Npa management (finance project)

1
CHAPTER 1: INTRODUCTION
Since the introduction of economic liberalization and financial sector reforms, banks are under
growing pressure to bring down their non-performing assets (NPA) so as to improve their
performance and viability. What is bothering the bankers today is the management of non-
performing assets. Over the period this problem has aggravated alarmingly and therefore needs
urgent remedial actions, so in this context a good number of circular instruction/guidelines have
been issued by bank/Reserve Bank of India. Reserve Bank of India (RBI), in the year 1991,
appointed a committee under the chairmanship of Sh. M.Narsimham to examine and give
recommendation for income recognition, asset classification and provisioning of loan assets of
banks and financial institutions. The committee examined the issues and recommended that a
policy of income recognition should be objective and based on record of recovery rather than on
subjective considerations. On the basis of the recommendations of the Narsimhan committee,
had issued guidelines to all scheduled commercial banks on income recognition, assets
classification and provisioning in April, 1992 which have been modified from time to time by the
RBI on the basis of experience gained and suggestions received from various quarters. The
prudential norms for income recognition asset classification and provisioning have come into
effect from the accounting year 03-03-1993.Similarly, guidelines were issued by the Reserve
Bank of India in March, 1994 to All India financial institutions viz. Industries development bank
of India (IDBI),Industrial credit and Investment corporation of India (ICICI),Industrial finance
corporation of India(IFCI), Axis Bank and Industrial Investment bank of India(IIBI). Separate
guidelines were also issued by the RBI on prudential norms to non-banking financial companies
in June,1994 and to regional rural banks in march, 1996. They have adopted these guidelines for
the purpose of income recognition and assets classification from the accounting year 1995-96.
However, guidelines relating to provisioning for regional rural banks RRBs have been made
effective from the financial year ended 31.03.1997. The definition of NPAs is also gradually
becoming tough for regional rural banks(RRBs) to cover all advances like commercial banks.
Although most of-the guidelines relating to RRBs are similar to that of commercial banks, they
have been made applicable in a phased manner for RRBs. Indian banks functionally diverse and
geographically widespread, have played a crucial role in the socio- economic progress of the
country. Banks extend credit to different types of borrowers for many different purposes. For

2
most customers, bank credit is the primary source of available debt financing. For banks good
loans are the most profitable assets. Return comes in the form of loan interest, fee income and
investment and the most prominent assumed risk is credit risk. Credit risk involves inability or
unwillingness of customer or counterpart to meet commitments in relation to lending once a loan
is overdue and ceases to yield income it would become a Non Performing Asset. Proper
management and speedy disposal of NPAs is one of the most critical tasks of banks today. The
problem of Non- Performing Assets [NPAs] in banks and financial institutions has been a matter
of grave concern not only for the banks but also the real economy in general, as NPAs can choke
further expansion of credit which would impede the economic growth of the country. Any
bottleneck in the smooth flow of credit is bound to create adverse repercussions in the economy.
NPAs are not therefore the concern of only lenders but also the public at large granting of credit
for economic activities is the prime duty of banking. Apart from raising resources through fresh
deposits, borrowings and recycling of funds received back from borrowers constitute a major
part of funding credit dispensation activity. Lending is generally encouraged because it has the
effect of funds being transferred from the system to productive purposes, which results into
economic growth. However lending also carries a risk called credit risk, which arises from the
failure of borrower. Non-recovery of loans along with interest forms a major hurdle in the
process of credit cycle. Thus, these loan losses affect the bank’s profitability on a large scale.
Though complete elimination of such losses is not possible, but banks can always aim to keep
the losses at a low level. Non-performing asset (NPA) has emerged since over a decade as an
alarming threat to the banking industry in our country sending distressing signals on the
sustainability and insurability of the affected banks. The positive results of the chain of measures
affected under banking reforms by the Government of India and RBI in terms of the two
Narasimhan committee reports in this contemporary period have been neutralized by the ill
effects of this surging threat. Despite various correctional steps administered to solve and end
this problem, concrete results are eluding. It is a sweeping and all pervasive virus confronted
universally on banking and financial institutions. The severity of the problem is however acutely
suffered by nationalized banks, followed by the SBI group, and the all India financial
institutions.

3
2: SUBJECT
MEANING OF NPA
Commercial Banks’ assets are of various types. All those assets which generate periodical
income are called as Performing Assets (PA) while all those assets which do not generate
periodical income are called as Non-Performing Assets (NPA). If the customers do not repay

4
principal amount and interest for a certain period of time then such loans become Non-
performing assets(NPA). Thus non-performing assets are basically non-performing loans. For a
bank, a Non-Performing Asset (NPA) or bad debt is usually a loan that is not producing income.
Earlier it was largely applicable to businesses. But things have changed with banks widely
extending consumer loans (home, car, personal and education, among others) and strict asset
classification norms. If a borrower misses paying his Equated Monthly Installment (EMI) for 90
days, the loan is considered as bad or NPA. High NPAs are a sign of bad financial health. This
has wide-ranging ramifications for a bank, especially in the stock market and money market. So,
as soon as a debt goes bad, the banks want it either made better or taken out of their books. 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 or credit facilities granted to that borrower as non-performing without
having any regard to the fact that there may still exist certain advances or credit facilities having
performing status.
DEFINITION :- An asset, including a leased asset, becomes non-performing when it ceases to
generate income for the bank. A ‘non-performing asset’ (NPA) was defined as ‘an asset should
be classified as non-performing , if the interest and/or principal amount have not been received
or remained outstanding for one quarter from the day such income/installments has fallen due.
With a view to moving towards international best practices and to ensure greater transparency, it
has been decided to adopt the ‘90 days’ overdue’ norm for identification of NPAs, from the year
ending March 31, 2004. Accordingly, with effect from March 31, 2004, a Nonperforming asset
(NPA) 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 90days, in respect of an
Overdraft/Cash Credit (OD/CC),

5
• The bill remains overdue for a period of more than 90 days in the case of bills purchased and
discounted,
• Interest and/or installment of principal remains overdue for two harvest seasons but for a period
not exceeding two half years in the case of an advance granted for agricultural purposes and
• Any amount to be received remains overdue for a period of more than 90days in respect of
other accounts.
As a facilitating measure for smooth transition to 90 days’ norm, banks have been advised to
move over to charging of interest at monthly rests, by April 1,2002. However, the date of
classification of an advance as NPA should not be changed on account of charging of interest at
monthly rests. Banks should, therefore, continue to classify an account as NPA only if the
interest charged during any quarter is not serviced fully within 180 days from the end of the
quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from
March 31, 2004.
NPA represent bad loans, the borrowers of which failed to satisfy their repayment obligations.
Michael et al (2006)15 emphasized that NPA in loan portfolio affect operational efficiency
which in turn affects profitability, liquidity and solvency position of banks. Batra, S (2003)16
noted that in addition to the influence on profitability, liquidity and competitive functioning,
NPA also affect the psychology of bankers in respect of their disposition of funds towards credit
delivery and credit expansion. NPA generate a vicious effect on banking survival and growth,
and if not managed properly leads to banking failures. Many researches including Chijoriga
M.M. (2000)17 and Dash et al (2010)18 showed the relationship bank failures and higher NPA
worldwide.
TYPES OF NPA'S
NPAs are broadly divided into: a) Gross NPAs, and b) Net NPAs
a) Gross NPAs: Gross NPAs are the sum total of all loan assets that are classified as NPAs as
per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made
by banks. It consists of all the non-standard assets like as sub-standard, doubtful and loss assets.
It can be calculated with the help of following ratio:

6
Gross NPAs Ratio = Gross NPAs / Gross Advances
b) Net NPAs: Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance sheets
contain a huge amount of NPAs and the process of recovery and write off of loans is very time
consuming, the provisions the banks have to make against the NPAs according to the central
bank guidelines, are quite significant. That is why the difference between gross and net NPA is
quite high.
It can be calculated as:
Net NPAs = Gross NPAs – Provisions / Gross Advances - Provisions
The Reserve Bank of India states that, compared to other Asian countries and the US, the gross
non-performing asset figures in India seem more alarming than the net NPA figure. The problem
of high gross NPAs is simply one of inheritance. Historically, Indian public sector banks have
been poor on credit recovery, mainly because of very little legal provision governing foreclosure
and bankruptcy, lengthy legal battles, sticky loans made to government public sector
undertakings, loan waivers and priority sector lending. Net NPAs are comparatively better on a
global basis because of the stringent provisioning norms prescribed for banks in 1991 by
Narasimham committee.
NPAs have also been divided or classified into four types basing on the type of asset.
• Standard Assets: A standard asset is a performing asset. Standard assets generate continuous
income and repayments as and when they fall due. Such assets carry a normal risk and are
not NPA in the real sense. So, no special provisions are required for standard assets.
• Sub-Standard Assets: All those assets (loans and advances) which are considered as non-
performing for a period of 12 months are called as substandard assets.
• Doubtful Assets: All those assets which are considered as non-performing for period of more
than 12 months are called as doubtful assets.
• Loss Assets: All those assets which cannot be recovered are called as Loss Assets. These assets
can be identified by the Central bank or by the auditors.
ASSET QUALITY, NPAS AND DIRECTED CREDIT

7
The stability of financial institution is determined mainly based on its quality of assets and
performance indicators. Quality of assets determines the survival and existence of business.
Performance is judged on the basis of profitability. The financial institutions were considered
stable during crisis period if the profitability and quality of assets is not affected. The stability of
banking sector is vital for economic growth. The commercial banks dominate the sector,
comprising more than three-fifths of the financial system assets. The financial intermediation by
banks in India has played a central role in supporting the growth process, by mobilizing
savings”. So any issues in banking sector directly impact the wellbeing of the economy. The
emphasis during post-liberalization era in Indian banking sector is focused on improving the
transparency and to integrate best practices in banking sector.
• An Asset is classified as doubtful, if in substandard category for 18 months, from the
present norm of 24 months in the first instance and eventually for 12 months.
• For the purpose of evaluating the quality of asset portfolio Government guaranteed
advances that have turned sticky should be treated as NPAs.
• To reduce the average level of net NPAs for all banks to below 5 percent by the year
2000 and to 3 per cent by 2002. For those banks with international presence the
objective should be to reduce the gross NPAs to 5 per cent and 3 per cent by the year
2000 and 2002 respectively and net NPAs to 3 per cent and 0 percent by these dates.
• All loan assets in the doubtful and loss categories which represent bulk of the hard core NPAs
in most banks should be identified and their realizable value determined. These assets could be
transferred to an Asset Reconstruction Company (ARC), which would, in turn, issue bonds,
equal to the realizable value of the assets transferred.
• Alternatively the banks in difficulty could issue bonds that form part of Tier II capital.
This will help the banks to blaster capital adequacy, which has been eroded because of
provisioning requirements for NPAs. As the banks in difficulty may find it difficult to
subscribers to bonds, Government will need to guarantee these instruments, which
then make them eligible for Statutory Liquidity Ratio(SLR) investment by banks and
instruments for Guaranteed Investment Certificate(GIC) and Provident Fund(PF) .
• The interest subsidy element in credit for the priority sector should be totally and even
rates on loans under Rs.2 Lakhs should be deregulated for scheduled commercial

8
as has been done in the case of Regional Rural Banks and Cooperative Credit
NPA SOME ASPECTS AND ISSUES
1. The NPAs of banks in India are considered to be at higher levels than those in other countries.
This issue has attracted attention of public as also of international financial institutions and
has gained further prominence in the wake of transparency and disclosure measures initiated
by RBI during recent years.
2. The NPA Management Policy document of SBI lays down to contain net NPAs to less than
5% of banks total loan assets in conformity with the international standard. It is, therefore
necessary that as per guidelines provided in NPA Management Policy document, every effort
be made at all levels to cut down the NPAs. All this requires greater efforts and teamwork.
3. It is essential to keep a constant watch over the non-performing assets not just to keep it
performing but also that once they become non-performing, effective measures are initiated
to get full recovery and where this is not possible, the various means are to be initiated to get
rid off the NPAs from the branch books.
4. NPAs adversely affect the wealth condition of the branch advances as also the profitability of
the branch. Some of the reasons for this are as under:
Interest cannot be applied on the loan accounts classified as NPAs.
The Branch has to pay interest to central office on outstanding classified as NPA.
The Branch has to incur cost in supervision and follow up of such advances.
Provision has to be made on NPAs at Bank level.
5. Once the assets are classified as NPA, the Branch Manager has to take all the necessary steps
to get the dues recovered there-under to maintain the good health of advances and the higher
profitability at the-Branch. This requires management of NPAs in such a Planned and
scientific manner that the percentage of NPAs to the total advances will be minimum.

9
CHAPTER 3: INDUSTRY PROFILE
INTRODUCTION
The most calamitous problem facing commercial banks all over the world in recent times is
spiraling non-performing assets (NPAs) which are affecting their viability and solvency and thus
posing challenge to their ultimate survival. NPAs adversely affect lending activity of banks as
non-recovery of loan installment as also interest on the loan portfolio negates the effectiveness of
credit-dispensation process. Non-recovery of Loans also hurt the profitability of banks. Besides,
banks with high level of NPAs have to carry more owned funds by way of capital and create
reserves and provision and to provide cushion for the loan losses. Banks have to make provisions
on NPAs from out of the income earned by them on performing assets. Presently, high level of
NPAs in loan portfolio of banks make them fragile leading ultimately to their failure. This will
shake confidence both of domestic and global investors in the banking system which will have
multiplier effect in bringing disaster in the economy. Thus, managing bad loans and keeping
them at the lowest possible level is critical for banks. It may be noted at this juncture that world
class banks do not have NPAs of over 2% of total portfolio. An NPA level of over 5% is
indicator of poor quality of loan portfolio. With growing competition and Shrinking spreads

10
banks should strive to keep NPAs much below the level of 10% to make net earnings necessary
for their survival and growth. It merely affected by various factors such as originating factors.
Internal and External factors RBI has to take the necessary steps for lowering down the NPAs.
HISTORY OF BANKING IN INDIA
Without a sound and effective banking system in India, it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.
For the past three decades, India‟s banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitan or
cosmopolitan in India. Infact Indian banking system has reached even to the remote corner of the
country. This is one of the main reasons of the India‟s growth process.
The government regular policy for Indian bank since 1969 has paid rich dividends with the
nationalization of fourteen major private banks of India. Not long ago, an account holder had to
wait for hours at the bank counters for getting a draft or for withdrawing his/her money. Today
he/she has various options available in front of him that are easiest and consume very little time.
Gone are the days when the most efficient bank transfer money from one branch to another in
two days. Now it is as simple as instant messaging or dial a pizza. Money has become the order
of the day.

11
The first bank in India though conservative, was established in 1786. From 1786 till today, the
journey of Indian banking can be segregated into three distinct phases which are
mentioned as follows:
Phase-I (from 1786 to1969 of Indian banks).
Phase-II (From Nationalization of Indian banks to 1991 i.e. prior to Indian banking sector
reforms).
Phase-III (with the advent of Indian financial and banking sector reforms after 1991).
To make this clear, all the phases have been discussed one by one very briefly as
under:
Phase-I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These
three banks were amalgamated in 1920 and Imperial Bank of India was established which started
as private shareholders banks, mostly Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indian, Punjab National
Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of
India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore
were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the
functioning and activities of commercial banks, the Government of India came up with The
Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per
Amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive
powers for the supervision of banking in India as the Central Banking Authority. During those
day‟s public has lesser confidence in the banks. As an aftermath deposit mobilization was slow.

12
Abreast of it the savings bank facility provided by the Postal department was comparatively
safer. Moreover, funds were largely given to traders.
Phase-II
Government took major step in this Indian banking sector reform after independence. Seven
banks forming subsidiary of State Bank of India was nationalized in 1960‟s on 19th July 1969,
major process of nationalization was carried out. It was the effort made by the then prime
minister of India, Mrs. Indra Gandhi. Fourteen major commercial banks in the country were
nationalized. Second phase of nationalization Indian banking sector reform was carried out in
1980 with seven more banks. This step brought 80% of the banking segment in India under
government ownership.
The following were the steps taken by the government of India to regulate banking institution in
the country:
1949: Enactment of banking regulating act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit Guarantee Corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crore.
After the nationalization of banks, the branches of the public sector bank in India rose to
approximately 800% in deposits and advances took a huge jump by 11000%. Banking in the
sunshine of government ownership gave the public implicit faith and immense confidence about
the sustainability of these institutions.
Phase - III

13
This phase has introduced many more products and facilities in the banking sector in its reforms
measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his
name, which worked for the liberalization of banking practices. The country was flooded with
foreign banks and their ATM stations. Efforts were being put to give a satisfactory service to
customers. Phone banking and net banking was introduced. The entire system became more
convenient and swift. Time was given more importance than money.
The financial system of India showed a great deal of resilience. It was sheltered from any crisis
triggered by any external macroeconomics shock as other East Asian Countries suffered. This
was all due to a flexible exchange rate regime, the foreign reserves were high, the capital account
was not yet fully convertible, banks and their customers were having limited foreign exchange
exposure.
COMPOSITION OF BANKING SYATEM IN INDIA
At present, the number of nationalized banks is twenty. Several foreign banks were allowed to
operate as per the guidelines of the RBI. At present the banking system can be classified in
following categories:
PUBLIC SECTOR BANKS
•Reserve Bank of India (RBI)
•State Bank of India and its associate Banks
•Nationalized Banks (20 in number)
•Regional Rural Banks sponsored by Public sector Banks.
PRIVATESECTOR BANKS
•Old Generation Private Banks
•New Generation Private Bank
•Foreign Banks in India
•Scheduled co-operative Banks

14
•Non Scheduled Banks
CO-OPERATIVE SECTOR BANKS
•State co-operative Banks
•Central co-operative Banks
•Primary agriculture credit societies
•Land Development Banks
•Urban co-operative banks
•State Land development banks
DEVELOPMENT BANKS
•Industrial Financial corporation of India (IFCI)
•Industrial Development Bank of India (IDBI)
•Industrial Credit and Investment Corporation of India (ICICI)
•Industrial Investment Bank of India (IIBI)
•Small Industrial Development Bank of India (SIDBI)
•National Bank For Agriculture And Rural Development (NABARD)
•Export-Import Bank of India(EXIM)

15
4: COMPANY PROFILE
J& K BANK PRIVATE LIMITED
BRIEF PROFILE
Jammu & Kashmir Bank is the only Bank in the country with majority ownership vested with a
state government – the Government of Jammu & Kashmir. It is the sole banker to the
Government of Jammu & Kashmir. J&K Bank functions as a universal bank in Jammu &
Kashmir and as a specialized bank in the rest of the country. It is also the only private sector
bank designated as RBI‟s agent for banking business, and carries out the banking business of the
Central Government, besides collecting central taxes for CBDT.J&K Bank follows a two-legged
business model whereby it seeks to increase lending in its home state which results in higher
margins despite modest volumes, and at the same time, seeks to capture niche lending
opportunities on a pan-India basis to build volumes and improve margins J&K Bank operates on
the principle of „socially empowering banking‟ and seeks to deliver innovative financial
solutions for household, small and medium enterprises.
The Bank, is incorporated in 1938, and is listed on the NSE and the BSE. It has a track record of
uninterrupted profits and dividends for four decades. The J&K Bank is rated P1+, indicating the
highest degree of safety by Standard & Poor and CRISIL.
VISION
“To catalyze economic transformation and capitalize on growth.”
J&K BANK‟S vision is to engender and catalyze economic transformation of Jammu and
Kashmir and capitalize from the growth induced financial prosperity thus engineered.

16
The Bank aspires to make Jammu and Kashmir state the most prosperous state in the country, by
helping create a new financial architecture for the J&K economy, at the center of which will be
the J&K Bank.
MISSION
The mission of J&k bank is two-fold: To provide the people of J&K international quality
financial service and solutions and to be a super-specialist bank in the rest of the country.
AWARDS AND RECOGNITION
Business Today - KPMG study
•The Bank was ranked one of the best banks in the Best Bank Study 2011 done by Business
Today and global Consulting firm KPMG (BT-KPMG). The study ranked the Bank No. 1 on the
basis of NPA coverage ratio which stood best in the industry as at the end of March 2011.
•The Bank was ranked 15th in large banks category in the country based on the last year's
growth, quality of assets, productivity and efficiency parameters, leaving state bank of India,
federal bank, HSBC Bank, Standard Chartered bank and other major banks far behind.
FE India's best banks Award
The Bank won the prestigious Financial Express Best Banks Award in the Old Private Sector
Banks Category for Scaling up its business and strengthening the balance sheet for the year
ended March 2011. The Award is the recognition of the Bank's innovative approach towards the
business, both within and outside J&K.
Dun & Bradstreet Banking Awards
J&K Bank was awarded the Best Bank in the prestigious 'Dun & Bradstreet (D&B) - Polaris
software Banking Awards 2011 in the category for "Rural Reach - Private Sector".
HUDCO award for J&K Bank
The Housing and Urban Development Corporation (HUDCO), a Government of India enterprise,
has felicitated J&K Bank chairman and CEO Parvez Ahmed for "outstanding contribution
through innovative initiatives in the housing sector under the Pradhan Mantri Awas Yojana

17
(Urban)". The Housing and Urban Development Corporation (HUDCO), a Government of India
enterprise, has felicitated J&K Bank chairman and CEO Parvez Ahmed for "outstanding
contribution through innovative initiatives in the housing sector under the Pradhan Mantri
Awas Yojana (Urban)".
Europe Business Assembly award for best enterprise
Jammu and Kashmir Bank, the only listed company of the state, has bagged the prestigious Best
Enterprise award from the Europe Business Assembly (EBA) in London, a bank spokesman said
today. The spokesman said that the award has come as a strong international recognition for
the bank’s enterprising performance in the field of banking and finance.
CNBC TV18 India Best Bank and Financial Institution Awards.
The Bank was awarded as the “Best Bank” in the “Old Private Sector Bank” category at the
CNBC TV18 India Best Bank and Financial Institution Awards for FY12. The distinction of
being the “Best Bank” in the “Old Private Sector Bank” category has been accorded to J&K
Bank by a panel of distinguished jurors consisting of Mr. Jagdish Capoor, former Deputy
Governor Reserve Bank of India, former Chairman of HDFC Bank and former Chairman of
BSE, Mr. A. K. Purwar, Chairman of India Venture Advisors Pvt. Ltd & former Chairman of
State Bank of India, Mr. H. N. Sinor, CEO, Association of Mutual Funds of India, former CEO,
Indian Banks Association and former Managing Director of ICICI and Mr. M. V. Nair, former
Chairman, Union Bank of India.
Sunday Standard FINWIZ Best Bankers Award
The Bank was awarded „Best Banker in Financial Inclusion and Customer Friendliness‟ and
declared runner up for „Best Banker in Priority Sector Growth and Agricultural Credit‟.

18
SERVICES PROVIDED BYJ&K BANK
The J&K Bank is the organization that is serving the people over the decades. This is the only
organization in the valley, which has a major contribution towards the economy of J&K state. It
is the J&K Bank who had lifted the people of J&K for the extreme poverty to the leading
business of the valley. Examples are Kanwal Spices.
The J&K Bank has always tried to provide efficient and better service to the customers. The J&K
bank is trying to provide the qualitative services to its customers. The bank has installed a
network of about 200 ATMs both Off & On site at various centers across the country. Besides,
Anywhere Banking and Tele-Banking services are available at various locations. The Central
DATA centre of the bank has been set up with Finacle - as core banking solution. J&K Bank is
the only bank in the country that has taken an initiative by establishing Khidmat Centers all over
the state where all e-services are provided to the people. The rollover of bank on the data center
has already begun. With the commencing of the said Data Centre, the Bank is also offering
Internet Banking to its customers. Anywhere banking is presently available almost at all centers
and with the completion of interconnectivity; the said facility will be made available from all its
computerized branches. Tele banking is available at most of the centers. Though, with the
increase in the number of customers the bank is going to facilitate its customers with Tele-
banking facilities with ease.
The bank introduced new value added floating rate deposit schemes viz., Super Earner Deposit
Scheme‟ and „Super Reinvestment Deposit Scheme‟ to add to the options/choices available to
the customers. Bank also introduced another new deposit product under the name and style of
„Mehendi Deposit Scheme‟ targeted for girl child.
The scheme has also value-added features and a free accidental insurance cover. The bank
continued its emphasis on maintaining high standards of service to its customers. In this
direction, the bank introduced various hi-tech and customer friendly products providing value
added services to achieve customer satisfaction. Customer complaints received are dealt
promptly and expeditiously. The bank is a member of the Banking Codes and Standards Board

19
of India and has adopted „Code of Bank‟s Commitment to Customers‟, a voluntary code
providing protection and „Right to Know‟ to the customers. The bank has established a 24 X 7
help desk to address customer queries and the desk is slated to be converted into a full fledged
call centre in 2007-08. The bank is also keenly pursuing for ISO 9000 certification for it's
customer service.
The bank has revamped its delivery channels and added „Business Development and Promotion
Centre‟s‟ (BDPCs) with an aim to get closer to and provide hassle-free service to the customers.
Marketing managers and business promotion officers have been placed in all the zones for
execution of the marketing initiatives.
LOAN FACILITIES GIVEN BY THE BANK
The different types of loans provided by the bank to its customers as per their requirement are:
•Educational Loan
•House Loan
•Car Loan
•Consumer Loan
•Dastkar Finance Scheme
•Craft Development Scheme
•Khatamband Finance Scheme
•Roshni Financing Scheme
PersonalLoanScheme:
In addition to above products JK bank also extend “Personal Loan Facility” for general public,
which covers the following segments.
•Housing Loan Scheme.
•Consumption Loan Scheme.
•Car Loan Scheme.

20
•Education Loan Scheme.
•Consumer Loan Scheme.
•Loan for financing of School buses.
Risk Management
The bank continued to focus on risk management on an enterprise wide basis and developing
Integrated Risk Management Systems for efficient management of various risks viz. Credit,
Market and Operational. The bank has taken the following initiatives for strengthening risk
management practices in line with business strategies as also to achieve compliance with
industry best practices and regulatory requirements.
Credit Risk: The bank has focused on improving the credit appraisal and approval processes.
New standardized appraisal formats have been introduced in the Corporate and SME segments.
Centralized processing of credit proposals has been introduced to separate the business
development and credit appraisal system. To bring objectivity to the credit risk assessment,
eligible borrowers in corporate and SME segments are proposed to be brought under the internal
credit rating system, which is in the final phase of customization and was operational during
2007-08. Credit Audit / Loan Review Mechanism have been Introduced for standard accounts of
Rs. 5 Crore and above and identified weak accounts of Rs. 1 Crore and above with elevated risk
characteristics. It would help to improve the credit quality and manage credit risk proactively.
The bank is also doing periodic parallel runs of Standardized Approach for credit risk
measurement as per regulatory guidelines.
Market Risk: The bank is implementing the recommendations of the consultants engaged by the
bank for developing a cohesive integrated risk management system particularly in relation to
interest rate risk quantification techniques, liquidity management and reporting systems. With an
endeavor to further improve our Asset Liability management and thereby the market risk
management, the bank has switched over to Duration Gap Analysis instead of the Traditional
Gap Analysis. With these systems in place, the bank has contained market risk particularly on
investment portfolio by reducing the non-SLR bonds and debentures portfolio and the duration
of overall investment portfolio.

21
Operational Risk: The bank has constituted an Operational Risk Management Committee
(ORMC) at the apex level to monitor progress on operational risk management. A
comprehensive policy for Disaster Management and Business Continuity Plan (BCP) has been
formulated. The bank has already initiated identification of operational risk areas of business
units, capturing various operational risk events and analyzing their causative factors.
Migration to Basel II: The bank has geared up „Revised Capital Adequacy Norms‟ in
March 2009 that was time schedule set out in RBI guidelines on the subject. Defining and
restructuring the management information system for this purpose has already been initiated.
J&K Bank Current Performance
J&K bank has shown profitability for the 8th straight quarter and posted a net profit of Rs
465.00 crore in the last fiscal, bank official said Jammu and Kashmir Bank is firmly moving on a
path towards growth despite some of the recent events, Financial Commissioner, Finance, Arun
Kumar Mehta said Tuesday.
The bank has shown profitability for the 8th straight quarter and posted a net profit of Rs
465.00 crore in the last fiscal, bank officials said. The operational performance of the bank with
regard to all the banking parameters has been satisfactory with the figures of advances and
deposits during the five months of the current fiscal showing an increase of Rs 900.00 crore and
Rs 2,030 crore, respectively from those over the corresponding period during the last fiscal,
Mehta said. This was revealed in a meeting held on Wednesday by the Financial Commissioner,
Finance with the J&K bank officials.
While informing that the aggregate credit and deposits have grown substantially year on year
(YoY) basis, CMD J&K Bank, RK Chibber, indicated that the bank has shown YoY credit growth of
16 per cent, which is indicative of a robust growth momentum. Sharing the details of the risk
management framework and NPA provisioning put in place by the bank, Chibber stated that the

22
bank's internal controls and processes have been aligned with the industry's best practices and
RBI's directives and that there is adequate provisioning for NPAs.
While informing that the bank is operating with a better than industry average net interest
margin of 3.84 per cent, Chibber revealed that the bank has shown profitability for the 8th
straight quarter and posted a net profit of Rs 465.00 crore in the last fiscal.
Assuring the CMD of the bank of the government's full support for its growth initiatives, he
advised that the bank should improve the bank-customer interface to make dealing with the
bank healthy experience for its vast customer base. Chibber further stressed upon the CMD
Bank to evolve a communication strategy across multiple media and marketing platforms to
dispel the misinformation about the bank.
Financial Commissioner, Finance assured that the Government of J&K, holding a majority stake
of 59 per cent in the bank, and J&K Bank will continue to work together to fulfil the aspirations
of 12 million account holders of the bank who have reposed their trust in the bank.
CHAPTER 5: RESEARCH DESIGN
The study is exploratory in nature. Exploratory research refers to the that type of research where
the researcher aims at getting new insights into the phenomenon.
Statement of the Problem

23
My study broadly attempts to determine how Non Performing Asset (NPA) are managed by J&K
Bank. Also giving suggestion to the bank on how to reduce NPA.
Objectives of the Study
1. To understand the concept of NPA.
2. To analyze the impact of non- performing assets on banking sector.
3. To study the reason for an asset becoming NPA
4. To analyze the volume of NPA of JK bank ltd with other Banks.
Need of the Study
The non-performing assets that are not able to generate income for the bank are the great threat
for the banking institution. Rather than generating profit for the bank, NPA drains off the income
earned by the other performing asset by the way of paying interest to the real owner of there
sources. It affects the overall profitability of the bank adversely by affecting the return on equity
and return on asset. There are certain ways through which it affects the financial institutions are
as follows:
Thus, the need of the study of the NPA is must necessary due to these reasons. These reasons are
the crucial for any bank at present. One has to realize these matters and has to take corrective
action against NPA reasons, as for as possible one has to convert all the NPA accounts into PA
accounts. As far as the importance of the study is concern, without the study, one can’t
identifythe whole gamut of the NPA. To know, how the account is becoming NPA is must
necessary.
After identifying the reason behind the particular NPA account, one can go for a step ahead.
Thatmeans for the step of how to convert into PA and how to prevent other account from
becoming NPA.

24
✓ Type of Data :- Secondary Data
✓ Sampling Technique :- Comparative NPA Analysis
✓ Sample Size :- Last 5 years NPA management data.
LIMITATIONS OF THE STUDY
Every research suffers from one or the other limitation. The limitations from which my study
suffered is Time allowed for the study was short i.e. for the period of 2 months. This limitation
narrowed the scope of the study. And I'm fully dependent on the company to provide secondary
data.

25
CHAPTER 6: DATA ANALYSIS AND INTERPRETATION
Annual Report of NPA of J&K Bank for the year 2013-14 :-
S. No. Particulars 2013-14 (in crore)
i) Net NPA to Net Advances (%) 0.22%
ii) Movement of NPA's (Gross)
a) Opening Balance 43

26
b) Additions during the year 4100
c) Reductions during the year 2095
d) Closing Balance 8342
iii) Movement of Net NPA's
b) Additions during the year 31953
c) Reductions during the year 2095
iv) Movement of provisions for NPA's
(Excluding provision on Standard Asset)
b) Provisions made during the year 108
c) Write-off / Write-back of Excess Provision 11
Interpretation :-
*Net NPA has been arrived at after adding net interest suspense of `3.99 Crores.(Previous year
`0.61 Crores) and net ECGC claims of `1.03 Crores (Previous year `2.37 Crores) and reducing
Interest Capitalization of `6.88 Crores (previous year 11.70 Crores).**Including floating
provision of `52.90 Crores. The Information regarding movement of Net NPA’s has been
compiled at Corporate Office and relied on Auditor.
i) Net NPA to Net Advances (%) 2.77
a) Opening Balance 783.42

27
b) Additions during the year 2525.80
c) Reductions during the year 545.14
d) Closing Balance 2764.08
b) Provisions made during the year 813.18
c) Write-off / Write-back of Excess Provision 0.00
Interpretation :-
*Net NPA has been arrived at after adding net interest suspense of ` 0.91 Crores.(Previous year `
3.99 Crores) and net ECGC claims of ` 0.75 Crores (Previous year ` 1.03 Crores) ,DIFV ` 14.74
Crores and reducing Interest Capitalization of `18.57 Crores (previous year ` 6.88 crores).
**Including floating provision of ` 17.73 Crores. Information regarding movement of Net
NPA’s has been compiled at Corporate Office and relied upon by the Auditors.

28
Interpretation :-
*Net NPA has been arrived at after adding net interest suspense of ` 0.00 Crores. (Previous year `
0.91 Crores) and net ECGC claims of ` 3.63 Crores (Previous year ` 0.75 Crores), DIFV ` 0.14
Crores and reducing Interest Capitalization of ` 28.21 Crores (previous year ` 18.57).
**Including floating provision of ` 348.72 Crores (Previous year ` 17.73Crores) Information
regarding movement of Net NPA’s has been compiled at Corporate Office and relied upon by the
Auditors.

29
Interpretation :-
*Net NPA has been arrived at after adding net interest suspense of ` 0.00 Crores. (Previous year `
0.00 Crores) and reducing net ECGC claims of ` 6.07 Crores (Previous year ` 3.63 Crores), DIFV
` 27.58Crores and Interest Capitalization of ` 22.83 Crores (previous year ` 28.21 Crores).
**Including fl oating provision of ` 348.72Crores (Previous year ` 348.72Crores) Information
regarding movement of Net NPA’s has been compiled at Corporate Offi ce and relied upon by
the Auditors.

30
Interpretation :-
*Net NPA has been arrived at after adding net ECGC claims of ` 11.54Crores, Interest
Capitalization of ` 40.56 Crores & reducing DIFV of ` 6.07 crores
**Including fl oating provision of ` 348.72Crores (Previous year ` 348.72Crores).
Information regarding movement of Net NPA’s has been compiled at Corporate Offi ce and
relied upon by the Auditors.

31
Interpretation :-
*Net NPA has been arrived at after adding net interest suspense of `0.00 Crores, Write-off/OTS
of ` 1297.75 crores and by reducing net ECGC claims of ` 2.25Crores, Net Interest Capitalization
of `1.62 Crores & reducing DIFV of `6.55 crores.
**Including floating provision of `348.72Crores (Previous year `348.72Crores).
Information regarding movement of Net NPA’s has been compiled at Corporate Office and
relied upon by the Auditors.
Table showing Gross NPA to Gross Advance Ratio over last 5 years financial year :-
YEAR NPA
2014-2015 5.97
2015-2016 8.32
2016-2017 11.20
2017-2018 9.96
2018-2019 8.97

32
2014-15 2015-16 2016-17 2017-18 2018-19
NPA 5.97 8.32 11.2 9.96
5.97
8.32
11.2
9.96
0
2
4
6
8
10
12
14
Axis
Title
NPA

33
Table showing Net NPA to Net Advance Ratio over last 5 years financial year :-
YEAR NPA
2014-2015 2.77
2015-2016 4.31
2016-2017 4.87
2017-2018 4.90
2018-2019 4.89

34
Table showing mounting Gross NPA level of J&K Bank in crore :-
YEAR NPA
2014-2015 2764
2015-2016 4368
2016-2017 6000
2017-2018 6006
2018-2019 6221

36
Dividend paid to shareholders from 2011-2016 :-
Years %age of dividend Price per share
2010-11 260% 2.60
2011-12 335% 3.35
2012-13 500% 5.00
2013-14 500% 5.00
2014-15 210% 2.10
2015-16 175% 1.75
Interpretation:-
The above analysis depicts that The dividend paid for 2010-11, 2011-12, 2012-13 and 2013-14
was 260 per cent (that is, Rs 2.60 per share), 335 per cent (that is Rs 3.35 per share), 500 per cent
(that is, Rs 5.00 per share), 500 per cent(that is, Rs 5.00 per share).The dividend paid for 2014-
15 is 210 percent compared to 2013-14 indicates a net decrease of 58 per cent over the previous
year. While as dividend paid for 2015-16 is 175 percent , when compared to 2013-14 indicates a
net decrease of 65 percent.

37
Comparing the Gross NPA's and Net NPA's of J&K Bank with other Indian Bank :-
NAME OF THE
BANK
GROSS NPA‟S % NET NPA‟S %
2016-17 2017-18 2018-19 2016-17 2017-18 2018-19
J&K BANK 11.20 9.96 8.97 4.87 4.90 4.89
STATE BANK OF INDIA 6.90 10.91 7.53 3.71 5.73 3.01
ICICI BANK 7.89 8.84 6.70 4.89 4.77 2.06
AXIS BANK 5.04 6.77 5.26 2.11 3.40 2.04
CANARA BANK 9.63 11.84 8.83 6.33 7.48 5.37
CENTRAL BANK OF
IND 17.81 21.48 19.29 10.20 11.10 7.73
UCO BANK 17.12 24.64 25.00 8.94 13.10 9.72
CORPORATION BANK 11.70 12.49 15.35 8.33 6.92 5.71
BANK OF INDIA 13.22 16.58 15.84 6.90 8.26 5.61
INDIAN BANK 7.49 7.39 7.12 4.41 3.83 3.75
PNB 12.53 18.38 15.50 7.81 11.24 6.56
HDFC BANK 1.05 1.30 1.36 0.33 0.40 0.39
SOUTH INDIAN BANK 2.45 3.59 4.92 1.45 2.60 3.45
FEDERAL BANK 2.33 3.00 2.92 1.28 1.69 1.48
DENA BANK 10.00 16.00 22.00 6.00 11.00 12.00
KARNATAKA BANK 4.21 4.92 4.41 2.64 2.96 2.95
Interpretation :- By seeing the above table, it can be interpreted that the Gross NPA and Net
NPA level is moderate i.e. neither too good nor too bad , comparing with the other Indian Bank.
The best performing Bank is HDFC Bank with Gross NPA value of 1.35% only for the year
2018 -19 and the worst performing Bank is UCO Bank with Gross NPA value of 25.00% for the

38
year 2018 - 19. While J&K Bank is performing average at the rate of 8.97% for the year 2018-
19.
REASONS FOR RISE IN NPAs OF J&K BANK LTD :-
The banking sector has been facing the serious problems of the rising NPAs. But the problem of
NPAs is more in public sector banks when compared to private sector banks and foreign banks.
The NPAs in PSB are growing due to external as well as internal factors.
External Factors :-
Ineffective recovery tribunal: The Govt. has set of numbers of recovery tribunals, which works
for recovery of loans and advances. Due to their negligence and ineffectiveness in their work the
bank suffers the consequence of non-recover, their by reducing their profitability and liquidity.
Willful Defaults: There are borrowers who are able to payback loans but are intentionally
withdrawing it. These groups of people should be identified and proper measures should be taken
in order to get back the money extended to them as advances and loans .
Natural calamities: This is the measure factor, which is creating alarming rise in NPAs of the
PSBs. every now and then India is hit by major natural calamities thus making the borrowers
unable to payback there loans. Thus the bank has to make large amount of provisions in order to
compensate those loans, hence end up the fiscal with a reduced profit. Mainly ours farmers
depends on rain fall for cropping. Due to irregularities of rain fall the farmers are not to achieve
the production level thus they are not repaying the loans. It could be well witnessed by the fact
that one of the strong reasons for poor performance in NPAs of jk bank was Kashmir hit by
floods.
Industrial sickness: Improper project handling , ineffective management , lack of adequate
resources , lack of advance technology , day to day changing govt. Policies give birth to
industrial sickness. Hence the banks that finance those industries ultimately end up with a low
recovery of their loans reducing their profit and liquidity.

39
Lack of demand: Entrepreneurs in India could not foresee their product demand and starts
production which ultimately piles up their product thus making them unable to pay back the
money they borrow to operate these activities. The banks recover the amount by selling of their
assets, which covers a minimum label. Thus the banks record the non recovered part as NPAs
and has to make provision for it.
Change in Govt. policies: With every new govt. banking sector gets new policies for its
operation. Thus it has to cope with the changing principles and policies for the regulation of the
rising of NPAs. e.g. The fallout of handloom sector is continuing as most of the weavers Co-
operative societies have become defunct largely due to withdrawal of state patronage. The
rehabilitation plan worked out by the Central govt. to revive the handloom sector has not yet
been implemented. So the over dues due to the handloom sectors are becoming NPAs.
Internal Factors :-
Defective Lending process: There are three cardinal principles of bank lending that have been
followed by the commercial banks since long. i) Principles of safety ii) Principle of liquidity iii)
Principles of profitability. Principlesof safety means that the borrower is in a position to repay
the loan both principal and interest. The repayment of loan depends upon the borrowers:
a). Capacity to pay
b). Willingness to pay.
Capacity to pay depends upon:
1. Tangible assets. 2. Success in business
Willingness to pay depends on:
1.Character 2. Honest 3. Reputation of borrower

40
The banker should, therefore take utmost care in ensuring that the enterprise or business for
which a loan is sought is a sound one and the borrower is capable of carrying it out successfully.
He should be a person of integrity and good character.
Inappropriate technology: Due to inappropriate technology and management information
system, market driven decisions on real time basis cannot be taken. Proper MIS and financial
accounting system is not implemented in the banks, which leads to poor credit collection, thus
NPA. All the branches of the bank should be computerized.
Improper SWOT analysis: The improper strength, weakness, opportunity and threat analysis is
another reason for rise in NPAs. While providing unsecured advances the banks depend more on
the honesty, integrity, and financial soundness and credit worthiness of the borrower.
• Banks should consider the borrowers own capital investment.
• It should collect credit information of the borrowers from bankers, Enquiry from
market/segment of trade, industry, business, From external credit rating agencies.
• Analyze the balance sheet True picture of business will be revealed on analysis of profit/loss
a/c and balance sheet.
• Purpose of the loan when bankers give loan, he should analyze the purpose of the loan. To
ensure safety and liquidity, banks should grant loan for productive purpose only. Bank should
analyze the profitability, viability, long term acceptability of the project while financing.
Poor credit appraisal system: Poor credit appraisal is another factor for the rise in NPAs. Due
to poor credit appraisal the bank gives advances to those who are not able to repay it back. They
should use good credit appraisal to decrease the NPAs.
Managerial deficiencies: The banker should always select the borrower very carefully and
should take tangible assets as security to safe guard its interests. When accepting securities banks
should consider the 1.Marketability 2. Acceptability3. Safety4. Transferability. The banker
should follow the principle of diversification of risk based on the famous maxim “do not keep all

41
the eggs in one basket”; it means that the banker should not grant advances to a few big farms
only or to concentrate them in few industries or in a few cities. If a new big customer meets
misfortune or certain traders or industries affected adversely, the overall position of the bank will
not be affected. Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand loom
industries. The biggest defaulters of OSCB are the OTM(117.77lakhs), and the handloom sector
Orissa hand loom WCS ltd (2439.60lakhs).
Absence of regular industrial visits the irregularities in spot visit also increases the NPAs.
Absence of regularly visit of bank officials to the customer point decreases the collection of
interest and principals on the loan. The NPAs due to willful defaulters can be collected by
regular visits.
PROBLEMS IN LOAN RECOVERY:-
1. Inadequate security and Erosion in value of security: Generally, banks tend to find that there is
a major gap in the valuation of the security, as carried out at the time of providing the loan and at
the time of loan recovery. The value of the security has generally deteriorated over the period

42
and according to experts, it may further deteriorate by almost 10-50% if quick action is not taken
for its immediate sale.
2. Political interferences: Political interference in the day -to-day functioning of public sector
banks created a number of problems for them. The populist policies of the national level
politicians, such as waiver in repayment only added to these problems.
3. Slow legal procedure: Before the establishment of DRTs in 1993, the banks had to approach
the normal courts to recover their dues. There were provisions under various acts which
hampered the smooth takeover and sale of secured assets. The legal process could take years to
be completed, with the borrower having ample scope for delaying the takeover of assets. A
number of loopholes provided the borrower with opportunities to delay or ignore repayment of
loans. During this period, it was said by some unscrupulous businessmen that - "there is no
difference between equity and debt - you never have to repay either of them ".
4. Swamping of Debt Recovery Tribunals(DRTs) with cases: Once DRTs were established to
quicken the pace of recovery procedures, the pace of recovery improved quite a bit. However,
the DRTs were soon drowned in the ever increasing number of cases. The pending number of
cases with the DRTs increased manifold during the period 1993-2002.
CHAPTER 7: FINDINGS AND RECOMMENDATIONS
Various are the findings I obtained after doing my Data Analysis :-
i). J&K bank has witnessed highest ratio of Non-Performing Assets (NPA) to net advances
stood as 4.90% on 31st march 2018. Compared with 2.77% as on 31st 2.77% as on 31st
march 2015.

43
ii). J&K bank has witnessed highest ratio of Non-Performing Assets (NPA) to net gross
advances stood at 11.20% as on 31st march 2017. Compared with 5.97% as on 31st
march 2015.
iii). JK Bank has paid lowest dividend to its shareholders from the last 5 years in the year
2015-16 at 175% (1.75 Rs. Per share) pertaining to other relevant previous years as:
2014-15 at 210% (2.10 Rs. Per share), 2013-2014 at 500% (5.Rs per share), in 2012-
2013 at 500% (5 Rs. Per share) and in 2011-2012 at 335% (3.35 Rs. Per share).
iv). While comparing J&K Bank with other Indian Bank, I've found out that JK Bank has
done quite an improvement in recovering NPA i.e. current NPA is 8.97 but still they
have to adopt many measures to reduce it. As we can see the gross NPA of HDFC is
really less i.e. only 1.36 , it is believed that any gross NPA percentage less then 1% is
considered good and ideal.
v). The net NPA was maximum in 2017-2018 that is 4.90% and it was minimum in 2014-
2015 that is 2.77%.
vi). The Gross NPA ratio was minimum in 2014-2015 that is 5.97% and it was maximum in
2016-2017 that is 11.20%.
vii). Political instability is more affected to become an account NPA as respondents strongly
agree that they are affected by the shutdown of their business.
viii). Natural calamities is more affected to become an account as NPAs which could be
clearly seen in the previous year ending 31st March 2019 from deposits to Net NPA
level.
On the basis of findings following recommendation has been provided the concern:-
i). The bank’s Management Committee should thoroughly investigate any investment before
committing money to it. It should learn about the investment, check and verify its legitimacy
and follow-up on the background of the individual or organization.
ii). Appropriate credit appraisal and risk management mechanism is badly needed. The bank’s
Integrated Risk Management Committee should put into operation an early warning system,

44
appoint a Nodal Office for recovery and monitor recoveries efficiently and effectively. It
should recognize financial distress early, take prompt steps to resolve it and ensure fair
recovery for lenders/investors
iii). The ‘Bank Management’ should pursue a policy that would enable the mobilization of low-
cost deposits and their deployment in highly productive, but credit-starved sectors of the J&K
economy. These sectors, apart from being high-yielding, would accelerate the desired
diversification of the Bank’s Credit Portfolio and also help the bank’s priority sector
obligations.
iv). A separate periodic audit, under the supervision of bank’s Audit Committee, is required for
NPAs and the external auditor should periodically submit a special report.
v). More importantly, the government which is the main stakeholder to the tune of 53 per cent
equity holdings, should concern itself first why bank’s NPAs are mounting and accordingly
should take appropriate measures for the purpose. Unfortunately, bureaucracy is aware of
what is happening in the organization but it does not bother to see the problems in it.
vi). A careful and rigorous appraisal of bank assets quality in relation to financial situations has
to be made regularly.
vii). The overall Banking Environment should be improved through reduction of Government
intervention in Credit Management.
viii). The Jammu and Kashmir bank ltd should lay strategies to boost doubtful assets as NPA
volume of these assets is increasing year by year.
ix). The rate of interest charged should be brought down so the Bank should work only on the
strategies to fix up the competitive interest Rates to satisfy the customers.
x). The bank should validate the financial capability of the customers at present and future before
issuing the loans.
xi). The bank should employ a credit monetary policy that could analyze the reasons for high
NPA. The credit section should carefully watch the warning signals viz. Non Payment of
Quarterly interest, Dishonor of cheque etc.
xii). The Bank should practice loan screening before advancing loans to Beneficiaries to vacillate
the necessity of Loan.

45
xii). Bank should employ the following methods for management of NPA :
• Compromise with customer
• Legal remedies
• Regular training program to Employees
• Recovery Camps
• The Bank should maintain close contact with the borrowers
• Proper weightage should be given to the location, condition and marketing title and
possession of security mortgage
• Bank should maintain a special recovery cell for recovery of Non-Performing Assets
• Conduct persuasive action to customers having the potential to pay their Loan
• Operating staff credit skills should be upgraded
• Bank should prevent diversion of funds by the promoters
• The Bank should strengthen banking supervising, accounting and auditing
standards.
CHAPTER 8: CONCLUSION
Risk is part of lending, but it can be minimized by taking precautions. NPA’s can be
reduced, if appropriate steps are taken at appropriate time. Hence banks must take appropriate
steps for reducing NPA’s. It is not possible to eliminate totally NPAS in the banking business but
can be minimized. It is always wise to follow the proper policy appraisal, supervision and
follow-up of advances to avoid NPAs. The banks should not only take steps for reducing present
NPAs, but necessary precautions should also be taken to avoid future NPAs. Banks should
reduce their bench marks prime lending rate and encourage credit to the key sectors

46
For any bank to serve in this competitive world it has to ensure its Non- Performing Assets are
minimizing by improving new strategies on credit collection from the customers
As per the analysis, Jammu and Kashmir Bank Ltd, Non - Performing Assets average level is
1.18% which is above the RBI permissible limit. But still it is acceptable while looking in the
competition in the market. A significant progress has been made till now in NPA management in
J&K bank ltd. But still a lot has to be done!
BIBLIOGRAPHY
Books
• Kothari C.R, Research Methodology: Methods and Techniques, New Age International,
2004.
• Malhotra Naresh K, Marketing Research- An Applied Orientation; Edition-Fourth;
Education India, 2010
Newspapers and Magazines
• Annual Reports of J&K bank ltd
• The Economic Times

47
• Business Standard
• Chronicle
• The Hindu
WEBSITES
• http://rbi.org.in/scripts/AnnualPublications.aspx?head=Trend and Progress of Banking in
India.
• http://rbi.org.in/scripts/AnnualPublications.aspx?head=Statistical Tables Relating to
Banks of India
• http://rbi.org.in/scripts/NotificationUser.aspx
• http://en.wikipedia.org/wiki/Banking_in_India
• http://www.ibef.org/industry/Banking.aspx
• http://www.bankingindiaupdate.com/general.html
• https://www.moneycontrol.com/india/stockpricequote//jammukashmirbank/JKB
• https://www.jkbank.com/investor/financials/annualReports.php

Npa management (finance project)

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Npa management (finance project)

Similar to Npa management (finance project) (20)

More from Suyash Prakash

More from Suyash Prakash (17)

Recently uploaded

Recently uploaded (20)

Npa management (finance project)