Quarterly Branch Review: NPA Ratios, Recovery and Budget Allocation
Your circle reviews four branches at the close of Q2. All figures are in ₹ crore.
Branch | Deposits | CASA % | Gross advances | Gross NPA | Cash recovery in Q2 Arjun Nagar | 320 | 41 | 240 | 12.50 | 1.80 Bhagwati | 260 | 36 | 180 | 14.40 | 1.20 Chandanpur | 400 | 45 | 320 | 16.00 | 2.40 Durgapur | 210 | 47 | 150 | 9.75 | 0.90
The circle head has set two conditions: no branch may end the year with a gross NPA ratio above 5.50%, and CASA must be at least 40% of deposits at every branch. The circle has ₹5.00 crore of fresh recovery capacity to deploy in Q3. Assume cash recovery comes entirely from NPA accounts, so both gross advances and gross NPA fall by the recovered amount. Credit-deposit ratio is used only as a diagnostic, not a rule.
1. Compute the gross NPA ratio and credit-deposit ratio for each branch, and identify which branches breach which of the circle head's two conditions.
Read the worked answer
| Branch | GNPA ratio (GNPA ÷ advances) | Credit-deposit ratio | CASA | Condition breached |
|---|---|---|---|---|
| Arjun Nagar | 12.50 ÷ 240 = 5.21% | 75.00% | 41% | None |
| Bhagwati | 14.40 ÷ 180 = 8.00% | 69.23% | 36% | Both |
| Chandanpur | 16.00 ÷ 320 = 5.00% | 80.00% | 45% | None |
| Durgapur | 9.75 ÷ 150 = 6.50% | 71.43% | 47% | GNPA |
Two different failures need two different responses. Bhagwati fails on both counts: asset quality is the worst in the circle and its CASA share of 36% means it is funding itself on costlier term deposits. It needs ₹10.40 crore of additional CASA to reach 40% (40% of ₹260 crore = ₹104 crore against ₹93.60 crore today). Durgapur is the surprise: it has the best CASA ratio and the smallest book, yet its GNPA is 1 percentage point above the limit, so its problem is underwriting, not funding. Chandanpur is the largest branch and the lowest NPA ratio, though its credit-deposit ratio of 80% leaves little headroom.
2. For Bhagwati, compute the cash recovery required in Q3 to bring the gross NPA ratio to exactly 5.50%, allowing for the fact that recovery reduces both advances and NPA.
Read the worked answer
Let R = cash recovery (₹ crore).
(14.40 − R) ÷ (180 − R) = 0.055 14.40 − R = 0.055 × (180 − R) 14.40 − R = 9.90 − 0.055R 14.40 − 9.90 = R − 0.055R 4.50 = 0.945R R = ₹4.76 crore
Check: (14.40 − 4.76) ÷ (180 − 4.76) = 9.64 ÷ 175.24 = 5.50%. Correct.
Two observations matter for the decision. First, ignoring the reduction in advances gives 14.40 − 0.055 × 180 = ₹4.50 crore, which understates the requirement - the denominator shrinks as you recover, so the true figure is ₹0.26 crore higher. Second, Bhagwati's current run rate is ₹1.20 crore per quarter, so ₹4.76 crore in one quarter is roughly four quarters of work compressed into three months; it is arithmetically possible only with one or two large settlements, not through routine field recovery.
3. Allocate the ₹5.00 crore recovery budget across the branches and justify the allocation with numbers, including what you would tell each branch head.
Read the worked answer
Required recovery to reach 5.50%: Durgapur ₹1.59 crore; Bhagwati ₹4.76 crore; Arjun Nagar and Chandanpur already compliant.
Total requirement ₹6.35 crore against ₹5.00 crore available, so a choice is unavoidable. The better allocation is ₹1.60 crore to Durgapur and ₹3.40 crore to Bhagwati, not ₹4.76 crore to Bhagwati alone.
Why: spending ₹4.76 crore on Bhagwati closes it to 5.50% but leaves Durgapur at 6.50% (a 1.00 percentage point breach). Under the recommended split, Durgapur falls to (9.75 − 1.60) ÷ (150 − 1.60) = 8.15 ÷ 148.40 = 5.49% and is closed, while Bhagwati moves to (14.40 − 3.40) ÷ (180 − 3.40) = 11.00 ÷ 176.60 = 6.23% - a breach of 0.73 points that a further ₹1.36 crore in early Q4 will clear. One branch closed and one nearly closed is a better position than one closed and one untouched.
To branch heads: Durgapur needs SARFAESI and settlement action on its top ten accounts this quarter, plus a note that good CASA does not offset weak underwriting. Bhagwati gets both messages - recovery plan on the NPA book and a CASA drive for ₹10.40 crore, since cheap deposits, not recovery alone, is where its long-run problem sits.