Management of non-performing assets of commercial banks : a case study of the South Indian Bank limited

Abstract

The study entitled "Management of Non - Performing Assets of Commercial Banks - A Case Study of The South Indian Bank Limited" was conducted with the following objectives. i) To assess the volume and composition of Non- Performing Assets (NPAs) of South Indian Bank Ltd.(SIB) ii) To identify the major determinants of NPAs and iii) To examine the existing institutional arrangements for reducinz and recovering NP As. The study was confined to the Trichur Region of the Bank. Out of the 57 branches of the Region, five were selected for the study. The sample frame comprised of 150 respondents belonging to agriculture, retail trade/ small business, professional/ self employed, miscellaneous (trade/general) and other non - priority. The first three sectors constitute priority sector and the last two non - priority sector. Both primary and secondary data were used for the study. Primary data were collected by means of a pre-tested interview schedule from the 150 respondents whereas secondary data for the period 1994 - 1999 were collected/compiled from various published sources. The study has revealed that the 27 Public Sector Banks (PSBS) as a group with nearly 90 per cent of the NPAs is the largest contributor of

the NPAs of the commercial banks of the country. The 19 . nationalised banks contribute to more than 60 per cent of the total NP As of the PSBs. The three nationalised banks which are identified as weak bank by Varma Committee, viz., Indian Bank, uca Bank and United Bank of India contribute to 22.86 per cent of the total NPAs of the nationalised banks. The NP A level of the commercial banks of India when compared to some of the developed countries 'are very high. The expeditious recovery measure due to stringent bankruptcy and foreclosure laws in other countries are the reasons behind this. From the analysis of the NP As of the seven Kerala based banks, it is seen that the only PSB, i.e., SBT have a very high share to the total NPAs of the Kerala based banks and out of the remaining six Kerala based private sector banks Federal Banb has the highest share. But the share of net NP A to net advance is the lowest for Federal Bank in 1998. Non - priority sector have a much larger share of advances and gross NP As when compared to the priority sector for PSBs. But the percentage of sectoral gross NPAs to sectoral gwss advances is lower for non - priority sector in the case of PSBs. For PSBs, Doubtful Assets consti~ the major portion of the NPAs. This is in contrast to that of SIB where sub-standard assets constitute major portion of the NPAs. 11

Region wise analysis of the net advances and net NPAs of SIB reveals that the inside Kerala Regions are functioning better than the outside Kerala Regions. Mumbai Region is the highest contributor of the NP As of the Bank. Chennai and Coimbatore Regions also have high share of NP As to the total NP As of the Bank. Therefore, if the NP As of the outside Kerala Regions can be brought down than the NPA level of the Bank can be decreased drastically. The major determinants of NP As as identified from the study in order of priority are less return / failure of the venture, wilful defaulters, misutilisation/ diversion of loans, insufficient loan amount/ loan from other sources, high rate of interest/high instalment amount and ploughing back of return. The frequency of visits of the bankers to the place of business of the borrowers can certainly bring down the number of accounts from becoming NPAs. Even in the existing NPA accounts of the Bank, a considerable amount can be realised through compwmise/ negotiation/ nursing, since a major portion of the NPAs of the Bank are in the sub-standard category. The present legal system in India is customer friendly and not banker friendly. A change in this is urgently required, along with earnest attempts from the bankers' side right from appraisal of loan application. The considerable reduction in the NPAs of the Trichur Region of the SIB may be attributed to the efforts of the Bank in this direction