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A STUDY ON NON-PERFORMING ASSETS
INDUSTRY – PROFILE
INTRODUCTION
Co-operative movement as an economic system and as a best instrument to
eradicate the poverty of the people and to protect them for the economic exploitation from
the ‘haves” was introduced for the first time in the world with the organization of
consumers’ Co-operative society in 1844 at London.
Later on the Co-operative movement was introduced in Germany with an
organization of Agriculture Credit Co-operative Societies in rural areas and with the
organization of non-agricultural credit Co-operatives (Urban Co-operative Banks) in
towns and cities. Hence, if the England is the motherland for the whole Co-operative
movement, the Germany is the cradle for the Co-operative credit and Banks
organizations.
The Co-operative movement in India was introduced with the organization of
Primary Agricultural Co-operative Credit Societies (PACS) in villages and Urban Co-
operative banks in town s and cities offer passing the Co-operative Credit societies act
1904 with an objective to emancipate the poor people in the rural and urban areas from
the clutches of money lenders and middlemen in the market and also to accelerate the
pace of agriculture and industrial developments in these areas. With the passing of second
Act, viz, Co-operative Societies Act, 1912; the Co-operative movement in India entered
into all spheres of economic activities besides organizing DCC banks and State Co-
operative Apex Banks.
Profiteering (at more prices) and usury (more interest) are the greatest evils
constantly grinding the poor people down and hang them till their death. To do way
profiteering, consumers marketing, processing industrial and other Co-operatives were
organized and to minimize the usury the Co-operative credit and banking organizations
were organized to protect the poor people from the exploitation by middle men in the
market and to eschew them from the clutches of unbridled money lenders.
Growth and Developments
Even though Co-operative banking was introduced from the year 1905 , the real
development in the country was started only after the passing of a separate banking
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Regulation act for Co-operative banks called Banking regulation Act, 1949 ( as applicable
to Co-operative societies) 1966.
Co-operative banks are organized and controlled as per the provisions of
concerned state Co-operative societies Acts, but their banking, operations are regulated
by the BR Act 1949 (as applicable to Co-operative societies) 1966 and are also controlled
by Reserve Bank of India ( RBI)
When one looks at Indian Banks map, a maximum number of banks widely seen
are Co-operative banks, as Indian Co-operative Banking System in 2002 consisted of 30
State Co-operative Apex Banks at state level, 368 DCC banks at District level and 1431
Urban Co-operative Banks in addition to 101000 PACS at the village level, 20 state Co-
operative agriculture and rural development banks at state level and 768 Primary
Agriculture and Rural Development Banks at Talus Level. However, Co-operative banks
are small in size, operation and also have limited area of operation.
Characteristic Features of Co-operative Banks
The characteristic features of Co-operative banks are given as follows:-
Self Help and Mutual Help
One man, one vote
Motivated by service
Mainly Agriculture Finance
INDIAN SCENARIO
The Indian banking system of today can be compared with finest banking system in the
whole world. Today the Indian banking system is on very sound lines with a network of branch
spared all over the country and serving all sections of the society with innovative banking
programs.
Today’s Indian banking system comprises of 27 public sector banks,30 private sector non
schedule commercial banks, several private sector new commercial banks, 27 foreign schedule
banks, 196 regional rural banks, several thousand’s Co-operative banks and several land
development banks. Institutions like Life Insurance Corporation of India and Unit Trust Bank
of India also plays an important role in Indian banking system.
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Banking structure or banking system in India
The constituents in the banking sector of India are
The Reserve Bank of India
The State Bank of India and its subsidiaries
The Nationalized and the Private Sector Indian Commercial Banks
The Private Sector Foreign Exchange Banks in India
The Co-operative banks and the land development banks
The regional rural banks
Indian commercial banks
Banks that carry on commercial banking operation such as acceptance of
deposits from the public, repayable on demand or alter a short period and the granting of
short term credit mainly to trade, commerce and industry with a wide network of
branches throughout the country.
Commercial banks can be classified as
1} public sector banks
2} private sector banks
Banking Activities
The law governing Banking activities in India is called “Negotiable instruments act 1881 The law governing Banking activities in India is called “Negotiable instruments act 1881
The banking activities can be classified asThe banking activities can be classified as
1.1. Accepting deposits from public/others (Deposits) Accepting deposits from public/others (Deposits)
2.2. Lending money to public (Loans)Lending money to public (Loans)
3.3. Transferring money from one place to another (Remittance)Transferring money from one place to another (Remittance)
4.4. Acting as trusteesActing as trustees
5.5. Acting as intermediariesActing as intermediaries
6.6. Keeping valuables in a safe custodyKeeping valuables in a safe custody
7.7. Collection business Collection business
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RESERVE BANK OF INDIA
NABARD
CO-OPERATIVE BANKS
A STUDY ON NON-PERFORMING ASSETS
Structure of Co-operative BanksStructure of Co-operative Banks
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Non.Agril.Coop.BanksAgril.Coop.Banks
Urban Coop. BanksShort Term Credit & MT Credit
L.T. Credit
Employees Coop. BanksS.C.A & R.D Bank
State
Co-operative BanksSalary Earners Coop.
Credit SocietiesP.C.A & R.D Bank
District Central Coop.Banks
Primary Agril. Coop. Credit Society
A STUDY ON NON-PERFORMING ASSETS
COMPANY PROFILE
BACKGROUND AND INCEPTION OF THE COMPANY
The Karnataka State Co-operative Apex Bank Limited (hereinafter referred to as “The
Bank”) is a Scheduled Co-operative Bank incorporated under the Karnataka State Co-operative
Societies Act 1959. It was established in the year 1915 and is meant to act an Apex Body to
finance agriculture sector through the District Central Co-operative Banks and Primary
Agricultural Co-operative Societies. In the later years the Apex Bank diversified its activities
into commercial banking. Today it has 31 branches in Bangalore city through which it carries
out commercial banking activities. It does not have any branches outside Bangalore.
HISTORY OF KSCABLHISTORY OF KSCABL
The Bank was registered on 10th November 1915 under the name and style of “The
Mysore Provincial Co-operative Bank Limited,” under the Mysore Co-operative Societies Act
of 1905. Then, The Bank was not an Apex institution, as it was not exclusively meant for
financing the Co-operatives in the then State of Mysore. Another Bank called the Bangalore
Central Co-operative Bank Limited, Bangalore (which was later converted into an urban bank),
which was registered in 1905, was also financing the Co-operatives. The bank owes its origin
to Sri. M.A. Narayan Iyengar, B.A., B.L., who was the Registrar of Co-operative Societies at
that time.
Sri. Vardaraja Iyengar
Founder – KSCABL
The Bank was founded with the objective of financing, inspecting and supervising the
Co-operative societies in the Mysore State. Subsequently, several district Co-operative
central banks with the jurisdiction of a district were registered. Five such district central
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banks were started. But their working was not satisfactory and they became defunct. As
such, the provincial bank started financing the societies directly. Besides granting of
loans, the Bank served as an outlet for investment of the surplus finds of the Co-operative
societies in the State. The Bank thus acts as the balancing centre of the Co-operative
movement in the State, safeguarding its interests.
KSCABL CORPORATE OFFICE
ACSTI INTRODUCTION:
The Agricultural Co-operative Staff Training Institute of the Karnataka State Co-
operative Apex Bank Limited was established in the year 1985 to impart the requisite
knowledge, professional skills and attitude of the personnel working in Apex Bank,
District Central Co-operative Banks, Urban Co-operative Banks and Primary Agriculture
Co-operative Societies in the State.
We are in the midst of challenges which have not been faced by the Co-
operatives hitherto in the wake of economic liberalization and globalization. The Co-
operatives are required to be professional to remain competitive to effectively cater to the
needs of the rural community. It is necessary that the Bank should utilize the available
man power effectively to this end.
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The Institute is dedicated to improve and utilize the available Man Power at Apex Bank,
DCC Banks, Urban Co-operative Banks and Primary Agricultural Co-operative Societies
effectively. The Institute is offering all the training programmes at subsidized cost with
the assistance of NABARD. Only nominal delegation fee is being collected from the
client institutions for all the training programmes conducted by the Institute. The motto
of the institute is development through training and imparting training is a continuous
process through out the year.
ACSTI
NATURE OF BUSINESS
The business carried by the bank is generally related with providing short term
and long term agricultural loans. It also accepts deposits from the public. Apex bank also
provides cash credit loans to processing, marketing and consumer Co-operatives as well
as sugar factories in Karnataka and working capital loans to state level and national level
institutions.
VISION, MISSION, AND QUALITY POLICY:
VISION:
As a state Co-operative bank, Apex bank shall be a dominant financial institution in the
state, lending the state to economic prosperity.
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They shall be the model of an effective, protective, dynamic and financial sound
organization, responsive to state goals and aspiration.
They shall maintain highly trained and motivated professionals committed to the
highest standards of ethics and excellence.
They shall contribute to buildings progressive and good standard of Co-operative
societies in the service of farmers and rural mass.
MISSION:
Ensuring the best quality of life and success of their farmers, agricultural Co-
operative societies, district central Co-operative banks, clients and employees who are
the reasons for their being.
For their farmers:
They shall continue to improve their socio-economic status through timely
financial and technical support.
For their clients:
They shall deliver innovative and advanced products and services in productive
and effective manner to meet their local demands.
For their PACS & DCC banks:
They shall ensure mutual co-operation and compliment action to achieve
optimum gains in an environment of confidence and trust.
For their employees:
They shall ensure a work atmosphere of mutual respect and team work within
a system of recognition and regards. They shall continue to provide appropriate
training and value enhancement to ensure the highest degree of professionalism and
integrity. They shall hold their organization composed of highly competent people
driven by superior technology.
For people of Karnataka:
They commit their unwearyingly loyalty and dedicated service in the
pursuit of state farmer’s interest.
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QUALITY POLICY:
To serve as a state Co-operative bank and as a balancing center in the
state of Karnataka for registered Co-operative societies
To raise funds by way of deposits, & lend loans, cash credit, overdrafts
and advances.
To develop assist and co-ordinate the member DCCBs and other Co-
operative societies and secure financial assistance for them.
To arranged / hold periodical Co-operative conference of the DCCBs
and other members of the bank and to take action for the growth and
development of the Co-operative credit movement
SERVICE PROFILE OF THE BANK:
Financing of short term loans:
Financing of short term loans for seasonal agricultural operations and for
marketing of crops. These loans are repayable within one year.
Financing of medium term loans:
These loans are sanctioned for agricultural purpose and non-agricultural
purpose.
Financing of kisan credit card schemes/loan:
Kisan credit card aims at providing timely and adequate credit support to
farmers for their cultivation including investment credit needs in a flexible
and cost effective manner. All DCC banks in the state have implemented the
kisan credit Scheme.
Credit facilities to self help groups:
All the DCCBs have taken keen interest in the formation of self help groups
in co-ordination with PACS. Self help groups mobilize their savings and
avail credit facilities from DCCBs and PACS.
Advancing medium term loans with economic development:
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There loans are advanced for the agricultural infrastructures such as lift
irrigation, diary, poultry, plantation, goober gas etc that constitutes
schematic lending.
Providing cash credit loans:
Providing cash credit loans to processing marketing and consumer Co-
operatives as well as sugar factories in Karnataka and also term loans to
sugar factories under consortium agreement.
Advancing working capital loans:
Advancing working capital loans to state level Co-operative like
MARKFED, KCCF and to the national level Co-operatives like IFFCO &
KRIBHCO. The bank provide similar facilities to public sector undertaking
like Karnataka Silk Marketing Board, Karnataka handloom Development
Corporation, Karnataka small scale Industries development corporations,
and also through consortium arrangements with Commercial banks.
collection of cheques and drafts:
The bank extends finance to the non-farm sector and the development of
cottage industries, small scale industries and rural artisan and weavers. It is a
scheduled bank in all aspects including remittance of funds, demand drafts,
mail transfers, collection of cheques and drafts.
Loans through various schemes:
Vehicle loans
Housing loans
Mortgage loans
Installment loans
Jewel loans
Other loans
The bank has introduced 14 new loan products to increase the means for advancing more
into increase the cliental base. The bank has also introduced insurance products with a tie-
up arrangement with oriental insurance company a) personnel accident policy.
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b) SB account holders (apex bank gold SB). c) Fire and earth quake. d) Vehicle
insurance/building. e) Insurance to cover permanent disability due to accident to the
extent of one lakh.
14 New loan products are:-
1. Apex Personnel
2. Apex Nagadu
3. Apex Vidya
4. Apex Pravasa
5. Apex Badige
6. Apex for BDA sites
7. Loan scheme for paying initial deposits /EMD for allotment of BDA sites
8. Apex Overdraft
9. Apex Retail loan
10. Apex Mahile
11. Apex Swayam udyoga
12. Apex Bhangara
13. Apex Nivruthi
14. Apex professionals
PRODUCT PROFILE OF BANK
The KSC Apex Bank was established in the year 1915.Over the past ninety years,
since its inception, it has played a crucial role in the development of the Agricultural
Credit structure in Karnataka. The main functions are given as follows:-
PRINCIPLE FUNCTIONS
Advancing medium term loans for development of agricultural infrastructure such
as irrigation, dairy, poultry, plantation, gobar gas etc which constitute schematic
lending.
Financing of short term loans for seasonal agricultural operations and for
marketing of crops. These loans are repayable within one year.
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Providing cash credit loans to processing, marketing, consumer operatives as well
as sugar factories in Karnataka and also term loans to sugar factories under
consortium arrangements.
LOAN SCHEMES
JEWEL LOANS
The Bank provides Jewel Loan against pledge of gold ornaments to the residents
of Bangalore city.
TERMS
The loan applicant should be/become a nominal member of the Bank. Gold
articles should be delivered in person with Address proof or ID proof. In case, the
applicant is already not a member of the Bank, a person who is well known to bank
should introduce him to the bank.
The Bank will engage a Gold Appraiser to value the gold articles. Based on the valuation
report, Rs.800/- per gram or 65% of the net weight, whichever is less, is considered for
quantum of loan.
The maximum loan given is Rs. 3.00 lakh and the current rate of interest is 12%.
The repayment period for the loan is 24 months and interest should be paid once every
three months. 2% penal interest will be collected on overdue amount.
VEHICLE LOAN
The Bank provides loans to salaried people within the Bangalore City, to purchase two
wheelers/four wheelers for personal use only.
TERMS
Any individual working and residing in Bangalore city is eligible for the loan.
Both the applicant and surety provider should b nominal members of the bank and any
one of them should produce his salary certificate or IT returns with 3 years Balance sheet.
For 2 wheel vehicles, the quantum of loan is Rs.50, 000/- or 75% of invoice value
whichever is less. The repayment period of loan amount is 36 months.
For 4 wheel vehicles, the maximum loan amount is Rs.5.00 lakhs or 75% of invoice value
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whichever is less. The loan repayment period is 60 months.
The current rate of interest is 11%.
For availing the loan, the applicant should produce application form, invoice/quotation,
Form No.29, Pro-note, agreement subject to hypothecation of vehicle in favour of bank
and his photo.
HOUSING LOANS
The housing finance services offered by the Bank include construction of
house/mortgage loan, site purchase/mortgage loan, purchase of flats etc., to the public
through its network of 31 branches in Bangalore City.
Residents of Bangalore city are eligible for housing under certain rules. Persons
applying for loans for construction of house, additional/repairs to the existing house/flat,
purchase of house/flats, site mortgage/purchase loan etc. within the limits of Bangalore
City Corporation, BDA and Municipalities coming under the jurisdiction of BMRDA, are
eligible for loan.
TERMS
Loan will be sanctioned even if the property is in the name of spouse, provided the
spouse mortgages the property to the bank and also guarantees the repayment of loan
along with interest.
Loans will not be sanctioned for revenue property and purchase of sheet/tiled roof house.
The applicant should have regular income by way of salary, business etc. and should
produce Income Tax returns of three years.
The applicant will have to give one surety acceptable to the bank. The applicant will
have to become a nominal member of the bank along with surety provider.
Loans will not be given to persons above the age of 58 years.
In case of non-salaried persons, the Bank will require that the loan is repaid before the
applicant reaches the age of 70 years. And in case of salaried persons, the Bank will
require that the loan is repaid before the applicant is retired from the services. In case of
retired persons having sufficient repaying capacity, the repayment period "may" be
extended for the applicant up to 70 years of age.
House/flats/site financed shall be mortgaged to the bank by depositing all original title
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deeds of the property with the bank and registering the equitable mortgage deed at the
concerned sub registrar office.
Original equitable mortgage deed, latest EC in Form No.15 after registration, loan
agreement, acceptance letter, pro-note and letter of guarantee shall be executed by
surety. The applicant should provide property insurance policy up to 150% of the loan
amount.
PERSONAL LOANS
The Bank provides Personal Loans to salaried people living within Bangalore
City, to meet expenses such as education of children, medical expenses of self and family,
purchase of household articles etc.
TERMS
The loanee and the surety provider should be nominal members of the bank.
The employer of loanee/drawing officer should issue an undertaking letter agreeing to
deduct the loan amount every month towards loan installments or send the salary to the
bank. The bank also gives personal loans by collecting post-dated cheques.
The quantum of loan is 10 times of gross salary and within 60% gross salary
The maximum repayment period is 60 months.
The present rate of interest is 13% P.A.
Latest salary certificate of loanee and surety provider, pro-note, delivery letter to DPN,
letter of authority for pay/wages deduction, bond of agreement etc., will be obtained from
the loanee and surety provider.
2% penal interest will be charged and collected on overdue installments.
AREA OF OPERATION:
Apex bank works at the state level only. It has 31 branches in Bangalore city only and
head quarter is situated in Chamarajpet. The branch offices of bank are adequately
delegated with power of sanction of disbursements. If the loans are to be provided up to
10-15 lakhs. Beyond that the head office will sanction the loan and will be disbursed at
the branch level.
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BRANCHES AT BANGALORE
Head office Branch – Chamarajpet
Ashoka pillar
Banashankari
Basaveshwaranagar
Girinagar
Gokula
Gandhinagar
Agara-HSR layout
Indiranagar
Jayanagar market complex
Jayanagar 9th Block
J.P. Nagar
Kalpathru super Bazaar
Koramangala
Lakkasandra
Magadi road
Ganganagar
Padmanabha nagar
Public Utility Building
Rajajinagar
R.P.C Layout
Vijayanagar
Vidhana Soudha
Legislators’ Home
M.S Building
Mahalakshmipuram
Vyalikaval
Chandra layout
Vivekananda college(Extn. Counter)
R.T. Nagar
OWNERSHIP PATTERN
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Apex bank is state Co-operative bank established by the state government in the year
1915 under the organization of primary agricultural Co-operatives credits societies
(PACS) in villages and urban Co-operative banks in towns and cities offer passing the
Co-operative credit societies at 1904 to meet mainly short and medium term financial
needs of framers.
COMPETITORS:
The major competitors are:
1. Land bank [Agricultural based finance]
2. Amanath scheduled Co-operative bank
3. Sham Rao Vital Co-operative bank [multistate scheduled co-oprative bank]
4. Commercial banks
5. Small industrial development bank of India
6. Small industrial service institution
7. Corporate banks
8. Some local Co-operative banks.
INFRASTRUCTURAL FACILITIES
The new administrative building at a cost of around Rs. 800 lakhs completed in 2002
provides additional impetus to a new work culture and new mindset of all. The gigantic
building with granite gladded façade having circular and rectangular columns suggesting
strengths and stability reflects the character of the organization. This four storied block
caters mainly to the administrative requirement of the bank along with the hi-tech
banking hall on the ground floor. The architects M/s.Zechariah consultant effectively
conceptualized the vision of the corporate head office floated by the directors of the
board. The built up area of “UTHUNGA” has been 67,820 sq.ft. They believe that their
members are always behind them not only to encourage but also to guide them in case
they go wrong. They are grateful to them. Similarly they are grateful to government of
Karnataka, RBI, NABARD, and all other sister Co-operative in the state for what they are
today.
ACHIEVEMENTS AND AWARDS
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APEX BANK
DCC BANKS
PRIMARY CO-OPERATIVE
FARMER
A STUDY ON NON-PERFORMING ASSETS
Bank is able to lend 75% of the farmers in the state and it covers all sugar factories in
Karnataka
Apex bank is habituated to get awards at national level year after. Similarly
NABARD has been giving best performance award and even PACS have not lagged
behind in getting national recognition. All DCC banks and merely 80% of PACS have
provided themselves to be financially viable.
WORK FLOW MODEL
FUTURE GROWTH AND PROSPECTS
RTGS facility.
RTGS is an electronic environment where payment instructions are processed on a
continuous or REAL TIME basis and settled on GROSS or individual basis
without netting the debits against credit.
NEFT.
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NABARD
A STUDY ON NON-PERFORMING ASSETS
National Electronic Fund transfer system made for amount inclusive of paisa
component where there is no upper value limit for putting through an individual
NEFT transaction.
Banc assurance products:
The KSCAB Ltd., made tie up with OIC and IFFCO for give the facility of
insurance to customer.
Technology:
The KSCAB Ltd., Develop its technology of banking facility.
For E.g. ATM facility
Online banking
Internet banking
Mobile Banking
Opening of new branches
The KSCAB Ltd., has the idea to opening of new branches
Shortly opening Branches in the Bangalore city Locations
1.Banashankari 3rd Stage
2.Bommasandra
3.BTM Layout
4.K R Puram
5.Mahadevapura
6.Rajarajeshwari Nagar
7.Sunkadakatte
8.T. Dasarahalli
9.Yelahanka
Doubling of credit to the farmers by advancing loans for the existing crops, new
lands/ farmers. Identifying new members under NABARD lands policy.
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MC KINESEY’S 7 S MODEL
The 7 S Framework of Mc Kinsey is a model that describes 7 factors to organize a
company in a holistic and effective way. Together these factors determine the way in
which a corporation operates. Manager should take into account all seven factors, to be
sure of successful implementation of strategy.
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Origin of Mckinsey’s 7-S Model:
Richard Pascal and Anthony Athos fist mentioned the 7-S Framework in “The Art of
Japanese Management ’’ in 1981. They had been investing how Japanese industry had
been successful. At around the same time that Tom Peters and Robert Waterman were
exploring what made a company excellent. The Seven S model was born at a meeting of
these four authors in 1978. It appeared also “In search of Excellence’’ by peters and
Waterman, and was taken up as a basic tool by the global management consultancy
company McKinsey. Since then it is known as their 7-S Model.
These seven elements are distinguished into hard S’s and soft S’s. The hard elements are
feasible and easy to identify. They can be found in strategy statements, corporate plans,
organizational charts and other documents.
The outstanding feature of the 7 S models is that, it has been tested extensively by Mc
Kinsey’s Consultants in their studies of many companies. At the same time, this frame
work has been used by the business schools of Harvard and Stanford universities. Thus
theory and practices seem to support each in a study of management. This model also
supports the five managerial functions i.e. Planning, Organizing, Staffing,
Leading/Directing and Controlling.
The four S’s however, are feasible. They are difficult to describe since capabilities, values
are elements of corporate culture are continuously developing the changing. They are
highly determined by the people at work in the organization. Therefore, it is much more
difficult to plan or to influence the characteristics of the soft elements. Although the often
factors’s is below the surface, they can have a great impact of the hard structure,
strategies and systems of the organization. By the words above implies that the company
should apply McKinsey’s 7 S Model for its better performance.
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Mckinsey’s 7s frame work with reference to organization.
STRUCTURE
“Structure” is the organizational structure or the hierarchy of the organization that
comprises of the authority, responsibility and relationships in the firm. This function of
framework is concerned with direction of the delegation of authority, organizational
structure whether flat or tall and the degree of centralization or decentralization.
ORGANITION STRUCTURE:-
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BOARD OF DIRECTORS
MANAGING DIRECTOR
SECRETARY
CHIEF GENERAL MANAGER
C&MD’S SECRETARAIT
GEN. MANAGER BANKING
BOARD SECRETARAIT
DGM (P&D)
CHIEF STATISTICIAN
DGM (DAP)
GEN. MANAGER BANKING
GEN.MANAGER I&A
DGM (I&A)DGM (AO)
DGM (CFA)
DGM (BC)
DGM (HOB)
GEN.MANAGER PRINCIPAL ACSTI
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SKILLS
The banks required different skills for different types works at different levels. Highly
qualified professionals in the bank have major skills like technical, finance, economical
and public relation skill. The bank also looks for the development of their staff skills.
The apex bank included following skills in the organization
Financial management skills
Managerial skills
Interpersonal skills
Communication skills
STYLE
Bank follows a top down participative style of management. It believes in team work. For
each task teams are constituted to attain specific goals. Apex bank believes that quality
can be achieved by providing quality financing and related services on a continuous basis.
In order to motivate the employees, it encourages them to activity participate in setting
the organization growth targeting, objectives and to take their own decisions at various
levels. Apex bank leadership style is basically democratic and participative in nature.
STRATEGY
Apex bank is one of the pioneers in this industry in providing short term loans and long
term loans to farmers and medium scale industries. As a part of its marketing studies it
makes its advertising through newspapers, leading television channels and focus over
quality certificate.
All the decision making are decentralized, only cooperation of the entire higher officer
are authorized to make the polices and strategies. Only operation decisions are left to
branch head.
STAFF
There are about 31 branches in which all together there are 200 employees out of them 50
are class A officers, 55 class B assistance and clerical staff and 95 are class C other
subordinates staff.
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Bank follows a typical selection procedure. As a first step, advertisement is given as and
when it is required. The test is conducted and the candidates are made to go through
interview which is being conducted by the top management board. It consists of subject
expert from different department.
SYSTEM
The Apex bank has the good system. It follows the rules and regulation including
procedures that support the organization structure. The APEX bank has a agricultural
delivery system for improving overall development of rural farmers. The credit sector is
extending helping hand to the farmers in its own way to boost the agricultural production
in the state and in the country at large. It provides facility to the commercial and non-
commercial purpose.
SHARED VALUES
Shared value is satisfying the farmers and small and medium scale industries first.
Mission of the apex bank is committed to continuously nurture, develop and service the
small sector through the need based products and services. The values that the bank
upholds most are “Farmers Satisfaction”. This bank focuses over their farmers and
industrial demands and wants. They also come up with various schemes like housing
loans, vehicle loans, installment loans and mortgage loans. These are the purpose of
attracting the farmers and industries and feel satisfactions by the banks.
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SWOT ANALYSIS
Strengths-
Completed 95years having well capital base.
Good will and market reputation prevailing in the sector.
Fully trained man power.
Large range of products and services to the customer.
One of the top co- operative banks in India
Having well equipped modernized and growth oriented staff training institute
(ACSTI) for the staff working in Co-operative sector
Weakness-
Lack of awareness of products and services through advertising and other media.
The bank has a bit slow in implementing of core banking solutions in its branches.
Government culture in the organization
Bank has to develop infrastructural facility
Too much politics bound
Opportunities-
Doubling of credit and reaching to the BPL (Below Poverty Line) farmers, help
the bank to strength and expand its business towards rural and short term credit re-
financing
Economic prosperity and the consequent increase in purchasing power have given
a fillip to a customer base.
To capture more market in home loans, small scale sectors and medium
enterprises.
Mutual funds
Insurance
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Threats-
Bank has to compete with nationalized, commercial, private, sector, and foreign
banks
Bank has to develop infrastructure facilities to attract new customer as well as to
retain existing customer in track.
Frequently change in rules and guidelines by the reserve bank of India and
government.
Delay in operating of newly proposed branches may lead to sacrificing the market
opportunities to other banks that are well equipped with better products.
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FINANCIAL STATEMENT ANALYSIS
Balance sheet as on 31st March 2010
Particulars Amount in rupees
Capital and liabilities
Capital
Reserve fund and other reserves
Deposits and other accounts
Barrowings
Interest payable
Branch adjustments
Other liabilities
Net profit
81,24,07,700.00
366,44,95,268.79
4479,03,77,262.60
1647,56,99,869.41
1,50,62,855.63
2,22,31,410.73
140,46,32,361.14
9,25,00,000.00
Total 6788,30,90,659.82
Assets
Cash on hand & bank balance
Money at call and short notice
Investments
Advances
Fixed assets
Other assets
306,44,03,090.46
994,40,00,000.00
2232,94,06,949.50
3146,28,40,441.61
26,39,93,125.35
21,27,63,121.38
Total 6788,30,90,659.82
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Profit and loss account for the year ended 31st March 2010
Particulars Amount in rupees
Income
Interest and discount
Commission, Exchange & Brokerage
Dividend and miscellaneous receipts
391,54,17,355.95
54,57,064.93
5,22,54,028.78
Total 397,31,28,449.66
Expenditure
Interest on dep., Barrowings and other accounts
Salaries, Allowance and provident fund
Directors’ & committee members’ Fee and allowance
Rent, taxes, insurance and lighting
Legal charges
Postage and telephone charges
Repairs to bank properties
Auditor’s fees
Printing, stationery and advertisement
Other expenditure
Income tax paid
Depreciation
Provisions
Provision for tax
Total
Net profit after tax
351,79,77,677.11
17,37,00,861.00
15,62,107.00
2,16,72,661.10
1,57,364.00
27,96,773.19
1,75,09,646.42
8,30,245.00
91,51,846.36
1,84,11,721.68
3,70,56,816.00
2,29,79,120.38
2,48,21,609.82
3,20,00,000.00
388,06,28,449.66
9,25,00,000.00
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RATIO ANALYSIS
Ratio analysis is a tool which enables the banker or lender to arrive at the
following factors, Liquidity position, Solvency, Financial stability, Quality of the
management, safety and security of loans & advances to be or already been provided.
Ratio analysis is the analysis of the financial statement of the company. This is a
primary source of information for evaluating the investment prospect of the company’s
stock; the statement gives the historical and current information about the company’s
information. Historical financial statement helps to predict the future. The current
information aids to analyze the present status of the company.
Current ratio: It is the relationship between the current assets and current liabilities
of a concern. The standard current ratio is 2:1.
Current Ration = Current Ratio: Current Liabilities
Current Ratio = 3277166219.84
1441926627.5
Current Ratio = 2.272
Interpretation:
Banks current ratio is 2.272:1 is more than the standard one i.e. 2:1. Bank has an
excellent capacity of repayment of funds.
Debt equity ratio: It is the relationship between borrower’s fund (Debt) and owner’s
capital (equity).
Debt Equity ratio = Long term debts
Owner’s fund
Debt Equity Ratio = 16475699869.41
4476902968.79
Debt Equity ratio = 3.68
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Interpretation:
Apex bank debt equity ratio 3.68. It means bank is using 3.68 times more debt
than its equity.
Return on asset: It is the relationship between asset and investment in business with
the net profit of the business.
Return on asset = Net profit after tax
Total asset
Return on asset = 92500000.00
67883090659.82
Return on assets = 0.14%
Interpretation:
Return on asset of Apex bank is 0.14%
Earnings per share: It is the amount of income earned during a period per share of
common stock.
Earnings per share = Net profit after tax
Total number of shares
Earnings per share = 92500000.00
8124077
Earnings per share = Rs.11.38
Interpretation: the earnings per share of Apex bank are Rs.11.38.
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LEARNING EXPERIENCE
While conducting study in fast growing Apex bank, I had got a chance for
knowing and analyzing the banking industry. While studying about organization, I was
happy to implement theoretical knowledge gained during the course of MBA. I came to
know about different types of products and services provided by bank. I came to know
about charges or fees imposed on services and different rates of interest for different
category of customers. In mean while I learnt about different types of transactions done
by banks. I was also able to know about the business environment and business ethics of
banking industry. I learnt how to handle the customer and how to communicate between
different departments in organization at different levels. In mean while I was happy to see
the coordination and support between different departments and dedication of each
department to achieve the objectives of the bank.
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GENERAL INTRODUCTION:
Recovery of Non Performing Assets is very important factor in the credit
portfolio of any Bank. The term NPA is having for reaching consequences of NPA to
total credit. Reserve Bank of India reviews the performance of parameters discussed at all
levels. Mandatory disclosures on quantum and movement of NPA and the provisions
there against, is one of the major parameters in deciding the health and soundness of the
Bank.
According to Banking, NPA is defined as an advance for which interest or
repayment of principal of both remains outstanding for a period of more than two
quarters. The level of NPA act as an indicator, showing the Bankers credit risks and
efficiency of allocation of resource.
In simple words, Non Performing Asset means an asset or account of borrower,
which has been classified by a bank or financial institution as sub-standard, doubtful or
loss asset, in accordance with the directions or guidelines relating to asset classification
issued by RBI.
An amount due under any credit facility is treated as “past due” when it has not
been paid within 30 days from the due date.
Accordingly, a Non Performing Asset (NPA) shall be an advance
i. Interest and / or installment of principal remain overdue for a period of more than
180 days in respect of a Term Loan.
ii. The account remains ‘out of order’ for a period of more than 180 days, in respect
of an overdraft / cash Credit (OD/CC).
iii. The bill remains overdue for a period of more than 180 days in the case of bills
purchased and discounted.
iv. Interest and / or installment of principal remains overdue for two harvest seasons
but for a period not exceeding two half years in the case of an advance granted for
agricultural purpose and
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v. Any amount to be received remains overdue for a period of more than 180 days in
respect of other accounts.
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the ’90 days overdue’ norm for identification
of NPA, form the year ending March 31, 2004.
Accordingly, with effect from March 31, 2004, a Non-Performing Asset (NPA) shall be a
loan or an advance where;
i. Interest and / or installment of principal remain overdue for a period of more than
180 days in respect of a Term Loan.
ii. The account remains ‘out of order’ for a period of more than 180 days, in respect
of an overdraft / cash Credit (OD/CC).
iii. The bill remains overdue for a period of more than 180 days in the case of bills
purchased and discounted.
iv. Interest and / or installment of principal remains overdue for two harvest seasons
but for a period not exceeding two half years in the case of an advance granted for
agricultural purpose and
v. Any amount to be received remains overdue for a period of more than 180 days in
respect of other accounts.
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EXECUTIVE SUMMARY
NPAs have turned to be a major stumbling block affecting the profitability of
Indian banks before 1992; banks did not disclose the bad debts sustained by them and
provision made by them fearing that it may have an adverse. Owing to the low levels
of profitability, banks owned funds had to be strengthened by repeated infusion of
additional capital by the government. The introduction of prudential norms strengthen
the banks financial position and enhance transparency is considered as a milestone
measure in the financial sector reform. These prudential norms relate to income
recognition, asset classification, provisioning for bad and doubtful debts and capital
adequacy.
A Descriptive study was considered to be adequate to achieve the objectives of
the study, and the study was conducted in Apex Bank. “A STUDY ON NON-
PERFORMING ASSETS” at Apex bank. The general objective of the study was to
analyze the NPA level in commercial banks. However the study was conducted with
the following specific objectives..
1. To analyze the NPA level of Apex bank
2. To study the recovery procedures of Apex bank.
3. To examine how far the bank has been successful in reducing the NPA level.
4. To suggest measures for efficient management of NPAs.
The major limitation of the study was the scarcity of time. Even then, maximum
care has been taken to arrive at appropriate conclusion. The method adopted for
collection of data is secondary data. After collecting data from the respective source,
analysis & interpretation of data has been made. On analyzing the data, the findings
were arrived.
Based on the findings, logical conclusions are drawn, and further, suitable
suggestions & recommendations are brought out. The entire project report is presented
in the form of a report using chapter scheme, developed logically and sequentially from
‘introduction’ to ‘bibliography & references.’
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DESIGN OF THE STUDY
TITLE OF THE STUDY
“A STUDY ON NON-PERFORMING ASSETS” at Karnataka State Co-operative Apex
bank Ltd., Bangalore.
STATEMENT OF THE PROBLEM
Banking institutions by providing financial assistance to business units have contributed
to economic growth of the country. In recent years the loans and advances given by them
are not yielding expected returns giving rise to NPA.
The NPA are growing in such a rate where banks profits are eaten away by NPA. Hence
there is need to study the causes of NPA and steps taken by banking institutions and
government to down size such NPA.
. The problem lies in understanding and analyzing the NPA.
OBJECTIVES OF THE STUDY
To study the management of total assets and advances of Apex Bank.
To understand the concept of Non-performing assets and to intimate timely steps
to identify it.
To know the policies, procedures followed by the Apex bank with respect to Non-
performing assets management.
Understanding the need and nature of various strategies for reducing Non-
performing assets through recovery mechanisms.
To suggest appropriate measures to control the growth of Non-performing assets
in Apex Bank.
SCOPE OF THE STUDY
The area of the study is limited to the NPA in Karnataka State Co-operative Apex
bank Ltd., Bangalore. This study attempt to analysis the NPA in Apex Bank, the scope is
limited to draw conclusions from analysis and interpretations of primary and secondary
data of the Apex Bank.
RESEARCH DESIGN
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This study is based on Descriptive research design. Because this report is purely based on
secondary data.
METHODOLOGY
Secondary data:
The data published or unpublished which have already been collected and processed
by some agency or person and take over from there and used by any other agency for
their statistical work.
This report is prepared through secondary sources such as text books, journals, and
annual reports of the Apex Bank.
LIMITATIONS OF THE STUDY
Though sincere effort has been made during the study, certain limitations cannot be
avoided they are:
The study is mainly based on the secondary data provided by bank. As such it
is subject to the limitations of the secondary data
The study is limited only for NPAs mechanism as time is the main constraint.
This practices in some cases lead to window dressing to cover up bad
financial position.
NPA statement suffers from inherent weakness of accounting practices, such
as their historical nature of matching principle etc.
THEORETICAL OVERVIEW
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Non-Performing Assets (NPA)
Non performing assets refers to an asset or account of borrower, which has been
classified by financial institution as sub-standard, doubtful or loss asset, in accordance
with the direction or guidelines relating to assets classification issued by RBI.
An amount due under any credit facility is treated as “past due” when it is not
been paid within 30days from the due date. Due to the improvement in the payment and
settlement system, recovery climate, up gradation of technology in the banking system
etc, it was decided to dispense with “past due” concept, with effect from March 31 st 2001,
accordingly as from that date, a Non-performing asset shall be an advance where:
i) Interest and/or installment of principal remain overdue for a period of more
than 180 days in respect of a term loan.
ii) The account remains ‘out of order’ for a period of more than 180 days, in
respect of an overdraft/cash credit (OD/CC)
iii) The bill remains overdue for a period of more than 180 days in case of bill
purchased or discounted.
iv) Interest and/or principal remains overdue for two harvest season but for a
period not exceeding two half years in case of an advance granted for
agricultural purpose.
v) Any amount to be received remains overdue for a period of more than 180
days in respect of other accounts.
With a view to moving towards International best practices and to ensure greater
transparency, it has been decided to adopt, 90 days of overdue norms for identification of
NPAs, from the year ending March 31st, 2004, a non-performing asset shall be a loan or
an advance where:
i) Interest and/or installment of principal remain overdue for a period of more
than 90 days in respect of a term loan.
ii) The account remains ‘out of order’ for a period of more than 90 days, in
respect of an overdraft/cash credit(OD/CC)
iii) The Bill remains overdue for a period of more than 90 days in case of bill
purchased or discounted.
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iv) Interest and/or principal remains overdue for two harvest season but for a
period not exceeding two half years in case of an advance granted for
agricultural purpose.
v) Any amount to be received remains overdue for a period of more than 90 days
in respect of other accounts.
Out of Order:
An account should be treated as out of order if the outstanding balance remains
continuously in excess of sanctioned limit/drawing power. In case where the outstanding
balance in the principal operating account is less than the sanctioned amount/drawing
power, but there are no credits continuously for six months as on the date of balance sheet
or credit are not enough to cover the interest debited during the same period, these
account should be treated as ‘out of order’.
Over due:
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on due
date fixed by the bank.
ASSET CLASSIFICATION OF LOAN ACCOUNT
By the method of classification, the concept of NPA came into an existence and
now it has become one of the buzzword in the banking and financial system.
As per the guidelines given by RBI, the NPA’s are classified into three categories
based in certain specified yardsticks.
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i) Performing assets/standard assets:
Loans or advances in this category are fully protected by the current financial and
paying capacity of the borrower and/or not subject to critics. In general, any loans
or advances or portion thereof, this is fully secured, both as to principal and
interest, by cash or cash substitutes, shall be classified under this category
regardless of past due status or other adverse credit factors.
ii) Sub-standard assets:
A Non-performing asset may be classified as sub-standard on the basis of the
following criteria:
a) An asset which has remained overdue for a period not exceeding 3 years in
respect of both agricultural and non-agricultural loans should be treated as
substandard.
b) In case of all types terms loans, where installments are overdue for period
not exceeding 3 years, the entire outstanding in term loan should be treated
as sub-standard.
c) An asset, where the terms and conditions of the loans regarding payment of
interest and repayment of principal have been renegotiated or rescheduled,
after commencement of production, should be classified as sub-standard and
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Asset Classification
Performing Assets
Standard
Non-Perfoming Assets
Sub-Standard Assets
Doubtful Assets Loss Asset
A STUDY ON NON-PERFORMING ASSETS
should remain so in such category for at least one year of satisfactory
performance under the renegotiate or rescheduled terms. In other words, the
classification of an asset should not be upgraded merely as a result of
rescheduling unless there is satisfactory compliance of the above condition.
iii) Doubtful Asset
A Non-performing Asset may be classified as doubtful on the basis of following
criteria: As asset which has remained overdue for a period exceeding 3 years in
respect of both agricultural and non-agricultural loans should be treated as
doubtful. In case of all types of term loans, where installments are overdue for
more than 3 years, the entire outstanding in term loan should be treated as
doubtful. As in the case of sub-standard assets, rescheduling does not entitle a
bank to upgrade the quality of advance automatically.
iv) Loss Asset:
It is an asset identified by the bank, auditors or by the RBI inspection as a loss
asset. It is an asset for which no security is available or there is considerable
erosion in the realizable value of the security. (If the realizable value of the
security as assessed by bank, approved values or RBI is less than 10% of the
outstanding, it is known as considerable erosion in the value of asset). As a result
even though there may be some salvage of recovery value, its continuance as
bankable asset is not warranted.
PROVISIONING NORMS FOR ASSET CLASSIFICATION
Need for provisioning
Provisioning is necessary considering the erosion in the value of security charged
to the banks over a period of time. Therefore, after the assets of CCBs/SCBs are classified
into various categories (Viz., Standard, sub-standard, doubtful and loss assets) necessary
provision has to be made for the same. The details of provisioning requirements in respect
of various categories of assets are mentioned below:
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Standard Asset
When the IRAC norms were introduced in the year 1996-97, no provisioning was
required in respect of standard assets, From the year ended 31 March 2000, Banks are
required to make provision on standard assets of a minimum of .25% of the total
outstanding in this category. The provision made on standard assets may not be reckoned
as erosion in the value of assets and will form part of owned funds of the bank. The
advances granted against term deposits, National Savings Certificate (NSC) eligible for
surrender, Kisan Vikas Patra(KVP), Indira Vikas Patra (IVP), Life policies, Staff loans
would attract provision of 0.25% prescribed for standard assets. The provision towards
assets need not to be netted from gross advances and should be shown separately as
“Contingent provision against standard Assets” under “other liabilities and provisions-
others.” General provisioning requirement for ‘Standard advances’ from the present level
of 0.25 per cent was increased to 0.40 per cent with effect from the financial year
beginning April, 1 2007. Bank’s direct advances to agricultural and SME sectors would
be exempted from the additional provisioning requirement.
Sub-Standard Asset
A general provision of 10% of total outstanding in this category may be made.
Doubtful Assets
100% is be made to the extent to which the advance is not recovered by realized value of
securities to which the bank has a valid recourse and the realizable value is estimated on a
realistic basis.
Over and above item (a), provision is to be made depending upon the period for which an
asset has remained overdue, 20% to 50% of the secured portion on the following basis.
CRITERIA % OF PROVISIONING
Overdue above 3 years, and up to 4 years 20
Overdue over 4 years, but not exceeding 6 years. 30
Overdue exceeding 6 years 50
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With the enactment of the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act. 2002 and the chances / extent of recovery of an
asset reducing over a period of time, it is essential that banks expedite recovery of NPAs.
Paragraph 122 of the Annual policy Statement for the year 2004-05 (copy enclosed)
proposes to introduce graded higher provisioning according to the age of NPAs in
‘doubtful for more than three years’ category with effect from March 31, 2005. However,
in respect of State and District Central Co-operative Banks, all advances classified as
‘doubtful for more than three years’ the provisioning requirement would be as under :
a) Unsecured portion
For portion of the advance, which is not covered by the realizable value of
tangible security to which the bank has a valid recourse and the realizable value is
estimated on a realistic basis, provision will be to the extent of 100 per cent as
hitherto.
b) Secured portion
Period for which the advance has remained
in ‘doubtful’ category
Provision requirement
on secured portion
(i) outstanding stock of NPAs classified as
doubtful for more than three years as on
March 31, 2007
60 percent as on March 31, 2008
75 percent as on March 31, 2009
100 present as on March 31, 2010
(ii) advances classified as ‘doubtful more
than three years’ on or after April 1, 2007
100 percent
Loss Asset
The entire loss asset should be written off. If the assets are permitted to be retained in the
books for any reasons, 100% of the outstanding therefore should be fully provided for.
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Provisioning with the effect from 31 March 2004, SCBs and CCBs should move over to
charging of interest on monthly rests by 1 April 2004 except for agricultural loan and
loans for activities allied to agriculture. However, banks should continue to classify an
account as NPA only if interest charged during any quarter with effect from 1 April 2004
and within 90 days from the end of the quarter with effect 31 March 2006.
PROVISIONING NORMS FOR NON-PERFORMING ASETS
Sl. No. Asset Category Provision
1 Standard assets 0.25%
2 Sub-Standard assets 10%
3 Doubtful assets
UP to 1 year
1 year to 3 years
Above 3 years
20%
30%
50%
4 Loss assets 100%
CAUSES FOR NON-PERFORMING ASSETS
External causes:
Natural calamities and climatic conditions
Recession, changes in Government policies changes in economic conditions.
Industrial recession.
Impact of liberalization on industries.
Technical problems.
Global competition.
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Internal causes:
Internal defaulters
Most of the project report is ground realities, proper linkages, product pricing etc.
Some approach for the “heck” of starting a venture, with poor knowledge of
product risks, over depended on poorly paid killed workers and technicians.
Building up pressure for sanctions.
Deficiencies on the part of banks in credit appraisal.
Non-observance of system, procedure and non-insistence of collaterals etc.
Lack of post sanction monitoring, unchecked diversions.
RBI GUIDELINES
Steps/initiatives taken by RBI to control NPA’S
Recognizing the fact that the origin of non-performance could be at the initial
stage of loan decision making, RBI had impressed upon banks, from time to time, to
strengthen credit appraisal and credit supervision. After sanction and disbursal o credit,
banks are required to closely monitor the operations of the borrower units and accounts
by way of abstention of periodic stock/operation statements, draw downs, end use, etc. In
case of incipient sickness, detailed guidelines have been issued to bans to take steps for
avoiding sickness, nursing back to sick units, etc. problem accounts above a certain
outstanding balance which are required to be monitored individually by designated senior
officials of banks. In respect of accounts where the classification of asset worsens, banks
are required to take prompt steps to recover the dues and staff accountability is required
to be examined. Banks have also been advised to take decisions regarding filling of suits
expeditiously and to effective follow-up the cases of suit filed and decreed accounts.
During periodic discussion with bank management, special emphasis is given on
monitoring of large NPA accounts at the highest level in the banks and also on reduction
of NPA’s through up gradation, recovery and compromise settlements, RBI has advised
and accordingly banks, Boards lay down policies in regard to credit dispersions, recovery
of credit, etc. banks have constituted Recovery Cells, Recovery Branches, NPA
Management Departments and fixed recovery targets.
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Policies evolved and steps taken in this regard are critically examined during the
annual on-site inspection of banks. The off-site return also provides RBI an insight into
the quality of credit portfolio at quarterly intervals.
Introduction of prudential norms on income recognition, asset classification and
provisioning during 1992-93 and other steps initiated apart from bringing in transparency
in the loan portfolio of banking industry have significantly contributed towards
improvement of the presentation appraisal and post sanction supervision which is
reflected in lowering of the levels of fresh accretion of Non-Performing Advances of
banks after 1992.
Narasimhan Committee Reports
The RBI is going to implement in phases the entire stringent international standard
for NPA classification in second generation of reforms as per the recommendations of the
Narasimhan Committee’s second report. The second recommendations with regards to
NPA are as follows :
Narasimham Committee’s second report with regards to NPA
1. An asset is classified as NPA if it remains past due/out of order for 90 days
(instead of 2 quarters) in phased manner by the year 2000.
2. An asset is classified as doubted and if it is in the sub-standard category for 18
months in the first instance and subsequently for 12 months and loss if it has been
so identified but not written off.
3. For the purpose of evaluating the quality and asset portfolio, government
guaranteed advances should be treated as NPA.
4. For standard asset, a general provision of 1% should be introduced I phased
manner.
5. The bank should reduce the average level to net NPA to below 5% by the year
2000 and 3% by 2003.
6. There is need to institute an independent loan review mechanism especially for
large borrowed accounts and systems to identify potation NPA.
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7. For banks with a high NPA portfolio, all loan assets in the doubtful and loss
categories should be transferred to an asset reconstruction company.
8. A ‘week bank’ should be one whose accumulated losses and net NPA’s exceeds
its net worth or one whose operating profits less its income on recapitalization
bond is negative for 3 consecutive years.
What is NPA ?
To begin with, it seems appropriate to define non performing advance, popularly
called NPA. Non Performing Advance is defined as an advance “where payment of
interest of repayment of installment of principal (in case of term loans) or both remains
unpaid for a period of two quarters or more”. An amount under any of the credit facilities
is to be treated as “past due” when it remain unpaid for 30 days beyond due date.
What is NPA Management ?
A bank creates an asset by lending 50% to 90% of the project cost. The bank has
major stroke in an asset then the borrower, so it should be the responsibility of the bank to
see and maintain the health of the asset, while creating an asset the Bank wants that the
asset should be performing one from the beginning and remains so till its liquidation. But,
sooner or later, it becomes or tends to become NPA; unless managed properly; due to
various reasons. Then it becomes a problematic asset and needs intensive care.
The objectives of NPA Management
1. To make more assets performing
2. To reduce quantum of NPA’s and
3. To minimize the amount of provision requirements.
Effective NPA management involves the following Aspects.
1. Understanding of NPA amount.
a. Understanding of NPA concept
b. Understanding of income recognition norms
c. Understanding of asset classification norms
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d. Understanding of provisioning norms
e. Understanding of asset cycle.
2. Identification of NPA’s;
a. Terms loans
b. Agricultural advances
c. Cash credit and overdraft credit facilities.
d. Bills purchased and discounted.
e. Other credit facilities.
3. Prevention of NPA’s
a. Credit risk management
b. Credit marketing
c. Management of potential NPA’s
d. Replacement of loans
4. Proper NPA accounting system
a. Accounting system in NPA accounts]
b. Maintenance of NPA records.
5. Up-gradation of fresh NPA’s
a. Recovery of critical amount
b. Replacement of NPA amount
6. Liquidation of chronic NPA’s
a. Cash recovery through
The bank staff
The government agencies
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The private recovery agents
The legal bodies/methods
b. Settlement of claims with DICGC/ECGC
c. Compromise
d. Written off
Recovery Management in the Karnataka State Co-operative Apex Bank Ltd.
(KSCAB)
Recovery of loans and advances is an integral part of credit management in
KSCAB. In the normal circumstances it should be the endeavor of an institution, to
increase its loan portfolio, taking into account the resources available, opportunities for
lending and other relevant factors like desired risk-return profile. The emphases should
be on building a healthy credit portfolio is tune with the corporate objectives and this
should have enough cushions to absorb normal loan losses. A recovery of loans as end
when due is part of credit management, with provision for dealing with troubled accounts.
The strategy that may be adopted for improving recovery on a step-by-step basis
is highlighted and these are not in substitution of the well laid down procedure of the
corporation for recovery but as an aid in the direction.
Spotting troubled accounts
Leaving alone the norms for classification of an asset a NPA, anyone of the
following could be a trigger point for marketing an account for special treatment.
1. Non-payment of one or more installments (month/quarterly) on the due date.
2. Non-payment of quarterly interest when due, say within a week/10days.
3. Non-receipt of audited financial statements when due.
4. Borrower/his representatives not meet for considerable time.
5. Enquiries from banks.
6. Request for sending II charge on assets/notice of II mortgage.
When any of the above or similar things happens, be alert. Ask them when you
met the borrower last. And here starts the first step
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Steps:
1. Establish contact with the borrower/chief representative; understand the reason for
the irregularity and his not coming to you earlier.
2. Do not start with repayment. Understand the problem. It could be with the unit,
including the industry to which it belongs or it could be with the individual. It
could be of temporary nature or more prolonged one.
3. Can you do something to mitigate the problem? With you contact with so many
other customers, it may be possible for your help come out of the difficulties.
4. Make the borrower come out openly with his difficulties, the steps taken by him to
overcome them and the help the needs. This will help you to devise suitable
strategy to regularize the account.
5. Ask him to call on you for further discussion. Do not lose contact, ask him to give
in writing the problem faced by him and the help the needs from the corporation
(more time, rescheduling etc) and while accepting his liability.
6. Meanwhile, try to get fresh report on him about his business outside
commitments, borrowing from other sources etc.
7. Look at your security documents and see that they are intact. Ensure the
availability of the security and the value to cover the indebtedness.
When the contacts with the borrower do not yield the desired result, the next best
is influences strategy (subject to requirement of secret). May be through the person
who introduced the account, the guarantor who in any case in responsible for
repayment and other persons of the locality who commands respect and the help of
Government officially in the case of Government sponsored schemes.
If this also foils and further grant of time will be harmful to the institution,
the advance can be recalled, giving specific time to regularize the account. Keep an
eye on the documents and securities available before this step is taken. Once you none
decided on this course, it should be followed to the logical end to have the effect on
the borrower and others. A letter from the institution should mean what is a state,
unless the borrower comes for a settlement to the satisfaction of the institution.
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Legal methods available for recovery of impaired loans of the Karnataka State Co-
operative Apex Bank Ltd.
The various legal proceedings for recovery of debt are:-
Legal notice
Plaint
Suit
Summons to defendant
Written statements from the defendant
Discovery and inspection
Notice to admit facts
Summon witness
Hearing and disposal of units
Judgment debtor
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Various steps for reducing NPAs in the Karnataka state Co-operative Apex Bank
Ltd.
Various steps for reducing NPAs
Study the problem of NPAs branch wise amount, wise and age-wise
Prepare a loan recovery policy and strategies for reducing NPAs.
Create special recovery cells as head office/zonal office/regional office levels identify
critical branches for recovery.
Fix targets of recovery and draw time bound action programmer
Select proper techniques for solving the problem of each NPA
Monitor implementation of the time bound action plan.
Take corrective steps whenever found necessary while monitoring the action plan and
make charges in the original plan if necessary.
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DATA ANALISIS AND INTERPRETATION
Table 4.1
The table showing percentage of total NPA to total advances in the KSCAB Ltd.,
Year NPA(Rs.in lakhs) Total advances NPA in percentage
2005-06 26161.20 178574.78 14.65
2006-07 24479.96 223765.69 10.94
2007-08 20896.06 280484.05 7.45
2008-09 19209.01 349254.68 5.50
2009-10 14598.76 314628.40 4.64
Analysis:
The above table shows the percentage of total NPA to total credit in the KSCAB Ltd. It is shows continuously decreasing trend from the financial year 2005-06 to 2009-10, i.e.it is 14.65% in 205-06 and reduced to 4.64% in 2009-10. It shows that an effort has been taken to control the NPA.
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Graph 4.1
The graph showing percentage of total NPA to total advances in the KSCAB Ltd.,
2005-06 2006-07 2007-08 2008-09 2009-100
2
4
6
8
10
12
14
1614.65
10.94
7.45
5.5
4.64
Percentage of total NPA to total advances
NPA in percentage
YEARS
Interpretation:
The decrease in the total NPA to total credit in the past five years shows the development in the bank’s performance. The bank is taking action in large number of cases for recovery of its NPAs under SARFAESI act 2002. This has helped the bank to recover its NPAs and lower the level of NPAs and it is striving hard to decrease it to fuller extent.
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Table 4.2
The table showing the percentage of total NPA in agriculture sector to total advances given in agriculture sector at the KSCAB Ltd.
Year NPA(Rs.in lakhs) Total advances NPA in percentage
2005-06 5512.54 111364.62 4.95
2006-07 4599.06 154330.97 2.98
2007-08 4598.27 209012.22 2.20
2008-09 4770.75 272614.39 1.75
2009-10 0000.00 226798.09 0.00
Analysis:
The percentage of total NPA in agriculture sector to total credit given in agriculture sector is showing decreasing trend from the financial year 2005-06 to 2008-09 and it is nil in the year 2009-10. It shows that effective steps have been taken by bank to control the NPA.
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Graph 4.2
The graph showing the percentage of total NPA in agriculture sector to total advances given in agriculture sector at the KSCAB Ltd.,
2005-06 2006-07 2007-08 2008-09 2009-100
1
2
3
4
5
6
4.95
2.98
2.2
1.75
0
The percentage of total NPA in agriculture sector to total advances given in agriculture sector
NPA in percentage
YEARS
Interpretation:
The specific finding from the study is that as there is a gradual decrease in the percentage of NPA during the last five years, this is appreciable to the growth of the profitability of the bank. NPA in the last year is nil. This is achieved by adopting the various strict recovery measures by bank.
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Table 4.3
The table showing the percentage of total NPA in sugar sector to total advances given in sugar sector at the KSCAB Ltd.,
Year NPA(Rs.in lakhs) Total advances NPA in percentage
2005-06 17523.54 31483.20 55.66
2006-07 16863.27 24653.90 68.40
2007-08 12712.48 19627.12 64.77
2008-09 11500.24 18693.50 61.52
2009-10 11616.74 20589.76 56.42
Analysis:
The percentage of total NPA in sugar sector to total credit given in sugar sector is showing an increasing trend in the year 2006-07 when compared to 2005-06. But later on it reduced to 64.77%, 61.52% & 56.42% in the year 2007-08, 2008-09 & 2009-10 respectively.
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Graph 4.3
The graph showing the percentage of total NPA in sugar sector to total advances given in sugar sector at the KSCAB Ltd.
2005-06 2006-07 2007-08 2008-09 2009-100
10
20
30
40
50
60
70
80
55.6668.4 64.77 61.52
56.42
The percentage of total NPA in sugar sector to total advances given in sugar sector.
NPA in percentage
YEARS
Interpretation:
NPA shows that every year more than 50% of the total credit given has became NPA. It indicate dangerous signal. Bank has to take best measure to control NPA in sugar sector. Through this table we can understand that the inherent quality of the bank’s credit appraisal capability is very weak and it should focus to a large extent in reduction of its NPA.
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Table 4.4
The table showing the percentage of NPA in other sector to total advances given in other sector at the KSCAB Ltd.
Year NPA(Rs.in lakhs) Total advances NPA in percentage
2005-06 3122.53 35726.96 8.74
2006-07 3013.74 44780.82 6.73
2007-08 3582.12 51839.68 6.91
2008-09 2937.90 57946.79 5.07
2009-10 2401.55 49414.53 4.86
Analysis:
The percentage of total NPA in other sector to total credit given in other sector is showing continuously decreasing trend in 2006-07 when compared to 2005-06. But in 2007-08 again it is increased to 6.91%, later on it is decreased to 5.07% and 4.86% in 2008-09 and 2009-10 respectively.
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Graph 4.4
The graph showing the percentage of NPA in other sector to total advances given in other sector at the KSCAB Ltd.
2005-06 2006-07 2007-08 2008-09 2009-100123456789 8.74
6.73 5.91
5.07 4.86
The percentage of NPA in other sector to total advances given in other sector
NPA in percentage
YEARS
Interpretation:
When compared to sugar sector NPA in other sector is very less. Every best possible effort is taken by the bank to curb the growth of NPA. The bank has been focusing its attention on the recovery of NPAs and as a result it has been able to reduce the NPAs during the last years.
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Table 4.5
The table showing the percentage change in NPA to total advances at the KSCAB Ltd.
Year NPA(Rs.in lakhs) NPA in percentage
2005-06 26161.20 -
2006-07 24479.96 -6.36
2007-08 20896.06 -14.68
2008-09 19209.01 -8.10
2009-10 14598.76 -23.97
Analysis:
The above table shows the percentage change in NPA to total advances at the KSCAB Ltd. The change in NPA to total advances shows continuously deceasing trend it is decreased from 6.36% to 23.97% during the financial year 2005-06 to 2009-10.
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Graph 4.5
The graph showing the percentage change in NPA to total advances at the KSCAB Ltd.
2006-07 2007-08 2008-09 2009-10
-25
-20
-15
-10
-5
0
-6.36-14.68
-8.1-23.97
The percentage change in NPA to total advances.
NPA in percentage
YEARS
Interpretation:
The total NPA in the KSCAB Ltd has been reduced in last year’s. This enhances the profitability of the bank and shows the improvement in the performance of the bank. The reduction in NPA can attributed to the positive strategies undertaken by the bank.
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Table 4.6
The table showing the percentage change in NPA in agricultural sector at the KSCAB Ltd.,
Year NPA(Rs in lakhs) NPA in percentage
2005-06 5512.54 -
2006-07 4599.06 -16.51
2007-08 4598.27 -.017
2008-09 4770.75 3.75
2009-10 0000.00 -1.00
Analysis:
The above table shows the percentage change in NPA in agriculture sector at the KSCAB Ltd. There is a decreasing trend in NP in the financial year 2006-07 by 16.51%. In 2007-08 it has been decreased to 0.17%%. But in 2008-09 it again increased to 3.75% and in 2009-10 NPA is nil.
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Graph 4.6
The graph showing the percentage change in NPA in agricultural sector at the KSCAB Ltd.,
2006-07 2007-08 2008-09 2009-10
-20
-15
-10
-5
0
5-16.51
-0.0173.75 -1
The percentage change in NPA in agricultural sector
NPA in percentage -
YEARS
Interpretation:
The NPA in agriculture sector has decreasing tendency in 2006-07, but. In 2008-09 there is a gradual increase in the percentage of the NPA to loans and advances, in 2009-10 NPA is nil. This is appreciable to the growth of the profitability of the bank. This is achieved by adopting the various recovery measures by the bank.
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Table 4.7
The table showing the percentage change in NPA in sugar sector at the KSCAB Ltd.
Year NPA (Rs. In lakhs) NPA in percentage
2005-06 17523.54 -
2006-07 16863.27 -3.68
2007-08 12712.48 -24.68
2008-09 11500.24 -9.52
2009-10 11616.74 1.01
Analysis:
The above table shows the percentage change in NPA sugar sector at the KSCAB Ltd. The percentage change in NPA sugar sector is drastically come down during the financial year 2006-07 to 2008-09. But in 2009-10 it is increased to 1.01%. It shows that NPA is increased in last year when compared to previous years.
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Graph 4.7
The graph showing the percentage change in NPA in sugar sector at the KSCAB Ltd.
2006-07 2007-08 2008-09 2009-10
-25
-20
-15
-10
-5
0
5 -3.68 -24.68 -9.521.01
The percentage change in NPA in sugar sector
NPA in percentage -
YEARS
Interpretation:
The total NPA in sugar sector has been decreasing since 2006-07 but in 2009-10 again it increased to1.01%. The repayment schedule was very poor in case of sugar loan. During 2007-08 the bank had given more attention and importance for the recovery of sugar sector loans and had taken many effective steps in this regard.
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Table 4.8
The table showing the percentage change in NPA in other sector at the KSCAB Ltd.,
Year NPA (Rs. In lakhs) NPA in percentage
2005-06 3122.53 -
2006-07 3013.74 -3.48
2007-08 3582.12 18.85
2008-09 2937.90 -17.98
2009-10 2401.55 -18.25
Analysis:
The above table shows the percentage change in NPA in other sector at the KSCAB Ltd., in 2006-07 the NPA has decreased by 3.48%. But in 2007-08 it is increased to 18.85%. But in 2008-09 to 2009-10 NPA in other sector has reduced to 18.25%.
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Graph 4.8
The graph showing the percentage change in NPA in other sector at the KSCAB Ltd.,
2006-07 2007-08 2008-09 2009-10
-20
-15
-10
-5
0
5
10
15
20
-3.48
18.85
-17.98 -18.25
The percentage change in NPA in other sector
NPA in percentage -
YEARS
Interpretation:
When compared to sugar sector the NPA in other sector is very less except in 2007-08. This enhances the profitability of the bank. The reduction in NPA can be attributed to positive strategies undertaken by the bank. The bank has formulated a recovery policy with built in mechanism to settle NPAs by compromise as well.
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Table 4.9
The table showing the comparison of NPA to advances in agriculture sector and total advances.
Year NPA(Rs.in lakhs) % of NPA to total advances
% of NPA to advances given in agricultural sector.
2005-06 5512.54 3.08 4.95
2006-07 4599.06 2.06 2.98
2007-08 4598.27 1.64 2.20
2008-09 4770.75 1.36 1.75
2009-10 0000.00 0.00 0.00
Analysis:
The above table shows comparison of NPA to advances in agricultural sector and total advances. In the year 2005-06 percentage of NPA to total advances is 3.08% and percentage of NPA to advances in agricultural sector is 4.95%. Later on the NPA to total advances and NPA to advances given in agricultural sector are gradually decreasing and it is nil in years 2009-10.
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Graph 4.9
The graph showing the comparison of NPA to advances in agriculture sector and total advances.
2005-06 2006-07 2007-08 2008-09 2009-100
1
2
3
4
5
6
7
8
9
3.08
2.061.64 1.36
0
4.95
2.98
2.221.75
0
The comparision of NPA to advances in agriculture sector and total advances.
% of NPA to advances given in agricultural sector.% of NPA to total advances
YEARS
Interpretation:
The above NPA as compared to total advances is very less. The bank has to fallow the same NPA recovery measures in order to retain the position of NPA at nil. The bank should closely monitor NPAs and must put in place NPA management plan for efficient recovery.
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Table 4.10
The table showing the comparison of NPA to advances in sugar sector and total advances.
Year NPA(Rs.in lakhs) % of NPA to total advances
% of NPA to advances given in sugar sector.
2005-06 17523.54 9.81 55.66
2006-07 16863.27 7.55 68.46
2007-08 12712.48 4.53 64.77
2008-09 11500.24 3.29 61.52
2009-10 11616.74 3.69 56.42
Analysis:
The above table shows comparison of NPA to advances in sugar sector and total advances. In 2005-06 NPA to total advances is 9.81% and NPA to advances in sugar sector is 55.66% in 2006-07 NPA to total advances is 7.55% and NPA to advances in sugar is 68.46%. Later on the NPA when compared to total advances is gradually decreasing year after,
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Graph 4.10
The graph showing the comparison of NPA to advances in sugar sector and total advances.
2005-06 2006-07 2007-08 2008-09 2009-100
10
20
30
40
50
60
70
80
9.81 7.55 4.53 3.29 3.69
55.66
68.4664.77
61.5256.42
The comparison of NPA to advances in sugar sector and total advances.
% of NPA to advances given in sugar sector. % of NPA to total advances
YEARS
Interpretation:
The NPA amount is compared to total advances is very less. When it compared to advances given in sugar sector is very high. Through this table we can understand that the inherent quality of the bank’s credit appraisal capability is very week and it should focus to a large extent in reduction of its NPA in sugar sector.
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Table 4.11
The table showing the comparison of NPA to advances in other sector and total advances.
Year NPA(Rs.in lakhs)
% of NPA to total advances
% of NPA to advances given in other sector.
2005-06 3122.53 1.75 8.74
2006-07 3013.74 1.35 6.73
2007-08 3582.12 1.28 5.91
2008-09 2937.90 0.84 5.07
2009-10 2401.55 0.76 4.86
Analysis:
The above shows the comparison of NPA to advances in other sector and total advances. The percentage of NPA to total advances is lower when compared to advances given in other sector. In both the cases the percentage shows a decreasing trend but in the year 2009-10 percentage of other sector NPA to total advances is increased when compared to 2008-09.
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Graph 4.11
The graph showing the comparison of NPA to advances in other sector and total advances.
2005-06 2006-07 2007-08 2008-09 2009-100123456789
10
1.75 1.35 1.28 0.840000000000001
0.760000000000001
8.74
6.735.91
5.07 4.86
The comparison of NPA to advances in other sector and total advances.
% of NPA to total advances% of NPA to advances given in other sector.
YEARS
Interpretation:
The bank is taking several steps to curb the level of NPA and is closely monitoring NPAs and put in place NPA management plan for efficient recovery. The bank has formulated a recovery policy with built in mechanism to settle NPAs by compromise as well.
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FINDINGS:
The Karnataka state co-operative APEX Bank Ltd is one of the leading banks in country
acting as a catalyst for the growth of the Indian economy.
The NPA of bank stood at Rs.14598.76 lakhs as on 31.03.2010 as against
19201.99 lakhs as on 31.03.2009.
The net NPA ratio of bank has been declined from 5.5% as at March 31st 2009 to
4.64% as at March 31st 2010.
The NPA of agricultural sector in 2009-10 is nil. It shows that effort has been
taken to control the NPA.
During 2009-10, the bank give more attention and importance for recovery of
sugar sector loans and had take many effective steps in this regard.
The operations of Apex Bank have been increasing steadily over the past years
and have considerably increased their bank deposits which show the confidence
level of the public towards that bank.
The result about repayment by the customer was tricky. There is a good record in
the repayment of the individual loans like personal loan, car loans and housing
loans and even agriculture loans. The loan repayment is very poor in sugar sector.
The specific findings from the study are that, there is still a need to have to have
controlling devices to monitor NPA system in the KSCAB Ltd. The bank is facing
difficulty in controlling NPA because of lack of adequate staff for the recovery.
In spite of many steps taken by the bank still could not control the NPAs but when
NPAs are compared with the total advances, their ratio each other is better.
The Karnataka state co-operative Apex bank Ltd. Has created enough free
reserves to meet the bad debts as per prudential norms and to meet unforeseen
contingent liabilities in standard assets, investments and losses due to
misappropriation and theft, if any.
The net profits of the Karnataka state co-operative Apex bank Ltd. Have increased
reasonably.
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The Karnataka state co-operative Apex bank Ltd. Has recorded growth in all the
areas under its development action plan programmed implemented successfully as
per NABARD guidelines.
SUGGESTIONS:.
In the light of above study and findings, the following suggestions are made bringing
down the NPAs:
The bank has to take care of recovery management in sugar sector with proper
execution and planning.
The banks concerned should continuously monitor loans to identify accounts that
have potential to become non performing.
Bank should create a new model of banking business by giving loans to credit
worthy and persons having clean and credit history.
The KSCAB Ltd., should concentrate more on credit appraisal, monitoring credit
risk management and recoveries.
The KSCAB Ltd., should offer re scheduling of loans of those borrowers who
were struggling with high interest rates in falling interest rate environment.
Timely visit by the field staff and making personal contact with the borrowers.
Proper follow-up with the support of all the staff members who were having good
touch with the customers.
Conducting in-house training programs for the managers concerned with the
recovery about the latest rules and regulations and also on the responsibilities
available for of the recovery of NPAs.
Fresh addition to NPAs can be prevented by proper credit management of the
loans and advances and proper documentation at the time of disbursement of loan.
The securities need to be re-valued/assets for proper provisioning of doubtful and
loss assets.
There is a need to have periodic review of accounts inspection of units by audit
department.
Maintaining the capital adequacy with the set limits by RBI. This requires the
bank to operate in the specified limit of risk position.
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The best model to reduce the level of NPA at Apex bank is to give emphasis for
technological improvements for proper and regular monitoring and follow-up the
accounts, setting targets and achieve set targets.
The bank must also try to implement effective risk management system.
CONCLUSION
The dissertation study on non performing assets at KSCAB Ltd., has been great
source of knowledge. It has given me an opportunity to understand the co-operative
financial sector. The bank is performing very well in every aspect, of its dealing. From
the past 94 years the bank has grown in leaps and bonds. All the branches of the bank are
being computerized. The working capital as well as profit of the bank has gone up
tremendously.
From the study we can conclude that the Apex Bank has been following well-
established systems, policies, and procedures with respect to NPA and recovery. The
bank has recovered the loans in a systematic manner, disbursement of loans/advances to
all the priority sectors and has crossed the total business targets for 2006-07. However, as
suggested, the bank should consider some additional strategies and policies to face
challenges of the competitors in future, to improve the quality of its services of lending
and recovery.
The recovery strategies for impaired loans need to be revised with the following
considerations by setting a time for recovery of a particular impaired loans and assigning
the responsibility to a particular person for the recovery of particular loan alone with the
infrastructure and power to take action concerning to that loan. Apart from the said
conclusions, the level of reduction of Nonperforming assets and to increase the like
special efforts should be made in respect of large advances and more attention needs to be
paid for strategies planning by employees with self set goals educating borrowers.
In sum, the present NPA assignment has been very useful in getting firsthand
experience with respect to the management of NPA in the banks, with an insight into one
of the important segments of recovery.
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BIBLIOGRAPHY
BOOKS REFFERD:
Management of NPA by T.V Gopalakrishna.
Banking and trade practices by Reddy and Appannaiah.
Financial management by Khan and Jain.
JOURNALS:
Annual reports of the bank
Bank journals.
WEBSITES
www.karnatakaapex.com
www.rbi.com
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