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SUPPLY CHAIN MANAGEMENT
PROJECT
FORCASTING OF NPA RATIO FOR THE YEAR
2011-1012
SUBMITTED TO: SUBMITTED BY:
Prof. Rahul Chandra Pradeep Kumar Tiwari
INTRODUCTION
Today the Indian banking system has undergone significant transformation following
financial sector reforms, adopting international best practices. Several prudential, payment,
integrating and provisioning norms have been introduced, and these are pressurizing banks to
improve efficiency and trim down NPAs to improve the financial health in the banking
system. It is among the best in the world because Indian banks are favourable on growth,
asset quality and profitability; RBI and Government have made some notable changes in
policies and regulation to strengthen the sector. NPA involves the necessity of provisions,
any increase in which bring down the overall profitability of banks; is the indicator of
banking health in a country.
In this project we tried to forecast the NPA ratio of the entire bank for year 2011-2012, from
the data of previous 10 year NPA ratio that is from 2001-2011. And after forecasting the
NPA with the help of regression method we compare the forecasted data with the actual data.
GROSS NPA AND NET NPA
Gross NPA is advance which is considered irrecoverable, for bank has made provisions, and
which is still held in banks books of account. Net NPA is obtained by deducting items like
interest due but not recovered, part payment received and kept in suspense account from
Gross NPA.
NON PERFORMING ASSETS AS A MAJOR ISSUE AND CHALLENGE
FOR BANKING INDUSTRY IN INDIA
Non-performing Assets are threatening the stability and demolishing bank’s profitability
through a loss of interest income, write-off of the principal loan amount itself. RBI issued
guidelines in 1993 based on recommendations of the Narasimham Committee that mandated
identification and reduction of NPAs to be treated as a national priority because NPA direct
toward credit risk that bank faces and its efficiency in allocating resources. Profitability and
earnings of banks are affected due to NPA numbers. In recent years financial reform led by
RBI has helped in reducing NPA numbers.
Causes of Problem Mechanisms used to solve the problem
1. Legal impediments and time consuming
nature of
asset disposal process.
1. Strengthening of Legal Norms
2. Manipulation by the debtors using political
influence
has been a cause for industrial bad debt being
so high.
2. Aligning of prudential norms with
international
standards
3. Political tool - Directed Credit to SSI and
Rural sectors
3. Legal mechanisms including creation of
ARCs and partial disbanding of the BIFR
THE MAJOR CAUSE FOR THE NPA CAN BE ATTRIBUTED TO:
Improper selection of borrowers activities
Weak credit appraisal system
Industrial problem
Inefficiency in management of borrower
Slackness in credit management  monitoring
Lack of proper follow up by bank
Recession in the market
Due to natural calamities and other uncertainties
GROSS NPA RATIO(%)
YEAR SBI PNB HDFC ICICI
2001-02 11. 95 11. 38 3. 18 10. 23
2002-03 9. 34 11. 58 2. 22 8. 72
2003-04 7. 75 9. 35 1. 86 4. 70
2004-05 5. 96 5. 96 1. 69 4. 27
2005-06 3. 61 4. 10 1. 44 1. 51
2006-07 2. 92 3. 45 1. 39 2. 08
2007-08 3. 04 2. 74 1. 42 3. 30
2008-09 2. 86 1. 60 1. 98 4. 32
2009-10 3. 05 1. 71 1. 44 6. 52
1010-11 3. 28 1. 79 1. 06 5. 80
Forcasting of NPA ratio for the year 2011-2012
Please see excel sheet

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Forcasting of npa ratio for the year 2011 1012

  • 1. SUPPLY CHAIN MANAGEMENT PROJECT FORCASTING OF NPA RATIO FOR THE YEAR 2011-1012 SUBMITTED TO: SUBMITTED BY: Prof. Rahul Chandra Pradeep Kumar Tiwari
  • 2. INTRODUCTION Today the Indian banking system has undergone significant transformation following financial sector reforms, adopting international best practices. Several prudential, payment, integrating and provisioning norms have been introduced, and these are pressurizing banks to improve efficiency and trim down NPAs to improve the financial health in the banking system. It is among the best in the world because Indian banks are favourable on growth, asset quality and profitability; RBI and Government have made some notable changes in policies and regulation to strengthen the sector. NPA involves the necessity of provisions, any increase in which bring down the overall profitability of banks; is the indicator of banking health in a country. In this project we tried to forecast the NPA ratio of the entire bank for year 2011-2012, from the data of previous 10 year NPA ratio that is from 2001-2011. And after forecasting the NPA with the help of regression method we compare the forecasted data with the actual data.
  • 3. GROSS NPA AND NET NPA Gross NPA is advance which is considered irrecoverable, for bank has made provisions, and which is still held in banks books of account. Net NPA is obtained by deducting items like interest due but not recovered, part payment received and kept in suspense account from Gross NPA. NON PERFORMING ASSETS AS A MAJOR ISSUE AND CHALLENGE FOR BANKING INDUSTRY IN INDIA Non-performing Assets are threatening the stability and demolishing bank’s profitability through a loss of interest income, write-off of the principal loan amount itself. RBI issued guidelines in 1993 based on recommendations of the Narasimham Committee that mandated identification and reduction of NPAs to be treated as a national priority because NPA direct toward credit risk that bank faces and its efficiency in allocating resources. Profitability and earnings of banks are affected due to NPA numbers. In recent years financial reform led by RBI has helped in reducing NPA numbers. Causes of Problem Mechanisms used to solve the problem 1. Legal impediments and time consuming nature of asset disposal process. 1. Strengthening of Legal Norms 2. Manipulation by the debtors using political influence has been a cause for industrial bad debt being so high. 2. Aligning of prudential norms with international standards 3. Political tool - Directed Credit to SSI and Rural sectors 3. Legal mechanisms including creation of ARCs and partial disbanding of the BIFR THE MAJOR CAUSE FOR THE NPA CAN BE ATTRIBUTED TO: Improper selection of borrowers activities Weak credit appraisal system Industrial problem Inefficiency in management of borrower Slackness in credit management monitoring Lack of proper follow up by bank Recession in the market
  • 4. Due to natural calamities and other uncertainties GROSS NPA RATIO(%) YEAR SBI PNB HDFC ICICI 2001-02 11. 95 11. 38 3. 18 10. 23 2002-03 9. 34 11. 58 2. 22 8. 72 2003-04 7. 75 9. 35 1. 86 4. 70 2004-05 5. 96 5. 96 1. 69 4. 27 2005-06 3. 61 4. 10 1. 44 1. 51 2006-07 2. 92 3. 45 1. 39 2. 08 2007-08 3. 04 2. 74 1. 42 3. 30 2008-09 2. 86 1. 60 1. 98 4. 32 2009-10 3. 05 1. 71 1. 44 6. 52 1010-11 3. 28 1. 79 1. 06 5. 80 Forcasting of NPA ratio for the year 2011-2012 Please see excel sheet