Volume 4 •  Number  9  •  September  2010

NPA Management : A Study of New Private Sector Banks In India

The Indian Banking Industry has played a pivotal role in the socio- economic augmentation of the country. The Financial Sector Reforms initiated in 1991 have commendably changed the visage of Indian Banking. The banking industry has transmogrified in a phased manner from a regulated environment to a deregulated market economy.The RBI has accorded its approbation for the inception of new banks in the private sector acting on the recommendations of the Narasimham Committee. The banking industry, which already enjoys a privileged status as far as public sector banks are concerned, have assumed a more aggressive and cut throat competitive position on account of establishment of private sector banking. A recent survey conducted by McKinsey & Co., in association with the Indian Banks Association, revealed that new private banks have a strong competitive advantage over public sector banks on several dimensions such as use of low cost technology and operations to address the urban mass market, alignment between IT and business heads, more focus on value adding activities, better talent management, superior complexity handling, and the ability to use infrastructure optimization facilities. In spite of efficiently managing their financial resources, akin to public sector banks, these new generation banks have also become a victim of Non Performing Assets (NPAs). A Non Performing Asset is an asset or account of borrower, which has been not been serviced by the borrower, and the bank has stated the same as sub-standard, doubtful or loss asset, as per the norms and directions of the RBI. Non-Performing Assets (NPA) have emerged as an alarming threat to the Indian banking industry and their reduction has become synonymous with professional functioning and management of banks. However, NPAs should not be seen as a dilemma but as a challenge for the banking sector. The global recession coupled with consequential slow down in the domestic markets had cast their shadow on the Indian banking sector, resulting in the growth in NPAs in absolute and relative terms since 2005-06. This evoked the researchers’ interest to conduct a research on the management of NPAs by the new private sector banks in India.

Dr.Ashok Khurana
Associate Professor
Department of Commerce
G.N.Khalsa(PG) College
Yamunanagar,Haryana
khuranaa17@yahoo.co.in

Dr.Mandeep Singh
Associate Professor
Department of Economics
G.N. Khalsa(PG) College
Yamunanagar,Haryana
 

The immediate result of tightening of the money and credit markets in October 2008 created demands on banks that were already expanding credit well beyond the resources raised from the public by way of deposits. Companies which were substituting overseas credit and capital market sources with bank funds started withdrawing funds parked with mutual funds and utilizing their undrawn limits with banks. Some of the companies that had issued commercial paper in the market- especially the real estate companies and the non banking companies found it difficult to roll over the maturing paper.The Commercial Paper and Certificates of Deposit markets became illiquid and mutual funds started facing severe redemption pressures.Hence, in the interest of maintaining financial stability, the RBI instituted a 14-day special repo facility for a notified amount of about $ 4 billion to alleviate liquidity stress faced by mutual funds, and banks were allowed temporary use of Statutory Liquidity Ratio (SLR) securities for collateral purposes for an additional 0.5 per cent of Net Demand and Time Liabilities exclusively for this. Subsequently, this facility was extended for Non Banking Finance Companies (NBFCs) and later to housing finance companies as well. The relaxation in the maintenance of the SLR was enhanced to the extent of up to 1.5 per cent of their NDTL. In order to curtail leveraging, commercial banks, all-India term lending and refinancing institutions were not allowed to lend against or buy back CDs held by mutual funds. This restriction was relaxed in the context of the drying up of liquidity for CDs and CPs. Considering the systemic importance of the NBFC sector, the Government, in consultation with the RBI announced the setting up of a special purpose vehicle (SPV) that could raise funds from the RBI against government-guaranteed bonds to meet the temporary liquidity.

Siddhartha Bhattacharya
Lecturer
Department of Management
Disha Institute of Management & Technology
Raipur,Chattisgarh
getbhatta@gmail.com

Dr.P.P.Sengupta
Head of Department of Economics
National Institute of Technology
Durgapur,West Bengal

Rama Kant Mishra
Principal
Disha Institute of Management & Technology
Raipur,Chattisgarh

Examination of January,December and November Effects On The Indian Stock Market

It was three decades back (1976) when Rozeff and Kinney documented the evidences of higher returns in the month of January in comparison to other months over the US stock market. And after that, various studies identified the mixed evidences of January Effect on the stock market world over. A vast literature is available giving multi explanation of January effect in various capital markets the world over. The fittest explanation for the January effect in most of the capital market was related with the tax-loss selling hypothesis. December is found to be at the end of the financial year in some countries and the investors set off their loss through the capital gains on other avenues and regain their position in the month of January, which causes further gushes in the market movements in the month of January and smart investors can earn abnormal returns by waiting for some time and opt to sell strategies in the month of January as the returns in this month are comparatively high. Most of the studies in this context were conducted on American and European Markets. No strong evidences have been found for the January Effect in the countries where the financial year starts in the month other than January. Jacobs and Kenneth (1988) identified that the stocks earned higher returns as well as higher risk premium in the month of January, especially in the case of small stocks. But the Indian market has not witnessed January effect as in India, the financial year ends in the month of March. But some other months have depicted the anomalous pattern in the distribution of stock indices returns during various months of the year (Chatterji and Maniam, 1997, Pandey 2002, Raj and Damini, 2006 etc.). So, the present study has been destined to examine the possible existence of the January Effect and in consideration of the past findings, the anomalous behavior of the stock index return series has also been examined in the month of December and November. Any kind of inconsistency in the behavior of the return series of the stock indices resulting due to these effects may result in profitable opportunity for the investors and fund managers. So, if some strong evidences could be obtained through the present study for such anomalous patterns in the market behavior, then it may raise a question on the strong arguments developed in favor of increased efficiency over the Indian stock market during the past years.

Kiran Mehta
Faculty(Finance)
RIMT-IMCT
Gobindgarh,Punjab

ujjawalakiran@rediffmail.com

Dr.Ramesh Chander
Associate Professor
University School of Management
Kurukshetra University
Haryana

Option Trading Strategies For Different Market Conditions For Hedging The Portfolio And Trading For Profits

Derivatives are among the most complex financial instruments and also one of the most controversial. While they are as old as commerce itself, they have become prominent only in the last few decades. Their supporters say that derivatives improve risk management and increase liquidity. Their critics claim that they make markets less transparent and more prone to instability and speculation. Both sides would agree that derivatives are extremely important and have a big impact on other financial markets and the economy. So even if the average investor doesn't invest directly in derivatives, its important that he or she knows what they are.

Mohite Trupti Ramchandra
MBA Student
M.S.Ramaiah Institute of Technology
Bangalore

 

Y.M.Satish
Assistant Professor and Research Scholar
M.S.Ramaiah Institute of Technology
Bangalore

Dr.M.G.Krishnamurthy
Professor & Director
Department of Management Studies
J.N.N. College of Engineering
Shimoga,Karnataka
mgkmurthy@gmail.com

Impact of Employee Stock Options On The Market Capitalization of The Company

Employee stock option plans (ESOP's) are becoming popular in India especially for executives in Information Technology firms. In this case, specific types of employees are allotted the company's shares below the market price. This allotment can be made to employees as an alternative to the bonus payable to them. In case of better financial results, the market price of the company's shares as well as the value of the employee's shareholding increases. It can be used as a profit sharing arrangement by which employees receive, in addition to wages, the company's shares.An employee stock option is a contract that gives the employees the right, but not an obligation, to subscribe to an entity's shares at a fixed or determined price for a specified period of time. ESO grants help companies to attract and motivate key employees and they align shareholder interests (i.e., an increase in share prices) with the interests of grantees (i.e., an increase in option value). Academic studies demonstrate that granting options can contribute to improving corporate performance by enabling companies to attract and retain talented people who are critical to the company's success. This is particularly true in sectors where the market opportunities are very large and technology changes are very rapid. In addition, options enable young companies to reduce their cash usage and thus avoid issuing stock at unfavorable current valuations. People think that both ESO and Call Options are same because of the similarity of the fundamental function. But they differ and the important distinction is that ESOPs, unlike call options, are corporate securities that are issued by the corporations. Employees Stock Options (ESOPs) have been one of the most controversial topics in financial reporting during the last decade.

Natika Pravin Jain
Senior Lecturer
St.Francis Institute of Management & Research
Mumbai
natika@rediffmail.com