NPAs -causes

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Slide 1:

Non Performing Assets causes


NPAs Prevents or delays recycling of funds Denies income from the assets by way of interest Erodes profit by way of provisions


NPAs A kin to Diabetes As in Diabetics the aim and goal would then be to keep the incidence (of NPA) at the minimum for the simple reason you can never get away from it If an amount or portion of NPA gets out of hand, then it might signal the end of that bank

Case of XYZ Bank:

Case of XYZ Bank ROI of 5% NPA at 12% If total assets are Rs 150 crs Corporate income-Tax of 40% Entire profit of the bank will be wiped off if “X” % of its NPA turns into loss assets

J K Bank:

J K Bank Period Gross NPA Total Adv Net NPAs 31.3.2006 370.20 14483.00 133.90 31.3.2007 501.83 17080.00 193.60 Staggering fact is that major portion of these NPAs is in the doubtful category

Causes of NPAs:

Causes of NPAs Recovery of money has never been an easy experience for Banks As India’s legal system had so far been more geared to protect borrowers and not lenders Borrowers in India have been using thousands of delaying tactics to keep lenders at bay - where as private money lenders could use strong arm tactics to recover their dues from the defaultors Banks had practically no right except to slug it out through the legal means, which had been expensive and almost never ending

Causes of NPAs:

Causes of NPAs There had been nothing that a bank could do, after the money was disbursed to the borrowers, even if they wanted to get tough with the defaultors There had been very little outcome of the legal recourse adopted by Banks Banks wasted hefty sum of good money and time in recovering bad debts If at all there had been some recoveries in suitfiled accounts, it has been in NPAs with small amounts, which account for a fraction of the NPAs of the banks

Causes of NPAs:

Causes of NPAs Promoters of large companies borrowed huge sums of money from banks and often siphoned them off into unrelated business and private activities They built large villas/ Bunglows , purchased D&E segment cars, gained clout and became too big shots to be approached by Banks for repayment of their dues NIBM survey – large industries and medium industries account for more than 40% 0f total NPAs of Banks - When they found themselves cornered they used every trick and tactics to delay repayment of loans by getting cases lodged with BIFR for declaring their companies as sick units thereby getting themselves entitled to hefty concessions and rebated in interest and other charges with restructuring and rehabilitation packages involving high sacrifices on the part of the banks

Slide 9:

It is often said “one can see sick companies, closed factories but not sick promoters/borrowers”

Causes of NPAs:

Causes of NPAs Some foreign banks resorted to extra legal measures which had counter productive results on maintenance of law and order – RBI has come out strongly and directed not to make use of Muscle men for recovery of Loans

Major reason for mounting dud loans is ::

Major reason for mounting dud loans is : The moral degradation and ethical deficit that has strongly but surely creped into our social fiber and value system ; Otherwise in the land of gurus, saints and peers, this would not have happened. Instead the borrowers would have died to honour their word, commitments and promises made by them at the time of raising loans and advances and they would not have failed the bank to bleed this way


Causes The high level of NPAs is in fact a historical legacy due to lack of compliance of the borrowing covenants by the borrowers There had been a major lacuna in our credit recovery mechanism arising from inadequate legal provisions for foreclosures and bankruptcy and decrepit legal systems and procedures which failed even in the execution of decrees awarded by Hon’ble courts

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