Non performing assets in public sector banks Submission for Beat the street,NITIE Result-Finalist

1. DEALING WITH NON-PERFORMING ASSETS IN
INDIA
NAME COURSE YEAR CONTACT NO. EMAIL ID.
1-E.Kisan MBA 1st 9049269025 kisane@iitk.ac.in
2-Kriti Doneria MBA 1st 7895218190 doneria@iitk.ac.in
3-Alok Pandey MBA 1st 7755923242 alokp@iitk.ac.in
BEAT THE STREET CASE STUDY
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2. INCREASING NPA MENACE-CAUSES
0.00
1,000,000.00
2,000,000.00
3,000,000.00
SBI & ASSOCIATES NATIONALIZED BANKS PRIVATE BANKS FOREIGN BANKS
BANK-GROUP WISE GROSS NPA(IN MILLIONS)
2013 2014 2015
For 2013-15,the GROSS NPA for
nationalized banks has grown at an
AAGR OF 2.06%,the highest among
all groups.
Injudicious use of
Corporate Debt
Restructuring (CDR)
mechanism by PSBs.
Sluggish legal system
equals little fear of
prosecution, even for
big/repeat defaulters.
Overall Global
slowdown for certain
Indian industries post
2008 recession.
Lack of customer level
view of Aggregated
NPA due to
technological
limitations.
Unpredictable agri-yield
leads to a lot of
defaulters from agro-
sector.
About 7 percent of
Gross NPAs are locked
up in 'hard-core'
doubtful and loss assets,
with uncertain returns.
Longer Gestation period
for Infrastructure
projects in India hurts
promoters’ as well as
banks’ interests.
REASONS FOR GROWING NPAs
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3. NON-PERFORMING ASSETS-PUBLIC SECTOR VS PRIVATE SECTOR BANKS
For 2013-15,the cumulative Gross NPA of
Private Sector banks is 11.62% of that of its
Public sector banks.
0
2,000
4,000
6,000
8,000
2013 2014 2015 TOTAL
GROSS NPA(IN BILLIONS)
Public Private
0
0.8
1.6
2.4
3.2
4
4.8
5.6
6.4
2013 2014 2015
Gross NPA Ratio for Priority
Sector
Public Private
For 2013-15,the Gross NPA ratio (for
priority sector) for PSBs is as high as
5 times of its private counterparts.
For 2013-15,the Gross NPA ratio of PSBs(for
non priority sector) is at most triple of its
private counterpart, much lower than in the
priority sector.
0
0.8
1.6
2.4
3.2
4
4.8
5.6
2013 2014 2015
Gross NPA Ratio for non-priority
sector
Public Private
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4. Team name:THE AMAZING
Stringent regulations from Govt. for pumping more
liquidity in priority sectors ,even against low credit ratings
further increases the gross NPA Valuations of PSBs.
Financing infrastructure projects(with ceiling of exposure
norms) are more likely to be financed by PSBs than private
sector banks. Longer gestation period delays returns, if any.
Financing of govt. projects is tunneled
through PSBs and favorism creeps up
in various forms, allowing companies
to get away with defaulting.
Private sector banks promote & use
ARCs aggressively to recover NPAs at
discounted prices, something that PSBs
have recently cut stakes in.
Why PSBs have higher NPAs than Private Banks?

5. LEVERAGING TECHNOLOGY TO MITIGATE NPA WOES
Team name:THE AMAZING
Relying on automated
systems instead of
relationship managers for
credit risk modelling and
assessment purposes
might help curb inevitable
human cognitive biases,. It
would ensure a more
transparent loan
sanctioning, sans
‘influences’.
Corporates applying for
loans from PSBs asked to
integrate banking services
within its existing ERP,
allowing bank to asses the
financial health of the
company in real time as
well as reducing
turnaround time for the
enterprise..
Setting up early warning
systems(EWS integrated
with DTRs) that predict
the likelihood of an asset
falling into the NPA
category in future might
help banks take preventive
and corrective measures
on time.
A central, interoperable
Content Management
System, would ensure
minimum inconsistencies
& repeat defaulters. It can
be shared by all
nationalized banks and
contain a log of all
defaulters. The CMS shall
just answer in a YES or
NO, hence no security
breach.

6. • To Accelerate speedy disposal of high value claims, more Debt Recovery
Tribunals and Lok Adalats should be set up.
• Revision of ASSET RECONSTRUCTION COMPANY norms in
SARFAESI act(2002) along the lines of models that have proved to be
successful in other Asian countries, such as Fixed price Sale of assets for
equity participation in ARCs (Japan) & Aggressive management by
third parties(Thailand).
• Disbursement of Loans to Self Help groups instead of individuals,
especially in agro-based industries can help limit the
defaulting/foreclosure rate.
• Disinvestments from PSBs when it comes to sticky assets is a better bet
because the risk on future uncertainty is even higher.
REMEDIAL ACTIONS
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7. THANK YOU
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