Management of Non-Performing Assets Of Commercial Banks : A Case Study Of The South Indian Bank Limited
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Date
2000
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Department of Rural Bank and Finance Management, College of Cooperation Banking and Management,Vellanikkara
Abstract
The study entitled "Management of Non - Performing
Assets of Commercial Banks - A Case Study of The South Indian Bank
Limited" was conducted with the following objectives.
i) To assess the volume and composition of Non- Performing Assets
(NPAs) of South Indian Bank Ltd.(SIB)
ii) To identify the major determinants of NPAs and
iii) To examine the existing institutional arrangements for reducinz
and recovering NP As.
The study was confined to the Trichur Region of the Bank.
Out of the 57 branches of the Region, five were selected for the study. The
sample frame comprised of 150 respondents belonging to agriculture, retail
trade/ small business, professional/ self employed, miscellaneous
(trade/general) and other non - priority. The first three sectors constitute
priority sector and the last two non - priority sector. Both primary and
secondary data were used for the study. Primary data were collected by
means of a pre-tested interview schedule from the 150 respondents whereas
secondary data for the period 1994 - 1999 were collected/compiled from
various published sources.
The study has revealed that the 27 Public Sector Banks (PSBS)
as a group with nearly 90 per cent of the NPAs is the largest contributor of
the NPAs of the commercial banks of the country. The 19 . nationalised
banks contribute to more than 60 per cent of the total NP As of the PSBs.
The three nationalised banks which are identified as weak bank by Varma
Committee, viz., Indian Bank, uca Bank and United Bank of India
contribute to 22.86 per cent of the total NPAs of the nationalised banks.
The NP A level of the commercial banks of India when
compared to some of the developed countries 'are very high. The expeditious
recovery measure due to stringent bankruptcy and foreclosure laws in other
countries are the reasons behind this.
From the analysis of the NP As of the seven Kerala based
banks, it is seen that the only PSB, i.e., SBT have a very high share to the
total NPAs of the Kerala based banks and out of the remaining six Kerala
based private sector banks Federal Banb has the highest share. But the share
of net NP A to net advance is the lowest for Federal Bank in 1998.
Non - priority sector have a much larger share of advances and
gross NP As when compared to the priority sector for PSBs. But the
percentage of sectoral gross NPAs to sectoral gwss advances is lower for non
- priority sector in the case of PSBs.
For PSBs, Doubtful Assets consti~ the major portion of the
NPAs. This is in contrast to that of SIB where sub-standard assets constitute
major portion of the NPAs.
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Region wise analysis of the net advances and net NPAs of SIB
reveals that the inside Kerala Regions are functioning better than the outside
Kerala Regions. Mumbai Region is the highest contributor of the NP As of
the Bank. Chennai and Coimbatore Regions also have high share of NP As to
the total NP As of the Bank. Therefore, if the NP As of the outside Kerala
Regions can be brought down than the NPA level of the Bank can be
decreased drastically.
The major determinants of NP As as identified from the study
in order of priority are less return / failure of the venture, wilful defaulters,
misutilisation/ diversion of loans, insufficient loan amount/ loan from other
sources, high rate of interest/high instalment amount and ploughing back of
return.
The frequency of visits of the bankers to the place of business
of the borrowers can certainly bring down the number of accounts from
becoming NPAs. Even in the existing NPA accounts of the Bank, a
considerable amount can be realised through compwmise/
negotiation/ nursing, since a major portion of the NPAs of the Bank are in
the sub-standard category. The present legal system in India is customer
friendly and not banker friendly. A change in this is urgently required, along
with earnest attempts from the bankers' side right from appraisal of loan
application. The considerable reduction in the NPAs of the Trichur Region
of the SIB may be attributed to the efforts of the Bank in this direction.
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171543