Analysis of NPA

Canara Bank Analysis of NPA with special reference to SSI Sector

M.P. Birla Institute of Management 1

$1�$1$/<6,6�2)�121�3 (5)250,1*�$66(76�:,7+�63(&,$/�5()(5(1 &(�72�66,�6(&725� ²�$ �

678'<�$7�&,5&/(�2)), &(��&$1$5$�%$1.��%$1*$/25(��

A dissertation submitted in partial fulfillment of the requirement of Post

Graduate Degree in Master of Business Administration of Bangalore

Univeristy

Submitted by :

SUDHEENDRA .B.S.

Register no. :

03XQCM6105

UNDER THE GUIDANCE OF

Prof. B.K. Ramaswamy

2004 – 2005

MP BIRLA INSTITUTE OF MANAGEMENT Associate Bharatiya Vidya Bhavan

BANGALORE – 560 001.



PRINCIPAL’S CERTIFICATE

This is to certify that the project entitled “An analysis of Non

performing assets with special reference to SSI Sector – a study at

Circle office, Canara Bank, Bangalore” has been prepared by

Mr.Sudheendra .B.S. of 4th Semester, MBA bearing register No.

03XQCM6105 under the guidance of Prof. B.K. Ramaswamy.

Place : Bangalore Dr. Nagesh .S. Malavalli Date: Principal



GUIDE’S CERTIFICATE

This is to certify that the project entitled “An analysis of Non


Circle office, Canara Bank, Bangalore” has been prepared by

Mr.Sudheendra .B.S. of 4th Semester, MBA bearing register No.

03XQCM6105 under my guidance.

Place : Bangalore Project Guide Date: Prof. B.K. Ramaswamy.



DECLARATION

I declare that this dissertation entitled “An analysis of Non


Circle office, Canara Bank, Bangalore” is an original and bonafide

work carried out in partial fulfillment of the requirement for the award of

MBA degree of Bangalore University.

I also declare that no part of this representation has been previously

published or submitted as a project representation for any degree or

diploma of Bangalore University or any other University

Place : Bangalore Mr. Sudheendra .B.S. Date: Reg. No. 03XQCM6105



AACCKKNNOOWWLLEEDDGEGEMMEENNTT

The completion of the project would have been impossible without

the valuable contributions of people from the industry, academics and

friends

I wish to thank MMr. r. RRaamanamanannd d KKuukkiillaayyaa,, Senior Manager, Staff

Selection Workmen, who permitted to do a project in the circle office. I

would also like to thank MMr. r. SSrriinniivvaas s GGoottaa (Manager, NPA cell),

MMr.Pr.Prarakkaassh Hh Huuddaar, r, MMr. r. VVenenuuggooppaal l and MMrrss. . CChhititrraa without whose help

this project would not have been possible.

I would like to thank PrProfof. . BB.K. .K. RRaammaaswswaammyy, , and also my

academic guide whose guidance and feedback laid the frame work for this

project.

I would also like to thank faculty KKaasshi hi NNaaggaarraajjaan n and

SSananththaannaam m MPBIMS, for his help in the area of Research methodologies.

Lastly I thank my friends whose support and guidance has meant a

lot to me personally and also for the completion of the project.

SUDHEENDRA B.S.



ABSTRACT

The incidence of Non Performing Assets is affecting the

performance of the Bank both financially and psychologically which has

been reflecting ultimately on the Balance Sheet of the Bank. With the

increase of concern towards the Circle Office's Non Performing Asset,

with special reference to SSI sector, the study was undertaken to Analyse

the reasons for Non Performing Assets. Attempts are also made analyze

the movement of NPA in SSI sector.

Primary data form the Circle Office constituted the previous four

years data relating to NPA. And also a survey was conducted to

understand the perception of Managers/Officers of various branches on

Non Performing Assets. A structured questionnaire was prepared to

undertake the survey.

The primary data collected from the Bank were found out to be

interesting. Usually, Non Performing assets are more in the Agriculture

sector. Now, it is not agriculture in which Non Performing Asset is more,

but it is more in SSI sector and non priority sector and to some extent in

other priority sector.

This has been concluded from the data which was analysed

through calculating the growth rate for the previous four years

The recovery has been not effective in some of the Regional

Offices. Finally all the analysis done has been arranged in a summary

table, which tells the performance of the Circle Office during the previous

four years related to SSI.



Another objective of the study was to study all the NPA accounts

during the previous four years were gone through and an ABC Analysis

was made. The findings were that few accounts of the total NPA

accounts, having amount more than one crore constitute the major chunk

of the total NPA.

It was also found out that Debt Recovery Tribunal (DRT) which was set

up just for recovering bank dues form the defaulters has not been

effective. The average time taken to give a decree is one year and it is

more than a year in some cases. There are also many formalities to be

followed while referring a case to DRT.

All these findings were supported by the data got through the

survey Manager/Officers' perception about the repayment form the

customers vis-avis with respect to SSI sector and the ineffectiveness of

functioning of DRT matched with the above findings.

Recommendations are made in the area of lending and recovery.

New tools like credit Derivatives and setting up of Asset Reconstruction

Company are suggested. Instead of referring the cases to DRT, it has been

recommended to the Bank to take more rigorous steps in recovering the

due amount from the defaulters.

More power should be given to the Branch managers to attach the

property of the defaulter and in certain case to sell the property, like what

cooperative banks do.



LIST OF ABBREVIATIONS

NPA - Non Performing Assets

PA - Performing assets

CO - Circle Office

RO - Regional Office

SLR - Statutory Liquidity Ratio

CRR - Cash Reserve Ratio

ARC - Asset Reconstruction Company

NBFC - Non Banking Finance Companies

BIFR - Board of Industrial and Financial Reconstruction

DICGC - Deposit Insurance and Credit Guarantee

ECGC - Export Credit Guarantee Corporation

ARDR - Agricultural and Rural Debt Recovery

DRT - Debt Recovery Tribunal

DRAT - Debt Recovery Appellate Tribunal

LPD - Loan Past Due

OTS - One Time Settlement



TABLE OF CONTENTS

Executive summary I Abbreviation II List of tables III List of graphs IV CHAPTER I – INTRODUCTION OF THE TOPIC

#� Introduction 1 #� Committee Report 9

CHAPTER II – DESIGN OF THE STUDY

#� Problem of statement 16 #� Objectives of the study 16 #� Scope of the study 16 #� Sample of the study 17 #� collection of data 17 #� tools for collection of data 17 #� Data Collection mode 18 #� Methods for Analysis 18 #� limitations of the study 18 #� Operational Definition 19 #� Chapter overview 21

CHAPTER III – PROFILE OF THE RESPONDENT

#� Background of Canara Bank 22 #� Current performance of the Bank 30

CHAPTER IV – ANALYSIS OF THE STUDY

#� Analysis of the study 34 #� Interpretation 39



#� NPA and recovery management 52 #� Impact of RBI guidelines 56 #� Role of DRT 57 #� Survey Analysis 59

CHAPTER V - SUMMARY OF FINDINGS, CONCLUSIONS

AND RECOMMENDATIONS

#� Findings 78

#� Conclusions 81

#� Recommendations 83

References

#� Annexure #� Questionnaire

CHAPTER -1

INTRODUCTION

Banking system which constitutes the core of the financial sector

plays a crucial role in transmitting monetary policy impulses to the

economic system. Therefore its efficiency and development are vital for

enhancing growth and improving the chances for stability. During the

recent past, profits of the bank came under pressure due to rise in interest

rates, decrease in non interest income and increase in provisions and

contingencies. The biggest ever challenge that the industry facing is the

management of Non Performing Assets.



High level of Non Performing Assets calls for provisioning for the

same, thus profitability and operations are severely affected, which makes

further lending increasingly difficult. The most crucial factor that governs

the performance of the bank is spotting their NPA.

The incidence of Non Performing Assets is affecting the

performance of the credit institutions both financially and

psychologically. For the sake of uniformity and proper running RBI has

given many guidelines to the banks in respect of NPAs. Before

understanding the various committee recommendations on NPAs, the

following concepts need to be understood. RBI has classified all the

assets of a bank as performing assets and non performing assets, which

are explained below.



ASSET CLASSIFICATION:

All loan assets are broadly classified as performing assets or

standard assets (PA) and Non-performing Assets (NPA). The

classification is based on the record of recovery of interest/principal in

these accounts.

Performing Assets - Standard Assets:

Performing Assets are standard assets which do not disclose any

problem and which do not carry more than the normal risk attached to the

business. The Performing Asset is one which generates income for the

Bank.

An account is considered to be a Standard asset when it is !n order

or where the overdue amount is within a period of 180 days and in respect

of Direct Agricultural advance if the amount overdue is less than two

Harvest seasons but for a period not exceeding two Half years.

For the purpose of Balance Sheet as at 31sl march 2002, the following

accounts can be classified as Standard Assets.

a) Fresh running limits availed on or after 31.10.2001.

b) Fresh loans (including Term Loans) availed where date for

payment falls on or after 3.10.2001.

c) Fresh Bills limit availed where due date for payment falls on or

after 3.10.2001.

d) Advances guaranteed by the State Government to the extent of

guarantee cover available.

e) Advances guaranteed by the State Government to the extent of

guarantee cover available, if not invoked.



f) Advances to staff members except cases mentioned elsewhere.

g) Loans/Advances against the Banks Term Deposits, LIC Policies,

NSCs, IVPs and KVPs.

h) Existing loans and advances where interest/installment due on or up

to 3.10.2001 have been paid,

i) Advances granted to Direct Agricultural purpose except allied

activities where amount is overdue less than two Harvest seasons

but a period not exceeding two Half years.

Non Performing Assets:

An amount is to be treated as Non Performing Asset when it ceases

to generate income for the Bank. Such Non Performing Asset shall have

well defined credit weaknesses, which jeopardize the liquidation of the

debt and characterized by distinct possibility that the bank would sustain

same loss, if the deficiencies are not corrected. Non Performing assets are

further classified as Sub standard assets, Doubtful assets and Loss assets.

In respect of loan amount if any amount is overdue for a period of

more than 180 days from the due date, the account should be classified as

Sub Standard Assets, provided it is covered by adequate securities i.e.

where erosion in securities is less than 50% of the value of securities

(Value of securities means the value as assessed by the bank previously

accepted by Reserve Bank of India at the time of last inspection). Such

Non Performing asset accounts can remain in Sub Standard category for a

maximum period of 18 months.

An account which has completed 18 months in Sub Standard

category and which is covered by securities/ECGC/CGTJI cover where



the realizable value is less than 10% of the value of security assessed

earlier and the available value of securities is more than 10% of the

outstanding liability should be classified as Doubtful Asset.

It is not necessary that there should be any gestation period to

classify an account as Loss Asset. A Loss Asset is one where the loss has

been identified by the Bank or the Internal/External Auditors or the

Reserve Bank of India inspectors, but the amount has been written off

wholly or partly. In other words, such an asset is considered uncollectible

with salvage or recovery value.

Further, if the realizable value of the security as assessed by the

Bank/approved valuers /RBI is less than 10% of the outstanding in the

borrowal accounts, such accounts should be classified as Loss Assets.

Further accounts where there is a potential threat of recovery on

account of erosion in the value of security or non availability of security

and existence of other factors such as fraud, Bill discounted with fake

documents, etc, should be classified as Doubtful Assets (where erosion in

the value of securities is more than 50% of the value of securities assessed

earlier and realizable value being more than 10% of the outstanding

liability) or Loss Asset (where realizable value of securities is less than

10% of the outstanding liability), irrespective of the period it has

remained as Non Performing asset.

In the annual accounts of the public sector bank according to the

directives of RBI, two sets of NPA figures should be shown i.e. the gross

NPA and the net NPA. Gross NPA refers to the percentage of bad loans

on the total advances whereas net NPA is calculated after deducting from

the gross NPA provisions and the claims received from the Deposit



Insurance and Credit Guarantee Corporation (DICGC). The RBI wants

these two NPAs for analyzing the performance of the banks because a

lower NPA level depicts the fundamental strength of a bank.

Until 1992 there was no system of classification of assets, based on

their income earning capacity. The debiting of interest used to be

continued till the date on which the accounts were transferred to LPD and

the entire interest so debited would have been accounted as income. The

amount of provision required for each asset was decided based on the

availability and value of securities.

The above system gave room for subjectivity. In order to

standardise and introduce common norms to all the banks, Government of

India had appointed a committee headed by Mr. Narasimhan. Based on

the recommendation of the Narasimhan committee, the prudential norms

relating to income recognition, Asset Classification and Provisioning

were introduced by RBI from 1.4.92. Over the years, refinements in the

norms have been brought about to take care of the changing requirements.

The above norms have three main criteria i.e. Asset Classification,

Income Recognition and Provisioning.

INCOME RECOGNITION:

The income recognition is linked to the concept of performance of

the assets. In other words the income from performing assets only is to be

recognised. The income from Non-performing Assets is recognised only

to the extent of actual recovery made during the accounting year. Interest

is not at all debited to all NPAs from the day on which they are first

recognised as Sub-Standard, Doubtful or Loss assets. Branches are also



required to note in the required to note in the ledger the date from which

interest is not debited to these accounts.

PROVISIONING:

The amount of provision required to be created for each assets

depends on the classification of the asset, availability/value of security,

amount of ECGC/other Guarantee available, the age of the NPA etc.

GENERAL

From the foregoing, it may be observed that the prudential Norms

have twin effect on the profitability of the Banks. One, the income from

the Non-performing Assets cannot be recognised (except to the extent of

actual recovery). Two, Bank is required to create provision for the Non-

performing Assets. Both these have a negative impact on our profitability.

Hence, the endeavor of the Bank should be to prevent the loan accounts

from slipping to NPA category. In case any asset becomes NPA,

appropriate steps are to be initiated to upgrade the assets. However, if up

gradation is not at all possible, immediate recovery steps are to be

initiated. The Branches are also to be guided by the Circulars issued by

the HO from time to time in this regard.

BORROWER-WISE CLASSIFICATION

The Asset Classification into performing and non performing is

borrower wise and not account/facility wise. Accordingly, if one account

of the borrower is NPA, the other accounts which are otherwise

performing should be classified as NPA and such PA are called Deemed

NPAs.



"If the borrower is having more than one account and if anyone of

the account is to be classified as doubtful, all other accounts of the

borrower should be classified as Doubtful, though such account may

qualify for classifying as standard and /or sub-standard asset."

Since the Asset Classification is borrower-wise, the total liability of

the borrower and the securities available therefore should be

considered/aggregated for Asset Classification and Provisioning.

REHABILITATION/ NURSING PACKAGE:

Nursing Program is sanctioned either as per the directives of BTFR or

Team/other institutions/Banks. In such cases:

a) The existing facilities shall continue to be classified under category

of Asset Classification before sanctioning of the package.

b) Additional limits sanctioned as per the package alone can be

classified as Standard Asset and hence there is no need for making

any Provision for a period of one year from the date of

disbursement of additional facilities.

NPA with liability. Appropriate Authority

1) Less than Rs.5 lakhs Regional office

2) Rs. 5 lakhs to 25 lakhs Circle office

3) Rs.25 lakhs and above Corporate Credit Wing /

Credit Wing/Recovery

Wing, HO



PROVISIONING REQUIREMENT

FOR DOUBTFUL ASSETSREMARKS

First year of Doubtful Security Deficit + 20 % of Deficit - (Net

Liability minus security available +

ECGC Cover)

Second or Third year of Deficit + 30 % of Realisable value of

Doubtful security tangible should be taken. Borrower/

Guarantor's worth should not be

considered.

Fourth year Onwards security Deficit + 50 % of Proportionate

amount of ECGC cover only to be

taken.

COMMITTEE REPORTS

Several committees were formed to study the NPAs in the Bank. The

excepted committees are the Narasimham committee recommendations.

The highlights were as follows.

NARASIMHAM COMMITTEE- FIRST REPORT-HIGHLIGHTS:

�� SLR and CRR are to be brought down.

�� Priority sector redefined and bank finance to be restricted to 10 %.

�� Interest rate to be deregulated.

�� Banks to achieve capital adequacy of 8 % by 1996 of Risk

Weighted assets

�� Adoption of uniform accounting practices particularly on income

recognition asset classification and provision.



�� Classification of Assets into performing and non performing assets

(Sub standard Doubtful and Loss Assets) and interest on non

performing Assets not to be recognised.

�� Provision to be made

Sub standard assets 10 %

Doubtful assets 20 % to 50 %

Loss assets 100 %

�� Transparency in Balance Sheet.

�� Formation of Assets Reconstruction Fund.

�� Merger and Acquisition of Banks into 4 international banks, 10

national banks, Local, Rural Banks and new Banks.

�� No more nationalisation of banks. New banks in private sector. No

branch licensing and freedom on recruitment, good banks can issue

Fresh capital etc.

�� Greater emphasis on internal Audit and inspection

�� Improve quality, greater autonomy to Banks, only to control.

NARASIMHAM COMMITTEE-SECOND REPORT-

HIGHLIGHTS:

#� Capital adequacy to be increased from 8 % to 10 % in stages.

#� Asset Reconstruction Companies to be set up to issue bonds which

would form part of Tier II capital.

#� Introduction of income recognition norms of 90 days in a phased

manner.



#� Provision to be made for standard asset and the period for sub

standard asset to be reduced to 11/2 years.

#� Banks should adopt strategic risk management techniques like

value-at-risk in respect of balance sheet items.

#� Actions to be under taken on reducing expenditure through value-

at-risk in respect of balance sheet items.

#� The major parameters for the banks that seek to become

international players could be return on equity, return on assets and

employees, productivity measured not in terms of business volume

but net profit.

#� Investment decisions should be taken by committee at various

levels within the policy framed by the bank.

#� Accurate and timely information for strategic decisions-identify

and provide profitable products to customers.

#� 2 or 3 larger banks with international orientation, 8-10 national

banks and large number of local banks proposed.

#� Minimum shareholding of government should be brought down to

33%

#� Training systems to address newer areas like product development,

marketing skills, modern credit management skills and new internal

audit skills.

#� Need for network of regional data warehouse and credit

information bureau.

#� Transfer of priority sector portfolio between high level and lower

level banks.



#� Single integrated system of regulation and supervision covering

banks, FIs and NBFCs.

NPA AND BANK LENDING:

Phases of Bank Lending

The incidence of non-performing advances is affecting the

performance of the banks both financially and psychologically. The

successful banker-client relationship in the credit functions of bank

involves three important and interlinked phases viz: loan availability, loan

utilisation phase and loan repayment phase.

#� The successful management of the first phase presupposes that the

right type and the right amount of credit are given to the right type

of the client. This phase involves the following actions before the

loan is leased.

a) A prospective borrower approaches the bank for seeking financial

assistance.

b) The banker appraises the loan proposal, and

c) The borrower complies with the formalities for the sanction and

release of the amount.

#� The second phase envisages that the borrower makes proper use of

the amount received from the bank. This phase involves actions

such as mobilisation of non-credit inputs- the right type of

technology, other material and inputs, services, and managerial

skills and uses them for the initiation and completion of the

productive activity for which the loan is taken. It also involves the

mobilisation of supplementary financial resources wherever and to



the extent the credit amount is not equal to the project cost.

Usually, there is some gap between the credit availability from the

banks and the actual financial requirements of the activity/project.

This is a deliberate aspect of prudent credit policy so that the

borrower has some stake in the project. This gap is usually bridged

by the borrower's own funds/or the financial assistance from the

government in the form of subsidy in specified cases.

#� The third phase expects that the borrower repays the outstanding

loan along with the interest in time. This phase has two important

aspects;

a) The project/activity generates enough income in the form of

cash surplus which takes care of the borrower's obligation to

the bank and his reasonable demands on the income

generated by the project.

b) The borrower actually repays the cash borrowed from the

bank and closes the account.

All these three are envisaged in the proper management of any

project. However, in reality, things do not happen as they are expected to.

That is why, many a time, there are various snags in the smooth banker

client relationship

Some of them may be the following nature

a) The right amount may not have been given to the right borrower for

the right activity and at the right time.

b) The amount might not have been properly utilized for the purpose

or even when it had been used for the right purpose, there may not



have been a proper match between the credit and the non credit

inputs.

c) The project might not have generated enough income and surplus.

d) Even if the income and the surplus generated by the project are

adequate for repayment the borrower may have deliberately

defaulted in repayment. In fact the repayment behavior of the

borrower in the field can take any of the following patterns.

Pattern Links involved in the behavior

i L ----- A ----- P ----- Y ----- R ----- C ----- I

ii L ----- A ----- P ----- Y ----- R

R

iii L ----- A ----- P ----- Y

C

R

iv L ----- A ----- P ----- Y ----- C -----I

v L ----- A ----- P ----- Y ----- I

vi L ----- A ----- P ----- Y ----- C

vii L ----- A ----- P ----- C

viii R

L

C

ix L ---------- C

x L ---------- A

xi L ---------- -A



Notations used : Lending (L); Activity (A); Production (P); Income (Y);

Repayment (R); Consumption (C); Investment (I).

The first pattern is the ideal situation where the lending leads to

activity, which is productive and hence results into production. This

production is supported by market infrastructure and hence, it is concerted

into income of the borrower. This income is adequate and is judiciously

put in for three uses viz., repayment, improvement in consumption of the

family members, and further investments in the family economy, which

would lead to the future income rise and better standard of living and so

on.

The second pattern ends with repayment. It proposes a very high

repayment ethos on the part of the borrower and/or very strict recovery

machinery so that whatever income is generated in the process is used for

repayment.

The third and the fourth pattern could be considered most prevalent

ones where the income generated with the help of bank credit is used for

partial repayment and for improving the consumption and/or investment

levels of the family.

The fifth pattern may be called the diversion of the income for

production purposes. In this process the economy may not suffer though

the banker is initially a loser. This pattern results in a situation where the

priorities of the borrowers differ from that of the bankers.

The sixth pattern is a case of clear diversion and default in

repayment. This may happen in the situation where the additional income

generated with the help of credit supported activity is less than the

pressing consumption needs of the family.



The seventh pattern may result on account of the nature of the

activity. There are certain activities, which produce directly consumable

items and if their level of production is low enough to meet only the

family consumption needs then the borrower directly uses the produce

without going to the market and selling the same for repayment.

The eighth pattern is a typical example of subsidy oriented credit

schemes where the subsidy is prepaid and the loan is consumed. The ninth

pattern is a pattern clear cut case of misutilization of loan. The tenth

pattern indicates an unfortunate situation of future loans.

These patterns are indicative of many snags which are likely to

emerge in the repayment behavior of the borrowers. As a result of these

snags, the accounts will be termed as overdue and the banks may face a

situation of non performing assets.

Magnitude of the NPA

The level of NPAs in the bank has reached an alarming proportion.

In terms of absolute amount, aggregate NPA of the Canara Bank was

Rs.956 crores as on March 2004. In relative terms, the magnitude of the

problem could be seen from the fact that the NPA as percentage of total

advances was 14.5%.



CHAPTER II

DEIGN OF THE STUDY

The study was conducted for Circle Office of Canara Bank in

Bangalore. The study comprised of analyzing the level of NPA in the SSI

sector of the bank. Four years data was collected from the bank and was

analyzed. A survey was also conducted to understand the perception of

the Branch Managers about NPAs.

Statement of the problem

The incidence of NPA is affecting the performance of the Bank

both financial and psychologically which has been reflecting ultimately

on the balance sheet of the bank.

Objective of the study

#� To understand the nature of NPA in SSI

#� Manager perception about NPA

#� To analyse the quantum of NPA in SSI sectors.

#� To know why the level of NPA is increasing in SSI sectors.

#� To know the change in the movement of NPA in SSI before and

after the RBI guidelines.

#� To know the effect of NPA in SSI to the performance of the Bank.

Scope of the study

#� The study is expected to reveal the hidden reasons for growing

NPA level in the SSI sectors.

#� The study is also reveals the bank perception about NPA.



Sample of the study

Respondents – bank managers and officers in charge of the bank

Sample size – 20 respondents

Collection of data

Primary data

#� Circle office and Various branches of Canara bank

#� Questionnaire

Secondary data

#� Websites

#� Bank journals

#� Annual reports

.

TOOLS FOR COLLECTION OF DATA

Sources of data

The data constituted of both primary data and secondary data.

Primary data

The primary data was collected from the Circle Office. Four years

data was collected for the study. A survey was also conducted using a

structured questionnaire to collect the primary data.

Secondary data

Secondary data was collected from texts, dailes, internet,

magazines etc.



Data collection mode

The data collection instrument to be used for obtaining the desired

information is questionnaire. The schedules will be designed for the

Bankers.

The Banker will be approached through personal and telephone

interviews in the respondents' bank.

METHOD OF ANALYSIS

The data from the bank was first analysed by making a comparative

study for the previous four years and inferences were drawn . The data

obtained from the respondents was edited and valid responses were

retained for the purposes of analysis. Analysis involves converting the

series of the recorded observations in to descriptive statements and to

draw inferences about the perception of NPA and DRT from the

respondents. Tabular analysis was carried out.

Statistical tools like graphs, tables, etc. were used for analysis.

Findings, conclusions and recommendation were derived based on the

analysis of the responses.

LIMITATION OF THE STUDY

�� The study is limited to only one commercial bank.

�� The study is limited to one Circle Office of the Bank.

�� Limited to only NPA section.



OPERATIONAL DEFINITIONS

Performing assets: Performing Assets are standard assets which do not

disclose any problem and which do not carry more than the normal risk

attached to the business. The Performing Asset is one which generates

income for the Bank.

Standard Assets: An account is considered to be a Standard asset when it

is in order or where the overdue amount is within a period of 180 days

and in respect of Direct Agricultural advance if the amount overdue is

less than two Harvest seasons but for a period not exceeding two Half

years.

Non Performing assets: An amount is to be treated as Non Performing

Asset when it ceases to generate income for the Bank.

Sub-Standard Assets: lf the loan amount if any amount is overdue for a

period of more than 180 days from the due date, the account is classified

as Sub Standard Assets, provided it is covered by adequate securities i.e.

where erosion in securities is less than 50% of the value of securities

(Value of securities means the value as assessed by the bank previously

accepted by Reserve Bank of India at the time of last inspection). Such

Non Performing asset accounts can remain in Sub Standard category for a

maximum period of 18 months.

Doubtful assets: An account which has completed 18 months in Sub

Standard category and which is covered by securities/ECGC/CGTJI cover

where the realizable value is less than 10% of the value of security

assessed earlier and the available value of securities is more than 10% of

the outstanding liability should be classified as Doubtful Asset.



Loss Assets: A Loss Asset is one where the loss has been identified by

the Bank or the Internal/External Auditors or the Reserve Bank of India

inspectors, but the amount has been written off wholly or partly. In other

words, such an asset is considered uncollectible with salvage or recovery

Value.

Loan Past Due Accounts(LPD): The account which is in the non

performing assets category is passed to LPD accounts, which are then

referred to DRT or handled by the recovery team of the bank.

Debt Recovery Tribunal: The judicial set up for the purpose of

recovering the amount for banks from defaulting customers.



OVERVIEW OF CHAPTERS

Chapter - I

This chapter contains details about the topic under study.

Definitions, causes and reasons for accounts becoming NPA, in general

and introduction on Debt Recovery Tribunal are all the part of this

chapter.

Chapter-II

This chapter includes the design of the study - the statement of the

problem, objectives and scope of the study, data collection tools and

sampling methods.

Chapter-III

This chapter contains the report on banking industry and the profile

of Canara Bank. Profile contains the Banks vision, achievements,

performances and community concerns.

Chapter - IV

Analysis of both the data i.e. data collected from the bank and also

the responses from the survey, are included in this chapter.

Chapter - V

This chapter contains the findings, conclusions and

recommendations part.



CHAPTER - III

CANARA BANK

COMPANY PROFILE

FOUNDING PRINCIPLES:

Founded as 'Canara Bank Hindu Permanent Fund' in 1906, by late

Sri. Arnmembal Subba Rao Pai, a philanthropist, this small seed

blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and

became Canara Bank in 1969 after nationalisation.

Sound founding principles, enlightened leadership, unique work

culture and remarkable adaptability to changing banking environment

have enabled Canara Bank to be a frontline banking institution of global

standards.

BRANCHES & OFFICES:

The Bank has a network of more than 2400 branches spread over

22 States/ 4 Union Territories of the country which are administered

through

• 13 Circle Offices and 1 International Division

• 32 Regional Offices.

INTERNATIONAL OPERATIONS:

Canara Bank established its International Division in 1976, to

supervise the functioning of its various foreign departments, to give

required thrust to foreign exchange business, particularly exports and to

meet the requirements of NRIs.



Though small in size, the Bank's presence abroad has brought in

considerable foreign business, particularly NRI deposits. The Bank has its

presence abroad, as under;

#� Canara Bank, London, UK ( branch)

#� Indo Hong Kong International Finance Co. Ltd., Hong Kong

(subsidiary)

#� Canara Bank, Moscow (representative office)

#� Al Razouki Intl. Exchange Company, Dubai, UAE. (Secondment

agreement and DD drawing facility on Canara Bank)

#� Eastern Exchange Establishment. Doha, Qatar. (Management

agreement and DD drawing facility on Canara Bank)

In addition, following Exchange Companies have DD drawing

arrangement on Canara Bank.

• Al Fardan Exchange Company, Abu Dhabi, UAE.

• UAE Exchange Center, Abu Dhabi, UAE.

• Leela Megh Exchange Company, Dubai, UAE

• Thomas Cook Al Rostamani Exchange Co. Dubai, UAE

• Kuwait Bahrain Intl. Exchange Co. Kuwait

• Musandam Exchange, Muscat, Oman

• Laxmi Das Tharia Ved Exchange Co., Muscat, Oman



HRD PRACTICES:

From a small town Bank, started way back in 1906, today Bank has

grown to become a frontline Banking Institution of India with sound

foundations. It considers its Human Resources as a most valuable asset.

Banks workforce has inherited a unique heritage of open and

informal family culture. There are a series of people-building HRD

initiatives.

The emerging challenges of a liberalised economy entails on it a

responsibility for developing motivated and knowledgeable workforce to

meet the requirements. :

Towards this end, Canara Bank has been a fore runner in

establishing its own training system way-back in 1950s itself. Our Apex

Level Training College at Bangalore ably supported by 13 Regional

Centres spread over length and breadth of the country takes care of the

knowledge, skill, and attitudinal development of the employees. Being

proactive to the requirements of empowered workforce, the Bank also

sponsors individuals to external training programmes both within and

outside the country.

In order to ensure that a well-motivated workforce contributes

towards the growth of the institution, our Bank has made inroads towards

establishment of Quality Circle concept among its employees.

The growth of this concept can be gauged by the fact that as on

date, it has over 700 active quality circles. These quality circles have

carved out a niche for themselves at various National and International

level competitions and have returned with handsome prizes.



In the National Convention of Quality Circles organised by QCF1

(Quality Circle Forum of India) at Durgapur during November 1099, 3 of

our Quality Circles won the prizes.

1. Best of the - Garden QC of Langford Town,

Convention Bangalore

2. Best of the Stream - Parklane QC of M.G.Road, Secunderabad

3. Best of the Session - Surge QC of Thousand Lights, Chennai

Banks Quality Circles have been participating in the international

Conventions consistently since 1998.

#� Vision QC of Overseas Branch, Chennai participated in the

1CQCC '98 at Colombo

#� MIPLADEV QC of Circle Office, Madurai participated in the

ICQCC '99 at Mauritius and

#� Garden QC of Circle Office participated in the ICQCC 2000 held at

Singapore during November 2000.

In order to ensure that local area specific issues are addressed and

redressed, development of HRD Cells/HRD Local Chapters at the local

controlling offices of the Bank, viz., Circle Offices and Regional Offices,

have boosted the morale and commitment of the workforce. These Cells

which have been set-up for giving focused attention towards effective

implementation of formal HRD systems of the Bank are really taking the

concept of Human Resource Management to the grass-root levels.



COMMUNITY CONCERNS:

Consistent with its philanthropic roots and genuine concerns for the

needy, Bank has taken several initiatives including the following:

#� KPJ Prabhu Artisans Training, Production & Marketing Centre a

Jogaradoddi, Bidadi, Bangalore Rural District and C.E.Kamath

Institute for Rural Artisans at Karkala provide training for artisans

wood carving, stone carving, sheet metal embossing and terra

cotton and marketing their products

#� Rural Women Self Employment Training Institute at Harohalli,

Mahila Abhyudaya Yojana Gramina Mahila Jagruthi Kendras

Centre for Entrepreneurship Development for Women provide

counselling, guidance & training to make women self-reliant.

#� A D Pai Institute for Rural Development at Vajrahalli and Rural Sel

Employment Promotion and Resource Guidance Centre at Holalur

Shimoga District provide training to rural youths for self

employment.

#� Rural Clinic Service and Manila Shushrusha Yojana provide

medical facilities in remote and backward villages and provide

incentives doctors to set up clinics in such areas.

#� Cangrama Shikshana Kendra Adult education centres, Canara Ban

Golden Jubilee Education Fund provide adult literacy and assist

"student fraternity by providing books, equipments, sponsoring

libraries etc.

#� Grama Jala Yojana



#� Adarsha Grama Project & Jalayoga Scheme provide safe drinking

water facility in backward villages.

#� Hari Kalyana Yojana, Tribal Counselling Centres, Dr.Ambedkar

Self Employment Training Institute at Pudupudur and Subba Rao

Pai Self Employment Training Institute at Wandoor train SC/ST

and minority youths to take up self-employment training.

#� Rural Development and Self Employment Training Institutes and

Rural Resource Development Centres provide training in adopting

appropriate technology.

#� Computer Training Centre for Urban Poor at Bangalore trains

urban poor in the IT field and computers.

#� Kalagrama - An art village, a complex of 18 houses (at K.P.J.

Prabha Artisans Training, Production & Marketing Centre,

Jogaradoddi) has been set-up to assist the artisans who have

undergone training in traditional arts to pursue and practice art for

mutual learning and benefit.

#� Canara Bank Institute of Information Technology (CBIIT), Alleppy

has been set-up with an objective of imparting training to the rural

youth of South Kerala in the field of Information Technology. The

training is offered free of cost and backed up by post training

follow up to ensure credit linkage and settlement.

#� Canara Bank Institute of Information Technology (CBIIT),

Thiruvananthapuram has been set-up with an objective of imparting

training in the field of Information Technology to the unemployed

youth of Thiruvananthapuram and nearby districts. The training is



offered free of cost in computer packages with emphasis on self

employment/wage employment in the IT field.

#� Canara Bank Self-Employment Training Institute at Honnavar

#� The Institute has been set-up with an objective of imparting self

employment training in rural development activities to the rural

unemployed youth of North Kanara and the neighbouring districts

The training is offered free of cost and backed up by post training

follow-up to ensure credit linkage and settlement.

#� The first batch of training programme in Screen Printing

Commercial Arts was commenced on 25.02.2002 and 27 candidate

are undergoing the training.

PRODUCTS & SERVICES DEPOSIT PRODUCTS

• Fixed Deposits

• Kamadhenu Deposits

• Recurring Deposits

• Ashraya- A Deposit Scheme For Senior Citizens

• Canbank Auto Renewal Deposit (CARD)

• Canflexi Deposits

• Savings Bank Account

• Current Account

RETAIL BANKING PRODUCTS

#� Cancarry

#� Cancash



#� Canmobile

#� Swarna Loan Scheme

#� Housing Loan Scheme

#� Home Improvement Loan Scheme

#� Loan Scheme for Traders & Business Enterprises

#� Teachers Loan

#� JnanaGanga

#� Loan Loans for Senior Citizens

#� Loans/Advance Against Resurgent India Bonds

#� Loans/Advance Against Flexi Bonds

#� Loans to buy Company Shares

#� Can budget Loan Scheme

#� Can rent Loan Scheme

#� Can mortgage Loan Scheme

#� Vidya Sagar - Educational Loan

#� For Senior citizens, interest rates on Term Deposits will be 1% over

the rates as applicable for less than Rs.15 lacs under domestic

category.

ANCILLARY SERVICES

- Depository Services

- Safe Deposit Lockers

- Safe Custody Services



- Nominations

- Anywhere Banking

- 7 Day Banking

- Extended Banking

- DD Shoppe

- Specialised Branches Professionals Branch

- Gold Deposit Scheme

- 9% Relief Bonds, 1999

CREDIT CARD SERVICES

- Cancard (Proprietary)

- Cancard Mastercard

- Cancard Visa

- Cancard International Visa (Gold)

CURRENT PERFORMANCE OF THE BANK

2000

#� Canara Bank became the first public sector bank to join th

MasterCard ATM network. It is planning to set up 60 ATMs.

#� Canara Bank has launched its gold deposit scheme in Bangalore,

offering 3-3.5 per cent interest on the deposits.

#� The Canara Bank and Bank of India have envinced interest to

provide loan to the Rs 6,500 crore joint venture Bharat Oman

Refineries project in Madhya Pradesh.



#� Public Sector Canara Bank has hiked prime lending rate and MTLR

to 12.25 per cent from 11.75 per cent and 12 per cent respectively

with effect from 10th August.

#� The Bank came up with a vanilla bonds issue of Rs 300 crore to

increase the tier-II capital before September 30.

#� Bangalore - based Canara Bank has set up four corporate service

branches in Bangalore, Mumbai, Delhi and Chennai and is likely to

covert more branches for specialised services. - Canara Bank, the

100 per cent government-owned public sector bank will be roping

in an overseas joint venture partner for its mutual fund subsidiary in

the next three months.

#� Canara Bank has entered into an agreement with the Al Mirza

group in Oman for opening an exchange house that will be

managed by officer deputed by the bank.

#� Canara Bank will introduce its voluntary retirement scheme on

January 1, 2001.

#� Canbank Factors Ltd., a subsidiary of Canara Bank, has launched it

export-factoring activity and has appointed GE Capital

International Finance, SPA as is import factor.

2001

#� Canbank Factors Ltd., a subsidiary of Canara Bank, has opened it

eighth branch in New Delhi.

#� -The Public Sector Canara Bank has entered into an arrangement

with the Infrastructure Development Finance Company for

financing core sector projects.



#� Canara Bank has named RV Shastri as its new chairman and

Managing Director.

PERFORMANCE HIGHLIGHTS

#� Gross profit increased from Rs. 1131 crore for 2000-01 to Rs.2356

crore in 2003-2004registering a healthy 46.4%) growth.

#� Net profit shot up to Rs.963 from Rs.585 crore, posting an all-time

high growth of 160%.

#� Profitability, as measured by Return on Assets, increased from

0.43% to 1.02 %.

#� Business per employee rose from Rs. 1.91 crore to Rs.2.15 crore.

Profit per employee moved up from Rs.0.63 lakh to Rs.1.64 lakh.

#� Capital adequacy ratio went up by two percentage points to 11.88%

as compared to 9.84% as at March 2004

#� Gross NPA declined from Rs.2243 crore to Rs.2155 crore, bringing

down the Gross NPA ratio from 7.80% to 6.22% during the year.

Net NPA came down from Rs.1345 crore to Rs.1288 crore,

reducing the Net NPA ratio from 4.84% to 3.89%.

#� Global Business of the Bank rose from Rs.86902 crore to Rs.971

57 crore registering a growth rate of 12%.

#� Global deposits of the Bank rose to Rs.64030 crore compared to

Rs.59070 crore as at March 2004:

#� Advances (net) increased to Rs.33127 crore as at March 2004 vis-à-

vis Rs.27832 crore as at March 2001, registering a growth rate of

19%.



#� Disbursals under retail lending stood at Rs.1700 crore, taking

outstanding retail loans to Rs.3075 crore.

#� Priority sector advances, at Rs. 10536 crore, formed 41 % of net

credit as against the stipulated norm of 40%.

#� Under Kisan Credit Card Scheme 2.96 lakh cards were issued as

against the target of 2.75 lakh, taking the total number of cards

issued to 7.4 lakh, with a credit coverage of Rs. 1633 crore.

#� Foreign business turnover aggregated to Rs.59333 crore.

#� Number of computerised branches rose to 1564 from 996, covering

65% of branch network and 81% of the Bank's business.

#� ATM strength rose to 103 from 31.

#� Bank's subsidiaries/sponsored entities recorded improved

performance during the year.

#� Number of branches under ISO 9001 certification went up to 122

from 14.



CHAPTER – IV

ANALYSIS OF THE STUDY

The data collected for the study is data from the bank and the

responses from the survey. The sample size was 20.The data collected

form the bank is analysed first. Growth rate is calculated for all the four

years for each type of assets classified. Then a comparison is made for the

year ended 31 March 2004 with the year 31 March 2001. For the

sake of clear understanding all the assets are analysed and presented in a

pie chart graph. Data SSI is collected for each type of assets classified

with respect to the SSI sector to which advances are made and the amount

is outstanding in this sector.

The data collected from 2001 to 2004 for each type of asset are,

1. Non performing asset 2. Standard asset 3. Sub standard asset 4. Doubt full asset ( LPD) 5. Non LPD

Analysis was made on movement of NPA in SSI in past 4 years and analysed information is put in graph and in pie charts. Analysis was also made on impact of RBI guide lines on NPA..



TABLE-1 STATUS IN SSI FOR THE YEAR 2001

Status of SSI Percentage

NPA 36%

Std assets 22%

Sub std assets 20%

Doubtful assets 12%

Non LPD 10%

STATUS IN SSI FOR THE YEAR 2001

36%

22%

20%

12%

10%

NPA Std assets Sub std assets Doubtful assets Non LPD



TABLE-2



NPA 40%

Std assets 18%

Sub std assets 16%

Doubtful assets 12%

Non LPD 14%


40%

18%

16%

12%

14%

NPA Std assets Sub std assetsDoubtful assets Non LPD



TABLE-3



NPA 44.5%

Std assets 16%

Sub std assets 22.5%

Doubtful assets 10%

Non LPD 7%


44.50%

16%

22.50%

10%

7%




TABLE-4



NPA 46.8%

Std assets 18.6%

Sub std assets 22.4%

Doubtful assets 8%

Non LPD 10%


46.80%

18.60%

22.40%

8%

10%




INTERPRETATION

The level of NPA has increased from 36% to 46.5% from 2001 to

2004. In 2001, 224 SSI cases were taken into consideration for analysis.

But in 2004, 593 cases as taken into consideration for analysis. Thus also

percentage of NPA increasing.

You can see in 2003 the percentage of NPA was 44.5% and in 2004

it is 46.5%. Only 2% is increase in the NPA level. And also STD assets

percentage also increased from 16% to 18.6%. This is due to many

reasons. It can be explained in next part of analysis from the above graph

and detail analysis from the survey.



Standard assets:

There is a growth in all the sectors except in SSI sector. There is a

negative growth in the SSI sector. The growth rate as indicated in the

graph below is from the year 2001 to 2004. There has been increase in

this category of assets since the year 2001, in the non priority sector. The

growth rate in this sector is 32.5%. There has been decrease in the amount

in the SSI sector. This decrease is marginal in the SSI sector during the

past four years. There is also a comparison made in terms of amounts

between the year 2001 and the year 2002. The growth is in other non

priority sector. It constituted 19% of the total advances in the year 2001

and has grown to about 30 %in the year 2004. .

Sub standard assets

Amount locked in SUB STANDARD assets can be clearly

analyzed from the above. The growth rate in various sectors is calculated.

The numbers show a satisfactory performance. There has been negative

growth of 9% in number of accounts. The negative growth rate tells that

the there is a fall in accounts, classified under this category, from 2001 to

2004. But there is growth of about 8% in accounts under the SSI sector

during the last four years.

There has been a decrease in the total amount locked in this

category of assets. There is a decrease in the amount locked in the

agriculture sector from 32 percent to 26 percent and a marginal decrease

in SSI sector. It can also be seen that, there is an increase of about 10

percent in the Large and Medium industries sector during the last four

years.



Doubtful assets (LPD)

The growth rate is fairly satisfactory. There has been overall

decrease in the number of accounts in all the sectors. The growth rate is

about 35.7% and the actual number of accounts has decreased from

60,065 to 17,655 but there is a marginal decrease in amount i.e. from Rs.

206.20 crores in the year 2001 to Rs. 195.31 crores in the year 2004. The

graphs below shows the amount locked in this asset category in the year

2001 and year 2004.

The performance in the agriculture and SSI sectors has been

satisfactory. There is a negative growth of 10.8% and 10.5% in the above

sectors. This means that the amount in this category of asset has been

decreasing since the past four years. Where as the amount in the priority

sector has grown by 22% during the past four years. The amount locked

in Large and Medium industries sector has decreased from Rs. 109.23

crores in the year 2001 to Rs.60.62 crore year 2004.

Loss assets:

Unsatisfactory picture in the number of accounts in the loss assets

category has been increasing. The danger seems to be more in the SSI and

other priority sectors. SSI figures show a poor picture of the bank. The

total advances made to all the sector have [shown a marginal growth.

There is a growth of about 5.4% in the number of accounts during the last

four years and also a growth of 6.5% in terms of total amount in this

category of asset. There is an increase in amount locked in agriculture

sector by about 23% and in SSI sector by about 15% and in other priority

sectors by about 24%. This is reflected in the below graphs.



TABLE - 5

POSITION OF GROSS NPA

(RS in Crores)

RO/BRANCH 31.3.00 31.3.01 31.3.02 30.9.03 31.3.04 GROWTH

BANGALORE 307.69 288.33 255.35 302.4 236.57 -4.15586

Operation

(TARGET) 247.05 230 245 238 138 -14.4566

MYSORE 44.68 45.63 43.95 45.09 41.01 -2.90342

(TARGET) 32 37 39 41 35 -1.16021

DAVANGERE 32.5 33.03 30.35 42.56 30.84 1.331864

(TARGET) 23 24 28 28 23 -1.26867

GULBARGA 58.07 69.32 66.99 70.33 64.17 -1.81275

(TARGET) 39 44 60 64 51 5.205422

KOLAR 31.64 35.2 34.23 32.28 29.98 -5.2587

(TARGET) 21 24 30 32 25 1.88764

ARM 137.71 172.03 157.85 154.88 180.31 1.227792

(TARGET) 100 106 148 147 178 16.74541



Bangalore Circle Office shows the highest in the gross NPA position.

Actual amount has always been above the targets. The quantum of NPA

has decreased by 4% during the last four years. It can also be seen that,

even though the target were reduced by about 14%, the actual were

reduced by only 4%.

There is growth of NPA by 1% in the ARM branch during the last four

years and this is inspite of the increase in the targets by 16%. The RO

Davangere as shown a growth of 1% in NPA



TABLE.-6

CASH RECOVERY TARGET/ ACHIEVEMENT

PARTCULARS 31.3.00 31.3.01 31.3.02 30.9.03 31.3.04 GROWTH

BIORE CO

Operation 65.49 62.24 39.64 12.97 38.97 -22.2896

(TARGET) 64.89 65 54.5 18.5 45 -19.6164

MYSORE 4.02 4.81 6.45 2.93 6.71 2 . 1 1 84 0 5

(TARGET) 7 7 7 3 7 -8.12395

DAVANGERE 7.37 6.05 8.59 3 .0 4 9.48 3.134491

(TARGET) 11.25 8 7 3 9 -4.81948

GULBARGA 6.34 8.3 10.33 4.61 11.02 0.436394

(TARGET) 8 8 10 5 11 2.656821

KOLAR 5.01 5.63 6.6 2.56 7.151 -0.82343

(TARGET) 6 6 6 3 7 -2.28054

ARM 9.96 20.63 5.44 3.49 21.57 -3,05444

(TARGET) 31 30 25.5 7.5 21 -20.4974



GRAPH-5

CASH RECOVERY

Recovery is satisfactory by the Bangalore Circle Office. The actual

amount recovered is nearer to the targets in all the past four years. There

is a growth of about 22 percent in cash recovery during the past four

years. The growth is not convincing because the targets were also reduced

by 19 %. One thing to note is that there was almost 100% recovery in the

year ended 2004.

22.28

2.11 3.130.4 0.8

-3-5

0

5

10

15

20

25

BANGALORE C

O

MYSORE

DAVENGERE

BULBARGA

KOLAR

ARM

Regional Office

Gro

wth

RA



MOVEMENT OF NPA

The table shows the movement of NPA throughout the year. The data for

the year 2000fi, Was not available. Hence the data of three previous years

has been analysed for finding out the movement of NPA.

TABLE-7

MOVEMENT OF NPA

(Amt in crs)

Particulars 31/03/00 31/03/02 31/03/03 31/03/04

Opening Balance 657.17 643.54 588.72 582.88

ADD: Additions during the year 108 76 59 132

Total 765.17 719.54 647.72 714

LESS: Reductions during the year 121.63 130 64.84

Balance at the end of the year 643.54 588.72 582.88

The Movement of NPA tables show that there is decrease in NPA

from Rs.643.5 crore in the year 2001 to Rs.582.88 crores during the year

2004. The figure for reduction during the year 2001 was not available.

From all the above data, a summary data can be prepared, through

which analysis can be easily made. The table below depicts the Banks

overall performance during the past four years. The table shows the

amount locked in various assets i.e., Standard, Sub Standard, Doubtful

and Loss assets. The total amount from the above tables is added without

taking the sectors into consideration. The amount locked in various



sectors and in various asset classification are added and arrived at the

following table.

TABLE-8

MOVEMENT OF NPA

AS AT 31/03/00 31/03/01 31/03/02 31/03/03 31/03/04 GROWTH AGGT GRS NPA 657.17 643.54 588.72 647.54 582.88 -1.99757 ( TARGET) 470 525 570 550 450 -4.85965 INT SUSP 86.67 87.47 44 47.81 31.06 -26.089 SLDICGC/ECGC 12.24 16.17 12.95 11.97 10 -14.1047 STANDARD 2331.87 25M.63 2881.7 2915.35 3437.4 9.095042 SUB-STANDARD 139.39 123.56 72.83 140.29 129.97 8.407969 DOUBTFUL 372.78 358.95 338.97 324.53 279.63 -7.62078 LOSS 144.97 161.03 173.97 182.72 173.28 2.726778 NET NPA 558.26 539.9 531.77 587.76 541.82 1.11373 GROSS NPA(PRIOR) 312.58 325.8 306.22 325.77 307.27 -1.13138 GROSS CREDIT 2988.94 3225.17 3467.47 3562.88 4020.28 7.124783 % CIRCLE'S GROSS NPA TO ADVANCES 22 19.95 16.89 18.17 14.49 -8.48123 TOT OF BORWAL A/CS 409413 394643 358293 363906 355307 -2.95014

TOT A/Cs UNDER NPA 144253 135900 119332 115196 91954 -11.3715

CASH RECOVERY 96 108 77.05 29.6 95.26 -12.4819 (TARGET) (145) (127) (110) (40) (100) -15.8749 INFLOW 108 76 59 92.54 132 23.44567 REDUCTION 137 126 105 37.7 - REC UNDER LOSS 10,11 6.81 5.6 22.1 23.99279 (TARGET) - (10) (30) (25)



ABC Analysis:

All the NPA accounts were gone through and then have been

arranged in the descending / ascending order. The accounts considered for

the sake of convenience were those which were above 5 lakhs. The reason

was to have an equal base for al! the three years. The accounts are

arranged below.

TABLE - 9

ABC Analysis

(AMOUNT IN CRORES)

A/C AMOUNT A/C AMOUNT A/C AMOUNT

5Lac-10 Lac 195 12.73 C 288 19.63 C 240 17.40 C

10Lac-50Lac 282 69.94 B 332 64.26 B 286 62,38 B

50Lac-1Cr 48 32.80 B 35 25.30 A 49 36.22 A

1Crs-10Crs 73 402.22 A 59 180.32 A 66 191.39 A

> 10Crs 9 208.00 A 5 85.22 A 6 80.20 A

TOTAL 725.71 374.75 387.61

A - 15% of the total accounts constitute for 85% of the total NPA amount.

B - 30% of the total accounts constitute for 10% of the total NPA amount.

C - 55% of the total accounts constitute for 5% of the total NPA amount.

The accounts above 1 crore, which account for 15% of the total

NPA accounts constitutes about 85% of the total NPA amount. The

increase in the NPA is the A category i.e. more number of accounts above

1 crore are becoming NPA.



ABC ANALYSIS (in crores)

GRAPH-6

NPA AND RECOVERY MANAGEMENT – WHY?

Ever since the introduction of reforms in the financial sector, " Non

Performing Asset - NPA" has become one of the dreaded but most talked

about phrases in the conferences, seminars, workshops, meetings etc

conducted by the economists, bankers, trade associations, big wigs of the

industries and of course the Govt. / Semi-Govt. Bodies. After the passage

of nearly 8 years time since implementation of Narasimham Committee

recommendations ( lst report) the tremors of the after effects of the same

are being experienced in the banking sector in the new millennium. The

management of NPA is gaining importance more than ever before and

hence no neglect can be shown by any hanker lest it will be hazardous

and fatal challenging the survival.

0

100

200

300

400

500

5Lac-10 Lac

10Lac-50Lac

50Lac-1Cr

1Crs-10Crs

>10Crs

Amount Range

Am

ount 2000

20012002



CAUSES OF NPA - IN GENERAL

Diagnosis:

Before analysing the causes of the incidence of high NPA in public

sector banks for evolving remedial measures, one must take care into

account the prevailing ground realities in the banking scenario as reported

results cannot be examined in isolation.

Banks being derivative institutions, the health of the real sector is

reflected on the health of banking system. The Banks' health/well being is

inextricably linked to the other sections of the economy. If the credit

discipline in the real sector is weak and the state intervention is not

supportive to the banks then there is every possibility that the banking

system will be weak and unsound. Further, lack of experience, expertise,

timely and adequate credit delivery and effective monitoring attempt of

the banks will also be contributory factors for low recovery and escalation

in NPA level in future. Before, drawing a map and blue print for a path to

effective NPA management it is desirable to find out the major causes

that build up high level of NPA. Some reasons for creation of NPA are

BANK RELATED

a) Internal Factors

�� Pre-sanction level - Appraisal

�� Delay in decision/disbursement

�� Non compliance of sanction terms

�� Improper documentation

�� Ineffective Credit Monitoring and Supervision



b) External factors -Legal Systems/BIFR

�� Interference by External agencies

�� Genera] Causes

�� Causes for priority sector NPA

�� Reasons for slow recovery.

BORROWER RELATED

• Internal factors:

Finance

Production

Marketing

Management

• External factors:

Government policy

Recession

Delay in realization.

REASONS FOR SLOW RECOVERY

#� Unwillingness of borrowers to repay bank dues.

#� Judicial process meant for recovery of dues is time consuming and

cumbersome and less effective.

#� Lack of proper follow up by banks in certain cases.

#� Certain securities become obsolete over the period of time, hence

become unrealisable.



#� Overall recession in economy has resulted in liquidity crunch for

borrowers.

#� In certain cases, factors such as change in Government Policies,

competition, marketability of commodities in which borrower is

dealing, law and order situation, civil amenities etc affect the

business cycle.

Default signals:

A borrower may default his repayment obligations due to -

managerial incompetence, financial inadequacies, product failure, market

competition/technological obsolescence, break away of partnership, or

natural calamities. Hence, a banker should cautiously monitor/observe the

borrower before the accounts turns bad. The following are some of the

signals a banker must watch carefully:

#� Failure of timely payment of installments.

#� Incorrect stock statements.

#� Frequent cheque dishonors

#� Rising level of inventories/non-moving stocks/zero stocks

#� Unreasonable/wide fluctuations in sale/receivables

#� Irregular periodic statements

#� Large and long outstanding in bill accounts

#� Steep decline in production figures

#� Diverting/routing of receivables through non lending banks

#� Maximum outstanding balances

#� Willful default.



Effects of NPA:

NPA affects the bank in many ways —

- Income cannot be booked

- The capital adequacy ratio gets affected.

- NPAs require provisioning from post-tax profits

A high level of NPAs affect the image of the bank and it may find

difficult to raise funds.



Impact of RBI guidelines NPA in SSI sector at circle office,

Bangalore

Std. Assets percentage was increased from 18% to 18.6% from

2003 to 2004. This is due to cash recovery was fast in that particular

period. This is due to RBI guidelines to the bank. A guideline was very

strict and it was directed towards referring of NPA accounts of Bank to

recovery team, outside agency, and especially to DPT. The effort was

very good in this period.

No. of cases referred to DRT increased from 168 to 272 from 2003 to

2004. cash recovery and commission towards effort of DRT was duly

settled in this period. Bank recovered cash amount from SSIs which were

pending from 2001.

Hidden reason for increasing level of NPA in SSIs circle office,

Bangalore, after making all details analysis from the survey the reasons

for this are

1. Liberal credit

2. Head office instructions for lending

3. No proper follow-up and monitoring of credit.

4. Aiming for super profit

5. Poor Legal action

6. Defect in cash recovery target / achievement.

7. RBI guidelines / granting liberal credit

8. Negligence



DEBT RECOVERY TRIBUNAL

The Committee on Financial System (CFS) headed by Shri M.

Narasimham had recommended the setting up of special tribunals for

speedy realization of dues of credit institutions. Consequently, the

Recovery of Debts Due to Banks and Financial Institutions Act, 1933 was

enacted on 27.08.1993 to provide for the establishment of Tribunals for

expeditious adjudication and recovery of debts (Rs. 10 lakh and above)

due to the banks and the financial institutions and for matters connected

therewith or incidental thereto.

So as per the provisions of the Act, 10 Debts Recovery Tribunals

(DRTs) and one Debts Recovery Appellate Tribunal (DRAT) all over the

country were established. Subsequently 12 more DRTs and 4 more

DRATs were established. The Finance Minister has announced the

proposed establishment of a further 7 new DRTs. DRTs have been

working for more than 5 years under the stay order granted by the Hon'

Supreme Court.

The performance of DRTs and DRATs in terms of disposal of cases

and recoveries made is reviewed from time to time. 43,244 cases

involving an amount of Rs, 74,344 crore were filed before DRTs. Out of

these 13,092 cases involving Rs. 8,828 crore have been disposed of.

An amount of Rs.2,292 crore has been recovered. Recent data from

22 DRTs in the country show that Banks have recovered Rs. 2,583 crore

out of Rs. 10,335 crore involving 14,462 cases.

"The Recovery of debts due to Banks and Financial Institution Act

993" was passed by the parliament which came into effect from 24.6.1993

and the provisions are amended by an Ordinance of 17.01.2000.



Highlights of the Act:

#� The Act for expeditious recovery of debts due to Banks and FIs.

#� It is envisaged to make endeavors for disposal of cases within 6

months.

#� The Act does not apply to State level Financial Institutions.

#� The Act does not repeal any existing Law.

#� Act provides for establishment of DRT and DRAT (Appellate

Tribunal)

#� First appeal of the orders passed by DRT will be before DRAT and

appeal of the orders passed by DRAT will be before High Court.

#� Cases can be filed only by Banks and Financial Institutions.

#� Cases involving dues of Rs.10.00 lakh and above only will be

decided by DRT at present.

#� At least 75% of the debt due as determined by the DRT has to be

deposited with DRAT by the defendant while making an appeal.

#� All cases pending before any court with suit claim of Rs.10.00 lakh

and above shall stand transferred to DRT on or from the appointed

date of the Tribunal.

#� The act has overriding effect.

#� The Act applies to whole of India except J&K State.



ANALYSIS FROM THE SURVEY

1. Financial Products offered to the customers

TABLE-10

Products Respondents ( in % )

Loans for cars 11.560

Loans for cars 11.560

Loans for durable goods 11.560

Loans for agriculture 6.936

Loans for shopkeepers and traders 11.560

Loans for student 9.826

Loans for S.S.I 9.826

Loans for Medium scale industries 4.046

Loans for Large scale industries 2.890

Loans for transport operators 8.670

Personal Loans 11.560

It can be concluded from the table that all the banks offer all the

types of products. Loan for agriculture and Large scale industries are

offered by only few banks.



2. Customer categories and their repayments.

Excellent: Good customer and good repayment automatically.

Good: Good customer and repayment after follow-up.

Average: Repayment after strenuous follow-up.

Poor: Repayment not forthcoming inspite of rigorous follow-up.

TABLE-11

(In percentage)

Products Excellent Good Average Poor Loans for cars 75 7.93 0 0 Loans for House 20 22.22 1.81 0 Loans for durable goods 0 23.80 9.09 0 Loans for agriculture 0 9.52 7.27 66.67 Loans for shopkeepers and traders

0 0 23.63 0 Loans for student 0 15.87 10.90 33.33 Loans for S.S.I 0 0 23.63 0 Loans for Medium scale industries

0 7.93 3.63 0 Loans for Large scale industries

5 4.76 1.81 0 Loans for transport operators

0 7.93 18.18 0 Personal Loans 0 0 0 0

It can be analysed from the table that Excellency of repayment is

more in Car Loan customers. The repayment schedule is good in case of

Housing loans, Loan for durable goods, and student’s loan. There is

equally more number in the average repayment category, in which loan

for trader and loan for S.S.I leading followed by loan for transport

operators.



3) What is the percentage of NPA to total advances

Table 12

N P A as % to to ta l a d v an ces Respondents ( in % )

Less than 5 % 5

5 % to 8 % 5

8% to 1 2 % 70

12% to 15% 20

Above 15% 0

Most of the banks NPA in relation to its advances are between 8 %

to 12 %, followed by the 12 % to 15 % category. There were no banks

whose NPA was above 15 %.

GRAPH-12

PERCENTAGE OF NPA TO ADVANCES

5 5

70

20

00

10

20

30

40

50

60

70

80

Less than 5 % 5 % to 8 % 8% to 12% 12% to 15% Above 15%

Percentage

No.

of r

espo

nden

ts



4) REASONS FOR NPA

TABLE-13

Reasons Respondents ( in % )

Business failure 38.461

Customer unwilling to pay although he is making Profit.

25.641

Failure due to natural calamities 0

Government policies 20.512

Head office instructions for lending 15.386

No proper follow-up and monitoring of credit 0

The main reasons for NPA as recorded by the responses were

- Business failure

- Customers unwillingness to repay

- Government policies instructing banks to lend to priority sectors

- Head Office instructions - credit policy of the bank.



GRAPH-8

38.461

25.641

0

20.512

15.386

00

5

10

15

20

25

30

35

40

45

Bus

ines

sfa

ilure

Cus

tom

erun

will

ing

topa

y prof

it

Failu

re d

ueto

nat

ural

cala

miti

es

Gov

ernm

ent

polic

ies

Hea

d of

fice

inst

ruct

ions

No

prop

erfo

llow

-up

Reasons

Res

pons

es



5) PROCEDURES ADOPTED FOR CONTROLLING NPAS

TABLE- 14

Procedures Respondents ( in % )

Demand notices always sent on time. 0

Telephone calls made to customer if payment not made on due date. 20.202

Letter to customer waving action. 20.202

Legal notice 20.202

Legal action 20.202

Personal contacts 19.192

All the procedures enlisted in the questionnaire were followed by

almost all the banks. It was found that the banks even went one step

further ahead and made personal contacts with their customers.



Graph-9

0

20.202 20.202 20.202 20.202 19.192

15.386

00

5

10

15

20

25

Dem

and

notic

esal

way

s se

nton

tim

e.

Lette

r to

cust

omer

wav

ing

actio

n.

Lega

lac

tion

Hea

d of

fice

inst

ruct

ions

Procedures

No.

of r

espo

nden

ts



6. HOW DO YOU MAKE ADVANCE INTIMATION TO

CUSTOMERS?

TABLE-15

Approaches Respondents ( in %)

Telephoning the customer and reminding of the due.date approaching 58.823

Sending an advance letter to remind the customer about the due date. 0

Going personally and intimating about the due date. 23.529

Left to customers wish 0

No intimation is done. 0

Standing instruction 17.647

The table depicts that telephone calls and personal contact are the

only ways through which banks intimated their customers in advance.



7. Do you think DRT is effective?

TABLE –16

Performance Respondents ( in % )

Highly effective 0

Effective 20

Slightly effective 35

Not effective 45

The data concludes that DRT is either effective or slightly effective. None

of the banks said that DRT is highly effective. But most of the responses

were favoring towards the ineffectiveness of the DRT.

GRAPH -10

0

20

35

45

0

5

10

15

20

25

30

35

40

45

50

Highly effective Effective Slightly effective Not effective

Effectiveness

No.

of r

espo

nden

ts



8. Number of cases referred to DRT out of total NPA accounts

till date

TABLE-17

Cases Referred Respondents ( in % )

Less than 50 cases 63.157

50 to 100 cases 36.842

100 to 150 cases 0

150 to 200 cases 0

Above 200 cases. 0

The numbers of cases referred to DRT were in between 0 to 100

cases, in which most of the banks referred less than 50 cases.

GRAPH -11

Cases referred to DRT

63.157

36.842

0 0 00

10

20

30

40

50

60

70

Less than 50cases

50 to 100 cases 100 to 150cases

150 to 200cases

Above 200cases.

No. of cases

No.

of r

espo

nden

ts



9. Time taken for final DRT decision

TABLE-18

Average time taken Respondents ( in %)

Less than a week 0

Week to Fortnight 0

15days to 30 days 0

1month-3month 0

3month-6month 0

6month-1year 65

Above 1year 35

Most of the responses of the banks towards the average time taken

by DRT is in between 6 months to one year. About 35 % responded that

DRT takes more than one year to make a decree.

GRAPH-12

AVERAGE TIME TAKEN

0 0 0 0 0

65

35

00

10

20

30

40

50

60

70

Less thana week

Week toFortnight

15days to30 days

1month-3month

3month-6month

6month-1year

Above1year

Noproper

follow-up

Time Taken

Mon

ths



10. Decisions favoring the bank

TABLE-19

D ecisions Respondents (in %)

L ess than 50% 0

50% to 75% 0

75% to 100% 0

100% 100

All the respondents revealed that there was 100 % favor towards

the bank from the DRTs decree.

DECISIONS FAVOURING THE BANK

GRAPH -13

0

20

40

60

80

100

120

Less than50%

50% to 75% 75% to 100% 100%

% of decisions favouring bank

Res

pond

ents



11. Recovery is effective through

TABLE-20

Modes of Recovery Respondents ( in % )

Recovery team 37.5

Outside agency 20.833

RR Act 0

DRT 16.667

Follow-up 25

Recovery through recovery teams of the bank and the follow-up made by

the banker are the ways through which banks make its recovery

effectively. Nearly 20% of the respondents revealed that recovery through

outside agency is effective and the remaining were in the favour of DRT.

RECOVERY IS EFFECTIVE THROUGH

GRAPH -14

0

5

10

15

20

25

30

35

40

Recoveryteam

Outsideagency

RR Act DRT Follow-up

Recovery modes

No.

of r

espo

nden

ts



12. Quantum of NPA in your branch

TABLE-21

Quantum Respondents ( in % )

Less than 1 0 crore 85

10 crores to 50 crores 15

50 crores to 100 crores 0

Above 100 crore 0

Most of the banks NPA quantum is less than 10 crores. About 15 % have

NPA in between 10 crores and 50 crores.

QUANTUM OF NPA IN YOUR BRANCH

GRAPH -15

0

10

20

30

40

50

60

70

80

90

Less than 10crore

10 crores to 50crores

50 crores to 100crores

Above 100 crore

Quantum

No.

of r

espo

nden

ts



13. Debt recovery tribunal

Total Amount in DRT Bangalore Rs.524 crores

Total cases filed till date - 569 cases

TABLE-22

(Amt in crores)

Prev. years 2000-01 2002-03 2003-04 Total

Cases filed 373 90 61 45 569

Total Amount 524 502.39 495.67 66.6 466.67

Cases pending 208 255 I63 248 248

Cases Decreed 165 43 53 60 321

Amount recovered(in cr) 21.61 6.72 0.67 29 58

Out of the total cases filed to DRT, only 50% of the cases have been

decreed. The amount recovered through DRT is very meager. The amount

recovered till date is 58 crores out of the total 524 crores locked in 569

cases.



DEBT RECOVERY TRIBUNAL

GRAPH-16

0

100

200

300

400

500

600

Cases filed Total Amount Cases pending Cases Decreed Amountrecovered(in cr)

Year

Am

ount 2000-01

2002-032003-04



14. Percentage of NPA in SSI sector to total NPA

TABLE-23

Particulars Respondents ( in % )

Less than 5% 0%

5% to 25% 0%

25% to50% 100%

50% and above 0%

GRAPH-17

.

0% 0%

100%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less than 5% 5% to 25% 25% to50% 50% and above

Less than 5% 5% to 25% 25% to50% 50% and above



15. What motivate you to grant the loan to SSI sectors

TABLE-24


Customer satisfaction 5%

Normal profit 35%

Super profit 47%

Competitions 13%

GRAPH-18

.

5%

47%

13%35%

Customer satisfaction Normal profit Super profit Competitions



16. No. of cases referred to DRT particularly in SSI sectors till date

TABLE-25


Less than 50 cases 0%

50 to 100 cases 0%

100 to 250 cases 100%

250 and above 0%

GRAPH-19

.

0% 0%

100%

0%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less than 50cases

50 to 100cases

100 to 250cases

250 and above

Less than 50 cases 50 to 100 cases 100 to 250 cases 250 and above



CHAPTER-V

FINDINGS

1) All the branches offer almost all the products to the customers. But

there are some branches which catered only to retail loans like

housing loans and car loans and personal loans. And also there are

some branches which catered only to industrial loans. (EG: SSI

branches)

2) The result about the repayment by the customers was tricky.

Repayment differs according to the type of the loan the bank lends.

There is excellency (i.e. the customers make repayment on time) in

the repayment of car loans. On the other side the repayment is

average (i.e. the customers make repayment only after rigorous

follow ups) in case of SSI sector.

3) Most of the branches NPA as a percentage to total advances is

between 8 percent to 12 percent. There are also some branches,

about 20 percent, respondents whose response for NPA as a

percentage to advances was between 12 percent to 15 percent.

4) All the branches followed most of the procedures, mentioned in the

questionnaire, for controlling NPAs. But none of the branch sends

demand notices on time to the customers.

5) Most of the branches feel that DRT is not effective in its

functioning. The average time taken by DRT is around six months

to a year and even more than a year in some cases.



6) The quantum of NPAs in most of the branches is less than crores.

There were also some branches whose quantum was in between 10

to 50 crores.

7) It can be found out from the survey that bank is too liberal in

granting credit to SSI’s.

8) It can also be said that bank is making mistake in pre-granting

period or pre-sanctioning period to SSI’s i.e., in making appraisal

of proposal of sanctioning the loan from SSI’s.

9) Bank is also making mistake in monitoring the loan account and

staff of the bank is also responsible for account becoming NPA.

10) Percentage of granting the loan to SSI’s is 75% to 80% of the

proposal amount. It is a major drawback of the bank in sanctioning

the loan.

11) It can also be said that the changes in the movement of NPA in SSI

sectors is in increasing level. The percentage of increase is from

36% to 46.5% from 2001 to 2004.

12) It is also found out that target achievement/ cash recovery is very

poor in SSI sectors.

13) It can also be found out that percentage of NPA in SSI to total NPA

is around 25 to 50%. From this we can say that bank is very poor in

recovering the loan from the SSI’s.

14) It can also be said that role of DRT, outside agency, recovery team

is very poor in their respective roles.



15) The reasons for above or in other words the hidden reason for

above all is:

#� Liberal credit

#� Credit available in all the branches

#� Head office instructions for lending

#� No proper follow up

#� Aiming for super profit

#� Poor legal action

#� Defect in cash recovery target/achievement



CONCLUSIONS

1) Most of the branches have a high level of NPA, which ultimately

has resulted in a high figure in the Circle Office.

2) The standard assets have been decreasing in various sectors except

the other non priority sector. Large and Medium scale industries

and SSIs form the major chunk of the total loss assets.

3) ABC Analysis of the NPAs depict that accounts above Rs. 1 crore

hold the major chunk of the total NPA. The 20-80 Rule can be

applied in this case also. The accounts above Rs. 1 crore constitute

to about 20 % of the total NPA accounts and amounts to 80% of the

total amount.

4) As at the end of March 2004 none of the Regional Offices have

brought down NPA to the targeted level. However Circle Office

Operations, Regional Office Mysore, Regional Office Gulbarga and

Regional Office Kolar have brought down the NPA below their

March 2004 level. ARM Branch has achieved the target fixed to

their branch. RO Davangere, RO Gulbarga, RO Kolar and ARM

Branch have achieved Cash recovery Target. This trend has been

maintained since the year 2004, except that the gross NPA in RO

Gulbarga and ARM has increased compared to the previous years.

5) All the branches are not effective in intimating the customers about

their due date and also they have no proper schedule to meet their

customers. This means that branches are less effective in making

the customers repay.



6) DRT is not effective. This was also evidenced from the responses

from various branches. Most of the branches refer only up to 50

cases to 100 cases to DRT out of the total NPAs and the average

time taken by DRT to give a decree is about 6 months to a year and

in some cases it is above one year.



RECOMMENDATIONS

In order to keep up the tempo in recovery. Circle Office can draw

the following action plan to achieve this stupendous task.

1) Targets are to all Regional offices and in turn suitable targets must

be fixed to all the branches immediately.

2) The major thrust should be given on recovery of hardcore NPAs by

way of compromise settlement. Circle has already taken steps for

arranging more recovery meets/recovery camps which will

accelerate cash recovery especially in case of SSIs. Response

from the branches as well as of the A borrowers to recovery

camps has been considerably encouraging during the previous year.

Many ROs have shown excellent performance under Cash recovery

mainly due to intensive recovery camps. The same tempo will be

continued during this financial year.

3) A study of the NPA position of the Circle during the last 2 to 3

years indicates that the main cause for increasing trend in the level

is fresh accretions to NPA which has more than neutralized the

recovery. Therefore further increase in NPA could be checked if

the fresh inflow to NPA is contained. In this connection, Circle had

identified "watch and special watch" category accounts for close

follow up. As a result of intensive follow up Circle could restrict

the inflow to a certain extent during the second half year.

4) Where OTS (one time settlement) is already permitted but recovery

is not forthcoming as per OTS terms, Branches have to review such

cases and take steps for ensuring 100 percent recoveries.



5) The branches should be given more power to take decisions about

lending and recovery. The Branch Manager, who knows better

about his customers, should be allowed to make the first appraisal

report when the borrower approaches. Based on this appraisal

report the Circle Office should make a detailed report. Branches

should be given some autonomy to select and form their recovery

team.

6) The bank needs an integral organization restructuring to face the

internal factors affecting the increase in NPA level, use of

information technology for better credit administration.

7) Publications of the names of the defaulters who have settled their

dues through compromise. This motivates other defaulters to make

compromises. In some cases, gifts must also be given.

8) Setting up of credit investigation and information agency. Timely

report of the borrowers' activities should be prepared and updated.

This report should be prepared by a well qualified personal. The

report should incorporate all the possibilities of an account

becoming sticky. If there arises some signs of default, rigorous

follow up should be made

9) Using Micro credit to stop accounts slipping in to NPA. Small

loans or Micro credit as it is followed on a small scale should be

followed on a larger scale. The Bank should use this as a weapon to

tackle the problem of NPAs. This system should be also followed

in other sectors like SSI, other priority sectors and Non priority

sectors. Even though the money requirement of these sectors is



more compared to small borrower, who prefer micro credit, the

same concept can be modified to suit the larger borrowers.

The other ways are,

10) Personal touch with the borrowers/ Account holders: With the

increase in the number of accounts, there has been loss in the

personal interaction with the borrowers and account holders. To

regain the personal touch with the borrowers. Each branch should

have one or more Relationship Manager/Officers, based on the

number of accounts, who meets the borrowers continually and

evaluate the psyche of the clientele

11) Common Documentation: Documentation contains the terms and

conditions of the understanding between the Creditors and the

Borrower reduced into writing. It is very significant as it serves the

legal purposed

12) Reminder letters should be sent to the borrowers. If there is no

response, second and a third reminders should be sent. This sort of

reminders will continue until the recovery is made.

13) All the borrowers may not respond to the reminder and therefore it

becomes essential to visit them personally. During the visit, the

branch staff should enquire about their difficulties in loan payment

and request them to cooperate with the branch even by making a

small payment.

14) One time settlement in another macro level concern. As the judicial

process is time consuming and ineffective, banks have advised

defaulting borrowers. This provides scope for willful defaulters

becoming eligible candidates for such a settlement.



15) “We do not fear to negotiate, but we do not negotiate out of fear”

so goes a wise saying. Banks appear to be forced to negotiate with

willful defaulters more out of fear of non recovery. The argument

in favour of these negotiated settlements is that the present

discounted value of future (uncertain) cash flows may be less than

what is expected to be received under such settlements. This may

be good mathematics but very bad banking. In the long run, banks

will find to their dismay that the "one line settlement queue11

lengthening every year. However, one time settlements are

perfectly fair practices, with regard to honest borrowers whose

units are no longer viable.

16) Often banks do not display empathy with regard to sick but viable

units. A more professional approach on the part of the banks

(without involving the B1FR) will prove that rehabilitation of such

units will not only reduce the NPA accounts but also create

economic prosperity for the nation. Banks need to be innovative

and bold to succeed in their endeavor in this regard.

17) The recovery team should be comprised of well qualified persons,

who have strong human relations and can understand the mentality

of the people. They should be given timely training about the new

ways for making recovery. Targets should be given and incentives

should be given for meeting the targets.



LIST OF GRAPHS

SL NO PARTICULARS PAGE NO 1 Graph showing status in SSI 2001 35 2 Graph showing status in SSI 2002 36 3 Graph showing status in SSI 2003 37 4 Graph showing status in SSI 2004 38 5 Graph showing cash recovery 45 6 Graph showing ABC Analysis 51 7 Graph showing percentage of NPA to total advances 61 8 Graph showing reason for NPA 63 9 Graph showing procedure adopted for controlling NPA 65

10 Graph showing DRT effectiveness 67 11 Graph showing cases referred to DRT 68 12 Graph showing time taken for DRT decision 69 13 Graph showing decision favoring the bank 70 14 Graph showing recovery 71 15 Graph showing quantum of NPA 72 16 Graph showing DRT 74 17 Graph showing percentage of NPA in SSI to total NPA 75 18 Graph showing motivation for bank to grant loan to SSI 76 19 Graph showing number of cases referred to DRT 77



LIST OF TABLES

SL.NO PARTICULARS PAGE.NO 1 Table showing status SSI for the year 2001 35 2 Table showing status SSI for the year 2002 36 3 Table showing status SSI for the year 2003 37 4 Table showing status SSI for the year 2004 38 5 Table showing position of gross NPA 42 6 Table showing cash recovery target and recovery 44 7 Table showing movement of NPA 46 8 Table showing movement of NPA 47 9 Table showing ABC analysis 49

10 Table showing financial product offered to customer 59 11 Table showing customer category and their repayment 60 12 Table showing percentage of NPA to total advances 61 13 Table showing reasons for NPA 62 14 Table showing procedure adopted for controlling NPA 64 15 Table showing advance intimation to customer 66 16 Table showing DRT effectiveness 67 17 Table showing NO. of cases to DRT 68 18 Table showing time taken for final DRT decision 69 19 Table showing decision favoring the bank 70 20 Table showing recovery is effectiveness 71 21 Table showing quantum of NPA 72 22 Table showing DRT cases filed 73 23 Graph showing percentage of NPA in SSI to total NPA 75 24 Graph showing motivation for bank to grant loan to SSI 76 25 Graph showing number of cases referred to DRT 77

Analysis of NPA

Documents

Transcript of Analysis of NPA