Ranking Three Branches on Credit and Recovery Metrics
Three branches report for the quarter ending 30 June. Branch A: deposits ₹48 crore, advances ₹36 crore, gross NPA ₹3.6 crore, cash recovery ₹0.9 crore, fresh slippages ₹1.2 crore. Branch B: deposits ₹60 crore, advances ₹54 crore, gross NPA ₹2.7 crore, cash recovery ₹1.5 crore, fresh slippages ₹0.6 crore. Branch C: deposits ₹35 crore, advances ₹28 crore, gross NPA ₹2.8 crore, cash recovery ₹0.4 crore, fresh slippages ₹1.6 crore. The regional head wants branches ranked on credit-deposit (CD) ratio, gross NPA ratio, and recovery efficiency, where recovery efficiency is cash recovery as a percentage of gross NPA. A branch with a CD ratio above 80% must be reviewed for liquidity, and a branch with a gross NPA ratio above 6% must submit a recovery plan. The head also wants to know which branch improved most if last quarter's gross NPA was A ₹4.2 crore, B ₹3.0 crore, C ₹2.0 crore.
1. Calculate the CD ratio, gross NPA ratio, and recovery efficiency for each branch.
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- Branch A: CD ratio = 36/48 = 75%; gross NPA ratio = 3.6/36 = 10%; recovery efficiency = 0.9/3.6 = 25%.
- Branch B: CD ratio = 54/60 = 90%; gross NPA ratio = 2.7/54 = 5%; recovery efficiency = 1.5/2.7 ≈ 55.6%.
- Branch C: CD ratio = 28/35 = 80%; gross NPA ratio = 2.8/28 = 10%; recovery efficiency = 0.4/2.8 ≈ 14.3%.
On CD ratio the order is B (90%) > C (80%) > A (75%). On gross NPA ratio, A and C tie at 10%, with B best at 5%. On recovery efficiency the order is B > A > C.
2. Which branches must be reviewed for liquidity, and which must submit a recovery plan?
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Liquidity review: the trigger is a CD ratio above 80%. Only Branch B, at 90%, crosses that line. Branch C is exactly 80%, so it does not trigger the stated rule, though it is at the boundary and worth monitoring.
Recovery plan: the trigger is a gross NPA ratio above 6%. Branch A (10%) and Branch C (10%) must submit plans. Branch B, at 5%, is below the threshold.
A combined view is useful: Branch B has the highest CD ratio but the best asset quality and recovery efficiency; Branch C has the weakest recovery efficiency and the highest fresh slippages, so its recovery plan needs the most operational attention.
3. Which branch improved most against last quarter, and what caveat would you add before praising it?
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Branch A's gross NPA fell from ₹4.2 crore to ₹3.6 crore, a reduction of ₹0.6 crore or about 14.3%. Branch B fell from ₹3.0 crore to ₹2.7 crore, a reduction of ₹0.3 crore or 10%. Branch C rose from ₹2.0 crore to ₹2.8 crore, a deterioration of 40%. On these figures Branch A improved most in absolute and percentage terms.
The caveat is that gross NPA reduction can come from write-offs or one-off recoveries rather than from preventing fresh slippages. Branch A still has fresh slippages of ₹1.2 crore and a 10% gross NPA ratio, while Branch C's slippages are even higher at ₹1.6 crore. Before praising A, the head should check net NPA, write-off data, and whether the improvement is sustainable.