npa in psb-india

DEALING WITH NON-PERFORMING ASSETS IN INDIA

NAME COURSE YEAR CONTACT NO. EMAIL ID.

1-E.Kisan MBA 1st 9049269025 [email protected]

2-Kriti Doneria MBA 1st 7895218190 [email protected]

3-Alok Pandey MBA 1st 7755923242 [email protected]

BEAT THE STREET CASE STUDY

Team Name: THE AMAZING

INCREASING NPA MENACE-CAUSES

SBI & ASSOCIATES NATIONALIZED BANKS PRIVATE BANKS FOREIGN BANKS0.00

500,000.001,000,000.001,500,000.002,000,000.002,500,000.00

BANK-GROUP WISE GROSS NPA(IN MILLIONS)

2013 2014 2015

For 2013-15,the GROSS NPA for nationalized banks has grown at an AAGR OF 2.06%,the highest among all groups.

Injudicious use of Corporate Debt

Restructuring (CDR) mechanism by PSBs.

Sluggish legal system equals little fear of prosecution, even for big/repeat

defaulters.

Overall Global slowdown for certain

Indian industries post 2008 recession.

Lack of customer level view of

Aggregated NPA due to technological

limitations.

Unpredictable agri-yield leads to a lot of defaulters from agro-

sector.

About 7 percent of Gross NPAs are

locked up in 'hard-core' doubtful and loss assets, with

uncertain returns.

Longer Gestation period for

Infrastructure projects in India

hurts promoters’ as well as banks’

interests.

REASONS FOR GROWING NPAs

Team name:THE AMAZING

NON-PERFORMING ASSETS-PUBLIC SECTOR VS PRIVATE SECTOR BANKSFor 2013-15,the cumulative Gross NPA of Private Sector banks is 11.62% of that of its Public sector banks.

2013 2014 2015 TOTAL0

2,000

4,000

6,000

GROSS NPA(IN BILLIONS)

Public Private

2013 2014 20150

1.6

3.2

4.8

6.4

Gross NPA Ratio for Prior-ity Sector

Public Private

For 2013-15,the Gross NPA ratio (for priority sector) for PSBs is as high as 5 times of its private counterparts.

For 2013-15,the Gross NPA ratio of PSBs(for non priority sector) is at most triple of its private counterpart, much lower than in the priority sector.

2013 2014 20150

1.6

3.2

4.8

Gross NPA Ratio for non-priority sector

Public PrivateTeam name:THE AMAZING


Stringent regulations from Govt. for pumping more liquidity in priority sectors ,even against low credit ratings further increases the gross NPA Valuations

of PSBs.

Financing infrastructure projects(with ceiling of exposure norms) are more likely to be financed by PSBs than private sector banks. Longer gestation

period delays returns, if any.

Financing of govt. projects is tunneled through PSBs and

favorism creeps up in various forms, allowing companies to get

away with defaulting.

Private sector banks promote & use ARCs aggressively to recover

NPAs at discounted prices, something that PSBs have

recently cut stakes in.

Why PSBs have higher NPAs than Private Banks?

LEVERAGING TECHNOLOGY TO MITIGATE NPA WOES


Relying on automated systems instead of

relationship managers for credit risk modelling and

assessment purposes might help curb

inevitable human cognitive biases,. It

would ensure a more transparent loan sanctioning, sans

‘influences’.

Corporates applying for loans from PSBs asked to integrate banking services

within its existing ERP, allowing bank to asses the financial health of the company in real

time as well as reducing turnaround

time for the enterprise..

Setting up early warning systems(EWS integrated with DTRs)

that predict the likelihood of an asset falling into the NPA category in future

might help banks take preventive and

corrective measures on time.

A central, interoperable Content Management System,

would ensure minimum inconsistencies &

repeat defaulters. It can be shared by all

nationalized banks and contain a log of all

defaulters. The CMS shall just answer in a YES or NO, hence no

security breach.

• To Accelerate speedy disposal of high value claims, more Debt Recovery Tribunals and Lok Adalats should be set up.

• Revision of ASSET RECONSTRUCTION COMPANY norms in SARFAESI act(2002) along the lines of models that have proved to be successful in other Asian countries, such as Fixed price Sale of assets for equity participation in ARCs (Japan) & Aggressive management by third parties(Thailand).

• Disbursement of Loans to Self Help groups instead of individuals, especially in agro-based industries can help limit the defaulting/foreclosure rate.

• Disinvestments from PSBs when it comes to sticky assets is a better bet because the risk on future uncertainty is even higher.

REMEDIAL ACTIONS


THANK YOU


npa in psb-india

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