, it can be seen that Net NPA decreased to a great extent in that year. From this we can assume that bank must have taken up fruitful efforts to recover money from the willful defaulters. On the other hand, borrowers may have become incapable to pay back, possibly
NET PROFIT AND PROVISION TOWARDS NON-PERFORMING ASSETS OF PUNJAB & SIND BANK
(FROM 2002-03 TO 2007-08)
Provision towards NPA
Net profit during the year
ANALYSIS On analyzing profit and loss account of the bank, it could be seen that provisions and contingencies is one herd, which has a negative impact on the net profit of the banks, and provisions made towards non-performing assets, being item contributing to such head. On going through the figures of the Punjab & sind bank relating to net profit and provision made towards non performing assets, a sharp increase can be seen in the provision made towards non performing assets in the year 1999-2000, which could be explained by the tightening of provision norms which made it compulsory for banks to keep a provision of .25% even on their standard assets also from 31-3-2000.
INTERPRETATION Profit is the most important parameter for evaluating the performance of a bank. In the present day scenario profit is not just an accounting concept of excess of income over the expenditure, but is surely more which ensures survival and growth in the future. Level of non-performing asset is an important factor affecting the profit of the bank,. as the profit margin depends up on the synthesis of cost and yield (by yielding no income) reduce the profit. Here in the case of Punjab & sind bank, the provision made towards NPA has increased at an increasing rate over the year, which has a negative impact on the profit of the bank. So we can assume that profit of the bank might have affected negatively because of the exorbitant provision towards NPA. This may be because, in the event of absolute non-recovery of the lent money, certain provisions become necessary in order to reduce profits, so that taxation can be under control
MOVEMENT OF NON-PERFORMING ASSETS OF PUNJAB & SIND BANK
(2004-05 TO 2007-08)
Particular Gross NPA 9635.89 11756.70 13489.00 14586.00 Additions during the year
--- 3970.81 4654.0 5546.0 Reductions during the year
--- 1850.00 2922.0 4449.0 Net recovery during the year
--- 2120.81 1732.00 1097.00 Recovery as a % of gross NPAs
--- 18.04 12.84 7.52
Description of the above table: From the table above it could be seen that even though there is a substantial increase in the reductions in non-performing assets over the years, the additions are also on the increasing at a higher rate. As a result, the net result, the recovery is affected, showing a decline a decline in the trend which is clearly shown in the chart below, with net recovery during the year taken as a percentage of gross non performing assets
NET RECOVERY OFPUNJAB & SIND BANK AS A
PERCENTAGE OF THEIR GROSS NPA
(FROM 2005-06 TO 2007-08)
Recovery as a % of gross NPAs
ANALYSIS The net recovery during the year 1999-2000 was 18.04% of gross non performing assets, while it was 12.84% and 7.52% in the following two years i.e., in 2006-07 and 2007-08 respectively, i.e., the net recovery is declining not only by amount but also with respect to its contribution as a percentage of gross non performing assets. This is an alarming situation.
INTERPRETATION The above analysis reflects that the Bank's recovery strategy may not be effective., So we can conclude that bank's NPA is increased perhaps because of inefficient recovery strategy. While the strategy for recovery may have been good, the bank's recovery in-charge officials may not have taken the necessary Herculean efforts towards the same in order to save the bank from the current pathetic situation. Lethargy, or complacency of previous year's good recovery may have crept in.
FINDINGS AND SUGGESTION
FINDINGS From analyzing the data collected, the various parameters like the deposits, advances, gross NPA, Net NPAs, cost of deposits, staff productivity etc. of the bank over a past few years, the following findings were arrived at. Net advances is also increasing but at decreasing rate over the period under study. The aggregate net NPAs of the bank are on an upward trend. Staff productivity of the bank is increasing. Which indicates efficient recovery measures but is not reflected in the recovery trend. Provision made towards NPAs were on a sharp increase affecting the net profit adversely. The net result, the recovery is affected, showing a decline in the trend.