A Study of Non Performing Assets in Bank of Baroda

A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA

INTRODUCTION The three letters ―NPA‖ Strike terror in banking sector and business circle today. NPA is short form of ―Non Performing Asset‖. The dreaded NPA rule says simply this: when interest or other dues to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns to a non performing asset. The recovery of loan has always been problem for banks and financial institution. An asset becomes NPA when: 

Interest and/or instalment 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 90 days in respect of other accounts.

For any nation, banking system plays a vital role in the development of its sound economy. Banking is an important segment of the tertiary sector and acts as a back bone of economic progress. Banks are supposed to be more directl y and positively related to the performance of the economy. Banks act as a development agency and are the source of hope and aspirations of the masses. Commercial banks are the major players to develop the economy. A major threat to banking sector is prevalence of Non-Performing Assets (NPAs). NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholders‟ value. In present scenario NPAs are at the core of financial problem of the banks. Concrete efforts have to be made to improve recovery performance. The main reasons of increasing NPAs are the target-oriented approach, which deteriorates the

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qualitative aspect of lending by banks and willful defaults, ineffective supervision of loan accounts, lack of technical and managerial experti se on the part of borrowers. The purpose of the study is to identify the causes of loans becoming NPAs and to identify the action plan to reduce the NPAs in Bank of Baroda.

Definitions: An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A ‗ Non-Performing Non-Performing Asset‘ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‗past due‘ for a specified period of time. A non performing asset (NPA) is a loan or an advance where; i.

Interest and/or and/or installment of principal remain overdue for a period of more than 90 days in respect of a term loan,

ii.

The account remains ‗out of order ‗ for a period of more than 90 days ,in respect of an overdraft/cash credit (OD/CC),

iii.

The bill remains overdue for a period of more than 90 days in case of bill purchased or discounted,

iv.

the installment of principal or interest thereon remains overdue for two crop seasons for short duration crops,

v.

the instalment of principal or interest thereon remains overdue for one crop season for long duration crops,

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vi.

the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006.

vii.

in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative d erivative contract, if these remain r emain unpaid for a period of 90 days from the specified due date for payment.

In case of interest payments, pa yments, banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.

'Out o of O status: Order' s An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for six months as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order' .

‘Overdue’: Any amount due to the bank under any credit facility is ‗overdue‘ if it is not paid on the due date fixed by the bank.

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Problems due to NPA: 1. Owners do not receive a market return on their capital .in the worst case, if the banks fails, owners lose their assets. In modern times this may affect a broad pool of shareholders. 2. Depositors do not receive a market return on saving. In the worst case if the bank fails, depositors lose their assets or uninsured balance. 3. Banks redistribute losses to other borrowers by charging higher interest rates, lower deposit rates and higher lending rates repress saving and financial market, which hamper economic growth. 4. Nonperforming loans epitomize bad investment. They misallocate credit from good projects, which do not receive funding, to failed projects. Bad investment ends up in misallocation of capital, and by extension, labour and natural resources. Non Performing Asset may spill over the banking system and contract the money stock, which may lead to economic contraction. This spill over effect can channelize through liquidity or bank insolvency: a) When many borrowers fail to pay interest, banks may experience

liquidity shortage.

This can jam payment across the country, b) Illiquidity constraints bank in paying depositors .c) Undercapitalized banks exceeds the bank‘s capital base.

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Types of NPA A] Gross NPA B] Net NPA

A] Gross NPA: 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: Gross NPAs Ratio

Gross NPAs Gross Advances

B]

Net NPA:

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.

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It can be calculated by following: Net NPAs

Gross NPAs – Provisions Gross Advances - Provisions

Asset Classification: Categories of NPAs 

Standard Assets:

Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Here it is also very important that in this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end of financial year. If asset fails to be in category of standard asset that is amount due more than 90 days then it is NPA and NPAs are further need to c lassify in sub categories. Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the reliability of the dues: (1) Sub-standard Assets (2) Doubtful Assets (3) Loss Assets

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(1) Sub-standard Assets:--

With effect from 31 March 2005, a sub standard asset would be one, which has remained NPA for a period less than or equal to 12 month. The following features are exhibited by sub standard assets: the current net worth of the borrowers / guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full; and the asset has well-defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. (2) Doubtful Assets:--

A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, – on the basis of currently known facts, conditions and values – highly questionable and improbable. With effect from March 31, 2005, an asset would be classified as doubtful if it remained in the sub-standard category for 12 months. (3) Loss Assets:--

A loss asset is one which is considered as uncollectible and of such little value that its continuance as a bankable asset is not warranted- although there may be some salvage or recovery value. Also, these assets would have been identified as ‗loss assets‘ by the bank or internal or external auditors or the RBI inspection but the amount would not have been written-off wholly.

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A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA Impact of NPA on: 

Profitability:-

NPA means booking of money in terms of bad asset, which occurred due to wrong choice of client. Because of the money getting blocked the prodigality of bank decreases not only by the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in some return earning project/asset. So NPA not only affect current profit but also future stream of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in profitability is low ROI (return on investment), which adversely affect current earning of bank. 

Liquidity:-

Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to borrowing money for shot\rtes period of time which lead to additional cost to the company. Difficulty in operating the functions of bank is another cause of NPA due to lack of money. 

Involvement of management:-

Time and efforts of management is another indirect cost which bank has to bear due to NPA. Time and efforts of management in handling and managing NPA would have diverted to some fruitful activities, which would have given good returns. Now day‘s banks have special employees to deal and handle NPAs, which is additional cost to the bank. 

Credit loss:-

Bank is facing problem of NPA then it adversely affect the value of bank in terms of market credit. It will lose it‘s goodwill and brand image and credit which have negative impact to the people who are putting their money in the banks.

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UNIT- 2 INDUSTRY PROFILE

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Indian Banking System: The banking system of a country plays an important role in the economic development of any country. Banking system comprises of the banking institutions functioning in the country. Banking system comprises from the central bank to all banking institutions which are functioning and providing financial facilities to any developmental sector like agriculture, industries, trade, housing etc. Under the Indian banking structure central bank in the name of the Reserve Bank of India which regulates, directs and controls the banking institutions. Separate institutions are functioning to meet the financial requirement of the different sectors of the economy. Indigenous bankers and moneylenders do dominant in the unorganized sector. Regional Rural Banks are meeting the requirement of the rural population. Cooperatives are working to meet the requirement of medium, short and long-term credit for agriculture sector. Development banks are meeting the business and industrial requirements. Thus, we can say that the structure of Indian banking system has an international level banking system which can meet the economic requirements of globalized world. The Indian banking structure has a wide and comprehensive form. Apex institutions in the form of banking institutions are playing important role in the country. The chief regulator of banking system in our country is the Reserve bank of India. Industrial Development Bank of India (IDBI) is an apex body in the industrial sector. National Bank of Agriculture and Rural Development (NABARD) has been working as an apex institution for the agriculture and rural development. Import-Export Bank of India (EXIM) is an Apex body of international trade. National Housing Bank (NHB) is an apex institution in field of housing construction. Thus these four apex institutions are accelerating the banking system by providing refinance

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facilities to commercial banks and other financial institutions along with other banking services. The major financial institutions of the Indian Banking system can be seen from the figure.

Present Structure of Indian Banking Industry:

The Indian financial system comprises a large number of commercial and cooperative banks, specialized developmental banks for industry, agriculture, external trade and housing, social security institutions, collective investment institutions, etc. The banking system is at the heart of the financial system. The Indian banking system has the RBI at the apex. It is the central bank of the country under which there are the commercial banks including public sector and private sector banks, foreign banks and local area banks. It also includes regional rural banks as well as cooperative banks. The structure of the Indian banking system is given in t he figure

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A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA INDIAN BANKING SYSTEM

After the overview of the development of the Indian banking sector since 1947, this section focuses on the structure of the banking system as it presents itself today. In many respects the current structure can be directly related to the policies described in the previous sections, including the nationalization of banks in 1969 and 1980 and the opening up of the banking sector for new players after 1991. In India, the most important intermediaries in the banking system today are scheduled commercial banks, co-operative banks, development financial institutions (DFI) and non bank financial companies. The large state owned and private sector banks that form part of the scheduled commercial banks are the most visible representatives of the banking system. While the scheduled commercial banks hold more that 80% of the banking system‘s assets, they represent a minority in term of numbers. The main focus of this study is scheduled

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commercial banks; however, a brief description of the four most important types of institutions will enable a better overview of the structure of the banking system in India. Commercial Banks:

In the organized sector of the money market, commercial banks and cooperative banks have been in existence for the past several decades. A commercial bank which is run for the benefit of a group of members of the cooperative body, e.g., housing cooperative society. The commercial banks are spread across the length and breadth of the country, and cater to the short term needs of industry, trade and commerce and agriculture unlike the developmental banks which focus on long term needs. These days the commercial banks also look after other needs of their customers including long term credit requirements. The banking sector has been undergoing drastic metamorphosis. The rapid progress witnessed in the realm of banking services has been engineered by the trends in globalization, liberalization and privatization. The technological revolution and demographic changes have also helped to change the face of banking in India. More banks are switching over to virtual banking for the brick and mortar banks, and are providing a vast array of products through very innovative channels and at highly competitive prices. Banks are now free to quote their own interest rates in loan/advances and term deposits. They now have to manage their investments and loans portfolios based on the international norms and practices of risk management including asset liability management. Commercial banks operating in India may be categorized into public sector, private sector, and Indian or foreign banks depending upon the ownership, management and control. They may also be differentiated as scheduled or non-scheduled banks.

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A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA Banking sector in India: Public sector bank: Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held

by a government. The shares of these banks are listed on stock exchanges. There are a total of 26 PSBs in India. Emergence of public sector banks: The Central Government entered the banking business with the nationalization of the Imperial Bank of India in 1955. A 60% stake was taken by the Reserve Bank of India and the new bank was named as the State Bank of India. The seven other state banks became the subsidiaries of the new bank when nationalised on 19 July 1960. The next major nationalisation of banks took place in 1969 when the government of India, under prime minister Indira Gandhi, nationalised an additional 14 major banks. The total deposits in the banks nationalised in 1969 amounted to 50 crores. This move increased the presence of nationalised banks in India, with 84% of the total branches coming under government control. The next round of nationalisation took place in April 1980. The government nationalised six banks. The total deposits of these banks amounted to around 200 crores. This move led to a further increase in the number of branches in the market, increasing to 91% of the total branch network of the country. The objectives behind nationalisation where:



To break the ownership and control of banks by a few business families,



To prevent the concentration of wealth and economic power,



To mobilize savings from masses from all parts of the country,

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A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA 

To cater to the needs of the priority sectors

Public sector banks before the economic liberalization:

The share of the banking sector held by the public banks continued to grow through the 1980s, and by 1991 the public sector banks accounted for 90% of the banking sector. A year later, in March, 1992, the combined total of branches held by public sector banks was 60,646 across India, and deposits accounted for Rs. 1, 10,000 crores. The majority of these banks were profitable, with only one out of the 27 public sector banks reporting a loss. Problem with nationalised banks reporting a combined loss of Rs.1160 crores. However, the early 2000s saw a reversal of this trend, such that in 2002-03 a profit of Rs. 7780 crores by the public sector banks: a trend that continued throughout the decade, with a Rs. 16856 crores profits in 2008-2009.

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A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA List of public sector bank:



Allahabad Bank



Andhra Bank



Bank of Baroda



Bank of India



Bank of Maharashtra



Canara Bank



Central Bank of India



Corporation Bank



Dena Bank



Indian Bank



Indian Overseas Bank



IDBI



Oriental Bank of Commerce



Punjab National Bank



Punjab and Sind Bank



State Bank of India



Syndicate Bank



UCO Bank 16


Union Bank of India



United Bank of India



Vijaya Bank



Subsidiaries of State Bank of India:



State Bank of Bikaner and Jaipur



State Bank of Mysore



State Bank of Hyderabad



State Bank of Patiala



State Bank of Travancore

State Bank of Saurashtra and State Bank of Indore are merged with SBI

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A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA COMPANY PROFILE Bank of Baroda: Bank of Baroda (BoB) is an Indian state-owned banking and financial services company

headquartered in Vadodara (earlier known as Baroda) in Gujarat, India. It offers a range of banking products and financial services to corporate and retail customers through its branches and through its specialised subsidiaries and affiliates in the areas of retail banking, investment banking, credit cards, and asset management. During the FY 2012-13, It‘s total global business was 8,021 billion, making it the second largest bank in India after State Bank of India. In addition to its headquarters in its home state of Gujarat, it has a corporate headquarters in the Bandra Kurla Complex in Mumbai. Based on 2012 data, it is ranked 715 on Forbes Global 2000 list. BoB has total assets in excess of

3.58 trillion (short scale),

3,583 billion (long scale), a network of 4283

branches (out of which 4172 branches are in India) and offices, and over 2000 ATMs. The bank was founded by the Maharaja of Baroda, H. H. Sir Sayajirao Gaekwad III on 20 July 1908 in the Princely State of Baroda, in Gujarat. The bank, along with 13 other major commercial banks of India, was nationalised on 19 July 1969, by the Government of India and has been designated as a profit-making public se ctor undertaking (PSU). Bank of Baroda is one of the Big Four banks of India, along with State Bank of India, ICICI Bank and Punjab National Bank.

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A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA Board of directors :

Chairman & Managing

Shri S.S Mundra

Director Executive Director

Shri P. Srinivas Shri Ranjan Dhawan Shri Bhuwanchandra B. Joshi

Director

Dr K.P Krishnan Shri Maulin Arvind Vaishnav

Regional Director

Shri Sudarshan Sen

Director (Workmen

Shri Vinil Kumar Saxena

Employee) Non-Executive Director &

Shri Surendra Singh Bhandari

Chartered Accountant

Shri Rajib Sekhar Sahu

Company Secretary

M.L Jain

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History : 1908 – 1959

In 1908, Maharaja Sayajirao Gaekwad III, one of the knights of the Maratha Kingdom, set up the Bank of Baroda (BoB). Two years later, BoB established its first branch in Ahmedabad. The bank grew domestically, until after World War II. Then in 1953 it crossed the Indian Ocean to serve the communities of Indians in Kenya and Indians in Uganda by establishing a branch each in Mombasa and Kampala. The next year it opened a second branch in Kenya, in Nairobi, and in 1956 it opened a branch in Dar-es-Salaam. Then in 1957 BoB took a giant step abroad by establishing a branch in London. London was the center of the British Commonwealth and the most important international banking centre. 1959 saw BoB complete its first domestic acquisition when it took over Hind Bank. 1960s

In 1961, BoB merged in New Citizen Bank of India. This merger helped it increase its branch network in Maharashtra. BoB also opened a branch in Fiji. The next year it opened a branch in Mauritius. Bank of Baroda In 1963, BoB acquired Surat Banking Corporation in Surat, Gujarat. The next year BoB acquired two banks: Umbergaon People‘s Bank in southern Gujarat and Tamil Nadu Central Bank in Tamil Nadu state. In 1965, BoB opened a branch in Guyana. That same year BoB lost its branch in Narayanjanj (East Pakistan) due to the Indo-Pakistani War of 1965. It is unclear when BoB had opened the branch. In 1967 it suffered a second loss of branches when the Tanzanian government nationalised BoB‘s three branches there (Dar es Salaam, Mwanga, and Moshi), and transferred their operations to the Tanzanian government-owned National Banking Corporation.

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In 1969 the Indian government nationalised 14 top banks, including BoB. BoB incorporated its operations in Uganda as a 51% subsidiary, with the government owning the rest. 1970s

In 1972, BoB acquired Bank of India ‘s operations in Uganda. Two years later, BoB opened a branch each in Dubai and Abu Dhabi. Back in India, in 1975, BoB acquired the majority shareholding and management control of Bareilly Corporation Bank (est. 1928) and Nainital Bank (est. in 1954), both in Uttar Pradesh. Since then, Nainital Bank has expanded to Uttarakhand state. International expansion continued in 1976 with the opening of a branch in Oman and another in Brussels. The Brussels branch was aimed at Indian firms from Mumbai (Bombay) engaged in diamond cutting and jewellery having business in Antwerp, a major center for diamond cutting. Two years later, BoB opened a branch in New York and another in the Seychelles. Then in 1979, BoB opened a branch in Nassau, the Bahamas. 1980s

In 1980, BoB opened a branch in Bahrain and a representative office in Sydney, Australia. BoB, Union Bank of India and Indian Bank established IUB International Finance, a licensed deposit taker, in Hong Kong. Each of the three banks took an equal share. Eventually (in 1998), BoB would buy out its partners. A second consortium or joint-venture bank followed in 1985. BoB (20%), Bank of India (20%), Central Bank of India (20%) and ZIMCO (Zambian government; 40%)

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established Indo-Zambia Bank in Lusaka. That same year BoB also opened an Offshore Banking Unit (OBU) in Bahrain. Back in India, in 1988, BoB acquired Traders Bank, which had a network of 34 branches in Delhi. 1990s

In 1990, BoB opened an OBU in Mauritius, but closed its representative office in Sydney. The next year BoB took over the London branches of Union Bank of India and Punjab & Sind Bank (P&S). P&S‘s branch had been established before 1970 and Union Bank‘s after 1980. The Reserve Bank of India ordered the takeover of the two following the banks' involvement in the Sethia fraud in 1987 and subsequent losses. Then in 1992 BoB incorporated its operations in Kenya into a local subsidiary with a small tranche of shares quoted on the Nairobi Stock Exchange. The next year, BoB closed its OBU in Bahrain. In 1996, BoB Bank entered the capital market in December with an Initial Public Offering (IPO). The Government of India is still the largest shareholder, owning 66% of the bank's equity. In 1997, BoB opened a branch in Durban. The next year BoB bought out its partners in IUB International Finance in Hong Kong. Apparently this was a response to regulatory changes following Hong Kong‘s reversion to the People‘s Republic of China. The now wholly owned subsidiary became Bank of Baroda (Hong Kong), a restricted license bank. BoB also acquired Punjab Cooperative Bank in a rescue. BoB incorporate wholly owned subsidiary BOB Capital Markets Ltd. for broking business.

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In 1999, BoB merged in Bareilly Corporation Bank in another rescue. At the time, Bareilly had 64 branches, including four in Delhi. In Guyana, BoB incorporated its branch as a subsidiary, Bank of Baroda Guyana. BoB added a branch in Mauritius and closed its Harrow Branch in London. 2000s



2000: BoB established Bank of Baroda (Botswana).



2002: BoB acquired Benares State Bank (BSB) at the Reserve Bank of India‘s request. BSB was established in 1946 but traced its origins back to 1871 and its function as the treasury office of the Benares state. In 1964, BSB had acquired Bareilly Bank (est. 1934), with seven branches; it also had taken over Lucknow Bank in 1968. The acquisition of BSB brought BoB 105 new branches.



2002: Bank

of

Baroda

(Uganda) was

listed

on

the Uganda

Securities

Exchange (USE).



2003: BoB opened an OBU in Mumbai.



2004: BoB acquired the failed Gujarat Local Area Bank, and returned to Tanzania by establishing a subsidiary in Dar-es-Salaam. BoB also opened a representative office each in Kuala Lumpur, Malaysia, and Guangdong, China.



2005: BoB built a Global Data Centre (DC) in Mumbai for running its centralized banking solution (CBS) and other applications in more than 1,900 branches across India and 20 other countries where the bank operates. BoB also opened a representative office in Thailand.



2006: BoB established an Offshore Banking Unit (OBU) in Singapore.

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2007: In its centenary year, BoB‘s total business crossed 2.09 trillion (short scale), its branches crossed 1000, and its global customer base 29 million people.



2008: BoB opened a branch in Guangzhou, China (02/08/2008) and in Kenton, Harrow United Kingdom. BoB opened a joint venture life insurance company with Andhra Bank and Legal and General (UK) called IndiaFirst Life Insurance Company.

2010s

In 2010, Malaysia awarded a commercial banking license to a locally incorporated bank to be jointly owned by Bank of Baroda, Indian Overseas Bank and Andhra Bank. That same year, BoB also opened a branch in New Zealand. In 2011, BoB opened an Electronic Banking Service Unit (EBSU) was opened at Hamriya Free Zone, Sharjah (UAE). It also opened four new branches in existing operations in Uganda, Kenya (2), and Guyana. BoB closed its representative office in Malaysia in anticipation of the opening of its consortium bank there. BoB received ‗In Principle‘ approval for the upgrading of its representative office in Australia to a branch.

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Global presence : Bank of Baroda is operating it’s financial services in different countries through:

Branches

Subsidiaries

Joint Venture

Representative Offices

Australia

Botswana

Zambia

Thailand

Bahamas

Ghana

Malaysia

Bahrain

Guyana

Belgium

Kenya

China

New Zealand

Fiji Islands

Tanzania

Hong Kong

Trinidad & Tobago Uganda

Mauritius Republic of South Africa Seychelles Singapore Sultanate of Oman United Arab Emirates United Kingdom United States of America

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UNIT- 3

SURVEY OF LITERATURE

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Findings of previous studies: A large number of researchers have studied the issue of Non Performing Assets (NPAs) in banking industry .A review of the relevant literature has been described as under: 1. Prashanth K Reddy (research paper) (From article-International Journal of Economic Practices and Theories, Vol. 1, No. 2, 2011 (October), e-ISSN 2247 – 7225)

Prashanth K. Reddy (2002) in his research paper on the topic, ―A comparative study of Nonperforming Assets in India in the Global context‖ examined the si milarities and dissimilarities, remedial measures. Financial sector reform in India has progressed rapidly on aspects like interest rate deregulation, reduction in reserve requirements, barriers to entry, prudential norms and risk-based supervision. The study reveals that the sheltering of weak institutions while liberalizing operational rules of the game is making implementation of operational changes difficult and ineffective. Changes required to tackle the NPA problem would have to span the entire gamut of judiciary, polity and the bureaucracy to be truly effective. This paper deals with the experiences of other Asian countries in handling of NPAs. It further looks into the effect of the reforms on the level of NPAs and suggests mechanisms to handle the problem by drawing on experiences from other countries.

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A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA 2. RBI turns heat on banks to check bad loans. (news paper article.) (from Hindustan Times (New Delhi, India) October 13, 2011)

State-owned banks have witnessed a surge in the level of bad assets (loans) or NPAs in recent times. The gross non-performing assets (NPA) of public sector banks stood at Rs. 71,047 crores for the period ended March, 2011. A loan that stops earning interest after 90 days is defined as an NPA. According to CRISIL(Credit Rating Information Services of India Ltd), the Indian arm of global ratings major Standard and Poor‘s, a slowdown in economic growth and increases in equated monthly installments (EMIs) resulting from subsequent rate hikes by the RBI, would also increase banks‘ NPAs. Rising interest rates would increase the EMIs of home loan borrowers alone by about Rs. 6000 crores annually,‖ the study said. Banks, however, are optimistic. ―There is no cause for concern as of now. We are focusing on recovery and we have registered a very healthy recovery,‖ TM Bhasin, chairman and managing director, Indian Bank, told Hindustan Times. In the wake of surging NPA levels, banks have decided to get tough on willful defaulters — borrowers who have not repaid their dues despite having the capacity to do so. An estimated Rs. 11,000 crores of funds is locked up with willful defaulters. The central bank has also asked banks to monitor their asset qualities on a regular basis, especially with interest rates steadily inching upwards. Finance minister Pranab Mukherjee, in his last meeting with bank chairmen, had asked SBI to look into its asset quality. He is also said to have sought an explanation from banks on the reason for the rise in the level of bad assets.

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―There has been a substantial increase in bad loans and this is primarily because public sector banks have been very lenient on willful defaulters,‖ said CH Venkatachalam, general secretary, All India Bank Employees Association. 3. Dr. A. Shyamala (research paper) (From article-Dr. A. Shyamala NPAS IN INDIAN BANKING SECTOR: IMPACT ON PROFITABILITY: Indian Streams Research Journal (June; 2012))

Findings of the study indicated that Indian banking sector is facing a serious problem of NPA is comparatively higher in public sector banks. To improve the efficiency and profitability, various steps have been taken by the government to reduce the NPA. It is highly impossible to have zero percentage NPA. But at least Indian banks can try competing with foreign banks to maintain international standard. 4. Siraj.K.K and Prof. (Dr). P. Sudarsanan Pillai (research paper) (From article-International Journal of Marketing, Financial Services & Management Research-ISSN 2277- 3622 Vol.2, No. 9, September (2013))

The researchers found that Non Performing Assets endangered negative impact on banking stability and growth. Issue of NPA and its impact on erosion of profit and quality of asset was not seriously considered in Indian banking prior to 1991. There are many reasons cited for the alarming level of NPA in Indian banking sector. Asset quality was not prime concern in Indian banking sector till 1991, but was mainly focused on performance objectives such as opening wide networks/branches, development of rural areas, priority sector lending, higher employment generation,

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etc. The accounting treatment also failed to project the problem of NPA, as interest on loan accounts were accounted on accrual basis.

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UNIT – 4

RESEARCH METHODOLOGY

31


Research: Research is a process in which the researcher wishes to find out the end result for a given problem and thus the solution helps in future course of action. The research has been defined as ―A careful investigation or enquiry especially through search for new facts in branch of knowledge‖ The study has been done in one of the leading Public sector bank. This study is based on secondary data, which have been obtained from published sources i.e. Annual report for the period of 10 years (i.e. from 2004-13).

Statement of problem: NPAs always affect the profit & also the prestige of bank, so here the research problem is to identify the causes for the NPA and to identify the action plan to reduce the NPA.

Background of the problem: NPAs always have adverse effect on the profitability of the bank & thereby increasing the level of sub-standard assets. Banks have to take adequate measures to reduce NPA levels since banks have responsibility to the various stake holders. This in turn would provide chances of recovery from NPAs.

Objectives of the study: To understand the reasons for NPAs. To assess the impact of NPA on banks profitability. To suggest ways and needs to reduce NPA and its growth.

32


Hypothesis: Ho (Null) = There is no significant relationship between gross NPA & operating profit. H1 (Alternate) = There is significant relationship between gross NPA & operating profit.

Sampling plan & methodology: Ten years data was collected with respect to gross NPAs & net profit & 6 years data was obtained with respect to Standard, sub-standard, Doubtful & loss assets.

Type of study: This is a descriptive cum analytical study.

Data collection source: Primary: Primary data is a type of information that is obtained directly from first-hand

sources by means of surveys, observation or experimentation. It is a data that has not been previously published and is derived from a new or original research study and collected at the source. Secondary: Secondary data is all the information collected for purposes other than the

completion of a research project and it is used to gain initial insight into the research problem. It is classified in terms of its source – either internal or external. The data for the current study was collected mainly from secondary sources like Company‘s annual reports & records, Newspapers/Magazines were all used to collect information. 33


Limitations of the study: 

This study is limited to ten years data.



Time was the major constraint for the study.

Statistical tool used: Correlation Analysis

Correlation Analysis: Meaning:

Correlation analysis measures the relationship between two items, like, NPAs and Net profits of Bank of Baroda. The resulting value (called the "correlation coefficient") shows if changes in one item (e.g., NPAs) will result in changes in the other item (e.g., Net Profits). Objective:

The main objective of this topic is to measure the degree of relationship between the variables under consideration. The correlation analysis refers to the techniques used in measuring the closeness of the relationship between the variables. Definition:

―When the relationship is of quantitative nature, the appropriate statistical tool for discovering & measuring the relationship & expressing it in brief formula is known as correlation‖. ----- Croxton & Cowden 34


Thus correlation is a statistical device which helps in analyzing the covariance between two or more variables. It is one of the most common & most useful statistics Interpretation:

When comparing the correlation between two items, one item is called the "dependent" item and the other the "independent" item. The goal is to see if a change in the independent item (which are NPAs) will result in a change in the dependent item (usually Net Profits). This information helps you understand an indicator's predictive abilities. Correlation coefficient can be calculated manually using the following formula:

The quantity r, called the linear correlation coefficient, measures the strength and the direction of a linear relationship between two variables. The linear correlation coefficient is sometimes referred to as the Pearson product moment correlation coefficient in honor of its developer Karl Pearson. It can also be calculated with the help of excel option.

35


UNIT – 5 DATA ANALYSIS AND INTERPRETATION

36


Definition : Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with

the goal of discovering useful information, suggesting conclusions, and supporting decision making. Data analysis has multiple facets and approaches, encompassing diverse techniques under a variety of names, in different business, science, and social science domains. Data pertaining to gross NPAs, net profit & total advances was collected for 10 years & then data pertaining to standard, sub-standard, doubtful & loss assets was collected for 6 years. The data so collected were analysed & have been depicted in the following graph.

Table no:1 Year wise Net profit from 2004-13(in Crs.)

YEAR

Net Profit (Rs.in Crs.)

2004

9,669,959

2005

6,768,399

2006

8,269,597

2007

10,264,645

2008

14,355,215

2009

22,272,018

2010

30,583,310

2011

42,416,797

2012

50,069,562

2013

44,807,200

37


Graph 1 Showing net profit from 2004-13(in Crs)

60000000 50,069,562

40000000

42,416,797 9,669,959

20000000 2004 0 1

6,768,399 8,269,597

2005 2

2006 3

2007 4

44,807,200

22,272,018 30,583,310 10,264,645

14,355,215

2008 5

2009 6

YEAR

2010 7

2011 8

2012 9

2013

10

Net Profit

I nterpretation : The graph depicts that the net profits during the years shown increment except in the years 20 05 & 2013.

38


Table no: 2 Year wise advances from 2004-13(in Crs.)

YEAR

Advances (Rs.in Crs.)

2004

35,600.88

2005

43,400.38

2006

59,911.78

2007

83,620.87

2008

1,06,701.32

2009

1,43,985.9

2010

1,75,035.29

2011

2,28,676.36

2012

2,87,377.29

2013

3,28,185.76

39


Graph 2 showing advances from 2004-13(in Crs.)

400000 300000 200000 35,600.88

100000

2004

0 1

2005 2

43,400.38 59,911.78

2006 3

83,620.87 106,701.32 143,985.90 175,035.29

2007 4

2008 5

2009 6

YEAR

2010 7

228,676.36

2011

8

287,377.29

2012

9

328,185.76

2013

10

Advances

Interpretation: The above graph shows that advances kept on increasing till 2013 without any downfall in any of the year.

40


Table no: 3 Year wise Standard assets from 2008-13(in Crs.)

YEAR STANDARD ASSETS (in Crs.)

2008 2009 2010 2011 2012 2013 105690.44 143001.94 174736.43 228273.03 286542.59 324828.74

41


Graph 3 showing standard assets from 2008-13(in Crs.)

400000 300000

228273.03 105690.44

200000 100000

2008

0 1

2009 2

143001.94

2010

3

Y EA R

286542.59

324828.74

174736.43

2011

4

2012

5

2013

6

STANDAR D ASSETS

I nterpretation : The graph shows that there has been a considerable increment in standard assets from 2008 -13.

42


Table no: 4 Year wise Sub-standard assets from 2008-13(in Crs.) YEAR

2008

2009

2010

2011

2012

2013

SUB-STANDARD ASSETS

366.12

665.26

894.83

1097.23

2661.82

4981.15

(in Crs.)

43


Graph 4 showing sub-standard assets from 2008-13(in Crs.)

5000 4981.15

4000 3000

2008

2000

2661.82 2009 366.12 665.26 2010

1000

894.83

2011 1,097.23 2012

2013

0 1

2

3

4

5 6

Y EA R

SU B- ST AND AR D A SSE TS

I nterpretation : The graph depicts a vigorous increment in sub-standard assets from 2008 & reaches it’s highest peak in 2013.

44


Table no: 5 Year wise Doubtful assets from 2008-13(in Crs.)

YEAR

2008

2009

2010

2011

2012

2013

DOUBTFUL ASSETS

887.65

832.32

743.22

1336.64

1318.71

2628.33

(in Crs.)

45


Graph 5 showing doubtful assets from 2008-13(in Crs.)

3000

2628.33

2500

2008

2000

2009 887.65

1500

2010 832.32

2011 1,336.64

743.22

2012 1,318.71

2013

1000 500 0 1

2

3

YEAR

4

5

6

DO UBTFUL ASSETS

I nterpretation : In the above graph there has been a downfall in the doubtful assets from 2008 to 2010 & again increases except in 2012.

46


Table no: 6 Year wise loss assets from 2008-13(in Crs.)

YEAR

2008

2009

2010

2011

2012

2013

LOSS ASSETS

727.61

345.34

762.64

718.63

484.22

373.1

(in Crs.)

47


Graph 6 showing loss assets from 2008-13(in Crs.)

2500

2008

2009

2010

2000 1500

2011

2012

2013

727.61

1000

762.64

345.34

718.63 484.22

500

373.1

0 1

2

3

YEAR

4

5

6

LOSS ASSETS

I nterpretation : The above graph shows that there has been reduction in the loss assets but falls down suddenly to lowest level in 2009 & became

highest in 2010 & again starts falling down constantly till 2013.

48


Table no: 7 Year wise Gross NPA from 2004-13(in Crs.)

YEAR

Gross NPAs (Rs. in Crs.)

2004

3979.86

2005

3321.81

2006

2390.14

2007

2092.14

2008

1981.38

2009

1842.92

2010

2400.69

2011

3152.5

2012

4464.75

2013

7982.58

49


Graph 7 showing total NPA from 2004-13(in Crs.)

8000 6000 4000 2000

3979.86 3321.81 2390.14 2004 2005 2092.14 1981.38 2006 1842.92 2400.69 2007 2008 2009 2010

0 1

2

3

4

5

YEARS

6

7

7982.58 4464.75 3152.5 2011

8

2012

9

2013

10

TOTAL NPA

I nterpretation : Graph showing downfall of gross NPAs from 2004 to 2009 then again it showed increment till itreaches it’s highest peak.

50


Hypothesis Testing: Statisticians follow a formal process to determine whether to reject or accept a null hypothesis, based on sample data. This process is called hypothesis testing which consists of four steps: State the hypothesis, This involves stating the null and alternative hypothesis. The

hypothesis are stated in such a way that they are mutually exclusive i.e., if one is true, the other must be false. Formulate an analysis plan, The analysis plan describes how to use sample data to

evaluate the null hypothesis. The evaluation often focuses around a single test statistics. Analyze sample data, Find the value of the test statistic (i.e., Correlation coefficient

which is denoted by r) described in the analysis plan. Interpret results , Apply the decision rule described in the analysis plan. If the value

of the test statistic is unlikely, based on the null hypothesis, reject the null hypothesis. The actual test begins by considering two Hypothesis. They are called the null hypothesis & the alternate hypothesis . These hypothesis contain opposing view points. H o: Th e nul l hypothesis : It is a statement about a population that will be assumed to be true

unless it can be shown to be correct beyond a reasonable doubt. Stating the Null Hypothesis is the starting point of any hypothesis testing question solution & the necessary information tends to be in the first sentence of the problem.

51

A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA H1: Th e alter nate hypothesis : The Alternate Hypothesis accompanies the Null Hypothesis

as the starting point to answering hypothesis testing questions & it is the stated or assumed value of a population parameter if the Null Hypothesis (H0) is rejected (through testing).

The following null hypothesis was formulated for the study: Ho (Null) = There is no significant relationship between gross NPA & net profit. H1 (Alternate) = There is significant relationship between gross NPA & net profit. Correlation analysis was done to find out the relationship between gross NPA and Net profit.

For the current research study, significance of correlation coefficient was used to accept or reject null hypothesis. 5 % sig level was used.

52


Data of NPA and Net profit of Bank of Baroda for 10 years

Here ten years data has been analysed in which Gross NPAs are independent variables and NET

PROFITs are dependent variable. The relationship between these two variables is

found out using correlation analysis. S.NO

YEARS

X GROSS NPA (in

Y NET PROFIT (in

Crs.)

Crs.)

1

2013

7982.58

44,807,200

2

2012

4464.75

50,069,562

3

2011

3152.5

42,416,797

4

2010

2400.69

30,583,310

5

2009

1842.92

22,272,018

6

2008

1981.38

14,355,215

7

2007

2092.14

10,264,645

8

2006

2390.14

8,269,597

9

2005

3321.81

6,768,399

10

2004

3979.86

9,669,959

33608.77

2,39,476,702

TOTAL

Correlation coefficient was calculated using excel 2007 option. Calculated r value = .557

As per the table of critical values for Pearson‘s correlation, the value of r is .707. The calculated value of r is less than the table value. Hence null hypothesis was accepted & concluded that there is no

relation between the gross NPA & Net Profit. 53


UNIT – UNIT – 6 6 FINDINGS OF THE STUDY

54


Findings (Results of the study): From the above data analysis it was observed obs erved that net profits kept on rising ri sing except in 2005, 2006 & 2013, as the net profit declined in the very recent year i.e. on 2013, so the bank needs to increase it‘ it‘s profitability by taking appropriate measures through proper management of NPA. It was also observed that advances kept on increasing from 2004 to 2013, which depicted that bank‘s position is also good for sanctioning loans. The standard assets also shown rise from fr om 2008 to 2013, which lead to total advances. The sub-standard assets was at it‘s highest it‘s highest peak which reveals that chances for recovery of NPA are high. The doubtful assets also shown rise which means that bank should take corrective action recovery through policy to reduce the level of doubtful assets. The loss assets got declined this year which means that bank has taken appropriate measures thereby reducing the level of loss assets. The Gross NPAs shown increment in the very recent year i.e. on 2013 due to ongoing slowdown in the industrial sector which would be recovered by improvement in assets quality.

55


Suggestions and recommendations: 1. Bank should have its own independent credit rating agency which should evaluate the financial capacity of the borrower before that credit facility. 2. Special accounts should be made of the clients where monthly loan concentration report should be made. 3. There should be proper monitoring of the restructuring accounts because there is every possibility of the loan slipping into NPAs category. category. 4. Proper training is important for the staff of the bank at the appropriate level either ongoing process, so that they should deal with the problem of NPAs and steps s hould to be taken to reduce the NPAS. 5. It is recommended that the proper documentation and verification should be made before sanctioning the loan. 6. Constant interaction has to be maintained with the customers to keep track of their loan payment. 7. Strict measure has to be taken while issuing or sanctioning the loan. The measure can include verification of sanctioning the loan, job and salary sli ps, and verification of securities. 8. When all possible attempt for recovery is failed then only option is to proceed with legal action along with speed otherwise it would be costly.

56


9. It is also wise for the bank to carry out special investigative audit of all financial and business transaction and books of accounts of the borrower company when there is possibility of the diversion of the funds and mismanagement. 10. Independent settlement procedure should be more strict and faster and the decision made by the settlement committee should be binding both borrower and lenders and any one of them failing to follow the decision of the statements committee should be punished severely. 11. The bank should come out with new innovative methods to recover NPAs and should motivate customers to pay their dues in time. 12. Willful default of bank loans should be made a criminal offence. 13. Identifying reasons for turning of each accounts of branch into NPAs is the most important factor for upgrading the asset quality because that would help to initiate suitable steps to upgrade the accounts. 14. The bank must focus on recovery from those borrowers who have the capacit y to repay but are not repaying initiation of coercive action a few such borrowers may help. 15.The recovery machine of the bank has to be in streamlined targets should have fixed offence supervisors not only for recovery in general but also in terms of upgrading numbers of existing NPAs.

57


Conclusion: The issue of Non-Performing Assets (NPAs) has been an area of concern for all economies & reduction in NPAs has become synonymous with functional efficiency of financial intermediaries. Although NPAs are a balance sheet issue of individual banks and financial institutions, it has wider macroeconomic implications. It is important that, if resolution strategies for recovery of dues from NPAs are not put in place quickly and efficiently, these assets would deteriorate in value over time and only scrap value would be realized at the end. It should, however, be kept in mind that NPAs are an integral part of the business financial sector and the players are in as they are in the business of taking risk and their earnings reflect the risk they take. They operate in an environment, where there would be defaults as well as deterioration in portfolio value, as market movements can never be predicted with certainty. It is in this context, that countries have adopted regulatory measures and the guiding structure has been provided by the Basel guidelines. So we conclude that NON-PERFORMING ASSETS are like black spots on diamond. They affect the profit of bank and also the financial health of bank. If it is not controlled or managed properly then it affects the bank‘s growth.

58


UNIT - 7 BIBILIOGRAPHY

59

A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA REFERENCES:

Research Methodology: Methods &Techniques- CR Kothari. Report on trend and progress of banking in India 2013-12, 2011- 2012. Annual report of Bank of Baroda from March 2008-13. Balance sheet, Profit and loss account and accounts of NPA for 10 years from 2004 to 2013. Master Circular No. DBOD.No.BP.BC.9/21.04.048/2012-13 dated July 2, 2012 (International Journal of Marketing, Financial Services & Management ResearchISSN 2277- 3622 Vol.2, No. 9, September (2013)) - Siraj.K.K and Prof. (Dr). P. Sudarsanan Pillai

(Dr. A. Shyamala NPAS IN INDIAN BANKING SECTOR: IMPACT ON PROFITABILITY: Indian Streams Research Journal (June; 2012)) - Dr. A. Shyamala (International Journal of Economic Practices and Theories, Vol. 1, No. 2, 2011 (October), e-ISSN 2247 – 7225) -Prashanth K Reddy

WEBSITE:



www.bank of baroda.com



www.rbi.org.in



www.abhinavjournal.com



www.financialexpress.com India 60


UNIT – 8 APPENDIX- I (COPY OF SYNOPSIS)

61


ANNAMALAI

UNIVERSITY

PROFORMA FOR APPROVAL OF PROJECT PROPOSAL (Strike out whichever is not applicable) Enrolment Number: 2491200037 1. Name and Address of the

:

Student

TAMAL SARKAR Ramaiah Institute of Management & Sciences (RIMS) # 15, New, B.E.L. Road, MSR Nagar, MSRIT Post, Bangalore Karnataka 560054

2. Subject Area of the Project

:

FINANCE

3. Title of the Project

:

STUDY OF NON PERFORMING ASSETS IN BANKOF

(In capital letters) 4. Name and Official Address of

BARODA :

the Research Supervisor.

Ramaiah Institute of Management & Sciences (RIMS) # 15, New, B.E.L. Road, MSR Nagar, MSRIT Post, Bangalore Karnataka 560054

(Bio-Data should be enclosed)

Signature of the Student

Prof. Padma S. Rao

:

Date : Signature of the Research Supervisor: Name: Academic Year : Number of Candidates: … … … … … …

(Number of candidates should not exceed Five for a Research supervisor in an academic year)

Encl : 1. Synopsis 2. Bio- Data of the Research Supervisor (for office use only)

Scrutinised by

Approved / To Resubmitted Head – Management Wing

62

A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA INTRODUCTION Area of project work: Finance Introduction to the topic:

The three letters ―NPA‖ Strike terror in banking sector and business circle today. NPA is short form of ―Non Performing Asset‖. The dreaded NPA rule says simply this: when interest or other dues to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns to a non performing asset. The recovery of loan has always been problem for banks and financial institution. An asset becomes NPA when: 

Interest and/or instalment 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 90 days in respect of other accounts.

For any nation, banking system plays a vital role in the development of its sound economy. Banking is an important segment of the tertiary sector and acts as a back bone of economic progress. Banks are supposed to be more directl y and positively related to the performance of the economy. Banks act as a development agency and are the source of hope and aspirations of the masses. Commercial banks are the major players to develop the economy. A major threat to banking sector is prevalence of Non-Performing Assets (NPAs). NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholders‟ value (Parul Khanna, 2012). In present scenario NPAs are at the core of financial problem of the banks. Concrete efforts have to be made to improve recovery performance. The main reasons of increasing NPAs are the target-oriented approach, which 63


deteriorates the qualitative aspect of lending by banks and willful defaults, ineffective supervision of loan accounts, lack of technical and managerial expertise on the part of borrowers (Kamini Rai, 2012). The purpose of the study is to identify the causes of loans becoming NPAs and to identify the action plan to reduce the NPAs in Bank of Baroda.

Bank of Baroda:

Bank of Baroda (BoB) is the highest profit-making public sector undertaking (PSU) bank in

India and the second largest PSU bank in terms of number of total business in India. Based in Vadodara, India, it is the country's first largest public sector lender in terms of annual profit. BoB is ranked 715 on Forbes Global 2000 list. BoB has total assets in excess of Rs. 3.58 trillion (short scale), or Rs. 3,583 billion, a network of 4261 branches (out of which 4168 branches are in India) and offices, and over 2000 ATMs. It plans to open 400 new branches in the coming year. It offers a wide range of banking products and financial services to corporate and retail customers through its delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, credit cards and asset management. Its total global business was Rs. 7,003.30 billion as of 30 Sep 2012. Its headquarter is in Vadodara and corporate headquarter is in Bandra Kurla Complex Mumbai. Statement of research problem:

The problem is stated as Study of Non Performing Assets (NPAs) in Bank of Baroda.

64

A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA REVIEW OF LITERATURE Findings of previous studies:

A large number of researchers have studied the issue of Non Performing Assets (NPAs) in banking industry .A review of the relevant literature has been described as under: -

5. Prashanth K Reddy (research paper) (From article-International Journal of Economic Practices and Theories, Vol. 1, No. 2, 2011 (October), e-ISSN 2247 – 7225)

Prashanth K. Reddy (2002) in his research paper on the topic, ―A comparative study of Nonperforming Assets in India in the Global context‖ examined the similarities and dissimilarities, remedial measures. Financial sector reform in India has progressed rapidly on aspects like interest rate deregulation, reduction in reserve requirements, barriers to entry, prudential norms and risk-based supervision. The study reveals that the sheltering of weak institutions while liberalizing operational rules of the game is making implementation of operational changes difficult and ineffective. Changes required to tackle the NPA problem would have to span the entire gamut of judiciary, polity and the bureaucracy to be truly effective. This paper deals with the experiences of other Asian countries in handling of NPAs. It further looks into the effect of the reforms on the level of NPAs and suggests mechanisms to handle the problem by drawing on experiences from other countries.

6. Dr. A. Shyamala (research paper) (From article-Dr. A. Shyamala NPAS IN INDIAN BANKING SECTOR: IMPACT ON PROFITABILITY: Indian Streams Research Journal (June; 2012))

Findings of the study indicated that Indian banking sector is facing a serious problem of NPA is comparatively higher in public sectors banks. To improve the efficiency and profitability,

65


the NPA has to be scheduled various steps have been taken by government to reduce the NPA. It is highly impossible to have zero percentage NPA. But at least Indian banks can try competing with foreign banks to maintain international standard.

7. Siraj.K.K and Prof . (Dr). P. Sudarsanan Pillai (research paper) (From article-International Journal of Marketing, Financial Services & Management Research-ISSN 2277- 3622 Vol.2, No. 9, September (2013))

The researchers found that Non Performing Assets endangered negative impact on banking stability and growth. Issue of NPA and its impact on erosion of profit and quality of asset was not seriously considered in Indian banking prior to 1991. There are many reasons cited for t he alarming level of NPA in Indian banking sector. Asset quality was not prime concern in Indian banking sector till 1991, but was mainly focused on performance objectives such as opening wide networks/branches, development of rural areas, priority sector lending, higher employment generation, etc. The accounting treatment also failed to project the problem of NPA, as interest on loan accounts were accounted on accrual basis (Siraj K.K. and P. Sudarsanan Pillai, 2012).

RESEARCH METHODOLOGY Objectives of the study:

To understand the reasons for NPAs. To assess the impact of NPA on banks profitability. To suggest ways and needs to reduce NPA and its growth.

66

A STUDY OF NON PERFORMING ASSETS IN BANK OF BARODA Hypothesis:

Ho = There is no significant relationship between gross NPA & net profit. H1 = There is significant relationship between gross NPA & net profit.

Statistical tools to be used:

Correlation Analysis

Sampling plan & methodology: Data collection:

This is a descriptive cum analytical study based on secondary data which will be collected from the following sources: Company Records and Reports. Newspapers/Magazines. Various Websites. Research Design:

Descriptive research procedure is used for describing the recent situations in the bank and analytical research to analyze the results by using appropriate research tools.

67

A Study of Non Performing Assets in Bank of Baroda

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