NPA in PSB-India
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This document discusses non-performing assets (NPAs) in the Indian banking sector. It finds that nationalized or public sector banks have seen higher growth in NPAs from 2013-2015 compared to other bank groups. Reasons for rising NPAs include weak legal systems, infrastructure project delays, agricultural uncertainties, and priority sector lending requirements. Public sector banks have much higher NPAs than private banks, especially in priority sectors, due to more stringent government regulations and preferential financing of government projects through public banks. The document suggests leveraging technology through early warning systems and a shared defaulter database to mitigate future NPA issues. Recommended remedial actions include expanding debt recovery infrastructure and reforming asset reconstruction company norms.
NPA in PSB-India
- 1. DEALING WITH NON-PERFORMING ASSETS IN INDIA NAME COURSE YEAR CONTACT NO. EMAIL ID. 1-E.Kisan MBA 1st 9049269025 kisane@iitk.ac.in 2-Kriti Doneria MBA 1st 7895218190 doneria@iitk.ac.in 3-Alok Pandey MBA 1st 7755923242 alokp@iitk.ac.in BEAT THE STREET CASE STUDY Team Name: THE AMAZING
- 2. INCREASING NPA MENACE-CAUSES 0.00 1,000,000.00 2,000,000.00 3,000,000.00 SBI & ASSOCIATES NATIONALIZED BANKS PRIVATE BANKS FOREIGN BANKS 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
- 3. NON-PERFORMING ASSETS-PUBLIC SECTOR VS PRIVATE SECTOR BANKS For 2013-15,the cumulative Gross NPA of Private Sector banks is 11.62% of that of its Public sector banks. 0 2,000 4,000 6,000 8,000 2013 2014 2015 TOTAL GROSS NPA(IN BILLIONS) Public Private 0 0.8 1.6 2.4 3.2 4 4.8 5.6 6.4 2013 2014 2015 Gross NPA Ratio for Priority 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. 0 0.8 1.6 2.4 3.2 4 4.8 5.6 2013 2014 2015 Gross NPA Ratio for non-priority sector Public Private Team name:THE AMAZING
- 4. Team 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?
- 5. LEVERAGING TECHNOLOGY TO MITIGATE NPA WOES Team name:THE AMAZING 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.
- 6. • 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 Team name:THE AMAZING
- 7. THANK YOU Team name:THE AMAZING