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Canara Bank NPA analysis.

Transcript of NPA analysis

A study on NPA management


1. INDUSTRY PROFILEBanking Regulation Act of India, 1949 defines banking as accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheques, draft, and order or otherwise. The word bank has been derived from French word BANQNUE and Latin word BANQCUS which means a bench. The banking structure in India comprises RBI at the top, scheduled commercial banks (established under a schedule of Government of India Act of Parliament). These include Commercial banks and Cooperative banks. Cooperative banks are established in both rural and urban areas by groups of members for mutual benefit. At present there are 52 urban and 16 rural co-operative banks. Commercial banks include 27 PSU (of which SBI and its associates are 8), 29 private and 31 foreign banks apart from 196 Regional Rural Banks. The first bank in India was called General Bank of India which was established in 1786. From 1786 till today, the journey of Indian banking system can be segregated into three distinct stages. It is explained under the heads Stage I, Stage II, and Stage III in detail.

STAGE IDuring this period, public had lesser confidence in the banks, as a result deposit mobilization was slow and also saving bank facility provided by the postal department was considered comparatively safer. In 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. In order 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 1956 (Act No. 23 of 1956). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the central banking authority.

STAGE II In this phase, the process of nationalization was undertaken in big way by the government. In 1955, Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi urban areas was nationalized. State Bank of India was formed to act as the principal agent of RBI and to handle banking transactions of the union Department of MBA, PESIT Page 1

A study on NPA management


and state government all over the country. In 1960 seven banks forming subsidiary of State Bank of India were also nationalized. In 1969, fourteen major Commercial Banks in the country were nationalized. This initiative was the effort of the then prime minister of India Mrs. Indira Gandhi. Second phase of nationalization was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under government ownership. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India.The government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.

STAGE III This phase is characterized by the introduction of many products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M. Narashimham, a committee was set up by his name which worked for the liberalization of banking practices. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more.The country is flooded with foreign banks and their ATM stations.. Phone banking and net banking is introduced. The entire system became more convenient and swift. Currently, banking in India is generally fairly mature in terms of supply, product range and reach-even though reaching rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The Indian GDP is expected to grow at 6.9-7% for the year 2012.With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As and takeovers.

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A study on NPA management2. COMPANY PROFILE


2.1 BACKGROUND AND INCEPTION OF THE COMPANY:Founded as Canara Bank Hindu Permanent Fund', by late Sri. Ammembal Subba Rao Pai, a great visionary and philanthropist, in July 1906, at Mangalore in Karnataka, it blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after nationalization Expansion of bank started in 1926. It strengthened the banking structure in the South India and emerged as one among the large nationalized banks in the country.In 1954 the administrative offices were shifted from Mangalore to Bangalore. In the sixties, the bank expanded the network of branches to northern states of the country and gained a national stature. By 1962, the bank emerged as the largest bank in South India. By 1968, it was the sixth largest bank in the country. In 1974, it stood fifth largest bank in the country. In 1985, the bank acquired a coveted position of THIRD AMONG 20 NATIONALIZED BANKS. Growth of Canara Bank was phenomenal, especially after nationalization in the year 1969, attaining the status of a national level player in terms of geographical reach and clientele segments. Eighties was characterized by business diversification for the Bank. Canara Bank has taken over many banks. In 1985, The Lakshmi Commercial Bank Ltd having its head office at New Delhi with 230 branches in northern states merged with Canara Bank and its 3500 employees became members of Canara Bank family. This is the biggest merger that ever took place in the banking industry in India. In June 2006, the Bank completed a century of operation in the Indian banking industry. FOUNDING PRINCIPLES: To remove Superstition and ignorance. To spread education among all to sub-serve the first principle. To inculcate the habit of thrift and savings. To transform the financial institution not only as the financial heart of the community but the social heart as well. To assist the needy. To work with sense of service and dedication. To develop a concern for fellow human being and sensitivity to the surroundings with a view to make changes/remove hardships and sufferings. Department of MBA, PESIT Page 3

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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. Today, Canara Bank occupies a premier position in the comity of Indian banks. With an unbroken record of profits since its inception, Canara Bank has several firsts to its credit. These include: Launching of Inter-City ATM Network Obtaining ISO Certification for a Branch Articulation of Good Banking Banks Citizen Charter Commissioning of Exclusive Mahila Banking Branch Launching of Exclusive Subsidiary for IT Consultancy Issuing credit card for farmers Providing Agricultural Consultancy Services

2.2 NATURE OF THE BUSINESS CARRIED:In the word of late Sri Ammembal Subbarao Pai A good bank is not only the financial heart of the community, but also one with an obligation of helping in every possible manner to improve the economic conditions of the common people" Bank is into pooling together the savings of the community scattered all over and from the very same pool, granting loans to the needy in the society. Thus it acts as a link between the savers and the needy. Thus the two main products of the bank are deposits and loans. Over the years, the Bank has been scaling up its market position to emerge as a major 'Financial Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad. As at September 2011, the Bank has further expanded its domestic presence, with 3432 branches spread across all geographical segments. Keeping customer convenience at the forefront, the Bank provides a wide array of alternative delivery channels that include 2623 ATMs, covering 899 centres. With 100% CBS, the Bank offers technology banking, such as, Internet Banking and Funds Transfer through NEFT(National Electronic Funds Transfer) and RTGS ( Real Time Gross Settlement) across all branches. The bank also has international presence in several centres, including London, Hong Kong, Moscow, Shanghai, Doha, and Dubai. As at September 2011, the total business of the Bank stood at 530515 crore. Net profit of the Bank crossed 4000 crore. Department of MBA, PESIT Page 4

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SUBSIDIARIES OF CANARA BANK Canara Robeco Asset Manangement Company Ltd Canara Bank Financial Services Ltd Canfin Homes Ltd Canbank Factors Ltd Canbank Venture Capital Fund Ltd Canbank Computer Service Ltd Canara Bank Securities Ltd


VISION: To emerge as a Best Practices Bank by pursuing global benchmarks in profitability, operational efficiency, asset quality, risk management and expanding the global reach.

MISSION: To provide quality banking services with enhanced customer orientation, higher value creation for stakeholders and to continue as a responsive corporate social citizen by effectively blending commercial pursuits with social banking.

QUALITY POLICY: As a premier commercial bank in India, Canara Bank has a distinct track record in the service of the nation for over 100 years. The bank is recognized as a leading financial conglomerate in India, with as many as nine subsidiaries/ sponsored institutions/ joint ventures in India and abroad. Bank step into the second century, they aspire to emerge as a Global bank with best practices. ` Today , Canara Bank has a strong pan India presence with 3432 branches and over 2623 ATMs, catering to all segments of an ever growing clientele base of about 4.04 crore.

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A study on NPA management2.4 PRODUCT/ SERVICE PROFILE:


The bank has many financial products, services and schemes. Important among them is as follows: DEPOSIT PRODUCTS: Fixed Deposits: Secured way to earn high returns for individuals and institutions. Kamadhenu Deposits: Re-investment multiplier plan. Recurring Deposits: Inculcating savings, a rewarding and recurring habit. Ashraya Deposits: A deposit scheme for senior citizens. Canbank Auto Renewal Deposits (CARD): Higher return in a shorter plan. Savings Bank Account: For individuals and non-trading organizations/institutions. Current Account: For business operations- trades, businessmen, corporate bodies. Canara Champ Deposit Scheme: Basically an SB deposit for children up to the age of 12 yrs. Canara Tax Saver Scheme:

A term deposit scheme under the Fixed Deposit &

Kamadhenu Deposit streams for Salaried class, businessmen, professionals who come under ambit of tax payers ADVANCE PRODUCTS: CanCarry: Provides credit to worthy individuals, professional and salaried class for buying consumer durables and household articles. CanCash: Offer assistance for meeting unforeseen contingencies. Finance is granted against approved shares, bonds and debentures held by the clients. CanMobile: Facilities for purchase of new/used cards/jeeps of all make. The scheme also covers for finance of brand new two wheelers. CanMahila: Exclusive loan schemes for women clients. Can Budget Loan Scheme: Fulfils the financial needs of confirmed employees of reputed PSUs, Joint Stock Companies, Central/State/Semi-Government employees and lecturers/professors/assistant professors of colleges/universities and research institutes. Can Rent Loan Scheme: Provides loans to property owners whenever the property is leased/rented out to PSUs Central/State/Semi-Government undertakings, reputed corporate banks, financial institutions, insurance companies and MNCs.

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A study on NPA management


Can Mortgage Loan Scheme: Designed to meet the financial requirements against the security of equitable mortgage of property (Land and Building) to professional, businessmen, salaried persons and individuals.

Vidya Sagar Educational Loan Scheme: Renders financial assistance for needy and meritous students for perusing all type of studies (professionals/general) in India and abroad.

Housing Loan scheme: Purchase of a ready built house/flat, construction of a house, purchase of a site and construction of a house thereon, for undertaking repairs, renovations, up gradation and creation of additional amenities

Home Improvement Loan Scheme: Furnishing the house/flat along with banks home loans/independently. Loan Schemes for Traders and Business Enterprises: With hassle-free and minimum terms and conditions, the scheme caters to the needs of traders and other business enterprises for smooth flow of business activities.

Agri Loan Scheme: Various loan schemes for agri-clinical, minor, irrigation, farm development/machinery, plantation, crop fishers and for agro-exports. SSI Loan Scheme: A host of schemes available for technology up gradation in textile and jute industries, credit linked capital subsidy, standby credit for capital expenditure and margin money scheme of KVIC.

Other Priority Scheme: These include loan for retail traders, small business, professional/self employed, medical practitioners and loan for solar water heating /home lighting system. CREDIT CARD SERVICES: CANCARD is the first Indian card to get ISO 9002 certification. Today it has a

distinct recognition in the domestic as well as international market. The various can cards are: Canara Card (proprietary) Canara Visa Classic / MasterCard Standard Global Card Canara Global Gold Card Cannara Corporate Card

These cards enjoy the privilege of worldwide acceptance and free insurance coverage. Canara Cards are backed by a wide network of CANARA BANK branches and 24 Department of MBA, PESIT Page 7

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Card Service centers located at many important cities spread across the country. CANARA BANK is the principal member of VISA-WORLDWIDE and MASTERCARD INC. ADVISORY SERVICES: INDUSTRIAL ADVISORY SERVICES: Canara Bank has a professional outfit consisting of experienced and technically qualified personnel for appraisal of industrial project and consultancy. Range of services offers: Project appraisal of companies intending to go public Techno economic feasibility studies Viabilities studies of sick industries unit Operating agency services for board for industrial and financial reconstruction Industry focus/ profit Risk rating of banks assisted unit

DEBENTURE TRUSTEE SERVICES: Canara Bank has registered with SEBI to act as a debenture trustee. It offers to undertake to act as trustees for public as well as private placement. Also provides its services in execution of trust deed, obtaining mortgage of property for investors, filing of charges etc. monitoring and follow up for redemption of principle and payments of interest. MUTUAL FUNDS Cannara bank has tie ups with Canara Robeco and HDFC AMC for cross selling of their mutual fund products through their banks. CONSULTANCY SERVICES: MERCHANT BANKING: Canara Banks uniqueness is extending services under single window concept comprising the following areas; merchant banking, commercial banking, investment and bankers to the issue, underwritings and loan syndication. Canara Bank offers specialized services to banks, PSUs state owned corporations, local statutory bodies and corporate sector. Canara Bank is the category I merchant banker authorized by securities and exchange board of India (SEBI) for underwriting of issues, Consultancy/ advisory services to issue including corporate advisory service etc.

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A study on NPA management LIFE INSURANCE


Bank has started a Joint Venture Insurance Company Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited. The new JV insurance company was launched on 16th of June 2008. ANCILLARY SERVICES

Safe Deposit Lockers : Lockers are available at select branches where Safe Deposit Vaults are installed Safe Custody Services: Bank undertakes the responsibility of safe custody of articles entrusted by the customer under a contract and returns the same according to terms agreed upon.

Nominations : This facility has been devised with an aim of minimising the hardships caused to the family members on the death of the depositor/s 7 Day banking: select branches are open on all days a week. Extended Banking : extention of working hours at select branches DD Shoppe: Branches with DD shoppe facility issues demand drafts upto one hour before close of office hours. INTERNATIONAL BANKING SERVICES:

Canara Bank offers the following international banking services:

IMPORT SERVICES: Establishment of foreign letter of credit for import of goods to India. Handling import documentary collections. Effecting advance payments towards imports.

EXPORT FINANCE SCHEMES: Pre-Shipment Finance: Packaging credit, clean packing credit. Pre-Shipment Credit in Foreign Currency. Foreign Bank Guarantee (FGL). Foreign Letter Of Credit. Page 9

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A study on NPA management REMITTANCES: Handling of foreign outward remittances. Release of exchange for travel abroad. Executing foreign inward remittances. NEW PRODUCT/ SERVICES:


The Bank has further enhanced its basket of new tech-products for customer convenience like Canara Gift Cards, Canara Campus Card, Canara Platinum Card, Bills Desk for utility bills payment, Cash withdrawal at Point of Sale (PoS) machines at Merchant Establishments, VISA money transfer and the ASBA (Application Supported by Blocked Amount) facility during FY11.

2.5 AREA OF OPERATION:Canara Bank has a network of 3432 branches spread over 25 states and 4 union territories of the county and overseas branches which are administered trough Head office at Bangalore 34 Circle Offices and 1 International Division

BRANCHES ABROAD: Canara Bank established its International Division in 1976, to supervise the functioning of its various foreign departments to give the required thrust to foreign exchange business particularly export and to meet the requirements of the NRIs. Though small in size the banks presence abroad has brought in considerable foreign business particularly NRI services The bank has its presence abroad, as under: Canara Bank London, UK Indo Hong Kong International Finance Co Ltd Commercial Bank of India LLC, Moscow( a joint venture with State Bank of India) Canara Bank Shangai Representative Office, Shanghai Eastern Exchange Establishment ,Doha, Qatar.(management contract and DD

drawing facility on Canara Bank) AIRazouk International Exchange Company, Dubai, UAE, (agreement and DD drawing facility on Canara Bank) Department of MBA, PESIT Page 10

A study on NPA management


Apart from above Canara Bank has an offshore banking unit at Niota. In addition many exchange companies situated at UAE, Kuwait, Bahrain and Oman have DD drawing agreement on Canara Bank. Canara Bank has also introduced new money transfer facilities such as Western Union Money Transfer and electronic fund transfer.

2.6 OWNERSHIP PATTERN:The Canara Bank is a public sector bank. Canara Bank was nationalized with a theme of social control over banks in 1969 with 13 other commercial banks. Thus on July 19, the ownership passed on to Govt of India. This step gave new dimensions and sense of responsibility to the banks. In the FY 2010-11, governments shareholding has been reduced from 73.13% to 67.72% by issuing shares to the public. The total public shareholding stands at 32.28 % with 14.3 crore shares. The bank clocked a Net Profit of Rs 4000 core with significant improvement in Capital Adequacy Ratio (13.22%) and asset quality (Net NPA ratio 1.11%)

4.5 7.5



Share Holding Pattern in %Govt of India FIIs 67.7 Insurance companies Resident Individuals Banks Others


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A study on NPA management2.7COMPETITORS INFORMATION:


All nationalized public sector banks, private sector banks and foreign banks in India are the keen competitors to Canara Bank. At present there are 52 urban and 16 rural cooperative banks. Commercial banks includes 27 PSU (of which SBI and As sociates are 8), 29 private and 31foreign banks apart from 196 Regional Rural Banks. Among them major competitors to Canara Bank as well as major players in the banking industry are as follows SBI and its seven associated banks. Corporation Bank Syndicate Bank Vijaya Bank Bank of India Bank of Baroda Bank of Maharashtra Karnataka Bank Oriental Bank of Commerce Punjab and Sind Bank UCO Bank HDFC Bank ICICI Bank UTI Bank ABN-AMRO Bank Standard Chartered Bank ING-Vysya Bank Among them SBI and its seven associates, Punjab National Bank, Bank of Baroda, ICICI are the major competitors to Canara Bank.

State Bank of India (SBI) is the largest banking and financial services company in India by revenue, assets and market capitalization. It is a state-owned corporation with its headquarters in Mumbai, Maharashtra. As of March 2011, it had assets of US$370 billion with over 13,000 outlets including 150 overseas branches and agents globally.

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Punjab National Bank (PNB) ) is an Indian financial services company based in New Delhi, India. PNB is the third largest bank in India by assets. It was founded in 1894 and is currently the second largest state-owned commercial bank in India ahead of Bank of Baroda with about 5000 branches across 764 cities. It serves over 37 million customers.

Bank of Baroda (BoB) is the third largest PSU bank in India, after the State Bank of India and the Punjab National Bank and ahead of Bank of India. BoB has total assets in excess of Rs. 3.58 lakh crores, or Rs. 3,583 billion, a network of 3,991 branches and offices, and about 1,657 ATMs. It plans to open 400 new branches in the coming year.

ICICI Bank Ltd.) is an Indian diversified financial services company headquartered in Mumbai, Maharashtra. It is the second largest bank in India by assets and third largest by market capitalization. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels. The Bank has a network of 2,630 branches and 8,003 ATM's in India, and has a presence in 19 countries, including India

2.8 INFRASTRUCTURE FACILITIES Canara Bank has achieved 100% computerization. Canara Bank has computerized its activities in the field of deposits, lending recovery, human resources, auxiliary services, promotional activities etc., It has well developed internet banking channel, which helps is providing services like balance enquiry, account statement, intra bank funds transfer, transaction related SMS alerts, payment of taxes and utility bills with convenience of doing the same from wherever they like. Availability of Mobile Banking Service, which helps offering wide range of facilities like account viewing and mini statement, funds transfer-intra and inter-branch/bank, utility payment services, mobile recharge, donation to trusts, e-ticketing. The bank has implemented cheque truncation system in Delhi as directed by RBI. Canara Banks customers have access to over 78000+ ATMs connected under National Financial Switch (NFS). The bank had 2623 ATMs at the end of Sept 2011 covering 899 centers.

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Canara bank has introduced Bills Desk for utility bills payment, Cash withdrawal at Point of Sale (PoS) machines at Merchant Establishments, VISA money transfer and the ASBA (Application Supported by Blocked Amount) facility during FY11

Canara Bank's has installed solar power generators at 85 remote/rural branches to meetthe challenges related to erratic power supply.

24 Card Service centers located at many important cities spread across the country and awide network of CANARA BANK branches supports Canara card services. Automatic fire alarm system and fire proof cabinets in all CBS branches.


Best Bank in South Zone Award for the year 2008-09 in respect of lending under KVIC and PMEGP Schemes. The award was handed over by Prime Minister of India. Dr.Manmohan Singh, Honble

The Bank received the Credit Guarantee Approval Certificate issued by CGTMSE from Shri Pranab Mukherjee, Honble Finance Minister of India.


Canara bank bags Indira Gandhi Rajbhasha shield 2009-10 The Bank has been conferred with the Second Best Bank Award under National Awards for Excellence in lending to Micro Enterprises for the year 2009-10, by the Ministry of MSME and Outstanding Performer at National level for implementation of Interest Subsidy Eligibility Scheme (ISEC) of KVIC in the country for 2009-10.

The Bank was conferred 4 awards by the Public Relations Council of India (PRCI), in the following categories 1) Silver Award for Corporate Film ( TV Commercial ) English 2) Bronze Award for House Journal/Magazine Languages 3) Bronze Award for Table Calendar 4) Bronze Award for Corporate Advertisement Single - English

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A study on NPA managementRECEIVED DURING 2011-12


Canara Bank was awarded coveted skoch award for financial inclusion on 5.01.2012 at New Delhi. The award was handed over by Dr C Rangarajan, Chairman Prime Ministers. Economic Advisory Council

The Bank was conferred with National Award - 2011 for excellence in the field of Khadi and Village Industries - Best Bank, South Zone for PMEGP.

SPECIFIC ACHIEVEMENTS PERTAINING TO RECOVERY WING ARE AS FOLLOWS: Cash recovery of Rs.750 crore achieved during June 2011 quarter which is all time high for any particular quarter. On line auction of secured assets introduced and implemented under SARFAESI.

A W A R D S: 1. FICCI award for outstanding contribution to rural development 2. Golden peacock award for best corporate social responsibility 3. Social and corporate governance award 4. Amity international business school CSR award 5. FICCI SEDF business world second best corporate citizen award 6. National master craftsman award 7. Kamaladevi chattopadhyaya award 8. Recognition by government of India as nodal self employment training centres

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A study on NPA management2.10 WORK FLOW MODEL:CUSTOMER



ADVANCES Standard Asset NPA



SubStanda rd Assets

Doubtful Assets

Loss Assets




Cash, Interest and Information flow NPA management activities flow

2.11 FUTURE GROWTH AND PROSPECTS: The Bank aims to reach an aggregate business figure of ` 6.25 lakh crore, comprising total deposits of ` 3.55 lakh crore and advances of ` 2.70 lakh crore. Added thrust on Retail Business, especially retail deposits and retail advances during FY12. Expanding the delivery channels, the Bank plans o To open 250 branches. o To take ATM strength from 2623 to 4000 by March 2012. Expanding global footprints, the Bank plans to open branches in Manama, QFC-Qatar, South Africa, Germany, the USA, Brazil, Tanzania and Representative Office in Tokyo, Japan. Surveys to open branches in Sri Lanka, Nigeria and Kenya completed.

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A study on NPA management3. MCKENSYS 7S FRAMEWORK


The McKinsey 7S Framework is a management model developed by wellknown business consultants Robert H. Waterman, Jr. and Tom Peters. The model is most often used as a tool to assess and monitor changes in the internal situation of an organization.. The model is based on the theory that, for an organization to perform well, seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change. The 7S are structure, strategy, systems, skills, style, staff and shared values.

1. STRUCTUREOrganizational structure represents the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individual. The organization structure of the Canara Bank depicts the principle of unity of command, principle of order, and principle of secular chain. From the below chart we can see that the top reporting authority is the Board of directors, followed by the Head office. The head office is situated in Town hall, Bangalore, in total there are 34 circle offices and 3432 branches. Under the control of each Circle office there are about 90 100 branches which has to report about its business/transactions to the circle office. Each branch manager has been given with certain sanctioning limits to sanction loan amount.

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In case, if he receives an application for a loan amount which is more than his sanctioning limit then he has to forward the same to next higher authority i.e., the circle office. The same process is applicable even in the case of circle office and head office. The Bank has eighteen wings in the Head Office, Bangalore.


Chairman & Managing Director

Executive Director

Chief General Manger

General Manager

Deputy General Manager

Assistant General Manager

Chief Manager

Senior manager

Manager Department of MBA, PESIT Page 18

A study on NPA managementORGANIZATION STRUCTURE Board


Head office

Circle office




2. STRATEGY:In simple terms strategy is to plan for the future with set goals and objectives. It is about planning and setting corporate goals and then defining the steps needed to achieve those goals. Canara Bank management strategies were renewed in March 2003 and are stated as below. CANARA BANKS CORPORATE OBJECTIVE: E-Efficiency P- Profitability O- Organization effectiveness C- Customer centric H- Hi tech banking In continuity with their corporate VISION, stated as: To emerge as a Best Practices Bank by pursuing global benchmarks in profitability, operational efficiency, asset quality, risk management and expanding the global reach

The banks strategies to achieve their long term vision and objectives are:

Retail lending: A growing economy like India has a high growth potential in the banking industry, Canara Bank being one of the foremost banking company sees retail lending as a very lucrative proposition of the banking business. Thus Canara Bank has focused its attention on the Retail Lending. The strategy in this activity has been to improve the spreads and lending

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A study on NPA management


against better assets of better quality. Thus this shall help to reduce the NPA in case of default in repayment since the liquidation of the asset would be easier.

Thrust on technology: The technological development has influenced many banking industries all over the world. Canara Bank has introduced technology to its routine business. 100% of the bank been computerized. The strategy behind this has been to implement the computerization in their banks in phases. This has helped the bank to introduce the change in the organization over a period of time without much resistance from its employees. The trust on technology has also helped the bank to reduce its operational costs especially the labour cost, provide better customer service and to match their competitors.

NPA management: The biggest task in the banking industry is the NPA management. Higher NPA is detrimental to the bank since it erodes the wealth of the shareholders and the interests of the depositors. In this aspect Canara Bank has a clear strategy that is lending against assets and aggressive follow up. This ensures high recoveries and better profitability.

Treasury management: With respect to the treasury management Canara Bank's strategy is effective fund management, This will help in improving the yield and ability to hedge the market risks by introduction of real time gross settlement derivatives and core banking.

3. SYSTEMCanara Bank has been a pioneer in evolving several systems. Each of the system devised by the bank has its own characteristics and is the product of research and experience. The various systems introduced by the bank over the years were published in the form of a book entitled all about HRD system in the year 1992, the same is reviewed and the updated version is our HRD system their formal HRD systems consist of: Training system Entry interview Study Circles Quality Circle

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A study on NPA managementThe entry interview system:


Canara Bank has the system of entry interview which aims to introduce the new entrants to the history, culture, tradition of the bank and to show concern for proper settlement of the new entrants at work place and to ensure full devotion to work. Methodology When the new entrants joins duty at the reporting branch, the branch in charge has to have personal one to one interaction with the new entrants. The branch in charge/ manager has to talk with the new entrants and casually ascertain about the background, family and profession, his/ her goals in life, expectations, capabilities and potentials. The manager should volunteer information about the history of the bank, its rich culture and heritage, its mission and goals and also has to make the employee aware of his responsibilities.

Training system It includes identification of trainees and their training needs, designing of programs, input/ course preparation, training pedagogy, selection of trainers and their training, external training in India and abroad, evaluation of training interaction of executives with employees and DELPHI method.

Study Circle The concept of Study Circle aims at self development of employees by instilling a desire to acquire/update knowledge, information and experience. This is an innovative HRD practice of the Bank, envisaging enrichment of general knowledge, enabling multifaceted development of employees, giving an opportunity to employees to discover their talent, come out of their cocoon and exhibits the same.

Quality Circle Quality Circle is a voluntary group of employees in the same work area, coming together, working as a team, solving work related problems resulting in self development and organizational benefit. The concept has been built on the basic foundation of "Participative work culture" with motivation and involvement of employees at grass roots level exploring their potentials, creativity and capabilities.

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A study on NPA management4. SKILL:


A skill is the learned capacity to carry out pre-determined results often with the minimum outlay of time, energy, or both. Skills refer to dominating capabilities or dominating attributes that distinguish a firm from its competitors. Canara Bank is one of the leading banks in the country due to its strong fundamentals and quality customer orientation. It is mainly due to its very good training programmes, which impart various necessary skill sets to its employees. Steps taken by Canara Bank to impart necessary skills Identification of trainees and their training needs: It is done at grassroots level by branch/ section in charge. They consolidate the training needs and submit the same to Circle Office. The circle office then in consultation with Regional Staff Training College draws the training plans and forwards it to the Apex College at Bangalore. Designing of the programs: This is done on the basis of specific objectives of programs, the target group, macro issues and the current and emerging business scenario, some training programs designed are: Induction courses. Supervisory development programs. Management development program. Executive development program.

Program input/ course content: The preparation of course manual/ material is centralized at STC. Subject committees have been formed at STC and this committee consists of experts in the functional areas. Selection of trainers and their training: In house trainers are selected by a process of interview or by selection based on experience, track record, oral and written communication skill aptitude and flair for reading. External training in India and abroad: Beside in house training system Canara Bank identify and post employees to many external training program both in India and in abroad, conducted by various institutes like IIMs, ISB, NIBM, ASCI, INID, IDBRD, MDI, APRACA, etc. Evaluation of training: A structured questionnaire is admitted at the end of the program to assess the quality change in knowledge, skill and attitude of the trainees.

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A study on NPA managementInteraction of executives with employees:


In specialized training program executives from Head Office and Circle Offices are invited for inauguration, thus providing a good forum for interaction. Computer Learning Center: Computer Learning Centres were established by the bank coinciding with the process of computerization in the bank in the late eighties to equip Canara Bank staff with basic computer operational skill.

5. STYLE:Style refers to how managers collectively spend their time and attention and how they use symbolic behaviour. It refers to pattern of action among the employees of the organization. The Canara Bank management is very strict in following procedural aspects as laid down in memos and circulars issued from time to time and also various manuals. At the same time cordial relationship among the employees of the bank is maintained. In Canara Bank superiors have confidence in subordinates and subordinates feel free to discuss important matters about the job with their immediate superiors. Following are some examples of the Canara Banks schemes where we can find the implementation of the participative management style by Canara Bank. Employee suggestion scheme: Canara Bank has employee suggestion scheme, which aims at encouraging the innovative spirit of the employees and recognizing their valuable contribution by way of feasible suggestions. Features of the system are as follows: All cadres of employees of the bank can participate in this scheme except those working in O and M Section, Inspection Wing HO executives. This provides a forum for collective contribution, facilitates value addition to others idea and helps in crystallizing employees ideas. Cash award Rs 2000 to individual employees and Rs 3000 for teams for the accepted suggestion. All accepted suggestions are also considered under annual award scheme. The best 3 suggestions of the calendar year selected will get each prizes of Rs 10000 for first, Rs7500 for second, and Rs5000 for third prizes respectively.

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Staff meeting: Staff meeting is one of the oldest forms of HRD systems of the bank. The concept was introduced way back in the year 1982. It is the most useful participative forum for the effective functioning of the branch or office. The forum may be used for discussion on position or performance of the branch, strategies for improvement, image building activities, etc., could be discussed. The forum can also be used for discussing new schemes or products introduced by the bank to ensure awareness of the salient features among all the employees.

6. STAFF:Staff is concerned with the people or human resource management process used to develop managers, socialization process, and ways of shaping basic value of management cadre. It also includes the companys human resource and how companies develop employees, train them, motivate and shape their basic values. The present staff strength of the bank as in 2011 is 43397employees. Canara Banks committed and efficient work force include Technological people Specialist Officers Chartered Accountants Financial Analyst Economist Marketing Managers Manager Clerical Staff Security Officers Support staff

Technological staff of Canara Bank includes engineers, network administrator, IT security administrator, computer program data base administrator system engineer, technical field officer, etc. Duties of technical people in the bank are numerous and some of them include computer installation, computer repairs, program writings, data base administration. Chartered accountant and financial analyst of Canara Bank are concerned with preparation of financial statement, analysis and interpretation, internal audit and statutory audit income tax calculation ratio, cash flow and fund flow analysis etc., Department of MBA, PESIT Page 24

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Marketing managers of Canara Bank include agri business marketing manager, SME marketing manager, etc. The duties and responsibilities of the personnel of Canara Bank are numerous and cannot be prcised. The duties and responsibilities to be performed by the employees of Canara Bank are separately given in the employee manual published by the bank. With the growing challenges of liberalized economy, the Canara Bank employees at different stages are trained to acquire motivation, leadership and knowledge to meet the increased requirements.

7. SHARED VALUES:Shared values refers to the underlying attitude of the company; a combination of core values and core purpose. Core values are guiding principles and doctrines that do not require external justification and the company would keep even if business circumstances changes. Canara bank people hold the following common beliefs, mindset, and assumptions that shape how the organization behaves its corporate culture. Family culture Focus on and belief in people Commitments Customer orientation Open culture Versatile Community perception Spirit of accepting challenge Concern for performance Consistency

The Canara Bank family has been growing with people continually joining it. People strengthen its tradition and endeavour to preserve the unique work culture built up over the years, by passing it on to the next generation. The organization climate of Canara Bank is marked by display of belonging, loyalty sacrifice, selflessness, and an attitude that the organization is part of each employees life.

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A study on NPA management4. SWOT ANALYSIS:


The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company's unique value chain. SWOT analysis groups key pieces of information into two main categories:

Internal factors The strengths and weaknesses internal to the organization. External factors The opportunities and threats presented by the external environment to the organization.

STRENGTHS: Wide variety of products offered by bank to its customers, such as networked ATMs, anywhere banking, Tele banking, mobile banking etc., High quality service to its customers. Pan India presence. Canara Bank has a unique training system and an apex college viz., the Staff Training College (STC) at Bangalore with 13 regional staff training colleges Strong rural presence: This is key strength of Canara Bank as it has strong presence in the rural India. Rural India is having big growth potential as the urban areas are becoming saturated and is facing stiff competition. Implemented IT across the branches, with 100% computerization of the branches Centralized banking system Has emerged as a major 'Financial Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad. Government owned bank: This guarantees in todays circumstances the safety of the deposit and excessive regulations of the government prevent it from taking speculative position. The bank is having 840 branches and 13 administrative units with ISO certification. Canara bank has the best HRD systems. The bank has won national HRD award for its HRD practices.

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WEAKNESS: Delay in follow up on various accounts. Less number of branches and ATMs compared to SBI and other PSUs. Not present in big way in urban areas. Bureaucratic culture still prevailing in the bank.

OPPORTUNITIES: To grow by diversifying the products and offering attractive schemes. It has the opportunity to expand its business to other parts of the country, wherein it can increase its customer base, as it is a predominantly present in south India. Use of better technology in operations and providing good and quality service to customer. The bank can diversify its risks by offering variety of products and services with attractive schemes and rates. Government owned Bank: This guarantees in todays circumstances the safety of the deposit and excessive regulations of the government prevent it from taking speculative position.

THREATS: Competition through Private Sector Banks. Private Banks have started venturing into rural and semi urban areas by giving a severe competition for the bank. Excessive government regulation is hindering the pace of expansion. Better performance by Private Sector Banks as well as some of its Public Sector Counterparts. Entry of MNC banks with new and latest technology; it might take several years for the bank to get itself updated with the same.

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Financial Statement Analysis is a process of evaluating relationship between component parts of financial statement is to obtain a better understanding of firms position and performance. According to Myer, Financial Statement Analysis is largely a study of relationship among the various financial factors in a business as disclosed by the single statements and a study of the trend of these factors as shown in a series of statements

OBJECTIVES OF FINANCIAL STATEMENTS ANALYSIS To analyze the return to the shareholders. To analyze the how deposits are used by the bank to lend advances and investments. To analyze the relationship between interest earnings and interest expenses. To analyze the financial stability of the business concern.

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BALANCE SHEET FOR THE LAST FIVE YEARSLIABILITIES As at 31.03.2007 (Rs. in Crores) Capital Reserves and Surplus Deposits Borrowings Other Liabilities and Provisions TOTAL ASSETS Cash and balance with RBI Balances with Banks and Money at Call and short notice. Investments Advances Fixed Assets Other Assets TOTAL 45226 98506 2860 2995 165961 49812 107238 2917 2684 180529 57777 138219 2930 4060 219646 69677 169335 2859 3217 264741 83700 212467 2845 6359 336079 7279 4513 6623 3934 8693 9095 13365 10037 15719 22015 410 9945 142381 1574 11651 165961 As at 31.03.2008 (Rs. in Crores) 410 10091 154072 2517 13439 180529 As at 31.03.2009 (Rs. in Crores) 410 11797 186893 7057 13489 219646 As at 31.03.2010 (Rs. in Crores) 410 14262 234651 8440 6978 264741 As at 31.03.2011 (Rs. in Crores) 443 19597

293973 14262

7804 336079

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PROFIT AND LOSS ACCOUNT FOR THE LAST FIVE YEARSAs at Particulars 31.03.2007 (Rs. in Crores) I. Income Interest earned Other income 11365 1451 12816 14201 2213 16414 17119 2311 19430 18752 2858 21610 23064 2703 25767 As at 31.03.2008 (Rs. in Crores) As at 31.03.2009 (Rs. in Crores) As at 31.03.2010 (Rs. in Crores) As at 31.03.2011 (Rs. in Crores)

Total II. Expenditure Interest expended Operating expenses Provisions and contingencies and taxes

7338 2565

10663 2791

12401 3065

13701 3478

15241 4419

















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A study on NPA managementRETURN ON ASSETS (ROA)


Year ROA

2006-07 0.98

2007-08 0.92

2008-09 1.06

2009-10 1.30

2010-11 1.42

Analysis & Interpretation Return on assets measures a companys earnings in relation to all of the resources it had at its disposal (the shareholders capital plus short and long-term borrowed funds). Thus, it is the most stringent and excessive test of return to shareholders. ROA for short, tells an investor how much profit a company generated for each Rs.1 in assets. The ROA has been consistently increasing over the past 5 years, and it now stands at 1.42 % which means, the bank earns Rs 1.42 for every Rs 1 in asset, which indicates a very healthy position.


Years EPS

2006-7 34.65

2007-08 38.17

2008-09 50.55

2009-10 73.69

2010-11 97.83

Analysis & Interpretation The ratio measures the profit available to the equity holders on a per share basis. It is found out by dividing the amount of profit after tax by the number of shares. The EPS of the bank has shown growth over the past 5 years. The earnings per share have increased considerably by 32.76% in the FY 2010-11 to Rs.97.83, which is a good sign for the shareholders of the company. The EPS has increased over the last 5 years.








Int Expended / Int Earned






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A study on NPA managementAnalysis & Interpretation


It is the ratio of interest expended to interest earned by the bank. Lower ratio indicates lesser expenses and higher earnings and vice versa. Here FY 2006-07 has been the most efficient year in terms of generating less expenses to earnings with 64.57 %, and there after the ratio has increased till 2008-09, and has showed downward trend since then. In the year 2010-11 it has reduced to marginally to 66.08 % which means earnings have increased more than the expenses.

CREDIT / DEPOSIT RATIOYear 2006-07 2007-08 2008-09 2009-10 2010-11

Credit / deposit ratio






Analysis & Interpretation It refers to the proportion of loans generated by banks from the deposits received. The term deposit includes deposit and borrowings in this ratio. The RBI recommends the banks to lend atleast 60% of their deposits as loans. Advances help the banks to earn greater interest then other avenues. Canara Banks credit/ deposit ratio was improving till 2009-10. It has slightly dipped to 72.23% in FY 2010-11, though its better then the figures till 2008-09.

INVESTMENT / DEPOSIT RATIOYear 2006-07 2007-08 2008-09 2009-10 2010-11

Investment / deposit ratio






Analysis & Interpretation It refers to the proportion of investments made by banks from the deposits received. Investments generate lower income compared to deposits, as banks generally invest in government securities which gives lower interest compared to Advances. The ratio is showing a good trend, as it has consistently decreased over the last 5 years, and now stands at 29.01% in FY 2010-11. It means, the bank has used less deposit funds for investment purposes.

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6. LEARNING EXPERIENCE:It was a great knowledge-based and an excellent training programme in Canara Bank. All the staff members of Bank, especially the staff of recovery wing were very co-operative and friendly in their approach . The main purpose of doing the project was to gain in depth knowledge about a Banking organization with reference to its background, the nature of industry , nature of business and operations, working and analysis of its services and financial and market position. The training received during the period of 10 weeks helped in understanding the various aspects involved in the banking business and how various factors like inflation , interest rates, and policy changes affects the banking industry. The strategic attributes of Canara bank was analyzed using the framework of Mckensys 7s and the SWOT analysis, which enabled the understanding of present status and the future prospects of the bank and the likely competitors of the bank. The analysis of services profile and the work flow model gave valuable insight into how the banking business works and what are the major sources of revenue to the bank. The financial statements analysis helped in knowing the overall profitability and financial health of the bank. In this project titled A study on Non-Performing Assets Management at Canara Bank, effort has been made to look into the reasons of the NPA, implication of high NPAs and suggests effective recovery measures for resolving the problems. Efforts was made to evaluate the efficiency of the strategies used to manage NPAs with reference to Canara Bank, analyzing its performance in the last 5 years and to give the possible solutions for reducing NPA level by using comparative, descriptive and ratio analysis of various important data related to loans and advances. To conclude, this 10 week internship gave a perspective on how one of the largest banks in India work and how the banking business in general is carried out. It was a very useful and memorable learning experience. It proved to be a good platform to get practical exposure in Corporate Environment, and also to understand how theoretical concepts are applied in actual work-place.

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7. GENERAL INTRODUCTIONNON-PERFORMING ASSETSThe real problem of any banking and financial institutions today, is the disbursement of funds in quality assets (loans and advances). There is constant threat of their investments becoming non-performing. A crucial issue which is engaging the constant attention of the banking industry is the alarmingly high level of Non-Performing Assets (NPA). Another major anxiety before the banking industry is the high transaction cost of carrying Nonperforming Assets in their books. In India the Non-Performing Assets are substantially reducing the profit margin of the banks. So the bankers have realized that unless the level of NPAs is reduced drastically, they will find it difficult to survive. In simple words Non Performing Assets problem is one where banks are not able to recollect the money lent to the clients or clients are in such a condition that they find it difficult to pay back the borrowed money to the banks. Though RBI has taken number of steps to reduce NPAs of the Indian banks, it has been found that NPAS have consistently increased from past many years. So the problem of managing NPAs has gained more importance and must be tackled out in such a way that it would not destroy the operational, financial conditions and would not affect the image of the banks.

7.1 MEANING OF NPAs:An asset was classified as non-performing asset (NPAs) if the borrower did not pay dues in the form of principal and interest for a period of 180 days. However w.e.f March 2004, default status would be given to a borrower if dues were not paid for 90 days. If any advance or credit facilities granted by bank to a borrower become non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as nonperforming without having any regard to the fact that there may still exist certain advances / credit facilities having performing status.

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7.2 WHAT ARE NPAs (NON PERFORMING ASSETS):Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as substandard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI: An amount due under any credit facility was treated as past due when it was not paid within 30 days from the due date. Due to the improvement in the payment and settlement systems, 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. With a view to moving towards international best practices and to ensure greater transparency, it was decided to adopt the 90 days overdue norm for identification of NPAs, form the year ending March 31, 2004.

Accordingly, with effect from March 31, 2004 a non-performing asset (NPA) shall be a loan or an advance where: 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). The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted. Interest and / or installment of principal granted for short duration crops remains overdue for two harvest/crop and installment of principle or interest on loan granted for long duration crops remains overdue for one crop season. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. Action for enforcement of security interest can be initiated only if the secured asset is classified as Non Performing Asset.

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A study on NPA management7.3 ASSET CLASSIFICATION:


l. No.

S Category of assets

Basis for Deciding the category

Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Here 1 Standard 1. Assets it is also very important that in this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end of financial year. It is an asset, which does not disclose any problem and also does not carry more than normal risk attached to the business, it should not fall under the category of NPA.

(i)With effect from March 31, 2005 an asset would be classified as substandard if it remained NPA for a period less than or equal to 12 months. In such cases, the current net worth of the borrowers/ guarantors or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. Sub2 Standard .2. Assets In other words, such assets will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. (ii) An asset where the terms of the loan agreement regarding interest and principal have been re-negotiated or rescheduled after commencement of production, should be classified as sub-standard and should remain in such category for at least 2 years of satisfactory performance under the renegotiated or rescheduled terms. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling, unless there is satisfactory compliance of this condition.

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An asset is required to be classified as doubtful, if it has remained NPA for more than 12 months. As in the case of sub-standard assets, 3 Doubtful .3 Assets rescheduling does not entitle the bank to upgrade the quality of an advance automatically. A loan classified as doubtful has all the weaknesses inherent as that classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

An asset where loss has been identified by the bank or 4 Loss .4 Assets internal/external auditors or by RBI inspection but the amount has not been written-off, wholly or partly. In other words, such an asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

7.4 PROVISIONING REQUIREMENTS:As and when an asset is classified as NPA, the bank has to further sub-classify it into sub-standard, loss and doubtful assets. Based on this classification, bank makes the necessary provision against these assets. Reserve Bank of India (RBI) has issued guidelines on provisioning requirements of bank advances where the recovery is doubtful. Banks are also required to comply with such guidelines in making adequate provision to the satisfaction of its auditors before declaring any dividends on its shares. In case of loss assets, guidelines specifically require that full provision for the amount outstanding should be made by the concerned bank. This is justified in the grounds that such an asset is considered uncollectable and cannot be classified as bankable asset.

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A study on NPA managementType of Assets Standard Asset


Provision Requirement (%) 0.40% of the outstanding balance (for AGR & SME it is 0.25%) [Provision made at the H.O Level]

Sub-Standard: Secured: Unsecured: Doubtful Asset: 10% of the outstanding balance 20% of the outstanding balance For Unsecured portion 100% For Secured portion: DA1 (Up to 1 year): DA2 (1 to 3 years) : DA3 (> 3 years) Loss Asset : 20% of the outstanding balance 50% of the outstanding balance 100% of the outstanding balance 100% of the outstanding balance

Exempted Assets: Advances provided against the following categories are totally exempted from asset classification and provisioning: Advances against ones own bank term deposit including recurring deposits. National Savings Certificate. Surrender value of L.I.C policies. Indira Vikas Patra. Kisan Vikas Patra.

Interest debited to the advances against the above whether recovered or not can be taken to income account provided adequate margin is available.

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An internal study conducted by RBI shows that in the order of prominence, the following factors contribute to NPAs:

INTERNAL FACTORS: Business (product, marketing. etc.) failure Inefficiency in management Slackness in credit management and monitoring Inappropriate technology/technical problems Lack of co-ordination among lenders. Problem of bad credit appraisal. Funds borrowed for a particular purpose but not use for the said purpose. Project not completed in time. Poor recovery of receivables. Excess capacities created on non-economic costs. In-ability of the corporate to raise capital through the issue of equity or other debt instrument from capital markets. Diversion of funds for expansion\modernization\setting up new projects\ helping or promoting sister concerns. Willful defaults, siphoning of funds, fraud, disputes, management disputes, Misappropriation etc., Deficiencies on the part of the banks viz. in credit appraisal, monitoring and followups, delay in settlement of payments\ subsidiaries by government bodies etc.

EXTERNAL FACTORS: Recession Input/power shortage Exchange rate fluctuation and price escalation. Accidents and natural calamities, etc. Changes in Government policies and laws in excise/ import duties, pollution control orders, etc. Liberalization of Economy/ removal of restrictions/reduction of tariffs. Sluggish legal system and long legal tangles. Page 39

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A study on NPA management Scarcity of raw material, labour and other resources.


Failures, nonpayment\ over dues in other countries, recession in other countries, adverse exchange rates etc.

7.6 CAUSES FOR AN ACCOUNT BECOMING NPA:Those Attributable to Borrower a) Failure to bring in Required capital b) Too ambitious project c) Longer gestation period d) Unwanted Expenses e) Over trading f) Imbalances of inventories Causes Attributable to Banks a) Wrong selection of borrower b) Poor Credit appraisal c) Unhelpful in supervision d) Tough stand on issues e) Too inflexible attitude f) Systems overloaded g) Non inspection of Units a) Lack of Infrastructure b) Fast changing technology c) Un helpful attitude of Government d) Changes in consumer preferences e) Increase in material cost f) Government policies g) Credit policies h) Taxation laws i) Civil commotion j) Political hostility k) Sluggish legal system l) Changes related to Banking amendment Act Other Causes

g) Lack of proper planning h) Lack of motivation h) Dependence on single customers i) Lack of expertise j) Improper working Capital Mgmt. k) Miss management l) Diversion of Funds m) Poor Quality Management n) Heavy borrowings o) Poor Credit Collection i) Delay in sanction j) Lack of trained staff k) Lack of delegation of work l) Sudden credit squeeze by banks m) Lack of commitment to recovery n) Lack of technical, personnel & zeal to recover loans.

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A study on NPA management7.7 IMPACT OF NPA ON BANKS:


They erode current profits through provisioning requirements. They result in reduced interest income. They require higher provisioning requirements affecting profits and accretion to capital. They limit recycling of funds, set in assets-liability mismatches, etc. Adverse impact on Capital Adequacy Ratio. ROE and ROA goes down because NPAs do not earn. Banks rating gets affected. Banks cost of raising funds goes up. RBIs approval required for declaration of dividend if Net NPA ratio is above 3%. Bad effect on Goodwill & equity value. Drain on Profitability Impact on capital adequacy Adverse effect on credit growth as the bankers prime focus becomes zero percent risk and as a result turns lukewarm to fresh credit. Excessive focus on Credit Risk Management High cost of funds due to NPAs.


Gross NPA:

Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of all the nonstandard assets like as sub-standard, doubtful, and loss assets.

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A study on NPA managementIt can be calculated with the help of following formula:


Net NPA: Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net NPA shows the actual burdenof banks. Since in India, bank balance sheets contain a huge amount of NPAs and the process of recovery and write off of loans is very time consuming, the provisions the banks have to make against the NPAs according to the central bank guidelines, are quite significant. That is why the difference between gross and net NPA is quite high.

It can be calculated by following formula:

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7.9 NPA RECOVERY ROUTES AND REMIDIES AVAILABLE TO BANKS:Seeing the gravity of the situation, RBI has taken several constructive steps for arresting the incidence of NPAs. It has also created a regulatory environment to facilitate the recovery of existing NPAs of banks.

SARFAESI ACT: With the enactment of the securitization and reconstruction of financial assets and enforcement of security interest act 2002, banks can issue notices to the defaulters to pay up the dues and the borrowers will have to clear their dues within 60 days. Once the borrower receives a notice from the concerned bank & the financial institution, the secure assets mentioned in the notice cannot be sold or transferred without the consent of the lenders. The main purpose of this notice is to inform the borrower that either the sum due to the bank or financial institution be paid by the borrower or else the former will take action by way of taking over the possession of assets. Besides assets, bank can also take over the management of the company. Thus the bankers under the aforementioned act will have the much needed authority to either sell defaulting companies or change their management.

LOK ADALATS: Lok Adalats have been set up for recovery of dues in accounts falling in the doubtful and loss category with outstanding balance up to Rs. 5 lakhs, by way of compromise settlements. This mechanism has, proved to be quite effective for speedy justice and recovery of small loans.

DEBT RECOVERY TRIBUNALS (DRT): The banks and FIs can enforce their securities interest by initiating recovery proceeding under the Recovery of Debts due to Banks and FI act, 1993 (DRT Act) by filing an application for recovery of dues before the Debt Recovery Tribunal constituted under the Act. On adjudication, a recovery certificate is issued and the sale is carried out by an auctioneer or a receiver.

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DRT has powers to grant injunctions against the disposal, transfer or creation of third party interest by debtors in the properties charged to creditor and to pass attachment orders in respect of charged properties

In case of non-realization of the decreed amount by way of sale of the charged properties, the personal properties of the guarantors can also be attached and sold. However, realization is usually time-consuming Steps have been taken to create additional benches

CORPORATE DEBT RESTRUCTURING (CDR): Corporate Debt Restructuring (CDR) mechanism is an additional safeguard to protect the interest of the creditors and revive potentially viable units. It focuses on the restructuring of corporate debts of viable entities and to minimize the losses to the creditors and other stakeholders through an orderly and co-ordinated restructuring programme. With CDR, banks can arrest fresh slippage of performing assets into the magnitude of NPA.

ASSET RECONSTRUCTION COMPANIES (ARC): One of the most effective ways of removing NPAs from the books of the banks would be to move these out to a separate agency which would buy the assets and make its own efforts for recovery. On this front, the SARFESI Act has provided a framework for setting up to Asset Reconstruction companies (ARCs) in India.

OTS and NS: Efforts are made through negotiations and discussions with the borrowers to bring them around to settle the dues. Such settlements in the form of one time settlement (OTS) and negotiated settlement (NS) are now being increasingly used to reduce NPAs. Under these schemes banks focus on maximum payment under the settlements being received upfront, and balance within the same financial year for quicker realization of locked up proceeds. However, despite such efforts made by the lenders, many defaulting borrowers exhibit reluctance to co-operate, leaving the banks no option but to seek the legal route.

LEGAL REFORMS: As the problem of NPAs is closely linked with the issue of legal reforms, the government has taken up initiatives to align the legal set-up with the requirements of the

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banking system. As early as in 1999 the Andhyarujina committee set up by Govt of India to formulate specific proposals to give effect to the suggestions made by the Narasimhan committee (1998) recommended amending the Recovery of Debts due to the Banks and Financial Institutions Act 1993 and Sick Industrial Companies Act, 1995. It also recommended a new legislation for banks and financial institutions to take possession and sale of securities without the intervention of the court, in respect of both immovable property and movable assets which resulted in the enactment of SARFAESI Act 2002. The committee also considered securitization as an instrument to tackle the NPA problem.

SECURITIZATION: Securitization enables risk sharing and trading of loans where the bad assets of banks can be securitized and sold at a discount. The lending institutions NPAs are hence removed from their balance sheets and are instead funded by investors through negotiable financial instruments. The security in a banks balance sheet can be cash up front, which could be put to productive use.

STEPS FOLLOWED BY CANARA BANK TO DEAL WITH NPA1. SUB-STANDARD ASSETS: This segment is more effort elastic in terms of recovery & hence the banks recovery policy is to be tuned up for maximizing the recoveries from the sub-standard NPA. NPA recovery action plans: I. Send simple reminder letters if instalments / interest debited are not serviced on due dates. II. If no results are forthcoming from the reminders, meet the borrower in person and persuade them to settle the accounts in persons. III. Officials from the assets recovery cell at the regional office to compulsorily meet the borrower with Rs 5 lakhs and evaluate the reasons for non performance of account and suggest / evolve methods to improve the quality. IV. In cases of sick but viable industries units prospects for rehabilitation are to looked into and nursing programme to be evolved. V. If the accounts have become NPA due to cash flow problem the repayment programme must be rescheduled according to the revised cash flow projections. This will enable the

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bank to maintain asset quality at the same level for 2 years, and the asset quality can be upgraded after 2 years, if the repayment is coming as per the redrawn schedule. VI. If the borrower is co-operative the settlement through compromise route to be considered.

2. DOUBTFUL ASSETS: Slippage of assets from sub-standard category to doubtful necessitates higher provisions requirements. Depending on the age of the asset, 20% to 50% provision has to be made on such assets on the secured portion and 100% provision is required on the unsecured provision. Recovery of the doubtful assets in the normal course is difficult; the following strategies can be adopted in handing doubtful assets: I. II. III. IV. V. Borrowers are to be met in person to get the accounts settled through persuasion. Ensure that the securities charged to the bank are intact and are not alienated. Securities are to be inspected at periodic intervals and correct value properly recorded. Legal remedy is the last resort. Most of the accounts coming under this category are either suit filed or RR initiated. In case of suit filed accounts, cases are to be closely followed up to ensure that the decree is obtained within a reasonable time.

3. LOSS ASSETS: I. If recovery in the normal course is difficult, we may have to resort to legal remedies against the borrowers, guarantor, co-obligate, and efforts shall be made to bring them to a compromise table for the settlement of the accounts. II. In case of accounts coming under priority sector, recovery though the RR route is to be resorted to. III. As per loss assets are concerned, the bank makes 100% provision for loan losses. Hence there will not be any further impact on bottom line. If these assets are shed, notionally from the books of the bank, such notional write off will help in cleansing the balance sheet. IV. Even after write-off the branches can continue the recovery efforts thus made and can improve the bottom line of the bank. V. Recovery through legal action is time consuming.

Department of MBA, PESIT

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A study on NPA management 8. RESEARCH DESIGN


8.1 STATEMENT OF PROBLEM:This particular topic is to analyze Non-Performing Asset level of Canara Bank and their impact on the performance of the bank. Non-Performing Asset is a major bone of the banks in India, so as in the case of Canara Bank, the study has been undertaken to know the status, practices and impact of NPAs in the performance of the branch. The problem lies in understanding and analyzing the NPAs.

8.2 OBJECTIVE OF STUDY:The general objective of this research is to understand the reasons for increasing NPAs and identify the effective ways to manage it. The specific objectives of this research are: To highlight loans and advances trend in Canara Bank. To study the management of total loans and advances of Canara Bank. To study the movement and trend of GNPA and NNPA of Canara Bank. To highlight the trend of NPA in Canara Bank. To analyze sector wise Non-Performing Assets of Canara Bank.

8.3 SCOPE OF THE STUDY:The study is conducted in the head office of Canara Bank. The scope of study stretches from the analysis of NPA and its effect on profitability. The scope of the study here was confined to the organization only. The study covers to find out the strategy required to reduce the NPAs. The data is based on the secondary data collected from website and journals and primary data collected through direct interaction with the manager. The scope is limited to conclusions drawn from analysis and interpretations of the primary and secondary data.

Department of MBA, PESIT

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A study on NPA management8.4 METHODOLOGY:


Due to the vastness of the subject an attempt is made to understand the main spheres of the problem of Non-performing Assets and its effect on the financial stability of the bank. The study is descriptive in nature and is based on the Primary data and Secondary data.

Primary Data: The primary data is collected through discussion with the manager and officers of the bank: Having face to face discussions with the bank officials. By taking guidance from bank guide and internal guide.

Secondary Data: The Secondary data is collected from: Canara Bank Annual Reports RBIs Annual Reports Canara Bank quarterly bulletins. Canara Bank website. Journals and Textbooks.

PROCEDURE OF ANALYSIS: Type of Research Descriptive Analysis Method Secondary Data Research Method

The relevant data were collected, complied and tabulated for the purpose of the study. This data is analyzed and is represented in the form of tables and charts by making use of statistical tools like MS excel. Descriptive analysis and ratio analysis was carried out which was preferred for assessment purposes. Hence for all data, interpretations were made and diagrams and graphs and ratios have been used to support discussions related to findings. Based on the analysis and the findings there from, suggestions and recommendations are provided to the bank for arresting existing NPAs and prevent re-emergence of fresh NPAs.

Department of MBA, PESIT

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A study on NPA management8.5 LIMITATIONS OF THE STUDY:


Access to the information is limited and complete dependency on the annual report. Time constraints limited the wide coverage of the study. The data extracted from the records covering a period of only 4-5 years. The study is based on the data given by the officials and reports of the bank. The confidentiality of some facts and figures is the limitation. The study is mainly based on the secondary data provided by the bank. As such it is subject to limitations of the secondary data.

Department of MBA, PESIT

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A study on NPA management


9. ANALYSIS AND INTERPRETATION OF RESULTSNET ADVANCES AND PRIORITY SECTOR ADVANCES FOR LAST 5 YEARS IN CANARA BANK Table No: 1- The Net Advances for last five years at Canara Bank YEAR 2006-07 2007-08 2008-09 2009-10 20010-11 NET ADVANCES (in crores) 98506 107238 138219 169335 212467 GROWTH (%) 24.02 8.86 28.89 22.51 25.47

Graph No: 1-The Net Advances for last five years at Canara Bank

NET ADVANCES (in crores)250000 212467 200000 150000 100000 50000 0 2006-07 2007-08 2008-09 2009-10 20010-11 98506 107238 138219 NET ADVANCES (in crores) 169335

Analysis & InterpretationThe net advances of the bank are steadily increasing over the years. Though in the year 2007-08 the growth rate dipped to just 8.86% from 24.02% of growth rate in the previous year 2006-07, the growth trend has picked up since then and has maintained a consistent rate of growth as shown in the graph. Especially in the year 2008-09, the net advances increased sharply by Rs.30981 cr from previous year. Net advances have shown positive trend in the current year, with 25.47% increase i.e Rs.43132 crs. That indicates healthy increase in the advance portfolio; as a result the interest income of the bank will also increase resulting in higher net profit. This also indicates that non performing advances of the bank have also considerably decreased.

Department of MBA, PESIT

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A study on NPA management


Table No: 2- The Advances to Priority Sector for last five years at Canara Bank YEAR 2006-07 2007-08 2008-09 2009-10 2010-2011 PRIORITY SECTOR ADVANCES (in crores) 37844 43203 48763 59310 70757 GROWTH (%) 22.23 14.16 12.87 21.63 19.30

Graph No: 2- The Advances to Priority Sector for last five years at Canara Bank

PRIORITY SECTOR ADVANCES (in crores)80000 70000 60000 50000 40000 30000 20000 10000 0 2006-07 2007-08 2008-09 2009-10 2010-2011 37844 43203 48763 PRIORITY SECTOR ADVANCES (in crores) 59310 70757

Analysis & InterpretationThe advances of the bank to the priority sector have consistently increased in numbers over the past 5 years. However, fluctuations could be seen in the percentage of growth. It showed a down ward trend from 2007-09, thereafter improved in the FY 2009-10. Though the total advances to priority sector in FY 2010-11 has increased by Rs.11447 crores compared to a rise of only Rs.10,547 crores in the FY 2009-10 , the percentage of growth has dipped by 2.33%. The fluctuations in the growth rate indicates that due to the increased inflation rate, slowdown in economy and corresponding increase in the interest rates on advances, there is a reduction in the demand for additional credit. Moreover in the past year, the entire banking industry has witnessed a downward trend in the advances. Inspite of adverse features in the market, Canara bank has shown good performance. They are advised to follow a aggressive strategy to increase the advances.

Department of MBA, PESIT

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A study on NPA management


CLASSIFIACTION OF TOTAL ASSETS FOR LAST FIVE YEARS Table No: 3 - The Total Asset Classification for the year 2006-07Asset Classification Amount ( crores) Percentage (%)

Performing Assets

Standard Assets



Sub-standard Non Performing Assets Doubtful





Loss Total

40.56 98894

0.041 100

Graph No: 3 - The Total Asset Classification for the year 2006-07100%






Asset Classification99% Loss Asset Doubt ful Asset 98% 97400.57 Sub-standard Asset Standard Asset 98% 2006-07

Analysis & InterpretationStandard assets of the bank constitute 98.489% of total advances; whereas Sub-standard assets of the bank are second highest with 1.035% if total advances. The status of loss asset which stands at 40.56 crores indicates that the recovery machinery was weak or selection of the party was wrong or sufficient securities were not taken at the time of granting advances.

Department of MBA, PESIT

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A study on NPA managementTable No: 4- The Total Asset Classification for the year 2007-08


Asset Classification

Amount ( crores)

Percentage (%)

Standard Performing Assets Assets 106201.45 98.68




Non Performing Assets




Loss Total

47.19 107617

0.044 100

Graph No: 4- The Total Asset Classification for the year 2007-08108000 107500 107000 1219.1 106500 106000 105500 105000 2007-08 106201.45




Asset ClassificationLoss Asset Doubtful Asset Sub standard Asset Standard Asset

Analysis & InterpretationAgain Standard Assets of the bank is showing good trend, it has increased to 98.68%. The Sub-standard Assets has increased to 1.35% with corresponding decrease in the doubtful assets. However, Bank is required to focus on the Loss Asset as it has increased considerably to Rs.47.19 crores. Canara bank should take some serious steps to reduce the Loss Assets as it directly impacts the net profits of the bank.

Department of MBA, PESIT

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A study on NPA managementTable No: 5 - The Total Asset Classification for the year 2008-09Asset Classification


Amount ( crores)

Percentage (%)

Performing Assets

Standard Assets 136192.03 98.43




Non Performing Assets




Loss Total

6.41 138360

0.0046 100

Graph No: 5: The Total Asset Classification for the year 2008-09139000 138500 138000 137500 137000 136500 136000 135500 135000 2008-09 136192.03 1514.59



ASSET CLASSIFICATIONLoss Asset Doubtful Asset Sub-standard Asset

Analysis & InterpretationStandard Assets of the bank have reduced to 98.43% in the FY2008-09. It is the lowest in the last three years. The total NPA in terms of numbers has increased in all categories except loss assets. Though the percentage of loss assets in total advances has increased to 0.0046 %, it has reduced to only Rs. 6.41 crores when compared to 47.19 crores in previous year. The bank is advised to take suitable steps to reduce the total NPA because it will affect the overall profits of the bank.

Department of MBA, PESIT

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A study on NPA managementTable No: 6- The Total Asset Classification for the year 2009-10Asset Classification Amount ( crores)


Percentage (%)

Performing Assets

Standard Assets 166872.69 98.47




Non Performing Assets




Loss Total

9.33 169463

0.005 100

Graph No: 6 - The Total Asset Classification for the year 2009-10170000 169500 169000 168500 168000 167500 167000 166500 166000 165500 2009-10 166872.69 1953.59

169463 (Cr)9.33 627.39

Asset ClassificationLoss Asset Doubtful Asset Sub-standard Asset Standard Asset

Analysis & InterpretationThe Standard Assets of the bank are showing good trend as it has increased when compared to the previous year to 98.47%. where as the Sub-standard Asset has increased by about 0.06%, when compared to previous year. The percentage of Doubtful Assets has come down from previous years, however, the loss assets have increased to Rs 9.33 crores, for which necessary steps have to be taken.

Department of MBA, PESIT

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A study on NPA managementTable No: 7 - The Total Asset Classification for the year 2010-11Asset