ISSN: 2456–5474 RNI No.  UPBIL/2016/68367 VOL.- VII , ISSUE- XI December  - 2022
Innovation The Research Concept
Recovery and NPA Management in Banks – A Way Forward to Sustainable Development
Paper Id :  16777   Submission Date :  2022-12-01   Acceptance Date :  2022-12-17   Publication Date :  2022-12-25
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Rajeev Kashiv
Research Scholar
Department Of Public Administration
Himachal Pradesh University,
Summer Hill, Shimla,Himachal Pradesh, India
Abstract
Sustainable development denotes prudent and judicious use of resources – sufficient for our present needs and enough for the posterity. We all know that development requires funds. In present day world, banks are the most easily available source of funds. They provide fund and non-fund based credit facilities to the borrowers. The former comprise of funds provided in the shape of term loans and cash credit limits, whereas the latter comprise of letters of credit, bank guarantees etc. It is imperative for banks to ensure that whatever funds are lent to the borrowers are recovered. In other words, recovery of loans is the most important aspect for continuous flow of funds. However, it cannot be overlooked that achieving 100% recovery is a utopia because we are dealing with human beings and hence, there are bound to be instances of defaults and non-repayments leading to non-performing assets. The efficiency of banks can be gauged from the time taken to recover the overdue amount and the resources spent on doing so. The lesser the recovery time and resources spent, the better is the NPA management. The present research paper explores and describes the recovery and NPA management in the Himachal Pradesh State Co-operative bank – one of the leading cooperative banks in Himachal Pradesh - across 2006 to 2017. It has been found that recovery and NPA management is a great challenge for banks. However, it can be managed with sustained efforts. Such efforts promote and foster greater credit availability which is so vital for development.
Keywords Loans, recovery, overdues, non-performing assets, NABARD.
Introduction
The HP State Co-operative bank is a premier state co-operative bank and one of the leading banks in Himachal Pradesh. Ever since its creation on 21st August 1953 and launch of its operations on 15th March 1954 it has played a lead role in providing banking services primarily to the rural customers directly in six districts of Himachal Pradesh i.e. Shimla, Mandi, Bilaspur, Kinnaur, Sirmaur and Chamba and indirectly through its sister concerns the Kangra and Jogindra Central co-operative banks in the remainder of the state. The cooperative sector banks account for nearly 20 percent of the banking business in HP out of which the HP State co-operative bank accounts for nearly 10% of the business (SLBC, HP). It will not be an understatement to make that the HP State Co-operative bank whose motto is “bank of the state and for the state”has played a pivotal role in fostering growth and development in the state through its branch network spread in almost every nook and corner of the state. From times immemorial Himachal Pradesh has been an agricultural economy and keeping this factor in purview the bank is committed to lend its funds for agriculture, which is the prime objective for which co-operative banks have been created. The funds are lent in two forms: (a) Term loans and (b) Cash Credit limits. The former is a one time sanction made for a specific period of time in which the customer has to repay the loan to the bank. In other words, after disbursement of loan sanctioned, the borrower is required to repay the loan as per repayment schedule fixed and he is not eligible for any fresh credit for the same purpose until he has repaid the existing term loan. The cash credit limits are revolving limits in which the borrower is permitted to withdraw funds any number of times and also deposit funds any number of times subject to the maximum specified limit of sanction. In other words, this credit facility provides flexibility to the borrower to withdraw and deposit funds as per his requirements. Besides the fund based loan facilties provided by the banks, they also provide non-fund based credit facilites to borrowers. These include letters of credit and bank guarantees. These credit facilities do not involve any immediate financial liability on the part of the bank but is dependent upon the performance / non performance of the acitivity by the borrower who has been sanctioned the non-fund based credit facility. These non-fund based credit facilities are depicted as contingent liabilities in the balance sheet of the bank. The bank charges an annual fee for such non-fund based credit facilties. The smooth functioning of banks is dependent upon unhibited flow of funds between the depositors on one hand who are the source of funds for the banks and the borrowers on the other hand who use the funds for purposes sanctioned and return them to the bank. Had this ideal position been achieved, there would have been no bad loans or non-performing assets. However, since NPAs are inevitable part of banking, it is imperative to focus on minimising its deleterious effects. One important way of achieving this objective is to monitor the recovery against fresh disbursements and also swift action for recovery against the defaulted loans. The efficacy and efficiency of banks in effective monitoring and management of recovery can be gauged from the speed with which they resolve and recover the over due amounts. The faster, the better as it will channel in more funds which could be lended for productive and developmental purposes thus leading to sustained development.
Objective of study
The present paper endeavours to study the recovery of loans and management of NPAs in the HP State Co-operative bank during the period 2006 to 2017.
Review of Literature

The recovery and management of NPAs in banks has been a topic of interest for research scholars, academicians, bankers and policy makers both in India and worldwide. A few of the important research studies have been included in this research paper. Toor (1994) observed that banks should interact directly with borrowers and enter into compromises with them. It was a better way of recovery of NPAs in comparison to litigation which was costly and time consuming. Chalam (2007) conducted an empirical study covering a period of 15 years i.e., 2000-01 to 2014-15 on Indian banks and found that recovery of overdues from large borrowers was a major issue. Thanker and Dubule (2010) found that recovery campaigns improve the recovery and bankers should educate the borrowers about the consequences of default in repayment of loan installments. Unnamalai (2010) in a study on Tiruchirapalli district central cooperative bank found that the increase in NPAs was due to poor recovery in agricultural sector and government sponsored schemes. Rao (2012) in his research work undertaken to study the extant mechanism of managing NPAs suggested that banks should have separate departments for dealing exclusively with sub-standard loans and they should also have a standard operating procedure (SOP) indicating a broad framework with defined time lines for each action to avert erosion in the value of underlying assets and swift action for recovery of overdues. Singh (2013) in his paper observed that banks should constantly monitor loans to identify accounts that have the probability to become non-performing. Bahir (2014) in his research work on district central cooperative banks in Maharashtra found that the overdues of the banks in the state had increased and recovery under agricultural loans was less in comparison to non-agricultural loans. Paul and Attri (2016) conducted a study to ascertain the recovery performance of the Himachal Pradesh State cooperative bank for the period 2001-02 to 2012-13 and found the recovery performance to be 62% only which was much below the satisfactory level. Gupta and Kesari (2016) in their research work stressed that in order to minimize the deterioration in the quality of assets banks should augment their channels of recovery i.e. DRTs, Lok adalats and SARFAESI. Preety and Maheshwari (2017) in a study on NPAs of District central cooperative banks in Uttar Pradesh during the period 2010-11 to 2014-15 found that despite improvement in the recovery position, the overdues had depicted an increasing trend during the period.
Methodology
The analysis was basically descriptive and explorative in nature based upon analysis of the balance sheets, internals reports pertaining to NPAs, recovery and management of NPAs in the HP State Co-operative bank. Besides, relevant information culled from the annual reports of RBI, NABARD and internet was used.
Statistics Used in the Study

In order to study the NPAs, recovery position, overdue and management of NPAs, the position of branches was summarized and classified into district wise position. With the help of tables, the data was presented and analyzed.
Analysis

 Non-Performing Assets - District Wise Classification
 In order to monitor the working of the branches, the bank had set up controlling offices named District Offices headed by an Assistant General Managers. The bank has 241 Branches / Extension which are managed and controlled through 8 district offices.
The table1 below which depicts the district wise NPA and gross advances position of the bank from 2006 to 2017 shows that district Shimla, followed by Mandi were major contributors to the NPAs. The share of district Shimla in the gross NPA increased from ₹4456.40 lakh as on 31.3.2006 to ₹11240.29 lakh as on 31.3.2017. As on 31st March, 2017 out of the gross NPAs of ₹27344.11lakh, Shimla district accounted for ₹11240.29 lakh i.e. 41.10% of gross NPAs of the bank.
Table 1: Comparative District wise Position of Non-Performing Assets

(Amount in ₹lakh)


In all the years i.e. 2006 to 2017, it was revealed that Shimla and Mandi districts are the two main districts which contribute significantly towards the gross NPAs of the bank. Since these districts constitute the main business, they also contribute significant amount of NPAs. Hence, these districts have pegged back the bank’s financial position due to higher NPAs. These districts also make the most significant contribution under sub-standard as well as doubtful assets. The higher amount of NPAs depict that lesser funds were available to the bank for lending. 
Non-Performing Assets-District Wise Share
 The non performing assets increased in real terms from ₹9107.71 lakhs to ₹27344.11 lakhs during the period of study which implied that more funds were stuck up and bank was unable to rotate the funds. Although bank was able to generate resources for fresh lending from the public as the loans have continued to grow, however, the funds stuck up in NPAs could not be utilized by the bank which impacted its interest income, provisions and profitability during the period of study.
The %age share of district wise NPAs as depicted in table 2 below showed that Sirmour, Mandi and Shimla districts account for nearly 77% of the gross NPAs. Shimla district accounted for nearly 41% of gross NPAs. From 2006 to 2017, district Shimla’s share ranged from 41.11% to 56.76%. From the above, it may be inferred that the monitoring of branches in Shimla district remained lax during the period. The bank needs to focus its entire strategy and resources on managing and arresting the NPAs in the three districts viz., Shimla, Mandi and Sirmour. The recovery strategy needs reorientation especially in Shimla & Mandi districts to target the high NPA branches & especially the sub-standard NPAs.
Table 2: District wise Share of NPAs – (2006-2017)
(Amount in ₹ lakh)

March Ended

Bilaspur

Chamba

Kinnaur

Mandi

Shimla

Sirmour

Gross

GNPA

Gross

NPA %

 

A

B

C

D

E

F

2006

710.88

439.97

492.12

2095.11

4456.40

913.23

9107.71

11.59%

% to GNPA

7.81%

4.83%

5.40%

23.00%

48.93%

10.03%

2007

902.10

465.81

453.17

2138.66

7040.44

1402.71

12402.89

11.53%

% to GNPA

7.27%

3.76%

3.65%

17.24%

56.76%

11.31%

2008

1232.34

431.08

562.55

2357.38

8316.82

2082.60

14982.77

12.01%

% to GNPA

8.23%

2.88%

3.75%

15.73%

55.51%

13.90%

2009

1975.62

486.19

1119.54

2665.62

11323.36

2115.22

19685.55

14.09%

% to GNPA

10.04%

2.47%

5.69%

13.54%

57.52%

10.75%

2010

2599.85

1109.99

1433.77

3453.60

10728.49

2406.14

21731.84

13.22%

% to GNPA

11.96%

5.11%

6.60%

15.89%

49.37%

11.07%

2011

3007.04

1468.59

2582.48

4577.08

13185.97

2693.57

27514.73

12.45%

% to GNPA

10.93%

5.34%

9.39%

16.64%

47.92%

9.79%

2012

3286.59

1576.23

2373.60

4811.21

14253.83

3487.42

29788.88

12.61%

% to GNPA

11.03%

5.29%

7.97%

16.15%

47.85%

11.71%

2013

3343.63

1875.55

2277.29

4722.10

13899.26

3606.47

29724.30

11.20%

% to GNPA

11.25%

6.31%

7.66%

15.89%

46.76%

12.13%

2014

3528.14

2207.49

2016.83

4909.56

14833.77

3817.43

31313.22

10.36%

% to GNPA

11.27%

7.05%

6.44%

15.68%

47.37%

12.19%

2015

2690.05

1839.43

1461.26

4100.11

15890.72

4986.58

30968.15

8.62%

% to GNPA

8.69%

5.94%

4.72%

13.24%

51.31%

16.10%

2016

2785.29

1960.07

2041.72

4383.44

12253.34

5543.70

28967.56

6.64%

% to GNPA

9.62%

6.77%

7.05%

15.13%

42.30%

19.14%

2017

2488.89

1875.60

2063.09

4538.55

11240.29

5137.69

27344.11

5.75%

% to GNPA

9.10%

6.86%

7.54%

16.60%

41.11%

18.79%
Recovery Position
The recovery of loans sanctioned to the eligible borrowers is one of the most important aspects to ensure continuity of fund flow. The district wise recovery position over the years as depicted in the table 3 below shows that branches in Bilaspur district have maintained a consistent recovery performance ranging from 82% to 94% except for during the year 2010-11 when its recovery plummeted to 71.60%. The branches in chamba district have lagged behind with recovery touching above 80% only once during 2016-17.
The recovery position in Shimla, Mandi and Sirmour remained erratic even though the position of recovery in district Mandi has improved during the last three financial years (2014-15, 2015-16 and 2016-17) of the study period. The higher recovery position in district Bilaspur manifested in its lower contribution towards the bank’s gross NPAs. The less than satisfactory recovery position of district Shimla clearly revealed its higher contribution towards the gross NPAs of the bank. It contributed nearly half of the total NPAs of the bank.
Ideally the recovery against the loans should be 100% but the bank has not been able to achieve it. There are some branches which have 100% recovery, however, the branches which are unable to achieve this performance peg back the position of those as well as the bank as a whole. 
Table 3: District Wise Recovery Position – (2006-2017) 

Period

Bilaspur

Chamba

Kinnaur

Mandi

Sirmour

Shimla

Total

2005-06

84.72%

69.65%

77.72%

64.75%

65.99%

73.90%

72.24%

2006-07

90.37%

72.13%

86.02%

70.16%

78.92%

70.11%

76.06%

2007-08

89.21%

70.75%

93.33%

73.91%

74.69%

74.64%

77.80%

2008-09

90.45%

78.56%

90.81%

80.25%

86.90%

85.21%

85.48%

2009-10

86.69%

67.14%

91.66%

75.08%

86.77%

76.64%

80.01%

2010-11

71.60%

70.46%

56.90%

72.89%

57.18%

66.41%

67.00%

2011-12

82.01%

71.66%

64.53%

78.58%

68.17%

67.61%

71.89%

2012-13

84.17%

70.59%

66.30%

80.22%

69.64%

75.44%

76.09%

2013-14

87.33%

70.25%

65.30%

81.53%

69.89%

79.60%

78.73%

2014-15

89.60%

77.63%

73.73%

84.36%

71.93%

80.71%

80.93%

2015-16

87.84%

76.85%

76.21%

84.30%

76.18%

82.44%

81.81%

2016-17

94.10%

81.06%

63.46%

91.31%

72.64%

71.92%

78.84%
Here it is pertinent to mention that NABARD in its annual report for the financial year 2007-08 & 2017-18 while writing about and commenting upon the recovery position of co-operative banks in India has observed that the overall recovery %age of co-operative banks in India was to the tune of 86.57% & 93.50% as on 30th June 2006 and 30th June 2017 respectively. Thus, the recovery position of the HP State Co-operative Bank was lower in comparison to the all India average of co-operative banks. The State Level Bankers Committee (SLBC), Himachal Pradesh while reviewing the recovery position of banks in HP for the period ended 31.3.2013 had observed that there was a significant improvement of recovery position noticed in co-operative banks having improved to 71.64% as of March 2013 from 64.58% as of December 2012. 
Overdue – District Wise Position
“Overdue” is defined as any amount due to the bank under any loan / credit facility if it is not paid on the due date fixed by the bank. The lesser the amount of overdue, the better is the recovery position and vice versa.
From table 4 below, it may be perused that Shimla district contributed maximum followed by Sirmour and Mandi to overdue figures. In %age terms, Shimla district contributed to overdue ranging from 33.79% to 51.34%. The overdue amount in all the districts had increased substantially during the year 2010-11 vis-à-vis the corresponding position during the year 2009-10.The position of overdue has been steadily declining in district Bilaspur since 2009-10 to 2016-17 from ₹2003.78 lakh to ₹278.77 lakh respectively.
Table 4: District wise position of Overdue (2006 to 2017)
(Amount in ₹ lakh)

Period

Bilaspur

Chamba

Kinnaur

Mandi

Sirmour

Shimla

Total

2005-06

251.78

143.99

129.98

970.49

450.51

993.36

2940.11

Overdue %

8.56%

4.90%

4.42%

33.01%

15.32%

33.79%

100.00%

2006-07

247.36

184.60

80.72

1022.81

463.71

1306.99

3306.19

Overdue %

7.48%

5.58%

2.44%

30.94%

14.03%

39.53%

100.00%

2007-08

336.93

235.66

50.67

1052.50

724.65

1376.84

3777.25

Overdue %

8.92%

6.24%

1.34%

27.86%

19.18%

36.45%

100.00%

2008-09

373.36

203.31

128.27

850.53

511.66

1866.34

3933.47

Overdue %

9.49%

5.17%

3.26%

21.62%

13.01%

47.45%

100.00%

2009-10

629.09

462.02

99.92

1301.59

541.87

2024.38

5058.87

Overdue %

12.44%

9.13%

1.98%

25.73%

10.71%

40.02%

100.00%

2010-11

2003.78

580.41

1026.01

1952.06

2025.30

6351.32

13938.88

Overdue %

14.38%

4.16%

7.36%

14.00%

14.53%

45.57%

100.00%

2011-12

1184.10

611.97

809.16

1500.66

1518.63

5934.91

11559.43

Overdue %

10.24%

5.29%

7.00%

12.98%

13.14%

51.34%

100.00%

2012-13

1086.45

689.50

877.74

1495.27

1593.46

5533.38

11275.80

Overdue %

9.64%

6.11%

7.78%

13.26%

14.13%

49.07%

100.00%

2013-14

917.78

790.55

966.48

1495.83

1599.17

5183.03

10952.84

Overdue %

8.38%

7.22%

8.82%

13.66%

14.60%

47.32%

100.00%

2014-15

780.25

676.57

893.47

1424.01

1754.90

4838.10

10367.30

Overdue %

7.53%

6.53%

8.62%

13.74%

16.93%

46.67%

100.00%

2015-16

771.64

721.61

803.15

1434.26

1748.79

4349.38

9828.83

Overdue %

7.85%

7.34%

8.17%

14.59%

17.79%

44.26%

100.00%

2016-17

278.77

500.72

1017.33

656.28

1571.69

3806.75

7831.54

Overdue %

3.56%

6.39%

12.99%

8.38%

20.07%

48.61%

100.00%
Similarly, the overdue have declined in the districts Kinnaur, Mandi and Shimla. Sirmour district also witnessed a decline in overdue amount, however, the overdue amount have increased during the year 2016-17. During the year 2016-17, all districts except Kinnaur have shown a decline in overdue amount. The total overdue of bank reached the maximum during 2010-11 to ₹13938.88 lakh and then declined to ₹7831.54 lakh as on 31st March 2017.
Findings NPA Management It is imperative for banks to ensure growth to guarantee survival. Since NPAs cause stress, it is vital to manage and reduce this stress. How effectively a bank is able to achieve this objective reflects its efficiency. One of the vital objectives of NPA management is to maintain its loan accounts performing during its entire life span i.e. the period during which the borrower will repay the entire loan along with interest to the bank so that there is continuous flow of income as well as funds rotation. If this objective is achieved, the bank will be able to provide funds to the borrowers on sustained basis. And these funds are used for development which can be sustained. The recovery of NPAs is undertaken by the branch staff on an ongoing basis. They adopt the traditional persuasive methods as well as the legal channels. The figures in the tables in this research paper indicate that the bank has been able to manage its NPAs quite successfully. Even though there has been an increase in NPAs during the period of study, what’s even more important is the growth in its credit portfolio which is manifold as the loans have increased from ₹78563.86 lakhs as on 31.3.2006 to ₹475826.59 as on 31.3.2017. It reflects the overall success of the bank in managing its NPAs. However, banks must take serious measures to manage and recover NPAs. The management of NPAs is a very challenging task for banks.
Conclusion
Lending and recovery go hand in hand. There has to be synchronization between the two aspects to ensure effective funds management. Any mismatches are likely to have deleterious consequences. The research study has highlighted that recovery and NPA management are the most important challenges which banks face today. With systematic planning and implementation NPAs can be controlled and managed. Each loan account is required to be monitored closely to ensure its financial health is maintained throughout its life span. Even though the NPAs have increased during the period of study, the HP State Co-operative bank has effectively handled the recovery and NPA management. It has adopted a focused approach taking into account the ground realities and the steps taken by it have proved to be effective in managing and controlling the NPAs.
References
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