Nirma University Institute of Law VII Semester B.A.LL.B.(Hons.)Course
Submission of Final ro!e"t o n t # e $ o% o% i " o f
&Criti"al analysis of Non erformin' Assets an its ana'ement*
In t#e Course of Ban+in' an Insuran"e Law As a %art of "ontinuous evaluation s"#eme.
Submitte to, s. Ne#a C#o%ra Submitte by, -u%ali ani (/0BAL/12)
1
IN345
Sr. No.
1.
arti"ulars
Ch- I: Introduction •
a'e No.
05 06-08
Synopsis
2.
Ch– II: Defining the term on !erforming "ssets
0#-10
$.
Ch – III: %&ctors contri'uting to !"
11-12
(.
Ch – I): !re*enti*e me&sures to !"
1$
5.
Ch – ): !" +&n&gement- ,esoution
6.
Ch – )I: Concusion
16
i'iogr&phy
1/
1(-15
D E C LA R A T IO N
2
IRupal iJanidecl ar et he wor k ent i t l ed “ Cr i t i c alanal ys i so fNo nP er f o r mi ng Ass e t sandi t sManag ement ”bei ngsubmi t t edt oNi rmaUni ver si t yf ort hepr oj ect
i nt hesubj ectof“ Banki ngLaw”i sori gi nalandwher et het exti st akenf r om t he aut he nt i c at e d boo ks ,ar t i c l e sorwe b ar t i c l e s ,appr o pr i at er e f e r e nc ei sgi v e n.I t i st ruei nmybestofknowl edge.
Dat e:
Rupal iJani Rol lNo09BAL018 VI ISemest er ,( 201213) I ns t i t ut eofLaw Ni r maUni ver si t y
3
C E R TIFIC A TE
Thi si st ocer t i f yt hatt hepr oj ecte nt i t l ed “ Cr i t i c alanal ys i so fNo n Pe r f o r mi ng Ass e t sandi t sManag ement ”submi t t edbyMs.Rupal iJanif o rt hepr o j e c two r k
i nt he subj ec tofBanki ng Law embodi esi ndependentand or i gi nalr es ear ch wor kcar r i e doutbyherundermysuper vi si onandgui dance. Tot hebes tofmyknowl edgeandbel i ef ,i ti she ror i gi nalwor ks ubmi t t edt of ul fil t hepr oj ectassi gnmentf ort heSemes t erEndExami nat i on ofsev ent h semes t er ofB. A. LL. B.Progr ammedur i ngt heacademi cye ar201213.
Dat e:
Ms.NehaChopr a Ass t .Pr of essori nLaw, I ns t i t ut eofLaw, Ni r maUni ver si t y
Ahme dabad
4
C#a%ter 6 I Introu"tion
*er the ye&rs Indi&n '&ning industry h&s 'een dogged 'y on-!erforming "ssets !"s34 the etent of hich *&ries from &nyhere 'eteen ,s.10004 000 to $0004000 crores &s reported 'y *&rious offici& &nd un-offici& sources. 7oe*er4 due to the in&deu&cy of &ppropri&te eg& fr&meor4 profession& epertise &nd other f&ctors4 the 9enders h&*e not 'een *ery successfu in reco*ery of these funds from corpor&te &nd other def&uters. on !erforming "sset c&n 'e defined &s & o&n or &n &d*&nce here Interest or inst&ment of princip& rem&ins o*erdue for & period of more th&n #0 d&ys in respect of & term o&n. he Indi&n '&ning system h&s undergone signific&nt tr&nsform&tion fooing fin&nci& sector reforms. It is &dopting intern&tion& 'est pr&ctices ith & *ision to strengthen the '&ning sector. he pu'ic sector '&ns domin&te the Indi&n '&ning system ith &most 82 percent m&ret sh&re in the tot& deposits &nd &d*&nces of the industry. Se*er& prudenti& &nd pro*isioning norms h&*e 'een introduced4 &nd these &re pressuri;ing '&ns to impro*e efficiency &nd trim don !"s to impro*e the fin&nci& he&th in the '&ning system.1
1 www.indianjournals.com
5
S7N8SIS,
,
"I+S "D =
ecti*e of the present rese&rch is?
o critic&y e&mine th&t h&t &re the f&ctors contri'uting to !"s. o critic&y o'ser*e th&t h&t &re the pre*enti*e me&sures to !"s.
7@!7
he hypothesis de*eoped on the '&sis of iter&ture re*ie is &s foos:
on !erforming "ssets &re &&ys '&d for '&ns.
!"s &re &&ys essens don the credi'iity of '&ns.
6
•
,
In order to &ccompish the present rese&rch or4 &n &ttempt h&s 'een m&de to study the e*&u&tion of term !" &nd its m&n&gement.
he m&teri& h&s 'een coected from the second&ry sources4 i.e. 'oos4 *&rious e'sites4 &rtices.
SC!< % 7< SBD@ he scope of the study is imited to the &ning &s in Indi&.
SC7<+< % 7< SBD@ %or the s&e of con*enience4 the present or is simpified 'y ch&pteris&tion4 &nd hence it is di*ided in ) ch&pters4 n&mey? o Ch&pter I : Introduction o Ch&pter II : Definition of the term on !erforming "ssets. o Ch&pter III : %&ctors contri'uting to !". o Ch&pter I) : !re*enti*e me&sures to !". o Ch&pter ) : !" +&n&gement- ,esoution o Ch&pter )I : Concusion
7
-4VI49 8F LI$4-A$U-4
In order to &ccompish the rese&rch or4 the rese&rcher h&s coected the m&teri& from second&ry sources4 i.e. 'oos4 e'sites. he or h&s 'een m&iny depended on the &n&ysis of the term !" &nd its m&n&gent. esides the rese&rcher h&s *isited e'site of m&nup&tr&4 ind&4 heinonine4 in order to m&e &n &uthentic study of the topic. +oreo*er4 the rese&rcher h&s re&d *&rious &rtices in order to underst&nd the &spect of !" &nd its m&n&gement. +oreo*er4 the rese&rcher h&s referred the fooing 'oo4 n&mey? •
&ning 9& !r&ctise4 )oume 2 'y ,. . Aupt&4 +odern 9& !u'ic&tions4 2 nd
•
editions. 9& of &ning egoti&'e Instrument4 "n introduction "*t&r Singh4 <&stern
•
oo Comp&ny4 first edition 200$. S. . Aupt&4 &ning 9& in theory of pr&ctise4 (th edition4 Bni*ers& 9& !u'ishing Co.
8
C#a%ter 6 II 3efinition of t#e term NA
" !" is & o&n or &n &d*&nce here? •
Interest &ndE or inst&ment of princip& rem&in o*erdue for & period of more th&n
• •
#0 d&ys in respect of & term o&n4 he &ccount rem&ins Fout of orderG in respect of &n o*erdr&ftE c&sh credit he 'i rem&ins o*erdue for & period of more th&n #0 d&ys in the c&se of 'is
•
purch&sed &nd discounted he inst&ment or interest rem&ins o*erdue for to crop se&sons in c&se of short dur&tion crops &nd for one crop se&son in c&se of ong dur&tion crops.
C"
!,)ISIIA ,+S St&nd&rd "ssets – gener& pro*ision of & minimum of 0.25 2 www.indianjournals.com 9
Su'st&nd&rd "ssets – 10 on tot& outst&nding '&&nce4 10 on unsecured eposures identified &s su'-st&nd&rd 100 for unsecured Fdou'tfuG &ssets. Dou'tfu "ssets – 100 to the etent &d*&nce not co*ered 'y re&i;&'e *&ue of security. In c&se of secured portion4 pro*ision m&y 'e m&de in the r&nge of 20 to 100 depending on the period of &sset rem&ining su'-st&nd&rd 9oss "ssets – 100 of the outst&nding $
3 supra 10
C#a%ter 6 III Fa"tors "ontributin' to NA
In the e&ry 1##0s !Ss st&rted suffering from &cute c&pit& in&deu&cy &nd oerE neg&ti*e profit&'iity. he p&r&meters set for their functioning did not pro>ect the p&r&mount need for these corpor&te go&s. he '&ns h&d itte freedom to price products4 c&ter products to chosen segments or in*est funds in their 'est interest. Since 1#/0s4 the SCs functioned &s units cut off from intern&tion& '&ning &nd un&'e to p&rticip&te in the structur& tr&nsform&tions &nd ne types of ending products. "udit &nd contro functions ere not independent &nd thus un&'e to correct the effect of serious f&s in poicies &nd directions. &ns ere not sufficienty de*eoped in terms of sis &nd epertise to regu&te the humongous groth in credit &nd m&n&ge the di*erse riss th&t emerged in the process In&deu&te mech&nism to g&ther &nd dissemin&te credit inform&tion &mongst commerci& '&ns
ther %&ctors Contri'uting o !" •
!oor Credit discipine
4 www.indiansharestips.com 11
• • •
In&deu&te Credit ,is +&n&gement Di*ersion of funds 'y promoters %unding of non-*i&'e pro>ects
I+!"C % !"S !<,"IS • • •
• •
Dr&in on !rofit&'iity Imp&ct on c&pit& &deu&cy "d*erse effect on credit groth &s the '&nerJs prime focus 'ecomes ;ero percent ris &nd &s & resut turns ue&rm to fresh credit. <cessi*e focus on Credit ,is +&n&gement 7igh cost of funds due to !"s 5
C#a%ter 6 IV reventive measures to NA
%orm&tion of the Credit Inform&tion ure&u Indi&3 9imited CII93 5 supra 12
,ee&se of Hifu Def&uterJs 9ist: ,I &so ree&ses & ist of 'orroers ith &ggreg&te outst&nding of ,s.1 crore &nd &'o*e &g&inst hom '&ns h&*e fied suits for reco*ery of their funds ,eporting of %r&uds to ,I – he fr&uds done 'y the customer c&n 'e reported to ,eser*e &n of Indi& so th&t !" c&n 'e pre*ented 'y ,I. orms of 9enderJs 9i&'iity – fr&ming of %&ir !r&ctices Code ith reg&rd to enderJs i&'iity to 'e fooed 'y '&ns4 hich indirecty pre*ents &ccounts turning into !"s on &ccount of '&nJs on f&iure.6 ,is &ssessment &nd ,is m&n&gement ,I h&s &d*ised '&ns to e&mine & c&ses of ifu def&ut of ,s.1 crore &nd &'o*e &nd fie suits in such c&ses. o&rd of Directors &re reuired to re*ie !" &ccounts of ,s.1 crore &nd &'o*e ith speci& reference to fiing of st&ff &ccount&'iity. ,eporting uic mort&ity c&ses Speci& mention &ccounts for e&ry identific&tion of '&d de'ts. 9o&ns &nd &d*&nces o*erdue for ess th&n one &nd to u&rters oud come under this c&tegory. 7oe*er4 these &ccounts do not need pro*isioning
C#a%ter 6 V NA ana'ement : -esolution
6 supra 13
here &re *&rious resoutions schemes to m&n&ge &nd h&nde the !". 7oe*er rese&rcher h&d discussed some schemes of resoution. hey &re &s foos: 1. Compromise Settement Schemes •
&ns &re free to design &nd impement their on poicies for reco*ery &nd rite off incorpor&tion compromise &nd negoti&ted settements ith 'o&rd
•
&ppro*& Specific guideines ere issued in +&y 1### for one time settement of sm& enterprise sector &nd ere modified in =uy 2000 for reco*ery of !"s of ,s.5 crore &nd ess &s on $1st +&rch 200/.
2. ,estructuring &nd ,eh&'iit&tion •
&ns &re free to design &nd impement their on poicies for restructuringE
•
reh&'iit&tion of the !" &ccounts ,escheduement of p&yment of interest &nd princip& &fter considering the De't ser*ice co*er&ge r&tio4 contri'ution of the promoter &nd &*&i&'iity of security
$. 9o "d&&ts • • • •
Sm& !"s up to ,s.20 9&cs Speedy ,eco*ery 9ess epensi*e <&sier &y to reso*e
(. De't ,eco*ery ri'un& D,3 "ct •
he '&ns &nd %Is c&n enforce their securities 'y initi&ting reco*ery proceeding under the ,eco*ery if De'ts due to &ns &nd %I &ct4 1##$ D, "ct3 'y fiing &n &ppic&tion for reco*ery of dues 'efore the De't ,eco*ery ri'un& constituted under the "ct.
14
•
D, h&s poers to gr&nt in>unctions &g&inst the dispos&4 tr&nsfer or cre&tion of third p&rty interest 'y de'tors in the properties ch&rged to creditor &nd to p&ss &tt&chment orders in respect of ch&rged properties /
5. S&e of !" to other &ns •
" !" is eigi'e for s&e to other '&ns ony if it h&s rem&ined & !" for
•
&t e&st to ye&rs in the 'oos of the seing '&n he !" must 'e hed 'y the purch&sing '&n &t e&st for & period of 15 months 'efore it is sod to other '&ns 'ut not to '&n4 hich origin&y
•
sod the !". he !" m&y 'e c&ssified &s st&nd&rd in the 'oos of the purch&sing '&n for & period of #0 d&ys from d&te of purch&se &nd there&fter it oud depend on the record of reco*ery ith reference to c&sh fos estim&ted
• •
hie purch&sing he '&n m&y purch&seE se !" ony on ithout recourse '&sis If the s&e is conducted 'eo the net 'oo *&ue4 the short f& shoud 'e de'ited to !9 &ccount &nd if it is higher4 the ecess pro*ision i 'e utii;ed to meet the oss on &ccount of s&e of other !".
C#a%ter 6 VI Con"lusion
on !erforming "sset c&n 'e defined &s & o&n or &n &d*&nce here Interest or inst&ment of princip& rem&ins o*erdue for & period of more th&n #0 d&ys in respect of & 7 www.indianjournals
15
term o&n. he Indi&n '&ning system h&s undergone signific&nt tr&nsform&tion fooing fin&nci& sector reforms. It is &dopting intern&tion& 'est pr&ctices ith & *ision to strengthen the '&ning sector. he pu'ic sector '&ns domin&te the Indi&n '&ning system ith &most 82 percent m&ret sh&re in the tot& deposits &nd &d*&nces of the industry. Se*er& prudenti& &nd pro*isioning norms h&*e 'een introduced4 &nd these &re pressuri;ing '&ns to impro*e efficiency &nd trim don !"s to impro*e the fin&nci& he&th in the '&ning system.
Biblio'ra%#y
Boo+s ,: •
&ning 9& !r&ctise4 )oume 2 'y ,. . Aupt&4 +odern 9& !u'ic&tions4 2 nd editions. 16
•
9& of &ning egoti&'e Instrument4 "n introduction "*t&r Singh4 <&stern
•
oo Comp&ny4 first edition 200$. S. . Aupt&4 &ning 9& in theory of pr&ctise4 (th edition4 Bni*ers& 9& !u'ishing Co.
9eb 6 -eferen"es ,: • • •
.indi&n>ourn&s.com .indi&nsh&restips.com .uttum&'um&&.co.in
17
