After studying about 800 top NPA accounts in 17 banks RBI has found that the

After studying about 800 top npa accounts in 17 banks

This preview shows page 32 - 36 out of 87 pages.

After studying about 800 top NPA accounts in 17 banks, RBI has found that, the following in order of importance are to be the causative factors for loans turning into NPAs 1. Diversion of funds, mostly for expansion / diversification of business or for promoting associate concerns. 2. Factors internal to business like product / marketing tailor, insufficient management, inappropriate technologies, labor unrest etc. 3. Changes in the macro environment like recession etc. 4. Time / cost over runs during project importance. 5. Changes in the government policies and 6. Deficiencies like delay in release of sanctioned limits by banks. The other reasons may include: Poor credit discipline. Inadequate credit and risk management Diversion of funds by promoters Funding of non-viable projects Inadequate mechanism to gather and disseminate credit information amongst commercial banks 32
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Effective recovery from defaulting and overdue borrowers was hampered on account of sizeable overhang component arising from infirmities in the existing process of debt recovery, inadequate legal provisions on for enclosure and bankruptcy and difficulties in the execution of court decrees. REASONS FOR GROWING NPA’S : There are some reasons which are contributing for the growth of NPAs some of them are as follows. IN PRIORITY SECTOR ADVANCES: A. Direct personal native loans sanctioned under sponsored programmers B. Misutilisation of loans and subsidies C. Diversion of funds. D. Absence of security E. Lock of effective follow up. F. Decrepit legal system G. Cost in effective legal recovery measures H. Difficulties in execution of decrees obtained I. Lack of marketing support IN NON-PRIORITY SECTOR AND ADVANCES: A) Improper and inadequate credit appraisal B) Demand recession C) Frequent change in government policies 33
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D) Industrial sickness and labor problems E) Antiquate legal judicial system F) Lack of legal reforms G) Division of funds H) Willful default I) Incompetence of management J) Political compulsion and corruption IMPACT OF NPAS ON THE OPERATIONS OF BANK: The impact of NPAs on different financial parameters is as follows : Drain on profitability Higher provisioning requirement on mounting NPAs, thereby badly impacting the capital adequacy. Reduction in the earning capacity of assets. Adverse effect on credit growth as the banker’s prime focus becomes zero percent risk and as a result turns to fresh credit. Excessive focus on credit risk management. High cost of funds due to NPAs NPA MANAGEMENT – PREVENTIVE MEASURES: Formation of the Credit Information Bureau of India Limited (CIBIL) 34
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Release of willful defaulter’s list. RBI also releases a list of borrowers with aggregate outstanding of Rs. 1 crore and above against whom, banks have filed suits for recovery of their funds Reporting of frauds to RBI.
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  • Summer '17
  • javed
  • Banks of India, NPAs

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