Axis Bank NPA

Analysis of Non Performing Assets at AXIS Bank
EXECUTIVE SUMMERY
The future of the Indian Banking represents a unique mixture of unlimited opportunities
amidst insurmountable challenges. On the one hand we see the scenario represented by
the rapid process of globalization which transcending the geographical boundaries in the
sphere of trade and commerce and which also indicates the newly emerging opportunities
for the Indian Banking Industry. On the other side as we all know when there are
advantages their also some disadvantages like that because of neck to neck competition
between nationalized and private sector banks and among the private sector banks,
forcing these banks to form a very flexible bank policy regarding lending which in turn
push these banks to make reckless lending to capture maximum market share and these
banks are lending at the competitive rates, as a result of this banks are now facing the
problem of recovery and this also created the problem of increasing rate of NPA [Nonperforming assets]
Private sector banks in India can solve these problems only if they assert a spirit of self
initiative and self reliance through developing their in-house expertise.
In AXIS bank as per my study their bank policy especially relating to term loan and
working capital loans is working very effectively which can be proved very well with its
good recovery and NPA rate. NPA rate is 0.74 where as NPA of AXIS is 0.35
As AXIS is lending to only few segment as follows:
Large and mid corporate.
Small and Medium scale enterprise.
Agricultural loans
In the above three segments, SME lending is one of the most risky segment. My
learning in the project was the tools which can be used to mitigate this risk like
Credit Risk Management.
K L E Societys IMSR, HUBLI-31

The robust growth in the demand for housing finance in recent years has been remarkable
because lower interest rates, tax incentives rates for home ownership, massive
competition by providers of housing finance has helped consumers considerable. The
primary market for housing finance has now matured.
For taking the advantage of this emerging trend in the Home Loan sector, this project has
been undertaken in the AXIS BANK.
Home finance is the long term financial assistance specifically advanced to
acquire/purchase/construct a dwelling unit against the security of first charge on the
property to be founded. Apart from financial assistance home finance provides legal
technical assistance to the customer in selecting a sound property.
Due to the increase in the income level of the middle class in India. There is a stiff
competition among all the Banks to attract the customers & also the products have been
designed in the same way.
Design of the study

Title of the Project

Need For Study
This study will help to know the recent norms of NPA.
This study helps to know how NPA Causing Problems to Banking Sector and
what might be the solution to overcome from this problem and also its impact on
Profitability of Banks.
Statement of the Problem

Profitability is considered as a benchmark for evaluating performance of any business
enterprise including the banking industry. However, increasing Non- Performing Assets,
have a direct impact on profitability of banks and financial institutions. Legally speaking
banks and financial intuitions are not allowed to book income on such account and at the
same times they are forced to make provision on such assets. So this project is undertaken
to now impact of NPA on Profitability of New Private Sector Banks.

Objectives of Project
To understand the concept of Non Performing Asset.
To study the classification of the Non Performing Assets.
Provisioning Norms.
To know the Authorities and responsibilities given for the Credit manager.
To study the RBI norms on Non Performing Assets, and the various reasons for
the existence of huge level of NPA in Indian banking.
To know the RBI Guidelines regarding credit rating and risk analysis and know
the guidelines of CRISIL.
To gain insights into the Non Performing Asset management activities of the
Bank.
To recommend measures for Improving performance and reduction of Non

Performing Assets.
Company where the project is undertaken

AXIS BANK,
Address: 163/20Akalburgi plaza, Despande Nagar, HUBLI 580029
Duration of the study

The time duration for the study was from 09th February to May 25th 2009.

Methodology
Data collection method: To fulfill the objectives of my study, I have taken both into
considerations which is primary & secondary data.
Primary data: Primary data has been collected through personal interview by
direct contact method.
The method which was adopted to collect the information is Personal
Interview method.
Personal interview and discussion was made with credit manager and
other personnel in the organization for this purpose.
Secondary data: The data is collected from the Magazines, Annual reports,
Internet. Text books
The various sources that were used for the collection of secondary data are
Various Text books were used to understand the concepts of portfolio

management.
Internal files & materials
Manuals, Brochures and
Websites Various sites like www. sharekhan.com

www.indiainfoline.com
www.Axisbank.com
www.investopedia.com
www.en.wikepedia.com and other sites
FINDINGS
In the current market scenario of global slow down, the banks

will be tested to maintain the quality of their asset portfolio.
The banks need to be selective about taking up new proposals

for green field projects and taking over of limits from other
banks.
The asset quality of Indian banks has shown substantial

improvement in recent years due its conservative approach
towards credit decision making.
The major tool the bank has adopted towards improving its
credit operations has been the introduction of Basel Norms.
Net NPA improved to 0.73 per cent for the FY 2008 as against
0.83 per cent for FY 2007. However, 2008-09 and 2009-10 has
the potential to keep up this trend.
As India witness slowdown in economic activity, banks will face

a lower demand for loans. NPAs will also increase on account of
borrowers finding it difficult to repay loans.
Rise in NPAs would mainly be attributed to export oriented

small and medium enterprises(SMEs)which are hard hit due to
surging costs.
Banks are being watchful about taking over of assets from other
Banks/FIs.
The new generation banks are particular about
taking over only standard assets.
Banks comply with strict provisioning norms in the current

scenario.
Monitoring and follow up of accounts has been a key focus area

to keep up the quality.
Most of the Banks have devised early warning system and have
created a signaling for the probable NPAs.
RECOMMENDATION
1. Fixing up the budget for profits and recovery rather than for advances. Budget
oriented approach at times leads to release of credit facilities without ensuring
compliance of covenants of sanction.
2. A suitable mechanism could be drawn at each bank level to provide monetary
benefits/ re-organization of the operating staff particularly for recovery in NPAs
write-off cases.
3. Projects with old technology should not be considered for finance.
4. Up gradation of credit skills of the operating staff working in advance to avoid
over and under finance.
5. Credit guarantee covers like ECGC, State/Central government guarantee to be
insisted upon the customers even with a extra expense of premium.
6. Due diligence on the credit history of the customer to be conducted prior to the
disbursal of limits.
7. Sufficient collateral security to be insisted to cover the risk of the bank.
8. Constant monitoring of the operations of the accounts to detect NPA in the initial
period. Also have a early warning system installed in the process to detect
probable NPAs at the initial period.
9. Constant follow up with accounts having irregularity in their operations.
10. Few points which needs to be looked into while preparing a proper credit
appraisal which will lead to creation of standard accounts:
understanding the business model of the customer
usage of all financial ratios in the appraisal system to find out the financial
strength of the organization
customer base analysis of the entity to be conducted
supplier strength to be analyzed
industry analysis to be critically undertaken
compliance with all the regulatory
stipulation of adequate terms and conditions and also financial convenient

to maintain discipline in the operations of the customer
SWOT Analysis to be conducted

CONCLUSION
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. 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.
However, banks are yet another sector where the rot has already set in
It is high time to take stringent measures to curb NPAs and see to it that the
Non-Performing Assets may not turn banks into Non-Performing Banks; instead steps
should be taken to covert Non-Performing Assets into Now-Performing Assets.
Axis bank has been very professional in their approach and has been performing well by
posting healthy top line and bottom line for the past few years. The NPA levels have
been lower as compared to the industry and even in case of NPA the recovery rate has
been good. The credit appraisal system of the bank is above the bench mark level of the
industry.
It will be worth mentioning that Axis Bank Hubli have a zero percentage of
NPA. They have not got a single NPA so far and all the credit has to go to the concerned
effort put in by the management and the staff of the Axis Bank, which helped them in
achieving the remarkable progress.
Keeping up the same trend and maintaining the present quality of the assets Axis Bank is
expected to reach the top position in Banking and Finance industry.
Introduction
Banking Industries
In modern economy, banking plays an inseparable role. Banking has changed
dramatically over the past few years. Banks today they offer a wider range of
products and services than ever before, and deliver them faster and more efficiently.
But the central function of banking remains the same- mobilizing the savings of the
economy towards investment.
But during the last decade, five powerful forces have created the foundation for a
dynamic new environment for banks. They are as follows.
Deregulation: The removal of government controls from an industry or sector,

to allow for a free and efficient marketplace.
Financial innovation: Financial innovation is the systematic process of change

in instruments, institutions. And operating policies that determine the structure
of the financial system
Securitization: Securitization is the process of converting financial assets into

marketable securities.
Globalization: Globalization is the gradual evolution of markets and

institutions such that geographical boundaries do not restrict financial
transactions.
Advances in technology: Deregulation increased competition for financial

institutions and the increased competition caused banks to assume more
portfolio risks to earn acceptable returns.
10
Now more than 50% is contributed by service sector in such competitive world banking
sector is one of the fastest growing service sector. Though banking sector is contributing
more to GDP of country but it facing cut-throat competition. In such a rapid growing
competition, AXIS bank is one of the fastest growing private sector banks and it is
growing at a rate of 53% every year.
With computerization , and by using more and more advanced softwares as well as by
employing quality employees AXIS is doing well in all its areas and trying to the
maximum extent to satisfy every class of customers by designing specialized services for
each kind of customers.
Origin of Banking in India
A money economy existed in India since the days of Buddha, but banking in India
flourished in the ancient vedic times. Even in the Rig vedha there was mention about
indebtedness and earliest dharma shastras lay down rates of interest and regulations
governing debts and mortgages.
The Indian banking system can be traced to the olden days where it was in the form of
money lenders. This concept slowly changed into indigenous banking, where it was doing
additional job of accepting deposits.
The banking industry has been in existence for centuries tracing their presence to the
times of Vedic period. The fast growth of modern commercial banks and the indigenous
banks continue to hold on even in present times. Indigenous banks despite facing many
shortcomings, like attempts of regulating them and competition from modern banks, have
survived with old practices, which no longer fit in the emerging new requirements of
economic life.
11

In the present life indigenous banks continue their services in the areas where modern
banking has so far been inadequate. The operation of these banks is simple and
Flexible. By virtue of modernization, in respect of organization and functioning, as also
the massive funds at their disposal, commercial banks are crucial in promoting the growth
of Indian economy. The banking system, along with entrepreneurship is regarded as the
key agent in the process of development.
12
Structure of Indian Banking.

The Indian banking industry has Reserve Bank of India as its Regulatory Authority. This
is a mix of the Public sector, Private sector, Co-operative banks and foreign banks. The
private sector banks are again split interest old banks and new banks.
Reserve Bank of India
[Central Bank]
Scheduled Banks
Scheduled
Commercial Banks
Public Sector
Banks
Nationalized
Banks
Scheduled Co-operative Banks
Private Sector Regional

Foreign
Banks Banks Rural Banks
Scheduled Urban
Co-Operative
Banks
SBI & its

Associates
Old Private
Sector Banks
Scheduled State CoOperative Banks
New Private
Sector Banks
13

Chart Showing Three Different Sectors of Banks
i)
Public Sector Banks
ii)
Private Sector Banks
Public Sector Banks

SBI and
subsidiaries
Nationalized
Banks
Regional Rural
Banks
SBI and subsidiaries

This group comprises of the State Bank of India and its seven subsidiaries viz., State
Bank of Patiala, State Bank of Hyderabad, State Bank of Travancore, State Bank of
Bikaner and Jaipur, State Bank of Mysore, State Bank of Saurashtra, State Bank of India
State Bank of India (SBI) is the largest bank in India. If one measures by the number of
branch offices and employees, SBI is the largest bank in the world. Established in 1806as
Bank of Bengal it is the oldest commercial bank in the Indian subcontinent. SBI provides
various domestic, international and NRI products and services, through its vast network
in India and overseas. With an asset base of $126 billion and its reach, it is a regional
banking behemoth. The government nationalized the bank in1955, with the Reserve bank
of India taking a 60% ownership stake. In recent years the bank has focused on two
priorities, 1), reducing its huge staff through Golden hand shake schemes known as the
Voluntary Retirement Scheme, which saw many of its best and brightest defect to the
private sector, and 2), computerizing its operations.
14

The State Bank of India traces its roots to the first decade of19th century, when the Bank
of Kolkata, later renamed the Bank of Bengal, was established on 2 June 1806. The
government amalgamated Bank of Bengal and two other Presidency banks, namely, the
Bank of Bombay and the bank of Madras, and named the reorganized banking entity the
Imperial Bank of India. All these Presidency banks were incorporated as companies, and
were the result of the royal charters. The Imperial Bank of India continued to remain a
joint stock company. Until the establishment of a central bank in India the Imperial Bank
and its early predecessors served as the nation's central bank printing currency.
The State Bank of India Act 1955, enacted by the parliament of India, authorized the
Reserve Bank of India, which is the central Banking Organisation of India, to acquire a
controlling interest in the Imperial Bank of India, which was renamed the State Bank of
India on30th April 1955.
In recent years, the bank has sought to expand its overseas operations by buying foreign
banks. It is the only Indian bank to feature in the top 100 world banks in the Fortune
Global 500 rating and various other rankings. According to the Forbes 2000 listing it tops
all Indian companies.
15

Nationalized banks
This group consists of private sector banks that were nationalized. The Government of
India nationalized 14 private banks in 1969 and another 6 in the year 1980. In early 1993,
there were 28 nationalized banks i.e., SBI and its 7 subsidiaries plus 20 nationalized
banks. In 1993, the loss making new bank of India was merged with profit making
Punjab National Bank. Hence, now only 27 nationalized banks exist in India.
Regional Rural banks

These were established by the RBI in the year 1975 of banking commission. It was
established to operate exclusively in rural areas to provide credit and other facilities to
small and marginal farmers, agricultural laborers, artisans and small entrepreneurs.
16

Old private
Sector Banks
New private
Sector Banks
Old Private Sector Banks

This group consists of the banks that were establishes by the privy sectors, committee
organizations or by group of professionals for the cause of economic betterment in their
operations. Initially, their operations were concentrated in a few regional areas. However,
their branches slowly spread throughout the nation as they grow.
New private Sector Banks

These banks were started as profit orient companies after the RBI opened the banking
sector to the private sector. These banks are mostly technology driven and better managed
than other banks.
Foreign Banks
These are the banks that were registered outside India and had originated in a foreign
country.
The major participants of the Indian financial system are the commercial banks, the
Financial Institutions (FIs), encompassing term-lending institutions, investment
institutions, specialized financial institutions and the state-level development banks, NonBank Financial Companies (NBFCs) and other market intermediaries such as the stock
brokers and money-lenders. The commercial banks and certain variants of NBFCs are
among the oldest of the market participants. The FIs, on the other hand, are relatively
new entities in the financial market place.
17

Importance of Banking Sector in a Growing Economy
In the recent times when the service industry is attaining greater importance compared to
manufacturing industry, banking has evolved as a prime sector providing financial
services to growing needs of the economy.
Banking industry has undergone a paradigm shift from providing ordinary banking
services in the past to providing such complicated and crucial services like, merchant
banking, housing finance, bill discounting etc. This sector has become more active with
the entry of new players like private and foreign banks. It has also evolved as a prime
builder of the economy by understanding the needs of the same and encouraging
the development by way of giving loans, providing infrastructure facilities and financing
activities for the promotion of entrepreneurs and other business establishments.
For a fast developing economy like ours, presence of a sound financial system to
mobilize and allocate savings of the public towards productive activities is necessary.
Commercial banks play a crucial role in this regard.
The Banking sector in recent years has incorporated new products in their businesses,
which are helpful for growth. The banks have started to provide fee-based services like,
treasury operations, managing derivatives, options and futures, acting as bankers to the
industry during the public offering, providing consultancy services, acting as an
intermediary between two-business entities etc. At the same time, the banks are reaching
out to other end of customer requirements like, insurance premium payment, tax payment
etc. It has changed itself from transaction type of banking into relationship banking,
where you find friendly and quick service suited to your needs. This is possible with
understanding the customer needs their value to the bank, etc. This is possible with the
help of well organized staff, computer based network for speedy transactions, products
like credit card, debit card, health card, ATM etc. These are the present trend of services.
The customers at present ask for convenience of banking transactions, like 24 hours
banking, where they want to utilize the services whenever there is a need.
18

The relationship banking plays a major and important role in growth, because the
customers now have enough number of opportunities, and they choose according to their
satisfaction of responses and recognition they get. So the banks have to play cautiously,
else they may lose out the place in the market due to competition, where slightest of
opportunities are captured fast.
Another major role played by banks is in transnational business, transactions and
networking. Many leading Indian banks have spread out their network to other countries,
which help in currency transfer and earn exchange over it.
These banks play a major role in commercial import and export business, between parties
of two countries. This foreign presence also helps in bringing in the international
standards of operations and ideas. The liberalization policy of 1991 has allowed many
foreign banks to enter the Indian market and establish their business. This has helped
large amount of foreign capital inflow & increase our Foreign exchange reserve.
Another emerging change happening all over the banking industry is consolidation
through mergers and acquisitions. This helps the banks in strengthening their empire and
expanding their network of business in terms of volume and effectiveness.
19

Emerging Scenario in the Banking Sector
The Indian banking system has passed through three distinct phases from the time of
inception. The first was being the era of character banking, where you were recognized as
a credible depositor or borrower of the system. This era come to an end in the sixties. The
second phase was the social banking. Nowhere in the democratic developed world, was
banking or the service industry nationalized. But this was practiced in India. Those were
the days when bankers has no clue whatsoever as to how to determine the scale of finance
to industry. The third era of banking which is in existence today is called the era of
Prudential Banking. The main focus of this phase is on prudential norms accepted
internationally.
AXIS Bank
AXIS Bank was the first of the new private banks to have begun operations in 1994, after
the Government of India allowed new private banks to be established. The Bank was
promoted jointly by the Administrator of the specified undertaking of the, AXIS.
Life Insurance Corporation of India (LIC)
General Insurance Corporation Ltd.
Other four PSU companies, i.e.

National Insurance Company Ltd.,
The New India Assurance Company,
The Oriental Insurance Corporation and United Insurance Company Ltd.
The Bank today is capitalized to the extent of Rs. 280.51 Crores with the public holding
(other
than
promoters)
at
72.46
%.
The Bank's Registered Office is at Ahmedabad and its Central Office is located at
Mumbai. Presently the Bank has a very wide network of more than 469 branch offices
and Extension Counters. The Bank has a network of over 2016 ATMs providing 24hrs a
day banking convenience to its customers. This is one of the largest ATM networks in the
country. The Bank has strengths in both retail and corporate banking and is committed to
adopting the best industry practices internationally in order to achieve excellence.
20
About Axis Bank

Axis Bank was the first of the new private banks to have begun operations in 1994, after
the Government of India allowed new private banks to be established. The Bank was
promoted jointly by the Administrator of the specified undertaking of the, Unit Trust of
India.
Life Insurance Corporation of India (LIC)
General Insurance Corporation Ltd.
Other four PSU companies, i.e.

National Insurance Company Ltd.,
The New India Assurance Company,
The Oriental Insurance Corporation and United Insurance Company Ltd.
The Bank today is capitalized to the extent of Rs. 358.97 crores with the public holding
(other than promoters) at 57.59%.Presently; the Bank has a very wide network of more
than 729 branch offices and Extension Counters. The Bank has a network of over 3171
ATMs providing 24 hrs day banking. The Bank has strengths in both retail and corporate
banking and is committed to adopting the best industry practices internationally in order
to achieve excellence.
The latest offerings of the bank along with Dollar variant is the Euro and Pound Sterling
variants of the International Travel Currency Card. The Travel Currency Card is a
signature based pre-paid travel card which enables travelers global access to their money
in local currency of the visiting country in a safe and convenient way.
21
Mission of AXIS Bank:
Customer Service and Product Innovation tuned to diverse needs of individual

and corporate clientele.
Continuous technology upgradation while maintaining human values.
Progressive globalization and achieving international standards.
Efficiency and effectiveness built on ethical practices.
Core Values
Customer Satisfaction through

--Providing quality service effectively and efficiently
--Smile, it enhances your face value" is a service quality stressed on
--Periodic Customer Service Audits
Maximization of Stakeholder value
Success through Teamwork, Integrity and People
Board of Directors
Ms Shikha Sharma
Chairman & CEO
Shri N.C. Singhal
Director
Shri J.R. Varma
Director
Dr. R.H. Patil
Director
Smt. Rama Bijapurkar
Director
Shri R.B.L. Vaish
Director
Shri M.V. Subbiah
Director
Shri Ramesh Ramanathan
Director
Shri K. N. Prithviraj
Director
22
Organization Chart of Axis Bank

CHAIRMAN /CMD
DIRECTOR
CORPORATE BANKING
CORPORATE RETAIL BANKING
CORPORATE OPERATION BANKING
CORPORATE PROJECT AND PLANNING BANKING
CORPORATE FINANCE AND ACCOUNT BANKING
CORPORATE INSPECTION AND AUDIT BANKING
CORPORATE SUPPORT SERVICE BANKING
CORPORATE INFORMATION TECHNOLOGY BANKING
CORPORATE MARKETING BANKING
NORTH ZONE
SOUTH ZONE
EAST ZONE
WEST ZONE
SENIOR VICE
PRESIDENT
SENIOR VICE
PRESIDENT
SENIOR VICE
PRESIDENT
SENIOR VICE
PRESIDENT
VICE PRESIDENT
VICE PRESIDENT
VICE PRESIDENT
VICE PRESIDENT
ASSISTANT
VICE
PRESIDENT
ASSISTANT
VICE PRESIDENT
ASSISTANT
VICE PRESIDENT
ASSISTANT
VICE PRESIDENT
OPERATIONS,
SALES
MANAGERS
AND CREDIT
MANAGERS
OPERATIONS,
SALES
MANAGERS
AND CREDIT
MANAGERS
OPERATIONS,
SALES
MANAGERS
AND CREDIT
MANAGERS
OPERATIONS,
SALES
MANAGERS
AND CREDIT
MANAGERS
23
OPERATIONS,
SALES
MANAGERS
AND CREDIT
DEPUTY
MANAGERS
OPERATIONS,
SALES &
CREDIT
DEPUTY
MANAGERS
OPERATIONS,
SALES
MANAGERS
AND CREDIT
DEPUTY
MANAGERS
EXECUTIVES
EXECUTIVES
EXECUTIVES
EXECUTIVES
JUNIOR
EXECUTIVES
JUNIOR
EXECUTIVES
JUNIOR
EXECUTIVES
JUNIOR
EXECUTIVES
SALES
OFFICERS
SALES
EXECUTIVES
SALES
OFFICERS
SALES
EXECUTIVES
SALES
OFFICERS
SALES
EXECUTIVES
OPERATIONS,
SALES
MANAGERS
AND CREDIT
DEPUTY
MANAGERS
SALES
OFFICERS
SALES
EXECUTIVES
24
Bank Profile Axis Bank Branch Office Hubli

Organization chart of HUBLI branch
SENIOR VICE
PRESIDENT
VICE PRESIDENT
ASSISTANT
VICE
PRESIDENT
OPERATIONS,
SALES
MANAGERS
AND CREDIT
OPERATIONS,
SALES &
CREDIT
DEPUTY
EXECUTIVES
JUNIOR
EXECUTIVES
SALES
OFFICERS
SALES
EXECUTIVES
25

AXIS Bank milestones
1993- The Bank was incorporated on 3rd December and Certificate of business on14th
December.
- The bank was the first private sector bank to get a license under the new guidelines
issued by the RBI
1996 Crosses Rs.1000 crore deposit mark
1997 The Bank obtained license to act as Depository Participant with NSDL and
applied for registration with SEBI to act as `Trustee to Debenture Holders'.
1998 The Bank has 28 branches in urban and semi urban areas as on 31st July. All the
branches are fully computerized and networked through VSAT. ATM services are
available in 27 branches.
2000 - The Bank has announced the launch of Tele-Depository Services for its
depository clients.
- AXIS Bank has launch of `iConnect', its Internet banking Product.
- AXIS Bank has entered into an agreement with Stock Holding Corporation of India for
providing loans against shares to SCHCIL's customers and funding investors in public
and rights issues.
- AXIS Bank has tied up with L&T Trade.com for providing customized online trading
solAxison for brokers.
2004 -Comes out with Rs. 500 mn Unsecured Redeemable Non-Convertible Debenture
Issue, issue fully subscribed
-AXIS Bank, Geojit in pact for trading platform in Qatar
-AXIS Bank ties up with Shriram Group Cos
26

2005: AXIS Bank appointed by Government of Karnataka as the sole banker for the
Bangalore One (B1) project.
- AXIS Bank launches a powerful version of Kisan Credit Card.
- AXIS Bank gets listed on the London Stock Exchange, raises US$ 239.30 million
through Global Depositary Receipts (GDRs).
- AXIS Bank and Bajaj Allianz join hands to distribute general insurance products.
- AXIS Bank and Visa International launch Mobile Refill facility - Anytime,
Anywhere Pre-Paid Mobile Refill for all Visa Cardholders in India.
- AXIS Bank wins International Financing Review (IFR) Asia India Bond House
award for the year 2005.
2006: AXIS Bank and AXIS Mutual Fund to launch a new service for sale and
redemption of mutual fund schemes through the Banks ATMs across the country.
- AXIS Bank opens its first international branch in Singapore.
- AXIS Bank and LIC join hands to launch an Annuity Card for group
pensioners of LIC.
27

2007:
Axis Bank gets AAA National Long-Term Rating from Fitch Ratings
Axis Bank ties up with Banque Prive Edmond de Rothschild Europe for
Wealth Management
AXIS Bank re-brands itself as Axis Bank
AXIS Bank successfully raises USD 1050 million
AXIS Bank ties up with Tata Motors Ltd. for Car Loans
AXIS Bank's expansion into Asia supported by FRS
AXIS Bank launches 'Spice Rewards' on the bankcards - India's first-ever

merchant-supported rewards program
AXIS Bank opens a Financial Services Category I Branch in the DIFC in

Dubai
AXIS Bank ties up with Hyundai Motor India Ltd. for Car Loans
AXIS Bank ties up with IIFCL to provide finance for infrastructural projects
in the country
AXIS Bank launches Car Loans in association with MarAxis Udyog Ltd
AXIS Bank opens a Full Licence Bank Branch in Hong Kong
Finance Minister Shri P. Chidambaram Launches Shriram - AXIS Bank Co Branded Credit Card Exclusively For Small Road Transport Operators
(SRTOS)
AXIS Bank announces the launch of its Meal Card
AXIS Bank announces the launch of its Gift Card
LIC Premium payment now through AXIS Bank Branches
AXIS bank opens Priority Banking branch in Mumbai and Kolkata
2008
Axis Bank launches Platinum Credit Card, India's first EMV chip based card
28

SWOT Analysis
Strength
Weakness
AXIS Bank has been in the banking
Tedious procedures have to be
industry since 1994. It has successfully
followed before advancing loans
completed 12 years in the Banking
causing inconvenience to customers.
industry.
The bank has a sound network i.e
Anywhere
Banking
facility
in
450
Branches and 1891ATM's at strategic

locations in India.
AXIS Bank stands one among the top ten
banks in India and is ranked 1st in growth
in business
The bank is having well experienced,
trained, most dedicated and committed
staff.
In has a strong customer base.
Opportunities
Global aspirations of Indian consumers and
growing integration with NRIs.
The
bank
can
optimize
the
growth
opportunities arising out of retail banking

and small and medium enterprises (SMEs).
Further expansion of ATMs networks and
possible arrangements of sharing networks
Threat
Bank is facing competition from its
other Private Sector Banks and even
the foreign Banks
Changing economic policies of
Government
will
have
serious
impact on interest rates and reserve

ratio maintained with RBI
of other banks by issuing mutual funds and

insurance.
29

SMALL SCALE INDUSTRIES
As my project is conducted in AXIS Main Branch of Hubli, and it mainly lends
long
term loans and working capital loans to SMEs so it is better to know the brief history and
working of SMEs in India.
Small scale enterprise management has assumed greater importance in the post
liberalization economy. The development of small scale enterprises is generally believed
to contribute substantially to employment creation and generation of income, particularly
for low income population groups. In Indian context, management of over 35 lakh small
enterprise units is of great significance and importance in the wake of emerging global
competitive economy.
The small scale sector is the major contributor to the industrial economy of the country. It
accounts for 95% of countries factory ownership, contributes nearly 45% of total
Industrial production and export from this sector account for 45% of Indian exports.
Apart from the direct exports, products of large number of enterprises are exported
indirectly through merchant exporters, export houses and other channels.
Financing is the most important activity for running smoothly a small scale enterprise.
Finance is the one of the most and basic requirements of a project. The entrepreneur
needs capital to start with and needs financial assistance at every sage of the project.
Project finance is needed both for short term and long term. Credit is available on the
basis of credit worthiness of the entrepreneur. In regard to capital structure and working
capital management. There are many differences between large, medium and small-scale
industries.
30

FINANCIAL SOURCES TO SMEs
1. INTERNAL
A. Reserve Surplus
(i)
Capital reserve
(ii)
Development rebate reserves
(iii)
Others
B. Provisions
2.
(i)
Taxation
(ii)
Depreciation
EXTERNAL
A. Borrowings
(i)
From Banks
(ii)
From term lending institutions like IDBI, IFCI, ICICI.
(iii)
From Government and semi Government agencies
(iv)
Others
B. Trade dues and other current liabilities

(i)
Sun. Creditors
(ii)
Others
Financial institutions and banks make a critical appraisal of projects which are submitted
to them by entrepreneurs for getting loans. Financial institutions and Banks have
traditionally been accepting the data provided by the entrepreneur as valid while
Assessing the project appraisals. In fact, the emphasis has largely been on the cash flow
and financial viability of project in assessing their suitability for extending support.
ratings are given by the financial institutions so that it will help in taking decisions
relating to lending whether to accept the proposal or not . For rating purpose usually these
institutions uses guidelines of RBI and CRISIL
31

CRISIL: [Credit Rating Information Services of India Limited]
An important institutional support to the development of capital market on sound lines
has been the establishment of the First Indian credit rating agency; it has been promoted
by ICICI and AXIS with the purpose of evaluating the debt obligations of all type
companies.
CRISIL has announced it ratings under 3 categories. Which is, high investment grade,
investment grade and speculative grade, they have AAA and AA which are judged to
have highest and high safety of timely payment of interest and principal respectively. The
two ratings differ only marginally. Investment grade securities include A adequate safety
and BBB low safety. Changes in circumstances can adversely affect such issues more
than in the higher rated categories. Speculative grades include BB inadequate safety, B
high, C substantial risk and D in default.
CRISIL SME rating scale
CRISIL SME Rating
Definition
SME 1
SME 2
SME 3
SME 4
SME 5
SME 6
SME 7
SME 8
Highest
High
Above Average
Average
Below Average
Inadequate
Poor
Default
32

Small Medium Enterprise IN KARNATAK
33
Reasons For The Existence Of Huge Level Of Npas In The Indian Banking System
The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk
by the banks concerned. What is needed is having adequate preventive measures in place
namely, fixing pre-sanctioning appraisal responsibility and having an effective postdisbursement supervision. Banks concerned should continuously monitor loans to
identify accounts that have potential to become non-performing.
To start with, performance in terms of profitability is a benchmark for any business
enterprise including the banking industry. However, increasing NPAs have a direct
impact on banks profitability as legally banks are not allowed to book income on such
accounts and at the same time banks are forced to make provision on such assets as per
the Reserve Bank of India (RBI) guidelines.
Also, with increasing deposits made by the public in the banking system, the banking
industry cannot afford defaults by borrowers since NPAs affects the repayment capacity
of banks.
Further, Reserve Bank of India (RBI) successfully creates excess liquidity in the system
through various rate cuts and banks fail to Axislize this benefit to its advantage due to the
fear of burgeoning non-performing assets.
34
Some of the other reasons were:
After the nationalization of banks sector wise allocation of credit disbursements

became compulsory.
Banks were compelled to give credit to even those sectors, which were not
considered to be very profitable, keeping in mind the federal policy.
People in the agricultural sector were hardly interested in returning the loans as
they were confident that the loans with the interest would be written off by the
successive governments.
The small scale industries also availed credit even though they were not sure of
performing to the extent of returning the loans.
Banks were also not in the position to press enough securities to cover the loans in
calls of timings.
Even if the assets were provided they proved to be substandard assets as the
values that could be realized were very low.
Free distribution done during loan mails (congress regime) also contributed to
the heavy increase in NPAs.
The slackness in effort by the bank authorities to collect or recover loan advances
in time also contributes to the increase in NPAs.
Lack of accountability of the officers, who sanctioned the loans led to a caste
whole approach by the officers recovering the loans.
Loans sanctioned to under servicing candidates due to pressure from the

ministers and other politicians also led to the non recovery of debts.
Poor credit appraisal system, lack of vision while sanctioning credit limits.
35
Lack of proper monitoring.
Reckless advances to achieve the budgetary targets.
Lack of sincere corporate culture, inadequate legal provisions on foreclosure and

bankruptcy.
Change in economic policies/environment.
Lack of co-ordination between banks.
36
Some of the internal factors of the organization leading to NPAs are:
Division of funds for expansion, diversification, modernization, undertaking

new projects and for helping associate concerns, this is coupled with
recessionary trends and failure to tap funds in the capital and debt markets.
Business failure( product, marketing etc.,),inefficient management, strained

labor
relations,
inappropriate technology, technical problems, product
obsolescence etc.,
Recession , shortage of input, power shortage, price escalation, accidents,

natural calamities, besides externalization problem in other countries leading
to non payment of overdue.
Time/cost overrun during the project implementation stage.
Government policies like changes in the excise duties, pollution control

orders.
Willful
default,
siphoning
off
of
funds,
fraud,
misappropriation,
promoters/directors disputes etc.,
Deficiencies on the part of the banks like delay in release of limits and delay
in release of payments/subsidies by the government.
37
Axis Bank offers fast track loans for SMEs under the following schemes:
Mpower-Term Loan (Mpower-TL)
Axis Bank's Mpower-TL provides a hassle free way of meeting your business needs of
expansion and other long term funding requirements against the security of immovable
residential or commercial property. Mpower-TL is an EMI based loan and can be availed
by Partnership firms, Private Ltd. Companies and Trusts. Mpower-TL has the following
features:
Loans upto Rs 5 crores*
Flexible repayment options of upto 10 years
Attractive market related interest rates
Fast processing and quick disbursement
Business Loan for Property

Looking to acquire an office space for your business? Axis Bank's BLFP offers you a
convenient way. It is an EMI based term loan and can be availed by Partnership firms,
Private Ltd. Companies and Trusts. BLFP has the following features:
Power Rent
38

Having a rental income from commercial property leased out to reputed corporate or
Public Sector Units or Banks or Insurance Companies? Axis Bank's Power Rent is just
the right product for you. The product offering involves discounting the future
receivables and providing an upfront loan to the landlord, thus extending immediate
liquidity in the hands of the landlord. It is an EMI based term loan, which can be availed
by Proprietors, Partnerships, Private Ltd. Companies and Trusts. Power Rent has the
following features:
Power Trade
At Axis Bank we understand the unique needs of the trader segment and we have tailor
designed a specific product 'Power Trade' to meet your business needs. Axis Bank's
Power Trade is a hassle free and flexible credit facility for meeting your working capital
requirements like Cash Credit, Bills discounting, Export Credit, Bank Guarantee, Letter
of Credit or a term loan.
Loan upto Rs 2.5 crore*
Stock statements to be submitted quarterly*
Tenure - 1 year for Working capital and 3 years for Term Loans
Mpower-OD
Axis Bank's Mpower-OD helps you meet your short-term funding needs and allows you
to leverage every business opportunity that comes your way against the security of
residential or commercial property.
39
Tenure - 1 year
Immovable Property as collateral
Enterprise Power
Axis Bank's Enterprise Power is a unique product designed keeping in mind the business
requirements of Micro and Small Enterprises (MSE).
Loans upto Rs. 1.00 crore*
Tenure-1 year for working capital and 3 years for term loan
Equipment Power
This product is a term loan facility with a tenor upto 48 months for purchase of
construction, medical and office equipments. There is a standard list of equipments,
which the Bank would finance under the scheme and the maximum exposure permitted
under the product is Rs. 100.00 lacs.
Zero Collateral Loans to SSI Units (ZCL)
Collateral free product to facilitates the MSE and software/IT related services to avail
both working capital and term finance from the Bank. The facility is secured by guarantee
40

cover of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGMSE).
Maximum loan amount under the product is Rs. 50 lacs.
41
Small Medium Enterprise Standard

For a business on the growth phase with a wide range of opportunities to explore, timely
availability of credit is an integral ingredient needed to scale new heights. At Axis Bank
we understand this and endeavor to be not just a bank but also your financing partner, so
that you focus on your business needs whereas we cater to your financing needs.
Our services ranging from Funded to Non-Funded, from Short Term to Long Term and
from Credit to Trade Services ensures that you get finance the way it is best suited for
your business.
Our Service:
Cash Credit
We offer Cash Credit facilities to meet your day-to-day working capital needs. Cash
Credit is provided against the primary security of stock, debtors, other current assets, etc.,
and/or collateral security of movable fixed assets, immovable property, personal or
corporate guarantee, etc. Interest is charged not on the sanctioned amount but on the
utilized amount.
Working Capital Demand Loan
We also provide working capital facilities in the form of Working Capital Demand Loan
instead of cash credit facility. The primary or collateral security will be as mentioned in
cash credit facility. Here also interest is levied on the amount drawn rather than on the
amount utilized.
Export Finance
We provide finance for export activities in the form of Pre-Shipment Credit against firm
order and or Letter of Credit and Post shipment credit. Credit is available for procuring
raw materials, manufacturing the goods, processing and packaging the goods and
42

shipping the goods. Finance is provided in Indian or foreign currency depending upon
the need of the borrower.
Short Term Loan
You may enjoy Working Capital facilities to meet your day-to-day working capital needs
and Term Loan for your capex. However there may be occasions where you may need ad
hoc or short-term finance for general corporate purposes, meeting temporary mismatches
in working capital or for meeting contingent expenses. In such situations we provide
Short Term Loans for tenure upto a year so as to ensure that your business runs smoothly.
Term Loan
Given the growth opportunities your business enjoys you may need long-term funds for
capex or capacity expansions or plant modernization and so on. Keeping these
requirements in mind we provide term loans upto acceptable tenor with suitable
moratorium, if required, and repayment options structured on the basis of your estimated
cash flows. These loans are primarily secured by a first charge on the fixed assets
acquired through the loan amount. Suitable collateral security is also taken whenever
required.
Clean Bill Discounting
We provide clean bill discounting facilities to fund your receivables. We discount bills or
receivables from your credit worthy clients and provide credit against that. This facility is
provided for a period of 3-6 months depending upon the tenor of the bill.
LC Backed Bill Discounting
We discount trade bills drawn under Letters of Credit issued by reputed banks to fund
your receivables. This facility is provided for a period of 3-6 months depending upon the
tenor of the bill or Letter of Credit.
43
Co-Acceptance of Bills
We also provide co-acceptance of trade bills depending upon the need of the borrower.
Credit Facilities against Guarantee or Stand by Letter of Credit issued by Foreign Banks
Various foreign companies set up subsidiary in India. We provide funding to such
companies against guarantees or SBLCs of acceptable foreign banks.
Letter of Credit
Apart from fund based working capital facilities we provide a range of Non-Fund Based
facilities such as Letter of credit, Bank Guarantees, Solvency certificates, etc. Letter of
Credit is provided to meet your trade purchases. These are generally provided for 3-6
months depending upon your Trade cycle. Apart from this we provide Import Letter of
Credit for importing machinery or capital goods. Such LCs are for tenure ranging from 13 years depending upon the need of the borrower.
Bank Guarantee
We provide Bank Guarantee on behalf of our client to various other entities such as
Government, quasi govt bodies, corporate and so on. We provide a range of guarantee
such as Performance guarantee, financial guarantee, EPCG etc. The tenure of Bank
Guarantee range from 1 year to 10 years depending upon the purpose of the guarantee.
Solvency Certificates
We also provide solvency certificate depending upon the need of the borrower.
44

COMPETITORS PROFILE
ICICI Bank is India's second-largest bank with total assets of about Rs.1,676.59 bn(US$
38.5 bn) at March 31, 2005 and profit after tax of Rs. 20.05 bn(US$ 461 mn) for the year
ended March 31, 2005 (Rs. 16.37 bn(US$ 376 mn) in fiscal 2004). ICICI Bank has a
network of about 573 branches and extension counters and over 2,000 ATMs. ICICI Bank
offers a wide range of banking products and financial services to corporate and retail
customers through a variety of delivery channels and through its specialized subsidiaries
and affiliates in the areas of investment banking, life and non-life insurance, venture
capital and asset management. ICICI Bank set up its international banking group in fiscal
2002 to cater to the cross border needs of clients and leverage on its domestic banking
strengths to offer products internationally. ICICI Bank currently has subsidiaries in the
United Kingdom, Canada and Russia, branches in Singapore and Bahrain and
representative offices in the United States, China, United Arab Emirates, Bangladesh and
South Africa.
45
The origin of the State Bank of India goes back to the first decade of the nineteenth
century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three
years later the bank received its charter and was re-designed as the Bank of Bengal on 2 nd
January 1809. A unique institution, it was the first joint-stock bank of British India
sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the
Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained
at the apex of modern banking in India till their amalgamation as the Imperial Bank of
India on 27 January 19
The Bank is actively involved since 1973 in non-profit activity called Community
Services Banking. All our branches and administrative offices throughout the country
sponsor and participate in large number of welfare activities and social causes. Our
business is more than banking because we touch the lives of people anywhere in many
ways. Our commitment to nation-building is complete & comprehensive.
46

INTRODUCTION
It's a known fact that the banks and financial institutions in India face the problem of
swelling non-performing assets (NPAs) and the issue is becoming more and more
unmanageable. In order to bring the situation under control, some steps have been taken
recently. The Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 was passed by Parliament, which is an important step towards
elimination or reduction of NPAs.
MEANING OF NPAs:
An asset is classified as non-performing asset (NPAs) if dues in the form of principal and
interest are not paid by the borrower for a period of 180 days. However with effect from
March 2004, default status would be given to a borrower if dues are not paid for 90 days.
If any advance or credit facilities granted by bank to a borrower become non-performing,
then the bank will have to treat all the advances/credit facilities granted to that borrower
as non-performing without having any regard to the fact that there may still exist certain
advances / credit facility.
ASSET CLASSIFICATION
The primary (urban) co-operative banks should classify their assets into the
Following broad groups which are.
(i) Standard Assets
(ii) Sub-standard Assets
(iii) Doubtful Assets
(iv) Loss Assets
47
Definitions
Standard Assets
Standard Asset is one which does not disclose any problems and which does not carry
more than normal risk attached to the business. Such an asset should not be an NPA.
Sub-standard Assets
(i)
With effect from March 31, 2005 an asset would be classified as
substandard if it remained NPA for a period less than or equal to 12 months. In such
cases, the current net worth of the borrowers/ guarantors or the current market value
of the security charged is not enough to ensure recovery of the dues to the banks in
full. In other words, such assets will have well defined credit weaknesses that
jeopardise the liquidation of the debt and are characterized by the distinct
possibility that the banks will sustain some loss, if deficiencies are not corrected.
(ii)
An asset where the terms of the loan agreement regarding interest and
principal have been re-negotiated or rescheduled after commencement of

production, should be classified as sub-standard and should remain in such category
for at least 12 months of satisfactory performance under the re-negotiated or
rescheduled terms. In other words, the classification of an asset should not be
upgraded merely as a result of rescheduling, unless there is satisfactory compliance
of this condition.
48
Doubtful Assets
With effect from March 31, 2005, an asset is required to be classified as doubtful, if it has
remained NPA for more than 12 months. For Tier I banks the 12-month period of
classification of a substandard asset in doubtful category will be effective from April 1,
2008. As in the case of sub-standard assets, rescheduling does not entitle the bank to
upgrade the quality of an advance automatically. A loan classified as doubtful has all the
weaknesses inherent as that classified as sub-standard, with the added characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently known
facts, conditions and values, highly questionable and improbable.
Note: Consequent to change in asset classification norms w.e.f. March 31, 2005
banks are permitted to phase the consequent additional provisioning over a five year
period commencing from the year ended March 31, 2005, with a minimum of 10 %
of the required provision in each of the first two years and the balance in equal
installments over the subsequent three years.
Loss Assets
A loss asset is one where loss has been identified by the bank or internal or external
Auditors or by the Co-operation Department or by the Reserve Bank of India inspection
but the amount has not been written off, wholly or partly. In other words, such an asset is
considered un-collectible and of such little value that its continuance as a bankable asset
is not warranted although there may be some salvage or recovery value.
49
Operational definitions:
NPA: An asset is classified as non-performing asset (NPAs) if dues in the form of
principal and interest are not paid by the borrower for a period of 90 days.
Standard Assets: Such an asset is not a non-performing asset. In other words, it carries
not more than normal risk attached to the business.
Sub-standard Assets: It is classified as non-performing asset for a period not exceeding
18 months
Doubtful Assets: Asset that has remained NPA for a period exceeding 18 months is a
doubtful asset.
Loss Assets: Here loss is identified by the banks concerned or by internal auditors or by
external auditors or by Reserve Bank India (RBI) inspection
Cash Reserve Ratio (CRR): It is the reserve which the banks have to maintain with
itself in the form of cash reserves or by way of current account with the Reserve Bank of
India (RBI), computed as a certain percentage of its demand and time liabilities. The
objective is to ensure the safety and liquidity of the deposits with the banks.
Statutory Liquidity Ratio (SLR): It is the one which every banking company shall
maintain in India in the form of cash, gold or unencumbered approved securities, an
amount which shall not, at the close of business on any day be less than such percentage
of the total of its demand and time liabilities in India as on the last Friday of the second
preceding fortnight, as the Reserve Bank of India (RBI) may specify from time to time.
50

RBI Guidelines on Income Recognition (Interest Income on NPAs)
Income Recognition: Income from Non Performing Assets should not recognize on
accrual basis but should be booked as income only when it is actually received. Therefore
interest should not be charged and taken into income account till the account become
standard asset.
Interest charged to be stopped
Provision to be made
Over Due: Any amount due to the Bank under any credit facility is
Over due if it is not paid on the due date fixed by the Bank.
Out of Order: An account should be treated as out of order
If the outstanding balance remains continuously in excess of the sanctioned limit/

drawing power.
In cases where the outstanding balance in the principal operating account is less
than the sanctioned limit/ drawing power, but there are no credits continuously
for 90 days as on the date of Banks Balance Sheet or Where are credits are not
enough to cover the interest debited during the same period.
A Non Performing Asset shall be an advance where:

Term Loan: Interest and/ or installment of principal remain over due for a period of
more than 90 days.
Cash Credit/ Over Draft: If the account remains out of order for a period more than
90 days.
Bills: Overdue for a period of more than 90 days.
Other accounts: Any amount to be received remains overdue for a period of more than
90 days.
51

Short duration crops: If the installment of principal or interest there on remains overdue
for two crop seasons.
Long duration crops: If installment of principal or interest there on remains overdue for
One Crop season.
An account would be classified as NPA only if the interest charged during any quarter is
not serviced fully within 90 days from the end of the quarter.
52
RBI Guidelines on Provisioning Requirement of Bank Advances

Loss Assets: 100% of the outstanding amount.
Doubtful Assets: 100% of unsecured portion.
Secured portion
Up to one year
One to three years
More than 3 years
20%
30%
- 50 per cent as on March 31, 2010
1. Outstanding stock of NPA as on - 60 per cent with effect from March 31,
31.3.2004
2011
- 75 per cent with effect
from March 31, 2012
- 100 per cent with effect
from March 31, 2013
2. Advances classified as doubtful more - 100 percent

than 3 years on or after 31.3.2004
Substandard Assets: Secured portion 10% and unsecured portion 20% on total
outstanding.
Standard Assets: A general provision of 0.40% (For direct Agriculture & SME Sector
0.25%). Provisioning for standard assets will be done at corporate office centrally.
Calculation of Net NPA (Non Performing Asset)
Formula:
GROSS NPA
LESS: Balance in Interest Suspense Account
LESS: DICGC/ECGC Claims received but pending for adjustment
LESS: Part payment received and kept in suspense account
Illustration: (Based on annual reports of AXIS bank 2005-06)
53

Particulars
Gross NPA of AXIS for the year 2006
LESS: Balance from interest suspense account
LESS: DICGC/ECGC Claims received but pending for
Amount
37428
12704
36
adjustment
LESS: Part payment received and kept in Suspense A/c
2928
NET NON PERFORMING ASSETS
21760
NET NPA IN PERCENTAGE
0.97%
54
Credit Risk and NPAs:

Quite often credit risk management (CRM) is confused with managing non-performing
assets (NPAs). However there is an appreciable difference between the two. NPAs are a
result of past action whose effects are realized in the present i.e. they represent credit risk
that has already materialized and default has already taken place.
On the other hand managing credit risk is a much more forward-looking approach and is
mainly concerned with managing the quality of credit portfolio before default takes place.
In other words, an attempt is made to avoid possible default by properly managing credit
risk. Considering the current global recession and unreliable information in financial
statements, there is high credit risk in the banking and lending business. To create a
defense against such uncertainty, bankers are expected to develop an effective internal
credit risk models for the purpose of credit risk management.
Usage of financial statements in assessing the risk of default for lenders:

For banks and financial institutions, both the balance sheet and income statement have a
key role to play by providing valuable information on a borrowers viability. However,
the approach of scrutinizing financial statements is a backward looking approach. This is
because; the focus of accounting is on past performance and current positions.
The key accounting ratios generally used for the purpose of ascertaining the
creditworthiness of a business entity are that of debt-equity ratio and interest coverage
ratio. Highly rated companies generally have low leverage. This is because; high leverage
is followed by high fixed interest charges, non-payment of which results into a default.
55
Capital Adequacy Ratio (CAR)
Reserve Bank of India (RBI) has issued capital adequacy norms for the Indian banks.
Capital adequacy ratios (CAR) are a measure of the amount of a bank's capital
expressed as a percentage of its risk weighted credit exposures.
The minimum CAR which the Indian Banks are required to meet at all times is set at
11%. It should be taken into consideration that the bank's capital refers to the ability of
bank to withstand losses due to risk exposures.
To be more precise, capital charge is a sort of regulatory cost of keeping loans (perceived
as risky) on the balance sheet of banks. The quality of assets of the bank and its capital
are often closely related. Quality of assets is reflected in the quantum of NPAs. By this, it
implies that if the asset quality was poor, then higher would be the quantum of nonperforming assets and vice-versa.
Market risk is the risk arising due to the fluctuations in value of a portfolio due to the
volatility of market prices. Operational risk refers to losses arising due to complex system
and processes. It is important for a bank to have a good capital base to withstand
unforeseen losses. It indicates the capability of a bank to sustain losses arising out of
risky assets.
The Basel Committee on Banking Supervision (BCBS) has also laid down certain
minimum risk based capital standards that apply to all internationally active commercial
banks. That is, banks capital should at least be 8% of their risk-weighted assets. This in
fact helps bank to provide protection to the depositors and the creditors.
The main objective here is to build a sort of support system to take care of unexpected
financial losses thereby ensuring healthy financial markets and protecting depositors.
56
Capital adequacy ratio is defined as:
Risk weighting:
Since different types of assets have different risk profiles, CAR primarily adjusts for
assets that are less risky by allowing banks to discount lower-risk assets. The specifics
of CAR calculation vary from country to country, but general approaches tend to be
similar for countries that apply the Basel Accords. In the most basic application,
government debt is allowed a 0% risk weighting that is, they are subtracted from total
assets for purposes of calculating the CAR.
Risk weighting example

Local regulations establish that cash and government bonds have a 0% risk weighting,
and residential mortgage loans have a 50% risk weighting. All other types of assets (loans
to customers) have a 100% risk weighting.
Bank A has assets totaling 100 units, consisting of:
Cash: 10 units.
Government bonds: 15 units.
Mortgage loans: 20 units.
Other loans: 50 units.
Other assets: 5 units.
Bank A has deposits of 95 units, all of which are deposits. By definition, equity is
equal to assets minus debt, or 5 units.
57
Bank As risk-weighted assets are calculated as follows:
Cash
10 * 0% = 0
Government bonds
15 * 0% = 0
Mortgage loans
20 * 50% = 10
Other loans
50 * 100% = 50
Other assets
5 * 100% = 5
Total risk:
Weighted assets
Equity
CAR
(Equity/RWA
65
5
7.69%
Even though Bank A would appear to have a debt-to-equity ratio of 95:5, or equity-toassets of only 5%, its CAR is substantially higher. It is considered less risky because
some of its assets are less risky than others.
58
Recent norms of NPA
Existing Norms
New Norms
(i) W.e.f 31.03.2004 the norm for

(i) These banks will be required to identify NPAs on the basis of
classification of an asset as non performing 180 day delinquency norm for three more years commencing March 31
has been reduced to 90 days from 180 days. 2005, i.e. up to March31, 2007. However, these banks should build up
adequate provisions in the BDDR over the next three years such that
(ii) Gold loans and small loans up to Rs 1 they would be able to transit to 90 day NPA norm by March 31 2008.
lakh will be governed by the 90 days norm
with effect from the year ending
(ii)In view of (i) above, gold loans and small loan up to Rs 1 lakh
31.03.2007.
will also be governed by 180 days norm up to March 31, 2007
(iii) W.e.f 31.03.2005 an asset would be
classified as doubtful if it remained in the
sub-standard category for 12 months.
(iii) A Sub standard account will continue to be classified as

doubtful after 18 months instead of 12 months up to March 31, 2007.
(i) Sub standard- 10%
The provisioning norms will be as under from year ended31.03.2005

up to year ending 31.03.2007:
(ii) Doubtful (up to one year):100% of

unsecured portion plus 20% of secured (i) Sub standard- 10%
portion
(ii) Doubtful (up to one year):100% of unsecured portion plus 20% of
(iii) Doubtful (one to three years) : 100% of secured portion
unsecured portion plus 30% of secured
portion
(iii) Doubtful (one to three years) : 100% of unsecured portion plus
30% of secured portion
(iv) Doubtful for more than 3 years: 100%
of unsecured portion. For secured portion (iv) Doubtful for more than 3 years: 100% of unsecured portion plus
the provision are as under:
50% of secured portion
Outstanding stock of NPAs as on March 31,
2006
50 percent up to March 2006.

60 per cent as on March 31, 2007
(v) Loss: 100%.

Note:
Implementation of the instructions requiring classification of

substandard account into doubtful category after 12 months and 100 %
provisioning for secured portion of doubtful assets of over 3 years
would be deferred by three years. As such the banks should build up
Advances classified as 'doubtful more than adequate provisions over this period to facilitate smooth transition.
59
three years' on or after April 1, 2006-100 %.

(v) Loss: 100%.
RBI liberalizes NPA norms: (Updated: Jan 03, 2009 at 2258 hrs IST)
Further liberalizing the prudential norms for the treatment of non-performing assets in the
context of ongoing slowdown in the Indian economy, the Reserve Bank of India said all
accounts which were standard accounts on September 1, 2008 would be treated as
standard accounts on restructuring provided the restructuring is taken up on or before
January 31, 2009 and the restructuring package is put in place within a period of 120 days
from the date of taking up the restructuring package. aid all accounts which were
standard accounts on September 1, 2008 would be treated as standard accounts on
restructuring provided the restructuring is taken up on or before January 31, 2009 and the
restructuring package is put in place within a period of 120 days from the date of taking
up the restructuring package.
The period for implementing the restructuring package has also been extended from 90
days to 120 days in respect of those accounts. The special regulatory treatment will also
be available to standard and sub-standard accounts. These provisions would be in
addition to the usual provisions as per the current regulation. Earlier special regulatory
treatment was extended to commercial real estate exposures restructured for the first time
as well as to exposures (other than commercial real estate, capital markets and personal/
consumer loans) which were viable but were facing temporary cash flow problems and
needed a second restructuring.
The RBI which had announced liberalization of NPA norms earlier had received
representation that the accounts which turned non-performing between September
and December 2008 were excluded from the special regulatory treatment
extended in December 2008.
60
The period of 90 days allowed for restructuring may not be adequate in view of
the large number of accounts potentially requiring restructuring.

Also drawing power has been affected due to decline in inventory prices
necessitating conversion of irregular portions of working capital limits into
working Capital Term Loan (WCTL) on restructuring.
However, as the borrowers may be unable to provide further tangible security in the
current context, accounts even after restructuring will be classified as NPAs. The
condition of WCTL being fully secured by tangible security may, therefore, be relaxed,
said RBI.
61
62
Understanding the NPA

An asset becomes non-performing when it ceases to generate income for the bank. Earlier
an asset was considered as non-performing asset (NPA) based on the concept of Past
Due. A non performing asset (NPA) was defined as credit in respect of which interest
and/ or installment of principal has remained past due for a specific period of time. With
a view to moving towards international best practices and to ensure greater transparency,
'90 days' overdue* norms for identification of NPAs have been Made applicable from the
year ended March 31, 2004.
With effect from March 31, 2004,a non-performing asset shall be a loan or an
advance where:
Interest and/or installment of principal remain overdue for a period of more than
90 days in respect of a Term Loan.
The account remains Out of order for a period of more than 90 days, in
Respect of an Overdraft/ Cash Credit (OD/CC).
The bill remains overdue for a period of more than 90 days in the case of bills
Purchased and discounted.
The RBI has issued guidelines to banks for classification of assets into four
categories.
Standard asset: these are loans which do not have problem are less risk.
Sub- standard: these are assets which come under the category of NPA for a
period of less than 12 months.

Doubtful assets: these are NPA exceeding 12 months
Loss of assets: these NPA which are identified as unreliable by internal inspector
of bank or auditor or RBI.
63
Treatment of Accounts as NPA

The treatment of an asset as NPA should be based on the record of recovery. Banks
should not treat an advance as NPA merely due to existence of some deficiencies which
are of temporary in nature such as non-availability of adequate drawing power, balance
outstanding exceeding the limit, non-submission of stock statements and the non-renewal
of the limits on the due date, etc. Where there is a threat of loss, or the recoverability of
the advances is in doubt, the asset should be treated as NPA.
Where the accounts of the borrowers have been regularized by repayment of overdue
amounts through genuine sources (not by sanction of additional facilities or transfer of
funds between accounts), the accounts need not be treated as NPA.
Treatment of NPA Borrower-wise and not Facility-wise:
In respect of a borrower having more than one facility with a bank, all the
facilities granted by the bank will have to be treated as NPA and not the particular
facility or part thereof which has become irregular.

However, in respect of consortium advances or financing under multiple banking
Arrangements, each bank may classify the borrowal accounts according to its own
Record of recovery and other aspects having a bearing on the recoverability of the
Advances.
Recognition of Income on Investment Treated as NPA:

The investments are also subject to the prudential norms on income recognition. Banks
should not book income on accrual basis in respect of any security irrespective of the
category in which it is included, where the interest/principal is in arrears for more than 90
days
64
IMPACT OF EXCESS LIQUIDITY:

One should also not forget that the banks are faced with the problem of increasing
liquidity in the system. Further, Reserve Bank of India (RBI) is increasing the liquidity in
the system through various rate cuts. Banks can get rid of its excess liquidity by
increasing its lending but, often shy away from such an option due to the high risk of
default. In order to promote certain prudential norms for healthy banking practices, most
of the developed economies require all banks to maintain minimum liquid and cash
reserves broadly classified into Cash Reserve Ratio (CRR) and the Statutory Liquidity
Ratio (SLR).
Cash Reserve Ratio (CRR) is the reserve which the banks have to maintain with itself in
the form of cash reserves or by way of current account with the Reserve Bank of India
(RBI), computed as a certain percentage of its demand and time liabilities. The objective
is to ensure the safety and liquidity of the deposits with the banks.
On the other hand, Statutory Liquidity Ratio (SLR) is the one which every banking
company shall maintain in India in the form of cash, gold or unencumbered approved
securities, an amount which shall not, at the close of business on any day be less than
such percentage of the total of its demand and time liabilities in India as on the last
Friday of the second preceding fortnight, as the Reserve Bank of India (RBI) may specify
from time to time.
A rate cut (for instance, decrease in CRR) results into lesser funds to be locked up in
RBI's vaults and further infuses greater funds into a system. However, almost all the
banks are facing the problem of bad loans, burgeoning non-performing assets, thinning
margins, etc. as a result of which, banks are little reluctant in granting loans to corporate.
As such, though in its monetary policy RBI announces rate cut but, such news are no
longer warmly greeted by the bankers.
65

THE NARASIMHAN COMMITTEE'S FIRST REPORT
The salient features of these reforms include:
Phasing out of statutory pre-emption - The SLR requirement have been brought
down from 38.5% to 25% and CRR requirement from 7.50% to 5.75%. (Presently
4.5%)
Deregulation of interest rates - All lending rates except for lending to small
borrowers and a part of export finance have been de-regulated. Interest on all
deposits are determined by banks except on savings deposits.
Capital adequacy - CAR of 9 % prescribed with effect from March 31, 2000.
Other prudential norms - Income recognition, asset classification and provisioning

norms has been made applicable. The provisioning norms are more prudent,
objective, transparent, and uniform and designed to avoid subjectivity.
Debt Recovery Tribunals - 22 DRTs and 5 DRATs have already been set up and 7
more DRTs will be set up during the current financial year. Comprehensive
amendment in the Act have been made to make the provisions for adjudication,
enforcement and recovery more effective.
Transparency in financial statements - Banks have been advised to disclose

certain key parameters such as CAR, percentage of NPAs, provisions for NPAs,
net value of investment, Return on Assets, profit per employee and interest
income as percentage to working funds.
Entry of new private sector banks - 9 new private sector banks have been set up
with a view to induce greater competition and for improving operational
efficiency of the banking system. Competition has been introduced in a controlled
manner and today we have nine new private sector banks and 36 foreign banks in
India competing with the public sector banks both in retail and corporate banking
66
Functional autonomy - The minimum prescribed Government equity was brought

to 51%. Nine nationalized banks raised Rs.2855 crores from the market during
1994-2001. Banks Boards have been given more powers in operational matters
such as rationalization of branches, credit delivery and recruitment of staff.
Hiving off of regulatory and supervisory control - Board for financial supervision
was set up under the RBI in 1994 bifurcating the regulatory and supervisory
functions.
NARASIMHAN COMMITTEE- SECOND REPORT

The Narasimhan Committee on Banking Reforms, in its second report, has combined
drastic surgery with a strong dose of medicine to cure the ailing industry. On-performing
assets (NPAs) have been the bane of the industry. The panel has identified poor credit
decisions by managements, cyclical changes in the economic environment, directed credit
and crude forms of behest-lending as the factors responsible for poor asset quality. The
panel points a finger at priority sector credit as having a high contamination coefficient
and suggests that quantitative targets have caused erosion of asset quality. It laments the
fact that infusion of recapitalization funds notwithstanding, NPAs remain uncomfortably
high. Yet it recommends that advances covered by government guarantees that have
turned sticky should also be reckoned as net NPAs.
The Narasimhan Committee's solution for NPAs is the creation of an Asset
Reconstruction Fund (ARF), which will take over the bad debts of banks from their
balance sheets to enable them to start on a clean slate. Recapitalization through budgetary
infusion, the panel correctly points out, is not a sustainable option. But bankers are
skeptical about the workability of the ARF. A senior banker asked, "At what price will the
ARF take over my NPAs? How will the discount be worked out?" He said that the ARF
cannot bail out banks under the present legal system. Although every bad debt is secured,
banks cannot encash the security because of legal hurdles. The Urban Land Ceiling Act is
67

a major deterrent to debt recovery. Bankers say that the legal system has to be revamped
to facilitate recovery so that the ARF can pick up "NPAs at a viable price".
The committee has recommended that net NPAs be brought down to less than 5
per cent by the year 2000 and 3 per cent by the year 2002. "Easier said than done," says a
top banker. "Already we do a lot of window-dressing. Outstanding accounts are shown as
priority lending to meet targets. We keep lending to defaulters to roll over the NPAs.
Fixing unrealistic targets will be counterproductive."
The committee has recommended that banks should not lend to defaulters, but bankers
say that this is unrealistic. They claim that in the absence of fresh loans, the defaulting
companies will close down, and leading to loss of jobs. "Will that be acceptable?" asks a
banker. Bankers also complain that they are forced by the Board for Industrial and
Financial Reconstruction (BIFR) to lend to sick companies, yet more often than not there
is no turnaround and the accounts turn bad.
68
Credit Risk and NPAs:

Quite often credit risk management (CRM) is confused with managing non-performing
assets (NPAs). However there is an appreciable difference between the two. NPAs are a
result of past action whose effects are realized in the present i.e. they represent credit risk
that has already materialized and default has already taken place.
On the other hand managing credit risk is a much more forward-looking approach and is
mainly concerned with managing the quality of credit portfolio before default takes place.
In other words, an attempt is made to avoid possible default by properly managing credit
risk. Considering the current global recession and unreliable information in financial
statements, there is high credit risk in the banking and lending business. To create a
defense against such uncertainty, bankers are expected to develop an effective internal
credit risk models for the purpose of credit risk management.
Usage of financial statements in assessing the risk of default for lenders:
For banks and financial institutions, both the balance sheet and income statement have a
key role to play by providing valuable information on a borrowers viability. However,
the approach of scrutinizing financial statements is a backward looking approach. This is
because; the focus of accounting is on past performance and current positions.
The key accounting ratios generally used for the purpose of ascertaining the
creditworthiness of a business entity are that of debt-equity ratio and interest coverage
ratio. Highly rated companies generally have low leverage. This is because; high leverage
is followed by high fixed interest charges, non-payment of which results into a default.
69
Capital Adequacy Ratio (CAR) of RBI and Basel committee on banking supervision
(BCBS):
Reserve Bank of India (RBI) has issued capital adequacy norms for the Indian banks. The
minimum CAR which the Indian Banks are required to meet at all times is set at 9%. It
should be taken into consideration that the bank's capital refers to the ability of bank to
withstand losses due to risk exposures.
To be more precise, capital charge is a sort of regulatory cost of keeping loans (perceived
as risky) on the balance sheet of banks. The quality of assets of the bank and its capital
are often closely related. Quality of assets is reflected in the quantum of NPAs. By this, it
implies that if the asset quality was poor, then higher would be the quantum of nonperforming assets and vice-versa.
Market risk is the risk arising due to the fluctuations in value of a portfolio due to the
volatility of market prices.
Operational risk refers to losses arising due to complex system and processes. It is
important for a bank to have a good capital base to withstand unforeseen losses. It
indicates the capability of a bank to sustain losses arising out of risky assets.
The Basel Committee on Banking Supervision (BCBS) has also laid down certain
minimum risk based capital standards that apply to all internationally active commercial
banks. That is, bank's capital should at least be 8% of their risk-weighted assets. This in
fact helps bank to provide protection to the depositors and the creditors.
The main objective here is to build a sort of support system to take care of unexpected
financial losses thereby ensuring healthy financial markets and protecting depositors.
70
IMPACT OF EXCESS LIQUIDITY:

One should also not forget that the banks are faced with the problem of increasing
liquidity in the system. Further, Reserve Bank of India (RBI) is increasing the liquidity in
the system through various rate cuts. Banks can get rid of its excess liquidity by
increasing its lending but, often shy away from such an option due to the high risk of
default. In order to promote certain prudential norms for healthy banking practices, most
of the developed economies require all banks to maintain minimum liquid and cash
reserves broadly classified into Cash Reserve Ratio (CRR) and the Statutory Liquidity
Ratio (SLR).
Cash Reserve Ratio (CRR) is the reserve which the banks have to maintain with itself in
the form of cash reserves or by way of current account with the Reserve Bank of India
(RBI), computed as a certain percentage of its demand and time liabilities. The objective
is to ensure the safety and liquidity of the deposits with the banks.
On the other hand, Statutory Liquidity Ratio (SLR) is the one which every banking
company shall maintain in India in the form of cash, gold or unencumbered approved
securities, an amount which shall not, at the close of business on any day be less than
such percentage of the total of its demand and time liabilities in India as on the last
Friday of the second preceding fortnight, as the Reserve Bank of India (RBI) may specify
from time to time.
A rate cut (for instance, decrease in CRR) results into lesser funds to be locked up in
RBI's vaults and further infuses greater funds into a system. However, almost all the
banks are facing the problem of bad loans, burgeoning non-performing assets, thinning
margins, etc. as a result of which, banks are little reluctant in granting loans to corporate.
As such, though in its monetary policy RBI announces rate cut but, such news are no
longer warmly greeted by the bankers.
71
HIGH COST OF FUNDS DUE TO NPAs:

Quite often genuine borrowers face the difficulties in raising funds from banks due to
mounting NPAs. Either the bank is reluctant in providing the requisite funds to the
genuine borrowers or if the funds are provided, they come at a very high cost to
compensate the lenders losses caused due to high level of NPAs.
Therefore, quite often corporate prefer to raise funds through commercial papers (CPs)
where the interest rate on working capital charged by banks is higher.
With the enactment of the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, banks can issue notices to the defaulters to
pay up the dues and the borrowers will have to clear their dues within 60 days. Once the
borrower receives a notice from the concerned bank and the financial institution, the
secured assets mentioned in the notice cannot be sold or transferred without the consent
of the lenders.
The main purpose of this notice is to inform the borrower that either the sum due to the
bank or financial institution be paid by the borrower or else the former will take action by
way of taking over the possession of assets. Besides assets, banks can also takeover the
management of the company. Thus the bankers under the aforementioned Act will have
the much needed authority to either sell the assets of the defaulting companies or change
their management.
But the protection under the said Act only provides a partial solution. What banks should
ensure is that they should move with speed and charged with momentum in disposing off
the assets. This is because as uncertainty increases with the passage of time, there is all
possibility that the recoverable value of asset also reduces and it cannot fetch good price.
If faced with such a situation than the very purpose of getting protection under the
Securitization Act, 2002 would be defeated and the hope of seeing a must have growing
banking sector can easily vanish.
72
73

NORMS
PROVISIONING NORMS
Norms for Provisioning on Loans & Advances
1. In conformity with the prudential norms, provisions should be made on the
nonperforming assets on the basis of classification of assets into prescribed
categories as detailed in paragraph 3 above.
2. Taking into account the time lag between an account becoming doubtful of
recovery, its recognition as such, the realisation of the security and the erosion
over time in the value of security charged to the bank, the banks should make
provision against loss assets, doubtful assets and sub-standard assets as below:
(i) Loss Assets
(a) The entire assets should be written off after obtaining necessary approval from the
competent authority and as per the provisions of the Co-operative Societies Act/Rules. If
the assets are permitted to remain in the books for any reason, 100 per cent of the
outstanding should be provided for.
(b) In respect of an asset identified as a loss asset, full provision at 100 per cent
should be made if the expected salvage value of the security is negligible.
(ii) Doubtful Assets

(a) Provision should be for 100 per cent of the extent to which the advance is not
covered by the realisable value of the security to which the bank has a valid recourse
should be made and the realisable value is estimated on a realistic basis.
(b) In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 per cent to 100 per cent of the secured portion depending upon the
period for which the asset has remained doubtful
74

A) Asset Classification Norms :
(i). The non-performing financial asset purchased, may be classified as 'standard' in the
books of the purchasing bank for a period of 90 days from the date of purchase.
Thereafter, the asset classification status of the financial asset purchased, shall be
determined by the record of recovery in the books of the purchasing bank with reference
to cash flows estimated while purchasing the asset which should be in compliance with
requirements in Para 5(3)
(ii). The asset classification status of an existing exposure (other than purchased financial
asset) to the same obligator in the books of the purchasing bank will continue to be
governed by the record of recovery of that exposure and
hence may
be different.
(iii) Where the purchase/sale does not satisfy any of the prudential requirements
prescribed in these guidelines the asset classification status of the financial asset in the
books of the purchasing bank at the time of purchase shall be the same as in the books of
the selling bank. Thereafter, the asset classification status will continue to be determined
with reference to the date of NPA in the selling Bank.
(iv) Any restructure/reschedule/rephrase of the repayment schedule or the estimated cash
flow of the non-performing financial asset by the purchasing bank shall render the
account as a non-performing asset.
75
(B) Provisioning norms:

Books of selling bank
i. When a bank sells its non-performing financial assets to other banks, the same will be
removed from its books on transfer.
ii. If the sale is at a price below the net book value (NBV) (i.e., book value less
provisions held), the shortfall should be debited to the profit and loss account of that year.
iii. If the sale is for a value higher than the NBV, the excess provision shall not be
reversed but will be Utilized to meet the shortfall/ loss on account of sale of other non
performing financial assets.
Books of purchasing bank
The asset shall attract provisioning requirement appropriate to its asset classification
status in the books of the purchasing bank.
(C) Accounting of recoveries :
Any recovery in respect of a non-performing asset purchased from other banks should
first be adjusted against its acquisition cost. Recoveries in excess of the acquisition cost
can be recognized as profit.
76
(D)Capital Adequacy
For the purpose of capital adequacy, banks should assign 100% risk weights to the nonperforming financial assets purchased from other banks. In case the non-performing asset
purchased is an investment, then it would attract capital charge for market risks also. For
NBFCs the relevant instructions on
Capital adequacy will not be applicable.
(E)Exposure Norms
The purchasing bank will reckon exposure on the obligator of the specific financial asset.
Hence these banks should ensure compliance with the prudential credit exposure ceilings
(both single and group) after reckoning the exposures to the obligators arising on account
of the purchase. For NBFCs the relevant instructions on exposure norms would be
applicable.
77
Effects of NPA:
As the number of accounts become NPA this will lead to additional provisions which has
to be made and these provisions are made out of profits earned by the Bank. Ultimately it
leads to reduction in profits to Bank.
Pre-requisites to Control NPA

1. Governance :
Independent oversight board with clear mandate.
Defined and transparent procedures
Improved reporting standard
2. Greater focus on restructuring :
The quality and speed of asset resolution is key
Taking ownership of NPA and proactive management
Working with debtors to improve cash-flow of assets underlying NPA.
3. Greater powers and institutional capabilities :
For example, power to separate bad management from the debtor and to liquidate
debtors, which cannot be expeditiously restructured.
Training, knowledge transfer
Leadership
4) Incentives and disciplines for banks:
Enhanced accountability of Banks and Bank managers
Ensure banks put in place risk analysis and credit management systems
Ultimate burden not transferable to AMCs

78
5) Greater protection of creditor rights:
Credible liquidation procedures and efficient secured transaction processes
Triggers and incentives for insolent
Strong and Credible regulators, free from political pressure.
The Road to Recovery:

The key Facilitators
Early dtection
Speed
Voltaire rfrences
Facilitation and quick arbitration
79
HIGH COST OF FUNDS DUE TO NPAs:

Quite often genuine borrowers face the difficulties in raising funds from banks
due to mounting NPAs. Either the bank is reluctant in providing the requisite funds to the
genuine borrowers or if the funds are provided, they come at a very high cost to
compensate the lenders losses caused due to high level of NPAs.
Therefore, quite often corporate prefer to raise funds through commercial papers
(CPs) where the interest rate on working capital charged by banks is higher.
With the enactment of the Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, banks can issue notices to the defaulters
to pay up the dues and the borrowers will have to clear their dues within 60 days. Once
the borrower receives a notice from the concerned bank and the financial institution, the
secured assets mentioned in the notice cannot be sold or transferred without the consent
of the lenders.
The main purpose of this notice is to inform the borrower that either the sum due
to the bank or financial institution is paid by the borrower or else the former will take
action by way of taking over the possession of assets. Besides assets, banks can also
takeover the management of the company. Thus the bankers under the aforementioned
Act will have the much needed authority to either sell the assets of the defaulting
companies or change their management.
But the protection under the said Act only provides a partial solution. What banks
should ensure is that they should move with speed and charged with momentum in
disposing off the assets. This is because as uncertainty increases with the passage of time,
there is all possibility that the recoverable value of asset also reduces and it cannot fetch
good price. If faced with such a situation than the very purpose of getting protection
under the Securitization Act, 2002 would be defeated and the hope of seeing a must have
growing banking sector can easily vanish.
80

RECOVERY MEASURES
Broadly speaking, recovery measures could be classified into two categories, namely,
legal measures and non-legal measures.
Legal Measures
1. Debt Recovery Tribunals(DRT)
In the context of recovery from NPAs DRT are assuming great importance since efforts
are on to set up & more DRT during this year and also to strengthen them. Though the
recovery through DRT is at present less than two per cent of the claim amount, banks and
Fls have to depend heavily on them. Efforts are on to amend the recovery act to assign
more powers to DRTs. More importantly, the borrowers tendency to challenge the verdict
of the Appellate Tribunals in the High court to seek natural-justice needs to be checked,
Otherwise, early recovery efforts through DRTs would be futile. Secondly, training of
presiding officers of Tribunals about the intricacies of banking practices is very essential.
Further, the numbers of recovery officers have to be enhanced in every DRT for effective
recovery. Finally, banks and Fls have to come forward to provide liberal help to DRTs to
equip them in terms of infrastructure, manpower, etc.
2. National Company Law Tribunal
As per the announcement made in the Budget-2001-02, Sick Industrial Company Act will
be repealed and Board for Industrial Finance and Reconstruction will be wound-up. As
an alternative arrangement, it is proposed to set up NCLT by amending the Companies
Act 1956. In August 2001, the NCLT is expected to consolidate the powers of BIFR,
High court and Company Law Board to avoid multiplicity of forums.
81

In matters of rehabilitation of sick units, all concerned parties are supposed to abide by
the orders of NCLT. There shall be 10 benches, which will deal with rehabilitation,
reconstruction and winding-up of companies. It is estimated to complete the entire
process during a period of 2-3 years as against 20-27 years presently taken. The Tribunal
will have, in addition, powers of contempt of court.
A rehabilitation and revival fund will be constituted to make interim payment of dues to
workers of a company declared sick or is under liquidation, protection of assets of sick
company and rehabilitate sick companies. While NCLT will be acting on the lines of
BIFR in the matters of rehabilitation viability of the projects will be assessed on cash test
and not in the present test of net-time limit for completing each formality relating to
rehabilitation and winding-up. Though the Bill is well drafted to ensure NCLT to become
time wise, and more effective than BIFR in respect of rehabilitation and winding-up,
doubts are raised about the implementation of the Bill taking into account the present
political economy. In any case, it is too early to comment.
3. Corporate Debt Restructuring Body
A need was felt to special agency to facilitate debt restructuring because there has
been some hesitancy on the part of Bank and financial institution to implement RBI
guidelines on debt restructuring recently three-tire body, CDR has been set up to
coordinate corporate debt restructuring program. It is yet to be operational zed CDR
consist of Forum Group and cell. While the forum evolves broad policy guidelines, the
group takes decisions on the proposals recommended by the Cell.
Initially, the borrower approaches his Lead bank/FI with a request to restructure debt
which in turn puts up the proposal to the Cell. The CDR Covers only multiple banking
accounts enjoying credit facilities exceeding Rs.20crore. Cases of DRT, BIFR and willful
defaults, doubtful and loss accounts and suit-filed cased are outside the purview of the
CDR. Thus standard and sub-standard accounts are only eligible to seek CDR shelter.
Decisions of the group are based on the super majority principle. If 75 percent of the
secured creditors agree to the rehabilitation plan, it is binding on the other banks/FIs.
82
The CDR is a voluntary system based on debtor- creditor agreement and inter-creditors
agreement. No banker/borrower can take recourse to any legal action during the standstill period of 90-180 days.
Lastly, CDR will observe the RBI Guideline on Debt
Restructuring issued in March 2006. While the arrangements under CDR seem to be
feasible from the debt restructuring perspective, its success depends upon the cooperation
extended by borrowers and bankers, on the one hand, and understanding among banks
and Fis, on the other. Doubts are raised about the implementation of these agreements
taking into the present working of the loan consortium arrangements.
4. Asset Reconstruction Corporation.
It is proposed to set up ARCs in the private sector to take over NPAs in the public sector
banks. The RBI will be the regulator of these ATCs. The ARC will buy NPAs of the
banks and financial institutions at the pre-determined discounted value and issue NPA
redemption bonds, which carry a fixed return. ARCs are expected to be managed by
professionals to effect maximum recovery of NPA, which will help in redemption of
bonds after some time. The Finance Ministry has finalized the draft Bill to set up ARCs.
Though the proposed scheme seems to be attractive, its success will depend upon the
efficiency of DRTs and courts. Further, if ARC is going to depend on the staff deputed by
weak banks, its recovery chances are doubtful.
5. Company Mergers.
Under the Companies Act, 1956, mergers are permitted. In 1977, Sec 72-A was inserted
in the Income Tax Act to offer tax incentives to healthy companies which take over the
sick companies and prepare revival plans. Response to this scheme formality as per the
instructions of the High Court and Income Tax Department. Tax incentives are found to
be inadequate to motivate healthy companies to come forward and take advantage of the
scheme. Recovery of bank dues on company-mergers is not assured since hardly 7.8 per
83

cent of sick companies are successfully revived. Encouraged by the success achieved in
company mergers in developed countries, a review of the scheme under section 72-A of
IT Act is called for.
84

NON LEGAL MEASURES
Reminder System
The cheapest mode of recovery is by sending reminders to the borrowers before
the loan installment falls due. Generally, response to this arrangement particularly from
honest borrowers is encouraging. But efforts need to be strengthened in banks in sending
reminders on timely basis.
Visit to Borrowers Business Premise/Residence
This is a more dependable measure of recovery. Visits need to be properly
planned. Involvement of staff at all levels in the bank branch is called for. Costs involved
in recovery need to be kept to the minimum. Frequent visits are called for in case of
hardcore borrowers. Over the years, it is observed that the number and quality of visits
are going down. Consequently, the recovery process is affected.
Recovery Camps
In respect of agricultural advances, recovery camps should be organized during
the harvest season. To ensure maximum advantage, recovery camps need to be properly
planned. It is also essential to take the help of outsiders, particularly, revenue officers in
the state government, local panchayat officials, and regional approach to give a wide
publicity of the recovery camps to be organized in the local area, mobilize as many
farmers as possible and motivate the staff to get involved in the recovery drive.
Rephrasing Unpaid Loan Installments
In respect of small advances, bankers need to be system pathetic in respect of sincere and
hardworking borrowers. If such borrowers fail to pay loan installments due to natural
calamities or for some other convincing reasons, unpaid loan installments may be
replaced/rescheduled. Bankers efforts need to be strengthened in the regard.
85

Rehabilitation of Sick Units
Sick units both in SSI and non SSI sectors should be identified on timely basis keeping in
mind the official definitions. Causes of sickness should be genuine. If the project is
found viable in terms of Debt Service Coverage Ratio (DSCR), rehabilitation package
has to be prepared keeping in mind the broad parameters suggested by the RBI. The
package should be implemented at the earliest by the bank and the borrower.
Close
monitoring of the progress of implementation is called for. There are several success
stories on rehabilitation of sick units. But in general, it is observed that the success rate
in revival of sickness is discouraging. Further, in the process of financial sector reforms,
Banks and FIs are hesitant to rehabilitate due to the threat of failure in rehabilitation.
Recently, the RBI has permitted banks not to make provision for sick SSI units during the
first year of implementation. New guidelines on rehabilitation of sick SSI units will also
be issued soon by the RBI. For successful rehabilitation, it is essential to create a
sense of urgency on the part of both banks and borrowers. Efforts on the part of the
government in terms of concessions, reliefs etc. Should be made on timely basis.
Understanding between bank and SFCs should be strengthened. Above all, stern action
against willful defaulters is called for.
86

Loan Compromise
This is the last resort of recovery. This should be voluntary. It calls for a professional
approach in preparing the compromise proposal for which each bank is expected to
introduce a scheme. Committee approach should be adopted to decide on the loan
compromise. Delays in taking decisions should be avoided.
Recently, one Time
Settlement (OTS) scheme was introduced by the RBI.

The overall response to the scheme was limited. Hence, each bank is expected to come
out with its own OTS scheme. In addition, training of operating staff is essential to
change their mindset. For effective recovery, loan compromise should be taken up on
priority basis.
Appointment of Professional Agencies for Recovery
Recently, IBA has worked out certain guidelines for banks on matters concerning the
appointment of outside professional agencies whose services can be utilized to ascertain
the whereabouts of the borrowers and enforcement of securities. There is some
hesitancy on the part of public sector banks in engaging them for recovery purposes due
to unpleasant experiences in certain cases. But during the post VRS scenario, it is
suggested to seek such outsourcing. This should be done after examining the credentials
of the professionals. It is also essential to keep a constant vigil on their practice.
87

NPA analysis of Axis bank
Axis Bank has reported a better than expected net profit of Rs.5.81 bn in Q4FY09, a
growth of 60.9% on a YoY basis and 16.1% on a QoQ basis. For the FY09, the net profit
stands at Rs.18.15 bn, a growth of 69.5% on YoY. Axis Bank has restructured loans worth
Rs.6.6 bn during the quarter, taking the total restructured loans to Rs.16.25bn in FY09,
representing 1.74% of the gross customer assets.
Facts and figure of the year 2007- 09:
2008-09
2007-08
Growth (%)
Net profit
581.45
361.40
61
Net interest income
1032.60
828.43
25
Other income
845.51
556.47
52
EPS(rs)
16.10
9.89
CAR (%)
13.69
13.73
Net NPA
0.35
0.36
88

Gross NPA has shown an upward movement:
The Gross NPA of the bank has increased by 24 bps during FY09 and 6 bps during the
Q4FY09. In absolute terms, the Gross NPA has increased by Rs.1.7bn during the quarter.
The bank has written back approx Rs.60mn, which limited the net increase in its gross
NPA to Rs.1.10bn.
Operating Expenses remains under control:

Operational expenses of the bank remained under control during FY09. The employee
cost of the bank increased by 48.8% on a YoY basis. The bank had added
approx 5945 employees in FY09, which is reflected in the increased employee cost.
The cost to income ratio of the bank stands at 43.1% compared to 49.2% in FY08.
Comparison between AXIS, HDFC AND SBI
PARTICULARS
AXIS 2008-09
HDFC 2008-09
SBI 2008-09
CAR(Capital
13.69 %
13.2%
14.25%
0.35%
0.56%
1.76%
adequacy ratio)
NET NPA
Inference
As compared to other banks the net NPA of Axis Bank is less. This shows the recovery
and follow up system of the bank. Further the quality of the appraisal and decision
making is evident.
89

Comparison of Axis Sme Loans With Other Financial Institution:
Parameters
ELIGIBILITY
State Bank of India Axis Bank

Age:18 and above
Age: 18 and above
Place:50 km
ICICI Bank
Age: 18 and above
Income:2years cash Income:3 years B/S
Income:2 or 1 year profits.
profit declared and
B/s profit declared Place: 50 km around profit

and income
PURPOSE
other
sources
other sources
Small enterprise and Small and medium Business Loan and
medium
SECURITIES
from
from
scale scale enterprises
enterprises
40%
minimum 100%
SME
125%
Collateral
securities, projected Collateral securities securities[Building

sales(justified
order copy)
GUARENTORS
Minimum
by and copy of sales (both

orders
purely
on
income
base
and Minimum
commercial
and
residential)P&M]
one No
guarantor
their guarantor and based required
because
and on his total income they usually grant
each person should and his goodwill in 80% of the Total

give guarantee to the market
project amount and
only 2 parties
they
take
125%
securities.
90

DOCUMENTS
Voter
ID
and 3 years audited B/S
3years audited B/S
address proof.
2 year Projection
IT returns of 3years
Min 1 year and max
Networth statement
PAN Card
2 years B/S profit Directors IT Returns ID

declared
VAT
Stamp papers
IT returns of 2 years Voter ID
Photographs
computed by CA
Valuation Report
Address proof
Photographs
Inspection Report
Legal opinion
Photographs
Valuation report by Stamp Papers

engineers
Inspection report
Stamp papers
PAN Card
TIME TAKEN TO 2 weeks
GRANT(if
1 week
7 to 10 days
all
documents ready)
TERM
It mainly depends It
on
total
granted
depends
amount Amount
and
of
on 2 to 5years
term
max loan and max is
term is 5 years(60 5years

MODE
REPAYMENT
months)
OF Repayment
will Repayment
start after 6 months

By
start
will They use to take 3
immediately postdated
postdated from 1st month
cheques
and it also depend
INSURANCE
cheques
110% of the value
INTEREST
State bank advance AXIS BPLR is 13% Unsecured( 5to 10
RATE(Range)
rate is 12.75% and and on the results of Lakhs)
100%
an type of business
100%
13.5% to
91

on basis of ratings rating
%
is
added
rate
of 21%
or interest is increased Secured: 15% and
reduced in interest and decreased by based on rating they

rate
some % and even use alter rate

interest rate mainly
depends
PROCESSING
1%
on
the
market competition
0.50%
1% to 2%
FEES
Inference:
After looking into the above comparison of the three major Banks who are actively
funding to the SMEs from customers point of view still SBI is more attractive because
while taking loans all customers give more importance to Rate of interest , Mode of
repayment, and even some times the popularity of the banks and Percentage of Securities
etc. But if compared with ICICI Bank AXIS is far better and more attractive in every
aspects of comparison accept ICICI dont asks for Guarantors.
92
Case study 1: NPA due to business Model.

Background
Ramarasa Distilleries was an entity formed in the year 2002. The company was involved
into the production of different brands of ready to consume distillery products. The
company was clocking around Rs.30.00 Crores per year and was gradually increasing
their sales. The company took a strategic decision to divert all the sales into overseas
market due to the huge demand and higher margins. Few of the countries which the
company wanted to export were Mauritius, Thailand, China, Vietnam etc. The company
got into an MOU to sell their produce and started well.
The outstanding amount as on March 31, 2007: Rs 30 crores/ Realizable value of security: Rs 15 crores / Period for which the advance has remained in 'doubtful'
category as on March 31, 2009: 2.5 years
Problems
Due to the recession and global slow down the market an demand in the overseas sales
came down drastically. On the other end the local consumption increased. But the
company was bent upon sticking with the MOU with other countries and continued their
business. Most of the distilleries which was supplying to the local market was growing
and Ramarasa distilleries posted losses.
Present scenario
The bankers have moved for the notional position of the collateral securities of the
company after issuing a surfacie notice. Due to the business model of the company the
sales feel and the payment got delayed. This resulted in no inward remittances into the
account for a continues period of 90 days which led the account to be an NPA.
93
Provisioning requirement:
As on
Asset
Provisions
Provisions
Total
classificati
on
on
(Rs)
on
secured
unsecured
portion
portion
March
Doubtful
31, 2008
March
years
Doubtful
31, 2009
more
to
Amt
Amt
30
45000
100
15000
19500000
000
15000
30000000
0000
than
000
100
15000
100
0000
3 years
Conclusion/suggestion
There are few steps that the company could have taken to avoid the slippage and here are
some:
Changed the business model switched backed to local sales.
At least for the cash flow the company could have selected few distributors
for local market
The company should have informed their bankers and requested for a rephasement of the loan by seeking more holiday period
The company may have reduced the overheads and could have taken up cost
cutting activities.
94
The company should have pumped in more capital and reduced the cash
crunch.
Case study 2: NPA due to delayed project implementation

Background
Allu aluminum extrusions private limited was registered under SSI certification in the
year 2007. the company was to produce all types of aluminum profiles. The project cost
was estimated to be Rs.600 Lakhs. The bank funding was Rs.450 Lakhs and the margin
amount in this green field project was Rs.150 Lakhs by the customer. The margin
amount of Rs.150 Lakhs was brought in by the way of purchase of Land by the customer.
The rest of the project which was purchase of machinery and building was to be funded
by the bankers.
Problem
According to the schedule of implementation the project was to be completed by the end
of June 2008. there was a delay in the project due to the machinery not arriving in time.
The supplier of the machinery could not process the order and the machinery reached the
site 6 months after the same was expected. The company was not ready with a backup
plan for the interim finance and could not service the interest during the project delay.
Due to this the bakers did not release the rest of the loan and the project came to a stand
still. The customer could not generate any cash flow due to the project not getting started
the bankers could not release any further funds till the overdue amount was repaid.
95

Present scenario
The bank for moved for a re-phasement and has sent a proposal to their head office. Penal
interest and penalty charges has been levied. The bank has advised the customer to offer
more collateral for further funding of the account to bail out the customer.
The outstanding amount as on March 31, 2007: Rs 450 lacks
Realizable value of security: Rs 150 lacks
Period for which the advance has remained in doubtful
category as on March 31,
2007: 4 years (i.e. Doubtful more than 3 years)
Provisioning requirement:
As on
Provisions on
Provisions on
Total
secured
unsecured
(Rs)
portion
portion
March
2007
March
2008
March
2009
March
31, 50
31, 60
Amoun %
Amoun
75000
90000
31, 75
11250
31, 100
0
15000
2010
100
30000
375000
100
0
30000
390000
100
0
30000
412500
100
0
30000
450000
Conclusion/Suggestion
Background study of the supplier and his previous customers had to be

checked.
Funds for interim finance was ready with the customer but a plan for such
delay was missing.
96
Proper follow up with the machinery supplier for on time delivery
Professional approach was required for implementing the project.
FINDINGS
In the current market scenario of global slow down, the banks

will be tested to maintain the quality of their asset portfolio.
The banks need to be selective about taking up new proposals

for green field projects and taking over of limits from other
banks.
The asset quality of Indian banks has shown substantial

improvement in recent years due its conservative approach
towards credit decision making.
The major tool the bank has adopted towards improving its
credit operations has been the introduction of Basel Norms.
Net NPA improved to 0.73 per cent for the FY 2008 as against
0.83 per cent for FY 2007. However, 2008-09 and 2009-10 has
the potential to keep up this trend.
As India witness slowdown in economic activity, banks will face

a lower demand for loans. NPAs will also increase on account of
borrowers finding it difficult to repay loans.
Rise in NPAs would mainly be attributed to export oriented

small and medium enterprises(SMEs)which are hard hit due to
surging costs.
Banks are being watchful about taking over of assets from other
Banks/FIs.
The new generation banks are particular about
taking over only standard assets.
Banks comply with strict provisioning norms in the current

scenario.
97
Monitoring and follow up of accounts has been a key focus area

to keep up the quality.
Most of the Banks have devised early warning system and have
created a signaling for the probable NPAs.
98
RECOMMENDATION
11. Fixing up the budget for profits and recovery rather than for advances. Budget
oriented approach at times leads to release of credit facilities without ensuring
compliance of covenants of sanction.
12. A suitable mechanism could be drawn at each bank level to provide monetary
benefits/ re-organization of the operating staff particularly for recovery in NPAs
write-off cases.
13. Projects with old technology should not be considered for finance.
14. Up gradation of credit skills of the operating staff working in advance to avoid
over and under finance.
15. Credit guarantee covers like ECGC, State/Central government guarantee to be
insisted upon the customers even with a extra expense of premium.
16. Due diligence on the credit history of the customer to be conducted prior to the
disbursal of limits.
17. Sufficient collateral security to be insisted to cover the risk of the bank.
18. Constant monitoring of the operations of the accounts to detect NPA in the initial
period. Also have a early warning system installed in the process to detect
probable NPAs at the initial period.
19. Constant follow up with accounts having irregularity in their operations.
20. Few points which needs to be looked into while preparing a proper credit
appraisal which will lead to creation of standard accounts:
understanding the business model of the customer
usage of all financial ratios in the appraisal system to find out the financial
strength of the organization
customer base analysis of the entity to be conducted
supplier strength to be analyzed
industry analysis to be critically undertaken
compliance with all the regulatory
stipulation of adequate terms and conditions and also financial convenient

to maintain discipline in the operations of the customer
99
SWOT Analysis to be conducted

CONCLUSION
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. 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.
However, banks are yet another sector where the rot has already set in
It is high time to take stringent measures to curb NPAs and see to it that the
Non-Performing Assets may not turn banks into Non-Performing Banks; instead steps
should be taken to covert Non-Performing Assets into Now-Performing Assets.
Axis bank has been very professional in their approach and has been performing well by
posting healthy top line and bottom line for the past few years. The NPA levels have
been lower as compared to the industry and even in case of NPA the recovery rate has
been good. The credit appraisal system of the bank is above the bench mark level of the
industry.
It will be worth mentioning that Axis Bank Hubli have a zero percentage of
NPA. They have not got a single NPA so far and all the credit has to go to the concerned
effort put in by the management and the staff of the Axis Bank, which helped them in
achieving the remarkable progress.
Keeping up the same trend and maintaining the present quality of the assets Axis Bank is
expected to reach the top position in Banking and Finance industry.
100
BIBLIOGRAPHY
RECOVERY OF LOANS RBI

RBI GUIDELINES
WEBSITES
www.axisbank.com
www.rbi.com
101

Axis Bank NPA

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Axis Bank NPA

Uploaded by

Copyright:

Available Formats

Analysis of Non Performing Assets at AXIS Bank

Large and mid corporate.

Small and Medium scale enterprise.

Analysis of Non Performing Assets at AXIS Bank

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

Design of the study

Analysis of Non Performing Assets at AXIS Bank

This study will help to know the recent norms of NPA.

Statement of the Problem

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

To understand the concept of Non Performing Asset.

To study the classification of the Non Performing Assets.

To recommend measures for Improving performance and reduction of Non

Company where the project is undertaken

Duration of the study

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

Various Text books were used to understand the concepts of portfolio

Internal files & materials

Manuals, Brochures and

Websites Various sites like www. sharekhan.com

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

In the current market scenario of global slow down, the banks

The banks need to be selective about taking up new proposals

The asset quality of Indian banks has shown substantial

As India witness slowdown in economic activity, banks will face

Rise in NPAs would mainly be attributed to export oriented

The new generation banks are particular about

taking over only standard assets.

Banks comply with strict provisioning norms in the current

Monitoring and follow up of accounts has been a key focus area

Analysis of Non Performing Assets at AXIS Bank

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

understanding the business model of the customer

customer base analysis of the entity to be conducted

supplier strength to be analyzed

industry analysis to be critically undertaken

compliance with all the regulatory

stipulation of adequate terms and conditions and also financial convenient

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

SWOT Analysis to be conducted

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

Deregulation: The removal of government controls from an industry or sector,

Financial innovation: Financial innovation is the systematic process of change

Securitization: Securitization is the process of converting financial assets into

Globalization: Globalization is the gradual evolution of markets and

Advances in technology: Deregulation increased competition for financial

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

K L E Societys IMSR, HUBLI-31

Analysis of Non Performing Assets at AXIS Bank

Structure of Indian Banking.

Scheduled Co-operative Banks

Private Sector Regional

SBI & its