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S. Yasodhai

Cauvery Research Journal, Volume 3, Issue 1 & 2, Jul. 2009 Jan. 2010 42

MANAGEMENT OF NON PERFORMING ASSESTS IN

TIRUCHIRAPALLI DISTRICT CENTRAL CO-OPERATIVE BANK Ltd.

Dr.T.Unnamalai Abstract

A strong rural (cooperative banks) banking sector isimportant for flourishing ecoomy. The failure of the rural(cooperative banks) banking sector may have an adverse impact onother sectors. The present paper focus on.(1) To understand the meanings and nature of NPAS.(2) To examine the reasons for building of NPAS in TDCC Bank.(3) To examine the causes of NPAS in TDCC Bank(4) Management of NPAS in TDCC Bank

Assistant Professor,Dept.of. Commerce,Bharathidasan UniversityCollege, Perambalur.

INTRODUCTIONTiruchirapalli District Central Co-

operative Bank (TDCC) is the most

important component of rural development

of Tiruchy; Karur and Perambalur

districts, because TDCC Bank covers three

districts. TDCC Bank provides banking

facilities and services to both rural and

urban people to develop the economy of

the three districts. Hence their financial

health is a prime concern. Nowadays non-

performing assets (NPAs) are one of the

major problematic areas, which require

attention. TDCC Bank is facings the

problem of mountings of NPAs, which

will yield lower income to the bank.

TDCC Bank is in a position to provide

more reserves against NPAs. Non

performing assets means, credit facilities

in respect of which interest or instalment

of principal is in arrear for two quarters or

more.(Prudential Norms- Application to

SCB and DCCBs p2).Non performing

assets also mean an assets which ceases to

generate income for a bank.

Objective of the study

A strong rural (Cooperative Banks)

banking sector is important for flourishingeconomy. The failure of the rural

(Cooperative Banks) banking sector mayhave an adverse impact on other sectors.

Non-performing assets are one of the

major concerns for (Cooperative Banks)

banks in India. 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 of the banking sector. The

NPA growth involves the necessity of

provisions, which reduces the over all

profitability position of the banks. The

paper deals with understanding the

concept of NPAs, its magnitude and major

causes of NPAs, NPAs of Cooperative

banks in Tamilnadu, the NPAs of TDCC

Bank, % of NPAs in total loans and

advances, provisions for NPAs made by

TDCC Bank, and the profitability position

of the Bank.

1. To understand the meaning & nature

of NPAs.

2.

To examine the reasons for bulging of

NPAs in TDCC Bank

3.

To examine the causes of NPAs in

TDCC Bank.

4. Management of NPAs in TDCC Bank

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Methodology

Only secondary data have been

collected for this purpose of the study. The

simple percentage and average are

calculated for this study.

Meaning of NPAs

An asset is classified as Non-

performing Asset (NPA) if due in the form

of principal and interest are not paid by the

borrower for a period of 180 (3 months)

days. However with effect from March

2004, default status would be given to a

borrower if dues are not paid for 90 days.

If any advance or credit facility granted bybanks to a borrower becomes non-

performing, then the bank will have to

treat all the advances/credit facilities

granted to that borrower as non-

performing without having any regard to

the fact that there may still exist certain

advances / credit facilities having

performing status.

Assets classification and provisioning

norms

Assets are classified as

Standard Assets

Sub-standard Assets

Doubtful assets

Loss assets

Standard Assets

Standard asset is one, which does not

disclose any problem and which does not

carry more than normal risk attached to

business. Loans and advances which are

not, classified under the category of sub-

standard, doubtful, loss assets are

classified as standard assets. Provision is

required for standard assets 0.25 percent.

Sub-Standard Assets (over due up to 3

years)

Staff loanover dueless than 3 years.

Short term loans whether it is

agricultural loan or non- agricultural

loan over due from 12 months to 3years.

Instalments for medium term loan and

long term loans over due from 6

months to 3 years.

Agricultural cash credit out of order

from 6 months to 3 years.

All other cash credits out of order

from 6 months to 3 years.

Provision is required for sub-standard assets 10 per cent.

Doubtful Assets

Secured loan

All agricultural loans, loans cash

credits sanctioned against the mortgage of

immovable properties and other loans and

cash credits covered by reasonable value

of securities are classified as securedloans.

Category

Overdue for 3 years to 4 years.

Provision for this category is 20

percent.

Overdue for 4years to 6 years.

Provision for this category is 30

percent.

Overdue for above 6 years. Provision

for this category is required 50

percent.

Unsecured overdue

100 percent provision is required for

unsecured loans.

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S. Yasodhai


Loss Assets

Overdue more than 6 years and 100

percent provision are required for loss

assets. This can be explained with the tree

diagram.

Table 1 shows that the non

performing assets of Co-operative Bank.

Table 1NON-PERFORMING ASSETS OF CO-OPERATIVE BANKS

Year (end-

March)

Urban co-

operative banks

(UCBs)

Rural co-operative banks

Short term structure Long term structure

StCB CCBs PACS* SCARDBs PCARDBs

1 2 3 4 5 6 7

1994-95 13.9 33.9 N.A N.A N.A N.A

95-96 13.0 34.7 N.A N.A N.A N.A

96-97 13.2 34.9 N.A N.A N.A N.A

97-98 11.7 12.5 17.8 35.3 18.6 16.5

98-99 11.7 12.6 17.8 35 19.2 16.1

99-2000 12.2 10.7 17.2 35.4 18.7 20.0

2000-01 16.1 13.0 17.9 34.9 20.5 24.3

01-02 21.9 13.4 19.9 32.5 18.5 30.2

02-03 19.0 18.2 21.2 37.9 20.9 33.8

03-04 22.7 18.7 24.0 36.8 26.7 35.8

04-05 23.0 16.3 19.9 33.6 31.3 31.9

* Percentages of overdue to demand.

StCBs State Co-operative Banks.

CCBs Central Co-operative Banks.

PACS Primary Agricultural Credit Societies.

SCARDBs State Co-operative Agriculture and Rural Development Banks.

PCARDBs Primary Co-operative Agriculture and Rural Development Banks.

Note : Prudential norms were made applicable to the UCBs since 1992-93, the StCBs and

CCBs since 1996-97 and SCARDBs and PCARDBs since 1997-98.

Source : Reserve Bank for UCBs and NABARD for Rural Co-operative Banks (excluding

PACS for which the source is NAFSCOB).

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Table 2 explains that the Non performing

assets of TDCC Bank.

Table 2

Non-Performing Assets of TDCC Bank

Rs. in Lakhs

YearAmount of

NPAs

% of

increase

or

decrease

1999-2000 6060.20 -

2000-2001 7193.94 18.71

2001-2002 8450.50 17.47

2002-2003 9197.21 8.84

Source: SODONR TDCC bank

The above analysis shows that each

and every year the non- performing assets

of TDCC Bank have been increased.

During 1999-2000 the non-performing

assets amounted to Rs.6060.20 lakhs and it

has increased by 18.71 percent during

2000-2001. During 2001-2002 the non

performing assets of the bank was

amounted to Rs. 8450.50 lakhs and it has

increased by 8.84 percent and amounted to

Rs.9197.21 lakhs.With the above analysis,

it is observed that each and every year the

percentage of increasing rate has

decreased. Table 3 shows that the

percentage of NPAs in the total loans and

advances.

Table 3

Percentage of NPAs in the Total Loans

and Advances Rs.in lakhs

Year

Amount

of

NPAs

Total

loansand

advances

% of

NPAs in

TotalLoans

and

Advances

1999-

20006060.20 30296.91 20

2000-

20017193.94 38507.21 18.68

2001-

2002

8450.50 41639.92 20.29

2002-

20039197.21 44015.87 18.20

Source: SODONR TDCC bank of TDCC

bank

The above table reveals, the

percentage of non-performing assets

during 1999-2000 in the total loans and

advances was 20 percent, it was 18.68

percent during 2000-2001, it was 20.29

percent during 2001-2002 and the

percentage was decreased to 18.20 percent

during 2002-2003. The above analysis

shows that the percentage of NPAs in the

total loans and advances during the study

period almost varies between 18 percent to

20 percent. With the help of the above

tables 2 & 3 more over the % of NPAs in

TDCC Bank is not more than that of over

all percentage of NPAs in Cooperative

sectors. . Table 4 shows that the provision

made by TDCC Bank for NPAs

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S. Yasodhai


Table 4

Provision for NPAs

Year Provision

Rs.in

lakhs

% of

increase

or

decrease1999-2000 3528.92 -

2000-2001 4128.09 16.98

2001-2002 5234.09 26.79

2002-2003 5612.79 7.24

Source: SODONR TDCC bank of TDCC bank

During 1999-2000 the bank made a

provision of Rs. 3528.92 lakhs, and it hasincreased by 16.98 percent, 26.79 percent

and 7.24 percent, 2000-2001, 2001-2002,

2002-2003 respectively. Each and everyyear the bank provides a huge amount for

provision against non performing assets.

Due to monsoon failure for the past three

years, there was a poor recovery fromagricultural sector during 2001-2002.

There is nil recovery from weavers

societies, spinning mills and whole stores.Their financial strength is poor. There is

poor recovery from government sponsoredschemes like gas loan, etc. So, there is aneed to make a huge provision against

NPAs. The bankers are in a position to

create a reserve for NPAs even though the

credit generates income.Table -5 showsthat the profitability position of TDCC

Bank.

Table 5

Profitability Position of TDCC bank

Year Profit

Rs.in

lakhs

Loss

Rs.in

lakhs

1999-2000 830.90

2000-2001 9.89

2001-2002 625.18

2002-2003 778.88

Source: Annual Reports of TDCC bank

TDCC Bank incurred loss for the

year 1999-2000amounted to Rs.830.90

lakhs. TDCC Bank has performed almost

a miracle during the financial year 2000-

2001, earning a profit of Rs.9.89 lakhs as

against a loss of Rs.830.90 lakhs during1999-2000. From 2001-2002 and 2002-

2003 the bank sustained loss amounted to

Rs.625.18 and Rs. 778.88 lakhs

respectively. TDCC Bank sustained losses

for the past years due to nil recovery from

weavers societies, spinning mills and

wholesale stores and poor recovery from

agricultural sector, government sponsored

schemes like gas loan etc. Weaverssocieties, spinning mills and wholesale

stores are not able to repay their debts

because their financial health is not good.

Due to monsoon failure for the past three

years the due from agricultural sector are

also low.

Reasons for an account becoming NPA

There are several reasons for an

account becoming NPA.

Internal factors

External factors

Internal factors

(1) Loan borrowed for a particular

purpose but not use for the said

purpose.

(2) Willful defaults

External factors

(a) Scarcity of raw material, power and

other resources for rural industries

(b) Monsoon failures

Causes for Non Performing Assets

A lot of practical problems have been

found in Indian banks, especially in

cooperative sector banks. A Cooperativesector is important for a flourishing rural

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economy. Now the cooperative banks are

facing the challenges of an open economy

due to liberalization policy of our

government. Out of 22 DCCBs in

Tamilnadu 17 banks termed as red. This is

mainly due to agricultural sector advances.The Tamilnadu government waivers the

loans and advances borrowed by

agricultural sector.

Management of NPA

Various steps have been taken by the

government to recover and reduce NPAs.

Some of them are.

1. One time settlement / compromise

scheme

2. Lok adalats

3. Debt Recovery Tribunals

4. Securitization and reconstruction of

financial assets and enforcement of

Security Interest Act 2002.

5. Corporate Reconstruction Companies

6. Credit informationon defaulters and

role of credit information bureaus

CONCLUSION

With the above analysis, it is

observed that the TDCC Bank is faced

with bulging of NPAs resulting in lower

income higher provisioning making a dent

in their profit figures. Since NPA affects

the profitability and financial strength of

the bank. The NPAs of TDCC Bank has

been increased for the past years due to nil

recovery from weavers societies, spinning

mills and wholesale stores and poor

recovery from agricultural sector,

government sponsored schemes like gasloan etc. Weavers societies, spinning

mills and wholesale stores are not able to

repay their debts because their financial

health is not good. Due to monsoon failure

for the past few years the due from

agricultural sector are also low.

Government should help the bank because

the financial strength of the weavers

societies, spinning mills and wholesalestores is not good. The TDCC Bank would

have been still in a better position; if the

Government should help the bank to

reduce their Non- Performing Assets.

REFERENCE

1.

Annual Reports of TDCC Bank

2. Bhabatosh Banerjee and Anish Kumar

Dan, Management of NPA in Public

Sector Banks in India, The Journal of

Banking, Volume I, No.I, Jan. - June

2004, P35.

3.

Himedu, P.Mathur, Indian Banking

Challenges Ahead, Yojana Feb. 2001,

P28.

4.

Prudential Norms-Applicable to SCBs

and DCCBs.

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