Page 220 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 15: Management of NPAs by Banks

‘Exposure’ shall include all funded and non--funded exposures (including Notes
underwriting and similar commitments). ‘Security’ will mean tangible security
properly discharged to the bank and will not include intangible securities like
guarantees (including State government guarantees), comfort letters etc.
(v) Standard assets: As a countercyclical measure, the provisioning requirements for all
types of standard assets stands amended as below, w.e.f. November 15, 2008. Banks should
make general provision for standard assets at the following rates for the funded outstanding
on global loan portfolio basis:
(a) Direct advances to agricultural and SME sectors at 0.25 per cent;

(b) All other loans and advances at 0.40 per cent

Notes Brief View of Provisioning
1. Standard Assets: general provision of a minimum of 0.25%
2. Sub-standard Assets: 10% on total outstanding balance, 10 % on unsecured exposures
identified as sub-standard and 100% for unsecured “doubtful” assets.
3. Doubtful Assets: 100% to the extent advance not covered by realizable value of
security. In case of secured portion, provision may be made in the range of 20% to
100% depending on the period of asset remaining sub-standard
4. Loss Assets: 100% of the outstanding

Case Study Union Bank’s NPA Position set to Improve

nion Bank of India recorded an average annual growth rate of over 25 per cent in
business and 23 per cent in profit in the last five years. But in the last two quarters,
Uthe non-performing assets have gone up.

In an interview to Business Line Mr M.V. Nair, who will be completing his five-year term
as Chairman and Managing Director of the bank in March, talks about his achievements
and explains why the bank’s NPAs are high.
Have you achieved everything that you planned since you took charge of the bank?
I had a five-year term and a clear plan. After I took charge, I had made an assessment of the
bank. It was consistently growing. But the challenge was to prepare it for the next 20 years
and for a high level growth. Being a public sector bank, it needed a complete
transformation. It took me about one year to figure out how to do it.
Our team prepared a transformation plan. We focused on technology and the entire process.
We re-branded our services. We looked at changing the age profile of our staff. It’s now a
completely transformed bank. Profitability has seen a substantial increase. Our cost-to-
income ratio has come down from 48 per cent to 40 per cent.

Your NPAs have been growing. Why?
We had already projected that NPAs will peak during Q2 of 2010-11. Thereafter, NPA
levels are expected to improve. The main reasons for slippages during the second quarter
Contd...

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