Category: MS Dissertation Projects

Introduction to NPA Of The Banks Future:

The commercials banks future image is more than the banks of the public sector will be observed to be flushed. Finally in the future, by observing the Trend Line recommends that the NPAs of the banks related to the public sector will decrease in the gross figure and net figures marginally over the subsequent coming years in the future. This is because of the higher provisions, and these provisions are been provided through the banks of public sector.

In NPAs, the real issue that needs to be identified is that though the percentage of the NPAs is observed to be declined over the years but absolute figure observed in real to be in maximizing way. In future years, it is interesting to observe that the NPAs both in terms of absolute figures and in terms of percentage of public sector banks in this vein. And the banks should follow certain measures in facing the problems related to the non-performing assets.

And the banks should make use of the acts which are allotted to them in order to recover the loans or assets by following certain measures within the recovery process and should even allot some ethics and principles to the recovery agents within the recovery process. The recovery process should not spoil the relationship between the banks and the customers.

The Indian banks should consider the Non-performing assets as the serious issues and should be able to face them without affecting the economy of the banks.

This study provides the detailed information on the problem called Non-performing assets which is been faced by the banks and the financial institutions. The non performing asset is considered as the significant problem which is showing the major impact on the economy of the banks and the financial institutions. According to this study it is been concluded that there are different types of reasons for the causes of non-performing assets and they are not even taking the measures to solve this problem. Most of the banks are not considering the non performing asset as the problem, for this reason there is a rapid increase in the existence of the non performing assets.

There are different reasons for the existence of the non performing asset problem such as the improper selection of the genuine customers, the inappropriate guidance by the management to the customers, the lack of awareness of the banking procedure to the customers, the non payments the pending loans and debts by the customers and many more. In order to overcome all these problems the government related to those specific countries has established some of the legal acts to the banks in order to recover their loans and debts. By making use of these acts the banks should initially send the notification to that customer regarding his due payments and dates, and even after receiving these notifications if the customers are not paying the loans and debts in the specified time, then the banks as well as the financial institutions can make use of these acts and can take any sort of legal and illegal actions on the customers. Another measure to reduce this problem is to planning and implementing the efficient recovery process. The banks and financial institutions will appoint the recovery agents in order to recover their loan amount and these recover agents will visit the customers place and will explain the payment modes and due dates, in some situations in order to handle typical customers the recovery agents will take some illegal actions on them, so to solve this the banks should allot certain principles to the recovery agents while dealing with the customers, the recovery process should recover the loan amounts but should not spoil the relationship between the banks and the customers.

Another measure is that the banks should verify and cross check the customer’s standards twice and thrice before allotting the loans and should clearly explain the payment procedure and should indirectly warn the customers regarding the acts and actions taken on them if the payments are not done in time. A strong banking sector is important for a flourishing economy. The failure of banking sector may have an adverse impact on other sectors. There is also a general prescription of 40% of net bank credit to priority sectors have lead to higher NPA, due to credit to these sectors becoming sticky. In the changed context of new prudential norms and emphasis on quality lending and profitability, managers should make it amply clear to potential borrowers that bank resources are scarce and these are meant to finance viable ventures so that these are repaid on time and relevant to other needy borrowers for improving the economic lot of maximum number of households . Hence, selection of right borrowers, viable economic activity, adequate finance and timely disbursement, correct end use of funds and timely recovery of loans is absolutely necessary preconditions for preventing or minimizing the incidence of new NPA.

The function of NPAs pressures the importance of the sound thinking of the system issues and macroeconomic variables pertaining to banks as well as the economy so as to resolve the problem of NPAs  beside with the considerably of a strong legislative framework and legal frame work. Clear understanding is not required but also it very important to utilize the foreign experiences for the local conditions in order to generate a tailor made solutions and this solution for all the stakeholders should be fair and transparent .      

It is also analyzed in these studies that in India the public sector bank’s expressed non-performing loans in terms of NPLs response to terms of macroeconomic condition variables, credit and bank size.  The results offer significant insights for lending behavior of bank. From perspective of policy, these results are aligned with method of policy to Indian banking sector, which in turn emphasizes on lending policy as well as suitable credit culture designed with appropriate financial as well as economic factors. The impact of business cycle on non-performing loans could be controlled with suitable lending in terms of capital requirement, maturity and loan interest rate.   

Introduction

Discussion is one of the most important parts of any research. Researcher has linked the theory with literature review and data analysis with empirical data. Researcher discussed the interviews responses based on the theories that have been presented. Detailed discussion of effects in Non-performing assets. 

Classification of assets for making provision:

For the purpose of making provisions for doubtful loans, banks need to classify them into following broad categories:

Performing assets

Non-performing assets

Performing assets:

Performing assets is also known as standard assets/loans where the interest or principal are not overdue beyond 180 days at the end of the financial year. Such business will not carry more than normal business risk.

Non-performing loans:

Any loan the repayment of which is overdue beyond 180 days or two quarters is considered as NPA. It is further classified into:

Sub-standard assets

Doubtful assets

Loss assets

Sub-standard assets:

Sub-standard asset is one which has been classified as NPA for period not exceeding two years. With effect from 31 March 2001 sub-standard asset is one, which has remained NPA

Doubtful assets:

A doubtful asset is one which has remained NPA for a period exceeding two years. With effect from 31 March 2001 an asset is to be classified as doubtful if it has remained NPA for a period exceeding 18 months. A loan classified as doubtful has all the weaknesses inherent in that 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.

Loss assets

A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has been written off wholly or partly. Bankable asset is not warranted although there may be some salvage or recovery value. The assets which have been wholly written off should not be reported in SBR. However, in case of partly written off assets, the amount of technical write off, if any, should be reduced from outstanding gross advances and all the assets will handed over to recovery agents for sale.

Now a day’s the Indian banks as well as the financial institutions are facing the problem called enlargement of the NPAs-Non-Performing Assets which is happened to be the uncontrollable aspect. In order to overcome this problem and control it many measures are been taken. Among all the existing steps the introduction of the securitization, the reconstruction of the financial assets as well as he enforcement of the security interest act 2002 by the parliament are some of the significant steps which are meant to eliminate or decrease the non performing assets.

Lending business is one of the significant and vital role which is been played by the banking sector. This process is been encouraged as it is showing the major impact on the funds which are been transferred through the system for a particular reasons and it will even lead to the growth and development in the economy. There are many existing defrauds within the lending business which leads to the risks in the credits that will take place when the borrower fails to complete the contractual requirements within the entire process.

The asset is categorized as the NPAs- non-performing asset in which the payments that are due in the form of the interest are not been paid by the borrower to the bank or a financial institutions. From the year 2004 if the payments are not received then the default status will be forwarded to the borrower. In the ongoing process if the credit facility is been offered by the bank to the borrower then it will happen to be non-performing, then there is a necessity of treating the entire credit facilities which are offered to the borrowers as the non performing excluding the fact that the existing credit facilities will have the performing status.

The growth of the non-performing assets will totally depends on the quality of managing or controlling the credit risk which is been faced by the particular banks which are taken into consideration.

The main significant aspect which the Indian banks lacking are having the sufficient protective measures during the set up of the evaluation responsibilities as well as having the successful post disbursement management. The banks which are taken into consideration must be capable of observing the loans in order to recognize the accounts which are possible to be the non-performing.

The global standard of the gross non-performing asset of the banking sector is nearly 5%, but especially in India it is more than this. This statement shows that there are no more existing chances that the non-performing assets of the Indian banks can be reduced or controlled.

Because of the increasing number of the non-performing assets the original borrowers are facing many problems within the process of increasing their existing funds from the banks. One of the main reasons is that the bank is not willing to provide the required funds or credits to the original borrowers and even if the funds are offered they will happen to be at high costs repay the losses which are happened to the lenders because of the existence of the higher levels of the non-performing assets. As a result the corporate will consider the funds by making use of the commercial papers of which the interest rate charged on the working capital is to high. By making use of the performance of the securitization and reconstruction of the financial assets as well as the enforcement of the security interest act 2002, the banks will be capable of issuing the notices or alerts to the defaulted customers to pay their balance amounts and after receiving this default message the borrower need to pay his dues within 60 days of time period.

Within this default period if at all the borrowers receives the notice or the alert from the particular bank as well as the financial institution then the protected assets which are specified in the received notice could not be traded as well as transferred without taking the permission from the lenders.

The main aim of this default notice is to update the borrower regarding his dues which are to be paid to the banks or the financial institutions; if the borrower doesn’t pay the due within the allotted time after receiving the default notice, and then certain actions will be taken on the borrower by considering the assets. Other than the assets the banks are even capable of handover the management of the company. As a result by making use of the aforementioned act the banks is capable using their authorities in orders to hand over the entire company or else the bank is even capable of changing the management of that particular company. 

Since the safety which comes under the above mentioned act will only offer the incomplete solution. The banks should recognize that they must move according to the actions within the process of disposing the assets. This is happened because of the uncertainty increases within the time period, and there is even other possibility that the recoverable value which belongs to the asset will even decrease as well as this facto will not obtain the best price. By making use of this securitization act 2002 the banks are capable of overcoming the problems of non-performing assets.

And after the establishment of the securitization act 2002, the banks can easily issue the default notices and alerts to the borrowers regarding their due payments and if they don’t repay the amount even after sending the default notice then the banks can take the typical and tough actions on the borrowers by making use of the aforementioned act. This will allow the banks to be relief from the typical borrowers. By the process of formulation of the asset Reconstruction Company which is under this act will even be helpful in removing the debt ridden assets in a reliable manner. One of the most successful way to remove the non-performing assets from the books which belongs to the weak banks can be done by moving them into the individual agency that will purchase the loans in order to create the self efforts for the recovery process. This act will be even helpful to recover the achieved non-performing assets than that of the price which is been paid initially. The non-performing assets levels of the Indian banks are more than that of the international standards. In order to overcome all these problems related to the non-performing assets the Indian banks should make sure that they should only offer the loans to the credit valuable customers. 

China

• Causes

1. Moral Hazard: Considers that the government of SOE can bail out the moral hazard in difficult time, and therefore it stays to agree higher dangers and in general does not include achieving efficiencies in order to enhance the operational competence.   

2. Bankruptcy laws support law courts and borrowers are not trustworthy enforcement vehicles.

3. Social implications and Political reform’s large SOE’s strengthens the government in order to continue its floating.

4. In order to borrow the private activities, banks hesitate because

a. they experience Non-standard accounting

b. If an SOE’s NPA of is economically undesirable, private enterprise an NPA is both politically and financially undesirable (Pravakar Mohanty, 2006).

• Measures

1. Risk reduction by growth of the banks, increasing disclosure standards and SOE’s spearheading reforms by decreasing their debt level.

2. Laws were accepted permitting the asset management companies creation, foreign justice involvement in securitization and securitization of asset.

3.  The economical debt loss in the government ‘discounting’. Debt/equity exchanges were permitted if survived the growth opportunity.

4. Inducement applied such as tax splits the exception from asset evaluation norms as well as administration fees (Ben Fung, 2004).

Thailand

• Causes

1. Current account and Liberalized capital includes external borrowings by means of false evaluation of capital light risk as well as swaps rate risk in an emergency.

 2. A legal system makes credit improvement complex and time consuming.

3. Speculators of real estate show enormous loans by focusing highest improvement in property costs as well as maintenance. If it is not materialize the entire loans goes awful.

4. Vertical interest rate rise curved more loans in NPAs

5. Lack of ability to properly assess credit threats.

Measures

1. Modifications were built to the Act of Bankruptcy.

2. Set up Mutual Debt Restructuring Advisory Commission for the banks restructuring and takeover.

3. In 1998 The Financial Sector Restructuring Plan projected on capital support services for recapitalization of bank and AMCs setup.

4. Governing New rules NPA leave measures based on international standards.

5. Government entity Privatization was doubtful, however gone through difficult social backlash’s political opposition terror. 

6. Approval of international standards for classification of loan as well as provisioning.

7. Limits on Foreign equity possession in economic institutions were eliminated (RAJA J. CHELLIAH. 200).

Korea

• Causes

1. Directed credit: it controls the intended interest rate time and selects provisions of credit that are provided to enhance funds of an ineffective distribution. On the financial system, terrific stress has been caused by the projects of chaebols while improving following diversification as well as market share with little effective attention. 

2. The policy of “compressed growth” by aggressive, forced expansion done well provided that the financial was increasing and the ROI go beyond the capital cost. This strategy failed during less demand and increasing input prices locating strict pressure on their efficiency.

3. Shortage of Monitoring:

Banks relied on securities and undertakings in the allocation of credit, and little interest was remunerated to achieve performance and cash flows.

4. through south East Asia Contagion Effects agreed simultaneously with the changes in structural time and also in Korea a cyclical downturn. 

• Measures

1. 1.      Speed of Action – The systemic risk speedy containment and the issues of the domestic credit crisis with the number of public funds injection for recapitalization of the bank were vital points to normalizing the economy.
2. 2.      CRVs (Corporate Restructuring Vehicles) and Swaps of Debt/Equity were used to help the bad loans resolution.
3. 3.      The Creation of KAMCO (Korea Asset Management Corporation) and finances the NPA fund to fund to invest in NPAs purchase (Raghbendra Jha, 2001).
4. 4.      Securitization KAMCO’s improves came with securitization of the asset-backed and sales of outright. Global shareholders such as the Lone Star Fund shared in the procedure.
5. 5.      Provision norms strengthening and implemented the loan categorization standards on forward-looking criteria based.
6. 6.      The central bank objective was individually described as maintaining cost constancy. The FSC (Financial Supervisory Commission) has been built in 1998 to guarantee system of an efficient supervisory in procession with the experience of universal banking system.

 Japan

• Causes

 

1. Funds were done in real estate at extended costs while in demand. The decline caused costs to collapse and number of these loans turned to bad.

2. Legal devices to set out bad loans were reduces the time and is very costly and NPAs stayed on the balance sheet.

3. Expansionary fiscal policy evaluates Governed to encourage the financial system maintained business sectors such as real estate and construction that can have more exacerbated the difficulty

4.   Crony Capitalism to the Keiretsus

5. Governance of Weak corporate joined with doctrine a no-bankruptcy in financial system of Japan was a moral hazard.

6. System of Inadequate accounting and data flow generates loan assessment act external in problem of Japan.

• Measures

1. Foreign exchange control law Amendment (l997) and the suspension risk of banking industry as in failure case to approve the capital adequacy ratio.

Legislation in order to increase the data flow has been conceded.

2. Accounting standards – main business groups initiated a setting vehicle of private standard for (2001) Japanese accounting standards in procession through the Global standards.

3. Government Support – commitment of the public investments to contract with the weakness of the banking sector (Sumant Batra, 2003).

Introduction to Data Collection Methods in Marketing Research:

According to Sasha Hurrell (2004) the data collection method is one of the important aspect within the entire research methodology process and it plays a major role in estimating the main search related to the research and it will verify the collected data and the comparable analysis through the actual search against the literature. In general there are two types of data collection methods like the primary source of data and the secondary source of data.

 Primary source of data

The primary source of data is one of the important data collection method and it is been established across to the research methodology. The primary data is collected from the actual source of the problem so it is referred as one of the best data collection method when compared with the other data collection methods as well as the other data sources. In the previous discussion it is been mentioned that the primary source of the information is the actual case study approach. In general the primary source of the information is been gathered conducting the interviews, the general discussions, group meeting and the semi structured interview. In the research process the semi structured interviews are used and the required questionnaires are been prearranged and then they are transferred to the individuals who are taking part in the research process in order to make them to understand the actual research problem and to get the required information.

The information which is been gathered from the individuals in the form of their views and ideas are been considered as the primary data source and these information is been analyzed in order to complete the entire research process and to get the expected outcome. The answers and the ideas which are been proposed by the individuals and the participants is more and more efficient, trustworthy and faultless, as a result this data collection method is referred to as the perfect and useful source of data.

 Secondary source of Information

In order to continue the research process the secondary source of the information is required and to compare the actual search and views which is obtained from the primary source of information with the secondary source of information. In general the secondary source of the data is been gathered by making use of the article, journals, book reviews and the websites. The data and the information gathered from secondary source are compared with the actual sources by means of considering the views and ideas of the individuals involved within the research process from the primary source of information then these entire information is been analyzed to get the expected outcome. 

According to D Vermeulen (2009) the research design is the process of identifying the basic research questions and then changing them into the testing process. There are various types of the research designs but they are implemented and used according to the research problem. In general there are two types of research designs like the fixed research design and the flexible research design. Initially the fixed research design method is been situated before fixing the appropriate data.

This fixed research design is entirely a theory based method, so it not possible to calculate the mathematical variables and the factors which are been resulted in the future aspect. The collected data is fixed and then the authentic methods utilized in the data collection process is been implemented in this specific research design. There are wide varieties of choices that available in the research process. This research process is entirely different from the actual research process and even it is different from the flexible research design. Within the flexible research process the variables which are identified will be varied from the actual statement, so there is a need of flexibility in process of selection of the research variable.

The investigational results are totally based on the approach that is implemented against the flexible research design. In general the research design is been divided into two different types such as the experimental type and the non-experimental types. The experimental research design one of the appropriate process for the projects related to the statistical analysis. For the experimental research design the research sample size is more and the sample size is less for the non-experimental research design. The general observations and the individual activities are been utilized in order to get the results. The experimental research design is one of the best and suitable method for the quantitative research methodology. And for the purpose of the qualitative research methodology the non-experimental research method is the suitable one.

The case study can be considered as the example for the non experimental research design. In this the process the data should be gathered through the single source and the required conclusions are been finished by the common observations, the views and ideas of the particular individual is involved in the case study. 

 Case study chosen

According to Jennifer Rowley (2002) the case study approach is the simple and best method which is been used in order to collect the information or else the data required against the qualitative research methodology. The required solution for the research questions and the research problem can be identified by this case study approach.

The individuals or else the participants who are taking part in the research process are been examined in order to get the answers required to fulfill the research work. The actual aim of the research is been explained to the individuals and their views and ideas on the particular topic are considered and analyzed to get the required idea on the research.  By using these case studies there are various benefits and the most important benefit is that the data which is gathered from these source is the direct data and the information which is been collected is more truthful and reliable. When compared with the other data sources this is the most useful source. In order to solve the research problem the information is been gathered from the case study.

To conduct the research work on a specific topic the person who acts as the researcher must be able to have the minimum knowledge upon the case studies of that particular topic and case studies which are selected for the research should provide the entire required information and even should be able to solve the problems in the research process. By having all these capabilities then this case study approach can be referred to as the best source in order to collect fulfill the primary information which belongs to the qualitative research method.

In general the case studies are differentiated in to many types like the individual case study or the organization case study. The case study is been selected based on the problem within the research process. 

The methodology is the system that contains wide range of principles or rules in which the particular methods and procedures are been considered in order to solve the problems that arise within the specific aspect. Similar to the algorithm the methodology is a set of practices.

There are two types of research methods which are been used in order to solve the problems happened within the research process such as quantitative research method and the qualitative research method. The types of the research methodologies are been taken into consideration depending on the different types of factors happened within the research process. The correct and important data is been gathered and the entire research analysis process is been discussed in detail.

 Qualitative research

According to Trochim (2000) in the process of the qualitative research methodology the entire factors which are related to the human activities are taken into consideration. The problems which are been specified by the human activities are been considered within the qualitative research method. This qualitative research method is been used within the educational regulations, the social studies and for the basic problems that take place in the market place. The decision making process will involve different types of critical steps like the way of reaction against the problems happened within the research process. The small volume of contents should be considered than the large volume of contents within the process of data collection from the individuals or participants who are involves the research process. In order to complete the research successfully with an appropriate emotional observations   the typical non numerical data without the significant aspects such as the graphs, charts and the statistical methods are been considered.

 Quantitative research

In general the quantitative research methodology includes the models that are based on the mathematical and theory based approaches. This research method will even involve the statistical analysis and the experimental examination of the specific aspects as well as the internal relationship between the particular quantitative aspects. The important aspects within the quantitative research method are the measurements and the evaluations through which the actual results are been obtained.  This quantitative research method is been used in order to answer the questions such as the what, why and where. This research methodology will involve the concepts of the social sciences like the political science, economics, anthropology and psychology.

By making use of these research methodology the questions such as what, why and where are been answered and in this quantitative research methodology as the major research methodology will include the major social sciences such as political science, economics, anthropology as well as the psychology. In this research method the particular case studies and articles are been considered which are used as the major information sources. By using these resources the general conclusions as well as the hypothesis is been resulted.  By making use of the hypothesis list in the quantitative research method the problems can be rectifies within the research process. The numerical measurements like graphs, charts and the statistical analysis is been utilized in this quantitative research method. By using this method the data which is gathered can be analyzed in the form of the experimental examination and the comparable results are been calculated through the empirical analysis.

The best example for this is that survey conducted might result in the finishing the entire process of the research rather than that of the methodology which is been used in a specific levels. 

The effective collection practices are nothing but a process of recovery of the loan amount from the borrowers. Within the entire loan process period if the borrower is not paying the loan amount in time which means overdue of payments, then the banks are having different types of collection procedures in order to recover their loan amount form the borrower.

The recovery process varies from the bank to bank. Some of the banks will make use of the preliminary acts and authorities on the borrowers by sending them default notices in order to recover their loan amount, whereas some of the banks will use their self acts and norms of their banks such as they will appoint the special recovery agents to recover the allotted amount from the customers.

This is having positive as well as negative impact on the customers as some of the customers will pay their dues if the recovery agents visit their place, but some of the customers will not even consider the actions of the recovery agents, at this particular time the banks should make use of the existing preliminary acts in order to recollect their money from the borrowers. 

Introduction to Impact on Non Performing Assets Commercial Banks:

Public and private sector banks profitability, liquidity and also competitive functioning are been affected by the non performing assets and as a result the psychology of the bankers will also affected by NPAs who are depositing towards the credits as well as in the expansion of credits.

The Non-performing assets Impact on profitability

Commercial banks from the year 1993 to 2001 have been incurring an entire amount of Rs. 31251 crores towards provisioning non performing assets. By incurring this amount the net non performing assets brought up by Rs. 32632 crore or in the other words it 6.2 percent net advances. The huge provision of NPAs combined by grasping cost of those assets of non productive is performed from so many years and has a severe drain on the profitability of PSBs.  In the issues of the nationalized banks regarding equity have been already strikes on the market and in the secondary market are now quoted at the discount. As a substitute this has been forced PSBs to have a loan seriously from the market of debt to built Teir II capital in order to meet rule of the capital adequacy by keeping serious pressure up on the restrictions of their profits (Amaresh Samantaraya, 2007).

The Impact of the Non-performing assets on the outlook of Bankers towards Credit Delivery

In the psychology of the banks in now days is to keep themselves from the risk free operation i.e. zero percentage of risk as well as to go towards the new credit. The credit growth of this type will affect adversely when these growth is compared to the deposits, this will finally result in the low ratio of C/D approximately in between 50% to 54% for the company.

It is obvious that the collateral security presence at the best might change the extension of the credit to productive sectors towards the investments of the real estate, but may not evade the account turning into NPA.  In future the blocked real estate and assets will correspond to the main NPA and illiquid security in this type of proceeds has the continuous inclination towards long period of time. Dead-line is achieved by the nationalized banks of the tunnel as well as their future affluence based up on the critical solution of this suspended threat (Arvind Virmani., 2005).