Reporting in NPAs would also take into account accretions throughout the year and recoveries made, C R Muralidharan, general manager, Department of Banking Operations and Development (DBOB) in RBI, said at a seminar on NPA management here today. ``RBI will soon be introducing the necessary guidelines,'' he added. Elaborating on the various factors of NPA management, Muralidharan said ``a linkage to net owned funds needs to be developed to control large exposures in respect of borrowers with credit above a threshold limit, say 10 to 15% of capital funds.''

Earlier managing director of State Bank of India, S R Iyer said that the Rs 48,000 crore worth (approximately) of banks' NPAs resulted in a loss of income of Rs 7000 crore to the banking system as a whole. Apart from credit appraisal, there was also needfor supervision and monitoring of advances made on a continuing basis, he said, adding that this was a gap in banks which had to be plugged.

Just as a bank manages its credit and investment portfolio, Iyer stressed on the need for managing NPA portfolios of banks. Bankers have a lot of expectations from their customers, Iyer said, pointing out that bankers should insist on new ventures having their finances fully tied up before commencing disbursements.

New ventures, he said, should be in areas which the promoters are familiar with, adding that the units should submit data to banks in a timely fashion. There were ten warning signals which indicated a potential NPA account - the chief among them being irregular payments by the borrower, incentives to employees being cut-off, employee lay-offs, cannibalising of assets, sale of assets and late payments, which is usually the last stage. Both Muralidharan and Iyer agreed that warning signals with respect to any account should not be ignored and should beimmediately brought to the management's attention .

With respect to banks being reluctant to advance further loans to accounts classified as NPAs, Muralidharan said that nowhere had the apex bank stipulated that an NPA account should not be given additional assistance, if it meant that the company could be turned around. Iyer advocated that for a successful turnaround of an ailing company a change in management should be explored. N J Jhaveri, director in Kotak Mahindra Capital Co Ltd said that NPAs was an inherent part of the banking system .