A

SUMMER TRAINING PROJECT REPORT

ON

“NPA MANAGEMENT IN J & K BANK”

Submitted to

Punjabi University, Patiala

In partial fulfillment of the requirement for the award of degree of

Master of Business Administration

By:

Ab. Raouf Naikoo

Class Roll No: 81

Registration No: 512-11-155

Under the guidance of:

Mr. Tariq Ahmad

Deputy Branch Head

J & K Bank Kulgam

DESH BHAGAT INSTITUTE OF MANAGEMENT AND COMPUTER SCIENCES

MANDI GOBINDGARH

2013

1

DECLARATION

I declare that the Project entitled (“Non Performance Assets Management”) is a

record of independent work carried out by me under the supervision and

guidance of (Mr. Tariq Ahmad Deputy Branch Head in J & K Bank). This has

not been previously submitted for the award of any other diploma, degree or

other similar title.

AB. RAOUF NAIKOO

Class Roll No. 81

2

ACKNOWLEDGEMENTS

I owe a great many thanks to a great many people who helped and supported me

during the preparation of this project report.

My deepest thanks to (Mr. Tariq Ahmad Deputy Branch Head in J & K Bank)

the Guide of the project for guiding and correcting various documents of mine

with attention and care. He has taken pain to go through the project and make

necessary corrections as and when needed. 

I express my thanks to the Dr. Nidhi Gupta, Director, Desh Bhagat Institute

of Management and Computer Sciences, Mandi Gobindgarh for extending

her support.

Thanks and appreciation to the helpful people at [JAMMU AND KASHMIR BANK],

for their support.

I would also thank my Institution and my faculty members without whom this

project would have been a distant reality.

I also extend my heartfelt thanks to my family, friends and well wishers.

AB. RAOUF NAIKOO

Class Roll No. 81

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1. INTRODUCTION 1.1 Industry profile…….............................................................................................. 1-8

1.1.1 Introduction…….……………………………………………………............. 2

1.1.2 History of Banking in India…………………….............................................3-5

1.1.3 Composition of Banking system in India…………….................................... 6-7

1.1.4 Sarfaesi Act……………...……...………………………………….…….… 8

1.2 Company profile……………………………………………………………..… 9-20

1.2.1 Brief profile of J&K Bank………………..………………………..………. 9

1.2.2 Vision………………………………..…………………………….……….. 9

1.2.3 Mission………………………………..………..…………………………... 9

1.2.4 Awards and Recognitions …. …………………………………………..…. 10-12

1.2.5 Services provided by J&K Bank……………………...……………………. 13-14

1.2.6 Loan facilities provided by JKB……………………………………………. 15

1.2.7 Risk Management…………………………………………………………… 16-17

1.2.8 JKB’s performance in 2009……….…………………………………………. 18-20

1.3 Background…………………………………….................................................... 21-44

1.3.1 Story of an NPA………………………………………................................... 21-24

1.3.2 Non Performing Assets…………………………………………..................... 25

1.3.3 Problems due to NPAs……………………………………………………….. 26

1.3.4 Management of NPAs (Securitization)………………………………………. 27

1.3.5 Securitization- relevance to the banking sector…………………………….... 28-30

1.3.6 Preventing NPAs……………………………………………………………... 31-33

1.3.7 Reducing NPAs………………………………………………………………. 34

1.3.8 How to manage NPAs better…………………………………………………. 35-39

1.3.9 Management of NPAs in JKB………………………………………………... 40

1.3.10 Asset quality of J&k Bank…………………………………………………… 41

1.3.11 Methods used in JKB for controlling NPAs…………………………….…… 42

1.3.12 Techniques used in JKB for managing NPAs……………………………..…. 43

1.3.13 Comparison of NPAs of JKB and other banks…........................................… 44

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2. REVIEW OF LITERATURE 2.1 Review of literature………………………………………………………………. 45-48

3. RESEARCH METHODOLOGY/DESIGN ………………………………….. …..49-53

3.1 Objectives of the study…………………………………………............................. 50

3.2 Research design………………………………………………………………….... 51

3.3 Data collection ……………………………………………………………..…... 51

3.4 Sampling plan……………………………………………………………...……… 52

3.5 Limitations of the study………………………………………………………...… 53

4. DATA ANALYSES AND INTERPRETATION …………………………………..54-

65

4.1 Questionnaire…………………………………………………………….……. ….55-65

5. FINDINGS/SUGGESTIONS ……………………………………………………….66-

69

5.1 Findings………………………………………………………………………...….. 67

5.2 Suggestions…………………………………………………………...……………. 68

5.3 Conclusion………………………………………………………………...……….. 69

6. BIBLIOGRAPHY …………………………………………………………………….. 70

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INTRODUCTION

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INTRODUCTION

The most calamitous problem facing commercial banks all over the world in recent times is

spiraling non-performing assets (NPAs) which are affecting their viability and solvency and

thus posing challenge to their ultimate survival. NPAs adversely affect lending activity of

banks as non-recovery of loan installment as also interest on the loan portfolio negates the

effectiveness of credit-dispensation process. Non-recovery of Loans also hurt the profitability

of banks. Besides, banks with high level of NPAs have to carry more owned funds by way of

capital and create reserves and provision and to provide cushion for the loan losses. Banks

have to make provisions on NPAs from out of the income earned by them on performing

assets. Presently, high level of NPAs in loan portfolio of banks make them fragile leading

ultimately to their failure. This will shake confidence both of domestic and global investors in

the banking system which will have multiplier effect in bringing disaster in the economy.

Thus, managing bad loans and keeping them at the lowest possible level is critical for banks.

It may be noted at this juncture that world class banks do not have NPAs of over 2% of total

portfolio. An NPA level of over 5% is indicator of poor quality of loan portfolio. With

growing competition and Shrinking spreads banks should strive to keep NPAs much below

the level of 10% to make net earnings necessary for their survival and growth. It merely

affected by various factors such as originating factors. Internal and External factors RBI has

to take the necessary steps for lowering down the NPAs.

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HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India, it cannot have a healthy economy.

The banking system of India should not only be hassle free but it should be able to meet new

challenges posed by the technology and any other external and internal factors.

For the past three decades, India’s banking system has several outstanding achievements to

its credit. The most striking is its extensive reach. It is no longer confined to only

metropolitan or cosmopolitan in India. Infact Indian banking system has reached even to the

remote corner of the country. This is one of the main reasons of the India’s growth process.

The government regular policy for Indian bank since 1969 has paid rich dividends with the

nationalization of fourteen major private banks of India. Not long ago, an account holder had

to wait for hours at the bank counters for getting a draft or for withdrawing his/her money.

Today he/she has various options available in front of him that are easiest and consume very

little time. Gone are the days when the most efficient bank transfer money from one branch to

another in two days. Now it is as simple as instant messaging or dial a pizza. Money has

become the order of the day.

The first bank in India though conservative, was established in 1786. From 1786 till today,

the journey of Indian banking can be segregated into three distinct phases which are

mentioned as follows:

Phase-I (from 1786 to1969 of Indian banks).

Phase-II (From Nationalization of Indian banks to 1991 i.e. prior to Indian banking sector

reforms).

Phase-III (with the advent of Indian financial and banking sector reforms after 1991).

To make this clear, all the phases have been discussed one by one very briefly

as under:

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Phase-IThe General Bank of India was set up in the year 1786. Next came Bank of Hindustan and

Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay

(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks.

These three banks were amalgamated in 1920 and Imperial Bank of India was established

which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indian, Punjab

National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913,

Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank

of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic

failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To

streamline the functioning and activities of commercial banks, the Government of India came

up with The Banking Companies Act, 1949 which was later changed to Banking Regulation

Act 1949 as per Amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was

vested with extensive powers for the supervision of banking in India as the Central Banking

Authority. During those day’s public has lesser confidence in the banks. As an aftermath

deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal

department was comparatively safer. Moreover, funds were largely given to traders.

Phase-IIGovernment took major step in this Indian banking sector reform after independence. Seven

banks forming subsidiary of State Bank of India was nationalized in 1960’s on 19 th July 1969,

major process of nationalization was carried out. It was the effort made by the then prime

minister of India, Mrs. Indra Gandhi. Fourteen major commercial banks in the country were

nationalized. Second phase of nationalization Indian banking sector reform was carried out in

1980 with seven more banks. This step brought 80% of the banking segment in India under

government ownership.

The following were the steps taken by the government of India to regulate banking

institution in the country:

1949: Enactment of banking regulating act.

1955: Nationalization of State Bank of India.

1959: Nationalization of SBI subsidiaries.

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1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of credit Guarantee Corporation.

1975: Creation of regional rural banks.

1980: Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector bank in India rose

to approximately 800% in deposits and advances took a huge jump by 11000%. Banking in

the sunshine of government ownership gave the public implicit faith and immense confidence

about the sustainability of these institutions.

Phase-IIIThis phase has introduced many more products and facilities in the banking sector in its

reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up

by his name, which worked for the liberalization of banking practices. The country was

flooded with foreign banks and their ATM stations. Efforts were being put to give a

satisfactory service to customers. Phone banking and net banking was introduced. The entire

system became more convenient and swift. Time was given more importance than money.

The financial system of India showed a great deal of resilience. It was sheltered from

any crisis triggered by any external macroeconomics shock as other East Asian Countries

suffered. This was all due to a flexible exchange rate regime, the foreign reserves were high,

the capital account was not yet fully convertible, banks and their customers were having

limited foreign exchange exposure.

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COMPOSITION OF BANKING SYATEM IN INDIAAt present, the number of nationalized banks is twenty. Several foreign banks were allowed

to operate as per the guidelines of the RBI. At present the banking system can be classified in

following categories:

PUBLIC SECTOR BANKS Reserve Bank of India (RBI)

State Bank of India and its associate Banks

Nationalized Banks (20 in number)

Regional Rural Banks sponsored by Public sector Banks.

PRIVATESECTOR BANKS Old Generation Private Banks

New Generation Private Banks

Foreign Banks in India

Scheduled co-operative Banks

Non Scheduled Banks

CO-OPERATIVE SECTOR BANKS State co-operative Banks

Central co-operative Banks

Primary agriculture credit societies

Land Development Banks

Urban co-operative banks

State Land development banks

DEVELOPMENT BANKS Industrial Financial corporation of India (IFCI)

Industrial Development Bank of India (IDBI)

Industrial Credit and Investment Corporation of India (ICICI)

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Industrial Investment Bank of India (IIBI)

Small Industrial Development Bank of India (SIDBI)

National Bank For Agriculture And Rural Development (NABARD)

Export-Import Bank of India(EXIM)

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SARFAESI ACT

The policy makers and legislators realized the need for measures for the quick recovery of

NPAs, and to empower Banks and Financial Institutions to recover the NPAs without

intervention of judicial process. In that process guidance was found from Section 69A of

Transfer of Property Act and State Finance Corporation Acts, where there is provision for the

sale of secured assets without the intervention of Courts. In that process Securitization And

Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002

(SARFAESI) was enacted. The Preamble of the Act states that ”Narasimham Committee I

and II and Andhyarujina Committee constituted by the Central Government for the purpose

of examining banking sector reforms have considered the need for changes in the legal

system in respect of these areas. These Committees have suggested enactment of a new

legislation for securitization and empowering banks and financial institutions to take

possession of these securities and to sell them without the intervention of the Court. Acting

on these suggestions the SARFAESI Ordinance 2002 was promulgated on the 21st June 2002

to regulate securitization and reconstruction of financial assets and enforcement of security

interest and for matters connected therewith or incidental thereto. The provisions of the

Ordinance would enable banks and financial institutions to realize long term assets, manage

problem of liquidity, asset liability.

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J& K BANK PRIVATE LIMITED

BRIEF PROFILE

Jammu & Kashmir Bank is the only Bank in the country with majority ownership vested with a state

government – the Government of Jammu & Kashmir. It is the sole banker to the Government of

Jammu & Kashmir. J&K Bank functions as a universal bank in Jammu & Kashmir and as a

specialized bank in the rest of the country. It is also the only private sector bank designated as RBI’s

agent for banking business, and carries out the  banking business of the Central Government, besides

collecting central taxes for CBDT.J&K Bank follows a two-legged business model whereby it seeks

to increase lending in its home state which results in higher margins despite modest volumes, and at

the same time, seeks to capture niche lending opportunities on a pan-India basis to build volumes and

improve margins J&K Bank operates on the principle of ‘socially empowering banking’ and seeks to

deliver innovative financial solutions for household, small and medium enterprises.

The Bank, is incorporated in 1938, and is listed on the NSE and the BSE. It has a track record of

uninterrupted profits and dividends for four decades. The J&K Bank is rated P1+, indicating the

highest degree of safety by Standard & Poor and CRISIL.

VISION “To catalyze economic transformation and capitalize on growth.”

J&K BANK’S vision is to engender and catalyze economic transformation of Jammu and

Kashmir and capitalize from the growth induced financial prosperity thus engineered.

The Bank aspires to make Jammu and Kashmir state the most prosperous state in the country,

by helping create a new financial architecture for the J&K economy, at the center of which

will be the J&K Bank.

MISSION

The mission of J&k bank is two-fold: To provide the people of J&K international quality

financial service and solutions and to be a super-specialist bank in the rest of the country.

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Awards and recognitions

2011

Business Today - KPMG Study

The Bank was ranked one of the best banks in the Best Bank Study 2011 done by

Business Today and global Consulting firm KPMG (BT-KPMG). The study ranked

the Bank No. 1 on the basis of NPA coverage ratio which stood best in the industry as

at the end of March 2011.

The Bank was ranked 15th in large banks category in the country based on the last

year's growth, quality of assets, productivity and efficiency parameters, leaving state

bank of India, federal bank, HSBC Bank, Standard Chartered bank and other major

banks far behind.

FE India's best banks Award

The Bank won the prestigious Financial Express Best Banks Award in the Old Private Sector

Banks Category for Scaling up its business and strengthening the balance sheet for the year

ended March 2011. The Award is the recognition of the Bank's innovative approach towards

the business, both within and outside J&K.

Dun & Bradstreet Banking Awards

J&K Bank was awarded the Best Bank in the prestigious 'Dun & Bradstreet (D&B) - Polaris

software Banking Awards 2011 in the category for "Rural Reach - Private Sector".

2012

Business Today - KPMG Study

The bank was ranked one of the best banks in the Best Bank Study 2012 done by

Business Today and KPMG. The Study ranked the Bank No. 1 on the basis of NPA

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coverage ratio and the bank was also ranked No. 1 in terms of Cost to income ratio

which stood best in the industry at the end of the March 2012.

The Bank was ranked 4th in Mid sized banks category in the country based on the

previous year's growth, quality of assets, quality of earnings, productivity and

efficiency and capital adequacy parameters.

Sunday Standard FINWIZ-2012 Best Bankers Award

The Bank was awarded ‘Best Banker in Financial Inclusion and Customer Friendliness’ and

declared runner up for ‘Best Banker in Priority Sector Growth and Agricultural Credit’.

IPE HRM Congress Awards

The Bank has been conferred with the prestigious HR Leadership Award at IPE HRM

Congress Awards organized under the aegis of APHC Asia Pacific HRM Congress 2012. The

criteria adopted to choose the awardees included internal (within the organization)

perception, external perception (based on credibility, achievement and value contribution to

the business), track record of performance and achievements, values, integrity and work life

balance.

CNBC TV18 India Best Bank and Financial Institution Awards.

The Bank was awarded as the “Best Bank” in the “Old Private Sector Bank” category at the

CNBC TV18 India Best Bank and Financial Institution Awards for FY12. The distinction of

being the “Best Bank” in the “Old Private Sector Bank” category has been accorded to J&K

Bank by a panel of distinguished jurors consisting of Mr. Jagdish Capoor, former Deputy

Governor Reserve Bank of India, former Chairman of HDFC Bank and former Chairman of

BSE, Mr. A. K. Purwar, Chairman of India Venture Advisors Pvt. Ltd & former Chairman of

State Bank of India, Mr. H. N. Sinor, CEO, Association of Mutual Funds of India, former

CEO, Indian Banks Association and former Managing Director of ICICI and Mr. M. V. Nair,

former Chairman, Union Bank of India.

16

India Human Capital Awards 2012

For its leadership role in the human resource management practices, J&K Bank was

conferred with HR Leadership Award in the second India Human Capital Awards 2012. The

award is the recognition of Bank’s strategic and iconic position as a role model for

professionalism and management excellence in the banking industry.

2013

FE India’s Best Banks Award-2012-13

The Bank was ranked as No. 1 in ‘Best Old Private Sector Bank’ category in the survey

conducted across the banking industry. In terms of ‘Profitability’, the Bank stands 3rd in the

overall banking industry while as 1ST in the category of ‘Old private sector banks.

The Award is the recognition of the Bank's strong fundamentals and dynamic growth model.

Europe Business Assembly Awards, London

The Bank bagged the prestigious ‘Best Enterprise’ award from Europe Business Assembly

(EBA) in London. The Socrates Committee of EBA also awarded the Chairman and CEO -

Mr. Mushtaq Ahmad with ‘Manager of the Year’ medal and a special statue.

17

SERVICES PROVIDED BY J&K BANKThe J&K Bank is the organization that is serving the people over the decades. This is the only

organization in the valley, which has a major contribution towards the economy of J&K state.

It is the J&K Bank who had lifted the people of J&K for the extreme poverty to the leading

business of the valley. Examples are Kanwal Spices.

The J&K Bank has always tried to provide efficient and better service to the customers. The

J&K bank is trying to provide the qualitative services to its customers. The bank has installed

a network of about 200 ATMs both Off & On site at various centers across the country.

Besides, Anywhere Banking and Tele-Banking services are available at various locations.

The Central DATA centre of the bank has been set up with Finacle - as core banking solution.

J&K Bank is the only bank in the country that has taken an initiative by establishing Khidmat

Centers all over the state where all e-services are provided to the people. The rollover of bank

on the data center has already begun. With the commencing of the said Data Centre, the Bank

is also offering Internet Banking to its customers. Anywhere banking is presently available

almost at all centers and with the completion of interconnectivity; the said facility will be

made available from all its computerized branches. Tele banking is available at most of the

centers. Though, with the increase in the number of customers the bank is going to facilitate

its customers with Tele-banking facilities with ease.

The bank introduced new value added floating rate deposit schemes viz., ‘Super Earner

Deposit Scheme’ and ‘Super Reinvestment Deposit Scheme’ to add to the options/choices

available to the customers. Bank also introduced another new deposit product under the

name and style of ‘Mehendi Deposit Scheme’ targeted for girl child.

The scheme has also value-added features and a free accidental insurance cover. The bank

continued its emphasis on maintaining high standards of service to its customers. In this

direction, the bank introduced various hi-tech and customer friendly products providing value

added services to achieve customer satisfaction. Customer complaints received are dealt

promptly and expeditiously. The bank is a member of the Banking Codes and Standards

Board of India and has adopted ‘Code of Bank’s Commitment to Customers’, a voluntary

code providing protection and ‘Right to Know’ to the customers. The bank has established a

24 X 7 help desk to address customer queries and the desk is slated to be converted into a full

fledged call centre in 2007-08. The bank is also keenly pursuing for ISO 9000 certification

for its customer service.

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The bank has revamped its delivery channels and added ‘Business Development and

Promotion Centre’s’ (BDPCs) with an aim to get closer to and provide hassle-free service to

the customers. Marketing managers and business promotion officers have been placed in all

the zones for execution of the marketing initiatives.

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LOAN FACILITIES GIVEN BY THE BANK

The different types of loans provided by the bank to its customers as per their requirement

are:

Educational Loan

House Loan

Car Loan

Consumer Loan

Dastkar Finance Scheme

Craft Development Scheme

Khatamband Finance Scheme

Roshni Financing Scheme

Personal Loan Scheme:In addition to above products JK bank also extend “Personal Loan Facility” for general

public, which covers the following segments.

Housing Loan Scheme.

Consumption Loan Scheme.

Car Loan Scheme.

Education Loan Scheme.

Consumer Loan Scheme.

Loan for financing of School buses.

20

Risk Management

The bank continued to focus on risk management on an enterprise wide basis and developing

Integrated Risk Management Systems for efficient management of various risks viz. Credit,

Market and Operational. The bank has taken the following initiatives for strengthening risk

management practices in line with business strategies as also to achieve compliance with

industry best practices and regulatory requirements.

I) Credit Risk: The bank has focused on improving the credit appraisal and approval

processes. New standardized appraisal formats have been introduced in the Corporate and

SME segments. Centralized processing of credit proposals has been introduced to separate

the business development and credit appraisal system. To bring objectivity to the credit risk

assessment, eligible borrowers in corporate and SME segments are proposed to be brought

under the internal credit rating system, which is in the final phase of customization and was

operational during 2007-08. Credit Audit / Loan Review Mechanism have been Introduced

for standard accounts of Rs. 5 Crore and above and identified weak accounts of Rs. 1 Crore

and above with elevated risk characteristics. It would help to improve the credit quality and

manage credit risk proactively. The bank is also doing periodic parallel runs of Standardized

Approach for credit risk measurement as per regulatory guidelines.

ii) Market Risk: The bank is implementing the recommendations of the consultants engaged

by the bank for developing a cohesive integrated risk management system particularly in

relation to interest rate risk quantification techniques, liquidity management and reporting

systems. With an endeavor to further improve our Asset Liability management and thereby

the market risk management, the bank has switched over to Duration Gap Analysis instead of

the Traditional Gap Analysis. With these systems in place, the bank has contained market risk

particularly on investment portfolio by reducing the non-SLR bonds and debentures portfolio

and the duration of overall investment portfolio.

iii) Operational Risk: The bank has constituted an Operational Risk Management

Committee (ORMC) at the apex level to monitor progress on operational risk management. A

comprehensive policy for Disaster Management and Business Continuity Plan (BCP) has

been formulated. The bank has already initiated identification of operational risk areas of

business units, capturing various operational risk events and analyzing their causative factors.

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iv) Migration to Basel II: The bank has geared up ‘Revised Capital Adequacy Norms’ in

March 2009 that was time schedule set out in RBI guidelines on the subject. Defining and

restructuring the management information system for this purpose has already been initiated.

22

J&K BANK’S PERFORMANCE IN THE YEAR 2009J&K Bank has emerged as one of the fastest growing banks in the country. Some of the

glimpses of its performance in the year 2009 are described as follows.

The Bank has put in place a well articulated frame work of 3 Ps (People, Process, Products)

to identify and execute new initiatives to accelerate business growth on sound and sustainable

lines. This framework is also designed to improve customer engagement at all customer touch

points. Innovation is actively encouraged. People initiatives include new programmes for

leadership development, succession planning, incentives for high performers, performance

enhancement programmes etc. Process initiatives include centralization of back office

functions, separation of credit marketing and approval process and feed forward MIS to

Branches. Product initiatives include offering timely, affordable, customer-centric and non-

commoditized products to the customers. The Bank is actively chalking out strategies to take

the Bank to higher growth trajectory.

Performance at a glance The aggregate business of the Bank crossed yet another psychological mark and stood at Rs.

53,934.51 crore at the end of the financial year 2008-09. The total business of the Bank

increased by Rs. 6,458.64 crore from the previous year’s figure of Rs. 47,475.87 crore,

registering a growth of 13.60%. The total deposits of the Bank have grown by Rs. 4,410.84

crore from Rs. 28,593.26 crore as on 31st March, 2008 to Rs. 33,004.10 crore as on 31st

March, 2009, registering growth of 15.43%. During the same period CASA deposits of the

Bank have grown by more than 12% contrary to the declining trend in the industry.

The Bank continued its prudent approach in expanding quality credit assets in line with its

policy on Credit Risk Management. The net advances of the Bank increased by Rs. 2,047.80

crore from Rs. 18,882.61 crore as on 31st March, 2008 to Rs. 20,930.41 crore as on 31st

March, 2009, registering growth of 10.84%.During the year, focused attention was given for

accelerated lending under the agriculture sector which recorded a growth of 269%. The

overall priority sector credit portfolio showed a growth of 40% during the same period.

The Bank, in line with its policy stance, has recorded higher credit growth in J & K State than

in rest of India. However, due to tumultuous situation in the state for some time as also the

global economic turmoil, the overall credit growth has remained moderate. Moreover, with a

23

view to maintain immunity against the financial sector meltdown, the Bank has reduced its

exposure to Financial Markets by 54% and to the Real Estate sector by about 32%.

The performance of the Bank in recovery of NPA,s during the year continued to be

good. During the year, the Bank effected cash recovery, up-gradation of NPAs and technical

write-off of Rs. 327.85 crore compared to Rs. 244.53 crore in the previous year.

Investment portfolio of the Bank increased by 22.59% from Rs. 8,757.66 crore as on 31st

March 2008 to Rs. 10,736.33 crore as on 31st March, 2009.

Insurance BusinessThe Bank earned an income of Rs. 26.80 crore from the Insurance Business, registering a

growth of 25.2% over the last year’s income of Rs. 21.41 crore. In life insurance, the Bank

mobilized a business of Rs. 101.10crore, recording a growth of 28.33% over the last

year’s business of Rs. 78.78 crore. In non-life business, the Bank mobilized a business of

Rs. 40.53 crore as against Rs. 36.72 crore mobilized during the preceding year.

Income AnalysisInterest income of the Bank recorded a growth of Rs. 553.89 crore from Rs. 2,434.23 crore

in the year 2007- 08 to Rs. 2,988.12 crore [+22.75%] in the year 2008-09, as against the

interest expenses which grew by 22.42% from Rs. 1,623.79 crore during the year 2007-08 to

Rs.1,987.86 crore during the year 2008-09. The Net Interest Income recorded a growth of Rs.

189.82 crore [+23.42%] during the same period. The Net Income from operations [Interest

Spread plus Non-interest Income] increased to Rs. 1,245.31 crore in the financial year 2008-

09 from Rs. 1,055.45 crore in the financial year 2007-08 recording a growth of 17.99%.The

Operating Expenses showed an increase of 16.66% during the financial year 2008-09 and

stood at Rs. 470.86 crore as compared to Rs.403.61 crore in 2007-08.The Cost to Income

ratio [operating expenses to Net Operating Income] improved marginally from 38.24% in the

financial year 2007-08 to 37.81% in the financial year 2008-09.

24

Gross ProfitThe Gross Profit for the financial year 2008-09 stood at Rs. 774.45 crore as compared to Rs.

651.84 crore in the financial year 2007-08 registering an increase of Rs. 122.61 crore

[+18.81%]. The Asset Utilization Ratio [percentage of Gross Profit to Average Working

Funds] stood at 2.27% in the financial year 2008-09 [previous year 2.23%].

Provisions

The Provision for Loan Losses, Provision on Standard Assets, Taxation and others

aggregated to Rs. 364.62 crore in the financial year 2008-09 as compared to Rs. 291.83 crore

in the financial year 2007-08.

Net Profit and DividendThe Bank registered a Net Profit of Rs. 409.84 crore for the financial year 2008-09 compared

to Rs. 360 crore in the financial year 2007-08 recording growth of 14%. The Board of

Directors have recommended dividend of 169% for the financial year 2008-09. In terms of

extant guidelines, the Bank will pay the dividend distribution tax for the financial year 2008-

09. Accordingly the total outflow on account of Dividend for the year 2008-09 will be Rs.

95.90 crore including the dividend distribution tax.

Net Worth and CRARThe Net Worth of the Bank improved to Rs. 2,622.86 crore as on 31st March 2009 from Rs.

2,308.92 crore as on 31st March, 2008. The Capital to Risk Adjusted Assets Ratio [CRAR]

stood at 13.46% as on 31st March, 2009 as against 12.80% as on 31st March, 2008 which is

well above the norm of 9% stipulated by the Reserve Bank of India. The Tier I component

of CRAR is 12.77% as on 31st March, 2009 compared to 12.14% as on 31st March, 2008.

The Bank has implemented new capital adequacy framework w.e.f. 31st March 2009. Under

new norms, Bank’s CRAR works out to 14.48%, which is higher than the CRAR as

computed under BASEL I norms. The advantage has stemmed mainly from higher rated

Investment / Credit portfolios. The Tier I component of CRAR under new norms is 13.80%

as against 12.77% under

BASEL I. Tier I leverage ratio of the Bank stands at 6.96% as on 31 March, 2009 against

7.05% as on 31 March, 2008.

25

STORY OF AN NPA

(NON-PERFORMING ASSET) 

Once upon a time, there was a bright young engineer full of patriotic zeal. He had graduated

from the country's most prestigious institute and while his classmates were preparing for

migrating to USA, he had decided to serve his country. Twenty years later, he has been

converted to an NPA (Non-Performing Asset) and he spends his time reading law books to

save his skin in the court case that will haunt him for the rest of his life.

He had started as an employee in a blue-chip company but gave up job to be an entrepreneur.

After spending five years to gather some initial capital, he started a small industry with a loan

from the largest Bank of India. This was 1987 and the beginning of the tragedy. He had

planned the unit based on commitment from a large scale industry who it turned out had

given written commitments without being serious about what it committed. The baby was

born sick and it was clear to the engineer-entrepreneur that there was no hope. There was just

no exit route and he was forced to keep the new-born alive. As soon as the production started

in 1988, he thought of various ways of saving the baby and discussed the same with the Bank

with who asked him to write it all out in hundred different ways. He did that and also

followed it up with personal visits to officers of the Bank. Every day he would spend half the

day shunting from one office of the Bank to the other where more often than not he was

treated as a dignified beggar. On the rarest of rare occasions when he displayed some sense of

self-respect, he was insulted beyond imagination. Reports of such bad behaviour to higher

officers were answered with sermons on learning to behave like a businessman.

Bank refused to help him out by giving additional finance. Bank also refused to take over his

unit or to help him find a buyer for the unit. In fact they pleaded that they had no such

provision. Bank can only take over a unit after Court orders it to and that may take a few

years if not decades. Bank froze his account and insisted that he keep running the unit with a

frozen account. He committed his first illegal act by opening an account in another bank. This

started a witch-hunt with the Bank using all means at its disposal to pressurize the other bank

to close his account. All this while he kept pleading with the Bank to settle the matter

amicably, but they were not interested. In 1993, the Bank filed a court case. Seven years later

he is still pleading with the Bank to take over his unit on as-is-where-is basis and recover the

best value possible. But the Bank believes that a dead horse is more valuable than a live one

26

and they would take over the assets (or what remains of the assets) a few years down the line

after being ordered so by Debt Recovery Tribunal. He has offered to pay some money based

on his paying capacity and settle the matter out-of-court. Bank is not even interested in

talking. The case drags on and he keeps cursing the day he decided to serve the country.

A long story that is boring because everyone likes to read about success and forget about

failures. Yet, there is no denying that failure is an essential part of entrepreneurship.

Accepting failures gracefully is the key to success and a society that cannot accept failures is

doomed.

For a long time, India tried to follow socialism treating all businessmen as crooks and looking

at entrepreneurs with suspicion. All talk of liberalization and economic reforms has not

changed the mindset of Indian bankers and powers that control the bankers. The legacy of the

British Raj has survived and flourished in the form of India's gigantic cancerous

bureaucracy. The tentacles of this cancer have spread to almost all fields in India including

banking. Indian banks and financial institutions (FI's) are crying hoarse about their large

Non-Performing Assets portfolio and are blaming the entrepreneurs, businessmen,

Government, judicial system, courts - practically everybody except themselves for the mess

that has been created primarily by them.

Any lending involves the following three stages where discretion needs to be exercised (a)

Evaluation and assessment of the proposal (b) Continuing Support during the currency of the

loan by additional loan or by non-fund based activities (c) Exit decision and modality. Indian

Banks and FI's exhibit extremes of behavior at each of the above stages. A rule-based

approach precludes reasonable application of mind. Evaluation of project idea and the

management is something that most Indian banks and FI's are least equipped for. This leads

to the banker acting too liberal on all projects that are related to the flavor-of-the-month as

well as to insisting on collaterals from everyone without taking into consideration any other

competencies of the entrepreneur. For example if wind is blowing in favour of software, all

projects involving software will be supported. On the other hand if foods is not being

favored, a genuinely good proposal in foods will be rejected by all banks. This naturally

encourages crooks to keep smelling for the flavor-of-the-month. As soon as they smell it out,

the next step is to get a readymix 'bankable' project report from a con-man (also called

consultant). Banks and FI's are too willing to finance against such reports to shady

27

businessmen who may also sometimes grease their palms instead of looking for genuine

project ideas backed by competent men of integrity. Herd mentality of the bankers and FI's

creates excess capacity in any industry that they choose to finance thereby laying the seeds of

sickness of that industry. Coupled with the incompetency of the entrepreneurs and the shady

intentions with which the projects were set up, the sickness spreads like wild fire.

After a loan has been disbursed, it is an accepted norm that the Bank and FI's have a duty to

keep smelling for and to act promptly on key signals that indicate the health of the recipient

of the loan. Rule-bound bankers in India do collect all the necessary information and pile it

up in neat reports and files. It is not unusual for bankers to even advise their clients to cook

up their accounts to either satisfy the Banker's Health Code requirements or to get their unit

classified as sick under the relevant laws. This having been done, the banker can sleep

peacefully. Acting on the signals that emanate from these reports is none of his business. It is

the entrepreneur who has to exercise to convince a long chain of stubborn bank and FI

officers to rise from their slumber. This long chain operates on a veto system. Each and every

member of the chain has a right to delay and veto and no one, howsoever senior, has a right

to over-ride a veto or to ask someone to expedite. So the entrepreneur is now caught in a

game where almost every petty Bank and FI officer satisfies his ego by kicking him where it

hurts most before obliging him by moving the file to the next officer. Bank's and FI's key

decisions about nursing versus exit get influenced by this merry-go-round ego trip of the

officers. The attitude that the Bank will lose more than the entrepreneur by a delay in such

key decisions is completely missing in Indian bankers and FI's who see themselves as demi-

gods waiting for the right 'puja' (rites of worship) to be performed by the faithful before

granting the boons. Honourable exit is something that is an alien concept to the Indian

bankers and FI's. The only exit route known to banks and FI's in India is to issue a Recall of

Loan letter. The letter is just a stepping stone to filing a suit and has no other practical utility.

As soon as a Recall letter is issued, the banker is relaxed because his headaches are now over.

He will pass the necessary entries in his books classifying the loan as Non-Performing Asset

(NPA). He can now blame everybody else for all his omissions and commissions with the

entrepreneur being the key accused. In any other part of the world, the first option that a

banker is supposed to exercise with the support and consent of the entrepreneur is a change in

ownership. It always makes more sense to sell a business as a going concern rather than sell it

as a dead horse. In any business there are intangibles like goodwill, key customers, key

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employees who may be lost as soon as a court case is filed. Sometimes such intangible assets

may be more valuable than tangibles like land, building, plant & machinery etc. Indian banks

and financial institutions live in a fool's paradise thinking that a court or tribunal can get them

all that they need. What they do not realize is that no judicial body can help them get

possession of a running unit without sacrificing its vitality.

The bureaucratic attitude of Indian banks and FI's has had two negative effects. On one hand

it has fed and strengthened a generation of shady businessmen and con-men who know how

to fool the banks for a multitude of projects - some of which even turn profitable. On the

other hand it has killed a new generation of capable entrepreneurs. Indian Banks and FI's

have looked at balance sheets and financial statements for too often. It is time that they learn

to look at human capabilities. It is time that they learn to evaluate ideas rather than run in

herd-like manner. Tribunals and Courts are like surgeons who can cut and operate but cannot

give life and good health. Unless Indian banks and FI's learn to build their health as well as

the health of their clients, they will keep converting useful assets of the country into NPA's.

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NON PERFORMING ASSETS (NPA) Action for enforcement of security interest can be initiated only if the secured asset is

classified as Nonperforming asset. Non-performing asset means an asset or account of

borrower, which has been classified by bank or 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 30 days 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,

2001. Accordingly as from that date, a Non performing asset shell be an advance where;

Interest and/or installment of principal remain overdue for a period of more than 180

days in respect of a term loan.

The bill remains overdue for a period of more than 180 days in case of bill purchased

or discounted.

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, and

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 overdue ‘norms for identification of NPA

s, from the year ending March 31, 2004, a non performing asset shell be a loan or an advance

where;

Interest and/or installment of principal remain overdue for a period of more than 90

days in respect of a term loan.

The account remains ‘out of order ‘for a period of more than 90 days in respect of an

overdraft/cash credit (OD/CC).

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, and

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Any amount to be received remains overdue for a period of more than 90 days in

respect of other accounts.

PROBLEMS DUE TO NPA

1) Owners do not receive a market return on their capital in the worst case, if the banks

fails, owners lose their assets. In modern times this may affect a broad pool of

shareholders.

2) Depositors do not receive a market return on saving. In the worst case if the bank

fails, depositors lose their assets or uninsured balance.

3) Banks redistribute losses to other borrowers by charging higher interest rates, lower

deposit rates and higher lending rates repress saving and financial market, which

hamper economic growth.

4) Nonperforming loans epitomize bad investment. They misallocate credit from good

projects, which do not receive funding, to failed projects. Bad investment ends up in

misallocation of capital, and by extension, labour and natural resources.

5) Nonperforming asset may spill over the banking system and contract the money stock,

which may lead to economic contraction. This spillover effect can channelize through

liquidity or bank insolvency:

a) When many borrowers fail to pay interest, banks may experience liquidity

shortage. This can jam payment across the country.

b) Illiquidity constraints bank in paying depositors.

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MANAGEMENT OF NPAs: SECURITIZATION

Securitization:

Securitization is the process of conversion of existing assets or future cash flows into

marketable securities. For the purpose of distinction, the conversion of existing assets into

marketable securities is known as asset-backed securitization and the conversion of future

cash flows into marketable securities is known as future-flows securitization. A typical

securitization transaction consists of the following steps: -

Creation of a special purpose vehicle (SPV) to hold the financial assets underlying the

securities;

Sale of the financial assets by the originator or holder of the assets to the SPV, which

will hold the assets and realize the assets;

Issuance of securities by the SPV, to investors, against the financial assets held by it.

The purpose of the Securitization Act is to promote the setting up of asset reconstruction /

securitization companies to take over the Non Performing Assets (NPA) accumulated with

the banks and public financial institutions. The Act provides special powers to lenders and

securitization / asset reconstruction companies, to enable them to take over of assets of

borrowers without first resorting to courts.

The Act was welcomed by the banking community, but resisted by the borrower

community. The validity was challenged in various courts on the ground that it was

predominantly in favor of lenders. Hence, lenders were unable to enforce the provisions in

full. But the crux of the issue was whether the Act would be an effective tool to make a

drastic difference to the NPA menace.

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SECURITIZATION- RELEVANCE TO THE BANKING SECTOROther than freeing up the blocked assets of banks, securitization can transform banking in

other ways as well.

The growth in credit off take of banks has been the second highest in the last 55

years. But at the same time the incremental credit deposit ratio for the past one-year has been

greater than one. Thus, for every Rs 100 worth of deposit coming into the system more than

Rs 100 is being disbursed as credit. The growth of credit off take though has not been

matched with a growth in deposits. So, the mismatch between the credit given and the funds

received creates an issue of proper management of increased credit off-take. One of the

measures adopted by the banks to cater to this credit boom is by selling their investments in

government securities and giving the amount raised as loans. But there is a limit to such

credit funding due to minimum SLR requirements of 25% in government and semi

government securities.

As a result of selling government paper to fund credit off take their investment in

government paper has been declining. Once the banks reach this level of 25 per cent, they

cannot sell any more government securities to generate liquidity. And given the pace of credit

off take, some banks could reach this level very fast. So banks, in order to keep giving credit,

need to ensure that more deposits keep coming in. One option is to increase interest rates.

Another alternative is Securitization. Banks can securitize the loans they have given out and

use the money brought in by this to give out more credit. A. K. Purwar, Chairman of State

Bank of India, in a recent interview to a business daily remarked that bank might securitize

some of its loans to generate funds to keep supporting the high credit off take instead of

raising interest rates.

Securitization also helps banks to sell off their NPAs to asset reconstruction companies

(ARCs). ARCs, which are typically publicly / government owned, act as debt aggregators and

are engaged in acquiring bad loans from the banks at a discounted price, thereby helping

banks to focus on core activities. On acquiring bad loans ARCs restructure them and sell

33

them to other investors as 'Pass through Certificates' (PTCs), thereby freeing the banking

system to focus on normal banking activities.

MANAGING NPAs THROUGH SECURITIZATION-FACILITATING

BANKSAn interesting shift is noticed in the case of private sector banks. It is common knowledge

that these banks have been notably driving the retail banking revolution in the country in the

last few years. The Supreme Court verdict would help these banks in a limited manner in

respect of their corporate NPAs.

However, in case of defaults by retail borrowers, the banks would have to weigh the costs and

benefits of tracing each delinquent retail borrower, seizing his assets and trying to sell them

off to realize the dues. The lenders may prefer to create homogeneous pools of these assets

and securitize them with an asset reconstruction company (ARC) instead.

The salient provisions of the Securitization Act state that the lender can take possession of the

asset in case the borrower does not discharge his liabilities within 60 days of the demand

notice from the lender. The lender can then manage the assets with a right to transfer them by

way of lease, assignment or sale. Are banks today equipped for this? Imagine banks having

thousands of such seized assets of various descriptions and values in their physical

possession. The sheer cost of maintaining such assets in marketable form could be

formidable. The assets which form security for bank loans and advances have to be valued /

revalued on a periodical basis to determine the security shortfall. The provisions made by

banks depend on this valuation. In a period when interest rates are headed downwards, and

asset values are on a steady ascent due to increased consumer spending, there is a possibility

that the `security' could be overvalued on paper. But when the asset has to be liquidated or

sold, reality may crack paper valuations.

Then the Act may seem futile for the time being. On the one hand, borrowers whose

assets have been seized could be spurred to legal recourse by the striking down of the 75%

down payment provision. On the other, existing assets may not yield the desired salvage

values to the lenders. The third dimension would be the escalating NPA levels due to the

implementation of the 90-day norm.

34

In the medium and long term, the Securitization Act would ensure that both lenders

and borrowers learn their lessons. Lenders would fine-tune their appraisal and monitoring

Mechanisms to prevent future NPAs, and feel comfortable in the knowledge that securities

can be liquidated without much bother. This is the short-term picture. Borrowers would know

that their assets are in jeopardy if they do not deliver on their promises or take the lenders

into confidence in respect of their business risks. The change would be in the attitude. And

this change would go a long way in enhancing the quality of the banking system's assets.

35

PREVENTING NPAsAt the pre-disbursement stage, appraisal techniques of bank need to be sharpened.  All

technical, economic, commercial, organizational and financial aspects of the project need to

be assessed realistically. Bankers should satisfy themselves that the project is technically

feasible with reference to technical knowhow, scale of production etc. The project should be

commercially feasible in that all background linkages by way of availability of raw materials

at competitive rates and that all forward linkages by way of assured market are available. It

should be ensured assumptions on which the project report is based are realistic. Some

projects are born sick because of unrealistic planning, inadequate appraisal and faulty

implementation. As the initiative to sanction or reject the project proposal lies with the

banker, he can exercise his judgment judiciously. The banker should at the pre-sanction stage

not only appraise the project but also the promoter – his character and his capacity. It is said

that it is more prudent to sanction a 'B' class project with an 'A' class entrepreneur than vice-

versa. He has to ensure that the borrower complies with all the terms of sanction before

disbursement.

A major cause for NPA is fixation of unrealistic repayment schedule.  Repayment schedule

may be fixed taking into account gestation or moratorium period, harvesting season, income

generation, surplus available etc. If the repayment schedule is defective both with reference

to quantum of installment and period of recovery, assets have a tendency to become NPA.

At the post-disbursement stage, bankers should ensure that the advance does not become and

NPA by proper follow-up and supervision to ensure both assets creation and asset utilization.

Bankers can do either off-site surveillance or on site inspection to detect whether the unit /

project is likely to become NPA.

Instead of waiting for the mandatory period before classifying an asset as NPA, the banker

should look for early warning signals of NPA.

36

The following are the sources from which the banker can detect signals, which need quick

remedial action:    

a) Scrutiny of accounts and ledger cards – During a scrutiny of these, banker

can be on alert if there is persistent regularity in the account, or if there is

any default in payment of interest and installment or when there is a

Downward trend in credit summations and frequent return of cheques or

bills,

b)      Scrutiny of statements – If the scrutiny of the statements submitted by the borrower

reveal a sharp decline in production and sales, rising level of inventories, diversion of funds,

the banker should realize that all is not well with the unit.

c)      External sources – The banker may know the state of the unit through external

sources. Recession in the industry, unsatisfactory market reports, unfavorable changes in

government policy and complaints from suppliers of raw material, may indicate that the unit

is not working as per schedule.

d)     Computerization of loan monitoring – In computerized branches, it is possible to

computerize the loan monitoring system so that accounts, which show signs of sickness or

weakness can be monitored more closely than other accounts.

Personal visit and face-to-face discussion – By inspecting the unit the banker is able to see

himself where the problem lies - either production bottlenecks or income leakage or whether

it is a case of willful default. During discussion with the borrower, the banker may come to

know details relating to breakdown in plant and machinery, labour strike, change in

management, death of a key person, reconstitution of the firm, dispute among the partners

etc.

‘Special Mention’ category of accounts – Based on warning signals obtained through both

off-site and on-site monitoring, banks may classify accounts with irregularities persisting for

more than 30 days under ‘Special Mention’ or ‘Potential NPA’ category. This will help the

bank to initiate proactive remedial measures for early regularization. The measures include

timely release of additional funds to borrowers with temporary liquidity problems and

restructuring of accounts of sincere and honest borrowers after considering cases on merit.

37

On-going classification – Although classification of assets is a yearly exercise, banks would

do well to have a system of on-going classification of assets and quarterly provisioning. This

helps in assessing provisioning requirements well in advance. All doubts regarding

classification should be settled internally and a system of fixing accountability for failure to

comply with the regulatory guidelines should be introduced.

Strategy for reducing provision – The extent of provision for doubtful asset is with

reference to secured and unsecured portion. Cent percent provision needs to be made for the

Unsecured portion. If banks can ensure that the loan outstanding is fully secured by realizable

security, the quantum of provision to be made would be less. It takes one year for a sub

standard asset to slip into doubtful category. Therefore, as soon as an account is classified as

substandard, the banker must keep strict vigil over the security during the next one year

because in the event of the account being classified as doubtful, the lack of security would be

too costly for the bank.

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REDUCING NPAsCash recovery – Banks, instead of organizing a recovery drive based on over-dues, must

short list those accounts, the recovery of which would provide impetus to the system in

reducing the pressure on profitability by reduced provisioning burden. Vigorous efforts need

to be made for recovery of critical amount (overdue interest and installment) that can save an

account from NPA classification:

a) In case of a term loan, the banker gets 90 days after the date of default to take

appropriate action and to persuade the borrower to pay interest or installment

whichever is due.

b) In case of a cash credit account, the banker gets 90 days for ensuring that the

irregularity in the account is rectified.

c) In case of direct agricultural loans, the account is classified NPA only after two crop

seasons (from sowing to harvesting) from the due date in case of short duration loans

and one crop season from the due date in case of long duration loans.

Up gradation of assets – Once accounts become NPA, then bankers should take steps to up-

grade them by recovering the entire over-dues. Close follow-up will generally ensure success.

Compromise settlements – Wherever feasible, in case of chronic NPAs, banks can consider

entering into compromise settlements with the borrowers. 

Recovery through legal recourse – Since provision amount progressively increases with

increase in time, it is necessary to take steps to recover dues either through persuasion or by

legal recourse. A strategy of fixing a dead line for recovery may force the bank to either

recover or shed the asset off the

Balance sheet. Banks may file suits promptly against willful defaulters.

Banks can take recourse under either a civil suit or the Special Recovery Acts passed by

various states or the Securitization and Reconstruction of Financial Assets and Enforcement

39

of Security Interest (SARFAESI) Act, 2002. The bank should vigorously follow up the legal

cases.

HOW TO PREVENT SLIPPAGE AND MANAGE NPAs BETTER

Basic borrower data

The job begins with the know-your-customer (KYC) and credit appraisal stage itself. The

banks must first get the basic data on the borrower and this includes details such as name and

address of the business unit, name and addresses of business partners, directors, guarantor,

details of any authorized advance, credit rating score, details of credit facilities, and other

relevant documentation. This should be prepared by the credit officer and approved by the

branch head. A monthly MIS to be generated for the branch.

Daily account activity

Details of any unusual transactions or large value transactions in the account, if there is no

activity in the account for more than seven days. This should be a daily MIS for the branch

management. Unusual transactions would be checks favoring any new customer not already

disclosed by the borrower at the time of proposal, checks for round amounts etc. Large value

transactions would vary according to the size of the company and the limit or line of credit

sanctioned.

Continuous surveillance every quarter

This would have details such as name of the account. Limits sanctioned, drawing power as

at the end of the month and outstanding, details of arrival of

Drawing power - should show clearly value of unpaid stocks not reckoned for drawing

power, details of debits over a particular amount in the account with purpose, details of

insurance held for securities and expiry date, details of production in the quarter vis-à-vis

projections. There should also be surveillance of any shortfall, and all pertinent details, such

as whether reasons for it were discussed with the borrower, sales and profit during the quarter

40

vis-à-vis projection, how it compares with the same period for the previous year, or whether

the unit would achieve the projected sale for the year based on the performance so far. An

analysis of quarterly results of the company should be made. The continuous surveillance

statement must be seen and verified by the credit officer and the branch head and would be

available as a tool for ascertaining staff lapses in case the account goes bad. If the account

had thrown signals and the statement also reflected the same and despite that if prompt action

is not taken to prevent slippage it becomes easier to identify staff lapses in monitoring.

Daily statement of check returns both inward and outwardThis must be verified everyday by the credit officer and the branch manager. It must have a

column for their comments where they must record the details of discussion with the

borrower about the reasons for the frequent return of check.

Overdue term loansA daily statement to be generated, indicating name of the account, limit sanctioned, drawing

power, outstanding, date and amount of installment/interest due, date of last inspection of the

unit by branch official and name.

A weekly and monthly summary of overdue term loansThis should indicate in addition to the above the details of out standings in other borrower

accounts of the same party and over dues, if any, in such accounts. The monthly statement

beyond a cut-off limit should be available to the controlling office simultaneously. The

monthly statements should also generate simultaneously a pre programmed politely worded

reminder letter to the borrower.

Loan concentration statementsA monthly statement should be generated to show portfolio concentrations by industry,

geography and borrower segments. This would just have under each head the name of the

borrower, limits sanctioned and outstanding as at the end of every month.

Weekly statement of overdue bills purchased and discounted

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This must give the bills outstanding beyond due date for since bills and 21 days for demand

bills. This must have information on name and address of the drawee, whether demand or

since and if since the tenor, whether a satisfactory credit report has been obtained on the

drawee and if not who authorized the purchase or discount without the credit report, whether

bills purchased on the drawee have been delayed before or returned earlier.

The system should generate a reminder to the bank for all bills outstanding beyond seven

days from the due date with a copy to the customer for his follow up. The system should

reject purchase a bill on drawee’s whose bills have been returned more than once. Monthly

statement of overdue bills purchased and discounted should have an additional column for

fate of goods covered by the respective consignments and whether this was discussed with

the borrower.

Similar statements as above have to be generated for foreign bills purchased and discounted -

weekly and monthly separately for letter of credit (LC) bills and non-LC bills.

Monthly statement of insurance for securities due for renewalA letter to the borrower to provide necessary funds for debit and a letter to the insurance

company asking for renewal premium should be generated on the first day of every month.

This has to be pursued by the credit officer till renewal.

Limits due for renewalA monthly statement should be generated for the credit officer. It should also be seen by the

branch head. A quarterly statement of lapsed limits should be generated with the above

details with an extra column for the date of visit by the credit officer and the branch head to

the unit for discussions on renewal of limits.

Watch category statementAccounts with funds overdue of Rs1m (approximately US$25,430) and above are to be

included on this statement to be generated on the 15th and 30th of every month. From all the

above data a watch category statement is to be generated at the end of every fortnight to the

branch head who has to add his comments the same day and a monthly statement should be

available to the controlling office on the first working day of every month. The fortnightly

statement for the branch and the monthly statement for the controlling office should have the

42

following details: name and address of the unit, date of first sanction and by whom, date of

renewal, details of limits sanctioned, drawing power, outstanding, extent of irregularity,

reasons for irregularity, when the unit was last inspected, whether the unit is working,

whether the documents are in order and when the account is expected to be regularized, what

the branch proposes to do to regularize the account and the amount of penal interest

recovered. If the account remains overdue for more than six months and remains in watch

Category for more than nine months with persisting over dues the account is to be transferred

to assets recovery or reconstruction department for further course of action.

Assets classification and downgrade statementThis should be generated once every three months - where a downgrade or slippage is likely,

but the loans are assessed as acceptable to the bank, the credit officer should send a

mitigation report to the branch head as to why the credit is still acceptable to the bank. It

should detail the risks and the mitigants for the same. This would be a monthly statement for

the credit officer and the branch head.

Assets recovery/reconstructionThe assets recovery/reconstruction department gets the account for its follow up in the 10th

month from the date it fell overdue. Immediately on receipt of the account this department

should start the recovery proceedings.

The first step would be to visit the unit for a discussion to explore the possibility of

resurrecting the unit from its illness and retransfer the account to the branch. The credit

officer of the branch or its branch head should also accompany the assets reconstruction

department people for the discussion. This branch should actively involve itself in the

recovery efforts of the assets reconstruction department because they know the borrower

better. The visiting official should record his findings. On the ninth month from the date it

became overdue the statement should indicate whether efforts for a one-time settlement with

the unit was made. At the end of 12 months the assets reconstruction department should

explore the possibility of selling the account to any assets reconstruction corporation for a

price. If that is not possible at the end of 18 months they should initiate legal steps if their

efforts for an OTS or for revival or for sale to an ARC had failed. If the unit is found to be a

willful defaulter then a report should be generated for the RBI. The name and address of the

unit and the directors and partners should be blacklisted and any unit in which they are

43

interested which also has received finance from the bank should also be put on the watch

category list for an in-depth analysis.

Statement of recoveriesA monthly statement of recoveries made in NPA accounts indicating total NPAs as at the

beginning of the month, cash recoveries made during the month, slippage during the month,

up gradation during the month, NPA level as at the end of the month to be generated for the

branch head. Accounts falling under corporate debt restructuring mechanism should be

handled only by the branch and not transferred to the assets reconstruction branch.

44

MANAGEMENT OF NPAs IN J&K BANKThe management of NPAs has been quite outstanding in J&K bank. The low valuation

accorded to the bank is largely due to the risk perception of the bank doing its business in the

state of J&K. However, on the contrary, the perceived perception weakness is its business

strength. The close relationship with the J&K government allows it access to large float

funds. It mobilizes deposits in the state at low cost and lends outside the state at competitive

rates. Moreover, overstaffing and poor network that dog public sector banks are non-existent

in J&K Bank. It is one of the best banks, with its name being the primary perceptible concern.

The bank’s performance on recovery of NPAs has been always appreciable. It is due to

effective management policies that the NPA level of J&K bank is decreasing continuously.

The bank has also recorded a record profit of more than 512 crores in the financial year 2009-

10.

According to the company’s chairman, despite the state being strife torn, the company has

been performing well and he sees no reason why it should affect the operations of the bank in

future. The bank has grown to this size in the last five years when the concerns about the state

have been the highest. The bank has grown at a scorching pace in the last few years making

its presence visible by aggressively following prudent policies and improving its asset

quality. It boasts lowest NPAs in the banking industry at 1.4 per cent. The deposits and

advances growth has shown remarkable growth, which is above the national average.

45

ASSET QUALITY OF J&K BANKThe asset quality of J&K Bank is shown with the following table:

2005-06 2006-07 2007-08 2008-09 2009-10

UNAUDITTED

GROSS NPAs (IN

Rs.CR)

370.19 501.83 485.23 559.27 511.32

NET NPAs (IN Rs CR) 133.87 193.57 203.55 287.51 159.56

GROSS NPA RATIO

(%)

2.52% 2.89% 2.53% 2.64% 2.44%

NET NPA RATIO(%) 0.92% 1.13% 1.08% 1.37% 0.77%

NPA COVERAGE

RATIO(%)

63.64% 61.43% 58.05% 48.59% 68.79%

GROSS NPA TO NET

WORTH RATIO (%0

20.57% 24.98% 21.02% 21.32% 18.66%

46

The above table shows that the work of J&K Bank on recovery of NPAs has been excellent.

Though there are ups and downs regarding NPA coverage ratio but still the bank has kept the

level at a place where chances of business failures are almost nil.

METHODS USED FOR CONTROLLING NPAs IN

J&K BANKThe various methods that are used in J&K Bank for controlling NPAs are as follows:

Basic borrower data

Daily account activity

Continuous surveillance every quarter

Daily statement of check returns both inward and outward

Overdue term loans

A weekly and monthly summary of overdue term loans

Loan concentration statements

Weekly statement of overdue bills purchased and discounted

Monthly statement of insurance for securities due for renewal

Limits due for renewal

Watch category statement

Assets classification and downgrade statement

Assets recovery/reconstruction

Statement of recoveries

The above techniques are discussed in detail earlier in this report and all of these are strictly

used in J&K Bank.

47

TECHNIQUES USED IN J&K BANK FOR MANAGING NPAsThe various techniques that are used in recovering NPAs are:

Cash recovery

Up gradation of assets

Compromise settlements

Recovery through legal recourse

These techniques have been quite effectively used in J&K Bank for reducing NPAs. During

the last year, the Bank effected cash recovery, up-gradation of NPAs and technical write-off

of Rs. 327.85 crore compared to Rs. 244.53 crore in the year 2008.

Investment portfolio of the Bank increased by 22.59% from Rs. 8,757.66 crore as on 31st

March 2008 to Rs. 10,736.33 crore as on 31st March, 2009.

These techniques could generate much better results for the Bank if SARFAESI Act is

applied in the state which has not been applied till now. The efforts are being made to make

this Act applicable in J&K. The chief minister of the state has recently said in his speech that

this Act will be applied in the state very soon. J&K Bank is also hoping for the application of

this Act so that they can reduce NPAs further and further.

The procedure that is followed in J&K for recovering loans is discussed as follows:

First the bank officials call the borrower who has take loans from the bank and is not caring

to pay back. If the holder does not respond then the bank officials personally visit him and

still if he doesn’t pay back the loan amount then the bank along with police takes legal

actions against the defaulter.

48

This is how the J&K Bank has managed its NPAs through decades in the absence of the

SARFAESI Act otherwise the story could have been different. This is the only bank in the

country that has grown its business in those conditions where scope was very less because

situation in J&K state has always been a concern to carry on any business.

The level of NPAs in the current year has been one of the lowest in level in the company. The

net NPA percentage in 2010 which is unauditted till now is only 0.77% which is excellent

regarding the current situation in the state. This percentage could have been zero if

SARFAESI Act would have been applied in the state.

COMPARISON OF NPAs OF J&K BANK AND OTHER BANKSThe comparison of gross and net NPA percentage of J&K Bank and some other banks is

shown below:

NAME OF THE

BANK

GROSS NPA’S % NET NPA’S %

2006-07 2007-08 2008-09 2006-07 2007-08 2008-09

49

STATE BANK OF

INDIA

PUNJAB NATIONAL

BANK

ICICI BANK

AXIS BANK

J&K BANK

CANARA BANK

CENTRAL BANK OF

INDIA

STATE BANK OF

PATIALA

VIJAYA BANK

UNION BANK OF

INDIA

SYNDICATE BANK

CORPORATION

BANK

INDIAN BANK

2.9

3.5

2.I

1.1

2.9

1.5

4.8

1.8

2.3

2.9

3.0

2.1

1.9

4.1

1.4

2.5

2.6

1.4

2.5

3.0

2.7

3.3

0.8

2.5

1.2

3.2

1.4

1.6

2.2

2.7

1.5

1.2

2.4

1.4

2.9

2.0

1.1

1.8

2.8

1.8

4.3

1.1

2.6

1.6

2.7

1.3

1.9

2.0

1.9

1.1

0.9

2.1

2.0

4.3

1.8

0.8

1.3

1.6

0.8

1.0

0.7

1.1

0.9

1.7

0.8

0.6

1.0

0.8

0.5

0.4

2.0

0.4

2.0

1.1

0.2

0.6

1.8

0.6

1.6

0.4

1.1

0.8

1.5

0.6

0.6

0.2

1.0

0.3

0.2

0.9

0.5

1.8

0.8

0.2

0.5

1.8

0.2

2.1

0.4

1.4

1.1

1.2

0.6

0.8

0.3

0.8

0.3

0.2

1.1

0.6

2.4

0.7

0.2

0.3

50

REVIEW OF LITERATURE

51

Though many published articles are available in the area of non-performing assets,

which are either bank specific or banking sector specific, there are hardly any state

specific researches. As situation in J&k has tumultuous from decades, so hardly any research

has been done on the topic. A considered view is that banks’ lending policy could have

crucial influence on non-performing loans (Reddy, 2004). He critically examined various

issues pertaining to terms of credit of Indian banks. In this context, it was viewed that ‘the

element of power has no bearing on the illegal activity. A default is not entirely an irrational

decision. Rather a defaulter takes into account probabilistic assessment of various costs and

benefits of his decision’. Mohan (2003) conceptualized ‘lazy banking’ while critically

reflecting on banks’ investment portfolio and lending policy. The Indian viewpoint

alluding to the concepts of ‘credit culture’ owing to Reddy (2004) and ‘lazy banking’ owing

to Mohan (2003a) has an international perspective since several studies in the banking

literature agree that banks’ lending policy is a major driver of non-performing loans

(McGoven, 1993, Christine 1995, Sergio, 1996, Bloem and Gorters, 2001).

Furthermore, in the context of NPAs on account of priority sector lending, it was pointed

out that the statistics may or may not confirm this. There may be only a marginal

difference in the NPAs of banks’ lending to priority sector and the banks lending to

private corporate sector. Against this background, the study suggests that given the

deficiencies in these areas, it is imperative that banks need to be guided by fairness based on

economic and financial decisions rather than system of conventions, if reform has to

serve the meaningful purpose. Experience shows that policies of liberalization,

deregulation and enabling environment of comfortable liquidity at a reasonable price

do not automatically translate themselves into enhanced credit flow.

52

Rakesh Gupta has conducted a research on relative efficiency of Indian Commercial Banks in

which he finds the J&K bank among top eight banks which were considered to be efficient in

2008. The other seven banks include

Nainital Bank, SBI Comm. and Intl. Bank, Citibank, Union Bank of India and City Union

Bank, IDBI Ltd. and Federal Bank. In this research it the author writes that the performance

of these banks was efficient due to proper management of NPAs. The performance of J&K

Bank has been quite outstanding in spite of the situation that was prevailing in the valley at

that time. The NPA percentage of the bank was 2.6% which is good as per the norms of RBI.

The NPA coverage ratio of the bank was at 68% and 58% in 2006 and 2008 respectively.

Bhattacharya (2001) rightly points to the fact that in an increasing rate regime,

quality borrowers would switch over to other avenues such as capital markets, internal

accruals for their requirement of funds. Under such circumstances, banks would have no

option but to dilute the quality of borrowers thereby increasing the probability of generation

of NPAs. The problem of NPAs is related to several internal and external factors

confronting the borrowers (Muniappan, 2002). The internal factors are diversion of

funds for expansion/ diversification/ modernization, taking up new projects,

helping/promoting associate concerns, time/cost overruns during the project

implementation stage, business (product, marketing, etc.) failure, inefficient management,

strained labour relations, inappropriate technology/technical problems, product

obsolescence, etc.while external factors are recession, non-payment in other countries,

inputs/power shortage, price escalation, accidents and natural calamities.

In the Indian context, Rajaraman and Vasishtha (2002) in an empirical study provided an

evidence of significant bivariate relationship between an operating inefficiency indicator and

the problem loans of public sector banks. In a similar manner, largely from lenders’

perspective, Das and Ghosh (2003) empirically examined non-performing loans of

India’s public sector banks in terms of various indicators such as asset size, credit

growth and macroeconomic condition, and operating efficiency indicators. Sergio (1996)

in a study of non-performing loans in Italy found evidence that, an increase in the riskness of

loan assets is rooted in a bank’s lending policy adducing to relatively unselective and

inadequate assessment of sectoral prospects.

Bloem and Gorter (2001) suggested that a more or less predictable level of

non-performing loans, though it may vary slightly from year to year, is caused by an

inevitable number of ‘wrong economic decisions by individuals and plain bad luck

53

(inclement weather, unexpected price changes for certain products, etc.). Under such

circumstances, the holders of loans can make an allowance for a normal share of non-

performance in the form of bad loan provisions, or they may spread the risk by taking out

insurance. Enterprises may well be able to pass a large portion of these costs to customers in

the form of higher prices. For instance, the interest margin applied by financial

institutions will include a premium for the risk of nonperformance on granted loans.

54

RESEARCH METHODOLOGY/DESIGN

55

OBJECTIVES OF THE STUDYThe main objectives of my study were:

To know the policies that the J&K Bank follows to cover its NPA,s.

To know the relative efficiency of J&K Bank.

To know the NPA level of J&K Bank and other Indian Banks.

To know the ill effects of NPAs on the performance of the banks.

To get aware of the confidence among the customers of the J&K Bank regarding the

performance of the bank in recovery of NPAs.

To get aware of the services provided by J&k Bank and the level of satisfaction

among its customers.

To study the NPA coverage of J&k Bank in different financial years and its effect on

the overall efficiency of the bank at different points of time.

56

RESEARCH DESIGNA research design is the framework or plan for a study that guide the collection and analysis

of data. In this research report the descriptive research method is applied.

DATA COLLECTIONData collection is very important for conducting any research. Success or failure of a research

primarily depends on data collection. Data may be collected by any of the following methods:

Primary sources

Secondary sources

The primary sources of collecting data in this project include:

o Personal interviews

o Questionnaire

o Telephonic interviews

The secondary sources through which data have been collected for this project include the

following:

o Internet

o Newspapers

o Information brochures of the bank

o Books and magazines

57

SAMPLING PLANThe sampling plan in this project is as follows:

Population: The customers of the bank.

Sampling unit: Any individual residing in district Kulgam of J&K state.

Sample size: 100

Sampling procedure: convenience sampling

58

LIMITATIONS OF THE STUDY

Every research suffers from one or the other limitation. The limitations from which

my study suffered are:

Time allowed for the study was short. This limitation narrowed the scope of

the study.

Political instability in the region prevented to conduct the research in the

manner in which it could have been conducted.

Negative responses from some of the respondents made it difficult to

interpret the data easily.

The survey is limited to district Kulgam only. So the respondents were of

this district only. This limitation may have brought biasness in the study.

Some of the ambiguous replies which I omitted by taking them as

unnecessary could generate wrong results.

59

DATA ANALYSES AND

INTERPRETATION

60

QUESTIONNAIRE

Q.1) Are you satisfied with the ways J&K Bank grants loans?a) Yes

b) NO

With the help of this question an attempt was made to know whether J&K bank grants loans

with ease or apply strictness to cover their NPAs.

No. of respondents 100

Yes 80

No 20

The data in the table is shown with a chart for more clarification:

80.00%

20.00%

Chart 1

YESNO

61

Analyses

The above chart shows that majority of the population is satisfied with the ways J&K Bank

offers loans to the public. About 80% of the respondents favoured that J&K Bank offers them

loans with ease and with the banks effective policies it covers the risk.

Q.2) Is the NPA level of JKB controllable?

A. YES

B. NO

C. CAN'T SAY

With the help of this question, the purpose was to get aware whether the people know that

J&k Banks NPA level is at a point where they will feel satisfactory.

No. of respondents 100

YES 50

NO 25

CAN'T SAY 25

YESNO

CAN'T SAY

05

1015202530

35

40

45

50 50

25 25

Chart 2

62

Analyses

After critical interpretation of the data it is clear that though most of the respondents say that

the NPA level of J&K Bank is controllable, still there are a good portion of people who either

say that NPA level of J&K Bank is not controllable or don’t have any knowledge. About 25%

of respondents were having no knowledge about the subject and the same amount of

respondents say that the NPA level of J&K Bank is not controllable.

Q.3) Are the profits of J&K Bank effected by NPA's?

A. YES

B. NO

C. CAN'T SAY

The main purpose by putting this question in the questionnaire was to get the responses of the

people that what they feel about the NPAs. Whether more NPAs reduce the performance of

the bank or not.

No.of respondents 100

YES 30

NO 15

CAN'T SAY 55

The above data is shown with a chart give on the next page:

63

YESNO

CAN'T SAY

05

1015

202530

35

40

45

50

55

Chart 3

percentage

Q.4) Are the NPA reduction techniques of JKB standardized?

A. YES

B. NO

C. CAN'T SAY

The purpose by asking this question was to know whether people feel that the techniques

for recovery of NPAs applied by J&K Bank are good or they need to be changed.

No. of respondents 100

Yes 45

No 20

Can’t say 35

The data in the above table is shown with the following chart:

64

45.00%

20.00%

35.00%

Chart 4

yesnocan't say

Analyses

The analyses of the above data is made in this way that majority of the respondents favoured

that the NPA reduction techniques of J&K Bank are standardized. A little percentage of about

20% say that the NPA reduction techniques of J&K Bank need to be changed and about 35%

of respondents say that they can’t say anything whether the techniques of JKB are

standardized or not.

Q.5) Has NPA coverage of JKB contributed in earning a record profit of

512.38 crores in financial year 2010?

A. NO ANSWER

B. YES

C. NO

No. of respondents 100

No answer 55

Yes 30

No 15

For more clarification the data in the table is shown with the chart as follows:

65

No answer

Yes

No

0 10 20 30 40 50 60

Chart 5

percentage

Analyses

The interpretation of the above data shows that more than most of the population was not

having any knowledge about the subject. A good percentage of 30% agree that NPA coverage

has helped J&K Bank to earn a record profit. Only 15% people don’t agree that NPA

coverage has helped J&K Bank to earn a record profit.

Q.10) If SARFAESI Act is applied in J&k state. Will it be useful for J&K

bank to reduce NPAs?

A. YES

B. NO

66

70 %

YESNO

30 %

Analyses

The analysis of the above data shows that most of the respondents that SARFESI Act should

be made applicable in the state. About 80% people favoured that it will be beneficial for J&K

Bank.

Q.3) Comparing with other Indian banks do you think that the asset

quality of J&K Bank has been appreciable always?

A. YES

B. NO

No. of respondents 100

YES 75

NO 25

This has been shown with the chart as follows:

67

YES NO05

1015202530354045505560657075

75

25

Chart 7

Analyses

The analyses of the data shows that more than 75% of the respondents favoured that J&K

Bank has improved its asset quality even though the conditions in the state have not been

good for business.

Q.8) Which bank is the role modal of banking in J&k?

A. SBI

B. PNB

C. JKB

D. ICICI

No. of respondents 100

SBI 10

PNB 5

JKB 5

ICICI 80

68

The data in the above table is shown with the following chart:

10.00%

5.00%

80.00%

5.00%

Chart 8

SBIPNBJKBICICI

Analyses

The analyses of the above data shows that more than 80% people of J&K agree that J&k

Bank is the role modal of banking in the state.

Q.2) Which bank provides best services in the state?

A. SBI

B. J&K BANK

C. OTHERS

No. of respondents 100

SBI 10

Others 5

J&K Bank 85

The above data is shown with the following chart:

69

SBI

OTHERS

J&K Bank

0 10 20 30 40 50 60 70 80

Chart 9

Analyses

After interpretation of the data the analyses shows that most of the people of J&K prefer the

services of J&K Bank over other banks.

Q.9) Do you think that NPA percentage in JKB can be reduced to zero

percent?

A. YES

B. NO

No. of respondents 100

Yes 50

No 50

The above data is shown with a chart as follows:

70

Chart 10

YESNO

AnalysesThe analysis of above data shows that there is a balance among respondents whether NPA

percentage of J&K Bank can be minimized to zero percent.

71

FINDINGS AND SUGGESTIONS

72

FINDINGS

1) The bank has brought a good improvement in NPA recovery by increasing the NPA

Coverage Ratio to 68.79% in 2009-10.

2) People of the state mostly prefer J&K Bank over other banks.

3) The asset quality of J&K Bank is being appreciated by the people as well as by the

RBI.

4) Performance of the bank in recovery of NPAs has been appreciated even though it

needs further improvement.

5) The NPA reduction techniques of have J&K Bank have been rated well by most of its

customers.

6) Most of the people rated the NPA level of J&K Bank as controllable still lot of

improvement is needed to lower down the NPA level further and further.

7) The ways through which the bank offers loans to the general public has been

appreciated by most of the respondents. This has increased the image of the bank in

the eyes of the people.

8) The bank has a great business opportunity in the future as its people friendly policies

make the bank quite popular in the state as well as the national market.

73

SUGGESTIONSJ&k bank is one of the leading private sector banks in the country. The performance of the

bank has always been excellent. Its people friendly policies have always been appreciated and

it has emerged as a role model of banking in the state as well as at national level. The bank

has an important role in the development of the state as its contribution to the J&K’s

economy is most. Though the performance is quite outstanding still lot is to be done in future.

Here are some of the suggestions that may help the bank:

Special training programmes should be conducted to make the employees more

skilled.

Before setting up any new branch the bank should make efforts to make it online

because online banking will make supervision easy and increase the bank’s

performance.

The bank should make efforts to be at top at national level because this bank has a

great customer strength and people friendly policies.

The bank should adopt reward system for employees so that the confidence among

them may be increased and they will put more efforts.

One important suggestion is that the bank should not ignore advertising at any point

of time because present business is the business of advertising and advertising has an

important role in the growth of business.

One more suggestion is that the bank should take initiatives to increase the daily

working hour’s time so that it can get maximum amount of working days as Kashmir

remains closed most of the times due to strikes.

74

CONCLUSIONIn this report the purpose was to study the management of NPAs in J&K Bank. The overall

analyses leads to the conclusion that J&K Bank’s performance regarding the coverage of

NPAs has been good but the performance has not been consistent. Though the bank’s current

performance is better as compared to its past performance still there is a need to improve

asset quality and bring consistency in the performance and eliminate NPAs totally because

the performance of the Bank has been affected by the NPAs in the past.

The performance of the bank in the last year has been one of the best in its life and during this

year it has also earned a record profit. The organization is striving hard and has been able to

minimize the NPA level below 1% in the year 2010 which is unauditted till now. The bank

has taken strong initiatives to build up confidence among its customers. One of these

initiatives has been the Khidmat Centers which has been appreciated throughout the country.

The people of the J&K state have a great faith on J&K Bank. Most of the people of the state

prefer J&K Bank over other banks because this bank has served the Kashmiri Nation through

decades. About 80% of the population in the state says that J&K Bank is their banker. They

feel that if SARFAESI Act is applied in the state, then the time is not far when J&K bank will

be at the top of Indian private sector banks because it is due to the non application of this Act

that J&K Bank is having some percentage of NPAs.

75

BIBLIOGRAPHY

BOOKS

Research Methodology Navdeep AggarwalMarketing Management Philip kotlerBank Watch Sajad BazazMarketing Management T.N. Chabra

MAGAZINES AND NEWSPAPERSBusiness worldIndia todayBusiness todayGreater KashmirTimes of IndiaEconomic TimesRising Kashmir

WEBSITES

www.rbi.comwww.cab.org.inwww.jkbank.net www.scribd.comwww.livemint.comwww.ezinearticles.comwww.coolavenues.comwww.financialexpress.comwww.asiapacificforum.comwww.indiastudychannel.com

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