CHAPTER – 2

THEORETICAL BACKGROUND
 2.1 INDIAN BANKING SECTOR

The origin of banking in India is as early as the Vedic period. It is believed that the
transformation from money lending to banking must have occurred even before Manu, the
great Hindu Jurist, who has committed a section of his work to deposits and advances and
laid down rules relating to rates of interest. During the Mughal period, the indigenous
bankers played a very important role in lending money and financing foreign trade and
commerce. During the days of the East India Company, it was the turn of the agency houses
to carry on the banking ventures. The General Bank of India was the first Joint Stock Bank to
be initiated in the year 1786. The others which came behind were the Bank of Hindustan and
the Bengal Bank. The Bank of Hindustan is announced to have continued till 1906 while the
other two failed in the meantime.
In the first half of the 19th century the East India Company came up with three banks; the
Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843.
These three banks also known as the Presidency Banks were separate units and functioned
well. These three banks were joined in 1920 and a new bank, the Imperial Bank of India was
established on 27thJanuary 1921. With the passing of the State Bank of India Act in 1955 the
covenant of the Imperial Bank of India was taken over by the newly constituted State Bank
of India. The Reserve Bank which is the Central Bank of India was created in 1935 by
passing Reserve Bank of India Act 1934. In the wake of the Swadeshi Movement, a number
of banks with Indian undertaking were established in the country namely, Punjab National
Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the
Central Bank of India Ltd. On July 19, 1969, 14 major banks of the country were
nationalized and in 15th April 1980 six more commercial private sector banks were also
taken over by the government of India.

2.1.1 BANKING ACTIVITIES

 Retail banking, merchandising directly with individuals and small businesses.
 Business banking, providing facilities to mid-market businesses.
 Corporate banking, provided for large business entities.
 Private banking providing wealth management facilities to high net worth individuals.
 Investment banking, activities in the financial markets, such as "underwriting" (guarantee
the sale of) stock and bond issues, trade for their own accounts, make markets, and advise
corporations on capital market activities like mergers and acquisitions.
 Merchant banking is the private equity activity of investment banks.
 Financial services, global financial institutions that engage in multiple activities such as
banking and insurance.

2.2 CANARA BANK

Canara Bank was founded by Shri Ammembal Subba Rao Pai, a great visionary and
philanthropist, in July 1906, at Mangalore, then a small port in Karnataka. The Bank has
gone through the various phases of its growth trajectory over hundred years of its existence.
This small seed blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and became
Canara Bank in 1969 after nationalization. Growth of Canara Bank was phenomenal,
especially after nationalization in the year 1969, attaining the status of a national level player
in terms of geographical reach and clientele segments. Eighties was characterized by
business diversification for the Bank. In June 2006, the Bank completed a century of
operation in the Indian banking industry. The eventful journey of the Bank has been
characterized by several memorable milestones. Today, Canara Bank occupies a premier
position in the comity of Indian banks. Canara Bank has an unbroken record of profits since
its inception. Sound founding principles, enlightened leadership, unique work culture and
remarkable adaptability to changing banking environment have enabled Canara Bank to be a
frontline banking institution of global standards.
Canara is India’s fifth largest bank in terms of asset size; as on March 31, 2010, it had an
asset base of around Rs 2.6 trillion. The bank’s strong market position is underpinned by its
market share of over 4.8% in deposits and advances, and its pan‐India branch network. The
new brand identity for Canara Bank is based on the idea of a bond and is a representation of
the close ties between the Bank and its many stakeholders – from customers and employees
to investors, institutions and society at large. With its rich heritage of banking expertise,
dedicated customer service and corporate social responsibility, Canara Bank is a powerful
enabler who helps its stakeholders to achieve their goals. The two seamlessly connected links
capture the essence of this partnership.
Canara bank, being a major public sector banks in India, is well known for its banking
operations. It provides various products and services to customers in the banking industry.
Other than banking operations it also provides Foreign Business, Asset Management,
Financial Services, Securities Market, Computer Services, Home Loans, Corporate Cash
Management Services, Factoring, Venture Capital Fund, Mercantile Banking, and Insurance
Banking to the various customers in India as well as in abroad.

2.3 ICICI BANK

ICICI Bank limited is an Indian multinational banking and financial services company
headquartered in Mumbai, Maharashtra with its registered office in Vadodara, Gujarat. As of
2018, ICICI Bank is the second largest Bank in India in terms of assets and market
capitalization. It offers a wide range of banking products and financial services for corporate
and retail customers through a variety of delivery channels and specialised subsidiaries in the
areas of investment banking, life and non-life insurance, venture capital and asset
management. The bank has a network of 5,275 branches and 15,589 ATMs across India and
has a presence in 17 countries including India
ICICI Bank Limited is an Indian multinational banking and financial services company
headquartered in Mumbai, Maharashtra with its registered office in Vadodara, Gujarat. As of
2018, ICICI Bank is the second largest bank in India in terms of assets and market
capitalization. ICICI Bank is one of the Big Four banks of India. The bank has subsidiaries in
the United Kingdom and Canada; branches in United States, Singapore, Bahrain, Hong
Kong, Qatar, Oman, Dubai International Finance Centre, China and South Africa and
representative offices in United Arab Emirates, Bangladesh, Malaysia and Indonesia. The
company's UK subsidiary has also established branches in Belgium and Germany.
ICICI Bank offers a wide range of banking product and financial services to corporate and
retail customers through a variety of delivery channels and through its specialized
subsidiaries and affiliates in the areas of investment banking, life and non-life insurance,
venture capital and asset management. ICICI Bank set up its international banking group in
fiscal 2002 to cater to the cross boarder needs of clients and leverage on its domestic banking
strengths to offer products internationally. ICICI Bank currently has subsidiaries in the
United Kingdom. Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri
Lanka and Dubai international Finance centre and representative officers in the United
States, United Arab Emirates, China, South Africa and Bangladesh. UK subsidiary has
established a branch in Belgium. ICICI Bank is the most valuable bank in India in terms of
market capitalization.
ICICI Bank’s equity shares are listed in India on the Bombay stock Exchange and the
National stock Exchange of India Limited and its American Depositary Receipts (ADRs) are
listed on the New York stock Exchange (NYSE). ICICI Bank has formulated a Code of
Business Conduct and Ethics for its directors and employees. At June 5, 2006, ICICI Bank,
with free float market capitalization*of about Rs.480.00 billion (US$ 10.8 billion) ranked
third amongst all the companies listed on the India stock exchanges.
ICICI Bank was originally promoted in 1994 by ICICI Limited, an India financial institution,
and was its wholly-owned subsidiary. ICICI’s shareholding in ICICI Bank was reduced it
46% through a public offering of shares in India in fiscal 1998, an equity offering in the form
of ADRs listed on the NYSE in fiscal 2000, ICICI Bank’s acquisition of Bank of Madura
Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to
institutional investors in fiscal 2001, and 2002.ICICI was formed in 1955 at the initiative of
the world Bank, the Government of India and representatives of India industry. The principal
objective was to create a development financial institution for providing medium term and
long-term project financing to India businesses. In the 1990s, ICICI transformed its Business
from a development financial institution offering only project finance to a diversified
financial services group offering a wide variety of products and services, both directly and
through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the
first India Company and the first bank or institution from non-Japan Asia to be listed on the
NYSE.
After consideration of various corporate structuring alternatives in the context of the
emerging competitive scenario in the India banking industry, and the move towards universal
banking, the managements of ICICI and ICICI Bank formed the view that the merger of
ICICI with ICICI Bank would be optimal strategic alternative for both entities, and would
create the optimal legal structure for the ICICI group’s universal banking strategy. The
merger would enhance value for ICICI shareholders through the merged entity’s to access to
low-cost deposits, greater opportunities for earning fee-based income and the ability to
participate in the payment system and provide transaction-bank services. The merger would
enhance value for ICICI Bank shareholders through a large capital base and scale of
operations seamless access to ICICI’s strong corporate relationship built up over five
decades, entry into new business segments, higher market share in various business
segments, particularly fee-based services, and access to the vast talent pool of ICICI Bank
and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank
approved the merger of ICICI and two of wholly-owned retail finance subsidiaries, ICICI
personal financial services Limited and ICICI Capital services limited, with ICICI Bank. The
merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High
Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at
Mumbai and the Reserve Bank of India in April 2002. 

2.4 NON- PERFORMING ASSETS

The three letters “NPA” strike as a nightmare for the banking sector and business circle
today. NPA is a short form used for “Non-Performing Assets”. In banking, NPA are loans
given to doubtful customers who may or may not repay the amount taken as loan on time.
There are two types of assets viz. performing and non-performing assets. Performing loans
are those standard loans on which both the principle and interest are secured and their return
is guaranteed. Non-Performing assets means those debt which is given by the Bank which is
unable to recover. Non- Performing Asset [NPA] is a result of asset Liability mismatch, an
NPA account in the books of accounts is an asset as it indicates the amount receivable from
the defaulters. It means if any bank gives loan to the customer if the interest for that loan is
not paid by the customer till 90 days then that account is called as NPA account. The loans or
leases that are not meeting its stated principal and interest payments are considered to be bad.
Banks usually classify the non-performing assets as any commercial loans which are more
than 90 days overdue and any consumer loans which are more than 180 days overdue. In
simple sense we can say that an asset which is not producing income becomes non-
performing.
2.4.1 Definitions

An asset, including a leased asset, becomes Non-Performing when it ceases to generate

income for the bank. A non-performing asset’ (NPA) was defined as a credit facility in
respect of which the interest and/or instalment of principal has remained ‘past due’ for a
specified period of time. The specified period was reduced in a phased manner as under:
 w.e.f. 31.03.1993 : four quarters
 w.e.f. 31.03.1994 : three quarters
 w.e.f. 31.03.1995 : two quarters
 w.e.f. 31.03.2001 : 180 days
 w.e.f. 31.03.2004 : 90 days
90 days’ delinquency norms are not applicable to Agriculture segment With the effect from
March 31, 2004, NPA shall be a loan or an advance where:
 Term loan: Interest and /or instalment of principal remain over due for a period of more
than 90 days.
 Cash credit/overdraft: The account remains ‘out of order’ for a period of more than
90days.
 Bills: The bill remains overdue for a period of more than 90days from due date of
payment.
 Other Loans: Any amount to be received remains overdue for a period of more than
90days.
 Agricultural Accounts: In the case of agriculture advances, where repayment is based on
income from crop.
An account will be classified as NPA in agricultural sector as under;
 If loan has been granted for short duration crop: interest and/or instalment of Principal
remains overdue for two crop seasons beyond the due date.
 If loan has been granted for long duration crop: Interest and/or instalment of principal
remains overdue for one crop seasons beyond due date. Non-Performing Asset is defined
as the loans which are in jeopardy of being default. If a borrower has failed to pay interest
on principal payment for 90 days or more in case of a loan, than that loan is considered to
be non-performing asset (NPA).This kind of thing can be termed as Non-Performing
 Loan. NPAs affect the smooth flow of credit and profitability as higher NPAs mean
higher provisioning which reduces s the profit. These are loans and advances whose time
period for payment of interest and principle has exceeded 90 days. In this case the
account of person is marked as out of order. If the loan is granted to a person for
agricultural purpose the instalment period for interest might remain due for two harvest
seasons. Non-performing assets tells us about the banks as the institutions of finance and
companies judge their non-performing assets through NPA and higher the NPA means
bad performance of the institute of finance.

2.4.2 NPA as Defined by RBI

Any asset and it also includes leased asset can become Non Performing Asset when income
stops to be generated from it for the bank. It is an advance or loan where;

 For 90 days’ time interest or instalment of principle amount may remain overdue.
 The account an overdraft or cash credit with respect of it may remain out of order as it is
indicated below.
 In case the bills are purchased or discounted then they remain overdue for more than
90days period.
 The instalment for two of the crop seasons for short duration of crops remains overdue
whether it is principal or interest. The instalment for long duration crops therefore
remains overdue whether its interest or principal amount.
 The instalment therefore remains overdue for one crop season for long duration crops of
principal or interest.
 In respect of a securitization transaction that has been undertaken like in terms of
guidelines on securitization on dated February 1, 2006. For more than 90 days the amount
of which like of liquidity facility will remain outstanding. A debt obligation where the
borrower has not paid any previously agreed upon interest and principal repayments to
the designated lender for an extended period of time. The nonperforming asset is
therefore not yielding any income to the lender in the form of principal and interest
payments.
2.4.3 TYPES OF NPA

1 Gross NPA
2 Net NPA
1. Gross NPA: Gross NPAs are the sum total of all loan assets that are classified as NPAs as
per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans
made by banks. It consists of all the non-standard assets like as sub-standard, doubtful,
and loss assets. It can be calculated with the help of following ratio:
Gross NPAs
Gross NPAs Ratio =
Gross Advance
2. Net NPA: Net NPAs are those type of NPAs in which the bank has deducted the
provision regarding NPAs. Net NPA shows the actual burden of banks. Since in India,
bank balance sheets contain a huge amount of NPAs and the process of recovery and
write off of loans is very time consuming, the provisions the banks have to make against
the NPAs according to the central bank guidelines, are quite significant. That is why the
difference between gross and net NPA is quite high. It can be calculated by following
Gross NPAs – Provisions
Net NPAs =
Gross Advances – Provisions

2.4.4 WHY ASSETS BECOME NPA?

Several factors are responsible for increasing size of NPAs in PSBs. The Indian banking
industry has one of the highest percent’s of NPAs compared to international levels. A few
prominent reasons for assets becoming NPAs are as under:

 Lack of proper monitoring and follow-up measures.

 Lack of sincere corporate culture.
 Inadequate legal provisions on foreclosure and bankruptcy.
 Change in economic policies/environment.
 Non transparent accounting policy and poor auditing practices.
 Directed landing to certain sectors.
 Failure on part of the promoters to bring in their portion of equity from their own sources
or public issue due to market turning unfavourable.
 Criteria for classification of assets.

2.4.5 REASON FOR NPA

An internal study conducted by RBI shows that in the order of prominence, the following
factor contribute to NPAs.

 Internal Factor
 Diversion of funds for
 Expansion/diversification /modernization
 Taking up new project
 Helping /promoting associate concerns time/cost overrun during the project
implementation stage
 Business Failure
 Inefficiency in management
 Slackness in credit management and monitoring
 Inappropriate Technology/technical problem
 Lack of coordination among lenders
 External Factor
 Recession
 Input/power storage
 Price escalation
 Exchange rate fluctuation
 Accidents and natural calamities, etc.
 Changes in government policies in excise/ import duties, pollution control orders, etc.
 Other Factors
 Liberalization of economy/removal of restriction/reduction of tariffs:-A large number
of NPA borrowers were unable to compete in a competitive market in which lower
prices and greater choices were available to consumers. Further, borrowers operating
in specific industries have suffered due to political, fiscal and social compulsions,
compounding pressures from liberalization.
  Tax monitoring of credit and failure to recognize Early Warnings Signals:-It has been
stated that approval of loan proposal is generally thorough and each proposal passes
through many levels before approval is granted. However, the monitoring of
sometimes complex credit files has not received the attention it needed which meant
that early warning signals were not recognized and standard assets slipped to NPA
category without banks being able to take proactive measures to prevent this. Partly
due to this reason, adverse trends in borrower’s performance were not noted and the
position further deteriorated before action was taken.
 Over optimistic promoters:-Promoters were often optimistic in setting up large
projects and in some cases were not fully above board in their intentions. Screening
procedures did not always highlight these issues. Often projects were set up with the
expectation that part of the funding would be arranged from the capital markets which
were booming at the time of the project appraisal. When the capital markets
subsequently crashed, the requisite funds could never be raised, promoter often lost
interest and lenders were left stranded with incomplete/unviable projects.
 Directed lending:-Loans to some segment were dictated by Governments policies
than commercial imperatives.
 Highly Leveraged borrowers:-Some borrowers were undercapitalized and over
burdened with debt to absorb the changing economic situation in the country.
Operating within a protected marked resulted economic situation in the country.
Operating within a protected market resulted in low appreciation of
commercial/market risk.

2.4.6 IMPACT OF NPA

 Profitability: NPA means booking of money in terms of bad asset, which occurred due to
wrong choice of client. Because of the money getting blocked the prodigality of bank
decreases not only by the amount of NPA but NPA lead to opportunity cost also as that
much of profit invested in some return earning project/asset. So NPA doesn’t affect
current profit but also future stream of profit, which may lead to loss of some long-term
beneficial opportunity. Another impact of reduction in profitability is low ROI (return on
investment), which adversely affect current earning of bank.
 Liquidity: Money is getting blocked, decreased profit lead to lack of enough cash at hand
which lead to borrowing money for shortest period of time which lead to additional cost
to the company. Difficulty in operating the functions of bank is another cause of NPA
due to lack of money. Routine payments and dues.
 Involvement of management: Time and efforts of management is another indirect cost
which bank has to bear due to NPA. Time and efforts of management in handling and
managing NPA would have diverted to some fruitful activities, which would have given
good returns. Now day’s banks have special employees to deal and handle NPAs, which
is additional cost to the bank.
 Credit loss: Bank is facing problem of NPA then it adversely affect the value of bank in
terms of market credit. It will lose its goodwill and brand image and credit which have
negative impact to the people who are putting their money in the banks.

2.4.7 NORMS FOR TREATING LOANS / ADVANCES AS NPA

 Treatment of agricultural advances In respect of advances granted for agricultural

purposes where interest payment is on half-yearly basis synchronizing with harvest,
banks should adopt the agricultural season as the basis. In other words, if interest has not
been paid during the last two seasons of harvest (covering two half-years) after the
principal has become overdue then such an advance should be treated as NPA. This norm
is applicable to all direct agricultural advances listed in the Annexure. In respect of
agricultural advances other than those specified in the Annexure, identification of NPA
would be done on the same basis as non-agricultural advances which at present are the
180 days delinquency norm. Crop loans for each season, viz., Rabi and Kharif has to be
treated as separate account and IRAC norms have to be applied accordingly. Treatment of
advances for allied agricultural activities as well as non-farm sector Credit facilities
granted for other allied agricultural activities as well as for non-farm sector activities
should be treated as NPA if amounts of instalments of principal and / or interest remain
outstanding for a period of two quarters from the due date.
 Project / Housing Loans, etc In case of projects (industry, plantation, etc.) where
moratorium is given for payment, [loan becomes due only after moratorium or gestation
period is over] such a loan becomes overdue if instalment is not paid on due date.
 Similarly, in the case of housing loans or similar advances granted to staff members
where interest is payable after recovery of principal, such loans should be classified as
NPA when there is a default in repayment of principal on due date of payment and
overdue criteria will be the basis for classification of assets.
 Consortium advances In respect of consortium advances each bank is required to classify
the borrowable accounts according to its own recovery i.e., on the record of recovery of
the individual member banks. The banks participating in the consortium should therefore,
arrange to get their share of recovery transferred from the lead bank of the consortium.
 ‘Out of order status’ In respect of cash credit / over draft facility an account should be
treated as “out of order”, if the outstanding balance remains continuously in excess of the
sanctioned limit / drawing power. In cases where the outstanding balance in the principal
operating account is less than the sanctioned limit / drawing power, but there are no
credits continuously for six months as on the date of Balance Sheet or credits are not
enough to cover the interest debited during the same period, these accounts should be
treated as “out of order”.
 ‘Overdue’ any amount due to the bank under any credit facility is “overdue”, if it is not
paid on due date fixed by the bank.

2.4.8 NPA MANAGEMENT PRACTICES IN INDIA

 Formation of the Credit Information Bureau (India) Limited (CIBIL)

 Release of Wilful Defaulter’s List. RBI also releases a list of borrowers with aggregate
outstanding of Rs.1crore and above against whom banks have filed suits for recovery of
their funds
 Reporting of Frauds to RBI
 Norms of Lender’s Liability
 framing of Fair Practices Code with regard to lender’s liability to be followed by banks,
which indirectly prevents accounts turning into NPAs on account of bank’s own failure
 Risk assessment and Risk management
 RBI has advised banks to examine all cases of wilful default of Rs.1crore and above and
file suits in such cases. Board of Directors are required to review NPA accounts of
Rs.1crore and above with special reference to fixing of staff accountability.
 Reporting quick mortality cases
 Special mention accounts for early identification of bad debts. Loans and advances
overdue for less than one and two quarters would come under this category.

2.4.9 IMPACT OF NPA

 Profitability: NPA means booking of money in terms of bad asset, which occurred due to
wrong choice of client. Because of the money getting blocked the prodigality of bank
decreases not only by the amount of NPA but NPA lead to opportunity cost also as that
much of profit invested in some return earning project/asset. So NPA doesn’t affect
current profit but also future stream of profit, which may lead to loss of some long-term
beneficial opportunity. Another impact of reduction in profitability is low ROI (return on
investment), which adversely affect current earning of bank.
 Liquidity: Money is getting blocked, decreased profit lead to lack of enough cash at hand
which lead to borrowing money for shortest period of time which lead to additional cost
to the company. Difficulty in operating the functions of bank is another cause of NPA
due to lack of money. Routine payments and dues.
 Involvement of management: Time and efforts of management is another indirect cost
which bank has to bear due to NPA. Time and efforts of management in handling and
managing NPA would have diverted to some fruitful activities, which would have given
good returns. Now day’s banks have special employees to deal and handle NPAs, IIwhich
is additional cost to the bank.
 Credit loss: Bank is facing problem of NPA then it adversely affect the value of bank in
terms of market credit. It will lose its goodwill and brand image and credit which have
negative impact to the people who are putting their money in the banks.

2.4.10 NORMS FOR TREATING LOANS / ADVANCES AS NPA

 Treatment of agricultural advances In respect of advances granted for agricultural
purposes where interest payment is on half-yearly basis synchronizing with harvest,
banks should adopt the agricultural season as the basis. In other words, if interest has not
been paid during the last two seasons of harvest (covering two half-years) after the
principal has become overdue then such an advance should be treated as NPA. This norm
 is applicable to all direct agricultural advances listed in the Annexure. In respect of
agricultural advances other than those specified in the Annexure, identification of NPA
would be done on the same basis as non-agricultural advances which at present are the
180 days delinquency norm. Crop loans for each season, viz., Rabi and Kharif has to be
treated as separate account and IRAC norms have to be applied accordingly. Treatment of
advances for allied agricultural activities as well as non-farm sector Credit facilities
granted for other allied agricultural activities as well as for non-farm sector activities
should be treated as NPA if amounts of instalments of principal and / or interest remain
outstanding for a period of two quarters from the due date.
 Project / Housing Loans, etc In case of projects (industry, plantation, etc.) where
moratorium is given for payment, [loan becomes due only after moratorium or gestation
period is over] such a loan becomes overdue if instalment is not paid on due date.
Similarly, in the case of housing loans or similar advances granted to staff members
where interest is payable after recovery of principal, such loans should be classified as
NPA when there is a default in repayment of principal on due date of payment and
overdue criteria will be the basis for classification of assets.
 Consortium advances In respect of consortium advances each bank is required to classify
the borrowable accounts according to its own recovery i.e., on the record of recovery of
the individual member banks. The banks participating in the consortium should therefore,
arrange to get their share of recovery transferred from the lead bank of the consortium.
 ‘Out of order status’ In respect of cash credit / over draft facility an account should be
treated as “out of order”, if the outstanding balance remains continuously in excess of the
sanctioned limit / drawing power. In cases where the outstanding balance in the principal
operating account is less than the sanctioned limit / drawing power, but there are no
credits continuously for six months as on the date of Balance Sheet or credits are not
enough to cover the interest debited during the same period, these accounts should be
treated as “out of order”.
 ‘Overdue’ any amount due to the bank under any credit facility is “overdue”, if it is not
paid on due date fixed by the bank.
2.4.11 NPA MANAGEMENT PRACTICES IN INDIA

 Formation of the Credit Information Bureau (India) Limited (CIBIL)

 Release of Wilful Defaulter’s List. RBI also releases a list of borrowers with aggregate
outstanding of Rs.1crore and above against whom banks have filed suits for recovery of
their funds
 Reporting of Frauds to RBI
 Norms of Lender’s Liability
 framing of Fair Practices Code with regard to lender’s liability to be followed by banks,
which indirectly prevents accounts turning into NPAs on account of bank’s own failure
 Risk assessment and Risk management
 RBI has advised banks to examine all cases of wilful default of Rs.1crore and above and
file suits in such cases. Board of Directors are required to review NPA accounts of
Rs.1crore and above with special reference to fixing of staff accountability.
 Reporting quick mortality cases
 Special mention accounts for early identification of bad debts. Loans and advances
overdue for less than one and two quarters would come under this category.