...n Management of Non Performing Assets σ Abstract - In India the magnitude of the problem of bad debts was not taken seriously. Subsequently, following the recommendations of Narasimham committee and Verma committee, some steps have been taken to solve the problem of old NPAs in the balance sheets of the banks. It continues to be expressed from every corner that there has rarely been any systematic evaluation of the best way of tackling the problem. There seems to be no unanimity in the proper policies to be followed in resolving this problem. There is also no consistency in the application of NPA norms, ever since these have been recognized. Non Performing Assets are also called as Non Performing Loans. It is made by a bank or finance company on which repayments or interest payments are not being made on time. A loan is an asset for a bank as the interest payments and the repayment of the principal create a stream of cash flows. It is from the interest payments that a bank makes its profits. The problem of NPA is not limited to only Indian public sector banks, but it prevails in the entire banking industry. Major portion of bad debts in Indian Banks arose out of lending to the priority sector at the dictates of politicians and bureaucrats. If only banks had monitored their loans effectively, the bad debt problem could have been contained if not eliminated. The top management of the banks was forced by politicians and bureaucrats to throw good money...
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...| ANALYTICAL STUDY OF NPA OF THREE NATIONALISED AND THREE FOREIGN BANKS | | | Deep Majumder | Apeksha Shriyan | Non-performing Asset is an important parameter in the analysis of financial performance of a bank as it results in decreasing margin and higher provisioning requirements for doubtful debts. It affects the liquidity and profitability of the bank. The main objective of the present study is to find out the loop holes in the mechanism of controlling NPA. The data has been analysed by using tables and pie charts. The important point to be noted that if the level of NPA declines the profitability of the banks will increase. | INTRODUCTION The banking industry has undergone remarkable changes after the first phase of economic liberalization in 1991 and hence credit management. The primary function of the banks is to lend loans to various sectors such as agriculture, housing, personal and industry and to take deposits. Now the lending of the loans involves higher risk as there is always a risk of default involved. Now the present scenario of lending has changed as banks become more cautious about lending loans, the reason being the rising amount of non-performing assets. Earlier the Narasimham committee-I clearly pointed out that the reduced profitability of the banks are due to the NPA and thus recommended that it should be phased out. NON PERFORMING ASSET An asset, including a leased asset, becomes non- performing when it ceases to generate income...
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...Integrated Publishing association Review Article ISSN 2229 – 3795 Non performing assets: Issues, Causes and remedial Solution Poongavanam.S H.O.D., Department of Management studies, Ranippettai Engineering College, Thenkaddapanthangal, Walaja Taluk, Vellore District. -632513 Tamil Nadu. s.poongavanam@gmailo.com ABSTRACT The banking industry has undergone a sea change after the first phase of economic liberalization in 1991 and hence credit management. While the primary function of banks is to lend funds as loans to various sectors such as agriculture, industry, personal loans, housing loans etc., in recent times the banks have become very cautious in extending loans, this is due to mounting nonperforming assets (NPAs). Therefore, an NPA account not only reduces profitability of banks by provisioning in the profit and loss account, but their carrying cost is also increased which results in excess & avoidable management attention. Apart from this, a high level of NPA also puts strain on a banks net worth because banks are under pressure to maintain a desired level of Capital Adequacy and in the absence of comfortable profit level, banks eventually look towards their internal financial strength to fulfill the norms thereby slowly eroding the net worth. Considering all the above facts banking industry has to give more importance to NPA and to structure proper remedial solutions. Key words: Assets restructuring company, Global competition, Rate of return, Repayment schedule...
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...1.0 PRELUDE: Financial stability is considered as the first condition of sustained and rapid economic progress. Among various indicators of financial stability, banks’ non-performing loan (NPL) assumes critical importance since it reflects on the asset quality, credit risk and efficiency in the allocation of resources to productive sectors. Nonperforming loans (NPLs) refer to those financial assets from which banks no longer receive interest and/or installment payments as scheduled. They are known as non-performing because the loan ceases to “perform” or generate income for the bank. Choudhury et al. (2002: 21-54) state that the nonperforming loan is not a “uniclass” but rather a “multiclass” concept, which means that NPLs can be classified into different varieties usually based on the “length of overdue” of the said loans. NPLs are viewed as a typical byproduct of financial crisis: they are not a main product of the lending function but rather an accidental occurrence of the lending process (Woo, 2000: 2). This is because NPLs can bring down investors’ confidence in the banking system. Only for a few defaulting borrowers, the banks suffer, depositors suffer, performing borrowers suffer, shareholders suffer, Government suffers and consequently economy and the people of the country suffer. The latest data reveal that in Bangladesh banking sector the amount of NPL is Tk 2572.65 crores (7.17% of total loans) up to September 2011. The ratio of NPL was as high as 41.1% in 1999,...
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...AN INVESTIGATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS, MACROECONOMIC FACTORS, AND FINANCIAL FACTORS IN CONTEXT OF PRIVATE COMMERCIAL BANKS IN BANGLADESH by Syeda Zabeen Ahmed ID # 0120269 An Internship Report Presented in Partial Fulfillment of the Requirements for the Degree Bachelor of Business Administration INDEPENDENT UNIVERSITY, BANGLADESH April 2006 An investigation of the relationship between Non-performing Loans, Macroeconomic Factors, and Financial Factors in context of Private Commercial Banks in Bangladesh by Syeda Zabeen Ahmed ID # 0120269 has been approved April, 2006 _________________ Shubhankar Shil Lecturer School of Business Independent University, Bangladesh TABLE OF CONTENTS Page List of Tables Abstract 1. Introduction 2. Problem Statement 3. Purpose of the Study 4. Limitations of the Study 5. Research Timeline 6. Review of Literature 6.1 Non-performing Loans 6.2 Development of hypotheses 6.3 Macroeconomic factors and NPLs 6.4 Bank specific indicators and NPLs 6.5 Terms of Credit and NPLs 7. Methodology 7.1 Research Approach 7.2 Sampling Method 7.3 Measure of variables 7.4 Data Collection Procedure 7.5 Data Analysis 8. Results 8.1 Descriptive 8.2 Correlations 8.3 Regression 9. Significant of the Study 11. Conclusion Reference Appendix 1 I 1 1 2 2 3 3 3 4 5 6 7 7 8 8 8 8 9 9 10 10 11 12 13 13 14 16 List of Tables Page 1. Demographics of respondents 2. Occupational experience of respondents 3. Responsibility statements 4. Reliability...
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...[pic] http://mbanetbook.blogspot.com/ Project on Non Performing Assets in Banks CONTENTS |Chapter no. | Title |Page no. | | |Executive Summary |2 | |1 |General Introduction | | | |Introduction to the Topic |4 | | |Company Profile |6 | | |Non performing assets |10 | |2 | Research Methodology |32 | |3 | Data Analysis & Interpretation |38 | |4 | Findings, Suggestions & Conclusions |64 | |5 | Annexure: | | | |a) Bibliography ...
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...1.0 Introduction 1.1 Background of the study Private Commercial Banks (PCBs) started their journey in Bangladesh in 1982. Since then, they play a vital role in the economic development of the country. With the help of developed banking technologies and client- focused mentality, they try to ensure quality services in quick time to their customers as per their expectation. Their prudence in selecting appropriate borrowers and sector of providing loans and monitoring them closely has decreased the percentage of non-per forming loan. Besides, the prudent regulatory measure of the central bank including guidance regarding prudential norms of capital adequacy, classification of loans, on-site and off- site super vision have made the PCBs sound in Banking operation. For these reasons, they are found profitable in their business. Their exposure in respect of the cost of debt helps them to ensure higher profitability and their potentiality in the banking industry. An effectively functioning financial system requires a banking system that can earn a reasonable return by taking an acceptable level of risks. 2.0 Statement of the problem In order to survive in the long run, it is important for a bank to find out what are the factors influencing cost of debt so that it can take initiatives to increase its profitability and performance. Bank performance is also vitally important for all stakeholders, such as ...
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...NON-PERFORMING ASSETSCHALLENGE TO THE PUBLIC SECTOR BANKS INTRODUCTION After liberalization the Indian banking sector developed very appreciate. The RBI also nationalized good amount of commercial banks for proving socio economic services to the people of the nation. The Public Sector Banks have shown very good performance as far as the financial operations are concerned. If we look to the glance of the financial operations, we may find that deposits of public to the Public Sector Banks have increased from 859,461.95crore to 1,079,393.81crore in 2003, the investments of the Public Sector Banks have increased from 349,107.81crore to 545,509.00crore, and however the advances have also been increased to 549,351.16crore from 414,989.36crore in 2003. The total income of the public sector banks have also shown good performance since the last few years and currently it is 128,464.40crore. The Public Sector Banks have also shown comparatively good result. The gross profits of the Public Sector Banks currently 29,715.26crore which has been doubled to the last to last year, and the net profit of the Public Sector Banks is 12,295,47crore. However, the only problem of the Public Sector Banks these days are the increasing level of the non performing assets. The non performing assets of the Public Sector Banks have been increasing regularly year by year. If we glance on the numbers of non performing assets we may come to know that in the year 1997 the NPAs were 47,300crore and reached to 80...
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...Stochastic frontier analysis of the efficiency of Nigerian banks Abstract Using the Stochastic Frontier Analysis (SFA) the efficiency of Nigerian banks was analysed. The result of the study proved that there is inefficiency in the Nigerian banking system and that the level of inefficiency ranged from 0 to 19 per cent of total cost. The study was able to derive the individual bank's level of inefficiency. Put differently, the study was able to derive the individual bank's level of efficiency. I. INTRODUCTION In the last three decades, as bank regulators open their financial Industries for competition and liberalisation, many banks operated at a level that is less efficient and profitable leading to unsoundness or distress in the industry; thus generating concerns and worries among the bank stakeholders. There are a large number of studies which employ models to explain inter-bank differences in earnings, bank efficiency and continuous existence (failure) in the United States of America and other developed countries of the world. Similar studies have not been carried out using data from emerging markets like Nigeria especially when viewed against the background of the statement of Barltrop and McNaughton (1992) that financial analysis should be done within the context of the particular country and economic environment as each country has a different economic environment, different regulatory and legal environment, different commercial practices, different accounting...
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...banking sector developed very appreciate. The RBI also nationalized good amount of commercial banks proving socio economic services to the people of the nation. The public Sector banks have shown very good performance as far as the financial operations are concerned. The total income of the public sector banks has also shown good performance since the last few years. The public sector Banks have also shown comparatively good result. The gross profits and the net profits of the Public Sector banks have been on a high from past few years. The private sector banks are also showing good results in case of profits. However, the only problem of the Scheduled Commercial Banks these days are the increasing level of the non performing assets. The Non-Performing Assets (NPAs) problem is one of the foremost and the most formidable problems that have shaken the entire banking industry in India like an earthquake. Like a canker worm, it has been eating the banking system from within, since long. It has grown like a cancer and has infected every limb of the banking system. At macro level, NPAs have choked off the supply line of credit to the potential borrowers, thereby having a deleterious effect on capital formation and arresting the economic activity in the country. At the micro level, the unsustainable level of NPAs has eroded the profitability of banks through reduced interest income and provisioning...
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...of Business Administration, University of Lagos, Akoka, Lagos. __________________________ ______________ DR. LEKAN OBADEMI DATE _______________________ ____________ PROF. W. IYIEGBUNIWE DATE HOD DEPARTMENT OF FINANCE _______________________ ____________ EXTERNAL EXAMINER DATE DEDICATION This project work is dedicated to the Glory of ALMIGHTY ALLAH (SWT) to Him I say as always; ALHAMDULILAHI ROBIL ALAMIN!!! Special dedication also goes to the memory of my late father; Alhaji R.S.A Aboyarin. I pray his soul finds forgiveness and mercy before Allah (Amin. ACKNOWLEDGEMENT CHAPTER ONE 1.0: INTRODUCTION AND BACKGROUND TO THE STUDY Banks are germane to economic development through the financial services they provide. Their intermediation role can be said to be a catalyst for economic growth and development. The efficient and effective performance of the banking industry over time is an index of financial stability in any nation. The extent to which a bank extends credit to the public for productive activities accelerates the pace of a nation’s economic growth and its long-term sustainability. Amongst the various functions of banks, the credit function of banks enhances the ability of investors to exploit desired profitable ventures. Kargi; (2011) referred to Credit creation as the main income generating activity of banks. However, it exposes the banks to credit risk...
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...Apulensis Series Oeconomica, 15(2), 2013, 594-604 ANALYSIS OF THE ROMANIAN BANKS’ PERFORMANCE THROUGH ROA, ROE AND NON-PERFORMING LOANS MODELS Adela Socol1 Adina Elena Dănuleţiu2 ABSTRACT: General assumption of this study is that the banks performance represents their ability to generate sustainable profitability and that banks’ profitability is one important issue of contemporary banking field, grace to its role in emphasizing of the financial soundness of banks, abreast to others indicators regarding to the capital adequacy or assets quality. The paper examines how is affected banking profitability (expressed through traditional measures of performance ROA - Return on Assets and ROE - Return on Equity) by the CRR Credit risk ratio in Romanian banking system during March 2008 - June 2013. We developed two regression models in order to study the dependence between mentioned variables. We found that ROA and ROE vary each of them depending on the CRR Credit risk ratio, which is expressed as the ratio of gross value of exposure to loans and related interest under “doubtful” and “loss” to total classified loans and related interest pertaining to non-bank loans, off-balance sheet items excluded. Keywords: ROA Return on Assets, ROE - Return on Equity, Credit risk ratio, Regression model JEL Codes: D12, C58, G21 Introduction Significant level of non-performing loans and faster cross-border deleveraging are considered the major weaknesses of the Romanian banking sector...
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...Subsequently, commercial banks were nationalized adding to their list additional objectives of optimizing social benefit and geographical expansion to meet the growing needs of people. Globalization opened gates to increased competition by the entry of foreign banks. The changes that are taking world wide continued to give shocks to the banking system which resulted in an expansion of banking services both in range, volume and non-performing assets. Gauging efficiency of commercial banks is an important issue to bank management and the policy maker. Before this task is initiated a commercial bank has to be modeled appropriately to meet the needs and objectives of the analyst. To model a commercial bank two approaches followed mostly are the intermediation and production approaches. Under the intermediation approach financial institutions are viewed intermediate funds between depositors and borrowers (Piyu, Y., 1992). Banking business has to satisfy both the users and suppliers of bank funds. The intermediation approach is also known as the asset approach. In production approach a commercial bank’s resources produce services to the customers (Berg et.al, 1991; Berg et.al. 1993; Parson et.al, 1993; Shaffnit et.al, 1997). The basic difference is that in production approach deposits are treated as output, where as it has input status in intermediate approach. The user cost approach or profit approach models a commercial bank differently. According to user cost approach...
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...servicing was possible only with high incomes or assets value of the debtor, and as soon as the growth of income or assets stopped, the debtors have faced problems in servicing their debts: in spite of the decline in income and assets value of debt borrowers’ debt during the crisis did not reduce. As a result, the debtors faced decoupling of debts from assets. According to Minsky decoupling between firms’ debt and assets, or the debt crisis caused by the cyclical nature of economic development: at...
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...3-08-14-025 BATCH - 14 DEPARTMENT OF MANAGEMENT STUDIES FACULTY OF BUSINESS STUDY UNIVERSITY OF DHAKA ASSIGNMENT – 1 General Principles of Bank Management A Bank manages its assets and liabilities in four ways. 1. Asset Management 2. Liquidity Management 3. Capital Adequacy Management 4. Liability Management 1. Asset Management Asset management is to acquiring assets with the highest return and the lowest risk. To maximize its profits, a bank must simultaneously seek the highest returns possible on loans and securities, reduce risk, and make adequate provisions for liquidity by holding liquid assets. Asset Management involves four basic principles: 1. Finding borrowers who will pay high interest rates but who are unlikely to default. Banks seek out loan business by advertising their borrowing rates and by approaching corporations directly to solicit loans. It is up to the bank’s loan officer to decide if potential borrowers are good credit risks who will make interest and principal payments on time. 2. Purchase securities with high returns and low risk. 3. Lower risk by diversifying - Diversifying the bank’s asset holdings to minimize risk: holding many types of securities and making many types of loans offers protection when there are losses in one type of security or one type of loan. In managing their assets, banks must attempt to lower risk by diversifying. They...
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